A tax credit program in Ohio, initially designed to fund private school scholarships, is now being used by a small but growing number of public school districts. These districts are leveraging the system to help families cover the cost of full-day kindergarten, a move that places them in a complex and often contentious statewide debate over education funding.
This strategy involves Scholarship Granting Organizations (SGOs), which are nonprofits that collect donations in exchange for dollar-for-dollar state tax credits. While the program has been overwhelmingly used to support private education, a few public districts have found a way to participate, raising hundreds of thousands of dollars for their students.
Key Takeaways
- An Ohio tax credit program for Scholarship Granting Organizations (SGOs) has cost the state over $80 million in revenue since 2021.
- Primarily used by private schools, a few public school districts are now creating their own SGOs to fund full-day kindergarten programs.
- The Nordonia Hills City School District pioneered this public school approach, raising over $222,000 for kindergarten tuition in one year.
- The move highlights ongoing tensions in Ohio regarding school vouchers and the allocation of public funds for education.
Understanding the SGO Mechanism
The Scholarship Granting Organization program was established by the Ohio General Assembly in the 2021 state budget. The system allows individuals and couples to donate to a certified SGO and receive a nonrefundable, dollar-for-dollar state income tax credit. The credit is capped at $750 for individuals and $1,500 for married couples filing jointly.
These SGOs, which are registered nonprofits, then distribute the funds as scholarships to students. Under state law, scholarships are intended for students whose families earn up to 300% of the federal poverty level, which currently stands at $99,000 for a family of four. The law requires that SGOs prioritize scholarships for low-income students.
Since its inception, the program has grown rapidly. In 2021, there were only seven SGOs in the state. Today, that number has expanded to 74, with the vast majority affiliated with private and religious schools.
By the Numbers: SGO Growth
The Angel Scholarship Fund, which is affiliated with the Catholic Diocese of Cleveland, has raised $19.6 million since 2022. In the last year alone, it distributed 10,866 scholarships to students at 108 different schools.
How Public Schools Entered the Fray
While public schools in Ohio cannot charge general tuition, state law does permit them to charge fees for full-day kindergarten, provided a free half-day option is available. This legal provision created an opening for public districts to use the SGO model.
The idea was initiated by Chad M. Lahrmer, a certified public accountant and a school board member for the Nordonia Hills City School District. While preparing tax returns in early 2023, he observed a significant flow of SGO donations directed toward private institutions.
"It kind of annoyed me," Lahrmer noted. "And I said, ‘There’s got to be a way we can make this work for Nordonia, for the public school.’"
After reviewing the state statute and finding no language that explicitly excluded public schools, Lahrmer established the Nordonia Hills Scholarship Granting Organization. The organization faced no opposition from state officials during its registration.
A Model of Success
The results for Nordonia Hills have been significant. In its first partial year, the SGO raised $14,000. The following year, that figure jumped to $95,000. The impact on families has been direct and substantial.
Nordonia Hills charges $2,900 for its full-day kindergarten program. According to Lahrmer, the SGO has made this program accessible to many more families.
"For this current group of kindergartners at Nordonia, the SGO paid $222,000 of tuition. We were able to give 50 students full scholarships, full payment. We gave eight students half payments. And then every remaining student got $500 off their tuition."
Following Nordonia's lead, other districts have established their own SGOs, including Hudson City School District, Three Rivers Local School District, and Aurora City School District. For districts like Nordonia Hills, where state revenue accounts for only 16% of the budget compared to the statewide average of 37%, this new funding stream is a welcome relief.
The Broader Financial and Political Context
The rise of SGOs has not been without controversy. The program represents a diversion of state tax revenue. According to a report from the Ohio Department of Taxation, these tax credits have reduced the state's General Revenue Fund by over $80 million since the program began.
State Revenue Impact
- Fiscal Year 2024: $21 million reduction
- Fiscal Year 2025: $23.1 million reduction
- Current Fiscal Year (Est.): $24.3 million reduction
While a significant sum, the SGO tax credits account for approximately 0.05% of Ohio's projected $44.4 billion in General Revenue Fund spending for the current fiscal year.
Governor Mike DeWine has acknowledged the program's value in allowing residents to support education while lowering their tax liability. However, he also stated, "We’re always going to look at this from the point of view of how much money this is costing the state.”
Critics view the SGO program as another form of school voucher, redirecting public money toward private education. This comes on top of the nearly $1 billion Ohio already spends annually on its five existing voucher programs.
Jeff Wensing, president of the Ohio Education Association, expressed this concern directly. "I think these tax credits are just another voucher-like scheme that benefits students who are already enrolled in private schools," he said.
The debate is further complicated by a lawsuit involving more than 300 public school districts suing the state over its voucher programs, which they argue are unconstitutional.
The Future of SGOs in Ohio
Despite the controversy, some policy experts believe public schools are right to participate in the SGO program. Joshua Cowen, an education professor at Michigan State University, suggested that public schools should actively seek to benefit from these systems where they exist.
"I have taken the position that at least in states that have opted into this, public schools should be doing everything they can to make some dollars off this," Cowen said. He suggested that public school SGOs could expand to cover other costs like sports fees or after-school activities.
The program's landscape may soon change again. A new federal law, the One Big Beautiful Bill Act, is set to create a federal income tax credit for SGO donations starting in 2027. This could provide an additional credit of up to $1,700 for married couples, potentially accelerating the growth of SGOs nationwide.
As public schools in Ohio navigate a challenging funding environment, the SGO model presents both an opportunity and a source of contention. While it offers a new way to fund specific programs, it also places public districts squarely within the ongoing, and often heated, debate over the future of education funding in the state.
