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City Funding Strategies to Support Public Pre-K Programs

About the Report

Done right, all children benefit from early childhood education, regardless of family income or zip code. High-quality pre-k improves children’s school readiness and success: they enter school better prepared and are less likely to repeat a grade or be referred to special education. Long-term benefits include higher high-school graduation rates, lower rates of crime and teen pregnancy, higher lifetime earnings, and better health outcomes.

Cities across the nation are looking to many different options to fund education for our youngest learners. Below, a few of these strategies are explored.

Blended Funding Across Multiple Sources

Several funding sources are combined at the city level and then distributed to programs.

San Francisco, CA

In 2004, voters approved 10 years of funding for universal pre-K and, in 2014, reauthorized the program for an additional 26 years. The San Francisco Office of Early Care and Education (established by the mayor in 2013) oversees local funding for pre-K programs (previously administered by First 5 SF).1 Depending on income, families receive either free or discounted pre-K. At the city level, local funding is blended with less flexible funding streams to “fill in the gaps” and ensure that programs and services reach the families who need them most.2,3

Supporting pre-K programs with a diverse set of funding streams provides more stability than other methods of funding. If one stream of funding is cancelled or falls short, other funding sources may be able to make up the difference. Alternatively, it may be easier to find a replacement funding stream if the new funding does not have to carry the full weight of the program. Also, as is the case in San Francisco, funding streams with long-term approval are ideal for program stability.

Expiration of Pay in Lieu of Taxes (Pilot) Incentives

PILOT agreements provide tax breaks for companies to bring business to a particular area, and generally expire after a period of time. Once a PILOT expires, the city can collect taxes from the company and use those revenues to support city expenses.

Memphis, TN

In addition to dedicating the equivalent of revenues from one cent of the city’s property tax rate toward universal pre-K, Memphis’ mayor approved ordinances dedicating up to $6 million in funding from expired PILOT programs in 2018.4,5

The ordinances dedicating PILOT revenues to universal pre-K did not require voter approval and could be handled at the mayoral level. As long as the businesses remain in the region, their tax revenue provide a stable funding stream for early childhood programs.

General Funds From City/Budget Set-Aside

Instead of leveraging funding from an increase in property taxes, budget set-asides allow the city to dedicate funding from existing tax revenues for a special purpose, ensuring the funding is not redirected elsewhere.

San Francisco, CA

One source of the city’s blended funding streams is a 4% set-aside of city property tax revenue. The set-aside was first approved by voters in 1991, was reauthorized in 2000 and again in 2014, and does not need reauthorization again until 2039.6

Voters may be more willing to accept a budget set-aside than a direct increase in their property taxes, as the city is signaling the ability to “look within” their existing resources rather than add to residents’ tax burden. San Francisco’s long-term approval, from 2014 through 2039, also provides added stability for the funding stream.

Marginal Tax Rate

A progressive tax where rates increase as an individual’s income increases. An individual’s income is typically divided into “brackets” of progressively higher tax rates. The total tax liability for an individual can then be used to calculate their effective/overall tax rate.

Multnomah County, OR

In November 2020, over 64% of voters in Multnomah County, OR, voted to levy a marginal income tax on high earners to support universal pre-K. A rate of 1.5% will be imposed on individual incomes above $125,000 and joint incomes above $250,000, while a higher rate will be imposed on individuals making over $250,000 and joint tax filers earning over $400,000.7 The proposal met some resistance from parts of the business community, largely linked to commercial, for-profit pre-K providers.8 Proponents successfully headed off a competing measure brought forward by labor interests and the voters strongly supported a compromise proposal led by the county commission.9

Tax revenue based on personal income can be volatile. Just as with any income tax, total revenues will be impacted by the overall health of the economy.

Private Donations

Typically, a public-private partnership where foundations or other private entities provide funding to supplement local investments to increase quality and/or access to early childhood education programs.

Columbus, OH

The Early Start Columbus program is intended to supplement state funding for pre-K and child care through local funding and private donations. City funding supports children served in public school programs, while foundation funding is used to support children in private provider locations.10 Parents may choose where their children are served and receive either free or low-cost tuition.11

Private donations are not typically intended to support programs in the long-term, and often are not substantial enough to support programming without additional funding sources. They may be useful for program start-up but are unlikely to be a stable long-term funding solution.

Parcel Tax

A form of real estate tax, but distinct from traditional property taxes in that the tax is not based on the value of the property. Parcel taxes are flat taxes generally assessed on each tract of land.

Oakland, CA

Starting in 2018, voters narrowly approved a 30-year measure to assess a flat fee on parcels of land within Oakland, although certification of the vote has been continually challenged in court.12 The measure was intended to boost funding for early childhood education and an initiative to increase the number of college graduates.13

Although the measure narrowly passed (and is still being challenged through litigation), a 30-year approval provides the city with a stable, long-term source of funding.

Property Tax Increase

Voters approve an increase in local property taxes, with some or all of additional revenues going to support local pre-K programs. 

Cincinnati, OH

The Cincinnati Board of Education voted unanimously in July 2016 to support a ballot initiative to increase property taxes to increase funding for the Cincinnati Preschool Promise program.14 The measure would mean an additional $277 per year in taxes for homes valued at $100,000, and about one-third of revenues would be used to support tuition assistance for children to attend pre-K programs in public and community providers.15,16

About 62% of voters approved the five-year measure, but there was significant pushback from a coalition that opposed additional spending and taxes.17 In 2021, the measure will expire and need to be proposed again if another funding stream is not identified.

Sales Tax

A tax paid to the city based on the sale of designated goods or services. Specific goods or services are often exempted (e.g., medications, baby formula, etc.)

Denver, CO

In 2006, voters approved a 0.12% city sales tax, which was increased to 0.15% in 2014. Parents are provided with tuition credits calculated on a sliding scale, which they can use to enroll their children in pre-K programs. Higher subsidies are provided for higher-quality programs.18

San Antonio, TX

A one-eighth cent ($0.00125) increase in sales tax was approved by voters in 2012.19 Funding supports children who meet the state’s eligibility requirements for public pre-K, but other children can also attend through a sliding scale fee system.20 The city partners with local school districts to operate four centers.21 Public, charter, private, and parochial schools — as well as licensed child care facilities — can apply for funding to expand or enhance programs.22

Denver, CO

While support for the tax increased between the first ballot initiative in 2006 to its second in 2014, future funding is still subject to continued voter support for the program. Also, the number and amount of tuition credits the program can provide is dependent on the strength of the city’s economy. During the Great Recession, the program was forced to make cuts.

San Antonio, TX

The sales tax increase was approved by 53.6% of voters in 2012.23 In 2020, 73.2% of San Antonio voters chose to reauthorize the program for another eight years.24

School Funding Formula

The state government distributes pre-K dollars to school districts (and in some cases private providers). Local school boards then raise local taxes to supplement state funding with local funding to increase access and/or quality. In some cases, these increases must be approved by voters

Louisville, KY

Funding from the state school funding formula is currently just under $5,000 per child, but varies by year. The per child rate dipped as low as $3,800 in 2014.25 The amount provided by the state impacts how much funding the school district needs to supplement. As in most states, funding provided to school districts will likely drop in 2020-21 as a result of budget issues brought on by COVID-19.26 A drop in state funding will require the Jefferson County Public Schools to raise taxes to make up the difference or make cuts to programs.27

Boston, MA

Funding from the state school funding formula is currently about $2,700 per child, and primarily supports children served in public school settings.28 In 2019, Boston Mayor Martin Walsh announced additional and continued funding to supplement state pre-K funding, particularly for slots in high-quality, private provider settings.29,30 Walsh’s initiative in support of universal pre-K for 4-year-old children was started in 2005 by his predecessor, Mayor Thomas Menino, demonstrating long-standing support for the program across mayoral terms.31

State funding formulas do not necessarily guarantee a stable per child rate each year. When state budget amounts drop, local school districts are put into a position of having to increase taxes (and convince voters to approve the increases) or make cuts to programs. In some states, pre-K is a discretionary program, and because attendance is not compulsory, it can be more vulnerable to budget cuts than other aspects of K-12 education.

Specialized/"Sin" Tax

An excise tax levied purposefully on specific goods, such as alcohol, soda, and tobacco. Taxes imposed on manufacturers are then passed along to consumers. These taxes can be levied to curb behavior or to increase revenues, but are sometimes criticized as being overly burdensome on low-income communities and communities of color.

Philadelphia, PA

City initiated a $0.015/ounce tax on sugar-sweetened drinks, which is 24 times the state excise tax rate on beer. Litigation challenged the tax, but it was ultimately upheld. This strategy was instituted not as a public health initiative, but as a means to raise funding for city projects like pre-K.32

Los Angeles, CA

State voters approved Proposition 10 in 1998, which placed a $0.50 tax on tobacco products. Revenues were sent to county-based First 5 organizations to distribute to early childhood education programs. First 5 LA initially chose to fund pre-K slots, but eventually had to pull back as revenues dropped.34

Philadelphia, PA

These types of taxes do not necessarily provide for long-term sustainability. Philadelphia’s projected revenues immediately lagged due to fewer purchases within city limits.7 Also, only 49% of revenues were reserved to fund pre-K, and the rest were slated for other city programs.8 Ultimately, the number of pre-K seats available for children is dependent upon how many sugary drinks are purchased.

Unlike taxes on cigarettes, which often go toward funding health initiatives, sugary drinks are unrelated to early childhood education. The Philadelphia tax is characterized by some as a mismatch.33

Los Angeles, CA

This funding strategy can be extremely unstable. The number of smokers in the state dropped dramatically since the passage of Proposition 10, decreasing overall revenues by more than half from 2000-2019. Revenues may decline even further as a result of the approval of Proposition 56, which placed an additional $2 tax on tobacco products beginning in 2017.35

Tuition

Families may be more willing to enroll their child in a pre-K program if a discounted rate is available. However, economic downturns will result in more families eligible for free or reduced tuition and could exhaust available funding more quickly, resulting in fewer overall available seats.

Philadelphia, PA

City initiated a $0.015/ounce tax on sugar-sweetened drinks, which is 24 times the state excise tax rate on beer. Litigation challenged the tax, but it was ultimately upheld. This strategy was instituted not as a public health initiative, but as a means to raise funding for city projects like pre-K.32

Los Angeles, CA

State voters approved Proposition 10 in 1998, which placed a $0.50 tax on tobacco products. Revenues were sent to county-based First 5 organizations to distribute to early childhood education programs. First 5 LA initially chose to fund pre-K slots, but eventually had to pull back as revenues dropped.34

Philadelphia, PA

These types of taxes do not necessarily provide for long-term sustainability. Philadelphia’s projected revenues immediately lagged due to fewer purchases within city limits.7 Also, only 49% of revenues were reserved to fund pre-K, and the rest were slated for other city programs.8 Ultimately, the number of pre-K seats available for children is dependent upon how many sugary drinks are purchased.

Unlike taxes on cigarettes, which often go toward funding health initiatives, sugary drinks are unrelated to early childhood education. The Philadelphia tax is characterized by some as a mismatch.33

Los Angeles, CA

This funding strategy can be extremely unstable. The number of smokers in the state dropped dramatically since the passage of Proposition 10, decreasing overall revenues by more than half from 2000-2019. Revenues may decline even further as a result of the approval of Proposition 56, which placed an additional $2 tax on tobacco products beginning in 2017.35