Vermont wants into §25F on its own terms, steering the money toward public schools. The federal rules may not let it.

Most of the fight over the federal Scholarship Tax Credit (FSTC / ECCA / §25F) has been binary: a state opts in, or it doesn't. Vermont is testing a third option, opt in, but rewrite the program so the money lands where the legislature wants it. On May 29, 2026 the Vermont House passed H.933, a miscellaneous tax bill that, among dozens of unrelated provisions, sets up a state framework for participating in §25F. The bill was delivered to Governor Phil Scott on June 12, 2026. As of this writing he has neither signed nor vetoed it.

What makes H.933 unusual is not that it opts Vermont in, it's the conditions attached. Rather than simply authorizing the Governor to submit a list of Scholarship Granting Organizations to the U.S. Treasury, the bill narrows which organizations can be listed: they must be nonprofits whose core mission is providing educational opportunities to economically underprivileged students, and grants are steered toward students attending public schools or approved independent schools capable of receiving public tuition, rather than private or religious tuition broadly. Lawmakers were candid about the goal, which was to channel the federal credit toward Vermont's public-school population. The bill also includes a self-limiting clause: if federal regulations invalidate the state's guidance, the Governor is to decline to participate until the General Assembly enacts new legislation addressing the conflict. So this is a narrowed, conditional opt-in, not the flat opt-out some have described, and the Governor's authority to participate is intact rather than stripped.

Vermont is the sharpest version of an impulse several Democratic-leaning states have shared. Through the spring, governors and legislators floated conditioning participation on serving low-income families, prioritizing students with disabilities, requiring academic standards, or confining the dollars to public schools. The instinct is understandable given how §25F is structured, donors, not the state treasury, fund the scholarships, but the state controls the list of eligible organizations, which looks like a lever for shaping the program. Vermont simply pulled that lever the hardest and wrote the restrictions into statute.

The problem is that Treasury has signaled the lever may not exist. In its June 2026 preview of the forthcoming §25F regulations, Treasury defined the “located in” standard for SGOs and stated that states may not impose SGO-specific requirements more restrictive than §25F's own, and it said “school” will be defined consistent with section 530 to include public, private, and religious K-12 schools as determined under state law. Deputy Assistant Secretary Kevin Salinger told stakeholders that states cannot impose “substantive” rules on scholarship organizations beyond what federal law sets, a position that contradicted Education Secretary Linda McMahon's earlier assurances to Congress that states would shape their own programs. If that holds in the final rule, Vermont's economically-underprivileged-only and public-schools-first conditions would be preempted, and by the terms of H.933's own clause, that could trigger the Governor to decline participation until lawmakers rewrite the statute.

For donors, families, and prospective SGO founders, Vermont is worth watching as a bellwether rather than a settled outcome. It tests whether a state can accept the federal credit while redirecting it away from the private and religious schools the statute was written to fund, and the answer will come from Treasury's final regulations, expected by the end of September 2026, as much as from Montpelier. We've covered what Treasury previewed about state authority and the SGO rules, the veto-override route other divided states have used, and where Democratic governors have landed. Vermont's current status, and every other state's, is tracked on our Vermont state page and the state participation map.