Report explores solutions to Wisconsin's child care affordability crisis

Child care affordability is an increasingly pressing issue across the country. There are high costs for families, low wages for workers, tight margins for providers and strains on the broader workforce as parents weigh whether to work or stay home to be caretakers. So, how can our state and local governments help address this problem?

According to a recent report from the Wisconsin Policy Forum, there are options to make child care more affordable, but current state laws limit what can be done. "Funding the First Years and Beyond: State and Local Options to Raise Revenue for Child Care" explores why funding to offset child care costs is such a challenge in Wisconsin, and what we can learn from other state’s broad-scale solutions.

Sara Shaw is the Deputy Research Director at the Wisconsin Policy Forum, and she joins Lake Effect’s Audrey Nowakowski to go over the report's findings.

This interview transcript has been edited for length and clarity.

Audrey Nowakowski: Can you share what the main factors are that make funding child care so challenging?

Sara Shaw: It's really sticky when it comes to child care funding because there are such tight margins. You have providers who are trying to run a business, who want to be able to pay their workers and want to keep their services affordable for families. But child care is such a labor intensive industry where the ratios of how many adults are needed to take proper care of children are very high. And so, much of your costs are going toward labor. It's very hard to diminish costs without affecting care, and it's very hard to increase wages without passing that along to families.

But unlike other industries that might have more wiggle room in where they set their prices or how they're able to garner more efficiencies in the services they deliver, child care kind of gets stuck. And so, part of what we're interested in is: where is there an opportunity to bring other revenue into the picture that can ease this strain on providers, on families and on the workers themselves?

It's not a policy that you'd find written down on paper anywhere, but it's an implicit policy in the sense of: what else are we funding? So, for example, K-12 education is one of the largest, if not the largest, receivers of state revenue. Child care, on the other hand, is primarily funded by federal dollars that pass through the state. And it was only in this last state budget that the legislature and the governor passed a child care program that's fully funded by the state.

I have an inkling that many people don't know that there are actual policies in place that state, "Families should be taking on the primary burden of funding child care." How long has this been the case in Wisconsin?

Your report found that state-level solutions are more accessible than finding funding locally. So, when we talk about state funding, we're talking about Wisconsin federal funding passed down to local municipalities. Can you share why, and explain some of the federal funding sources are that we're largely relying on right now?

Two of the biggest ones are the Child Care Development Block Grant. So that comes straight from the feds. And then the state passes it through to the child care industry — oftentimes in the form of subsidies going directly to families so that they can better afford child care. The other major block grant that comes from the federal government is Temporary Assistance for Needing Families (TANF). TANF covers a variety of services, seeking to support our most vulnerable families. And child care support is a big portion of that.

And, in fact, one of our findings was that — compared to other states — Wisconsin is in the top 10 of states that choose to direct those TANF dollars to early care and education activities. So, as a state, we are already very reliant on those federal dollars. We're already saying we want to invest in child care and use federal dollars to do so. And it means that, if we're looking for new revenue to tap, the federal dollars are somewhat already tapped. If we were to draw upon them more, it would come at the expense of other programs and services for our most vulnerable families. So, that's part of why we started looking at state and local options to raise additional revenue instead.

Why are local governments here in Wisconsin more constrained in their ability to raise new revenue for issues like child care?

This is really interesting because one of our major findings is that other states have a lot more possibilities open to them than Wisconsin does. For example, in Wisconsin, there is no income tax that a municipality or a county can raise. For municipalities, only a handful can impose a sales tax. On counties, they can impose a sales tax — and indeed, 70 out of our 72 counties have — but it's limited at 0.5%. Milwaukee County is the one county that can go up to 0.9%. So those dollars are generally already being collected and already spoken for. That limit on municipal sales taxes and income taxes means that a lot of what other states and other communities across the country are doing is not possible in Wisconsin, under current state law.

How do school districts play a role in this?

So, school districts are maybe the one place locally where there are more options available for a community wanting to raise revenue for child care. The most straightforward method might be to expand the offerings for four-year-old kindergarten, because that's immediately bringing in more students potentially, and school districts receive some dollars in exchange for serving more children of that age. But it's not as many dollars as if they were to increase the number of K-12 students, for example. And it can have some negative effects on the child care landscape around that school district because four-year-olds are often child care providers' ways of helping to balance bills. They cost less to serve because you can get away with having more children under one adult as opposed to infants. And so expanding 4K is an option, but it has pros and cons.

We did find some examples of school districts that had started operating their own child care centers. In the most promising scenarios, that was happening where they had reviewed the local landscape and worked with existing providers to say, "Yes, there is the demand here, and if we open the center, it's not going to be taking away your teachers or taking away your kids; it's really going to expand the landscape and not just shift it around." And there were a couple of examples we highlighted — in particular in the Frederick School District and the Sauk Prairie School District — where these centers are up and operational in a way that's not putting the school district in too much deficit and is potentially even raising revenue. So there are some interesting innovations happening across the state in the role that school districts might play.

So let's say the state wants to establish new funding streams and use that revenue specifically for child care. How would we go about that?

Well, when we looked across other states, we saw a number of different avenues that states had taken to try to get at that goal. One of them is raising new taxes. The big negative here is that is not typically a very popular way of going about things. But it has happened in other states and the proceeds from it can be quite high, in terms of how much new revenue comes through. For example here, Vermont put a tax on payroll. Massachusetts has taxed any income above $1 million. Louisiana is taxing net proceeds from sports betting. So it really depends on political appetite here, but you could implement a new tax or raise existing taxes and earmark it for specific policy priorities like child care. It's worth noting here that Wisconsin currently has its lowest state and local tax burden on record. So, one might think there's some room to work with taxes there. On the other hand, you might say that's where we want to be, and we don't want to implement more taxes.

Another one that has come up more frequently recently is establishing trust funds. These work like your own investments, where you put in often kind of a large upfront sum, which is then invested in the markets. And the proceeds from that can continue funding either the trust fund or dedicated priorities. Connecticut and Montana did this recently. They had large surpluses in their general funds. They used those surpluses to seed new trust funds, which are getting drawn down at various points to help fund policy priorities at the state. In the case of Connecticut, directly to child care — in the case of Montana, child care among some other options.

You gave some examples — like, say, theoretically Wisconsin legalizes marijuana. Taxes from that could go towards child care? Or there's sports betting, right?

That's right. Right now we do have sports betting legalized on tribal lands in Wisconsin. So that would be some sort of renegotiation if it were to open up. But the state really has large latitude here to tax basically anything. It's more about negotiating what's going to be palatable at the policymaker level and the political level, and whether it's going to have the intended impact that they would wish.

So, no matter what state you're in — there's just a general consensus that childcare is a long-term investment. How does investing in child care benefit more than just people who have children?

So, first, we can think of child care as a workforce issue as much as a family issue. When a child is born, families are trying to balance whether it's actually worth having both parents in the workforce, given how high the cost of child care is — especially if they have multiple children. And businesses can be thinking about this as a talent recruitment and retention strategy. Rather than losing members of their workforce to child care, they could instead support child care or support policies that support child care. Or, on a lower end, supporting child care for their employees can be a perk that they offer in terms of health care and benefits.

So some of the revenue options that we've seen in Wisconsin and nationally are really looking to leverage this employer role. And I think this interest in drawing employers in — whether through tax incentives or cost shares — is one that we'll be very interested in tracking, especially in the examples that would link state and locals together. I'll give one other example that we saw: Louisiana has a state matching fund where. if local communities either raise from their own coffers or fundraise for child care revenue, the state will match. And you get this compounding effect. Some innovation happening elsewhere in the country, and we'll be interested to see if that takes root in Wisconsin at all.