41 Kentucky public districts have signed with one statewide SGO, and a published agreement shows the terms

About a quarter of Kentucky's public school districts have now signed up to work with a single statewide SGO under the federal Education Freedom Tax Credit (§25F). As of October 28, 41 public districts and three private schools had agreements with the Kentucky Education Fund, the fund's adviser and spokesperson, Will Hodges, told LINK nky in a report published November 2. Kentucky has 171 school districts. Hodges said the fund expects to reach 100 agreements by January 1, 2027, the day SGOs can start taking §25F donations. In late September we were writing about two districts, Logan and Russell counties.

Why boards are signing before the rules are final. Ludlow Independent and Bellevue Independent are the first two of Northern Kentucky's 13 districts to sign, both in October. “We didn't want to be flat-footed come Jan. 1, and not be ready for our kids,” Ludlow Superintendent Jason Steffen told LINK nky. Steffen called the fund a “good first option” and said it won't be the only SGO the district works with. Hodges's case to districts still deciding is practical: “If they just flat out don't participate … it's almost impossible for them to benefit from any contributions that come their way.” Newport's board heard from the fund's Rob Stafford on October 28. Board chair Ramona Malone called it “some good news for Newport and the state of Kentucky” and encouraged members to prepare for a decision at a future meeting.

What the agreement says. LINK nky published the memorandum of understanding Ludlow's board voted to execute on October 15, and it's the first full text of one of these agreements we've seen. It runs one year and renews automatically, and either side can leave on 30 days' written notice. The district verifies enrollment and aid eligibility, recommends recipients, applies the money to each student's account, reports back on enrollment, academic performance and use of funds, and promotes the fund on its website and social media. The fund makes the final decision on recipients and pays the school each semester, at least 15 days before the term starts. Other SGOs will want to read this line: the fund “will distribute 1.5% of each gross donation amount to the Institution for their assistance with the application process.”

What others are paying. Ludlow's 1.5% is on the low side of the numbers now being quoted. In a Chronicle of Philanthropy article also published November 2, Alexander Reid, a partner at BakerHostetler, said an SGO can have a service agreement with a school and might pay a fee of 2 to 3 percent. ACE Scholarships gives schools a 3 percent “marketing grant” once its own marketing investment has been covered by processing fees, chief development officer Erik Billinger told the Chronicle. The same article has LearningSpring CEO Cecilia Retelle Zywicki saying some SGOs are trying to lure nonprofits with benefits, “even a kickback.”

What the rules say. Treasury's proposed regulations don't mention payments to schools for this kind of work, either way. They do say that for the 90 percent test, which runs on the organization's income rather than on each gift, “only expenditures on scholarships for eligible students are taken into account” (proposed § 1.25F-3(c)(2)(i)). A fee to a school doesn't count toward the 90 percent, so it has to fit in whatever room the SGO has left after its own costs. Russell County's agreement let the fund keep up to 10% of donations for administration, with about 8.5% expected in its first year, according to a summary of that board's meeting; Ludlow's text doesn't say how the 1.5% fits with that. Any SGO paying schools should tie the fee to named services in writing and have counsel read it. Districts whose staff make recommendations have a separate question to ask: the proposed rules make anyone “participating in” the selection of recipients, and that person's family, disqualified persons who can't receive scholarships from that SGO, and they don't spell out whether a recommendation counts.

Catholic schools went another way. The Diocese of Covington chose the American GOAL Scholarship Program, part of a Georgia-based organization, for its 38 schools rather than the Kentucky Education Fund, LINK nky reports. Villa Madonna Academy and Notre Dame Academy, which are governed separately, are partnering with American GOAL too. “We're always very limited in how much money we have to be able to give,” Diocese Superintendent Kendra McGuire said, adding that the program will make Catholic school more affordable for families beyond the aid the schools can offer now.

The field keeps growing. At least 20 organizations have now filed SGO declarations in Kentucky, according to open records LINK nky obtained, up from 17 on October 21 and eight on September 21. Declarations are due November 30 for the 2027 list, with an IRS determination letter and a $15 fee.

What's still open. Superintendents are waiting on Treasury's section 530 guidance, which will settle which expenses qualify. Stafford's list for Newport was out-of-district tuition, books and supplies, special needs services and computers, with athletic fees unclear, and Hodges wants to know whether dual-credit courses count. Homeschool is in the same spot. “In Kentucky, homeschools are considered schools, so they are going to qualify,” Hodges said, and the proposed rules borrow section 530's definition of a school, one providing K-12 education “as determined under State law.” But Treasury's guidance under that section hasn't been issued, and the fund hasn't signed a homeschool agreement yet. The Chronicle also reports that the Council for Advancement and Support of Education is seeking guidance on whether a donor can direct a gift to a school. The proposed rules bar earmarking for a particular student and don't address schools (see designating gifts to schools). Comments on the proposal are open through December 1.

For a Kentucky district weighing the same step, Ludlow's text is now something to compare against, and signing doesn't have to mean one SGO: Steffen plans to add another. A district foundation that wants to run its own SGO has until November 30 to file its declaration. Follow the state on our Kentucky page, see how to become an SGO in Kentucky, read what §25F means for public schools, and work through formation in the free SGO Builder.