What is Proposition 2

Child care business owners have felt the ripple effect of economic change and hardship more acutely than many other types of businesses. Relief funding has been a temporary solace, but with many funds drying up, longer-lasting change is needed to keep businesses alive and child care available for the Texas workforce. To directly impact and hopefully offset costs for licensed child care business owners, the Texas Legislature and voters in the state have mutually accepted a solution that may bring real relief at the local level. During the Regular Session of the 88th Texas Legislature in 2023, Senate Bill 1145 was passed allowing for a vote on Proposition 2, the state’s first ever constitutional amendment related to child care. The proposition was passed in the November 2023 election, and if enacted by cities and counties, it may bring tax exemptions to child care businesses of all sizes.

What is it?

During the recent regular session of the Legislature, legislators passed a bill aimed to drastically change the landscape for owning and operating a child care business in the state of Texas. Senate Bill 1145 was passed by the House and the Senate to permit counties and cities to decide if they want to give a property tax break to people who own land or buildings used for childcare. The bill allowed for Proposition 2 to be included on the ballot for voter approval to become a constitutional amendment. The approval granted by voters on November 7 means that cities and county entities across Texas can act upon their new authority granted by Proposition 2 to exempt child care programs from property taxes.

If enacted at the local level, Proposition 2 would relieve child care property owners from paying taxes on some or all of the value of their childcare property. Those leasing property are not excluded from this tax break. The law requires landlords to submit a legal affidavit that certifies they have notified their tenant of this tax exemption and will decrease rent in proportion to the reduction of taxes. Property owners and renters can receive a tax exemption ranging from 50 percent to 100 percent, with a minimum of 50 percent exemption guaranteed. Proposition 2 will take effect in January 2024. With the intentional design to provide licensed providers with relief from higher taxes, this bill will impact providers whether they own their facilities or rent the property in which their business is located.

What does it mean for you?

If enacted at the local level, the opportunity to receive this tax exemption means major savings for child care businesses and the chance to offset the rising cost of consumable goods. This change to tax law could mean the ability to remain open and sustainable for years to come, lower costs and tuition rates to increase enrollment and ultimately profitability for many businesses. However, this opportunity does not come without certain stipulations.

As an eligibility requirement, providers must participate in the Texas Rising Star Program through the Texas Workforce Commission and maintain a minimum of 20 percent enrollment of children receiving scholarships. This may be a good time for your business to begin enrolling or offering a Tuition Assistance Policy if your program does not offer one already. Consider the cost savings from your property tax exemption to determine what kind of scholarship or discounted rate could be offered. For licensed homes, you will want to make sure that your time-space calculations are accurate and up to date. This may play a role in how your exemption is calculated and applied.

What’s next for Proposition 2?

Proposition 2 will be enacted as an amendment to the State Constitution as early as January 2024. After that, Texas cities and counties will be able to cut property taxes for child care providers who qualify. Together with your fellow child care business owners, you can plug into advocacy efforts in your area through professional ECE networks, like local TXAEYC member connections. Encourage other child care business owners inform themselves about this potential tax break and encourage leaders in your city or county to pass a local resolution! This is an opportunity to enact change that will directly impact the sustainability and profitability of your business.

Where can I get more information?

Information about this legislation is publicly available on Texas Legislature Online at capitol.texas.gov and with the Texas Secretary of State. Track local efforts to authorize property tax relief for child care providers by following your city and county government updates and your local news outlets. To find out more about the TWC Texas Rising Star program please visit their site at childcare.texas.gov/texasrisingstar.

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