HOUSE BILL NO. 89 "An Act relating to the day care assistance program and the child care grant program; and providing for an effective date." 2:42:53 PM REPRESENTATIVE JULIE COULOMBE, SPONSOR, thanked the committee for hearing the bill. She introduced the bill with prepared remarks: HB 89 strengthens the childcare system in a number of ways. It expands the number of families who can utilize daycare vouchers and aligns the subsidy level to reflect the actual cost of daycare. It makes childcare expenditures and cash or equivalent accepted by daycare facilities and payments to employees for the purpose of offsetting childcare costs eligible for tax credits. It increases the maximum individual tax credit limit, develops a sliding fee scale to make grants less generous for higher income families and lower income families and provides grants for the highest performing and highest quality childcare facilities. Representative Coulombe explained that at the outset the bill did two things including the commission of a study to find out the actual cost of daycare. She explained that currently there was a market survey, which was basically rates providers were currently charging; however, it was not working because daycares were going under. She explained it was not enough to keep daycares in business. The department was conducting a survey to identify the actual cost of care. The bill would adjust the amount up in consideration of vouchers. Second, the bill would expand the opportunity for families of different income levels to access care. She shared that when she had first started as a legislator, she had heard from many people in the private sector who were struggling with workforce and one of the largest problems was daycare. She elaborated that she managed numerous people in her line of work and the lack of childcare caused employees to miss work, arrive late, and leave early. She considered the bill as a support for families and workforce. She requested her staff to provide a brief presentation. DANIEL ROBBINS, STAFF, REPRESENTATIVE JULIE COULOMBE, provided a PowerPoint presentation titled "HB 89 Child Care" (copy on file). He began on slide 2 and discussed that the bill aimed to fix the lack of affordable, quality childcare. The lack of childcare worsened labor shortages, endangered children, undermined families' economic security, and decreased workforce participation. He relayed that the solution was to strengthen the childcare sector to improve access for families and help parents return to the workforce (slide 3). Mr. Robbins detailed that the bill strengthened the childcare system in a number of ways (slide 4): • Expands the number of families who can utilize daycare vouchers • Aligns the subsidy level to reflect the actual cost of care • Incentivizes tax breaks for employers to donate to daycare facilities • Increases the maximum tax credit • Eliminates sudden drop-off of subsidies for higher income families • Provides grants to the highest performing/quality daycare facilities 2:47:03 PM Mr. Robbins reviewed that Alaska's childcare was in crisis as a result of low wages, labor shortages, and a declining number of childcare providers (slide 5). The graph on slide 6 showed that during the height of the COVID-19 pandemic, there was a large dip in the number of childcare workers. While the number had rebounded, it had not returned to its level prior to the pandemic. He moved to slide 7 and discussed that childcare subsidies were inadequate and did not reflect the actual cost of care. He stated it was a problem because it impacted lower income families and middle class families. He explained that subsidies were inadequate. He detailed that providers lost money when offering care to lower income families and consequently they were raising rates on middle class families, which in turn forced additional families out of the workforce to stay home and care for children. Mr. Robbins addressed who was eligible for subsidies on slide 8. Currently, the eligibility threshold was 85 percent of the state median income ($60,144 in Alaska for one earner with one child). The threshold left most of the middle class without affordable care and resulted in labor shortages in every industry in Alaska. The bill raised the eligibility threshold to 105 percent of the state median income ($73,920 in Alaska for one earner with one child). He stated the department would scale subsidy level based on need. He explained that the expanded number of families who could afford care would result in more Alaskans going back to work. 2:49:32 PM Mr. Robbins discussed the subsidy rate calculation on slide 9. The subsidy rate was currently based on a market survey; however, it underestimated the cost of care, which put providers in greater financial risk and resulted in lower income families not being able to obtain adequate subsidies. The situation resulted in increased rates for middle income families, which priced families out of care. The bill aligned subsidy rates with actual cost of care, which improved provider financial stability and affordability for the middle class. He turned to slide 10 and explained that a family with a household income of $60,000 per year should not spend more than $4,200 per year on childcare costs. Currently those families were spending $6,600. He moved to slide 11 and discussed that parents had reported that childcare issues had caused them to go from full-time to part-time employment and had prevented them from accepting jobs. He shared that Missouri had proposed a tax credit to daycare facilities for making capital improvements (slide 12). North Dakota was spending over $70 million per year on its childcare program aiming to make childcare affordable and improve availability and quality (slide 13). 2:51:15 PM Mr. Robbins provided a recap on slide 14. The solution was to expand the number of families who were eligible for childcare subsidies under the Child Care Program Office, which would help more parents afford childcare and get back to work. Representative Coulombe relayed there was an issue with the phone system and the committee may have to wait to ask the department questions. Representative Josephson stated that the Senate had $15 million for block grants. He asked if the funding was for the program in the bill or something different. Representative Coulombe replied that the [Senate] funding was for childcare block grants to help subsidize childcare centers. She clarified that HB 89 addressed vouchers parents applied for that also went to childcare centers. She stated that daycare centers were a terrible business model for profit. The facilities would never be able to charge what it actually cost to provide the service; therefore, they would always be subsidized. She explained that the grants [referenced by Representative Josephson] and the vouchers helped make a difference. She added that some of the items in the bill had come as amendments throughout the committee process (e.g., the tax credits). She was open to other things. She reiterated that the vouchers and daycare grants ultimately ended up at the childcare center, but the [childcare grants] were more direct from the department to the centers. 2:53:57 PM Representative Josephson looked at slide 13 and asked if Mr. Robbins had stated that North Dakota invested $70 million per year or $7 million per year. Mr. Robbins replied, "$70 million." Representative Josephson remarked that North Dakota had just a few thousand more residents than Alaska. Representative Galvin looked at the bullet point on slide 4 that read "incentivizes tax breaks or employers to donate to daycare facilities." She asked if it meant tax breaks would be given to those donating to daycare. She asked if it was similar to the University system where donating businesses received a tax break. Mr. Robbins answered that it was similar. The bill would give tax breaks for businesses donating to daycare centers. Representative Galvin asked for verification that the bill would give tax breaks to incentivize donations. Mr. Robbins agreed. Representative Galvin looked at slide 8 and remarked that the bill would increase the number of families with access to childcare. She asked if there was available data indicating what the expansion would look like. Mr. Robbins replied that the Child Care Program Office did not provide hard numbers indicating the number of families the bill would help. Representative Galvin echoed comments made by Representative Josephson. She remarked that over $70 million was invested in North Dakota. She elaborated that the issue had been present in Alaska for decades. She highlighted that investing in a child's early years with high quality early learning standards resulted in a much higher workforce. She thanked the sponsor for calling the committee's attention to North Dakota. 2:58:02 PM Representative Ortiz thanked the sponsor for the legislation. He looked at the bottom bullet on slide 4 specifying that the bill would provide grants to the highest performing/quality daycare facilities. He asked who determined which facilities were the highest performing. Mr. Robbins replied that there were quality standards. He detailed there were different levels [of quality] and the number was displayed at each daycare facility. He believed the maximum level was 5 and there were no facilities in Alaska exceeding level 3. He stated the goal would be to get to higher levels by providing grants. Representative Coulombe elaborated that the item referenced by Representative Ortiz was an amendment that came later [in a prior committee of referral]. She explained the amendment aimed to incentivize a higher quality of care. She relayed there was currently a rating scale of 1 to 5 and each daycare had a licensed childcare rating. She did not want to make the requirement yet; therefore, the bill included an option for the department that a daycare facility rated 3 or higher could get additional funding for performance. Part of the performance included interaction, educational opportunities, the number of adults per child, nutrition, and one other item. She stated it was a pretty standardized system and she was amenable to the amendment because it did not implement anything new and would use the existing structure to incentivize childcare centers doing a great job. Unfortunately, there was not currently a daycare center above level 3. The goal was to incentivize facilities to get a level 5 rating. Representative Ortiz asked if there was someone from the department visiting the various daycare centers around Alaska determining that thus far, no one had exceeded a level 3. She remarked that the department would likely be able to provide more details. 3:01:10 PM HEATHER CARPENTER, HEALTH CARE POLICY ADVISOR, DEPARTMENT OF HEALTH, responded to the question by Representative Ortiz. She highlighted that the department had plans to dive into metrics around the grant portion of childcare and the subsidizing of high quality care facilities. She noted that unfortunately the program expert was unavailable during the current meeting. She elaborated that one of the reasons the governor had created a taskforce to look at childcare was to task the department with determining how to stabilize the sector and to consider what needed to be looked at when considering how to reimburse things like quality. She reminded the committee that childcare licenses ranged from small providers in a home with a couple of children to large facilities serving numerous children. She noted the department wanted to account for the different types of facilities when applying quality metrics. She remarked that it was never a simple answer and childcare was an incredibly complicated sector when thinking about levers and options to consider. Representative Ortiz discussed the concept of offering tax credits. He remarked it assumed that childcare providers were paying some tax. He asked if even the smaller providers were paying a tax they may qualify for a credit for. Alternatively, he asked if only corporate centers that paid corporate taxes would get the credit. Mr. Robbins answered that the tax credits were for businesses providing any kind of assistance to daycare facilities for things such as capital improvements. Representative Coulombe responded that it was a corporate tax. For example, the amendment was intended to apply to a business like ConocoPhillips for having a childcare center in the building or helping their families pay for their childcare. She was not aware of any related taxes for small businesses. Representative Ortiz surmised that smaller providers would not benefit from the tax credit portion of the bill. Representative Coulombe agreed. She stated her understanding there would not be a significant number of opportunities for the particular benefit. She stated it was also on a case by case basis and depended on the daycare center. She believed the amendment was focused on larger corporations. 3:04:41 PM Co-Chair Edgmon thanked Representative Coulombe for bringing the bill forward. He viewed the bill as one of the more innovative pieces of legislation that would come forward during the current session. He underscored that Alaska had significant outmigration challenges, especially with younger people and younger families. He believed the bill and taskforce could help with that outflow. He had heard from statewide associations that wages in childcare centers were in the $12 to $13 per hour range. He stressed the providers could not compete when it was possible to get a job at Walmart paying $18 to $20 an hour. He referenced a Hunt Institute summit on February 5 in Juneau that half the committee had attended. He relayed that the summit had talked about how Virginia, Mississippi, and North Dakota were making childcare assistance an integral part of their workforce development. He hoped the bill received swift consideration. Representative Coulombe thanked Co-Chair Edgmon for his comments. She shared there had been someone representing the Kenai private sector economic community at a recent House Ways and Means Committee meeting. The individual had stated there were three things government needed to solve: daycare, transportation, and housing. She stated that she heard from individuals across the private sector all reporting that daycare was an issue. She recognized that there were issues with the public sector too. She considered it to be a workforce and pro-family issue. She thought it fit with the governor's efforts to make Alaska a pro-family, pro-life state. Co-Chair Foster recognized Representative Zach Fields in the audience. Representative Hannan thanked Representative Coulombe for taking on the issue. She recalled in the early 1990s when high tech companies and hospitals were competing for a limited work pool by offering childcare on their work premises. She referenced the tax incentive in the bill for corporations and asked if Representative Coulombe had heard from corporations that the bill would incentivize them to open on-premises facilities for their workforce. Representative Coulombe answered that she had not talked with corporations personally. She had spoken with many businesses and believed they would jump at the chance to help people get steadier daycare. Representative Hannan noted there was a legal memo in the bill packet about changing the rates. She referred to Representative Coulombe's reference to the current market survey method versus the actual cost of care [being used to determine rates]. She recalled that when she was first elected there had been an inadequate response to the market survey but the rate had been set for two years. She asked if the bill would get the state into a problem with federal subsidies if the state changed from a market survey. She stated her understanding the market survey was mandated based on respondents and not the actual cost of care. She asked if the cost of care study was in place or if it was something the bill dictated the department to do. 3:09:49 PM Ms. Carpenter replied that the department had worked with the entire Juneau delegation on the issue. She noted it had been one of the first issues she had worked on when she started with the Department of Health (DOH). She stated there were two methodologies the federal Administration for Children and Families (ACF) allowed the state to use including the market rate survey and the actual cost of care. She elaborated that the intention (facilitated by the work of the task force and commissioner) was to determine whether the department could set up a cost of care analysis and the methodology would have to be approved by the federal government. The intention was to continue with the market rate survey during the cost of care analysis to ensure the department was looking at the rates and bringing them more up to date. The plan was to determine whether using the cost of care methodology was the better way to pay for care. She referenced the legal memo by Legislative Legal Services about increasing the threshold paid. She detailed that ACF capped payment for care at 85 percent of the state median income. She explained it meant that under the bill anything between 86 percent to 105 percent of state median income would have to be covered by general funds. Representative Hannan asked if that was reflected in the bill's fiscal note. Alternatively, she wondered if the fiscal note reflected the cost of the study to determine how many people would be in the new gap area. Ms. Carpenter answered that the fiscal note did not currently include what it would cost. She explained that the fiscal note system did not allow the department to add an indeterminate on the front page of the grants line. The note showed the cost of positions the department would need. The page noted the indeterminate cost. The department did not know the number of families that would enroll, which made estimating the cost difficult. She shared that as of February there were 2,739 children currently receiving subsidies through the Childcare Program Office. She detailed that 96 of the 2,739 (or 3 percent) were served at the highest rate (75 percent to 85 percent of state median income). She explained that the higher a family's income, the higher their copay. She elaborated that a parent stayed home with the kids in some families. The department did not know if the change would be enough to incentivize. She added that currently, nothing in the bill directed DOH to decrease copays made by families. The copay was on a sliding scale and the legislature could direct the department to look at the lever. She thought it warranted a conversation about whether a copay was affordable when a family was making more money. 3:13:47 PM Representative Hannan thought one of the downsides of the fiscal note was that it did not show the lost economic cost to Alaska due to inadequate childcare. She appreciated the efforts on the bill. She remarked that it would not be a single fiscal note. She highlighted that the cost of providing more childcare would create an economic wheel that would result in more working Alaskans and more revenue. She stated it would benefit everyone. Co-Chair Foster stated the information would be interesting to see in the fiscal note, but hard to quantify. Representative Tomaszewski referred to the individuals currently covered (those up to 85 percent of the state median income). He believed Ms. Carpenter had stated there were about 2,700 individuals. He asked how much it currently cost in general funds and federal funds. Ms. Carpenter did not have the number on hand. She clarified that the funding was all federal and paid for with a block grant. Representative Tomaszewski asked for verification that anything from 85 percent to 105 percent [of the state median income] would be paid for with state general funds. Ms. Carpenter agreed. Representative Tomaszewski asked Ms. Carpenter to review a chart in members' packets. Ms. Carpenter noted that Representative Tomaszewski was referring to a chart showing what a family's copay would be based on their income and number of individuals in the house ["Family Income and Contribution Schedule" revised on February 21, 2022 (copy on file)]. She explained that individuals at the lowest of state median income would have a 1 percent copay. At that lowest rate, the copay for a two-person household (one parent and one child) would be $1. She elaborated that a two-person household earning $5,012 per month would pay 9 percent of its income towards the copay ($451 per month). She explained that when the department worked with a daycare enrolled with the Childcare Program Office, the department took out the copay the parent should pay and paid the rate directly to the childcare facility. She noted that what the department helped pay for the family was separate from the grant program contemplated in the legislation. 3:17:31 PM Representative Stapp thanked Representative Coulombe for a bill aimed at tackling a challenging issue. He had a couple of concerns with some of the sections in the bill. He considered the long-term fiscal impact, specifically the tripling of the existing tax credit. He noted the bill stated that after 2030 there would be a five-year rolling inflation adjustment indexed to the Consumer Price Index (CPI) for all urban consumers for urban Alaska. He noted the CPI was very different for Fairbanks and Juneau than it was for Anchorage, which made it difficult to calculate a long-term fiscal note. He did not know how it was possible to project the cost with the inclusion of the specific provision. He asked for comment. Ms. Carpenter responded that the section was not overseen by the department. Representative Coulombe replied that the topic came up in one of the prior committees during a hearing on the bill. She asked if Representative Stapp was referring to page 7. Representative Stapp replied that he was referring to repeating language on pages 3, 6, 9, 12, 15, 18, and 21. He referenced lines 11 to 16. Representative Coulombe asked if Representative Stapp's concern was the connection to inflation. Representative Stapp agreed and stated that the provision effectively put increases on autopilot in perpetuity. Representative Coulombe replied that the provision was connected to the amount in place in the past. She believed the concern was valid and she would follow up on the question. Co-Chair Foster moved to invited testimony. 3:21:05 PM JEN GRIFFIS, PUBLIC POLICY MANAGER, THREAD, ANCHORAGE (via teleconference), thanked the committee for the opportunity to testify on the current challenges facing childcare and families and to discuss how the bill could help address some of the challenges. She explained that thread was a statewide nonprofit that had been serving the childcare sector in Alaska for over 35 years. The organization provided direct services to families, early educators, and childcare programs throughout the state. She read from prepared remarks (copy on file): As you have heard through the session, childcare has been struggling. While this is not a new struggle - it has always been challenging to find and afford quality childcare - it is a struggle that is increasing as early educators continue to leave the workforce and childcare programs continue to close. This continued decline in childcare availability is having a significant impact on the workforce challenges in other sectors and broader economic impacts as well. Historically, the gap between availability within all early education settings (pre-k, Head Start and childcare) and the need in Alaska has been about 20%. Since the pandemic, the challenges facing the childcare sector have increased, primarily related to attracting and retaining workforce. We are working to update our data regarding the current gap in early education, but the self-reporting we are hearing from various programs and communities across the state indicate some are experiencing declines in their enrolled capacity as high as 40% due to workforce shortages. This has resulted in classroom and program closures further restricting the supply of available childcare. Federal stabilization funds during the pandemic provided support to childcare providers. These funds were delivered in three phases, with the most recent phase, Phase 3, being distributed in April. Data on the impact of the Phase 2 funds has been gathered and will be shared soon, but the preliminary analysis demonstrates that the $50 million in stabilization funds that went directly to childcare providers and programs kept childcare businesses open that would have otherwise closed. But we also know that investment alone was not enough to keep all programs open or all early educators in the field. While thread is advocating for additional direct support for both early educators and childcare programs during this coming fiscal year, we also believe that creating a more stable childcare sector will require shifts in the current policies around Alaska's childcare assistance programs. House Bill 89 addresses two of these policy shifts - increasing eligibility for the childcare assistance program and including a cost of care model in the determination of provider reimbursements. Currently, the income eligibility limit for participating in childcare assistance is 85% of state median income. Increasing this eligibility limit would allow more families to participate in the childcare assistance program reducing their childcare costs. This change has the potential to increase workforce participation across multiple sectors. Additionally, Additionally, childcare providers are currently reimbursed at rates set by a market price survey that is based on the amount providers charge for care, not what it actually costs childcare programs to provide quality care. When systems base childcare policies, including childcare reimbursement rates, on a market price survey that does not consider the true cost of care it creates an unstable foundation for the childcare system, a foundation that - as we've witnessed - will struggle to weather economic and societal pressures. Including cost of care analysis in policy and fiscal planning for childcare provides a foundation for a more stable system. thread believes stabilizing Alaska's childcare system and supporting Alaska's workforce requires policies that reduce costs for parents and increase support for childcare providers. These policies are the foundation of HB89. We appreciate the sponsor for bringing this bill forward and continuing the conversation around childcare policy. While we were not able to testify before the committee today due to other commitments, if members have questions or need additional information as they consider this bill please don't hesitate to reach out. Thank you for your continued support for Alaska's children and families. Co-Chair Foster recognized Representatives Jennie Armstrong, Justin Ruffridge, and Jesse Sumner in the room. He thanked Ms. Griffis for her testimony. Representative Coulombe provided closing remarks on the bill. She thanked the committee for listening to the bill. She relayed that she had heard from some individuals who were concerned about government taking over childcare. She detailed that those concerned individuals believed parents should be staying home with their children. She agreed it was the optimal situation, but things had changed and were very different than when she had raised her kids. She shared that when she had raised her kids there had been enough stay-at-home moms to help each other out. She reported that her street was now empty during the day because everyone was at work. She clarified she was not intending to build a bunch of government run daycares. She was aiming to tackle the problems of daycare and she was open to creative ideas. She believed some communities had mom-and-pop daycares taking care of kids. She noted that the committee had passed an amendment by Representative Galvin to help fund some smaller daycares. She stated the bill was a working document and she was open to ideas for improvement. She wanted the bill to be the best possible and to meet the most needs. She noted that was where the tax credits had come from. The goal was to come up with a creative solution involving partnership with the private sector, helping small daycares, subsidizing larger daycares, and ensuring quality service. She relayed that the bill focused on a serious issue that needed to be addressed. HB 89 was HEARD and HELD in committee for further consideration. Co-Chair Foster reviewed amendment deadlines for various bills including HB 178, HB 112, SB 77, and SB 81. Co-Chair Foster relayed that he would recess the meeting until the following day at 8:00 a.m. Representative Hannan asked when Co-Chair Foster may know if the 8:00 a.m. meeting would happen. Co-Chair Foster answered that hopefully they would know by 5:00 p.m. that afternoon. Representative Ortiz asked about the amendment deadlines for the following day. Co-Chair Foster reread the amendment deadlines for four bills. Co-Chair Foster RECESSED the meeting until the following morning at 8:00 a.m. [note: the meeting never reconvened].