Innovative Strategies for Financing Quality Child Care

Anne Mitchell Early Childhood Policy

Research2002

2

Outline of presentation

How we finance child care/early learning Lessons from other fields Innovative finance strategies Crafting solutions that will work here

3

Child care is many things...

Child care centersFamily child care homes Head Start or public pre-k programsNursery schoolsSchool-age child care & recreationSummer camps “Informal” care (relatives, friends, and neighbors)Partial wage replacement (e.g. paid parental leave)Flex-time and other “family friendly” work policies

4

The Challenge...Finding financing mechanisms that can…

educate & nurture children ANDsupport families ANDensure a strong workforce overall ANDprovide good jobs in child care

and are organized in a sensible framework

5

3 fundamental premises

1. Nearly all families need help paying for child care/early education/out-of-school.

2. Services and infrastructure both need to be supported financially.

3. All the beneficiaries of quality care must contribute: not just families, but government and employers the public and the private sectors.

6

How do we finance it now?

FamiliesFamilies pay for most of it (60%)

GovernmentGovernment pays for some (39%)

The Private SectorPrivate Sector contributes about 1%

7

Government means...

Federal, state and local -- all have rolesGovernment generates revenue from

Taxes (income, sales and property)Fees (permits, licenses, lotteries, etc.)Other sources??

Allocates revenue in its annual budget among many categories

8

The Private Sector means...

EmployersUnionsPhilanthropy, including

United WayThe faith communityBusiness and civic

leaders

Deciding how to use their resources...spacetimemoney

9

Major federal govt. sources

Head Start = $6.7 Billion (all FY2002)

Child Care & Development Fund = $4.8BChild & Dep. Care Tax Credit = $2.7B tax year 2000

Child & Adult Care Food Program--$1.8BTANF (Temporary Assistance to Needy

Families) = $3.5B for child care transfer & direct

21st Century Learning Centers = $1B

10

More federal sources...

Special Education (0-3s) -- $417 Million Special Education (3-5s) -- $390 Million Title I (preschool) -- $400 Million Title I (Even Start) -- $250 Million Early Reading First -- $75 Million Early Learning Opportunities Act -- $25 Million EC Educator Professional Development -- $15M

11

What other fields?

TransportationHousingHealth careHigher education

12

Lesson #1 from other fields#1 Public subsidies are available to

all families, regardless of incomeTransportation: fares are ‘subsidized’ for all ridersHousing: Sec. 8, Low-Income Housing Tax Credit,

mortgage tax deductionHealth: all seniors get Medicare, poor also get

MedicaidHigher Ed: Tuition same for all, financial aid

grants and loans

13

Lesson #2 from other fields

#2 Public support is an economic development investment, not charityTransportation & Housing: public subsidies

are investments in the construction industryHigher Ed: public support is investment in

educated citizenry, financial aid has no stigma

14

Lesson #3 from other fields

#3 Programs/projects receive BOTH direct financial assistance AND portable aidTransportation: direct capital aid and low

fares for ridersHousing: equity for building construction

and rent subsidies for familiesHigher Ed: direct appropriations to

colleges and financial aid for students

15

Other fields Child Care

Public support for all families

Investment, not charity

Direct and portable aid

Nearly all public funds are for the poor

So, it must be charity..

NO! that’s double-dipping!

16

How can we do a better job with financing?

17

First, know where the money for child care comes from...

GovernmentGovernmentGenerate and allocate

public funds in.. Social & Human Services Health Education Justice/Crime Prevention Higher Education

PhilanthropyPhilanthropyGrants and donations

FamiliesFamiliesPay tuition and take

advantage of Tax CreditsFederal & state child care

tax credits, EITC, Child TCBusiness & UnionsBusiness & Unions

Dependent Care Assistance Plans

Direct tuition assistance

18

MAXIMIZE current sources, then consider creating new sources via... Government Private Sector Public-Private Partnerships

19

Exemplary Finance StrategiesGovernment: Property, sales and

income taxes, & general revenuesPrivate: Employers and philanthropyState-Local government partnershipsPublic-Private partnerships

20

Finance Strategy:Property Tax

Seattle, WashingtonFamilies & Education Levy

raised property tax rate .23 mills per $1,000 of assessed value

generates average of $10 million per year$3 million is dedicated to child care (ages 0-15)

tuition assistance to working families program improvements (training, literacy projects)

21

Finance Strategy:Sales Tax

Pitkin County, Colorado (Aspen).45% tax generates $1.7 million per yearAbout $600,000 for child care each year

40% to the Child Care Trust Fund60% for:

Child care resource and referral Grants to child care programs for improvements Tuition assistance to low-income working families

22

Finance Strategy:Sales Tax

California’s Prop 10 tobacco sales taxEarly childhood development, broadly

defined: child care, health, family support, communication and research

$725 million annually80% to county commissions20% for statewide activities

23

Finance Strategy:Income Taxes

Federal DCTC and state DC tax creditsbest practices: refundable, no income cap,

allowed expenses match cost of quality, indexed for inflation, big enough to matter

Colorado’s child care contribution tax credit = 25% of contribution amount up to $100,000 for any taxpayer (1998 = $3 Million in contributions, when limited to Enterprise Zones)

24

Finance Strategy: State Government

Washington Child Care Career Development Wage Ladder

Pilot -- $4 million for 100-150 centers over 2 years

Raises of 50¢ to $4 an hour based on education and experience

Uses TANF reinvestment funds

25

Finance Strategy: State general revenue - Higher Ed

Campus Child Care Fund in New YorkGrants to start, expand, renovate

and operate centers (renewable)$7.3 million annual from Higher

Education budget for SUNY/CUNY campuses plus $2.5 million in CCDF funds (total=$10.8M)

26

Finance Strategy: State general revenue - Justice

Network of Children’s Centers in the Courts (New York)

Began 1994, now 22 centers offering free drop-in care for 47,000 children

Some also offer family support, comprehensive referrals (health, CHIP, WIC, Head Start, etc.)

$975,000 annually from Court budget plus $300,000 annually in CCDF funds

27

Finance Strategy: Education

Early Childhood Program Aid (New Jersey)established in 1996 due to school finance equity

lawsuit Abbott v. BurkeSchool-day K and part-day preschool for 3- & 4-

year olds in 105 districts and full-day preschool in 30 districts

$310 M for 99-00 school year -- $99 million for preschool Uses TANF reinvestment funds

28

Finance Strategy:State/local partnerships

Smart Start (North Carolina) 1 state and 100 county partnerships for

childrenchild care, health, family supportGoal: All children ready for school$220 million from state general revenue

plus $19 million in private contributions

29

Finance Strategy:Private - Philanthropy

Child Care Matters -- in 5 counties in SE Pennsylvania (Philadelphia area)Community-wide initiative to improve quality of

child care, increase public/civic engagement, enact public policy and increase state and local financing

$14.1 million from William Penn Foundation and $3.75 million from United Way of SEPA

Began 1997, renewed through 2003

30

Finance Strategy:Private - Employer

Bank of America (nationwide)Funded Dependent Care Assistance Plan

$152/child/month -- in addition to regular salary

$22 million annuallyBenefit: Employee turnover 50%

lower

31

Finance Strategy: Public-Private PartnershipSan Francisco Child Care Facilities

FundCity, business, and philanthropy contribute

• Providian Financial Services -- $400,000• Miriam & Peter Haas Fund -- $300,000• City of San Francisco -- $200,000

Since 1998, raised $4.8 million and leveraged $10 million more (HUD) to make no-cost/low-cost loans to child care programs and family child care providers

32

Finance Strategy: Public-Private Partnership

Florida Child Care Partnership Act (1996)State now budgets $10 million annually to

help working families afford child careIncentive for employer contributionsPublic sector and business contribute equallyGenerates additional $10 million (total=$20M)

33

Solution #1: Maximize current sources

GovernmentGovernmentState and federal child

care funds, TANFHead Start, Early HSEducation: State Pre-KLocal districts (Title I,

21st Century Comm’ty Learning Centers)

Higher Ed, Justice, Health departments

FamiliesFamiliesEarned Income Tax CreditFederal & state child care

tax credit & child tax creditBusiness and UnionsBusiness and Unions

Dependent Care Assistance Plans for employees

Direct tuition assistancePhilanthropyPhilanthropyGrants and donations

34

Solution #2: Create new sources

GovernmentGovernmentTax strategies Budget strategiesEndowment/Trust

Funds

Private SectorPrivate SectorScholarship Funds

Foundations, United Way, employers

Employers supporting their own employees

Public-Private PartnershipsPublic-Private Partnerships Scholarship/Facilities/Quality Funds United Way-Foundation Community Initiatives

35

Solution #3: A better finance framework

We need a framework that...Encourages public AND private investmentADDs to what families already payWorks for ALL familiesHandles funds from multiple sourcesAdvances quality in all programsSupports infrastructure & services

36

Remember “other fields”? Compare reliance on user fees

87%

41% 35%

0%

20%

40%

60%

80%

100%

Revenue from user fees

Child CareCentersPublicTransportationHigher Education

37

Principles of finance

Maximize revenuegovernment, families, business, philanthropy

Expand/create new sources of revenuegovernment, employers, philanthropy

Diversify revenue sources Leverage through partnershipsInvest so price to families doesn’t increaseAdopt new frameworks, e.g. other fields

38

Lessons on strategy

1. Child care and…2. Politically feasible opportunities3. Long-term thinking4. Multiple approaches, multi-faceted solutions5. Leaders, partners, nontraditional advocates6. Community variation

39

The essential questions...

1. What are we financing?2. Who is it for?3. How much will it cost – how much more

money do we need?4. Who should pay for it?5. What are the financing mechanisms?6. How are we going to organize our

finances?

40

Feasibility (is a new finance mechanism worth the effort?)

What is the revenue-generating potential (i.e., how much new money per year)?

Will the revenue increase or decrease over time?

Is it durable & sustainable?Is it winnable politically?

41

Questions to consider...

Given the examples, principles, and lessons:

What are the strengths and resources --in our state, in our community -- to build upon?

How can we take action here?