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CCAC SPECIAL REPORT #1: STATE FINANCING ALTERNATIVES PROJECT
EMPLOYER TAX CREDITS FOR CHILD CARE:
ASSET OR LIABILITY?
CHILD CARE ACTION CAMPAIGN
November, 1989
Prepared By:
Donna Euben and
Barbara Reisman
Copyright 1989, Child Care Action Campaign
"Employers have a major role in helping parents
find needed child care, but I do not support
giveaways of taxpayer dollars to get business to
recognize what it already knows: that it must
provide assistance for more and better child
care. Workers demand it; productivity demands
it; a business bottom line demands it."
President George Bush
19881
ACKNOWLEDGMENTS
The first report of the Child Care Action Campaign (CCAC)
State Financing Alternatives Project was prepared by Donna Euben
and Barbara Reisman and produced by the staff of the Child Care
Action Campaign: Kristin Andersen, Caroline Eichman, Katie
Fullam, Lisa Lafayette and Pat Nicholson.
This CCAC Special Report #1 would not have been possible
without the special support of The A. L. Mailman Family
Foundation, Inc. and the Continental Corporation Foundation.
While the opinions and analysis contained herein are those
of CCAC, we are deeply grateful to the following people for their
substantial contributions:
The CCAC National Advisory Panel, our state network of
leaders from the public and private sectors, for inspiring the
report and for collecting much of the information; *
The many corporate representatives, fiscal analysts, and
public officials who took the time to speak with us about their
experiences with, and thoughts about, Employer Tax Credits for
child care;
The CCAC Board of Directors, and especially Sey Chassler,
Roxanne Coady, Ted Cott, Dana Friedman, Kristin A. Mannion,
Gerald McEntee, Gwen Morgan, and William Popejoy;
CCAC Interns Ajay Chaudry and Jim St. George of Harvard
University's John F. Kennedy School of Government and Julie Zuraw
of Bryn Mawr College.
Elinor Guggenheimer
President
Child Care Action Campaign
*
See Appendix III, page 28, for a roster of National Advisory
Panel members who have been especially helpful.
I
ABOUT THE CHILD CARE ACTION CAMPAIGN
The Child Care Action Campaign (CCAC), formed in 1983, is a
national coalition of leaders from a wide range of American
institutions: the media, government, corporations, unions,
women's groups, academia. Our overall mission is to encourage
and support the development of child care policies and programs
that will enable parents to work productively and to improve
their standard of living.
Our goals:
To expand and improve the national child care system into a
comprehensive, coordinated delivery system that provides quality
care that is affordable;
To encourage employers to adopt workplace policies that will
enable parents to work productively, to improve their standard of
living, and to be effective, loving parents.
II
CHILD CARE ACTION CAMPAIGN BOARD OF DIRECTORS
President Jimmy Carter
President Gerald R. Ford
Honorary Chairmen
Elinor Guggenheimer
President
Sey Chassler
Vice-President
Dana E. Friedman, Ed. D.
Families and Work Institute
Vice-President
Richard B. Stolley
Time Warner Inc.
Vice-President
Rosalind B. Chaikin
Secretary
Sue Plastrik
National Council of Jewish Women
Treasurer
Roxanne J. Coady
R.J. Julia Booksellers, Ltd.
Assistant Treasurer
Aida Alvarez
First Boston Corporation
Hans H. Angermueller
Citicorp
Susan Aronson, M.D.
Fellow, American Academy
of Pediatrics
Hon. Bruce Babbitt
State of Arizona
Helen Blank
Children's Defense Fund
Myrna Blyth
Ladies Home Journal
T. Berry Brazelton, M.D.
Harvard Medical School
Vivian Cadden
Working Mother Magazine
Bettye M. Caldwell, Ph. D.
University of Arkansas at
Little Rock
John B. Carter
Equitable Life Assurance
Society
John Mack Carter
Good Housekeeping
William Chaney
Tiffany & Company
Hon. Hillary Rodham Clinton
State of Arkansas
Ted Cott
Communications Consultant
Susan DeConcini
State of Arizona
III
Vincent J. Fontana, M.D.
New York Foundling
Hospital
Muriel Fox
NOW Legal Defense and
Education Fund
Judith Fullmer
Citibank, N.A.
Ellen Galinsky
Families and Work
Institute
Gary David Goldberg
UBU Productions
Hon. Marlene Johnson
State of Minnesota
Sheila B. Kamerman, D.S.W.
Columbia University
School of Social Work
Eileen W. Lindner
National Council of
Churches
Kate Rand Lloyd
Working Woman Magazine
Hon. Julia Hines Mabus
State of Mississippi
Kristin A. Mannion
PaineWebber, Inc.
Jay Mazur
International Ladies'
Garment Workers' Union
Gerald McEntee
American Federation of
State, County and
Municipal Employees,
AFL-CIO
Evelyn Moore
National Black Child
Development Institute
Gwen Morgan
Wheelock College
Ann Muscari
Kinder-Care Learning
Centers, Inc.
Irene Natividad
National Women's
Political Caucus
Arthur L. Novell
Markham/Novell
Communications, Ltd.
Sally Orr
Letty Cottin Pogrebin
Ms. Magazine
William J. Popejoy
American Savings and Loan
Association
Hon. Bea Romer
State of Colorado
Sandra Salyer
Mervyn's
Michelle Seligson
Wellesley College, Center
for Research on Women
Francine Sommer
First Security
Management, Inc.
James Strickland
Child, Inc.
Dee Topol
Primerica Foundation,
Inc.
Helen R. Walton
Walton Enterprises
Bernice Weissbourd
Family Focus, Inc.
Hon. Linda Gale White
State of Texas
Edward Zigler, Ph.D.
Bush Center, Yale
University
General Counsel:
Executive Director:
Jane Macon
Barbara Reisman
Fulbright, Jaworski
IV
EMPLOYER TAX CREDITS: ASSET OR LIABILITY?
EXECUTIVE SUMMARY
Changes in the American economy and shifts in demographics
are rapidly reshaping the American family and workplace. As a
result, corporate leaders and public officials have a growing
interest in policies that increase the supply of reliable,
affordable child care.
In particular, state legislators have responded to the
surging demand for child care by developing policies to
encourage more employers to provide child care benefits for
their employees; Employer Tax Credits for child care have
emerged as the most popular option.
The goals of Employer Tax Credits are:
(1) to provide an incentive to employers to establish some
form of child care benefit; and
(2) to increase the supply of care.
In an effort to evaluate the effectiveness of Employer Tax
Credits, the Child Care Action Campaign (CCAC) examined
quantitative data and conducted extensive interviews with over
100 public officials, corporate leaders, financial analysts, and
child care advocates in the 13 states with established Employer
Tax Credit policies. CCAC also interviewed individuals in other
states that have considered, but so far rejected, such
initiatives. CCAC research indicates that Employer Tax Credits,
as currently conceived, may induce a limited pool of employers to
offer some kind of child care benefit to their employees. But
Employer Tax Credits are currently used by less than 1% of
eligible employers and have had no more than a marginal effect on
the supply of care. Employer Tax Credits by themselves are not a
panacea. Instead, they may divert attention from more effective
strategies for addressing the child care crisis.
THE APPEAL OF EMPLOYER TAX CREDITS
Proponents of Employer Tax Credits argue that Employer Tax
Credits are a low-cost policy that is easy to implement. They
also view them as a way to leverage limited public dollars for
child care. Accordingly, the popularity of these credits has
soared.
In 1983, only four states allowed a tax credit for
employers who provided some form of child care benefit to their
employees. Today, 13 states provide such a credit: California,
Connecticut, Kansas, Maine, Maryland, Mississippi, Montana, New
Mexico, Ohio, Oregon, Pennsylvania, Rhode Island, and South
V
Carolina. Three of these credits were established in 1989.
Moreover, during the 1989 state legislative sessions, at least 57
Employer Tax Credit bills were pending in 21 states. In seven of
the 13 states with Employer Tax Credits in place, legislation is
pending that would expand or improve the policies.
However, the popularity of these tax credits belie their
effectiveness.
WHO USES EMPLOYER TAX CREDITS?
CCAC research indicates that even though employers say they
want tax credits, they don't use them. Employer tax credits do
seem to be attractive to certain types of employers -- those
already providing benefits, those seriously considering the
implementation of such a program, or those employers for whom
cost is truly a barrier.
However, in states with Employer Tax Credit policies in
place, very few employers -- less than 1% -- have used them. In
Connecticut, which has a relatively well-marketed Employer Tax
Credit, only 45 out of 80,000 eligible Connecticut companies are
expected to claim the credit in 1989.
THE PROBLEMS WITH EMPLOYER TAX CREDITS
The low rates of use are an indication of the inherent
limitations of tax credits for child care.
The Policy Perspective:
From a policy standpoint, Employer Tax Credits tend to be
inefficient. As one legislator from Illinois says: "Tax
credits
go to all the same businesses who are already reaping
the benefits of having child care in the first place. Since some
people provide child care anyway, why pay for something they're
already doing?
"
Employer Tax Credits can also be potentially expensive: tax
credit costs are hard to predict, let alone control. In fact, if
usage is encouraged, and, in turn, participation increases, costs
will go up. In California, for example, the estimated cost of
its Employer Tax Credit Program ranged from $5 to $20 million.
In addition, Employer Tax Credits can sidetrack policy
makers from investing more directly in building the current child
care infrastructure.
The Corporate Experience:
The available data show, and the corporate leaders CCAC
interviewed confirm, that Employer Tax Credits by themselves, do
not motivate employers to offer a child care benefit. Companies
must first be convinced that child care makes good business
sense.
VI
Plus, Employer Tax Credits are an incentive for a limited
pool of employers: Only businesses with corporate tax liability
can claim an Employer Tax Credit. In Michigan, for instance,
less than half of its 190, 000 businesses have corporate tax
liability. Furthermore, the highest corporate tax credit is 12%,
and so, does not tend to be a heavily weighted factor in
corporate decision-making. Moreover, as they are currently
conceived, tax credit programs favor the coverage of the start-up
costs of child care programs, even though operating expenses are
often a greater problem for employers and employees alike.
Finally, companies are unlikely to take advantage of an
incentive which is an administrative burden and which may not be
stable over time.
CONCLUSION
At a time when the public and private sectors are
struggling to come to grips with a changing labor force and
economy, Employer Tax Credits are a passive way to develop child
care policy. They can be effective only as part of a
comprehensive approach to child care. But even as a piece of a
comprehensive funding strategy, Employer Tax Credits are
problematic. Employer Tax Credits must be reexamined, or they
will continue to offer little to employers, to employees, to a
state's child care delivery system, and even less to children.
VII
EMPLOYER TAX CREDITS FOR CHILD CARE:
ASSET OR LIABILITY?
TABLE OF CONTENTS
1. PREFACE
1
2. INTRODUCTION
2
3. THE APPEAL OF EMPLOYER TAX CREDITS
4
The Funding Vacuum
4
Current Employer Involvement in Child Care
4
Employer Tax Credits: The Top of the List
5
Chart I - Employer Tax Credits: The State
of the States
7
4.
WHO USES EMPLOYER TAX CREDITS?
8
Which Employers Are Attracted to Employer
Tax Credits
8
The Numbers Game
10
Chart II - Key Elements and Estimated Costs
of Employer Tax Credits for Child Care
11
5. THE PROBLEMS WITH EMPLOYER TAX CREDITS
13
The Policy Perspective
Employer Tax Credits: Inefficient
13
And Potentially Expensive
13
"Feel Good" Legislation?
15
The Corporate Experience
Limited Eligibility
15
A Factor in Corporate Decision-Making?
16
Employer Tax Credits: Misdirected Money?
16
Is the Government A Reliable Partner?
17
6. RECOMMENDATIONS
18
7. APPENDIX I
21
8.
APPENDIX II
23
9.
APPENDIX III
28
10. FOOTNOTES
31
11. BIBLIOGRAPHY
36
PREFACE
An investment in quality child care can have dramatic
public and private benefits. It can expand the labor force,
enable single mothers to work and to become self-sufficient,
help families improve their standards of living, provide
children with a healthy head start, and improve employee
productivity by reducing turnover, absenteeism, and
work/family-related stress.
The current system of child care delivery in the United
States provides neither an adequate supply, nor the quality
necessary, to ensure that children are well-cared for so that
parents can work without distraction. Nor does it enable
employers to attract additional workers to a labor force that is
currently growing at half its 1970 rate.
Because child care throughout the nation is financed by a
patchwork of funding streams, the sum of which is inadequate, the
fundamental question facing decision makers is "How can we pay
for quality child care?"
Parents can't do it alone. Quality child care is expensive
to provide and therefore, to purchase. The average cost of
full-time care for one child ranges from $2,000² to $3,000 3 per
child per year. Data from the National Institute of Child Health
and Human Development indicate that poor families pay a larger
percentage of their income for child care than non-poor families
-- 21 to 25%, compared to 8 to 10%. 4 Families that cannot afford
to pay for good care make one of several "choices": they work
fewer hours, they buy lower quality or fewer hours of care, they
leave their children unattended, or they drop out of the labor
force altogether.
Child care is, or can be, financed by a range of sources:
the Federal government, state and municipal governments,
employers, and parents. There are a variety of financing
strategies that can be followed: generate new general state and
federal revenues or allocate existing ones to child care; center
child care delivery in the public schools and finance it through
property taxes; offer financial incentives to employers to
encourage them to offer child care benefits to their employees,
to name a few. The right mix can make quality child care
available for all parents who need it.
This report focuses on state Employer Tax Credits for
employers who provide some form of child care assistance to
their employees. Employer Tax Credits are only one of many
possible ways to fund the expansion of child care. CCAC has
focused attention on these credits, in this first of a series of
reports on state financing alternatives for child care, because
of the growing interest in Employer Tax Credits by legislators
eager to establish such policies.
1
EMPLOYER TAX CREDITS FOR CHILD CARE:
ASSET OR LIABILITY?
INTRODUCTION
There is a clear link between an investment in quality child
care and economic prosperity, both for individual firms and for
the nation as a whole. 5 This connection, along with the changing
demographics of the labor force and the revolutionary changes in
family life, is motivating elected officials and corporate
leaders to pass legislation and initiate new programs that will
address the child care crisis millions of American parents
experience everyday.
In this, the first of a series of Child Care Action
Campaign (CCAC) Special Reports on Child Care Financing
Alternatives, CCAC looks closely at one approach that states are
using to attempt to increase the supply of child care: Employer
Tax Credits for businesses that establish a child care benefit. *
Employer Tax Credits reduce the amount of state taxes due,
dollar for dollar, for businesses with a tax liability. While
employers can already deduct child care costs from their gross
income as a legitimate business expense on their Federal taxes,
such deductions reduce the income subject to taxation. Credits
reduce the total amount due. 6
The goal of Employer Tax Credits is twofold:
(1) to involve more employers in providing some form of
child care; and
(2) to increase the supply of child care.
Are Employer Tax Credits an effective and efficient use of
public resources? Do they generate more child care? Are there
better ways to reach the goal and still spend the same amount of
money?
In an effort to evaluate the effectiveness of Employer Tax
Credits, CCAC examined the quantitative data and conducted
extensive interviews with public officials, corporate leaders,
financial analysts, and child care advocates in the 13 states
with established tax credit policies. CCAC also spoke to
individuals in other states that have considered, but so far
rejected, such initiatives.
* See Appendix I, page 21 for a more detailed discussion of
child care options for employers.
2
While it is too soon to permit an exhaustive evaluation of
the effectiveness of Employer Tax Credits, some preliminary
conclusions can be drawn. CCAC's research indicates that
Employer Tax Credits may induce a limited pool of employers to
offer their employees some kind of child care benefit. But
Employer Tax Credits alone have, at best, a marginal impact.
They can, however, be one part of an overall state response to
the growing need for child care.
3
THE APPEAL OF EMPLOYER TAX CREDITS
The Funding Vacuum
During the 1980's, states played a growing role in
addressing the need for better, and more affordable, child care.
The Federal government cut back on child care spending which
created a funding vacuum and motivated some states to act. 7 But
other factors were, and continue to be, at work too. Because
mothers of young children are the fastest growing segment of the
labor force, 8 and because the number of children and women living
in poverty has increased, 9 the need for child care has soared.
State decision makers are struggling to find a way to
leverage limited public monies to address the need for child
care most effectively. In 1987, 32 states passed approximately
125 pieces of legislation related to child care and early
childhood education. 10 In 1988, state legislatures considered
more than 500 bills related to child care. 11 An increasing
number of state legislatures have created special committees on
children and child care. 12 Governors from across the country are
establishing task forces on child care and calling for renewed
attention to the issue.
But states have been unable to keep up with the
skyrocketing demand for child care: 23 states are actually
serving fewer children now than they did seven years ago. 13
With limited dollars, and a growing need for child care, states
are looking for ways to encourage private sector involvement in
child care.
Current Employer Involvement in Child Care
Employers are increasing their role in responding to the
child care crisis. Of the nation's six million employers 4,100
offer their employees some form of child care assistance. 14
That
is a 400% increase in just five years. While the employers most
likely to offer child care assistance have tended to be large
corporations, more and more small to medium-sized companies are
becoming involved in child care. 15 However, employers involved
in child care still represent a tiny percentage of U.S.
employers.
At the same time, the enormous amount of attention that the
media pays to employers that offer child care distorts how
involved corporations really are: Most employers still don't
view child care as a business issue. Even the majority of those
considering providing child care benefits to their employees
perceive many obstacles to their involvement. Among the
perceived obstacles are: the cost of child care aid, potential
exposure to equity issues and liability lawsuits, and the
difficulty of implementing any kind of new benefit.
4
Employers who do provide child care benefits to their
employees report considerable returns on their investment. Two
of the three national surveys on employer-supported child care
indicate that the most significant benefit to employers for
providing child care is the advantage in recruiting, while the
third survey identified retention of employees as the only item
ahead of recruitment that is enhanced by providing child care. 16
Accordingly, child care is a particularly attractive option
during labor shortages.
Employer Tax Credits: The Top of The List
States are offering a variety of financial incentives,
mostly in the form of tax relief, to employers to increase
business's currently limited involvement in child care. In
addition to Employer Tax Credits, options include Neighborhood
Assistance Plans to encourage economic development in low-income
neighborhoods, state tax deductions for child care as a business
expense, direct grants to employers, and accelerated depreciation
of child care costs or investments. A recent survey of state
policies on employer-supported child care found that 8 states
offer grant programs, 10 states have loan programs, and 16 states
provide linked deposit loans.
17
More and more state legislators are finding Employer Tax
Credit programs particularly appealing. In 1983, only four
states -- Connecticut, Michigan, New Mexico and Ohio -- had
established Employer Tax Credits. Today, 13 states offer
Employer Tax Credits: California, Connecticut, Kansas, Maine,
Maryland, Mississippi, Montana, New Mexico, Ohio, Oregon,
Pennsylvania, Rhode Island, and South Carolina. Three of these
passed in 1989. At least 57 Employer Tax Credit bills were
pending in 21 states during the 1989 state legislative session.
In seven of the 13 states with Employer Tax Credits in place,
legislation is pending that would expand or improve the policies.
[See Chart #I, pg. Employer Tax Credits: The State of the
States. ]
Many state legislators say Employer Tax Credits are
important not only for what they are supposed to do, but also
for the message they send to employers that the state is
committed to child care and to helping employers confront their
changing needs. A member of Wisconsin's Lieutenant Governor
Scott McCallum's staff says, "Tax credits send a message to
employers that the state is putting its money where its mouth
is
18 Other legislators view Employer Tax Credits as a way
to "enlighten the business community" and "to foster
public-private partnerships. 19
Legislators also agree that establishing an Employer Tax
Credit via the state tax code avoids the stigma sometimes
associated with acceptance of a direct government grant or
subsidy.
5
The business community is attracted to Employer Tax Credits
too. National surveys of corporate leaders and CCAC's
interviews with employers reveal that employers support tax
forgiveness policies, including tax credits, for child care.
Seventy-one percent of the 1, 511 human resource professionals
surveyed by the American Society for Personnel Administration
said that employers should be given tax credits for providing
child care.
20
State surveys reflect similar employer support for such
financial incentives as Employer Tax Credits. A survey for The
New York State Commission on Child Care found that financial
incentives were favored by about half the respondents, regardless
of the size of the company. 21
6
Chart #I Employer Tax Credits: The State of the States
WA
ME
MT
ND
VT
OR
MN
NH
NY
MA
ID
WI
SD
RI
CT
MI
WY
PA
IA
NE
OH
NV
MD
IL
DC
IN
WV
CA
UT
CO
VA
KS
MO
KY
7
NC
TN
OK
AZ
AR
SC
NM
MS
AL
GA
TX
AK
LA
M
FL
HI
States with tax credit laws
States with pending tax credit legislation
Seven states with employer tax credit laws - California, Connecticut, Ohio, Oregon, Pennsylvania, and Rhode Island - also had bills pending in 1989.
WHO USES EMPLOYER TAX CREDITS?
CCAC research indicates that Employer Tax Credits are
attractive to, and can induce, some employers with corporate tax
liability to establish child care benefits. However, data from
states that do offer Employer Tax Credits show that fewer than 1%
of all eligible employers claim these tax credits.
Which Employers Are Attracted to Employer Tax Credits?
1.
Employers who already provide child care benefits to their
employees sometimes claim tax credits to expand their
current child care benefits.
According to Paul Proett, Manager of Family Services for
Apple Computers in California, the Employer Tax Credit is
playing a significant role in the company's tentative plans for
doubling the capacity of its child care center from 70 to 140.
The company is waiting to see how high its profits are before
making a final decision on the expansion of its child care
22
program.
While Apple decided to provide child care before California
passed its Employer Tax Credit legislation, it is claiming the
credit for its existing program, recovering about $100,000, or
more than 20%, of the child care costs. Proett says the Employer
Tax Credit program helps, not only in meeting costs, but in
appeasing managers who are skeptical about the cost of
establishing a child care program.
23
Minnesota State Senator Glen Taylor, a small business owner
and a sponsor of the Minnesota 1989 Employer Tax Credit
legislation says: "I don't know that it brings in new employers,
but it encourages progressive businesses to expand their child
care efforts. ..24
Pam Goodman, Benefits Coordinator at AVIA Athletic Footwear
in Portland, Oregon, says that AVIA's decision to establish a
consortium-sponsored on-site child care center did not depend on
the Employer Tax Credit. However, the credit allowed them to
expand their program to include subsidies to employees. 25 If
a
family's annual adjusted income is $27,000, the family is
eligible to receive a 25% subsidy from the company for one child
in full-time care, reducing the cost from $98 to $73.50 a week.
The center currently serves 11 of 250 employees. 26
Interestingly, their local competitor is now also considering
offering a child care benefit. 27
2.
Businesses that are considering a child care benefit for
their employees often view an Employer Tax Credit as a
"final motivator" -- a way to speed up the corporate
decision-making process.
28
8
Those who can take advantage of Employer Tax Credits for
child care tend to see them as "an attractive part of our
options,' according to Jane Myers, Personnel Manager of Westwood
Industries, a furniture manufacturer in Tupelo, Mississippi. The
company is considering providing child care benefits to its
employees and may claim the Employer Tax Credit. 29
Sharon Fratantuono, Employee Relations Administrator of
Allied After Market, a car parts manufacturer in East
Providence, Rhode Island, concurs: Although the availability of
the tax credit was not the primary reason for her company's
interest in child care, she says it "will help our cause" as the
company's child care plan awaits approval. 30
3.
Many companies that pay relatively low-wages and low
benefits, for whom cost may be the main obstacle in a
decision to provide child care benefits, say Employer Tax
Credits make the difference.
Margaret Derus, Administrator for Research and Analysis for
the Wisconsin Department of Revenue says: "There are a very
small number of employers where a tax credit would be a factor in
an employer's decision
tax credits would only seem to make a
difference to those employers at the margin. 31
Two such employers taking advantage of Oregon's program said
the amount of the credit was the determining factor in their
decisions to provide child care assistance. Jo Rymer, General
Manager of Pro-Tem, a temporary employment agency in Portland,
Oregon, said that after sitting on the fence about whether she
could afford to provide child care benefits to her employees, the
Employer Tax Credit gave her "the courage to jump in. 1132 Another
Oregon employer says, "We couldn't have afforded to offer it [a
child care benefit] without the tax credit. 33
Findings of an informal survey conducted by the National
Conference of State Legislatures (NCSL) indicate that there are
employers for whom an Employer Tax Credit is a factor in the
decision to provide child care. Twenty-two of the 34
corporations who claimed the Connecticut Employer Tax Credit in
1988 responded to the survey. NCSL found that 11 of the 22
companies would have provided the employee child care assistance
without the credit. The remaining 11 said that the state support
was "crucial" in their decision. 34
However, the survey did not address many of the critical
issues: Were the businesses already offering a child care
benefit? Would they halt the employee benefit if the tax credit
were no longer in place? What did "crucial" mean to the
respondents?
9
The Numbers Game
The effectiveness of Employer Tax Credits is further
limited because so few companies take advantage of them. Most
of the states with Employer Tax Credit laws have little
information available on rates of use, because either there is
no tracking mechanism in place or the laws have just recently
been passed. Where information about use is available, data
show that the number of employers claiming the Employer Tax
Credit has been low to non-existent -- less than 1%.
[See CHART #II, pg. 11-12: Elements and Costs of Employer Tax
Credit Laws.]
CONNECTICUT's employer tax credit programs went into effect
in 1981. The state offered a 25% credit, to a maximum of
$10,000, for the "planning, purchase, or renovation" of a child
care center. Between 1981 and 1983, no company claimed the
credit. 35 Currently, the law covers the first $20,000, or 40%,
of the capital costs of an on-site center and $75,000 or 50% of
purchased care expenses. There is a state spending limit of
$1,000,000 each. The credit program for purchased care expenses
is being used: in 1987, 22 companies claimed the Employer Tax
Credit at a cost of $96,000. In 1988, 34 businesses claimed it
at a cost of $309,000; and in 1989, 45 companies are expected to
file for the Employer Tax Credit, at a cost of an estimated
$709,000. Far fewer employers claimed the credit for capital
costs. Since 1987, only one company filed for start-up Employer
Tax Credit at a cost of $3,640. 36
MICHIGAN offered its employers an Employer Tax Credit
between 1981 and 1983. During that time "no more than a dozen"
employers took advantage of the credit. 37
NEW MEXICO administrators estimate that only one business
has ever used its Employer Tax Credit, at a cost to the state of
about $2,000 since 1983. 38
OREGON's Child Care Coordinator Mary Louise McClintock
estimates that in the years 1987-1989 fewer than 10 businesses
used the credit. For the 1989-91 period, McClintock projects that
25 to 30 businesses will claim the credit for resource and
referral services and that four businesses will take advantage of
the on-site care option. 39
RHODE ISLAND Tax Department administrators have no
projection for how many employers will use the credit. 40
However, the National Conference of State Legislatures suggests
that approximately five Rhode Island employers will claim the
Employer Tax Credit in 1988-89. 41
The use of Employer Tax Credits has increased in only two
states -- Oregon and Connecticut -- and even those increases
have been slight. In 1989, only 45 out of the 80,000 eligible
Connecticut companies claimed the Employer Tax Credit. 42
In
Oregon, roughly 40 companies out of roughly 20,490 are expected
to claim the tax credit in 1989. 43
10
Chart #II Key Elements and Estimated Costs of Employer Tax Credits for Child Care
Carry
Participation
Enactment
Expiration
State
Activity Covered
Maximum Credit
State Cap
Forward/Back
Estimated Cost
Rates
Date
Date
California
Purchased Care
50%
$300/Part-time program/
No
5 succeeding years
1988: $8-9 million
Unknown
1988
1992
child/year
50%
$600/Full-time program/
child/year
Start-Up Expenses
30%
$30,000/employer
Resource and Referral
30%
$30,000/employer
Connecticut
Purchased Care
50%
$75,000/employer
$1 million
5 succeeding or prior
1987: $96,000
1987: 22
1986
years
1988: $309,000
1988: 34
1989: $709,000
1989: 45
Start-Up Expenses
40%
$20,000/employer
$1 million
3 succeeding years
1987: $3,640
1987: 1
1986
Kansas
Purchased Care (on-site
30%
$30,000/employer
$3 million
No
Unknown
Unknown
1989
1993
11
operating only)
Start-up Expenses
50%
$45,000/employer
Maine
Financial Assistance for
20%
$5,000/employer or
No
15 succeeding years
Unknown
Unknown
1987
ex-AFDC Recipients
$100/child
or 3 prior years
Maryland
Improvements to Real
Up to local discretion
No
No
Unknown
Unknown
1987
1991
Property
Mississippi
Purchased Care
25%
No
3 succeeding years
Unknown
Unknown
1989
Start-up Expenses
25%
Montana
"Dependent care
15%
$1,250/employee
No
5 succeeding years
Unknown
Unknown
1989
actually provided to or
on behalf of an
employee"
New Mexico
Purchased Care
30%
$30,000/employer
No
3 succeeding years
$2,000 1
1983
(C
d)
Carry
Participation
Enactment
Expiration
State
Activity Covered
Maximum Credit
State Cap
Forward/Back
Estimated Cost
Rates
Date
Date
Ohio
Financial Assistance for
$300/child for up to first two
No
No
Unknown
Unknown
1982
1992
Employees in Enterprise
years of employment
Zones
Oregon
Purchased Care
50%
$2,500/employee
No
5 succeeding years
1987-89: $250,000
Less than 10
1987
1992
businesses
Resource and Referral
50%
$2,500/employee
1989-91: $700,000
25-30 businesses
Start-Up Expenses/
50%
$100,000/employer or
2 businesses
Improvements to Real
$2,500/employee (can only
Property
claim 10%/year over a
maximum of 10 years)
Pennsylvania
Financial Assistance for
$600/employee for first year
No
No
Unknown
0
1985
ex-AFDC Recipients
$500/employee for second year
$400/employee for third year
Rhode Island
Purchased Care
"30% of
$30,000/employer
No
Purchased Care may
Unknown
Unknown
1988
60%"
not be carried over;
(approx.
others may be carried
18%)
over for 5 succeeding
years if the facility is
in operation for at
least 6 months
Start-Up/Operating
30%
$30,000/employer
Expenses
Foregone Rent/Lease
30%
$30,000/employer
South Carolina
Purchased Care
50%
$3,000/employer
No
10 succeeding years
1989: $1.2 million
Unknown
1989
Start-Up Expenses
50%
$100,000/employer
Start-Up Expenses: Capital investment for establishing an on-site, or near-site, child care center for employees' children.
Purchased Care: The purchasing of child care services for the dependent children of employees, including operating expenses of on-site, or near-site care, unless otherwise noted.
Resource and Referral: The provision of services to help employees find and obtain child care.
THE PROBLEMS WITH EMPLOYER TAX CREDITS
Few employers are claiming Employer Tax Credits. Those
employers who do not say it is because tax credits for child care
do not offer enough of a financial incentive or that they are not
yet prepared to make the investment in child care benefits --
with or without an Employer Tax Credit.
The Policy Perspective
Employer Tax Credits: Inefficient
Policy makers question the wisdom of creating social policy
through such passive means as altering the tax code.
Some state legislators, and many economists, argue that
Employer Tax Credits alone are an inefficient way to implement
any public policy, including one that aims to create more child
care. Tax credits are also a poor way to spend limited state
public resources. Illinois State Representative Woods Bowman, an
economist by training, says:
"Tax credits
go to all the same businesses who are
already reaping the benefits of having child care in the first
place. Since some people provide child care anyway, why pay for
something they're already doing?
Tax credits cost the state
an awful lot of money per kid benefited and they have a
negligible impact on the supply of child care. ..44
Dana Friedman, Co-President of Families and Work Institute
and Vice-President of CCAC, agrees: "Why are we selling
companies on the notion that tax credits are the best
incentive, " she says, "when they're already getting a financial
benefit by providing child care? 45
And Potentially Expensive
Currently, few businesses claim Employer Tax Credits.
However, if more employers did, Employer Tax Credits could be
potentially expensive.
Employer Tax Credits do not appear in a state's annual
budget. Some people, consequently, may think they are "no-cost"
or "free"
46
However, any kind of tax credit costs the state in
foregone revenues. From a budget analyst's perspective there is
no difference between spending $250,000 and not collecting
$250,000; either way, the state's coffers are $250,000 lower.
Several states have rejected the idea of an Employer Tax
Credit program precisely because of the potential program costs.
For example:
13
The CALIFORNIA Department of Finance opposed the Employer
Tax Credit initiative because of the potential major loss in
general fund revenues. 47 The state's Franchise Tax Board also
did not support the recently passed Employer Tax Credit because
of the difficulty in assessing its fiscal effect. The Board
estimated that revenue losses could reach $5 million to $9
million. They based their estimates on the following
calculations:
1)
On Site Child Care Facility Development. Tax revenue
lost in the first year would be $150,000, based on a
20% growth rate and use of the maximum credit for
start-up of $30,000 ($30,000 X 5 new on-site child care
centers).
2)
Resource and Referral. Lost tax revenue would total
$3.6 million, assuming that 10% of California employers
with over 300 employees were to contract with resource
and referral agencies with an average contract of
$20,000.
3)
Financial Assistance. If the total number of employers
providing employee child care assistance -- vouchers,
for example -- made up 1/10 of 1% of all California
employers, the state would lose about $6 million in tax
revenues if tax credits were claimed. But they could
lose even more -- as much as $20 million annually --
depending on the number of employers who claim the
credit. 48
FLORIDA feared that a well-marketed tax credit program might
be "so popular that it would bankrupt the state. 1149 Instead, it
established a deduction plan for the start-up costs of child care
and a grant program to encourage employers to establish child
care benefits.
RHODE ISLAND's Division of Taxation resists any attempt to
estimate the cost of their program because it is so difficult to
assess accurately at this time in their tax cycle.
50
TENNESSEE considered and then decided against offering
Employer Tax Credits in 1987. State officials believed a credit
would have drained state revenues too drastically.
51
A WISCONSIN Department of Revenue report recommended that
Wisconsin not institute an Employer Tax Credit for child care.
The study found that a 30% Employer Tax Credit, based on federal
estimates of the value of the current individual income tax
exclusion for employer-provided child care, would cost the state
$3.4 million in 1989-90 and $5.6 million in 1990-91. 52
Employer Tax Credits are popular to some because they are an
off-budget item and so, not debated in the context of other
social or infrastructure investments. As Ohio State
14
Representative Jane Campbell says: "If tax credits were an item
to go through the normal appropriations process, like money for
education
like housing for the homeless, tax credits to
employers wouldn't make the cut. 53
Employer Tax Credits: "Feel Good" Legislation
An Employer Tax Credit is sometimes the only child care
policy legislators are willing to consider. It becomes the
child care bill, winning out over other worthwhile, and in many
cases, more effective, child care initiatives: improving the
quality of care; coordinating existing services; increasing the
affordability and accessibility of care for parents; and actively
encouraging business to participate in the child care solution.
*
If an Employer Tax Credit bill passes, the legislature may
perceive that child care has been "dealt with."
Delaware State Representative Jane Maroney describes tax
credits as often a "feel good type of legislation. They're neat
and tidy, " she says, "but don't deal with the real issues of
child care. They do allow a legislator to say 'I'm doing
something on child care. 11154
The media reinforces this perception by focusing its
coverage on Employer Tax Credit programs and employer-sponsored
child care, to the exclusion of other legislative initiatives
that may actually do more to improve supply and quality and
reduce fees for child care. According to one child care
advocate: "This small program of tax credits probably receives
more publicity than allocations made for real programs
like
direct subsidies, state funded day care centers, personal tax
credits. 1155
The Corporate Experience
Limited Eligibility
Employer Tax Credits are, in theory, an incentive offered to
the whole business community. However, many employers are
ineligible to claim such credits. In other cases, employers find
the credit of little import.
The highest state corporate tax rate is 12%, which means
that many corporations pay very little in state income taxes in
the first place. 56 Moreover, some states, like Texas and Nevada,
have no corporate tax at all.
57
*
See Appendix II, page 23, for a more thorough delineation of
CCAC's comprehensive child care approach.
15
In the states that do levy corporate taxes, there are many
employers who do not have to pay -- not-for-profit entities,
government agencies, some insurance companies, and, in those
states which allow it, businesses electing "Subchapter S" status
in which taxes are paid through personal income tax. 58
For
example, the largest providers of on-site child care are
hospitals, many of whom are not-for-profit; they will never be
eligible to claim Employer Tax Credits. 59 There are also many
companies that report no profits, and therefore have no tax
liability. Some profitable companies who do business in more
than one state can shift income around in order to avoid paying
taxes. Of 190,000 business returns in Michigan, for instance,
fewer than half had any tax liability. 60 Employer Tax Credits do
not induce any of these employers to offer a child care benefit.
Finally, Employer Tax Credits are worth less to employers
than is apparent at first glance, because a reduction in state
tax liability increases the corporation's federal tax liability.
A Factor in Corporate Decision-Making?
"Employers who understand and need to offer a child care
benefit are willing to do so with or without a tax credit,"
according to Elliot Lehman, Co-Chairman of FEL-PRO, Inc., a
gasket manufacturing company. "Tax credits, in and of
themselves are not why business chooses to provide child
"
61
care
Employer Tax Credits, in and of themselves, do not provide,
but can be a vehicle, to educate the business community about the
rewards of offering a child care benefit to its workforce.
Employers must first recognize the potential benefits of
addressing employees' child care needs, then they must understand
the options available to them, and finally, they must have a
clear way of implementing the benefit. As one Massachusetts
employer says: "Tax credits will never be a large enough
incentive to make it worth it [to provide child care benefits to
employees] to those companies who aren't interested in the first
place. 62
Employer Tax Credits: Misdirected Money?
Employer Tax Credits, as currently written, tend to be
geared towards expanding the capital available for creating new
services. However, because child care is a labor intensive
industry, a child care program's operating costs, not its
start-up cost, are the more difficult to finance. According to
Gwen Morgan, a nationally-respected child care expert who is a
Lecturer at Wheelock College and a CCAC Board member, 82% of the
on-site centers launched between 1960 and 1974 failed because
employers were
" concentrating on start-up, rather than
solving the more long-range operation expenses. 63 As one
Connecticut 1164 employer put it: "it's the operating costs that kill
you.
16
In turn, fewer employers seem to use an Employer Tax Credit
geared towards capital. In the three years that Connecticut's
tax credit law has been in effect, only one employer, Champion
International, has used the capital-oriented tax credit to
establish an on-site center for the children of both employees
and community residents. 65
Moreover, Dana Friedman argues, it is important "
to
encourage employers to assume on-going operating costs rather
than start-up costs, so that fees can be lowered and the program
made affordable to more families
Tax credits
solely for
start-up costs of day care centers will not ultimately serve the
more vulnerable populations about which government should be most
concerned. 1166
Is the Government A Reliable Partner?
Employers are also suspicious about any government program,
including Employer Tax Credits, on the grounds that what the
government gives, the government can take away. In the words of
Randy Helfert, Vice-President of Human Resources of ABQ Bank in
New Mexico: "Any employer would be hesitant to start a program
based on a government program like tax credits. 1167 According to
Gwen Morgan: "Employers generally have preferred tax
approaches
[but] even then, do not participate unless the tax
provision is stable over time. 68
Employers are also deterred by the administrative paperwork
involved in gaining access to government incentives.
69
17
RECOMMENDATIONS
Although most of the available information on Employer Tax
Credits shows that they are an inefficient and expensive way to
expand a state's child care delivery system, the number of state
Employer Tax Credit bills is expected to increase due to
political and fiscal considerations. In the last year, CCAC has
received over a hundred inquiries from corporate leaders and
policy makers who want to know more about Employer Tax Credits
and how to establish them in their states.
States cannot, and should not, rely solely on Employer Tax
Credits to finance an expansion of child care. Tax credits can
be effective only if they are part of a comprehensive approach to
child care, one that aims to make good child care more available
to and affordable for all families.
Employer Tax Credits should not top the list of child care
proposals at the state level. Lieutenant Governor Howard Dean of
Vermont says:
"Tax credits might be nice because they are a strong signal
[to business] because money is involved. But they wouldn't
bring many employers into child care. We couldn't provide
enough money to really make it happen
and while tax
credits [can be] very helpful
are they the best way to
spend limited money? I think
not
tax credits are not at
the top of my list. .70
Child care resources must be planned for and coordinated at
the state level to ensure that there is a continuum of care and
that resources are wisely invested and efficiently used. Parents
and employers must be able to make informed choices. Employers
must be educated about what their options are and how they can
finance them. Because all sectors of society -- public and
private benefit from an investment in quality child care, all
sectors should share its costs.
But even as a part of a comprehensive funding package,
Employer Tax Credits are problematic. The way tax credits are
provided must be adjusted to make them feasible for both states
and employers -- and ultimately, of help to employees. If
Employer Tax Credits are not, they will continue to fail, even in
tandem with other child care financing and policies.
To make Employer Tax Credits more effective, states,
employers and child care advocates should:
1.
Expand the Child Care Options Covered.
Many employers already believe, and some legislators
assume, that on-site care is the only option available. In
fact, there are many, often more attractive, ways for employers
18
to get involved in child care which should be covered by Employer
Tax Credits: enhanced resource and referral, voucher payments,
the recruitment of family day care providers, and the
establishment of Dependent Care Assistance Plans. 71 Any Employer
Tax Credit legislation should cover a variety of child care
options.
Because child care is a labor-intensive industry, and
operating costs are generally burdensome, Employer Tax Credits
need to emphasize contributions for operating or enhancing of
existing systems and start-up capitalization equally to serve
employees better, at all income levels.
Offering a menu of child care options may also provide an
effective way to address the needs of low-income workers, more so
than those Employer Tax Credit programs that target employers who
employ low-wage workers. Connecticut gives preference to
applicant employers who employ low income workers. Pennsylvania
and Maine make the Employer Tax Credit program available only to
those employers hiring employees who have participated in Aid to
Families with Dependent Children (AFDC). These policies,
however, can unintentionally reward employers who pay low wages
over employers who offer economic opportunity and upward
mobility.
2.
Ensure Adequate Incentives.
The drafters of Employer Tax Credits should ensure that the
credits are large enough to induce employers, once they know
about them, to use them.
Incentives should also be structured as straight
percentages rather than as complicated formulas. Michigan's
Employer Tax Credit, now phased out, was calculated according to
a complicated formula. The total number of hours of child care
provided to each eligible child and paid by the employer were
divided by each child's total number of hours by 2,000. The
total was finally multiplied by $45. 72 Many argue that this
confusing formula contributed to the low participation rate of
employers in the program.
3.
Guard Against Overall State Ceilings.
States should avoid setting a ceiling on the amount of money
that employers can claim for credit. Such ceilings may
discourage the participation of the very employers the credit is
intended to. attract.
Ceilings may also make a state wary of marketing the credit
aggressively. For example, a report to the Connecticut General
Assembly in January, 1989 warns: "A measured approach to
marketing is imperative to avoid the necessity of shutting off
applications when the annual ceiling is achieved. 1173 The
success of any credit depends on convincing employers that their
19
investment in child care makes good business sense, and
encouraging them to use the credit.
4.
Institute Fiscal Accountability.
The need to give employers a financial incentive must be
balanced against how much the credit costs the state, and,
whether it will drain funds from other, more direct, child care
programs. The total cost of Employer Tax Credit programs is
difficult to predict, let alone control. The program carries a
small price tag when only a few employers take advantage of it.
Yet, this limited response undermines the purpose of the
legislation -- to stimulate the creation of more affordable child
care by employers.
5.
Develop a Marketing Plan.
Establishing an Employer Tax Credit is not enough to
encourage employers to become involved in child care. A state
must also market the package. Employers must be told about the
credit, and be clearly instructed on how to claim it. They
should also be briefed on what other child care options are
available to them, and how they can implement them.
In 1988, the Connecticut Department of Human Resources'
Bureau of Evaluation and Review surveyed Connecticut employers to
find out why so few employers took advantage of the Employer Tax
Credit. They found that the lack of participation was a result,
in part, of poor marketing. 74
Good marketing would increase the use of tax credits and the
benefits of child care to employers as well as increase their
understanding of the state's commitment to child care. It
would, of course, also increase the total cost of the Employer
Tax Credit program.
6.
Establish an Annual Reporting Mechanism.
For Employer Tax Credits to be adequately evaluated, data
must be collected through a built-in mechanism on an on-going
basis. Currently, Connecticut is the only state that has
available data on the number of employers who claim the credit,
the type and size of those employers, the cost to the state, and
the impact on child care for the state. Other states that have a
tracking mechanism include California, New Mexico, Oregon, and
Rhode Island.
75
7.
Work with the Business and Child Care Communities.
Employer Tax Credit programs should be developed in
partnership with the business and child care communities.
20
APPENDIX I
Employer-Supported Child Care: Current Options and Trends
U.S. employers first provided child care assistance during
World War II when women were actively recruited into the labor
force and child care was considered a necessary incentive in the
overall war effort.
Today, an estimated 4,100 employers across the country
provide some form of child care assistance to their employees.
Many of these employers are hospitals or high growth companies
that want to attract and retain trained workers. The nationwide
increase in the number of two-earner couples and single parents,
along with the decline in the growth of the labor force, is
leading more and more employers to consider the advantages of
providing child care assistance.
In the early 1970's, most companies thought of an on-site
day care center as the only way to meet employees' child care
needs. Today there is both interest in, and experience with, a
range of employer supported child care options:
PROVIDING DIRECT SERVICES
On-site or near-site centers. Companies may OWN and operate
their own child care facility, construct a center and donate it
to non-profit employee-operated groups, or contract with a
for-profit or not-for-profit organization to rur a center for
company employees.
Consortium centers. A group of employers, sometimes together
with a community agency and/or a union, may form a
not-for-profit corporation to fund a day care center
conveniently located to all firms contributing to the
consortium.
Family day care networks. Employers contract with local
agencies to recruit, train, and assist people to become licensed
child care providers in their own homes. Family day care
programs may be particularly appropriate for infants and can
offer flexible hours for people who work odd shifts.
Emergency services. Employees report that making emergency
arrangements -- especially when a child is mildly ill -- can be
especially difficult. Employers can help pay for special sick
child infirmaries or family day care homes, or for health care
workers who go to the child's home.
Summer day camps. These are often organized by community
agencies or unions and partially subsidized by the company.
21
PROVIDING INFORMATION
Child care resource and referral programs (CCR&R). These
services are provided through in-house sources or by contract
with a community based resource and referral agency. They may
inform employees about the different forms of child care in the
community: part and full day centers, family day care, group
family day care homes; know which programs have vacancies and
have detailed information about each service; help parents choose
the best arrangement for their child; help new child care
programs get started; and speak out on child care issues.
Parent education seminars. Staff or outside consultants
organize forums to inform working parents about resources in the
community and to provide support on work and family issues.
PROVIDING FINANCIAL ASSISTANCE
Child care benefits. Subsidy and discount programs, Dependent
Care Assistance Plans (DCAP) or reimbursement accounts for child
care may be used to assist eligible employees with all or part of
their child care costs.
Flexible or cafeteria-style benefits. Such plans offer child
care as one of a range of optional benefits and allow employees
to choose an employer-subsidized package best suited to meet
family needs. This allows the employer to offer child care to
employees without increasing the total cost of benefits.
Salary reduction or salary set-aside. An employee may elect to
exchange a portion of salary for a non-taxable child care
benefit.
Voucher programs. An employee may select a child care program
and submit an employer-financed voucher to the provider, to
cover all or part of the cost of the services. This alternative
gives parents full responsibility for choosing their child care
provider.
PROVIDING FLEXIBLE PERSONNEL POLICIES
Employers can support the child care needs of their
employees by instituting various flexible personnel
policies--often with no increase in direct benefit expenses.
These include flextime, sick child care leaves, part-time
schedules, job-sharing, extended maternity and paternity
benefits, and work-at-home plans.
Establishing such policies lets employees know that the
employer is aware of and concerned about employees' efforts to
balance the demands of work and family life. The option, or set
of options a company selects will depend on the particular needs
of management, employee needs and preferences, and community
resources.
22
APPENDIX II
CCAC's Recommendations for a Comprehensive Child Care Policy for
The United States
I. WHAT THE FEDERAL GOVERNMENT SHOULD DO
The Federal government's involvement in child care is
itself a patchwork of demand and supply-side subsidies, with no
overriding policy to guide the development of additional supply,
to increase access or to improve quality. Therefore, it should:
1.
Establish a national child care office.
There is no single Federal department or agency to plan or
coordinate the Federal government's role in providing child care.
The mushrooming demand for child care at all income levels makes
Federal leadership for child care imperative. The Federal
government's role must be to provide leadership that encourages
Federal, state, local and private funds to help parents pay for
care; to establish minimum regulatory standards; to provide
technical assistance to the states; and to collect data on the
changing supply and demand for child care, and on parental
preferences.
2.
Establish a new and separate funding stream for child care.
The overwhelming requirement for expanding the supply and
improving the quality of child care is for significant new
investment to make child care more affordable. The
administrative anarchy of current child care assistance is
paralleled by the inadequate amount of Federal money that is
allocated for child care.
The financing mechanism should be a stable source of funds,
safe from the vagaries of politics. It must be separate from
Title XX, the Social Services Block Grant. It should provide a
basis for states and localities to plan and coordinate the
appropriate use of their own resources. The monies could come,
for example, from general tax revenues, or a separate Social
Security-like trust fund. The national Office of Child Care could
administer the funds, and monitor their use.
3.
Maintain the Dependent Care Tax Credit.
The shifts in the economy and the labor force, coupled with
the high cost of quality child care, mean that all families need
at least some help with child care. The Dependent Care Tax
Credit is one form of such assistance. Child care is an expense
incurred in the process of generating income. The Dependent Care
Tax Credit recognizes that families who must pay for child care
in order to work have less money available to pay taxes than
23
families with the same income who do not need to pay for child
care. The credit should be higher at lower income levels, and be
reduced progressively as income increases until it reaches zero
at the point of affordability. The cap on annual expenditures
should be raised, to reflect current market realities and the
need to pay high salaries to caregivers. Making the credit
refundable, in conjunction with these other adjustments, would
also enable low-income families to increase their earnings and
help them to move out of poverty.
4.
Expand Head Start.
The current incarnation of Head Start is inadequate for two
reasons. First, it is almost universally a half day program.
Working parents must make other child care arrangements for their
children for the other half of the day. Second, Head Start has
never been able to serve more than 16 to 17% of eligible
children. The overwhelming majority of poor three and four-year-
olds, along with their younger counterparts, are excluded from
the programs.
5.
Establish Federal regulations on minimum standards.
Child care standards currently vary from state to state. In
some states, the regulations are consistent with what we know
about quality. In others, they fail to guarantee even minimal
levels of safety and health for the children in care. Moreover,
employers interested in providing some form of child care benefit
are bewildered by the wide variation in standards from state to
state.
There are several components of quality which can be
quantified, and which are essential to basic levels of health,
safety and sound developmental practice: child/staff ratios;
group size; training of providers; parental access; health and
safety standards.
The Federal government should set minimum standards in these
five areas, in consultation with national experts and the states.
6.
Raise direct subsidies to parents.
Parents now bear most of the cost of child care. Many
cannot afford the average cost of care. Raising standards of
child care usually means that the cost of child care increases.
Therefore, raising quality means helping parents to pay for that
part of child care that they cannot afford, so that they are able
to keep their children in quality child care.
Subsidies should be based on a sliding fee scale. The top
of the scale should be set at the point of affordability,
enabling parents to use the same care as their income rises.
24
7.
Provide job-protected parental leave.
Family leave is an essential component on the child care
continuum. Parents must be able to adjust to their new role
during their first months as a family and require time to learn
about their child's needs as well as to find quality, affordable
child care. They should be able to do SO without worrying about
losing their jobs or their incomes.
8.
Encourage greater use of public school facilities for child
care programs.
The school day and school year are still based, in most
communities, on the needs of an agrarian society. The public
schools should house before and after school care especially for
school-age children and should include pre-kindergarten
facilities. The programs should cover longer days, or should
establish close links, including transportation, with other
child care resources in the communities. They should offer
developmental education for children from kindergarten through
second grade, and developmental programs for four-year-olds,
where they are needed and where schools want to expand their
responsibilities.
The Federal government should fund pilot programs to help
schools test models of school-based child care programs, which
involve community-based organizations in the provision of
services.
9. Collect and disseminate data.
The Federal government should collect and publish, on a
regular basis, information about the supply of child care, the
salaries of caregivers, the use of child care, and the fees
paid. Data collection on consumer demand should be integrated
into the Consumer Population Survey. Information on consumer
demand can be gathered from resource and referral agencies,
which have excellent knowledge of local needs and preferences.
II. WHAT STATE AND LOCAL GOVERNMENTS SHOULD DO
Because of the wide variation in the strength and stability
of state economies, the Federal government needs to develop an
overall policy in support of -- and funding for -- the child care
needs of families. The states need to develop specific plans and
programs to satisfy the child care needs of their constituents.
They also need to increase their investment in child care
commensurate with the benefits they get from improving and
expanding child care within the state: an improved business
climate, higher tax revenues, reduced welfare costs. Therefore,
state and local governments should:
25
1.
Raise the professional status and working conditions of
child care providers.
Trained child care professionals are essential to the
quality of the delivery system. Another major component of
quality -- consistency of care -- is jeopardized by a turnover
rate among child care providers that averages 60% annually.
Unfortunately the low pay and low status of child care providers
makes it difficult to attract and retain the quality providers
that children need, and that are such an important part of
quality child care programs.
To redress these inequities, providers' salaries must be
raised. Benefits, such as health insurance, workers'
compensation and unemployment insurance must be provided.
Improving training opportunities is crucial too. States should
establish loan programs that will enable potential child care
providers to get the training they need, and allow those already
working in the field to continue to develop their professional
skills.
2.
Implement minimum Federal standards and improve regulations.
Although the Federal government should be responsible for
establishing minimum standards for child care, the states should
have the job of administering these regulations and of adopting
additional standards that meet the particular needs of families
in their areas. Their role should include assessing the child
care needs of state residents, setting up licensing and
regulating procedures, monitoring compliance with the
regulations, and offering technical assistance to child care
centers and child care providers.
3.
Establish loan and grant programs to finance start-up and
renovation costs, and to assist with purchasing equipment.
Grants and low-interest loans to finance initial start-up
costs, renovation costs, and to help buy equipment will enable
child care providers to comply better with minimum health and
safety standards, as well as to maintain and improve the quality
of programs.
4.
Establish school-age child care programs.
Surveys in local communities find that as many as 25% of all
school age children are on their own for some part of the day.
States should establish before and after-school child care
programs for these students, taking into account these students'
transportation needs.
5.
Make child care part of any welfare reform initiative.
Many studies have shown that lack of affordable child care
prevents many single mothers on AFDC from looking for a job,
26
keeping a job, or seeking job training. The success of welfare
reform initiatives in California and Massachusetts is
attributed, in part, to the large child care component of each.
Single mothers cannot enter the labor force without affordable
child care. States' provision of child care as part of welfare
reform should include care during job training, while mothers
make the transition to the work force. Once they have been
employed, states should ensure that these families will continue
to have access to subsidized care.
6.
Expand resource and referral programs.
The success of any national system of child care depends on
the extent of the involvement of state and local governments;
planning and coordination cannot come simply as directives handed
down from the Federal government. Local resource and referral
agencies, which rely for funding on public and private sources,
are able to assess the child care needs of their constituents,
and then provide guidance that will mold programs to fit those
needs. One aspect of their involvement could include working
with local employers, to design child care assistance programs
that meet and fulfill the needs of parents and corporations.
III. WHAT EMPLOYERS CAN DO
See Appendix I.
IV. WHAT PARENTS AND THE PUBLIC NEED TO DO
In child care, parents are the most important constituents
-- both for themselves, and as their children's representatives
-- and more than likely, they have the least amount of time.
Therefore, Child Care Action Campaign suggests that parents:
1.
Speak out about their child care needs and ask for quality
support.
There are few roles as important as being a parent. In this
rapidly changing world, to assume this role responsibly, parents
need options. Parents have to do more than realize that child
care is not a personal problem, it is a public concern. They
must insure that policy-makers hear and address their concerns.
Parents need to talk about what their families
need---what's available and what's lacking; participate in local
discussions; write to legislators; look up voting records;
bring up child care with their employers. Collectively, parents
can rapidly move the issue further on the agenda.
2.
Create support groups.
3.
Parents must understand that fathers are parents, too -- and
that they must participate in child care efforts.
27
APPENDIX III
While the opinions and analysis contained herein are CCAC's,
the following CCAC National Advisory Panel members were
especially helpful in our research:
Veronica Jones, Manager of Corporate Affairs
Apple Computer
California
Martha Daley, Director
Office of Child Care Initiatives
Colorado
Andrew Sigler, Chairman/CEO
Champion International Corporation
Connecticut
The Honorable Jane Maroney
State Representative
Delaware
Faith Wohl, Director of Workforce Partnering
Dupont
Delaware
The Honorable Helen Gordon Davis
State Senator
Florida
Susan Muenchow, Chief
Department of Health and Rehabilitative Services
Florida
The Honorable Woods Bowman
State Representative
Illinois
Elliot Lehman, Co-Chairman
FEL-PRO Incorporated
Illinois
Carol Stein, State Public Affairs Chair
National Council of Jewish Women
Indiana
The Honorable Kathleen Sebelius
State Representative
Kansas
Dr. Daniel Lazorchick, Consultant
Employer-Supported Child Care
Maryland
28
Anthony Sapienza, Vice President of Manufacturing
Southwick/Grieco Brothers, Inc.
Massachusetts
Bill Hankins, Policy Analyst
Governor's Human Services Cabinet
Michigan
The Honorable Glen Taylor
State Senator
Chairman, Taylor Corporation
Minnesota
Billie Warford, Director
Early Childhood Project
Montana
Morton Goldfein, Senior Vice-President, Law & Public Affairs
Hartz Mountain Industries
New Jersey
Douglas Brown, President/CEO
ABQ Bank
New Mexico
Thomas J. White, Director, Business Development
Greater Durham Chamber of Commerce
North Carolina
The Honorable Jane Louise Campbell
State Representative
Ohio
Mark Real, Director
Children's Defense Fund
Ohio
Mary Louise McClintock, Child Care Coordinator
Department of Human Resources
Oregon
Elizabeth Milder Beh
Advisor to the Governor on Child Care Policy
Pennsylvania
Francine Connolly, Chief
Office of Child Care
Rhode Island
Gail Johnson, Executive Director
Options for Working Parents
Rhode Island
29
The Honorable Nick Theodore
Lieutenant Governor
South Carolina
Betty Anderson, Partner
Smith & Johnson
Tennessee
The Honorable Howard Dean, M.D.
Lieutenant Governor
Vermont
Martha Norris Gilbert, Director
Department for Children
Virginia
Billie Young, Child Care Coordinator
Seattle Department of Human Resources
Washington
The Honorable Scott McCallum
Lieutenant Governor
Wisconsin
30
FOOTNOTES
1
Vice President George Bush, Excerpts of Remarks by Vice
President George Bush: Annual Convention of the National
Federation of Business and Professional Women's Clubs,
Albuquerque, NM, July 24, 1988, p.5.
2
Bureau of the Census, U.S. Department of Commerce, Who's
Minding the Kids: Child Care Arrangements, (Washington, D.C.:
U.S. Department of Commerce, Current Population Report Series
P-7, No. 9, 1985).
3
Dana Friedman, "Corporate Financial Assistance for Child
Care", Research Bulletin No. 177, (New York: The Conference
Board, 1985), p.6.
4
Sandra L. Hofferth, Testimony, Child Care in the U.S.:
Hearings Before the Select Committee on Children, Youth and
Families, 100th Congress, 1st Session (1987).
5
Barbara Reisman, Amy J. Moore and Karen Fitzgerald, Child
Care: The Bottom Line, (New York: Child Care Action Campaign,
1988).
6
Gary Hart, "SB 722, Employer Assisted Child Care Tax
Credit", January 1989.
7
Children's Defense Fund, A Vision for America's Future
(Washington, D.C.: Author, 1988), p.60.
8
U.S. Department of Labor, Child Care, A Work Force Issue,
(Washington, D.C.: Author, April, 1988), p.143.
9
Children's Defense Fund, p.130.
10
National Conference of State Legislatures, Child Care and
Early Childhood Education Policy: A Legislator's Guide,
(Denver, Colorado: Author, March, 1989), p.VII.
11
Shelley Smith, "Kids, Families and Politics", State
Legislatures, November/December, 1988, p.27.
12
National Conference of State Legislatures, Directory of
Legislative Committees on Children, Youth and Families, (Denver,
Colorado: Author, 1987), p.1.
13
Helen Blank, Jennifer Savage and Amy Wilkins, State Child
Care Fact Book 1988, (Washington, D.C.: Children's Defense Fund,
1988), p.1.
14
Dana Friedman, "A More Sophisticated Employer Response to
Child Care", Child Care Information Exchange, (Redmond,
Washington: August, 1989, No.68) p.29.
31
15
Ibid., p.30.
16
Dana Friedman, "Child Care for Employees' Kids", Harvard
Business Review, (Boston, Massachusetts: Harvard Business
Review, March/April 1986, Vol. 64, No. 2), p.30.
17
Laurie McGee, Employer Supported Child Care: Profiles of
State Policies, (Madison, Wisconsin: School of Family Resources
and Consumer Sciences/The University of Wisconsin-Madison, 1989),
p.X.
18
Interview, John Forester, Constituent Relations, Office of
Lt. Governor McCallum, Madison, Wisconsin, July, 1989.
19
Interview, Marc Holliday, Director, Mississippi Department
of Economic Development, Jackson, Mississippi, June, 1989.
20
American Society for Personnel Administration, Employers
and Child Care: The Human Resources Professionals View,
(Alexandria, Virginia: Author, 1988), p.24.
21
New York State Commission on Child Care, Employers and
Child Care in New York State, (New York: Committee on Employer
Responsibility, 1987), p.37.
22
Interview, Paul Proett, Manager of Family Services, Apple
Computer, Inc., Cupertino, California, April, 1989.
23
Ibid.
24
Interview, State Serator Glen Taylor (IR) and CCAC
National Advisory Panel Member, St. Paul, Minnesota, August,
1989.
25
Interview, Pam Goodman, Benefits Coordinator, AVIA
Athletic Footwear, Portland, Oregon, July, 1989.
26
Goodman, Pam, AVIA Child Care Assistance memo, Portland,
Oregon, July, 1989.
27
Interview, Mary Louise McClintock, State of Oregon, Child
Care Coordinator, Salem, Oregon, June, 1989.
28
Dana Friedman, Government Initiatives to Encourage
Employer-Supported Child Care: The State and Local Perspective,
(New York, New York: Center for Public Advocacy Research, 1983),
p.48.
29
Interview, Jane Myers, Personnel Manager, Westwood
Industries, Tupelo, Mississippi, June, 1989.
30
Interview, Sharon Fratantuono, Employee Relations
Administrator, Allied After Market, East Providence, Rhode
Island, July, 1989.
32
31
Interview, Margaret Derus, Administrator, Research and
Analysis, Department of Revenue, State of Wisconsin, Madison,
Wisconsin, August 1989.
32
Interview, Jo Rymer, General Manager, Pro-Tem, Portland,
Oregon, June, 1989.
33
Interview, Sharon Thornton, Director of Personnel, Inn of
the Seventh Mountain, Bend, Oregon, June, 1989.
34
Interview, Catherine Sonnier, Staff Associate, National
Conference of State Legislatures, Denver, Colorado, June, 1989.
35
Interview, Judith Walter, Executive Assistant to the
Commissioner, Connecticut Department of Human Resources, July,
1989.
36
Connecticut Department of Human Resources, "Child Care Tax
Credit Program: Report to the General Assembly", January, 1989.
37
Interview, Bill Hankins, Policy Specialist for the
Governor's Human Service Cabinet Council, State of Michigan and
CCAC National Advisory Panel Member, Lansing, Michigan, August,
1989.
38
Interview, Carolyn Hutchinson, Office of Tax and Revenue,
State of New Mexico, Santa Fe, New Mexico, August, 1989.
39
Interview, McClintock.
40
Interview, Virginia Gifford, Chief Revenue Agent, Resea ch
and Taxpayer Assistance, State of Rhode Island, Providence, Rhode
Island, July, 1989.
41
Catherine Sonnier, "States Offer Incentives for Child Care
Programs", The Fiscal Newsletter, March/April, 1989 (Denver,
Colorado: National Conference of State Legislatures, 1989), p.6.
42
Interview, Department of Revenue Services, Research
Department, Hartford, Connecticut, October, 1989.
43
Interview, Department of Revenue Services, Salem, Oregon,
October, 1989.
44
Interview, State Representative Woods Bowman (D-IL) and
CCAC National Advisory Panel Member, Chicago, Illinois, July,
1989.
45
Interview, Dana Friedman, Co-President, Families and Work
Institute and CCAC Board Member, New York, New York, May, 1989.
46
Interview, Kathryn Salsbury, Executive Director,
Connecticut General Assembly Commission on Children, Hartford,
Connecticut, June, 1989.
33
47
Senate Office of Research Memo, State of California,
August, 1988.
48
Franchise Tax Board Memo, State of California, April, 1988.
49
Interview, Susan Muenchow, Chief, Department of Health and
Rehabilitative Services and CCAC National Advisory Panel Member,
Tallahassee, Florida, May, 1989.
50
Interview, Gifford.
51
Interview, Jerry Adams, Deputy Commissioner of Finance and
Administration, Tennessee Finance and Administration Commission,
Nashville, Tennessee, June, 1989.
52
Department of Revenue Memo, State of Wisconsin,
November 21, 1988.
53
Interview, State Representative Jane Campbell (D-OH) and
CCAC National Advisory Panel Member, Cleveland, Ohio, August,
1989.
54
Interview, State Representative Jane Maroney (R-DE) and
CCAC National Advisory Panel Member, Wilmington, Delaware,
August, 1989.
55
Interview, Jean Rustici, Education Consultart for Early
Childhood, Connecticut State Department of Education, Hartford,
Connecticut, May, 1989.
56
Fidel C. Mendoza, Andrew Klutkowski, Kim Chapman-Belin,
eds., All States Tax Handbook 1989, (Paramus, New Jersey:
Prentice Hall, Inc., 1989), p.134-136.
57
Ibid.
58
Judith A. Shanley, William A. Raabe, eds., Multistate
Corporate Tax Almanac, (Greenvale, New York: Panel Publishers,
Inc., 1989), p.60-63.
59
Friedman, "A More Sophisticated Employer Response to Child
Care", p.30.
60
Interview, Office of Louis Duncan, Acting Commissioner,
Division of Revenue, Department of Treasury, Lansing, Michigan,
September, 1989.
61
Interview, Elliot Lehman, Co-Chairman, FEL-PRO, Inc.,
Skokie, Illinois and CCAC National Advisory Panel Member, July,
1989.
34
62
Interview, Anthony Sapienza, Vice-President of
Manufacturing, Southwick/Greico Brothers, Inc., Lawrence,
Massachusetts and CCAC National Advisory Panel Member, August,
1989.
63
Gwen Morgan, Caring About Children in Massachusetts:
Feasible Day Care Policy of the 1980s, (Boston, Massachusetts:
Boston University School for Social Work, 1982), p.109.
64
Interview, Faust.
65
Interview, Pamela Koprowski, Director, Public Affairs,
Champion International Corporation, Stamford, Connecticut, May,
1989.
66
Friedman, Government Incentives to Encourage Employer-
Supported Child Care, p.49.
67
Interview, Randy Helfert, Vice-President of Human
Resources, ABQ Bank, Albuquerque, New Mexico, July, 1989.
68
Morgan, "Legislating Incentives for Employer Partnerships",
Draft, p.l.
69
Interview, Bill Shea, President, Ames Envelope Company,
Somerville, Massachusetts, August, 1989.
70
Interview, Lieutenant Governor Howard Dean, M.D., State of
Vermont and CCAC National Advisory Panel Member, Burlington,
Vermont, July, 1989.
71
Child Care Action Campaign, "Information Guide #24,
Employer-Supported Child Care: Current Options and Trends,"
1988.
72
Morgan, p.109.
73
Report to the General Assembly, State of Connecticut, 1989.
74
Ibid.
75
Sonnier, "States Offer Incentives for Child Care Programs",
p.6.
35
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American Society for Personnel Administration. Employers and
Child Care: The Human Resource Professionals View.
Alexandria: Author, 1988.
Barud, Sandra L., Pamela R. Ashbacher, and Jacquelyn McCroskey.
Employer Supported Child Care: Investing in Human
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Blank, Helen, Jennifer Savage and Amy Wilkins. State Child
Care Fact Book 1988. Washington, D.C.: Children's Defense
Fund, 1988.
Bureau of National Affairs. The National Report on Work &
Family. Washington, D.C.: Buraff Publications, 1989.
Bureau of National Affairs. The National Report on Work &
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Child Care Action Campaign. "Employer-Supported Child Care:
Current Options and Trends". New York: Author, 1987.
Child Care Action Campaign. National Advisory Panel: Trends
Report #1. New York: Author, 1989.
Child Care, Inc. Capital Needed: Financing New Space for
Day Care Centers. New York: Author, 1989.
"Child Care in Colorado: Findings, Recommendations and Action
Plan. Prepared by the Governor's Task Force on Child Care,
April, 1989.
Children's Defense Fund. A Children's Defense Budget FY
1989: An Analysis of Our Nation's Investment in
Children. Washington, D.C.: Author, 1988.
Children's Defense Fund. A Vision for America's Future.
Washington D.C.: Author, 1989.
Commerce Clearing House, Inc. Tax Incentives For
Employer-Sponsored Day Care Programs. Chicago: Author,
1982.
Committee on Employer Responsibility. Employers and Child
Care in New York State. New York: Author, 1987.
Commonwealth of Massachusetts, Executive Office of Human
Services. "Summary of Recommendations: Day Care Partnership
Advisory Working Group on Day Care Capitalization". Boston:
Author, May, 1989.
36
Connecticut Department of Human Resources. "Child Care Tax
Credit Program: Report to the General Assembly." January,
1989.
Corporation for Enterprise Development with the Mt. Auburn
Associates. Making the Grade: The 1988 Development Report
Card for the States. " Washington, D.C.:
Author, April, 1988.
Department of Administration, Division of Taxation, "Synopsis
of Rhode Island Tax System." Providence, Rhode
Island: Author, 1988.
Employer Child Care Development Council. "Report to the
Fairfax County Board of Supervisors." March, 1989.
Friedman, Dana E. "Child Care for Employees' Kids. " Harvard
Business Review. Volume 64, Number 2, March/April
1986.
Friedman, Dana E. Encouraging Employer Support to Working
Parents: Community Strategies for Change. New York:
Center For Public Advocacy Research, 1983.
Friedman, Dana E. Government Initiatives to Encourage
Employer-Supported Chid Care: The State and Local
Perspective. New York: Center for Public Advocacy Research,
July, 1983.
Ghezda, Terry, Ph.D., "State Fiscal Policies for Child Care and
Early Childhood Education." State Legislative
Report. Washington, D.C.: National Conference of
State Legislatures. Vol. 12, No. 7, October, 1987.
Gold, Steven D. (ed.) The Unfinished Agenda for State Tax
Reform. Washington, D.C.: National Conference of
State Legislatures, November, 1988.
Hart, Gary. "SB722 Employer-Assisted Child Care Tax Credit." "
Information material issued by State Senator Hart's Office
which provides help in explaining the Employer Tax Credit
law, January, 1989.
Harvard Legislative Research Bureau, "Model Tax Incentive and
Child Care Linkage Acts." Harvard Journal on Legislation.
Vol. 26, No. 2., Summer 1989.
Howard, Marcia A. Fiscal Survey of the States. Washington, D.C.:
National Governors' Association and the National Association
of State Budget Officers, March 1989.
Kahn, Alfred J. and Sheila B. Kamerman. Child Care: Facing the
Hard Choices. Dover: Auburn House Publishing, 1987.
37
McGee, Laurie. Employer-Supported Child Care: Profiles of
State Policies. Madison: The University of
Wisconsin, School of Family Resources and Consumer
Sciences, April, 1989.
Mendoza, Fidel, C., Andrew Klutkowski, Kim Chapman-Belin, (eds).
All States Tax Handbook 1989. New Jersey: Prentice Hall,
Inc., 1989.
Mitchell, James J. "Tax Laws Hide a Nifty Benefit." San Jose
Mercury News, November 6, 1988.
Morgan, Gwen. Caring About Children in Massachusetts: Feasible
Day Care Policy of the 1980s. Boston: Boston University
School for Social Work, Division of Continuing Education,
1982.
Morgan, Gwen. Employers as Partners in Child Care. Unpublished.
National Conference of State Legislatures. Child Care and Early
Childhood Education Policy: A State Legislator's Guide.
Colorado: Author, March, 1989.
National Conference of State Legislatures. Directory of
Legislative Committees on Children, Youth and
Families. Colorado: Author, 1987.
Overman, Stephanie "States Offer Incentives for Corporate Child
Care Programs. 11 Personnel Administrator, April, 1989.
Reisman, Barbara. "The Economics of Child Care: Its Importance in
Federal Legislation." Harvard Journal on Legislation. Vol.
26, No. 2, Summer, 1989.
Reisman, Barbara, Amy Moore and Karen Fitzgerald. Child Care:
The Bottom Line. New York: Child Care Action Campaign,
1988.
Rubiner, Betsy. "Employers Working on the Benefits of Child
Care." The Wichita Eagle Beacon, February 26, 1989.
Shanley, Judith A., William A. Raabe. Multistate Corporate
Tax Almanac. New York: Panel Publishers, Inc., 1989.
Smith, Shelly. "Kids, Families and Politics." State
Legislatures, November/December, 1988.
Sonnier, Catherine. "Public/Private Partnerships in Child Care,"
State Legislative Report, Denver: National Conference of
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Sonnier, Catherine. "States Offer Incentives Child Care
Programs." The Fiscal Newsletter, National Conference
of State Legislatures, Vol. 11, No. 2, March/April 1989.
38
Sugarman, Jule. "Financing Children's Services: A Proposal to
Create The Children's Trust." Olympia, WA: Washington
State Department of Social and Health Services, June, 1988.
U.S. Department of Labor. Child Care, A Workforce Issue.
Washington, D.C.: Author, April, 1988.
Wallis, Claudia. "The Child-Care Dilemma. " Time, June 22, 1987.
39
Chart #1 Employer Tax Credits: The State of the States in 1991
WA
ME
MT
ND
VT
OR
MN
NH
NY
MA
ID
WI
SD
>>>
RI
CT
MI
WY
PA
NJ
IA
NE
oH
NV
MD
IL
DE
DC
IN
WV
CA
UT
CO
VA
KS
MO
KY
NC
TN
OK
AZ
AR
SC
HM
Che
MS
AL
GA
TX
AK
LA
FL
HI
States with tax credit laws
States with pending tax credit legislation
In 1989, 14 states had tax credit legislation pending. They were: Colorado, Hawaii, Illinois, Indiana, Massachusetts,
Michigan, Minnesota, Missouri, Nebraska, New Jersey, New York, North Carolina, Vermont, and Washington.
Chart #
Key Elements and Estimated Costs of Employer Tax Credits for Child Care
Carry
No. of Employers Taking
Enactment
Expiration
State
Activity Covered
Maximum Credit
State Cap
Forward/Back
Estimated Cost
Advantage of Credit
Date
Date
Arizona
Expenses Related to the
30-50%
Lesser of $15,000 or 50% of
No
1991: $45,000
1991:0
1991
1995
Provision of Day Care
facility cost or
FY 91-92: $475,000
Facilities and Services
lesser of $5,000 or 30% of cost to
operate or provide service
California
Purchased Care
50%
$300/Part-time program/ child/year
No
5 succeeding years
FY 88-89: under $1 million
Unknown
1988
12/31/91
$600/Full-time program/
FY 89-90: $3 million
50%
child/vear
FY 90-91: $6 million
FY 91-92: 9 million
Start-Up Expenses
30%
$50,000/employer
Resource and Referral
30%
$50,000/employer
Connecticut
Purchased Care
50%
$75,000/employer
$1 million
5 succeeding or prior
1987: $96,000
1987: 22
1986
years
1988: $309,000
1988: 34
1989: $709,000
1989: 45
1990: $718,400
1990: 48
Start-Up Expenses
40%
$20,000/employer
$1 million
3 succeeding years
1987: $3,640
1987: 1
1986
1989: $11,360
1989:
4
1990: $60,600
1990:
4
Kansas
Purchased Care (on-site
30%
$30,000/employer
$3 million
No
1989: $46,367
3
1989
1993
operating only)
Start-up Expenses
50%
$45,000/employer
Maine
Start-Up Expenses
20%
$5,000/employer or $100/child
No
15 succeeding years
Unknown
Unknown
1987
Purchased Care
whichever is less
or 3 prior years
Resource and Referral
Maryland
Improvements to Real
Up to local discretion
No
No
Unknown
Unknown
1987
1991
Property
Mississippi
Purchased Care
25%
of eligible expenditure
No
? succeeding years
Unknown
Unknown
1989
Start-Up Expenses
25%
not to exceed 50% of income
tax liability in a tax year
Montana
"Dependent care
15%
$1,250/employee
No
5 succeeding years
1989: $17,000
Under 100
1989
I
actually provided to or
on behalf of an
employee"
(Continued)
Carry
No. of Employers Taking
Enactment
Expiration
State
Activity Covered
Maximum Credit
State Cap
Forward/Back
Estimated Cost
Advantage of Credit
Date
Date
Mexico
Purchased Care
30%
$30,000/employer
No
3 succeeding years
$2,000
1
1983
Start-Up Expenses
Ohio
Financial Assistance for
$300/child for up to first two years
No
No
Unknown
Unknown
1982
12/31/92
Employees in Enterprise
of employment
Zones
Oregon
Purchased Care
50%
$2,500/employee
No
5 succeeding years
1987-89: $250,000
Less than 10 businesses
1987
12/31/91
Resource and Referral
50%
No maximum
1989-91: $700,000
30-40 businesses
Start-Up Expenses/
50%
$100,000/employer or
2 businesses
Improvements to Real
$2,500/employee (can only claim
Property
10%/year over a maximum of 10
years)
Pennsylvania
Financial Assistance for
$600/employee for first year
No
No
Unknown
Unknown
1985
Employees Receiving
$500/employee for second year
Cash Assistance from
$400/employee for third year
the State
Activities related to the
50%
$250,000/corporation
Yes
Up to 5 years
1990: $125,1000
1990: 30
1967
None
Provision of Child Care
Facilities and Services
Rhode Island
Purchased Care
"30% of
$30,000/employer
No
Purchased Care may
Unknown
Unknown
1988
60%*
not be carried over;
(approx.
others may be carried
18%)
over for 5 succeeding
years if the facility is
in operation for at
least 6 months
Start-Up/Operating
30%
$30,000/employer
Expenses
Foregone Rent/Lease
30%
$30,000/employer
South Carolina
Purchased Care
50%
$3,000/employer
No
10 succeeding years
1989: $1.2 million
Unknown
1989
Start-Up Expenses
50%
$100,000/employer
Start-Up Expenses: Capital investment for establishing an on-site, or near-site, child care center for employees' children.
Purchased Care: The purchasing of child care services for the dependent children of employees, including operating expenses of on-site, or near-site care, unless otherwise noted
Resource and Referral: The provision of services to help employees find and obtain child care.
For Other Reports,
Membership Information,
and News on National
and State Efforts to Expand
and Improve the Quality of Child
Care in Both the Public and Private Sectors, contact:
Child Care Action Campaign
99 Hudson Street, Suite 1233
New York, New York 10013
(212) 334-9595
Tax incentives for businesses providing employee child care
Senator Kohl's proposal
Senator Kohl's proposed credit would equal 50 percent of qualified costs incurred, but not to
exceed $150,000 per year, and would be in effect for two years.
Qualified expenses under the Kohl proposal would include costs incurred:
(1) to acquire, construct, rehabilitate, or expand property which is to be used as part of a
qualified child care facility of the taxpayer;
(2) for the operating costs of a qualified child care facility of the taxpayer, including the
costs of training and continuing education for employees of the child care facility;
(3) under a contract with a qualified child care facility to provide child care services to
employees of the taxpayer; or
(4) under a contract to provide child care resource and referral services to employees of the
taxpayer.
Treasury's Modifications
Apply a 25 percent credit to qualified child care costs. A 50 percent credit is significantly
larger than every existing major business credit and will invite difficult compliance and
administrative difficulties.
-
A 25 percent business credit is very large. It is larger than the R&E credit (20 percent);
the old investment tax credit (20 percent); credits for investment in rehabilitation, energy
and reforestation (10 percent); low-income housing (roughly equivalent to a 9 percent
annual credit); empowerment zone employment (20 phased down to 5) and Indian
employment (20 percent).
Make the credit permanent;
-
A permanent credit is likely to have a larger stimulative effect, because it gives firms a
longer planning horizon and more opportunities to be educated about its advantage.
Give a 10 percent credit for the costs of child care resource and referral services;
-
Subsidizing child care resource and referral services at a lower rate addresses concerns
that the costs of resource and referral services can be easily inflated by engaging in token
efforts to provide these services. It was clear that Senator Kohl's staff felt it necessary to
include subsidies for resource and referral services. Treasury preferred not to include
these, so we split the difference.
Require that at least 30 percent of the enrollees in the child care facility be children of the
taxpayer's employees;
Disallowing the credit when less than 30 percent of enrollees are the children of
employees prevents a taxpayer from using the credit to subsidize a child care center that
primarily serves children unrelated to the taxpayer's employees.
Disallow the credit for costs for which the taxpayer has been reimbursed by employees, so
businesses are receiving the credit only for actual costs of providing child care.
Budgetary cost
Treasury estimates that the permanent proposed 25 percent credit will cost $490 million
through 2003 and $1.3 billion through 2008.
2