Legislators, DCF officials discuss $13.2 million payroll-tax swap and reserve for child-care fund

Representative Kornheiser convened the Ways & Means discussion on the governor's budget adjustment on Friday, Jan. 17, focusing the committee’s attention on the Child Care Payroll Tax Special Fund and spending for the Child Care Financial Assistance Program.

The nut graf: Department for Children and Families officials told the committee they see two separate, related budget developments this year: an underspend in child-care caseloads that they estimate at about $13 million, and a revenue realignment that would shift $13.2 million of costs from the general fund onto the Child Care Payroll Tax Special Fund. Department officials also said an $8 million balance added to the special fund last year remains available as a contingency.

Janet McLaughlin, deputy commissioner at the Department for Children and Families overseeing the Child Development Division, opened with a short description of the division’s work: licensing and compliance for center-based and family child-care programs, referral and family connection services, the Child Care Financial Assistance Program, and supports for early childhood workforce and quality improvement. “I’m Janet McLaughlin. I’m the deputy commissioner in the Department For Children and Families overseeing the Child Development Division,” she said.

Megan Smeaton, financial director for DCF, reviewed the budget adjustment language the administration proposed in the Budget Adjustment Act (BAA). “We have adjusted our funding breakout essentially for the Child Care Financial Assistance Program or CCBAP this year as part of the BAA,” Smeaton said. She said the eBoard’s July economist projections showed payroll-tax receipts for the Child Care Payroll Tax Special Fund were higher than the base appropriation: the base was about $79,600,000 while economists projected $92,800,000. To reflect that, the administration proposes a $13,200,000 swap of special-fund for general-fund authority in the CCAP budget so the special fund covers costs that otherwise would have been charged to general fund.

Smeaton said the swap is a revenue realignment that “allows AHS to have more flexibility with the general fund, and it doesn't impact the availability of funding for our CCAP program.” She also said the special fund includes another $8,000,000 added last year in the budget waterfall; that $8 million is separate from the proposed $13.2 million swap and can act as a reserve if costs exceed estimates.

Committee members asked clarifying questions. Representative Volcomb asked whether the swap effectively uses payroll-tax revenue to offset functions that previously had general-fund support; Smeaton answered that the Child Care Financial Assistance Program uses a mix of federal funds, special funds, and general fund, and that available special-fund dollars reduce the need to draw general fund. Representative Masson and others pressed on the underlying revenue projections and noted a revised eBoard forecast was expected shortly; DCF and JFO staff said the committee should revisit the topic once the new forecast is available.

Committee members expressed concern about using a narrowly raised payroll tax for other purposes. One lawmaker said, “I would be concerned about using money that is raised specifically for childcare for any other purpose.” DCF and Joint Fiscal Office staff responded that the administration’s proposal reduces earlier general-fund seed money used to start the program and replaces it, in part, with payroll-tax receipts — not that the payroll-tax receipts are being diverted to unrelated programs.

On program activity, McLaughlin and Smeaton reported a marked increase in uptake: program enrollment rose roughly 40% between June 2023 and December 2024 (from 7,048 families to 9,851), and the state recorded a net increase of about 500 child-care slots in that period. McLaughlin said the division rolled out eligibility changes and increased rates on schedule and that some of the current underspend likely reflects the time required for newly eligible families to learn about and enroll in the program.

Committee members also asked whether the $8 million balance in the special fund is functionally protected as a reserve. McLaughlin and staff said the $8 million was added to the special fund in the budget waterfall last year and remains available; several lawmakers asked whether language could be added to the budget to statutorily protect a reserve, a matter the Joint Fiscal Office said was a broader policy decision for Appropriations and Ways & Means.

Committee members asked for additional data — including geographic distribution of new child-care slots and enrollment increases — and for the division’s charts and slides to be circulated to the committee. McLaughlin said she would provide the charts showing capacity and enrollment trends. The committee did not take formal action at the meeting and members indicated they would continue to monitor the fund and the eBoard revenue update.

Ending: Committee leaders said the item would remain open pending the next revenue forecast and additional analysis; legislators and staff asked DCF to provide the enrollment and slot charts and to return with updated numbers if the eBoard forecast changes.