The money your schools raise through athletics, clubs, and concessions isn’t receiving the same level of oversight as your larger revenue streams. Here’s why that could be an issue in 2027.
Starting next year, school districts in select states will benefit from a new revenue source: the Education Freedom Tax Credit.
The program allows taxpayers in participating states to donate up to $1,700 to scholarship-granting organizations, which can then distribute scholarships that cover private school tuition, tutoring, special education programs and other expenses. Donors would earn a dollar-for-dollar tax credit for their contributions.
In practice, school districts can accept donor-funded scholarships to cover various fee-based offerings, such as a package that provides students with access to field trips, tutoring, clubs and services not included in a state’s “definition” of required public education.
The issue
The new money will be treated as privately donated, locally generated revenue. This funding carries a high risk of fraud and warrants greater attention before the tax credit rolls out in January, according to new research.
For decades, locally generated funds have been treated as “small money for small things,” writes Marguerite Roza, director of Georgetown University’s Edunomics Lab. The money is often overlooked until it goes missing or is stolen, often a result of outdated collection processes and mismanagement.
“I don’t think there’s a lot of visibility, and often when [parents are] paying the fees, it’s not to the person who might be spending it,” Roza told District Administration.
For instance, roughly 84% of school district finance managers report cash as a primary method for collecting school fees, alongside using checks or personal payment apps like Venmo.
“The more informal methods a district allows, the harder the work becomes at every level,” the report reads.
Budget deficits fueled by enrollment declines leave districts counting every penny, even those that previously seemed too small to care about, like activity funds.
However, these funds aren’t tracked as carefully as federal, state or local tax dollars, and it’s eroding community trust. Less than half of parents feel “very confident” that locally generated funds are used for their intended purpose, according to the report.
“There’s little accounting of what payments have been made by whom, how much was generated, or what it paid for,” Roza writes.
She argues that the Education Freedom Tax Credit will change the stakes. Districts will have to define fees to accept these dollars, document how they’ll cover services and for which students.
“One misstep may be enough to convince donors to go elsewhere,” Roza writes. “Suddenly there’s a lot of money at stake.”
There’s only one clear solution for improving management of these funds, according to the report. Rather than placing responsibility on individual employees handling the funds, leaders must adopt a unified financial management system that gives CFOs visibility into activity funds across all schools.
“The answer is one clear view of the money, shared from the school floor to the district office,” the report concludes. “Do that, and the CFO paradox resolves.”
As new funding sources reshape the landscape, district-level leaders need a way to anticipate what’s coming before budgets are set. District-level leaders can view our Funding Transition Predictive Resource with a free 14-day trial of DA+.
