Funding Early Childhood Education Part 1: Federal Options

Written by: Jessica Landgraf

Primary Source:  Green & Write, March 15, 2017

This is part 1 of a two-week series about early childhood education funding options. This week focuses on federal funding options. Next week will focus on state funding options.

Although at this particular time the possibility that the federal government will create new funding streams to support early childhood education (ECE) are unlikely, there is always the possibility that things could change. In light of that possibility, it is important to understand the recommended options. This week I will detail one set of federal options, and next week I will explore more state level funding options.

In 2015, Save the Children Action Network released a set of recommendations for the government to make funds available to finance early childhood education and care. They split the recommendations into two categories: “Incentivizing Private Dollars and Reforming Tax Credits” and “Identifying New Public Resources.” The table below summarizes the recommendations within each of these two categories.

Incentivizing Private Dollars and Reforming Tax Credits

Social impact financing

Resources are directed to support services that address societal needs (in this case, ECE).   The money that is invested in these services is paid back through the savings that accrue as measurable savings, to all levels of government, generated through the delivery of the service (e.g. long-term ECE benefits like Higher rates of employment and high school graduation, Lower rates of teen or unplanned pregnancies, etc.).

Expanding municipal, nonprofit and private activity bonds The interest earned on bonds used to fund public good projects is exempt from the federal income tax. This makes them enticing to investors, even if their interest rates are lower than other options. The types of bonds that are recommended for use in funding ECE are municipal bonds, bank qualified bonds, nonprofit bonds, and possibly private activity bonds.
Higher education – early childhood education parity Extend the tax benefits available for higher education to ECE. These include tax credits, education savings accounts, and the exemption of scholarships, fellowships, and tuition reduction from taxable income.
Expanding tax credits and deductions Expand current ECE credits and explore additional credits that could be used to finance ECE.

Identifying New Public Resources

Excise tax parity

Use new taxes on tobacco products, gambling (both brick and mortar and internet), as well as lottery revenues.

Harnessing savings and new revenue mechanisms These include new mechanisms such as the one-time tax break (last used in 2004) that encouraged U.S. multinational corporations to return overseas profits to the U.S. at a much lower tax rate (5.25% vs. 35%).

Some of these recommendations are more straightforward than others, but none of them are likely to have a smooth or quick path toward enactment. The heterogeneity of the 50 states’ ECE funding systems makes a fully top-down option unlikely. However, these recommendations should be taken into consideration for the future funding and expansion of current federally funded ECE programs such as Head Start and Early Head Start.

Contact Jessica: landgr16@msu.edu

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