OPINION — America faces a mounting child care crisis. Too many families lack access to safe, affordable and high-quality care for their infants and toddlers. But a small but important provision in last year’s tax law, designed to spur investment in under-resourced communities, could provide an unlikely solution.
That solution comes in the form of a new economic development incentive known as Opportunity Zones. Under the tax law, investors will receive a steep reduction in taxes on their capital gains in exchange for substantial and long-term investment in low-income communities designated as Opportunity Zones. This tax incentive could be combined with others in the economic development toolkit, such as the New Markets Tax Credit and historic building preservation tax credits, to support a wide variety of investments in real estate and businesses.
Now the race is on to attract those investments. Since the Treasury Department finalized the Opportunity Zone locations in June, investors, developers and local leaders have been eyeing opportunities to invest in low-income housing, historic building rehabilitation and tech startups, among others. But if the goal is to reimagine these underserved communities and empower their residents, investing in better early child care facilities can deliver powerful results.
Safe and developmentally appropriate early care and learning programs are essential to building healthy and economically sustainable communities where families and young children thrive. The quality of the physical buildings and spaces where children learn, play and grow are a fundamental part of their cognitive development and social, emotional and physical well-being. And with the number of dual-earner households rising, any expansion of economic opportunities in low-income communities must make room for child care programs.
Its not hard to understand why. A study by the Department of Health and Human Services’ Office of Inspector General found that 96 percent of child care facilities across nine states and Puerto Rico had at least one instance of hazardous conditions and a failure to comply with health and safety requirements.
Even worse, in some places no care exists at all. These child care deserts are disturbingly common — a study of such facilities across 22 states found that roughly half of Americans reside in communities without high-quality early care and learning programs, particularly those in Native American and rural areas.
Fortunately, the incentives provided by Opportunity Zones — which can be found in rural and Native American communities, too — could be well-suited to addressing this challenge. In places where the demand for early childhood options outpaces supply, Opportunity Zones can be used to purchase and build new facilities or substantially rehabilitate existing ones. Under the right conditions, the incentive could even be used to support start-up early childhood programs in areas the current market does not serve.
Several hurdles remain, however, before Opportunity Zones can be brought to scale to help close the early childhood gap. The IRS is currently in the process of developing regulations to determine the rules of the road for such investments. The unique character of early childhood facilities and the thin margins in the industry mean that these regulations could make or break the role of Opportunity Zones in solving this problem. In real numbers, that could mean a difference between $500,000 worth of investments in child care — or $500 million.
The Bipartisan Policy Center will be holding a roundtable of early childhood and economic development experts over the next month to tackle this problem. The group aims to provide recommendations to the IRS on allowing Opportunity Zones to be productively used to close the early childhood gap and to identify principles for using the incentive for early childhood facilities.
If Opportunity Zones are to succeed, community leaders, investors and public officials must ensure that the incentive is used to fund projects that contribute to the public good, and not just private development that would have happened with or without the tax break. Investing in child care not only offers a powerful path to economic development, it also improves the lives of America’s families.
Linda K. Smith is the director of the Bipartisan Policy Center’s Early Childhood Initiative and was a key architect of the military’s child care program.
Tim Shaw is a senior policy analyst with the Bipartisan Policy Center’s economic policy team.
The Bipartisan Policy Center is a D.C.-based think tank that actively promotes bipartisanship. BPC works to address the key challenges facing the nation through policy solutions that are the product of informed deliberations by former elected and appointed officials, business and labor leaders, and academics and advocates from both ends of the political spectrum. BPC is currently focused on health, energy, national security, the economy, financial regulatory reform, housing, immigration, infrastructure, and governance. Follow BPC on Twitter or Facebook.