by Timothy McQuiston, Vermont Business Magazine The RAND Corporation today released its legislatively mandated study on how much it would cost to fully fund quality early education for all children in Vermont and how it might be paid for. The total cost, RAND estimates, would be about $645 million per year.
The gap between current public funding plus what families contribute to that total is between $179 million and $279 million, depending on the subsidy levels going forward.
Options to filling that gap include a new 0.9 percent payroll tax or a 2 percent increase in the sales tax; each of these options would generate about $194 million.
Higher rates or other taxes would need to be raised at the higher gap level. Rand authors state that the taxes required to fill these larger estimates are expected to have a small impact on household economic well-being.
The increase in the workforce with this Vermont Early Care and Education Financing Study is estimated to be between 600 and 2,800 workers, which at the high end is under 1 percent of the current labor force of 336,761.
The estimates show, as of 2019, a total of about 35,000 children ages 0 through 5, starting with about 5,500 children at age 0, reaching about 6,300 children by age 5.
The RAND model assumes a mixed-delivery system, with both public and private providers. Another proposal not considered in this Rand study includes rolling the entire early education system into the public school system. The cost/payment of such a system was not considered.
Stakeholders in the public and private sectors in Vermont have been increasing the state's investments in high-quality early care and education (ECE) programs for children not yet in kindergarten. Yet many families are not reached by the funds currently available, especially to afford care for infants and toddlers.
Additionally, the ECE workforce has long been underpaid, both in terms of cash wages and benefits. Further expansion of public funds to ensure that young children can participate in high-quality ECE in the mixed-delivery system (both public and private providers) requires an understanding of the cost of high-quality ECE, what is a reasonable contribution families can make to the cost of the ECE they consume, and the potential public-sector revenue options to fill the gap.
Vermont Act 45, passed in 2021, expressed a need to support Vermont's economy by providing access to high-quality ECE and ensuring that the state's early educators are fairly compensated and well supported.
The act included a requirement for a financing study. To meet this requirement, the RAND authors estimate the cost for high-quality ECE in Vermont using a mixed-delivery system. In addition, to understand the size of the funding gap that must be filled to expand subsidies to more families, the authors consider several designs for a sliding-scale subsidy schedule.
The authors also identify a set of feasible and stable revenue streams that can be used alone or in combination to fill the funding gap and employ a series of economic models to estimate the net fiscal and economic impact of the effects of the increased subsidies and the identified revenue.
RAND focused on regulated providers—namely, licensed centers, Head Start programs, public school prekindergarten (pre-K) programs, and licensed and registered family child care homes (FCCHs). Their interest was in ECE for pre–school-age children, defined as those ages 0 to kindergarten.
Statement from Aly Richards, CEO of Let’s Grow Kids in response to the Child Care and Early Education Financing Study released today:
“The Child Care and Early Education Financing Study confirms there is a direct path forward in the 2023 legislative session to create a quality, affordable child care system through long-term public investment. This study from the RAND Corporation, put into motion by the State Legislature after the passage of H.171, is the next step in solving Vermont’s child care crisis.
“The study’s in-depth cost analysis shows that a child care system where every child has access to quality child care, families spend no more than 10% of their income on child care, and early childhood educators are fairly compensated, is well within reach. We support the study’s funding estimate of $279 million in additional public investment so quality child care is accessible for Vermont’s children and families. The public financing recommendations laid out in the study are fiscally responsible and will make our state more affordable. The study also reinforces that an equitable, affordable child care system will provide a much-needed boost to our labor force, allowing thousands of parents on the ‘workforce bench’ right now due to a lack of child care, to get back to work – filling critical jobs throughout our state.
“This study is what over 35,000 child care advocates, employers, and our elected officials have been waiting for. The findings and recommendations here are the key resource lawmakers need to finalize the draft bill they’re working on to pass this session. Vermont’s Child Care Campaign looks forward to supporting this effort every step of the way.”
Key Findings
Federal and state funding for subsidized ECE programs in Vermont in 2018–2019 totaled approximately $109 million
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About 60 percent of families with pre–school-age children have family income below 3.5 times the federal poverty level, the maximum income that currently qualifies for ECE subsidies.
The cost across all of Vermont's pre–school-age children for high-quality ECE with a well-compensated workforce is estimated to total about $645 million per year in 2022 dollars
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These costs would be paid for by a combination of family contributions and public funding at the federal, state, and local levels.
Family contributions will depend on the assumed sliding scale subsidy schedule
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The five potential sliding-scale subsidy schedules examined in the study all maintain the current policy of zero family contribution when family income is below 1.5 times the poverty level.
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Contributions from families between 1.5 and 3.5 times the poverty level are capped at 10 percent or 7 percent of income, depending on the schedule.
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About $162 million of the total cost would be paid by families with incomes of more than 5.0 times the poverty level, a group that would not be subsidized under these schedules.
Corresponding to the five subsidy schedules, there are five estimates of the size of the annual funding gap after accounting for current public funding and family contributions
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The smallest gap estimates are $179 million to $193 million per year and retain the status quo of limiting subsidies to families making 3.5 times the poverty level or less.
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The larger gap estimates of $256 million to $279 million per year extend subsidies to higher-income families.
Funding the smallest gap estimate could be accomplished with single sources of new revenue or a bundle of several taxes
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The single-source options that would fill an annual $194 million gap are a new 0.9 percent payroll tax, a 2.0-percentage-point increase in the sales tax, a new limited services tax of 9.9 percent, or a new expanded services tax of 7.1 percent.
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Tax bundles would allow for a smaller increase in the payroll or general sales taxes on top of soda or hospitality taxes.
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The larger gaps generated by expanding subsidies to higher-income families cannot be funded by a single revenue source without increasing the magnitude of the tax to a rate not typically seen in other states.
The other economic and fiscal impacts associated with funding the larger gap estimates are modest
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The larger gaps from extending subsidies to families below 5.0 times the poverty level represent approximately 0.6 percent of gross state product and approximately 2.8 percent of appropriations.
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The taxes required to fill these larger estimates are expected to have a small impact on household economic well-being.
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The expansion of ECE subsidies has the potential to expand the labor force by 600 to 2,800 workers, an increase of less than 1 percent of the current labor force.
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Annual gross state product could expand between $59 million and $283 million. The estimated effect on annual government revenues would be between $1.5 million and $11.5 million.
Potential for Downstream Economic Benefits
One of the motivations for investing in expanded access for high-quality ECE is the expected short- and longer-terms benefits for participating children in terms of education performance and subsequent life-course outcomes, with the potential for returns to the public sector in terms of reduced cost for special education services and grade retention during the school-age years and higher taxes paid when children reach adulthood and have better labor market outcomes.
Statement from Adeline Druart, president of Vermont Creamery (Websterville, VT), on the urgent need for accessible, affordable child care.
“It has been a top priority for Vermont Creamery to create a workplace that is supportive for parents which is especially challenging for moms and dads with kids ages newborn to 5-years-old. This approach is key to our success in recruiting and keeping our workforce. In fact, it’s key to all our success if we are to achieve a diverse, strong and stable workforce and increase the number of young people in our state. That’s why we enthusiastically support statewide child care solution that addresses the lack of access and the incredibly high costs of child care for working families. It's unacceptable and unsustainable for parents to pay upwards of 30 percent of their household income on child care, especially when child care worker wages are so low. Something must change and soon. We are excited and relieved that lawmakers are working on a bill now that will get us there. The recent financing study proves this is within reach if we act now. We urge all Vermont businesses to get involved right now ask your representatives to take action. We know that when our workers have the child care they need and can afford, the sky is truly the limit for our business and for Vermont.”
Source: Vermont Joint Fiscal Office, Montpelier. 1.17.2023. ljfo.vermont.gov