Since the passing of the One Big Beautiful Bill (OBBB), most of the media’s attention has focused on its more attention-grabbing reforms like its No Tax on Tips and No Tax on Overtime provisions. In North Carolina, however, much of that attention has gone to another provision: an opt-in federal tax-credit scholarship program.
Seizing the moment, state Republicans rushed a bill through the legislature to enroll NC into the program — only for Gov. Josh Stein to veto the bill on arrival. As frustrating as it might have felt in the moment, Republicans may well come around to feeling grateful in the long run that Stein blocked their blunder (although they may try for an override this week).
Under the tax-credit scholarship program included in the OBBBA, individuals in eligible states can donate to scholarship-granting organizations (SGOs) to claim a dollar-for-dollar federal income tax credit of up to $1,700. These SGOs must then use at least 90% of the funds on scholarships for K-12 students from low and middle-income households meant to cover a wide range of educational expenses, like private school tuition, homeschooling supplies, tutoring, books etc.
Though attractive on the surface, this generous credit effectively removes the burden of K-12 funding from the state and transfers it to private SGOs. This undermines states like North Carolina, who did the difficult work of reforming their education funding model to ensure dollars follow the student.
In 2023, state Republicans successfully made their school choice program universal, meaning that students from all income levels could benefit, not just those from low-income families. Stein criticized the idea of funds following the student, calling it a giveaway to wealthy parents.
If a program like the OBBB’s federal tax-credit scholarship program had existed before North Carolina established its school choice program, the legislature would have thought twice before reforming its funding model.
Sadly, that’s the reality for many of the 22 states across the country that already have a tax-credit scholarship program. They may either decide to limit funding or completely discard their programs so they can continue slowly increasing the amount of money spent on failing public schools and avoid funding school choice using state funds.
The near-sightedness of state legislators may make them think that they have nothing to lose and everything to gain by handing over funding responsibilities and control over school choice to the federal government. This could not be farther away from the truth.
Individual states may be required to send a list of qualifying SGOs to the US Secretary of the Treasury, but it’s the federal government who ultimately sets the requirements that SGOs need to meet to receive these special tax-credit compensated donations. This only opens up a host of ways that the federal government can intervene through their indirect funding of these SGOs through tax-credits.
As we saw in the last administration, given enough leverage, the federal government will always try to turn funding into a cudgel to promote its social policy goals.
Take for example what happened during the Biden administration, when we saw funding withheld from schools that offered training in the use of dangerous weapons — including both hunting and even archery courses.
Trump, following this precedent, is currently doing the same in Northern Virginia, where he is threatening to terminate federal funding over transgender policies. No matter your leanings, we all eventually lose by way of granting the federal government more power over our education issues that are best solved by local school boards.
For now Stein has stated that he intends to wait for guidance from the federal government on how to implement the program, stating that he does eventually intend on opting North Carolina in the program for more school funding.
But this is precisely the issue; the focus shouldn’t be on trying to maximize funds for schooling, even if it’s in the name of school choice. Local funding is key to making sure that schools hold onto their local autonomy, as well as making sure that funding levels are on par with what schools actually need to carry out their mission of educating.
Resisting the creeping centralized federal control of school choice might not have been the motive behind Stein’s veto, but it should be for any school choice advocate. Still, unfortunately, free federal funds are hard to pass up, and North Carolina, alongside several other states, are likely to accept this deal. But if they avoid those federal strings, it could be that state Republicans realize Stein’s veto was a blessing in disguise.