Vermont Early Care and Education Financing Study

Federal and state funding for subsidized ECE programs in Vermont in 2018–2019 totaled approximately $109 million

• About 60 percent of families with pre–school-age children have family income below 3.5 times the federal poverty level, the maximum income that currently qualifies for ECE subsidies.

The cost across all of Vermont's pre–school-age children for high-quality ECE with a well-compensated workforce is estimated to total about $645 million per year in 2022 dollars

• These costs would be paid for by a combination of family contributions and public funding at the federal, state, and local levels.

Family contributions will depend on the assumed sliding scale subsidy schedule

• The five potential sliding-scale subsidy schedules examined in the study all maintain the current policy of zero family contribution when family income is below 1.5 times the poverty level.
• Contributions from families between 1.5 and 3.5 times the poverty level are capped at 10 percent or 7 percent of income, depending on the schedule.
• About $162 million of the total cost would be paid by families with incomes of more than 5.0 times the poverty level, a group that would not be subsidized under these schedules.

Corresponding to the five subsidy schedules, there are five estimates of the size of the annual funding gap after accounting for current public funding and family contributions

• The smallest gap estimates are $179 million to $193 million per year and retain the status quo of limiting subsidies to families making 3.5 times the poverty level or less.
• The larger gap estimates of $256 million to $279 million per year extend subsidies to higher-income families.

Funding the smallest gap estimate could be accomplished with single sources of new revenue or a bundle of several taxes

• The single-source options that would fill an annual $194 million gap are a new 0.9 percent payroll tax, a 2.0-percentage-point increase in the sales tax, a new limited services tax of 9.9 percent, or a new expanded services tax of 7.1 percent.
• Tax bundles would allow for a smaller increase in the payroll or general sales taxes on top of soda or hospitality taxes.
• The larger gaps generated by expanding subsidies to higher-income families cannot be funded by a single revenue source without increasing the magnitude of the tax to a rate not typically seen in other states.

The other economic and fiscal impacts associated with funding the larger gap estimates are modest

• The larger gaps from extending subsidies to families below 5.0 times the poverty level represent approximately 0.6 percent of gross state product and approximately 2.8 percent of appropriations.
• The taxes required to fill these larger estimates are expected to have a small impact on household economic well-being.
• The expansion of ECE subsidies has the potential to expand the labor force by 600 to 2,800 workers, an increase of less than 1 percent of the current labor force.
• Annual gross state product could expand between $59 million and $283 million. The estimated effect on annual government revenues would be between $1.5 million and $11.5 million.