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Minnesota Republicans are digging in over a provision in a new federal law that creates a new $1,700 tax credit for donations to scholarship-granting organizations.

States have to opt in to the proposal, which is part of the Republican-backed federal tax and spending bill that passed last summer. It grants the option for nonprofits to use the money donated to offer scholarships for public or private school programs, including private school tuition scholarships

On Tuesday, House Republicans issued an ultimatum to DFL Gov. Tim Walz, calling on him to opt into the tax code change. 

"Unless the governor is willing to opt in, I'm not willing to work with him on any of his budget items, which would be special education, compensatory (aid) and all the funding things," said Rep. Ron Kresha, R-Little Falls, co-chair of the House Education Finance Committee.

House Republicans are pushing a bill allowing Minnesota taxpayers to take advantage of the new provision. There’s a 2027 deadline for states to opt in, and so far, both Republican and some Democratic-led states have adopted the provision.

Here’s a look at what’s at stake and the sticking points holding up the measures in the narrowly-split Minnesota Legislature.

Under the federal “One Big Beautiful Bill,” taxpayers in states that opt in would be eligible to get a tax credit for up to $1,700 for donations they make to authorized scholarship-granting organizations.

Nonprofit groups that offer 10 or more scholarships to eligible students that don’t all attend the same schools would be able to receive and send out the funds. The bulk of those group’s spending – 90 percent – needs to fund tuition scholarships and educational expenses, such as tutoring, school supplies, transportation or services for students with special needs. That could go to services or scholarships for public, private or charter schools.

Those groups would then be able to provide scholarships to eligible students

whose families meet income limits and who could enroll in K-12 public schools. In the Twin Cities metro area the income cutoff would be about $397,200, according to data from fiscal year 2025.

States that opt in would have to give the federal government a list of organizations in the state that match the criteria. If Minnesota doesn’t opt in, taxpayers here could send donations to scholarship-granting organizations in other states.

Regulations around the federal tax credit program are still pending.

Republicans, conservative groups and advocates for options allowing families to choose where their kids enroll in school voiced support for the opt-in. Meanwhile, some Democrats, teachers and Minnesota Department of Education officials said it could encourage enrollment in private schools over public schools, which lawmakers have a responsibility to support. 

Rep. Andrew Myers, R-Tonka Bay, sponsored the opt-in bill and presented it to the House Education Finance Committee on Tuesday. He said Minnesota shouldn’t leave money on the table when it could help give families options and boost budgets for public schools.

“We want Minnesota money to benefit Minnesota students, Minnesota educators and Minnesota students,” Myers said. “This is all about options and opportunities. If Minnesota opts into this there is a lot of funding that could go to our local schools across the entire state.”

Ricky Austin, president of Aim Higher Foundation, said the policy change could help organizations like his provide more tuition scholarships to students who need help. Aim Higher offers scholarships to students enrolling in Catholic schools in Minnesota.

“We need more funding to serve families seeking our help, and a federal scholarship tax credit would encourage additional charitable giving from Minnesotans, allowing organizations like ours to meet more of the needs of more students, all without drawing from the state budget or diverting funds from other sources,” Austin said. 

Public school teachers, labor union officials and a spokesman for the Department of Education said the tax credits could disproportionately help wealthier Minnesotans. And they said private schools differ from public schools because they are able to deny enrollment for students with disabilities or based on their sexuality or gender identity.

“(Public schools) serve all students, no matter who they are or their ability providing critical service and right for Minnesota children, there is no similar expectation that private schools be actively accessible to all students across the state,” said Adosh Unni, director of government relations for the Minnesota Department of Education. 

“The state's Constitution's mandate is to support a general, uniform, thorough and efficient public education school system. This proposal runs counter to that mission,” Unni continued.

Democrats on the Education Finance Committee said they oppose it and they raised concerns about holding up other school funding talks over this provision. They also said the program has insufficient guardrails and could be “ripe for fraud.”

“This is a voucher program dressed up to look nice,” said Rep. Cheryl Youakim, DFL-Hopkins, co-chair of the House Education Finance Committee. “This is a program that’s being built currently. We have no clear guidance, we have some lists of items and I get really concerned about opting into something where we don’t know exactly what we’re doing.”

The House Education Finance Committee didn’t vote on the bill Tuesday, but Kresha said it would come up for a committee vote later. To advance, it would need bipartisan backing.

Gov. Tim Walz could opt the state in independently, or lawmakers could move legislation opting the state in, though, that would require the governor’s signature to take the effect of law. The proposal could be rolled up in a broader end-of-session deal this spring.

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A Republican-backed federal tax and spending bill creates tax credits for donations to scholarship organizations, including those that provide tuition support for private schools. States have to opt in, and disagreement in Minnesota over the issue could block progress on other education measures in the Legislature.

Proposed federal tax credit risks hanging up education debate at MN Capitol

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