CHILDCARE PROPOSAL_EDITED

A BOLD PROPOSAL TO DRAMATICALLY EXPAND VERMONT’S CHILDCARE ASSISTANCE & OFFER TAX RELIEF TO LOW- AND MIDDLE-INCOMING EARNING FAMILIES By James Ehlers for Vermont Governor Campaign

The proposal: Create economic stimulus by raising taxes on the most affluent Vermonters to nearly double our childcare financial assistance and make our education tax system more fair and progressive overall. Need for reform: This proposal is about investing in people and benefiting from the economic growth that results. Income inequality has continued to rise in Vermont since the 1970s, as it has across the United States. While the top 20% saw incomes rise by 75% until the mid-2000s, the poorest 20% have only seen incomes rise by 32.5%.1 After the recession, this trend continued starkly, with the top 1% receiving a near 25% income growth, while the bottom 99% only had about 5% income growth.2 As part of this comparatively stagnant growth for low- and middle-income earning families, Vermonters are struggling to pay for childcare. Middle-income families with two kids can spend more than 40% of their income on childcare.3 The high cost of childcare means that for some parents, it makes economic sense to leave the labor force. A U.S. Department of Health and Human Services recently showed that child care financial assistance programs significantly affect a women’s labor force participation4. Yet Vermont’s Child Care Financial Assistance Program (CCFAP) is underfunded, leading to a gulf between tuition rates and what the CCFAP covers5. We need to immediately invest in the CCFAP to bridge this divide to create good-paying childcare jobs and to encourage Vermont’s parents--especially moms--to return to the workforce.

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“Pulling Apart: Income Inequality has grown in Vermont.” Center for Budget and Policy Priorities & Economic Policy Institute. https://www.cbpp.org/sites/default/files/atoms/files/Vermont.pdf 2 “State of Working Vermont 2017.” Public Assets Institute. https://docs.google.com/viewerng/viewer?url=http://publicassets.org/wpcontent/uploads/2017/12/SWVT17final.pdf&hl=en_US 3 “Lack of Affordability.” Let’s Grow Kids. https://www.letsgrowkids.org/lack-affordability 4 Burgess, K., Chien, N., & Enchautegui, M. “The Effects of Child Care Subsidies on Maternal Labor Force Participation in the United States.” U.S. Department of Health and Human Services. https://aspe.hhs.gov/system/files/pdf/253966/EffectsCCSubsidiesMaternalLFPBrief.pdf 5 Let’s Grow Kids & Vermont Commission on Women. “Women, Work & Child Care: a white paper on the intersection of child care, the economy and gender equity in Vermont. https://www.letsgrowkids.org/sites/default/files/WWCC%20WP%20FINAL.pdf

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Pursuant to Act 166 of 2014, Vermont offers universal pre-k for 10 hours per week.6 However, because it is only for 10 hours, many parents require childcare outside of pre-k. The Childcare Financial Assistance Program is meant to help bridge the divide, but it is woefully underfunded. The CCFAP only covers 100% of childcare subsidies for a family of three making $20,784 per year.7 For a family of three making $41,556, a mere 15% of their child care subsidy is covered.8 Meanwhile, the average cost of childcare for a family in Vermont is $20,000 per year.9 Due to chronic underfunding, the reimbursement rates directly paid to childcare centers paid to providers based on income, family size, the type of child care program, the child care program’s quality designation in STARS (STep Ahead Recognition System – Vermont’s quality recognition and improvement system for regulated child care and early learning programs), and the number of hours care is needed leaves a gap between CCFAP reimbursement rates and current child care tuition costs. This gap means economic challenges for families and providers. Many providers cannot afford to lose the difference between CCFAP’s reimbursement rates and actual tuition rates, so providers may ask families to cover the difference. This means that even families enrolled in CCFAP who qualify for 100% tuition assistance may still need to pay a co-pay to cover the gap, which may make regulated childcare unaffordable. And because of this, many childcare workers and centers are struggling to make ends meet.10 In fact, the median pay for childcare workers at licensed centers in 2016 was $11.25/hour.11

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Agency of Education. “Universal Pre-Kindergarten.” http://education.vermont.gov/student-support/earlyeducation/prekindergarten 7 Vermont Department for Children & Families. “Bright Futures Child Care Information System.” http://www.brightfutures.dcf.state.vt.us/vtcc/reset.do?6Mmr3gjumkz13SgYEjWekr3%3dxguw3YEa.aU7zaju.xnn.xGOOD-O0Oq%2bSG%256U60%256UGF.GShgwEkeUs3peYY.wjRszYgwUVm3wjR_mszVzRzszer_uYUsmgsUWVj UVm3mWgwkmpwUVm3wjR_mszVzR_zWLEgkz13SGOqhDdOqSS0d_6 8 Ibid. 9 “Lack of Affordability.” Let’s Grow Kids. https://www.letsgrowkids.org/lack-affordability 10 Dobbs, Taylor. “Pay What? Vermont's $9.2 Million Childcare Crisis,” Seven Days, 18 February 2018. https://www.sevendaysvt.com/vermont/pay-what-vermonts-92-million-childcarecrisis/Content?oid=12916744 11 McCullum, A. “Three things to know about VT's new child care report,” Burlington Free Press, 9 December 2016. https://www.burlingtonfreepress.com/story/news/local/vermont/2016/12/09/three-thingsknow-vermonts-new-child-care-report/95193498/

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In 2016, Vermont’s Blue Ribbon Commission on Financing High Quality, Affordable Child Care recommended nearly doubling CCFAP subsidies, adding an additional $43.5 million each year.12 This would cover far more families and would allow CCFAP to increase reimbursement rates to be in line with how much child care programs actually charge for their programs. This is especially needed for the 26.6% of Vermont kids who live in single-parent households.13 Yet the recommendations in the report were never implemented. Contrary to what we hear from some Vermont politicians, our state has incredible economic development potential. One major obstacle standing in the way of that potential is our small workforce. The reason for our small workforce is relatively simple—Vermont is a very lowpopulation state. This means that Vermont must be smarter about workforce development in order to overcome this challenge. This proposal represents that smarter approach. By removing the childcare hurdle for lower income families, we will increase the number of people participating in our workforce. Those people will get training, education, and experience in the short term, which will make our workforce larger and stronger for the longterm.14 Clearly, we have a childcare crisis that is running in tandem with our inequality crisis, both of which lead to economic stagnation and lack of mobility and opportunity. We propose a solution to address both. This proposal also addresses the following needs for Vermont: it identifies sustained revenue sources for childcare assistance, reduces the reliance on one-time money to fund education, provides some tax relief to middle and lower income families, helps Vermonters make better education spending decisions, and makes our education financing system more progressive. It will effectuate these changes while trusting the experts in state government, the legislature, and most importantly—by trusting and investing in Vermonters. The plan:

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Vermont Blue Ribbon Commission on Financing High Quality, Affordable Child Care, Gingras, J., Blackman, J. & Public Consulting Group, Inc. “Blue Ribbon Commission on Financing High Quality, Affordable Child Care: Final Report.” 2016. http://buildingbrightfutures.org/wp-content/uploads/2015/11/VT-BRC-Final-Report-1.pdf 13 Building Bright Futures. “How are Vermont’s Young Children & Families?” 2017. http://buildingbrightfutures.org/wp-content/uploads/2014/03/FINAL-REPORT-Spreads.pdf 14 See, https://heckmanequation.org/ (regarding economic benefits of early childhood education); http://research.upjohn.org/cgi/viewcontent.cgi?article=1228&context=reports (regarding effective regional economic development); “The Economic Case for Preschool,” Timothy Bartnik, https://www.ted.com/talks/timothy_bartik_the_economic_case_for_preschool?qshb=1&utm_expid=16690 7-25&utm_referrer=http%3A%2F%2Fwww.ted.com%2Ftalks.

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The Ehlers Administration will nearly double the state’s investment in the Child Care Financial Assistance Program and offer property tax relief for low- and middle-income Vermonters. In James’ first year, he will propose education tax reform that will tax at an increased rate any equalized value of the building portion of a homestead property that exceeds one million dollars with a revenue target of $20 million. The details would be worked out in cooperation with the experts at the JFO, the Department of Taxes, and the legislature. Some of the sustained revenue created will be used to reduce homestead rates for homeowners with less valuable residences so that Vermonters who are struggling can experience some relief. The Ehlers administration will couple that with an income tax surcharge for education funding which will garner approximately 30 million by adding an income tax surcharge on the highestincome earners of between .5% and 1%. According to the JFO, to only apply such a surcharge on the AGI brackets of over $300,000/year, this would net approximately $30 million in revenue.15 The combined effect of the surcharge and increase in property tax is that the most affluent Vermonters would pay 1-2% more in taxes to grow the economy and invest in children so that many more Vermonters have the opportunity they need to succeed and expand the economy in our state. At the same time as we implement the income tax surcharge and luxury homes tax, we will expand the information made available to school boards and voters so that the link between tax increases and school spending decisions is more easily understood when decisions are made. Implementation To implement the luxury tax, the state would pay the municipal software contractor to change the software used by all municipalities to do the calculation. The contractor may in some cases have to visit a town to manually make the change if that particular town uses a custom version of the software. A slight change to the software should cost the State an estimated $5,000-$10,000. Once the change is made, municipalities would have to do nothing extra because the software would perform the calculation and place the information on the appropriate part of the tax bill.

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Joint Fiscal Office. “Comparisons of Income Tax Proposals: Administration Proposal vs. H.911 (as passed by House W&M),” 1 March 2016. http://www.leg.state.vt.us/jfo/education/H_911%20Income%20and%20Surcharge%20Summary%20Sheet .pdf

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We will work with the Vermont General Assembly to choose the most appropriate property value threshold for a luxury homes tax. We will also work to find the most appropriate method for delivering homestead property tax relief to low and middle income Vermonters. This could be achieved through lowering rates, increasing the amounts of property tax adjustment received, or something different. We will use the most efficient, effective, and easy-to-understand approach available once we have received input from the legislature. The luxury tax must apply only to building value to avoid incentivizing the subdivision of land to reduce land values. Moreover, the policy reason for the luxury tax is to have people with luxurious homes be taxed progressively. Applying the tax to land value would muddle the policy intent. The Ehlers administration will also work with the legislature to develop a fair and progressive version of the income tax surcharge that was proposed by the House during the previous legislative session. The Department of Taxes will add the surcharge to income tax forms for tax year 2019 filings. Because the voter is such an important check on our education funding system, part of this proposal includes expanding on ways we deliver digestible property tax information to the public. Accordingly, we will expand the tax information made available to school boards and the information provided on voting ballots. Childcare subsidies will be expanded and increased, as will the number of Vermont households with fully subsidized childcare. Administrative systems are already in place to effectuate these changes. The only difference for the state agencies involved will be an increase in the amounts paid and awarded. The administrative efficiency involved is crucial because it means nearly all of the new revenue set aside for child care will go directly toward children and families. Because of the timing of income and property tax filing and billing processes, the income tax surcharge and luxury tax on property will be implemented in calendar year 2020. Informational reporting to school boards and voters will be implemented as soon as possible, with a goal of the fall of 2019.

Conclusion

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Vermont’s families are struggling to afford childcare, and childcare centers are struggling to remain open and pay fair wages. The state has a responsibility to invest in Vermont families for the wellbeing of both parents and children. James Ehlers’ bold plan to nearly double the Childcare Financial Assistance Program and offer property tax relief for low- and middle-income families will be an economic driver for the state and will reduce the income inequality that stagnates our growth and prevents mobility. By raising taxes on the most affluent Vermonters, we can build a state where everyone has enough to live a dignified life for themselves and their families; where every parent can feel confident that they can participate in the workforce and raise a family; and where childcare centers can thrive, grow and pay their workers a dignified wage. We can invest in our children and build a more fair and equitable Vermont with a thriving economy if we have a shared vision of our priorities.

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