Four tax credits that states can adopt to ease the child care crisis

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It’s Saturday, Oct. 7, and we’d like to welcome you to the weekly State and Local Roundup. There’s plenty to keep tabs on, with an analysis of the effects of state politics on mortality rates, scrutiny of how New York’s mayor handled last week’s extreme rainfall, an effort to overturn a landmark homelessness case and California’s math misadventure.

But first, we’ll take a look at changes to the child care landscape since federal pandemic assistance expired last weekend and how state tax credits can relieve the burden left in the absence of that critical aid. 

Sept. 30 marked the end of the federal fiscal year and of $24 billion in pandemic child care relief, heightening concerns about the future of an industry that has been struggling to stay afloat. In June, The Century Foundation, a left-leaning think tank, released a report warning that  more than 700,000 child care programs could close without federal funding, leaving 3.2 million children without care. 

Child care expenses can eat up a significant share of a household’s income and in some cases can cost more than a college education. But without it, many parents—especially women—are unable to go to work, creating a ripple effect throughout the economy. Facing the expiration of federal funds, many states this legislative session have passed legislation to continue helping families afford safe and reliable child care. 

If you’re a regular reader of Route Fifty, you’ve learned how powerful the enhanced federal child tax credit was during the COVID outbreak—widely credited with reducing child poverty to a record low during the pandemic. Since it expired in 2021, about a dozen states have passed their own child tax credits.

But while state child tax credits can cover some early education costs, they’re not enough to cover the full expense. That’s where other targeted benefits can help families and businesses. 

On Tuesday, the Bipartisan Policy Center published a report that examines four tax credits that states can implement to help families access child care: the child and dependent care tax credit, the earned income tax credit, the employer-provided child care tax credit and the aforementioned child tax credits. 

Most states have their own versions of at least one of these benefits, the report notes, though 13 don’t have any. Four states—Colorado, New Mexico, New York and Oregon—have all four tax credits, according to Brittany Walsh, associate director of the center’s Early Childhood Initiative. 

“Each and every one of these states have very different political environments, they have very different needs,” she said, and those factors shape whether states have tax credits and how they’re designed. 

The combination of all four credits is powerful in that it reaches a broad range of stakeholders, Walsh said. They’re meant to support families at different income levels as well as businesses that offer or contribute to child care. 

“Although they all touch on the same populations, or the same demographics, their intent is very different and who they serve and help are very different,” she said. 

Take, for example, the employer-provided child care tax credit, also known as the 45F. The federal credit offers companies up to $150,000 to offset some costs of providing child care to employees. Sixteen states currently have their own version of this program, and Hawaii and Missouri could soon implement the tax credit too. 

“The state is willing to invest in child care as long as businesses invest in child care,” said Missouri state Rep. Brenda Shields at a state family policy forum on Wednesday. Shields introduced legislation that would have offered a slew of benefits to employers that either donated to child care centers or helped employees with care. The bill stalled last session—it was introduced late, Shields said—but will again be up for consideration next year. 

State and local leaders at the forum noted how critical child care is to the state’s economy, pointing to a 2021 report from the Missouri Chamber of Commerce that underscored the importance of child care to the state’s economy. The state misses out on about $280 million annually in tax revenue due to child care issues, the report found, and 80% of employers say the care shortage negatively impacts hiring and retention efforts. 

“It's really going to take an all-of-the-above approach, I think, to make it easier to support families’ access,” Shields said. 

One of the challenges of these kinds of tax credit programs is that eligible participants don’t know they exist and aren’t always encouraged to enroll. There’s a similar lack of awareness in state legislatures, Walsh said. 

That’s why the Bipartisan Policy Center built a new online tool that provides a snapshot of each states’ child care profile since the cutoff of federal aid. With the tool, which aims to be a conversation starter for state officials, lawmakers can see which credits other states are using and which might work in their own states, Walsh said. They can compare their state to others that are similar in demographic makeup or political leaning.

“We're trying to increase people's awareness of what credits exist and how they're designed,” she added. 

While families and providers can no longer rely on federal pandemic relief to cover care costs, some in Congress are working to restore funding. Last month, a group of federal lawmakers introduced the Childcare Stabilization Act to provide $16 billion annually to help support child care businesses for five years. 

“This is an urgent economic priority at every level: child care is what allows parents to go to work, businesses to hire workers, and it’s an investment in our kids’ futures,” said Sen. Patty Murray, a Democrat from Washington and cosponsor of the bill. “The child care industry holds up every sector of our economy—and Congress must act now.”

Ultimately, Walsh said, child care challenges are a workforce issue. There are too few teachers for the number of kids who need preschool care. Since February 2020, more than 90,000 child care workers have left their jobs, according to the Center for American Progress, and wages among workers remain low while living costs rise. 

Because of the number of teachers required to staff child care centers, tax credits are “not going to solve any issues related to cost of care,” she said. “But it all eases some of the barriers … to access.”

Keep reading as there’s more news to use below, and make sure to come back here for the week’s highlights. If you don’t already and would prefer to get it in your inbox, you can subscribe to this newsletter here. We’ll see you next week.

News to Use

Trends, Common Challenges, Cool Ideas, FYIs and Notable Events

• GOVERNORS RACES: Southern Republicans look to nationalize 2023 governors’ races. President Joe Biden’s name won’t appear on the ballot anywhere in 2023, but you wouldn’t know it from the campaigns that Republican candidates for governor are running in Kentucky and Mississippi. GOP nominees in both states—Kentucky Attorney General Daniel Cameron and first-term Mississippi Gov. Tate Reeves—are just as likely to mention the Democratic president as they are to name the person they face in the Nov. 7 general election. Tying candidates for governor to national political figures is a well-worn strategy but also reflects an era of deepening ideological divides. It also plays into an argument made in a new book about state legislatures that politics are not all local. Author Steven Rogers finds “state legislators’ electoral fates … are more closely tied to the performance of the White House than the statehouse.”


• POLITICS: How state politics are shaving years off American lives. Americans are more likely to die before age 65 than residents of similar nations, despite living in a country that spends substantially more per person on health care than its peers. Many of those early deaths can be traced to decisions made years ago by local and state lawmakers over whether to implement cigarette taxes, invest in public health or tighten seat-belt regulations, among other policies, an examination by The Washington Post found. Today, people in the South and Midwest, regions largely controlled by Republican state legislators, have increasingly higher chances of dying prematurely compared with those in the more Democratic Northeast and West, according to an analysis of death rates.


• LEADERSHIP: Was NYC unprepared to handle extreme rainfall? Six days after the remnants of Tropical Storm Ophelia paralyzed New York City, trapping children in flooded schools and halting swaths of subway and railroad service, the city’s preparation for the storm and its response are facing scrutiny. The city comptroller, Brad Lander, told Mayor Eric Adams on Wednesday that he was opening an investigation into the city’s management of extreme rainfall. The comptroller’s review will be supplemented by a separate city council oversight hearing on the city’s storm preparations. Adams did not brief New Yorkers on the storm until after the epicenter had begun to move north of the city on Friday, drawing concern about his crisis management skills. But with periods of heavy rain and potential flooding forecast this weekend, Adams appears not to be making the same mistake again, tweeting Friday that the city has activated its flash flood emergency plan.


• ENVIRONMENT: States sue feds over wood stove standards. The federal government is failing to meet its obligations in setting pollution standards for residential wood-burning stoves, hurting air quality in parts of the U.S., according to a lawsuit filed by 10 states against the Environmental Protection Agency. The states point to a provision in the federal Clean Air Act that calls for EPA “at least every eight years,” to revisit “and, if appropriate, revise” the standards. EPA last finalized an update to its wood heater rules in 2015. Alaska, Illinois, Maryland, Massachusetts, Minnesota, New Jersey, New York, Oregon, Vermont and Washington are the states that joined the lawsuit.


• HOMELESSNESS: Governments sign on to effort to overturn landmark homelessness case. Organizations, cities and states throughout the West have filed amicus briefs aiming to overturn the landmark homelessness decision Martin v. Boise and a follow-up case decided recently in Oregon. The decision said that homeless people can’t be ticketed or punished for sleeping outside, if there are no available beds in shelters throughout the city. “Western states have found themselves constrained, unable to effectively tackle the grave problems posed by public encampments in their communities,” Idaho Attorney General Raúl Labrador said in a statement, after filing an amicus brief. The Supreme Court has not yet said whether it will hear the appeal.


• EDUCATION: California’s math misadventure is about to go national. In an opinion piece for The Atlantic this week, a Stanford University professor raised alarms about California’s revised draft of its Mathematics Framework, or CMF. “The document cited research that hadn’t been peer-reviewed; justified sweeping generalizations by referencing small, tightly focused studies or even unrelated research; and described some papers as reaching nearly the opposite conclusions from what they actually say,” he wrote. Brian Conrad, director of undergraduate studies in math at Stanford, warned that while the CMF is meant only to guide local districts, in practice it influences the choices teachers across the country make about what and how to teach. He concluded that it “is likely to distort math instruction for years to come. Armed with trendy buzzwords and false promises of greater equity, California is promoting an approach to math instruction that’s likely to reduce opportunities for disadvantaged students—in the state and wherever else educators follow the state’s lead.”


• HEALTH: Feds sue Colorado for segregating adults with disabilities in nursing homes. The civil lawsuit alleges that Colorado failed to offer sufficient community services to help people with disabilities, including older adults, live in their own homes. This led to people being forced into nursing homes, which the Justice Department says violates the Americans with Disabilities Act, or ADA, and a Supreme Court decision. The state’s response to the court is due Oct. 20. Meanwhile, the Supreme Court has agreed to hear a case about whether a disabled advocate can sue hotels without being a guest. Civil rights advocates fear that the court could gut one of the main enforcement mechanisms of the ADA—private lawsuits.


• TRANSPORTATION: It’s "Week Without Driving." First organized by disability advocates in Washington state two years ago, the "Week Without Driving" transportation challenge has gone national. This year, more than 120 other advocacy groups joined efforts to bring the challenge to 35 states, as well as Canada and Puerto Rico. "The challenge isn't about not using a car—rather, it's to see what it's like to not be the one able to drive, to better understand what it's like to try to navigate their communities without the privilege of driving," Anna Zivarts of Disability Rights Washington told Axios. It is also meant to inform policymakers as they make future transit decisions.


• DATA: How Denver is using smart watch data. The city has launched a new pilot program to collect data from smart watches in order to identify locations causing cyclists high amounts of discomfort and stress. The app, called MPATH, will allow cyclists to opt in and submit heart rate data collected from their rides, which will be anonymously compiled by the city. The findings from the pilot study will inform future infrastructure projects, a city spokesperson said. This MPATH study is a new part of Denver’s Vision Zero program, which set a mission to eliminate traffic deaths in the city.


• FENTANYL: Old newspaper boxes become Narcan dispensers. Amid a nationwide spike in fatal drug overdoses, Ferris State University in Michigan says it is stocking old newspaper boxes with naloxone, the opioid overdose reversal drug, on its campus. Federal grant funding totaling $1.2 million is supporting the program. The state is providing the Narcan nasal spray for free. The move comes as more and more schools are stocking naloxone and follows a similar trend of dispensing the drug in vending machines, including outside jails as people are released.

Picture of the Week

It’s Fat Bear Week in Katmai National Park, a celebration of the ability of brown bears to pack on weight for their hibernation cycle in Alaska. But nearly 2,500 miles away in South Dakota this past week, there was another, slightly less known celebration of a big, strong, brown animal underway. Cowboys and cowgirls rounded up a herd of more than 1,500 bison as part of an annual effort to maintain the health of the species, which has rebounded from near-extinction. Each year, Custer State Park holds one of the nation’s few bison roundups to check their health and vaccinate calves, park Superintendent Matt Snyder told the Associated Press. At one time, more than 60 million bison roamed North America. But by 1889, only a few hundred were left. Today, there are more than 500,000 bison in the U.S. (Photo by: Visions of America/Universal Images Group via Getty Images)

Government in Numbers

2 in 5

The number of babies—about 3.7 million—born in the U.S. in 2022 that benefited from the Special Supplemental Nutrition Program for Women, Infants and Children, or WIC, according to the Centers for Disease Control and Prevention. That is actually down from the program’s peak in 2010, when it was helping feed over half of the babies born that year. But amid rising food costs, more women than expected have been signing up for WIC. Neither the Democratic Senate nor the Republican House are proposing to increase funding to keep up with the demand, Route Fifty’s Kery Murakami reported recently. That could mean states will be forced to turn away hundreds of thousands of women seeking help next year.