Budget Adjustment Act language would reserve late payroll-tax receipts for childcare fund at year end

Legislative staff and tax department officials briefed the Appropriations panel on a proposed change to the Budget Adjustment Act intended to prevent childcare payroll-tax receipts from being captured by the general-fund closeout process.

Andrew Stein, chief operating officer of taxes, said the childcare contribution was implemented by folding a payroll assessment into existing withholding and personal income tax filings to reduce implementation costs. "We're talking about 80 to $82,000,000 a year," Stein said of the total annual receipts attributable to the child‑care contribution, and he explained most of that revenue arrives through withholding.

The problem, Stein and fiscal staff told lawmakers, is timing: withholding remittances arrive on a quarterly schedule ("October 25, January 25, April 25, and July 25") and the July 25 return comes after the fiscal-year closeout and after some statutory transfers are executed. That timing can leave roughly $20 million temporarily recorded in the general fund at year end, which would otherwise be subject to the statutory closeout waterfall that fills the stabilization reserve and then allocates remaining amounts to other contingent uses.

To address the timing mismatch, presenters described BAA language that would formalize the ad hoc practice used in fiscal 2025. Under the proposal, no later than the first week of the new fiscal year tax, JFO and Finance & Management would agree on a consensus estimate of fourth‑quarter childcare receipts; the Commissioner of Finance and Management would reserve that estimate inside the general fund prior to executing the statutory closeout steps; once closeout is complete, the reserved amount would be unreserved and transferred to the Child Care Contribution Special Fund; a reconciliation and true‑up would follow.

Presenters emphasized the "reserve" is an internal accounting designation — a temporary box inside the general fund rather than a new, standalone reserve account. They also said the House version changes ordering compared with the governor's proposal (which includes a $74.9 million property‑tax set‑aside), and committee members pressed staff on the pros and cons of the different step orderings.

Tax staff described administrative improvements that should reduce the size of the year‑end holdover over time: a systems upgrade and outreach to enable employers to break out childcare contribution payments at the time of electronic withholding remittance, and increased electronic filing. Stein estimated that system and compliance improvements could largely resolve the issue within two fiscal years, while acknowledging an ongoing small true‑up risk ("1 to $2,000,000") would likely remain in the near term.

Committee members requested more data on utilization of the Child Care Contribution Special Fund and compliance; staff said the Department for Children and Families had presented to House Ways and Means earlier that day and could be asked to brief the committee on uptake and program outcomes.

The committee did not take a vote during the session; legislators signaled the BAA language will be discussed further and that staff will provide clarifying language and reconvene as needed before a planned floor action later in the week.