Reform #3: Supplementing Wages with Tax Credits

One of the primary barriers to attracting and retaining a high-quality workforce is the abysmally low compensation, especially for those working with infants and toddlers. This is a challenge that states are struggling with nationwide, but, according to the 2018 Early Childhood Workforce Index, Louisiana child care workers are some of the lowest paid in the country, even when adjusting for cost of living.¹ The economic insecurity these teachers experience can affect their ability to engage and have high-quality interactions with children.

For good reason, the field has been wary of raising qualification requirements without also addressing the poverty-level wages and often nonexistent employee benefits. Teachers working in early learning centers should not be expected to invest their limited time and money in more education and training without the guarantee of significantly better compensation. Many infant and toddler teachers who do earn higher credentials leave their early learning centers to work in Head Start or in the public school system where pay is higher. With limited federal and district-level oversight and funding, individual early learning centers, which are usually running on tight budgets, have little room to increase teacher pay.

Over a decade ago, Louisiana came up with a way to address these issues. The state’s School Readiness Tax Credits (SRTC) are directed at teachers, center directors, parents, and the business community to encourage quality early learning. They have been updated recently to align with the reforms to the ECE system. Teachers in child care centers can now earn a refundable tax credit, referred to as the Teacher SRTC, ranging from $1,630 to $3,358 depending on their education level and how many years they have worked in child care.² Teachers are eligible for the full SRTC if they earn the Ancillary Certificate and stay in the child care sector for more than two years, or if they earn higher levels of education, such as a bachelor’s degree. Teachers do not have to remain at the same child care center during that time period to remain eligible for the full credit. Center directors can also earn tax credits based on educational attainment or their site performance as determined by CLASS scores.

Teachers in child care centers can now earn a refundable tax credit, referred to as the Teacher SRTC, ranging from $1,630 to $3,358.

Back in 2007, the tax credits started as a way to encourage early learning centers to participate in and support the state’s QRIS.³ In a deeply Republican state like Louisiana, tax credits tend to be more politically viable than other forms of government spending. Also aligning with conservative policy ideals, the tax credit is earned as opposed to an entitlement; teachers must attain a credential to get it. Like other tax credits, the money comes from Louisiana’s Department of Revenue, not LDE. According to LDE, the “School Readiness Tax Credits are a $16 million investment annually in quality child care.”⁴ The Teacher and Director SRTC (they are grouped together as one in the budget) is the most popular of them; a total of 4,044 individuals claimed the credit in 2016 for a total of over $8.7 million. When the tax credits first went into effect in 2008, only 874 educators claimed the credit, for a total of $1.5 million.⁵ There has since been a substantial increase in the percentage of teachers pursuing higher levels of education.⁶

Only Type III centers are eligible for the various tax credits in the SRTC package. LDE believes this has encouraged centers to stay or become Type III centers and serve children receiving subsidies.⁷ One Lake Charles director said, “with the new requirements we got nervous about losing teachers. But the tax credits came along and helped. They supplemented pay.” In a recent presentation, LDE said, “child care directors and teachers indicate that they rely on the credits to make essential purchases, retain teachers, and invest in quality improvement, which is especially important with the 2019 requirement that lead teachers have an ancillary certificate.”⁸

Louisiana’s early childhood career development registry, known as Louisiana Pathways, monitors education standing and is responsible for making sure eligible teachers receive their tax credits. Joining the registry is free and people who earn their Ancillary Certificate are automatically enrolled. The Pathways team has been expanding in recent years to accommodate the huge increase in active registry members—there are now over 16,000—and to coordinate the Ancillary Certificate scholarships and tax credits.

As the Committee for Economic Development (CED), a national nonpartisan research organization focused on finding solutions to important public policy issues, explains in a recent analysis of the Teacher SRTC, there are key features that make it successful.⁹ Because the tax credit is refundable, it is able to raise wages for even the lowest earners who may not owe income tax. CED also discusses the importance of indexing the tax credit to inflation, which Louisiana does, so that the real value does not decrease over time. And while $3,358 might seem like a modest increase in wages for a workforce that is grossly underpaid, CED points out that it is more than a 10 percent increase in wages for the average Louisiana child care worker.

While tax credits are one way to lessen the economic burden on the early childhood workforce, there are downsides to this approach. One major drawback is that the credit comes in full, one time per year. Families living in poverty, as much of the ECE workforce is,¹⁰ may benefit from higher wages or benefits on a regular basis instead of waiting all year for the credit. This workforce often does not earn enough to have sufficient savings and might need money available for day-to-day expenses or an emergency. And from the Louisiana Pathways perspective, communication is still a hurdle. Jenny Cowan, Louisiana Pathways Scholarship Coordinator, noted that “a lot of people are aware of the credit and know the expectations and know they need to enroll in Pathways. But there are still a lot that don’t. They need to see the full picture and understand all the puzzle pieces and how it all works.”

Unlike a wage increase that would automatically go into someone’s paycheck, receiving the tax credit does take an extra step, and some eligible teachers might not fully understand the process or take the time to do it. While any wage supplement is better than no wage supplement, are the tax credits more of a Band-Aid than a cure? Are they a cheaper and potentially temporary replacement for higher wages?

While $3,358 might seem like a modest increase for a workforce that is grossly underpaid, it is more than a 10 percent increase in wages for the average Louisiana child care worker.

Advocates for the refundable tax credits argue that they can be part of an overall strategy to link wages with educational achievements, which makes it more likely that compensation increases will occur, particularly in more conservative states that are less likely to increase the minimum wage. Others believe a totally new approach is needed to finance the currently under-resourced child care system as a whole, rather than address each type of challenge separately (e.g., low compensation, no benefits, lack of economic incentive for professional development, etc.).