Ways & Means reviews H.770 language to opt Vermont out of federal scholarship tax credit
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Summary
The Ways & Means Committee reviewed H.770, a proposal to prevent Vermont from participating in a new federal tax credit (HR1 §25f) that would let taxpayers claim up to $1,700 for donations to state‑listed scholarship‑granting organizations; staff and members flagged unresolved IRS rules and fiscal risks.
The Ways & Means Committee met Feb. 11 to examine draft language (H.770) that would bar Vermont from participating in a new federal scholarship tax credit created in HR1.
Herbie King, who identified himself as "Herbie King, listed at the counsel," told the panel the federal provision (section 25f) creates a federal income tax credit of up to $1,700 for contributions to so‑called scholarship‑granting organizations (SGOs). "So this this creates a federal credit of up to $1,700 for contributions to something called a scholarship granting organization," King said, adding that the credit is a reduction in federal tax liability rather than a Vermont tax benefit.
King outlined the federal conditions for SGOs to qualify for the credit: they must be 501(c)(3) organizations (not private foundations); maintain separate accounts for qualified contributions; provide scholarships to at least 10 students who do not all attend the same school; spend at least 90% of the organization's income on scholarships for eligible elementary and secondary education expenses; and may not earmark contributions for a particular student. He described eligible students as members of households with income no greater than 300% of area median gross income (AMI) and noted that AMI varies by county and should be verified by JFO or HUD data.
King cautioned that IRS regulations to clarify several ambiguities – including qualifying expenses such as tutoring – have not yet been released. He also said the federal law requires a state‑maintained list of qualifying SGOs by Jan. 1 for residents to claim the credit, and that the statute refers to an election by the governor or another state entity "as designated under state law," leaving open the question of which state actor should make that determination.
Representative (unnamed) and Representative Conlon (named in the transcript) told the committee they favored opting Vermont out of the federal program so the legislature could fully debate the policy and potential fiscal impacts. King read H.770's draft findings and proposed addition to Vermont statutes: "Vermont shall not participate in the federal tax credit program for contributions to scholarship granting organizations." He said the proposed language would place the decision in state statute rather than leaving recognition solely to the governor.
Committee members raised fiscal concerns, citing other states' experience. One member said the New Hampshire model cost more than expected and noted that large commercial recipients were among the largest beneficiaries in other states. "It's modeled after New Hampshire, so it ended up being, like, times more expensive than they thought it would be," a member said, and another warned that, absent careful vetting, the credit could fragment the system and create fiscal tradeoffs.
The committee agreed to seek further analysis, including input from the Joint Fiscal Office (JFO) and additional witnesses, and to continue taking testimony (the agenda noted finishing Emily Burns' testimony at 9). No formal vote was recorded during the session; the draft language was presented and discussion was directed toward further hearings and fiscal review.
H.770 would, if enacted as drafted, instruct Vermont not to participate in the federal program; it does not alter the federal credit itself. Key outstanding questions for the committee include precise AMI thresholds by county, the IRS rulemaking that will define eligible expenses, and the fiscal cost estimate for Vermont if the state were to recognize SGOs.
