Kentucky Just Opted Into Education Freedom Tax Credits—Without Its Governor

This week, Kentucky became the latest state to opt into the Education Freedom Tax Credit (EFTC), the federal scholarship program established under the One Big Beautiful Bill Act that allows taxpayers to claim a dollar-for-dollar federal tax credit for donations to scholarship-granting organizations (SGOs). Thanks to a legislative veto override by a Republican supermajority in both chambers, Kentucky is now the second state with a Democratic governor to opt into the program.

Much of the attention around EFTC opt-ins has focused on governors, and for good reason: The 29 states that have opted in to date have done so with the support of their governors—most through straightforward executive action. However, the federal statute (26 USC 25F) doesn’t limit opt-in authority to governors: the election “shall be made by the Governor of the State or by such other individual, agency, or entity as is designated under State law to make such elections on behalf of the State with respect to Federal tax benefits.”

Kentucky’s H.B. 1 shifted the opt-in authority away from the governor and to the Secretary of State. Whether or not the federal statute only allows for a preexisting state-law designation, rather than one created via the bill that opts the state into EFTC, has yet to be litigated and likely won’t be fully resolved until the U.S. Treasury issues final regulations. More to come.

Divided Government Over EFTC

Kentucky isn’t the only state where a Democratic governor and a Republican legislature are at odds over the EFTC. There are five such states in 2026:

Kentucky’s override was clean: a simple majority threshold, supermajorities in both chambers. Wisconsin and Arizona aren’t realistic override candidates under their current compositions. North Carolina is contested; Republicans have the Senate supermajority but are two seats short in the House, meaning they’d need at least two Democratic defectors.

Kansas is the other state to watch. Republicans hold margins that easily clear the two-thirds threshold in both chambers, and they’re already moving. H.B. 2468, which elects Kansas into the federal tax credit program, has passed the Senate and is awaiting a final House vote on the conference version before heading to Gov. Kelly’s desk. An override looks likely.

Political Shifts on EFTC

Kentucky’s move comes amid a broader softening of Democratic resistance to the EFTC. The EFTC has the potential to put a significant sum of money on the table (potentially as much as $3.1 billion in California alone). And even if a state doesn’t opt in, its residents can still donate to SGOs in other states and claim the federal benefit — meaning the question for governors is less whether the money flows, and more so whether it flows to their state. Opting in gives governors the opportunity to shape how the program operates and who benefits, including public school students.

Colorado’s Gov. Jared Polis opted in early; North Carolina’s Gov. Josh Stein vetoed the opt-in bill but said he’d participate once Treasury issues “sound guidance”; and Hawaii and New Mexico, both previously “noes,” are now openly reconsidering their position. [The Washington Post, subscription model; Education Week, subscription model]

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