Nonprofit child care centers in Colorado wouldn’t have to pay property taxes under legislation a state House committee advanced on Tuesday in the hopes of reducing costs and improving access.

House Bill 1006 aims to modify current law that allows property owned and operated by nonprofit child care centers to be exempt from property taxes. The bill removes the ownership requirement, adding to the tax exemption properties rented or leased for use as nonprofit child care centers.

Supporters said they hope the tax exemption would lead to cheaper rents for child care centers, allowing the latter to lower prices and increase wages for employees. The bill’s sponsors said the proposal recognizes the “critical link” between child care, economic development and security for Colorado’s working families. 

“Child care in Colorado is a challenge. We’ve seen a reduction in access and affordability over the last few years,” said Rep. Dylan Roberts, D-Eagle, who sponsored the measure. “While this certainly won’t solve all of the child care affordability issues in our state, it definitely will be a needed tool in the toolbox.”

Even before the COVID-19 pandemic, child care providers in Colorado only had the capacity to serve 62% of the state’s 246,000 kids under 6 whose parents both work, according to a report citing 2019 figures. 

State officials estimate 56 existing child care centers across the state would be eligible for the property tax exemption under the proposal, which would apply to nearly $40 million in total assessed property value and exempt a total $2.975 million in property taxes annually.

During Tuesday’s committee meeting, multiple members raised concerns about the bill, questioning whether providing a tax break for landlords who own the properties rented or leased by nonprofit child care centers would actually save the child care centers money.

“Do landlords who rent to other nonprofits get a tax break because they’re renting to nonprofits?” Rep. Judy Amabile, D-Boulder, said. “You’re not really giving the tax break to the nonprofit, you’re giving the tax break to the landlord.”

Supporters admitted there is no guarantee landlords will use the tax break to lower rent for the child care centers, but Roberts said, at the very least, the property tax exemption would encourage them to rent to nonprofit child care centers, potentially helping reduce the state’s child care shortage.

In Colorado, there is an estimated shortage of 90,000 child care slots, according to Colorado Executives Partnering to Invest in Children. In Eagle County alone, the shortage stands at more than 1,300 child care slots, said Eagle County Commissioner Jeanne McQueeney.

McQueeney said the property tax exemption could increase the number of nonprofit child care centers in the county, where only four currently exist.

“This bill could be the incentive landlords need to lease to a child care center instead of a t-shirt shop,” McQueeney said. “The fiscal impact to this bill is negligible compared to the fiscal impact to our local economy and our state due to a lack of child care.”

In addition to decreasing property tax revenue of local governments by nearly $3 million, the bill would cost the state at least $867,000 annually beginning in 2023, according to state estimates. This is because, by reducing the amount of property taxes collected, the state’s share of funding schools would increase.

The bill would generate some state revenue from application fees which, under current law, are $175 for initial applications and $75 for renewals. If all 56 eligible child care centers apply for the exemption, it would raise $9,800 in the first year. If the same centers apply for renewal each year, it would generate another $4,200 annually. The new revenue would increase the TABOR refund by the same amounts.

Critics of the bill said, besides the financial hit to the state, the proposal would give nonprofit child care centers an unfair advantage over for-profit child care centers.

“I won’t be able to support this if we’re going to create disparity in this particular situation and put for-profits even farther behind nonprofits, who continue to get exceptions in the tax space,” Rep. Richard Holtorf, R-Akron, said. “I really have a problem with creating these conditions. In this country, it’s supposed to be a level playing field for all.”

Rep. Kevin Van Winkle, R-Highlands Ranch, who also sponsored the bill, said he couldn’t pursue property tax exemptions for for-profit child care centers because the Colorado Constitution doesn’t allow it.

“Right now, we have a very unlevel playing field,” Van Winkle said in defense of the bill. “We could have two nonprofit child care providers, one on this side of the street and one on that side of the street, doing essentially the same business but being taxed completely differently. This bill will level that playing field.”

The committee approved the bill, 11-1, with only Rep. Dave Williams, R-Colorado Springs, voting against it. If enacted, the bill would go into effect in August and apply to property tax years beginning in 2023.

The legislative push comes on the heels of Gov. Jared Polis injecting hundreds of millions of dollars into the child care industry, whose members recently warned of closures because their operations are no longer sustainable. State officials announced last week that $271 million in grants are available to help Colorado’s nearly 5,000 child care providers pay for operations and other services, such as mental health and counseling.

The Polis administration is making the money available at a time when Colorado’s economy is beginning to rebound but the COVID-19 pandemic continues to exacerbate the child care industry’s challenges.