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Committee on the Science of Children Birth to Age 8: Deepening and Broadening the Foundation for Success; Board on Children, Youth, and Families; Institute of Medicine; National Research Council; Allen LR, Kelly BB, editors. Transforming the Workforce for Children Birth Through Age 8: A Unifying Foundation. Washington (DC): National Academies Press (US); 2015 Jul 23.

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Transforming the Workforce for Children Birth Through Age 8: A Unifying Foundation.

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Appendix GFunding 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.


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.

  • The Washington State Professional Development System is administered by the Department of Early Learning and provides significant financial incentives for several aspects of professional development, including (a) scholarships for educators to extend their training related to child development, and (b) a career lattice program offering financial incentives to educators to advance their training. The lattice program also requires enrollment of educators in a registry permitting professional networking and data gathering (Washington State Department of Early Learning, 2010).
  • The REWARD Wisconsin stipend program provides income supplements to early care and education providers based on levels of education and experience (Wisconsin Early Childhood Association, 2015). Similar programs can be found in North Carolina (WAGE$ initiative) and other states.
  • Vermont Early Education Initiative Grants provide funds from $10,000 to $30,000 to support the development of early education programs for children between ages 3 and 5 who are at risk of educational 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).
  • The Delaware Office of Early Learning, in cooperation with the Delaware Association for the Education of Young Children, administers a Compensation, Retention, and Education (CORE) awards program through its Race to the Top–Early Learning (RTT–ELC) grant. The purpose of the program is to provide financial incentives to individuals and programs to attract, train, reward, and retain educators participating in state Quality Rating Improvement System (QRIS) centers. CORE awards are particularly targeted to programs serving large populations of at-risk children. There are a variety of CORE awards associated with improving educational attainment, strengthening retention, and enhancing recruitment (Delaware Association for the Education of Young Children, 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).

  • Louisiana School Readiness Tax Credits (SRTC) have benefitted both ECE providers and the centers in which they work since 1987 (Department of Children & Family Services, 2010). The SRTC for centers requires participation in the state QRIS system, and the amount of the credit is based on the number of stars (i.e., level of quality) of the center and the number of children served from the foster care or family assistance systems. (Centers also receive a reimbursement bonus from the state for serving these special populations depending on the number of stars they have received in the QRIS system.) The SRTC for providers (teachers and directors) requires that they work at a center in the QRIS system and enroll in a provider registry, and is based on the provider's level of education and length of experience. In each case, this is a refundable tax credit that is not limited by income, although a tax return must be filed. There is also a parent SRTC that increases the parent's Louisiana Child Care Tax Credit by a percentage amount based on 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.
  • Maine Child Care Investment Tax Credit subsidizes costs for the improvement of centers or homes that provide early care and education (Maine Department of Health and Human Services, 2012). Individuals receive the credit as the result of contributing $10,000 or more to quality improvement in 1 year, and it provides a $1,000 annual tax credit for 10 years followed by a $10,000 credit at the end of this period. Businesses receive a credit of 30 percent of their investments in quality improvement up to a $30,000 investment. The investment tax credit can be carried-over to a subsequent year.

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).

  • In 2005, a property tax was implemented in Summit County, Colorado, with the aim of supporting ECE programs. Funds from this initiative support the Right Start Project (Early Childhood Options, n.d.), which provides (a) salary supplements for ECE providers earning low income, (b) scholarships to support further training or education by ECE providers, (c) support for a shared services alliance among local providers, (d) parenting classes, and other initiatives.
  • In 2011, voters in Seattle, Washington, approved a property tax levy for a period of 7 years to support educational achievement (Department of Education and Early Learning, 2015). The Families and Education Levy earmarked $61 million for early childhood programs that year, including (a) the development of Preschool for All, a voluntary, high quality preschool for 3- to 4-year-olds, (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.
  • In 2012, Mayor Julián Castro convinced voters in San Antonio, Texas, to approve a one-eighth cent sales tax increase to fund several programs to enhance the quality of early care and learning for young children in the city under the Pre-K 4 SA program. The centerpiece of Pre-K 4 SA is the establishment of a network of full-day pre-K programs for 4-year-old children.
  • First 5 in California was inaugurated by a voter-approved tobacco tax in 1998 through Proposition 10 (Children and Families Initiative) to generate funds for supporting and improving the development of children from birth through age 5. The initial revenue of more than $700 million led to the creation of statewide (20 percent of revenues) and county-level (80 percent) First 5 Commissions to identify local needs and support a wide range of projects to support families with young children. Many of these projects are devoted to improving quality and access to high-quality ECE programs. Over time, the revenues yielded by the tobacco tax have declined, resulting in refinement and prioritizing among supported activities.

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 expenditures 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.


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).


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:

  • Boston's Thrive in Five program began with initial funding from local foundations, local health care organizations, the city, and United Way to pay for planning and infrastructure. The W.K. Kellogg Foundation provided much of the implementation funding. State funding also contributes to Thrive in Five (National League of Cities, 2012).
  • Educare also illustrates public–private partnership both in the initial development of the Educare model in Chicago and in its extension to other regions throughout the country (Educare Schools, 2015).
  • The involvement of the George Kaiser Family Foundation in expanding access to high-quality early education programs in Tulsa is a further illustration of how private funds in league with public agencies can result in systems change (GKFF, 2015).

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.

  • Qualified section 501(c)(3) bonds are typically used to help nonprofits finance capital improvements, but they can also provide a general mechanism by which capital from private investors can be made available to improve the quality of ECE programs run by nonprofit agencies. The state or local government issues the bonds, with funds provided by private investors. The nonprofit agrees to pay back the debt over time. Interest on the bond is tax exempt, which lowers the cost of the financing, but one problem with this strategy is that it may be difficult for nonprofits to identify or create revenue sources for bond repayment. The Illinois Finance Authority (2012) and the Indiana Economic Development Corporation (n.d.) are two state agencies that have used such instruments for funding early education programs. The Connecticut Child Care Facility Loan Fund (Connecticut Health and Educational Facilities Authority, 2015) offers three programs, including one with subsidized interest rates (according to one source, the Connecticut 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 credit enhancement is often needed by directors of ECE programs to make program improvements, and various mechanisms can enhance the credit-worthiness of an ECE program through the assistance of a public or private entity: a line of credit, liquidity enhancement, or even a loan guarantee. Credit enhancement, provided either privately (such as a philanthropy) or publicly, can significantly lower the cost of financing, especially if the approach includes partial subsidy of interest and/or principal payments or a loan guarantee if the borrower defaults. Because of the importance of high-quality ECE programs to public welfare, public credit enhancements are more likely. As one example, the Division of Child Care and Early Childhood Education of the Arkansas Department of Human Services has created a Child Care Facilities Guaranteed Loan Program that includes a guarantee to reimburse up to 80 percent of the principal of the loan amount up to a $25,000 maximum (Arkansas Department of Human Services, 2011). Eligible loan projects include “any aspect of establishing or expanding a childcare facility,” including classroom and playground equipment, training expenses, construction costs, and temporary financial support. Other states (including Connecticut, Maryland, Tennessee, and West Virginia) have similar programs.

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:

  • Tax Increment Financing (TIF) districts are created when a local government designates a large or small geographical region as a “TIF district” and freezes the tax rate in this region. The bonds or loans that are issued to fund redevelopment projects in that district are repaid from the increased tax revenue that is expected to occur as a result of the redevelopment activity. TIF funding is often used for expenses related to land acquisition, public works construction or improvement, capital construction, and financing costs, but some states have included childcare costs for families living in the district as a TIF expense. TIF funds can also be used to finance 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.
  • Developer impact fees are often required of real estate developers by state and local governments to offset the costs resulting from the impact of their activities on the community (e.g., necessary public works improvements). Some cities have allocated developer impact fees to improve childcare and education programs deriving from the expected increase in demand for these programs resulting from real estate construction. For example, commercial developers in Palm Desert, California, are required to pay a Child Care Facilities Impact Mitigation Fee for new developments (City of Palm Desert, 2015).

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.


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 accounting, 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.).


Copyright 2015 by the National Academy of Sciences. All rights reserved.
Bookshelf ID: NBK310543


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