IGP Tax Issue Letter of Support

May 28, 2024

The Honorable Jesse Gabriel, Chair
Assembly Budget Committee
1021 O Street, Suite 8230
Sacramento, CA

The Honorable Corey Jackson, Chair
Assembly Budget Subcommittee No. 2
1021 O Street, Suite 4250
Sacramento, CA

Re: 2024-2025 State Budget Trailer Bill Language Request – Child Care Facilities Grants Tax Fix

Dear Assemblymember Gabriel and Assemblymember Jackson,

On behalf of Build Up California and the undersigned members and partners, we want to urge the Governor, Senate, and Assembly to pass trailer bill language clarifying that grants being provided through the Child Care and Development Infrastructure Grant Program are not taxable.

The Infrastructure Grant Program has been an incredible success for child care providers throughout the state and the Program quickly expended all of the funding made available in previous budget years. However, a huge concern has begun to present itself which is that the grants to providers are being considered taxable. For example, one child care provider in Upper Lake received a $74,000 grant award, and now owes more than $18,000 in taxes on the funds she received. A family child care grantee in Pleasanton received $71,185 in grant funds and as a result of the grant being taxed ended up owing $27,000 on their tax return. Child care providers are already struggling to make their finances work, let alone ending up with a huge tax bill as a result of a grant that is supposed to be assisting them. Also, due to timing of check distribution and project completion, we are concerned that the ability of providers to pay for and complete their projects could be compromised by taxing state grants. For that reason, we are requesting language be added that clarifies the grants are not taxable for the purposes of California State income tax.

Between 2021-2023 the state provided a historic $350.5 million to fund repair and renovation and major construction facilities grants for child care providers. These efforts have been instrumental in helping address a myriad of childcare facility-related needs. The Program has demonstrated successful outcomes thus far. In 2022, more than 5,000 providers requested $309.6 million to upgrade and retrofit their program spaces. There has been statewide participation in the Program, as providers from all 58 counties submitted applications for funding. Because of funding constraints, approximately 3,800 providers received the $200.5 million available for repair and renovation grants. In 2023, 1,848 providers requested $666 million for new construction and major construction, with the goal of expanding spaces. Final grant letters are being signed by providers, however only $150 million is available for grants. Further funding is needed to continue this program moving forward and the state should not lose the progress they have made in building up this very successful program.

We thank you for your commitment to ensuring safe, affordable enriching childcare and ask you to ensure child care providers can take advantage of the entire grant they are given and not face the burden of huge tax bills. Thank you for your consideration.

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