Sioux Falls, South Dakota's largest school district, backs its own §25F SGO for 2027 scholarships

Sioux Falls public schools will have a scholarship organization of their own for the federal Education Freedom Tax Credit (§25F). On Monday night, November 9, the Sioux Falls School Board voted to recognize the Sioux Falls School District Tax Credit Scholarship Fund, a new scholarship granting organization (SGO), as its official partner for the program, the Argus Leader reported on Tuesday. Sioux Falls is by far South Dakota's largest district: 24,050 students in kindergarten through grade 12 in the state's fall 2025 count, about twice as many as Rapid City, and 50.3 percent of them qualify for free or reduced-price meals. Gov. Larry Rhoden opted South Dakota in a year ago, and the Department of Education has been taking SGO applications since October 23; an organization must apply before December 15 to be on the state's 2027 list. “It's critical that we get word out, because I think most anybody would agree, I would rather keep the money local than send it to Washington, D.C.,” Superintendent Jamie Nold told the paper after the meeting.

A new nonprofit, set up this fall. The fund is led by Bob Sittig, who retired in 2023 as superintendent of the Baltic School District and joined the Sioux Falls effort ten days before the vote. He filed articles of incorporation with the state on Monday, which were quickly approved, and is now putting together a governing board that he hopes will meet within a couple of weeks to elect officers and adopt bylaws. The fund will be a chartered affiliate of the National Association of Education Foundations and, Sittig said, will operate under that group's 501(c)(3) status. “You're going to hear about a lot of SGOs popping up,” he said. “We want to try and get ahead of the game, and we don't have a lot of time.” The calendar is tight. South Dakota's application asks for the organization's legal name as registered for 501(c)(3) status, its EIN, and the date and a copy of its IRS determination letter, so an affiliate applying under a parent's exemption should confirm with the department (FSTC@state.sd.us) how to show that before December 15. The department's page already invites districts to do this: a school or district may set up its own 501(c)(3) for its students, as long as the SGO supports more than one attendance center and funds at least 10 students.

What the scholarships could pay for. Sittig and Nold listed fee-based before- and after-school programs, tutoring (before and after school, over the summer, or for the ACT), technology, transportation, special education services and dual-credit course costs. Some of these are problems the district is already paying for. Washington High School's “tripper” bus, which serves parts of the city that public transit doesn't reach, could carry only 50 of the 160 students who needed it this year, Nold said, and Roosevelt High School needs a third tripper on top of its two. Optional insurance on the district's Chromebooks and iPads, which have doubled in price, would cut losses the district now absorbs on broken and lost devices. Most of the list matches the section 530 expense list that §25F borrows: academic tutoring, computer technology, special needs services for a student with special needs, and transportation and extended day programs that a school requires or provides, which is where a district-run before- or after-school program fits. Device insurance and test prep are less clear, and Allison Struck, director of the Sioux Falls Public Schools Education Foundation, said the district is still waiting for clarity on special education services. Treasury's separate guidance on qualified expenses hasn't been published yet; our special needs guide covers what's settled.

The money goes to students, not the district budget. Board president Nan Kelly said the program will help children but doesn't pay for district operations or teacher pay, “things that we still need to cover to run a school district.” The SGO, not the district, awards each scholarship, keeps contributions in its own fund, and can't let a donor earmark a gift for a particular student. Nold noted the district can't bank the money either. Under the proposed rules an SGO must spend at least 90 percent of its income by the end of the year after it comes in (the two-year window), so 2027 gifts can fund scholarships through December 2028; Sittig doesn't expect the first awards before the fall 2027 school year. Struck added that other SGOs can also fund Sioux Falls students, so the district's fund won't be the only route.

Who qualifies. A student is eligible if household income is no more than 300 percent of area median gross income and the student is eligible to enroll in a public school. Sittig put Minnehaha County's median at about $112,000, which would put the line near $336,000. The exact figure will come from the IRS: under the proposed rules, area median gross income follows the HUD section 8 method, is adjusted for family size, and is published each year in the Internal Revenue Bulletin. Because the rules count only cash income, Treasury and the IRS estimate that about 95 percent of school-age children would be eligible (who qualifies). Families still have to apply, and Struck said the district will encourage parents to upload their income documents so their scholarship applications can be processed (how SGOs verify income).

Payroll giving for district staff. District employees will be able to give through automatic payroll withdrawal, and the proposed rules count an after-tax payroll deduction as a cash contribution (proposed § 1.25F-1(a)(12)(iii)). Nold estimates that if even half of the district's employees gave $1,700, the fund would have about $3 million for scholarships. The credit is worth up to $1,700 per taxpayer for gifts made from January 1, 2027, or $3,400 on a joint return when each spouse gives, under the proposed rules, which taxpayers may rely on for 2027; donors claim it on the 2027 returns they file in 2028. Because the credit offsets federal income tax dollar for dollar, district staff described it as a choice about where tax money goes rather than a donation. “It's already money out of your paycheck, and it's just a redirection of where that money would end up,” said community relations coordinator DeeAnn Konrad. One thing to plan for: each donor needs a unique donor number, a written acknowledgment by January 31 and a line in the SGO's February 28 report to the IRS (proposed § 1.25F-4(c)), so the payroll system has to pass along donor-level detail.

“What happens if it goes away?” Nold raised the question himself, then answered it. “We're still going to do it, because we know that we can benefit people, even if it's short-term,” he said. “You just can't afford not to utilize those dollars.” The risk is smaller than the question suggests: §25F is permanent law with no sunset date, and a repeal would have to pass both chambers and survive a likely veto (why repeal is still a long shot).

What it means for SGOs. Sioux Falls took the route South Dakota lays out for districts, a separate 501(c)(3) built around its own students. It joins public school systems moving the same way, from the Fort Wayne schools foundation in Indiana to Denver and Clark County, while 41 Kentucky districts have signed with an existing statewide SGO instead. In Watertown, Superintendent Jeff Danielsen raised a district SGO with his board on October 26. Any organization that wants to be on South Dakota's 2027 list has to apply before December 15; the state's list goes to the IRS by February 15, 2027, and the department expects to publish it early next year. Our guide to §25F for public schools covers what a district can do, the free SGO Builder walks a new organization through formation, how to apply in South Dakota has the state's form and fees, and the South Dakota page and South Dakota SGO page track the process.