HB 121-EDUC.TAX CREDIT: EMPLOYER CHILD CARE COST  6:32:27 PM CO-CHAIR SPOHNHOLZ announced that the next order of business would be HOUSE BILL NO. 121, "An Act relating to education tax credits for certain payments and contributions for child care and child care facilities; and providing for an effective date." 6:32:54 PM CO-CHAIR FIELDS, as prime sponsor, introduced HB 121. He stated that the intent of the proposed bill is to offer a corporate tax credit to employers who offer child care on premises or through a stipend to employees. He shared that he had heard good things about oil company BP offering child care on site, which brought about the idea for the proposed bill. He noted that when Alaska State Representatives Sara Rasmussen and Chris Tuck chaired the Children's Caucus during the Thirty-First Alaska State Legislature in 2020, there were a variety of discussions about what could be done to improve child care and improve retention of skilled workers in Alaska, and the idea for HB 121 came out of those discussions. CO-CHAIR FIELDS offered a PowerPoint presentation entitled, "House Bill 121," and began on slide 2. He explained that many companies might be eligible for this tax credit from a wide range of industries. He moved to slide 3, which highlights the issues HB 121 seeks to address and read as follows [original punctuation provided]: -Recognizes the urgent need for better access to child care in the State of Alaska. -Covid-19 pandemic laid bare the lack of access for child care for many, and the impacts on working families. -HB 121 works to build off of the existing education tax credit to help foster child care facilities and incentivize access to child care. -Would allow employers to deduct credits against existing Alaska taxes, including for their own child care facility or a stipend to send employee's child to existing child care center. CO-CHAIR FIELDS noted that as a country, "we have moved backward" in terms of women participating in the workforce, driven in part by the COVID-19 pandemic. Parents have had to make difficult decisions, he continued, in order to find a solution for child care during the pandemic. He shared that there was a time during the pandemic where all of the lost jobs in the United States were "women's jobs," which he said was due to the tough decisions that parents had to make regarding child care. 6:35:07 PM CO-CHAIR FIELDS proceeded to slide 4, "Women suffer disproportionate impacts from lack of child care access, con't," which depicted a graph of employment fluctuations in "non- teleworkable" occupations during 2020. He stated that there have been significant negative impacts for women with young children in terms of workforce participation during the pandemic, and there has not yet been a recovery from that. He said that child care is key for women with children to have the option to stay in the workforce. CO-CHAIR FIELDS shared some statistics on net migration, stating that although many young adults move to Alaska, many of these individuals leave the state once they have children. Expanding the availability of high quality child care would allow Alaska to retain workers, he continued, and added that it is dangerous for Alaska to have young families leaving the state. He said that there are a lot of variables involved in this choice, but child care is a deciding factor in young families' choice to leave Alaska. By strengthening child care, he said, Alaska's economy is strengthened as well. CO-CHAIR FIELDS proceeded to slide 5, "Child care in Alaska," and shared that the child care problems experienced nationally are particularly acute in Alaska. He opined that anyone who has tried to find a daycare or hire a nanny knows how hard it is to find affordable, high quality child care. He said that the supply for child care in Alaska is not close to matching the demand that Alaska needs to retain productive, high-earning families. 6:37:23 PM CO-CHAIR FIELDS advanced to slide 6, "Access to child care in Alaska," which depicted some statistics from Thread Alaska regarding child care. He moved to slide 7, "Access to child care in Alaska: con't," and explained that the need for child care in urban areas is acute and that the need in rural areas is even more acute. CO-CHAIR FIELDS proceeded to slide 8, "Workforce Participation," and explained that when employers can provide and subsidize child care, it makes it more possible for everyone to participate in the labor force and spend more money in the local economy. He restated that there is a disproportionality of the impacts of the pandemic on women, which can be seen in the graphs on the slide. CO-CHAIR FIELDS continued to slide 9, " Access to Child care in Alaska: McDowell Group Report," and explained that the McDowell Group conducted an extensive report on the impact of early care and learning in Alaska. He shared his understanding that this report made a commendable case that this is an area in which the state should invest. CO-CHAIR FIELDS advanced to slide 10, "Employer Provided Financial Support: McDowell Group Report," and described some of the benefits of child care provided by an employer, including the convenience of being able to drop off children at work, the ability for parents to spend more time with their children at home, and increased quality of life. He stated that increasing the availability of child care would make Alaska more of a destination for "innovative, high-earning workers" and improve economic development. CO-CHAIR FIELDS proceeded to slide 11, "Benefits to Employers: McDowell Group Report," and opined that there is nothing like high quality child care to persuade young parents to remain at their jobs. He reiterated that Alaska should give employers more opportunities to obtain these highly productive employees. He explained that this would also prevent women leaving the workforce to take care of children, thereby increasing the number of women in management positions. 6:40:41 PM STEPHANIE BERGLUND, CEO, Thread Alaska, shared that Thread is a 35-year-old private, nonprofit that works across the state to increase access to affordable early care and education, with a specific focus on child care. She stated that Thread supports HB 121 and that she intends to share more information about child care that illustrates the importance of the proposed legislation. She continued that she has worked in early childhood sector for 15 years and has yet to meet a family who has been able to find and utilize child care that operates in a way that meets the price, access, and quality concerns of the family. This means that parents have fewer choices when it comes to child care, and this lack of choice can severely impact parents' time and productivity. She shared that even working in the early childhood sector herself, she has lost "great employees" due to lack of access to child care. She opined that Alaska needs HB 121 for businesses to be able to support employees. 6:42:53 PM MS. BERGLUND began a PowerPoint presentation [hard copy included in the committee packet]. She drew attention to slide 1, "There is a need for more supports for child care to support more families able to work," and explained that the statistics on the slide were compiled in 2019 and 2020 and represent pre-COVID-19 data. She paraphrased from the slide, and shared the statistic that more than 88,000 children in 54,000 households are in need of early childhood learning (ECL) services in Alaska. The primary benefit of this access as reported by adults in the home is that it allows the adults in the home to be employed. She shared that there is a large gap in demand for child care needs, and that only 60 percent of these houses have access to reliable child care services. MS. BERGLUND proceeded to slide 2, "Access to early care & learning services is becoming increasingly difficult for Alaska families," and explained that for households with children in ECL services, 52 percent found it difficult or very difficult to find services, which is up from 37 percent since 2015. She shared that COVID-19 has made child care programs even more fragile than the programs were before. Operating costs have increased, and revenue has decreased, she said. This is due to families keeping children home due to safety, or to parents losing their jobs and no longer needing child care services or being able to afford it. She shared that while working from home is an option for some parents, parents have found it stressful to work and take care of children at the same time. She predicted that after the pandemic is over, there will be an increased demand for child care. She stated that HB 121 would help provide needed support to meet the demand. 6:44:30 PM MS. BERGLUND moved to slide 3, "Child care is expensive and for many families not affordable," and said that working families carry the burden of both paying for and supporting the child care system. She opined that families should not have to choose between work and child care. In Alaska, child care costs more than tuition to a university and costs families 17 percent of household income on average. For single mothers, the cost is on average 34 percent of household income. She expressed that HB 121 would help families afford child care and likely allow businesses to recruit additional employees that these businesses wouldn't currently be able to employ. MS. BERGLUND continued to slide 4, "Child care services make a stable workforce possible," and explained that quality child care brings families peace of mind and allows parents to be more dependable and productive at work. She shared that in Alaska, 16 percent of residents are able to participate in the workforce because of access to child care. This has a large impact on Alaska's economy as these workers earn $1.9 billion in wages. However, she opined that this number could be bigger, and said that 22 percent of households are not working or would like to work more, but are prevented from working at the household's preferred capacity due to lack of availability or cost of child care. MS. BERGLUND moved to slide 5, "Businesses benefit from supporting employee child care needs," and explained that more than just parents benefit from increased access to child care. Children also benefit and are more prepared when they enter Kindergarten, making these children more successful in school and in life. She said that this makes for a more employable and prepared workforce when these children grow up. When child care is supported or subsidized by businesses, child care programs are able to pay the workforce more livable wages and offer benefits. As a result, she continued, this makes the sector a stronger and more consistent workforce that generates more in economic growth. She reported that many Alaska employers consider themselves to be family friendly, and 8 in 10 working parents report some support from employers related to child care needs. This indicates that the tax credit benefit proposed in HB 121 would be utilized. She shared that employers see better recruitment and retention of employees with more child care offered. MS. BERGLUND continued that as a result of COVID-19, more employers are aware of the importance of child care. This conversation has been raised to a new level, she said, which makes the proposed bill well timed. She concluded that HB 121 would give more options to support employees and ultimately to support Alaska's economy. The bill would be beneficial for both employees and employers, and would be a "win-win-win" for businesses, families, and young children. 6:49:10 PM REPRESENTATIVE NELSON asked Co-Chair Fields if he could talk about the potential fiscal impact on the state should HB 121 pass. CO-CHAIR FIELDS responded that fiscal notes have been submitted and he deferred the question to testifiers online to explain the fiscal notes. 6:50:12 PM LORI WING-HEIER, Director, Division of Insurance, Department of Commerce, Community & Economic Development (DCCED), responded that the division can't predict how many insurance companies would take advantage [of the tax credit proposed in the legislation], but that she can disclose that education tax credits have not been frequently utilized in Alaska in past years. She shared that the highest year on record was $150,000 in 2015. She said that in 2016, it was $975, in 2017, it was $0, in 2018 it was $500, in 2019 it was $5,000, and in 2020 it was $0. Education tax credits have not been widely used in the past, she reiterated, but credits might be utilized at a higher rate for child care. She stated that the division "doesn't have a handle" on how many companies would use this credit for child care. 6:51:32 PM NICOLE REYNOLDS, Deputy Director, Tax Division, Department of Revenue (DOR), responded that DOR has submitted an indeterminate fiscal note because it doesn't have specific data to estimate how many tax payers will claim the expansion of the credit. Also, it is unclear how many employers currently pay the child care costs of employees. She stated that DOR can't estimate how many employers will start paying child care costs or making donations to child care facilities should this bill pass. She explained that since this information is not available, DOR can't give an estimate for the cost. She shared that for calendar year 2020, the education credit that was claimed as the statute is written now was about "$4 million across the board" for all tax types to which it applied. CO-CHAIR SPOHNHOLZ interjected that the education tax credit that Ms. Reynolds is referencing currently applies to higher education as well as Kindergarten through twelfth-grade, and HB 121 would expand the credit down to lower grades. 6:53:22 PM REPRESENTATIVE NELSON asked Ms. Reynolds if she has an estimate of the amount of people who utilized the maximum amount of education credits. MS. REYNOLDS answered that she doesn't have an estimate but can get back to the committee with that figure. CO-CHAIR SPOHNHOLZ shared her understanding that these individuals mainly work in health care and oil and gas. 6:53:54 PM REPRESENTATIVE NELSON shared that he is concerned about a provision in the fiscal note that he understands as meaning that "a credit for any taxpayer cannot exceed $1 million across all tax types." He explained that he is fearful of the cost impact of this provision on the state. He asked Ms. Reynolds how many people hit the upper limit for educational credits. MS. REYNOLDS responded that DOR would look into that and get back to him. CO-CHAIR SPOHNHOLZ added that to her knowledge, there are only a few employers in Alaska that offer child care benefits to employees. 6:55:01 PM REPRESENTATIVE SNYDER directed attention to a statistic on slide 4 of Ms. Berglund's presentation, "Child care services make a stable workforce possible," which read as follows [original punctuation provided]: 16% of Alaska's residents can participate in the workforce because of ECL services, earning a higher income and enjoying a higher standard of living. REPRESENTATIVE SNYDER asked Ms. Berglund if the 16 percent figure is applicable to Alaska residents at any given time. MS. BERGLUND responded yes, the data was collected in 2019 by the McDowell Group through a representative sample household survey across the state. REPRESENTATIVE SNYDER asked if it would be fair to assume that while the survey found that 16 percent of residents at any time are benefiting from ECL services, it could potentially become a much higher percentage of Alaska residents that would be able to benefit. MS. BERGLUND replied yes, that is a safe assumption. She added that 16 percent is a consistent number and DOR has seen those numbers stay consistent over the years. She directed attention to another statistic on slide 4, which read as follows [original punctuation provided]: 1 in 5, or 22%, of Alaska's residents cannot fully participate in the labor force due to the cost, availability, or quality of ECL services. MS. BERGLUND explained that Alaska residents want to be participating in the workforce with more access. 6:57:57 PM CO-CHAIR SPOHNHOLZ shared her understanding that the reason the 16 percent figure is so low is because it only represents the precise moment in time that a child is young enough to qualify for ECL. 6:58:18 PM REPRESENTATIVE KAUFMAN asked Ms. Berglund if all of the numbers in her presentation are Alaska-based statistics. MS. BERGLUND responded yes, it is specific data collected by the McDowell Group in 2019 and 2020 on Alaskans. She reiterated that these numbers came from the survey the McDowell Group conducted in addition to labor and demographic statistics. REPRESENTATIVE KAUFMAN asked if that information is available online. MS. BERGLUND replied that DOR just provided an update in the last month and she would follow up to ensure the committee has that information. 6:59:47 PM TRISTAN WALSH, Staff, Representative Zack Fields, Alaska State Legislature, on behalf of Representative Fields, prime sponsor of HB 121, shared that there is a link on the final page of Co- Chair Fields' presentation that leads to the McDowell Group report. He said that he can ensure that committee members have access to the link. 7:00:07 PM REPRESENTATIVE SCHRAGE asked if the employer child care benefit provided to a parent has to be a cash payment or whether it could be a voucher, a stipend, or something similar. 7:00:33 PM EMILY NAUMAN, Legislative Legal Counsel, Legislative Legal and Research Services, Legislative Affairs Agency (LAA), shared that HB 121 simply refers to a payment and is not specific as to whether it would have to be a cash payment. She said that it would depend on the interpretation by DOR, but that she doesn't see a reason why it would be interpreted by DOR in a way that doesn't include a stipend. 7:01:01 PM REPRESENTATIVE SCHRAGE asked if there is anything to prevent an employer from reclassifying regular wages already paid to employees as child care support in order to write off those wages. 7:01:27 PM MS. REYNOLDS responded that DOR would need to implement some regulations to clarify which types of contributions qualify for the credit. She pointed out that there is no language in the bill that would limit the qualifying contribution to those incurred in Alaska or for Alaska child care facilities. She stated that DOR would like to see an amendment that reflects that stipulation to ensure that it is clear in statute that contributions need to be for Alaska child care facilities. 7:03:18 PM CO-CHAIR FIELDS provided clarification that the intent of the proposed bill is to support both onsite child care and child care provided through a stipend. He shared his understanding that it should be easy to verify whether an employee is receiving a child care stipend. 7:03:52 PM REPRESENTATIVE SCHRAGE expressed that he is "wildly" supportive of the proposed bill and that it is much needed. He said that he wants to make sure that working families see benefits and employers don't "gain the system." 7:04:14 PM CO-CHAIR SPOHNHOLZ asked Ms. Reynold if she would view payments made to an employee as a child care stipend as taxable or non- taxable. MS. REYNOLDS responded that a stipend provided to an employee would most likely be considered taxable income under federal law, but would not be considered taxable income under State of Alaska law since Alaska doesn't have an income tax. 7:05:11 PM CO-CHAIR FIELDS offered his understanding that some employers that offer or subsidize child care presently might do so from the employer to the child care provider which would shield the employee from an additional tax burden. CO-CHAIR SPOHNHOLZ agreed, and postulated that it might be useful to find out whether the federal government would tax a child care stipend paid for the benefit of an employee. She shared that it could be viewed as a means by which to compensate employees. She added that when her three children were young, she spent more on child care than on her mortgage each month, and that even a modest stiped for child care would've made a significant impact on her wellbeing. She referenced child care centers that BP, the University of Alaska (UA), and Providence Alaska Medical Center have made available for employees, and noted that many employers in Alaska are aware of the importance of child care to employees. 7:07:18 PM CO-CHAIR SPOHNHOLZ stated that HB 121 was held over.