“Literally free money.”

That’s how Sen. Ryan Fazio, R-Greenwich, described the new “federal scholarship tax credit,” which Congress passed into law last year as part of the One Big Beautiful Bill Act, also known as HR 1.

Under the program, individuals may donate up to $1,700 to a “scholarship granting organization” and receive the full amount back as a federal tax credit. These organizations then disburse the funds as scholarships to students to cover tuition at private or parochial schools or education expenses such as tutoring.

The program has received support from advocates for private school choice and religious education, as it eases the cost of tuition.

In effect, the federal government pays for whatever scholarships the organizations provide, while individual taxpayers act essentially as middlemen. Nothing touches state coffers; hence the view that the program is, for individual states, free. 

States still have to opt in, though, and those that have are mostly Republican-led. Colorado was an early exception, and New York signaled in early May that it also plans to join.

Connecticut has not, and Gov. Ned Lamont has indicated he’d rather wait for the federal government to release more guidance on how the program works. He expects that to be available by January.

“I just think it’s premature,” Lamont said.

Connecticut Senate Republicans — including Fazio, who recently won the party’s nomination for governor — don’t see a need to wait. In a letter sent to Lamont Tuesday, they urged him to take the money.

“It would benefit kids who are enrolled in public schools, private schools alike. It’s, I think, a win-win for everybody,” Fazio said in an interview.

Others aren’t so sure.

Patrice McCarthy, executive director of the Connecticut Association of Boards of Education, shared Lamont’s view that the state should await federal guidance. The scholarships, McCarthy said, are not subject to the same oversight as public school finances, “creating a serious lack of transparency.”

Leaders from the state’s two major teachers’ unions went further.

“This is about a shift from making sure that every child has access to a fully funded, fully staffed school, to using government funds to ultimately give a handout … and subsidize wealthy children’s private school education,” said Leslie Blatteau, president of the New Haven Federation of Teachers.

The problem, Bleatteau said, is that the program isn’t really free — not for the federal government, at least. It’s a cost that, if enough taxpayers claim the credit, could reach into the billions or even tens of billions.

Connecticut Education Association President Kate Dias concurred.

“Particularly with this [presidential] administration, there’s no such thing as free,” she said.

Blatteau said she’s worried those dollars will come out of federally-funded programs many advocates would rather see expand: things like special education programming, which the federal government mandates but does not fully cover, and school meals. Connecticut will spend an estimated $12 million in the coming fiscal year to provide free breakfasts to all public school students, while rising special education costs have pushed many school districts into fiscal crisis.

Fazio said he isn’t worried. The tax credit, he said, is “supplemental” to, and not in conflict with, those other programs. He estimated its footprint for Connecticut would be “a couple extra million dollars.”

“It’s a rounding error on a rounding error,” he said.

The total cost depends on how many taxpayers make a donation and claim the credit. There does not appear to be a limit to how many people do so.

Michael Morton of the School and State Finance Project said there’s still a lot state leaders don’t know about the tax credit. 

“We’re still awaiting regulations or guidelines from the Treasury Department,” Morton said. “When that happens, I don’t know.”

That includes basic questions like whether residents can claim the credit if they live in one state but donate to a scholarship granting organization in another, or how states should determine what a scholarship granting organization — or SGO — is in the first place.

“This brings up a lot of questions about, could an SGO be discriminating and that be perfectly OK under the law?” Morton said. “[It’s] unclear exactly what would be allowed under these and how the distribution of money would connect with existing civil rights protections.”

Public schools students could benefit from the scholarship money through the tax credit program. The law allows scholarships to cover any qualified education expense, as defined in Sec. 530(b)(3)(A) of the Internal Revenue Code. These can include special needs services, books, tutoring and more, and public school students are listed as potential beneficiaries.

According to that same section of the tax code, private and religious schools can also benefit.

Blatteau said she expects most of the money from the tax credit to flow into private schools. That’s what has happened in Arizona, which offers a similar dollar-for-dollar tax credit. Data from the state show donations to private schools totaled over $238 million in 2024, while donations to district and charter schools were $46 million. Of that, about $34 million went to district schools specifically.

To Fazio, the question over the scholarship tax credit is just that: whether Connecticut should take readily available federal dollars or not.

To Dias and others, it’s a part of something much bigger: an ongoing movement, mostly in red states, to direct public dollars toward private schools. 

At the state level, this has often happened through voucher programs — wherein states give tax dollars to students so they can pay for qualified education expenses including private school tuition. Proponents say vouchers expand resources and choice for lower-income students, while detractors say they often benefit wealthier students and exclusionary private schools with little public oversight. As with the scholarship tax credit, many also worry about the opportunity cost for government budgets that only stretch so far.

Connecticut does not have a voucher program, nor have legislators from either party articulated much interest in creating one. And vouchers don’t have a direct bearing on the federal scholarship tax credit, which comes out of the federal budget, not any state’s.

But Dias said she sees the tax credit as part of the same effort. “The intention and the motivation of the federal government is to set up a nationwide infrastructure for school vouchers,” she said.

That, Dias said, forces public schools to compete for attendance — and by extension, funding. States typically base public school funding around enrollment.

“It makes me sad that we’ve created a competitive environment, as opposed to one where we are able to equitably look and say, ‘OK, this is where the opportunities are,’” Dias said.

But Fazio, who took pains to separate the tax credit from these broader questions about school choice, said it’s not the end of the world if some students end up using the money to attend private schools.

“I think that giving parents and kids educational choice, more than what they currently have in Connecticut, is more than reasonable,” Fazio said.

Fazio said he believes scholarship granting organizations would have to direct funds from the tax credit program to students who really need the money. “The federal tax law requires that it be for direct educational aid for lower-income students,” he said. “They would be under federal legal liability if they violated those parameters.”

The wording of HR 1 is not so clear. Sec. 70411, which creates the scholarship tax credit, defines an eligible student as one whose household income “is not greater than 300 percent of the area median gross income.”

During the state Senate debate over this year’s homeschooling legislation, Fazio proposed an amendment to the bill that would have opted Connecticut into the federal scholarship tax credit.

It stood no chance of passing, but Education Committee co-Chair Sen. Doug McCrory, D-Hartford, didn’t seem entirely unenthusiastic about the tax credit itself.

“I’m gonna leave it up to the governor’s discretion, whether we should opt into this opportunity, as [Sen. Fazio] says, of free money,” McCrory said at the time, with emphasis on the words “opportunity” and “free money.”

McCrory later said he didn’t know enough about the tax credit to form a strong opinion about it. If the state can set strong parameters on what happens with the money, he said, it’s worth exploring.

After hearing it may in some ways be comparable to a voucher program, he turned against it.

“So they want this to be a voucher program,” McCrory said. “That’s not gonna work. I wouldn’t support that.”