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New report explores state, nationwide use of tax credits to spur early childhood investment

Nebraska consistently ranks among the top states with all available parents in the workforce. Before the pandemic, it ranked 5th highest among all states for working mothers of young children. Despite the high need, Nebraska faces a crisis of inadequate capacity of affordable, quality child care. In fact, inadequate capacity costs Nebraskans as much as $1.2 billion annually in direct and indirect losses.

As our state focuses on post-pandemic recovery, it is time to address child care gaps and get Nebraska families back to work. While there is no one-size-fits-all approach to this challenge, one potential solution is using tax credits to spur new private investment.

First Five Nebraska recently partnered with the Committee for Economic Development of the Conference Board (CED), a national nonpartisan public policy center, to publish “Using Tax Credits to Help Address Child Care Challenges: Availability, Quality and Affordability.” The report explores how Nebraska and other states are using tax credits to boost private investment and expand the funding landscape for early childhood infrastructure.

Among the report’s key findings:

  Currently, Nebraska’s tax code includes the following types of tax credits specifically associated with child care:
     The School Readiness Tax Credit, offering refundable and nonrefundable credits to child care providers to encourage ongoing quality improvement, professional development and participation in the Nebraska Child Care Subsidy Program.
          Refundable and nonrefundable credits for parents based on the federal child and dependent care tax credits intended to make child care more affordable for families.

  Nebraska’s current incentives fall short on addressing the statewide lack of child care capacity.

  A nationwide scan reveals eight broad categories of employer-related tax incentives for child care. Some states use multiple types of incentives to address various aspects of the child care market.

  Overall, about 15 states offer some type of tax credit to incentivize employers to promote access to child care for working families.

  While tax credits are not a one-size-fits-all solution, they are an important tool to promote new investment and expand the funding pool for early childhood infrastructure.

Publication of “Using Tax Credits to Address Child Care Challenges” coincides with the introduction of LB531 this session by Senator Tom Briese, which creates the Nebraska Child Care Contribution Tax Credit. First Five Nebraska has worked closely with Senator Briese on this legislation to establish a tiered income tax credit for businesses and individuals who contribute to eligible child care programs.

“The time is right for Nebraska have a meaningful conversation about engaging private capital to complement public investments our state’s child care system,” said First Five Nebraska Director Jason Prokop. “We hope our collaboration with the Committee for Economic Development will stimulate interest in the kinds of options that may be available to our state.”

Download the full First Five Nebraska and Committee of Economic Development report. Find out more in FFN's LB531 policy brief and LB531 Legislative testimony.

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First Five Nebraska and University of Nebraska-Lincoln Bureau of Business Research, The Bottom Line, 2020.

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