For a lasting victory on child-care funding in NC, we need equitable tax policy
When legislators left Raleigh without passing a budget at the end of June, early childhood educators and child-care advocates were one of the few groups with something meaningful to celebrate. In response to tireless activism across the state, from the western-most counties to civil disobedience in the NC Legislative Building, the NCGA passed a last-minute bill (SB 357) that included $67.5 million of funding for six months of stabilization grants for child-care providers.
The calls for state funding came from business leaders as well, with the NC Chamber of Commerce publishing a report in June estimating that insufficient child-care availability costs the state $5.65 billion in lost economic activity each year.
These stabilization grants, which have been funded for the past two years with federal COVID relief money, are used to boost compensation for early childhood educators. With the funds running out at the end of June, child-care providers were facing a “funding cliff,” and without action from the state, up to 30 percent of providers in the state were projected to close their doors. The $67.5 million, which is mostly cobbled together from other federal funds, will provide enough money for reduced grants for the remainder of 2024, at about 75 percent of previous funding levels.
Securing funding for compensation grants is a victory, but it’s both temporary and insufficient. A spokesperson from DHHS notes that the reduction in funding is still likely to lead to child-care closures, and the legislature will need to extend funds for the remainder of the fiscal year when they return to budget negotiations in November. But without a sustained investment, child-care providers will face the same funding cliff a year from now, and even with these grants, worker pay remains far too low. The child-care system needs ongoing state funding to ensure that educators receive fair pay for their incredibly important work, and that families can access affordable and high-quality care for their youngest children. This won’t be possible without state tax policy that asks corporations and the wealthiest people in our state to pay what they truly owe.
Child-care grants were funded mostly with federal sources — including block grants that could have been used to expand access to subsidies for more families
The money the legislature used for stabilization grants came primarily from federal sources — some of which could have been used to support other aspects of the child-care system, notably to extend child-care subsidies to more families.
As shown in the figure below, just $9 million dollars of the stabilization grant funds came from the state general fund. SB 357 used about $33 million in State Fiscal Recovery Funds (SFRF) from the American Rescue Plan, the massive COVID relief package passed by the Biden administration in 2021. These flexible funds had previously been budgeted to other uses, and the bill reduced SFRF funds from eight different line items to cobble together the funds redirected to stabilization grants. Legislators provided no explanation of how this reallocation of funds might affect other programs. For example, about $13 million came out of the Longleaf Commitment Grant program, which provided free community college tuition for graduating high-school seniors. Because SFRF funds must be obligated (which is different than just being included in budget bill) by December 2024, it may have been necessary to reallocate money to meet that deadline, but, as usual, there was no transparency from legislators about these decisions.
Another $25.5 million came from a federal block grant for child-care services, known the Child Care Development Fund (CCDF) or Child Care Development Block Grant (CCDBG). Crucially, these are funds that could have been used for other child-care services, like subsidies that help working families pay for child care. It could have funded one year of child-care subsidies for over 2,000 families. By shifting this pot of money rather than using state funds for stabilization grants, this strategy missed the opportunity to use the recent expansion of federal CCDF funds to increase overall investment in the child-care system.
The funding plan managed to maintain funds for child-care subsidies at the same level as originally funded in the biennial budget by shifting other federal funds from the TANF (Temporary Assistance to Needy Families) block grant into the subsidy program. This is part of a trend of shuffling federal funds to ultimately reduce the state’s direct funding commitment to crucial services for families with low incomes.
If wealthy people and corporations paid what they owed, North Carolina could fund stabilization grants every year with our shared tax revenue
North Carolina doesn’t need to rely on federal funds to expand support for the child-care sector. With fair tax policy, we would have the resources we need to fund stabilization grants every year. But legislative leaders have made it clear that they prioritize tax cuts for big corporations and the wealthy over supporting child care to help working families. Under current policy, our state’s corporate income tax will be eliminated and our personal income tax slashed to 2.49% by 2030. The modest tax reforms in the budget proposed by Governor Cooper this spring show that by halting cuts to the corporate income tax and keeping current personal tax rates on high-income households, the state would have just over $200 million in additional revenue for this fiscal year.1This additional revenue would come from the following changes for tax year 2025: Maintaining the corporate income tax at its current rate of 2.5% rather than decreasing it to 2.25%, and maintaining the personal income tax at its current rate of 4.5% for households with high incomes, rather than decreasing it to 4.25% for all households. This would meet the full annual cost of maintaining stabilization grants at the same levels they have been operating at for the past two years.
Using our state funds for stabilization grants would allow North Carolina to maximize federal funds for other urgent needs, like child-care subsidies. The tax plan that NCGA leaders have put into policy will cost our state more as each year goes by, putting more money into the pockets of the richest households and corporate shareholders that live outside our state. Funding child care and early childhood educators on the other hand strengthens an economy that works for all of us — for working parents, for employers, and for the youngest North Carolinians.
Footnotes
- 1This additional revenue would come from the following changes for tax year 2025: Maintaining the corporate income tax at its current rate of 2.5% rather than decreasing it to 2.25%, and maintaining the personal income tax at its current rate of 4.5% for households with high incomes, rather than decreasing it to 4.25% for all households.
