Financing Strategically

According to the Urban Institute and Brookings Institution Tax Policy Center, the sources of state general revenue are income, sales, and other taxes; charges and fees; and transfers from the federal government. In 2016, state governments collected more than $1.9 trillion in general revenue. General revenue from income, sales, and other taxes totaled $923 billion—nearly half of all general revenue. About one-third came from intergovernmental transfers.[1]

States often use general revenue funds to match federal funding, as is required for the Child Care and Development Fund, or as a required funding base to draw down federal funds. General revenue may also be used to go beyond required matching or maintenance-of-effort requirements in early childhood. States frequently use general revenue for state-only programs as well, such as state-sponsored preschools.

State general revenue can be allocated to fund any part of the early childhood system. These allocations may be found as separate line items within organizations, such as education, human services, or consolidated early childhood agencies, and they may also be embedded within formulas, such as state education aid formulas.[2]

There are many examples of states using general revenue to support early childhood, including the following:

The National Academies of Sciences, Engineering, and Medicine created a table to show the major sources of federal and state early childhood education funding, adapted below:[4]

Table 1. Major Sources of Federal and State Early Childhood Education Funding in FY 2016

Program: Subsidized Care Population
Targeted
Financing
Mechanism
Federal Funding
($ billions)
State and Local Funding
($ billions)
Early Head Start and Head Start Families with income < FPL, ages 0–5 years Direct to providers $9.168 -
Child Care and Development Fund (CCDF) Qualifying low-income families, ages 0–12 years To providers via vouchers or contracts $3.427 $1.307
Temporary Assistance to Needy Families (TANF) transfer to CCDF Qualifying low-income families, ages 0–12 years To providers via vouchers or contracts $0.792 -

TANF direct child care

Qualifying TANF recipients ages 0–12 years To providers via vouchers or contracts $0.782 $2.776
State-funded prekindergarten Targeted or universal, ages 3-5 To providers via vouchers, scholarships, contracts, grants, or school-funding formulae - $7.391
Locally-funded prekindergarten Same as state-funded Same as state-funded - Not available
Total $14.169 $11.5+

 

Program: Tax-Based Subsidies Population
Targeted
Financing
Mechanism
Federal Funding
($ billions)
State and Local Funding
($ billions)
Child and Dependent Care Tax Credit Working families with tax-liability, ages 0-12 years (and adults) Personal income tax credit (refundable in some states) $4.590 Not available for equivalent state programs
Dependent Care Assitance Program Working families with tax-liability, ages 0-12 years (and adults) Employer-administered account to pay for eligible expenses with pre-tax dollars $1.000 -
Employer-provided child care credit Working families with qualifying employer, ages 0-12 years (and adults) Employer tax credit $0.010 Not available for equivalent state programs
Total $5.6 Not available

The total Federal Funding($ billions) for Subsidized Care and Tax-Based Subsidies is $17.5-$19.8 and the total State and Local Funding ($ billions) is $11.5+

Adapted from National Academies of Sciences, Engineering, and Medicine. (2018). Transforming the financing of early care and education, p. 62. Washington, DC: The National Academies Press.

 

[1] Urban Institute, & Brookings Institution. (n.d.). The state of state (and local) tax policy [Online briefing book]. Retrieved from https://www.taxpolicycenter.org/briefing-book/what-are-sources-revenue-state-governments.

[2] Mitchell, A., Stoney, L., & Baker, J. (2004). Financing early childhood care and education systems: A standards-based approach. In A. R. Tarlov & M. P. Debbink (Eds.), Investing in Early Childhood Development (pp.189–214). New York, NY: Palgrave Macmillan.

[3] Barnett, W. S., Carolan, M. E., Squires, J. H., Brown, K. C., & Horowitz, M. (2015). The state of preschool 2014. New Brunswick, NJ: National Institute for Early Education Research. Retrieved from http://nieer.org/state-preschool-yearbooks/the-state-of-preschool-2014.

[4] National Academies of Sciences, Engineering, and Medicine. (2018). Transforming the financing of early care and education, p. 62. Washington, DC: The National Academies Press.