Indiana will give small and medium businesses up to $100,000 a year in tax credit to help cover their workers’ childcare, under a new law that marks one of the first responses from Republican leaders to a spiraling childcare crisis.
Businesses with up to 500 employees can claim the credit for half of what they spend on supporting childcare, up to a maximum of $100,000 per year. The law caps total spending on the tax credits at $2.5 million per year.
The law is one of two recent state actions on childcare from a Republican-controlled General Assembly that has resisted state funding for childcare and early education.
Indiana relied on temporary federal pandemic aid to expand childcare vouchers for low-income working families. When that money ran out, the state froze enrollment, fewer children were able to attend daycare and providers were forced to lay off staff and close their doors.
In April, Gov. Mike Braun announced the state would tap $200 million in short-term funding to pay for vouchers for low-income families, ending the freeze on enrollment. Pushing businesses to invest in childcare offers another way to increase access, which could also benefit middle-class families who are not eligible for vouchers.
Advocates say businesses should support childcare — and often want to — because working- and middle-class parents who can’t find affordable care may drop out of the workforce altogether.
Rep. Becky Cash (R-Zionsville), who authored House Bill 1177, said the bill expands an existing credit that had such narrow eligibility it was not used.
“I really wanted to find a fiscally responsible, meaningful way that we could make a difference with childcare,” she said
The law passed without opposition in both chambers of the Indiana legislature, a notable sign of support in a Republican-controlled state where public funding for childcare is minimal.
“I think there is a true concern among Republicans for childcare but needing to find a fiscally responsible way to do it,” Cash said.
One potential beneficiary of the tax credits are childcare centers, Cash said. They are often small businesses that offer free care for their employees’ children as an incentive.
Lawmakers respond to crisis
There’s no “one size fits all” approach to helping employees get affordable, reliable childcare, said Camille Blunt, vice president of government affairs at the Indiana Chamber of Commerce, which lobbies on behalf of businesses that could claim the credit. One way that employers could qualify for it is by offering childcare subsidies to workers as part of their benefits package, she said.
As recently as last fall, Republican legislative leaders were skeptical of increasing childcare funding.
But the issue has gained momentum, Blunt said.
“The movement that we have seen over the past six months has really been encouraging,” Blunt said. "I think that for the first time in a while, legislators are seeing that we need to do something in this space.”
“It is having an impact on our state's tax revenue,” Blunt said. “It's having an impact on the effectiveness of business."
Jen Palmer, who owns a Mooresville daycare and preschool center, said that when she talks to lawmakers about the importance of childcare, she lists long-term benefits, such as evidence that high-quality care can reduce crime. But the argument that has resonated most powerfully is when she talks about the economic cost of inadequate childcare.
“Once we started talking about economic development and how much it is costing the state and how much it is costing businesses — that bottom line, that did it,” Palmer said.
At a visit to an Indianapolis preschool last week, Braun said that childcare would be a priority for his administration, framing it as an issue of education, affordability and workforce development.
“It's going to be an agenda item for me and this administration going forward,” Braun said. “Businesses are the main beneficiaries from it. So, I'm going to ask them to start kicking in.”
Indiana Senate President Pro Tem Rodric Bray, who previously dismissed boosting funding, said in a statement to WFYI Wednesday that his caucus looks forward to “working with the governor on this topic – and many others – when we craft the budget next year.”
"My fellow caucus members and I have been hearing from constituents that access to childcare is an important issue for many families, which is why we made additional funding available for childcare by way of the FROG account,” Bray said, referring to legislation that allowed the $200 million in emergency funding.
“I'd like to see Indiana pursue policies that create innovative partnerships with businesses, communities, nonprofits, families and others so we can expand access in a fiscally responsible way."
Dylan Peers McCoy is an investigative education reporter with WFYI. Contact Dylan at dmccoy@wfyi.org
