A bill that started out with the promise of no family paying more than 10 percent of their household income towards childcare ironically now will increase the cost of childcare for some families. The final product is not the expected bill around affordability and is now a bill about stabilizing childcare providers. The year started with the delivery of the long-awaited study from RAND. The Senate took the lead with their version._
The House and the Senate came to an agreement on the policy of the bill relatively quickly, however, an agreement on the funding remained elusive.
- The Senate funded the legislation with a 0.43% payroll tax as well as reallocating the funding from the child tax credit after its repeal. (Senate version fiscal note)
- The House version funded the legislation with a large increase in the corporate and personal income tax totaling $125 million in FY 25 and growing to $171 million in subsequent fiscal years. (House version fiscal note)
In the final days of the session, the agreement of the policy only became more solid, while the agreement on the funding became more elusive. The Governor had been adamant that he didn’t want to see new taxes and identified about $50 million in base funding in his budget to double the size of childcare subsidies this year. Both the House and Senate used that and found an additional $20 million in one-time readiness grants.
In the 11th hour, the House agreed to the Senate’s funding structure, with a payroll tax of 0.44%, with at least 75% of the tax required to be paid by employers. The final language moved in H.217, a worker’s compensation bill. A fiscal note of that bill can be found here.
The childcare bill can most easily by explained as trying to do the following;
- Raising wages for early childhood education (ECE). Provider’s budgets consist of between 75 to 80 percent wages and salaries, and they will have roughly 35 percent more funding.
- That funding comes through increasing subsidies to mitigate the financial flow-through cost impact to families,
- More funding needed to pay for those subsidies, so the Legislature looked to raise taxes somewhere.
- The increased resources to ECE providers could draw more into that workforce.
The concern of many is that the increase in ECE wages will not be enough to draw workers into the field, as the prevailing wages in the broader economy are very high, many employers are competing for workers in a state that has a deficit of about 23,000 workers.
Subsidies in the bill change in the following ways;
- The income limit for full coverage moves from 150% of the federal poverty level (FPL) to 175% FPL
- Subsidies are now offered up to 400% in 2024 and the 575% 2025 percent FPL instead of the current 350 percent. (See a federal poverty calculator here.) Co-pays have been increased by $1 per week compared to previous years.
The bill has been speculated to be a veto target due to the payroll tax, however, it passed the Senate with 24 votes and the House with 118 which means the Legislature may be able to easily override a veto. – Republished from Lake Champlain Chamber newsletter