Funding and Financing Examples
There are a number of good examples and promising strategies for how to generate resources to invest in strengthening the quality of early care and education (ECE) programs. The examples collected here reflect innovative funding mechanisms for improving the quality of ECE programs. In different ways, they could be used to improve the salaries and benefits of care providers, to strengthen infrastructure and improve practice environments, to fund or subsidize the costs of professional learning, and to support efforts for collective action to achieve systems change. The committee did not conduct a comprehensive review and analysis of financing options, and evidence evaluating the following strategies currently is insufficient to warrant specific conclusions and recommendations about which to employ under what local circumstances. Nonetheless, local communities can examine these examples in considering how they might mobilize the necessary resources to improve the quality of the care and education of young children.
As described in Chapter 2, although there are a wide range of federal programs focused on quality supports for child development and early learning, much of the funding invested in the care and education of children from birth through age 8 comes from state and local sources and from sources outside of government, including philanthropic investments, employer-based childcare benefits, and out-of-pocket payments by families. This reinforces one of the central messages of this report, that stakeholders interested in improving the availability of a highly qualified workforce for children birth through age 8 need not only focus on influencing federal and other national efforts, but also develop concerted strategic systems
change—including financing reforms and resource mobilization—at the state and local levels.
PUBLIC INVESTMENTS
One pathway for increasing funding is to increase allocations to existing public funding streams at local, state, and federal levels, or to expand the scope and mandate of universally available publicly financed education to extend to children at birth. Some expansion of this kind is occurring with the implementation of publicly funded preschool in many states and municipalities, including in some cases the integration of preschool into a state’s school funding formula. However, this is unlikely to be implemented nationwide at the level of investment necessary, especially given how much of current care and education for children is financed through out-of-pocket payments by families or employer subsidies, costs that would be difficult to absorb through public investments alone. That said, there are some examples to consider to increase or more efficiently use public investments to support high-quality professional practice.
Subsidies to Improve Professional Training, Services, and Compensation
Subsidies to improve professional training, services, and compensation can occur through individual or program grants from public funds to support further education of ECE providers, recruitment of new providers, improvement of services, or subsidy of provider income.
cational delays (Vermont Agency of Education, 2015). The state also has a program of income subsidies (bonuses) for ECE providers who achieve specific educational or training requirements, and other financial incentives for ECE programs to obtain national accreditation (Vermont Department for Children and Families, 2015).
Incentives to Collaboratively Blend Funding Streams
Incentives to collaboratively blend funding streams to support ECE programs by combining resources and personnel across programs can increase efficiencies and potentially improve quality. The success of these collaborative initiatives requires genuine and continuing support from federal and state administrative agencies and their leadership. Examples can be found in the Illinois Preschool for All (Illinois State Board of Education, n.d.) and Illinois Early Childhood Collaboration (Illinois Early Childhood Collaboration, 2015) programs. In each case, funding for pre-K and preschool programs administered by the Illinois State Board of Education are in grants that follow 3- to 5-year-olds to the blended programs that serve them, whether based in local school districts, community-based programs, family childcare programs, and Head Start/Early Head Start programs or some combination of them.
Expansion of Performance Partnership Pooled Funding Pilots
Performance Partnerships are a new federal pilot program, building on a strategy implemented by the Environmental Protection Agency, that is designed to pilot better ways of using federal resources and to reduce administrative and reporting burden by allowing additional flexibility in using discretionary funds across multiple federal programs. Initial pilots in
2013 allow states, regions, localities, or federally recognized tribes to consolidate federal funds for program objectives related to disconnected youth and distressed neighborhoods, two areas recognized as potentially benefiting from greater flexibility and coordination across federal programs. With the flexibility to pool funds comes greater accountability. The partners must enter into an agreement which identifies the funds, programs, and services involved in the pilot; the population to be served; oversight procedures; methodology for outcome-measurement; and the consequences and corrective actions to be made if expected outcomes are not achieved (Readyby21. org, n.d.; U.S. Department of Education, n.d.). Given the cross-sectoral nature of care and education for children birth through age 8 and the major current challenges with diverse funding streams, it is a policy area that may be a natural candidate for expansion after the pilot phase.
Tax and Revenue Initiatives
Refundable Tax Credits
Refundable tax credits can be used to directly subsidize high-quality ECE programs and/or providers working in those programs, and are often tied to quality measures of program performance. Such a strategy, which requires legislative action, provides incentives for increased quality of early care and education and can also provide income support for providers. Besides the two programs described following, Colorado and Oregon offer other examples of innovative tax credit programs to support investments in ECE programs and their quality (Blank and Stoney, 2011).
the number of stars of the child’s ECE program. In addition, there is also a business SRTC based on (a) a percentage of the “eligible expenses” incurred in support of ECE programs participating in the state QRIS (e.g., costs for construction or renovation; purchase of equipment; costs in the maintenance or operation of the program), (b) payments to a QRIS program for childcare services to support employees, and/or (c) donations made to Child Care Resource and Referral Agencies, with the amount of the credit also depending on the number of stars of the relevant program. Both for-profit and nonprofit businesses are eligible (presumably including ECE programs themselves), and this is also a refundable tax credit.
Local or State Tax Initiatives
Local or state tax initiatives have received voter support in several regions to support the development of high-quality ECE programs. Besides these examples there are many others, including San Francisco’s Children’s Fund that has been resourced through property taxes, approved by voters, since 1991 (Ballotpedia, 2014).
(b) a parent–child home-visitation program for 2- to 3-year-olds, and (c) a training program for birth-to-third grade educators and home-based childcare practitioners.
Revenues from Lottery or Gaming Activities
Several states have designated revenues obtained from state-supported lotteries, gambling, or other gaming activity to support improvements in the quality and accessibility of high-quality ECE programs. The Missouri Early Childhood Development, Education, and Care Fund annually provides tens of millions of dollars to the startup, expansion, and improvement of programs serving children from birth to kindergarten age and their families, drawing on state revenues from gambling fees (Missouri Legislature, 2014). The Georgia Lottery for Education provides more than $900 million annually to educational activities, of which a statewide voluntary prekindergarten program is a major component (Raden, 1999).
Anticipated Cost Savings from the Effects of High-Quality Childcare and Education
Some of the most recent widely discussed approaches seek to recover and reallocate the cost savings to other social institutions that are anticipated as the result of young children’s participation in high-quality ECE programs. Those social institutions can include schools (such as reduced special education costs), public systems (such as reduced welfare expen-
ditures and enhanced tax revenues from greater employment), and other social institutions. These anticipated cost savings are based on longitudinal studies documenting the later public (as well as individual) benefits deriving from young children’s participation in high-quality programs.
Social impact contracts/bonds Social impact bonds provide for the use private funds (from individuals or corporations) to implement high-quality ECE programs. These funds are repaid by the government if the intended results are met. They may be contingent on performance outcomes or on revenue outcomes (such as reduced public spending) (Nonprofit Finance Fund, 2013). Pay for Success, one type of social impact bond, aims to improve early childhood outcomes and reduce government costs. ReadyNation has used this strategy to use special education cost savings to pay for prekindergarten programs in Salt Lake City, Utah, as well as for prenatal health care and counseling in Virginia financed through savings from Medicaid cost avoidance (ReadyNation, 2015a).
Reallocation of special education funds At present, federal and most state statutes provide special education funding based on the number of children directly receiving such services. Advocates associated with the Granite School District in Utah have proposed that if one of the outcomes of investments in high-quality ECE programs is a reduction in special education enrollments in the school district, those cost savings should be reinvested in strengthening and expanding those programs. The expected result would be progressive improvements in quality preschool program access over time and comparable decreases in special education enrollments (Voices for Utah’s Children, 2013). Implementing such a strategy would require statutory changes at the federal and, possibly, state levels to enable such redirection of cost savings.
PRIVATE INVESTMENTS IN IMPROVING THE QUALITY OF ECE PROGRAMS
There has been some interest in the business community in investing in education, including early learning. One avenue is investment in early childhood care and education through childcare benefits or subsidies for their employees or through directly providing childcare services. Another avenue is through business leaders engaging in advocacy to foster greater government investment (for example, the use of business leaders in the advocacy efforts of the Pew Charitable Trusts campaign for prekindergarten education and the efforts of ReadyNation [2015b], a national business advocacy group that is also focused on increasing public investments in early learning).
In some cases businesses and corporations invest directly to improve the availability and quality of care and education programs in their communities, in part motivated as a business investment in local workforce preparation. This may not be as widespread as it could be because of barriers to direct investment strategy that include (a) the return on this investment is not business specific but rather a shared social good from which businesses benefit very indirectly, and (b) the time horizon for the return on this investment is a long one, by contrast with many other kinds of business investment. Some businesses, however, do see the value of these long-term investments in the less direct social and human capital. In addition, an alternative view is that such business and corporate investment could be viewed as part of the business community’s return for the public investment in infrastructure from which business entities directly benefit.
Corporate Philanthropy Used as Seed Funding
The Minnesota Early Learning Foundation/St. Paul Early Childhood Scholarship Pilot was funded with $20 million in private (primarily corporate) funding to provide seed money for a variety of programs to support early childhood education, including (a) parenting mentoring, especially through home visitation, (b) 2-year scholarships for 3- to 4-year-old children coming from lower-income families (i.e., <185 percent of the federal poverty level) to attend high-quality ECE programs, and (c) systematic evaluation of childcare quality through a program called “Parent Aware.” Funding came primarily through philanthropic donations from corporate sponsors throughout Minnesota, with a focus on the Minneapolis–St. Paul region. The program lasted from 2006 to 2011 and yielded promising results suggesting that there were increases in the quality of childcare programs serving lower-income children and improvements in the school readiness of scholarship recipients, and the Minnesota legislature subsequently significantly expanded the scholarship program (Minnesota Department of Education, 2015; Minnesota Early Learning Foundation, 2011; Schwartz and Karoly, 2011; Think Small, 2013).
PUBLIC–PRIVATE PARTNERSHIPS
Program Development
Program development is the most direct and visible form of public–private partnership to contribute to the creation, improvement, or enhancement of ECE programs. This can occur on a statewide level but is most often local, resulting from the direct collaboration of local business leaders, public officials, and local and national philanthropies to pool resources to
create changes that none would have been capable of doing alone. Several examples were also described in Chapter 3:
Loan Subsidies
One general public–private strategy is to provide avenues for nonprofits that run ECE programs to obtain loan revenues at lower cost from private and public sources that can be used for a variety of purposes. One of the problems of this strategy is the difficulty that many ECE providers are likely to encounter in paying back the loan amount, which is why programs that provide loan guarantees or subsidies can be most useful.
program also paid 80 percent of debt service, with Temporary Assistance for Needy Families [TANF] funds used to help repay loans; see Zeidman and Scherer, 2009).
General Redevelopment
Another strategy is to leverage funds from private sources to enhance the quality of early care and education programs. San Francisco, for example, has such an investment program (Low Income Investment Fund, 2014). Other examples illustrate the use of public mechanisms to leverage such finds:
improvements in the facilities or operating costs of ECE programs within the district as part of the redevelopment effort. Enabling legislation by the state may, however, be necessary for this to occur. Other problems with this strategy are similar to those of social impact bonds (e.g., crediting local tax revenue increases specifically to the improvement in the local ECE infrastructure), although the TIF strategy is based on an assumption that any revenue increases will be allocated to bond/loan repayment.
Public Land Trust Revenue
Public land trust revenue is typically used to fund public institutions, including schools. In 2006, Nebraska voters passed a constitutional amendment to allow revenue generated from public land trusts to be used for early childhood education, with a focus on birth to three (Stebbins, 2010). These funds provided the basis for the development of the Nebraska Early Childhood Education Endowment, created from the public commitment of $40 million from the Educational Lands and Trust Fund and a commitment from the private sector of an additional $20 million raised over a 5-year period. In this respect, the Nebraska model is a public–private partnership because of how the public investment was used to leverage a private match. The Nebraska Department of Education administers these funds under a program called Sixpence to provide grants to school districts who work with local agencies to provide high-quality birth-to-three programs, with a 100 percent local match to statewide funds. The programs supported by this program include parent support initiatives to teenage parents, home visitation, and other programs.
SHARED SERVICES
It is common that several agencies, organizations, or businesses work together to share overhead costs and provide services in a more efficient manner. The general goal is that by collaborating on infrastructure costs (particularly capital management and improvement costs, financial account-
ing, human resources, billing, staff management, and other administrative services), professional development, and other common concerns, each agency can gain cost savings, notwithstanding the other potential benefits of collaboration. Sound Child Care Solutions in Seattle is one example of a shared services organization consisting of seven childcare programs in that region (Sound Child Care Solutions, 2012). Another example is Infant/Toddler Family Day Care in Fairfax, Virginia, that serves family childcare programs serving very young children (Infant Toddler Family Day Care, n.d.).
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