Funding Education for Our Youngest Learners

When policymakers and citizens talk about expanding children’s access to high-quality early education, they sometimes overlook the need for a stable stream of funding for early education programs. Instead, programs serving children birth-to-five are typically funded by a patchwork of streams blended or braided together to serve as many children as possible. Without dedicated funding for early care and education, state agencies are left to piece together revenue sources for their youngest children. Unsurprisingly, this leaves many states, including South Carolina, with underfunded programs.

Less than one third of South Carolina’s low-income children receive publicly subsidized early care and education. In South Carolina early education is currently funded by state general revenues, which are limited, and block grants, which are capped. In order to increase the number of children served by these programs, policymakers and advocates sometimes explore alternative funding sources. A new report by Kelly O’Donnell from the Institute for Child Success, Financing Early Care and Education: Options for South Carolina outlines a number of ways that South Carolina can generate new revenue to invest in early education.

O’Donnell’s paper presents seven policy options for increasing funds for programs serving children from low-income families in South Carolina:

Restructure retail sales and use tax: South Carolina has a weakened revenue generating capacity due to hundreds of exemptions, deductions, and credits woven into the tax code. Two ways to raise more revenue without raising taxes are:

Tax more services – The total number of potentially taxable services is 168. The average state taxes about 57 of these. South Carolina taxes just 35. Without increasing tax rates,and expanding the number of taxed services to 100, South Carolina could see an increase of $700 million available for pre-K.

Close existing loopholes – South Carolina has over 100 sales and use exemptions, discounts and exclusions, costing the state over $3 billion in tax revenue annually.

Impose “sin taxes”: South Carolina currently has one of the lowest cigarette taxes in America, at  $0.57. The state also has 39,800 teen smokers. Even with a small increase of 3 cents, the state would generate $1.1 million in extra tax revenue and decrease youth smokers by 1 percent. With an increase to the national average rate of $1.54 they would generate over 35.5 million in extra revenue and decrease youth smoking by 17 percent resulting in over 7,000 less youth smokers. California was one of the first states to raise taxes to fund early education programs, and has had great success through the First Five program, which hands out the money from the cigarette tax to pre-K and early care centers. This was also the proposed mechanism for funding President Obama’s Preschool for All proposal.

Improve access to refundable tax credits: South Carolina has tax credits for families that need child care. However, the family-tax credit is non-refundable, so it doesn’t reach the families that need it the most because they are exempt from state taxes. The non-refundable credit means that for families that are exempt from state taxes, there is no benefit. If the credit were fully refundable, it would cost South Carolina $6.8 million and benefit about 32,458 working families. This would not directly fund early education, but it would allow for more families to afford pre-K and other early education programs who otherwise would have been ineligible for the tax credit.

Expand use of Temporary Assistance for Needy Families funds: States have a great amount of discretion in how to use their TANF funds, and it is possible to apply these funds to early care and education, both for pre-K and younger children in center-based or home-based programs. Most states spend 15.8 percent of TANF funds on child care, but South Carolina only spends 2 percent. Further, at the end of FY 2013, South Carolina had $12.4 million in unobligated and unspent TANF funds. Ohio and Louisiana allocate unobligated TANF funds to pre-K, and South Carolina could do the same with its unspent TANF funds. (If a state doesn’t use all of its TANF funds, then it may hold the funds in case of unexpected occurrences that may increase state costs, such as a natural disaster.)

Implement a “pay for success” style program: An innovative way some communities are approaching pre-K is to raise money through bonds based on the anticipated annual savings in reduced special education placements and retention in grades K-3. “Pay for success” has been successful in Salt Lake City, expanding pre-K through private investment in ECE. Because state pre-K programs have been subject to intense evaluation, their impacts on specific, measurable outcomes are often well documented. If South Carolina were to employ a “pay for success” style approach, according to the report, funding for pre-K could increase by as much as $8.6 million in the first year, enabling the creation of 1,793 full-day pre-K slots.

These recommendations could be useful to other states also thinking about how to increase funding for early education initiatives.  Recommendations such as these, though, are not long-term solutions to one of our nation’s most important issues. Early education should not be on the backburner of state legislature’s agendas, getting only leftover scraps when dollars are available. Dedicated, stable funding is needed. The investments made today can help ensure that all kids grow up with the knowledge and skills they need to be successful, happy, and healthy.”