In Texas, A Break for Child Care Providers Via Property Taxes - Early Learning Nation

In Texas, A Break for Child Care Providers Via Property Taxes

Instead of Direct Payments to Providers, a Ballot Referendum in Texas Offers a Property Tax Break

For Alejandra Gardner, it wasn’t until she began receiving funds from the American Rescue Plan Act (ARPA) that her child care center, House of Little Angels Learning Center in Austin, Texas, could raise teacher salaries and begin to apply for the Texas Rising Star accreditation.

“When I started in this field 12 years ago, the teachers were making $10 an hour. Now they expect to make $16, and we have a child care shortage in South Austin,” said Gardner. The Rising Star accreditation meant a certain number of teachers would need to have a degree, and the extra funds allowed her to cover their time in school. The process took a year, and now House of Little Angels Learning Center has received the accreditation.

But the ARPA funds for child care in Texas have run out. And Gardner, like providers all over the country, are wondering how to pay their teachers their existing salaries without raising tuition prices beyond what parents can afford. And though Texas had $33 billion in surplus funding, there wasn’t the political will to give it directly to the providers.

Enter Proposition 2: Texas’ plan to help child care providers like Gardner by waiving property taxes. Though Proposition 2 has a number of hurdles for providers to clear in order to qualify and receive payment, Gardner estimates that she will save $5000-$7000 per year when the proposal goes into effect in South Austin.

Property taxes play an outsize role in Texas as compared to other states, since Texas does not have a state income tax. Taxes are collected through property taxes and sales taxes, which are higher than many other states to make up for that shortfall. “We were reading the political tea leaves, and the money was being given back to Texas citizens in the form of property tax relief,” said Kim Kofron, senior director of education at Children at Risk, which advocates on behalf of early childhood education in Texas. “So that’s when we decided to see if property taxes might be a way for child care providers to get a break.”

“This is not the silver bullet, this is not going to fix child care, it is not going to replace the ARPA dollars that are no longer there. But this is a step forward. Sixty-five percent of the voters said yes to child care. Note that the majority of the voters were 50 years or older, and half had voted in the Republican primary. This measure was not passed by a majority of Democrats. Citizens across Texas, those that are 50 years or older, said yes this is something we need to do.” — Kim Kofron, Senior Director of Education, Children at Risk

The property taxes include three buckets: city, county and independent school districts. Kofron and her coalition came up with a proposal to provide city and county property tax relief to child care providers – but left the school district taxes intact. “We didn’t want to be in a position of robbing Peter to pay Paul,” said Kofron.

There were heavy negotiations on the proposal, entitled “Proposition 2.” For example, a requirement was added in that the child care centers eligible for property tax relief needed at least 20 percent of their students to qualify as low income. (Kofron estimates that approximately 2700, or 40 percent of all child care providers in the state, would meet that criteria). Child care centers that rented from landlords would be entitled to the property tax savings as a direct pass-through. And the legislation signed into law was just the first step of many. As a change to the state’s property taxes, the legislation was required to be approved as a constitutional amendment. It was signed into law by the governor in May and set to appear on the statewide ballot for a vote in November.

Kofron and her team toured the state, organizing people connected to child care to get out the vote and educate communities on the importance of Proposition 2. But even they were surprised at the groundswell of support when the measure passed by 65 percent of the vote, winning nearly every county in the state, including places that tended to vote strictly conservative. But this was just the second step of the process. The constitutional amendment and legislation allowed cities and counties to decide if they wanted to provide the property tax and relief, and at what rate. Austin was the first jurisdiction to take up the measure, passing it on November 9th, two days after the statewide vote on November 7th. Still, other cities and counties are just beginning that process, and others may not take it up at all.

The uphill battle is for Kofron and her team to crisscross the state to advocate for cities and counties to decide that child care providers be exempted from property taxes. But even those exemptions are unevenly distributed. Property taxes are calculated using a variety of factors, including the appraised value of the land and whether it is in or outside of the city limits. Child care centers in nicer buildings within city limits have the potential to reap many thousands of dollars for property tax relief – Kofron estimates as much as $30,000 per year for one center. But places in older buildings, or in smaller plots of land and in counties with lower taxes may see only a few thousand dollars in return.

The actual impact will vary widely depending on the child care facility’s location and property tax burden. “It can be a small bite of the apple, but it also can make it easier for child care facilities to qualify to acquire their own property,” said Ed Wolff, a board member of Children at Risk and president of Beth Wolff Realtors in Houston, who was involved in the Proposition 2 effort. A reduction in property taxes helps a small business owner lower its debt-to-income ratio, and in areas where child care is most needed, “revenue is lower and the costs aren’t necessarily less,” said Wolff. He cites the example of urban areas going through gentrification and modification, “The appraised value [of the property] is escalating rapidly, and yet the people’s income is not.”

For a low-margin business like child care, every savings helps. The providers Kofron talked to plan to use the funds to avoid raising tuition for families, invest in their staff and improve the experience for their students. But it’s a herculean grassroots effort to pass legislation three or four times – especially when doing so may only yield less than a month’s worth of child care expenses.

“This is not the silver bullet, this is not going to fix child care, it is not going to replace the ARPA dollars that are no longer there. But this is a step forward. Sixty-five percent of voters said yes to child care,” said Kofron. She points out that the majority of the voters were 50 years or older, and half had voted in the Republican primary. “This measure was not passed by a majority of Democrats,” she said. “Citizens across Texas, those that are 50 years or older, said yes this is something we need to do.”

Kofron acknowledges that it would have been far easier on the child care providers and the organizers if the state had given some of that $33 billion in surplus funds directly. Such funds could have helped stabilize the industry, expand capacity or pay staff a livable wage which could reduce turnover burnout. Though there is one significant advantage for the property tax measure: “It lasts for the future,” said Kofron. “It’s not one and done.”

The historic amount of ARPA funds made a significant difference for the child care industry, which was in a precarious position before the pandemic only to be forced to deal with subsequent closures during the emergency phase. But as the ARPA funds end, the child care industry is forced to come to terms with how to survive without that influx of funding, and state efforts like Proposition 2 in Texas may be a lifeline—albeit a small one—to keep the doors open.

“We don’t think that there is a single strategy that is going to solve the child care problem in the country,” said Linda Smith, director of the early childhood initiative and the Bipartisan Policy Center. In a place like Texas – which has some of the lowest funding per child for early education in the country – child care advocates were up against a legislature that had $3 billion to spend and yet wasn’t prepared to support direct payments to providers. “The tax provision was more understandable and cleaner,” said Smith. It became a matter of asking, “what is going to work in that state?”

Kofron’s efforts on Proposition 2 are far from over. Since the measure requires the approval of local jurisdictions, she and her team will have to traverse the state once again, coming up with toolkits and arranging conversations with city council members and county commissioners about taking up the property tax proposal. But engaging with local leaders, especially in parts of the state that have been less engaged on the issue such as East and West Texas, the panhandle or the Rio Grande Valley, can lay the groundwork for future mindset shifts. “It’s really going to force our hand to have conversations in communities where child care may not be on their city or county radar.”

Smith believes there is no one-size-fits-all solution to the nation’s child care crisis. Even robust subsidies to providers come with challenges, as subsidies on their own do not create more supply. Instead, what’s needed is a combination of direct support to parents, tax policies and paid parental leave policies, which can take some of the stress off parents for returning to work, and alleviate the demand for infant-care, which is often the costliest and hardest form of child care to find.

“It will be interesting to see what will happen by taking property taxes out of the equation for child care programs. Will that expand their supply or keep fees low for parents, and what is the impact on the child care program itself?” Advocates in the child care space will be keeping an eye on the impact of Texas’ Proposition 2, to see if fees were changed, care expanded and supply shifting at all.

For Alejandra Gardner, some relief is better than nothing for her child care center. She worries what will happen when the funding stream from ARPA is completely gone and the property tax relief hasn’t yet kicked in, and how she will maintain the staffing levels needed so as not to stress her small team. “It’s a hard job with a lot of turn-over,” Gardner says. “I tell our teachers it’s ‘a hard job and it’s a heart job.’ A lot of teachers have the heart for it, but when their pay doesn’t match up with what they need, they have to leave to do what is best for their family.”

Rebecca Gale is a writer with the Better Life Lab at New America where she covers child care. Follow her on Instagram at @rebeccagalewriting, and subscribe to her Substack newsletter, "It Doesn't Have to Be This Hard."

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