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State Examples of Dedicated Funding Streams

Often the result of years of effort by broad coalitions, legislation in numerous states has passed that establishes permanent, dedicated funding streams for early childhood—funding that exists outside of the recurring appropriations process.


In a 2006 ballot initiative, Arizona voters approved a tobacco tax increase dedicated to funding early childhood services. A First Things First state board and local regional partnership councils share the responsibility of ensuring that these early childhood funds are spent on strategies that will result in improved education and health outcomes for children younger than age 5.


The California Children and Families Act of 1998 increased taxes on cigarettes and tobacco products and dedicated the revenue to First 5 California. The revenue generated from a 50-cent tax per pack of cigarettes is used for a variety of early childhood development purposes, including early care and education. First 5 county-level commissions administer the funds.


Colorado earmarks excess collected nicotine tax revenues for free preschool for 4-year-olds statewide. An earlier successful ballot measure raised the nicotine tax to fund a variety of health and education programs, including universal preschool, however the state constitution requires the state to either refund excess tax revenue or seek voter approval to retain it. In 2023, Colorado voted to retain the excess and dedicate it to universal pre-k. (Colorado also recently repealed a state ban on local tobacco taxes.)

In addition, Colorado state law allows local voters to create special local taxing districts called Early Childhood Development Special Districts that dedicate their revenue to funding services for children birth through 8. Once created, the districts can seek voter approval to levy property taxes and sales and use taxes in the district to generate revenues to provide early childhood development services.


Since 2014, Connecticut has been expanding pre-k with funds from the Tobacco Master Settlement Agreement. Smart Start grants fund preschool classrooms in public school buildings and are budgeted at $10 million per year through 2025.


The District of Columbia has a wealth tax, the proceeds of which must be allocated to the Early Childhood Educator Pay Equity Fund. The Early Childhood Educator Pay Equity Fund is a first-in-the-nation program aimed at achieving pay parity between early childhood educators and their K-12 counterparts.


Since 1946, Florida state law has allowed for the creation of special local taxing districts that dedicate their revenue to funding child-and-youth services or early childhood supports. Once created by local voters, taxpayers pay a portion of their property taxes to a local Children’s Service Council that administers the funds.  


Georgia partially funds its preschool program with dedicated lottery allocations. The state’s public/private partnership program was created alongside the passage of the education lottery. In FY 2022, the lottery contributed $379 million to preschool education.


In Kentucky, 25 percent of the annual settlement Tobacco Master Settlement funds are dedicated to early child care and education programs. The funds are earmarked for use by the Governors Office of Early Childhood.


The Louisiana Early Childhood Education Fund offers local entities a dollar-for-dollar match on local investments for early care and education. The fund has four statutorily dedicated and ongoing funding streams. The Fund receives 50% of revenue from the NBA Pelicans license plate, 25% of sports betting revenues up to $20 million, and  any non-dedicated tax revenue from fantasy sports betting and industrial hemp-derived CBD sales. Localities have established their own dedicated funding streams through passing new or amending current millages to create sustainable funding at the local level. 


Maryland collects gambling fees that go into the Maryland Education Trust Fund. These funds are used to support prekindergarten programs as well as K–12 systems.


The Missouri Preschool Program offers five-year renewable grants to state establish or expand early learning programs. The program receives funding from a portion of the annual Tobacco Master Settlement Agreement funds ($35 million a year).


Nebraska has an early learning endowment called the Sixpence Early Learning Fund. A public-private venture, the fund was established with $20 million from the private sector and a $40 million state investment. The earnings of this combined fund is granted tocommunity partnerships focused on high-quality early learning services for infants and toddlers from traditionally under-resourced communities. Yearly disbursements typically total $2-3 million.


Nevada dedicates birth and death certificate fees to a child abuse and neglect prevention fund. The Children’s Trust Fund was established in 1985 by the state legislature and is administered by the Department of Health and Human Services. Every two years HHS takes grant applications from primary and secondary prevention programs for child abuse and neglect. Distributions are around $1.5 million annually.                   

New Mexico

The New Mexico Early Childhood Trust Fund annually distributes the greater of 5 percent of the total value of the fund or $150M. The funds are dedicated to prenatal-to-five services and the state’s newly formed Early Childhood Education and Care Department.

A constitutional amendment also mandates a Land Grant Permanent Fund Distribution for Early Childhood Education. The distribution is equal to 1.25 percent of the total value of the fund and must be dedicated to early childhood education (60 percent of the allocation) and public education (40 percent of the allocation). The early childhood education distribution totals roughly $100 million annually.

North Carolina

Guidelines from the North Carolina legislature dictate a portion of lottery proceeds is spent on pre-k. In 2020, 11 percent of lottery revenue (almost $79 million) went to fund pre-k in the state.


Money paid to the state by casino operators in excess of amounts required by Chapter 3772. of the Revised Code for licenses or fees, or by Title 57 of the Revised Code for taxes R.C. 3772.34; Sections 423.10 and 423.40 of H.B. 33 of the 135th G.A  is used to support the goals of the Step Up to Quality program. Beginning in FY 2024, H.B. 33 moves funding for these activities from the Ohio Department of Jobs and Family Services (ODJFS) to the Ohio Department of Children and Youth (ODCY). The appropriation for FY 24 was $13,000,000 (a decrease from $20,000,000 in FY23).


Oregon invested $50 million in lottery bonds to create the Child Care Infrastructure Fund. Distributions fund investments designed to expand child care and preschool facilities.

Also, nicotine taxes fund a health care package that includes Medicaid eligibility up to 133 percent of the Federal Poverty Level. The revenue is roughly $160 million per year and ensures health care for the 135,000 children between the ages of 0-5 on Medicaid in Oregon (about 40% of Oregon’s children).

Further, since 2019, Oregon has had a corporate activity tax dedicated to education – 20 percent of which is allocated to programs serving infants, toddlers, and preschoolers. The tax is a form of a gross receipts tax that applies to a variety of corporations, partnerships, and other entities consisting of $250 plus 0.57 percent of the taxable commercial activity that exceeds $1 million in the calendar year.

Rhode Island

Rhode Island has a payroll tax that funds a temporary caregivers insurance (TCI) program as part of a broader disability program. TCI covers paid family leave currently for six weeks for birth, adoptive, and foster parents and for workers to take care of seriously ill loved ones.  

South Carolina

South Carolina is the only state that provides funding for early care and education from dedicated sales tax revenue In 1984, the state instituted a 1 percent sales tax to improve the state’s education programs. A portion of these funds now go toward improving the school readiness of at-risk four-year-olds by providing free early care and education. In 2021, the state dedicated over $50 million from sales tax funds to expand pre-K services.


In 2023, Vermont passed the nation’s first payroll tax dedicated to early childhood. The 0.44 percent payroll tax (split between employers and employees) generates about $80 million annually to fund expanded eligibility for subsidized child care along with increased reimbursement rates and supports for the child care workforce.  


Washington has a capital gains tax dedicated to early childhood — a 7-percent tax on profits of more than $250,000 that result from the sale of stocks and bonds, excluding revenue from real estate and retirement accounts, among other exceptions. The tax raises hundreds of millions of dollars for crucial early childhood programs through 2021’s Fair Start for Kids Act (FSK).