House File 695 - Introduced HOUSE FILE 695 BY KONFRST , FORBES , BAGNIEWSKI , CAHILL , CROKEN , WILSON , COOLING , BAETH , TUREK , LEVIN , STAED , SCHEETZ , KURTH , AMOS JR. , NIELSEN , BUCK , WESSEL-KROESCHELL , STECKMAN , MATSON , WILBURN , JAMES , GAINES , MADISON , JACOBY , KRESSIG , EHLERT , BROWN-POWERS , B. MEYER , SRINIVAS , OLSON , and SCHOLTEN A BILL FOR An Act relating to economic development including child 1 care, grants and tax credits relating to child care, and 2 state child care assistance, and including applicability 3 provisions. 4 BE IT ENACTED BY THE GENERAL ASSEMBLY OF THE STATE OF IOWA: 5 TLSB 1982YH (7) 90 dg/rh

H.F. 695 DIVISION I 1 CHILD AND DEPENDENT CARE TAX CREDIT 2 Section 1. Section 422.12C, subsection 1, Code 2023, is 3 amended by striking the subsection and inserting in lieu 4 thereof the following: 5 1. The taxes imposed under this subchapter, less the amounts 6 of nonrefundable credits allowed under this subchapter, shall 7 be reduced by a child and dependent care credit equal to the 8 following percentages of the federal child and dependent care 9 credit provided in section 21 of the Internal Revenue Code, 10 without regard to whether or not the federal credit was limited 11 by the taxpayer’s federal tax liability: 12 a. For a taxpayer with net income of forty-five thousand 13 dollars or less, one hundred percent. 14 b. For a taxpayer with net income exceeding forty-five 15 thousand dollars but not exceeding fifty thousand dollars, 16 eighty-eight percent. 17 c. For a taxpayer with net income exceeding fifty thousand 18 dollars but not exceeding sixty thousand dollars, seventy-five 19 percent. 20 d. For a taxpayer with net income exceeding sixty thousand 21 dollars but not exceeding seventy thousand dollars, sixty-three 22 percent. 23 e. For a taxpayer with net income exceeding seventy thousand 24 dollars but not exceeding eighty thousand dollars, fifty 25 percent. 26 f. For a taxpayer with net income exceeding eighty thousand 27 dollars but not exceeding ninety thousand dollars, thirty-eight 28 percent. 29 g. For a taxpayer with net income exceeding ninety thousand 30 dollars but not exceeding one hundred thousand dollars, 31 twenty-five percent. 32 h. For a taxpayer with net income exceeding one hundred 33 thousand dollars but not exceeding one hundred twenty-five 34 thousand dollars, thirteen percent. 35 -1- LSB 1982YH (7) 90 dg/rh 1/ 11

H.F. 695 i. For a taxpayer with net income exceeding one hundred 1 twenty-five thousand dollars but not exceeding one hundred 2 fifty thousand dollars, ten percent. 3 j. For a taxpayer with net income exceeding one hundred 4 fifty thousand dollars but not exceeding one hundred 5 seventy-five thousand dollars, five percent. 6 k. For a taxpayer with net income exceeding one hundred 7 seventy-five thousand dollars but not exceeding two hundred 8 thousand dollars, three percent. 9 l. For a taxpayer with net income exceeding two hundred 10 thousand dollars but not exceeding two hundred fifty thousand 11 dollars, two percent. 12 m. For a taxpayer with net income exceeding two hundred 13 fifty thousand dollars, zero percent. 14 DIVISION II 15 CHILD CARE CENTER AND CHILD DEVELOPMENT HOME GRANTS 16 Sec. 2. NEW SECTION . 237D.1 Definitions. 17 As used in this chapter, unless the context otherwise 18 requires: 19 1. “Child” means the same as defined in section 237A.1. 20 2. “Child care” means the same as defined in section 237A.1. 21 3. “Child development home” means the same as defined in 22 section 237A.1. 23 4. “Department” means the department of health and human 24 services. 25 5. “Facility” means the same as defined in section 237A.1. 26 6. “Fund” means the child care center and child development 27 home grant fund. 28 7. “Home” means a child development home. 29 8. “Licensed child care center” or “center” means a facility 30 providing child care or preschool services for seven or more 31 children that has been issued a license by the department 32 pursuant to section 237A.2. 33 9. “Program” means the child care center and child 34 development home grant program. 35 -2- LSB 1982YH (7) 90 dg/rh 2/ 11

H.F. 695 Sec. 3. NEW SECTION . 237D.2 Child care center and child 1 development home grant fund. 2 1. A child care center and child development home grant fund 3 is created and established as a separate and distinct fund in 4 the state treasury under the control of the department. 5 2. a. The fund may consist of any moneys appropriated by 6 the general assembly for purposes of this chapter and any other 7 moneys that are lawfully available to the department. Moneys 8 in the fund are appropriated to the department and shall be 9 used for the purposes of this chapter. 10 b. Notwithstanding section 8.33, moneys in the fund 11 that remain unencumbered or unobligated at the close of the 12 fiscal year shall not revert but shall remain available for 13 expenditure for the purposes of this section in succeeding 14 fiscal years. Notwithstanding section 12C.7, subsection 2, 15 interest earned on moneys in the fund shall be credited to the 16 fund. 17 Sec. 4. NEW SECTION . 237D.3 Child care center and child 18 development home grant program. 19 1. The department shall adopt rules to establish and 20 administer a child care center and child development home 21 grant program to provide for the allocation of money in the 22 fund in the form of grants, not to exceed fifty thousand 23 dollars per grant, to eligible persons for costs related to 24 the establishment of a new licensed child care center or 25 a new child development home, or for the expansion of an 26 existing licensed child care center or the expansion of an 27 existing child development home. For any one fiscal year, the 28 department shall not approve more than four million dollars 29 in grants. The rules adopted by the department shall specify 30 the eligibility requirements for applicants of the program and 31 the items eligible for a program grant. Items eligible for a 32 program grant must include the costs related to licensing or 33 registration, supplies, employee salaries, and infrastructure. 34 2. A new center or a new home must be licensed or registered 35 -3- LSB 1982YH (7) 90 dg/rh 3/ 11

H.F. 695 and fully operational within two years of the date of an 1 applicant’s receipt of a grant. 2 3. Of the children for whom a new or expanded center or a 3 new or expanded home provide child care, a minimum of twenty 4 percent of the children must be from a family that qualifies 5 for state child care assistance pursuant to section 237A.13. 6 4. A person that is awarded a grant shall enter into an 7 agreement with the department that specifies the requirements 8 that must be maintained throughout the period of the agreement 9 in order for the person to retain the grant. The agreement 10 must contain, at a minimum, provisions addressing all of the 11 following: 12 a. The legal name of the person receiving the grant. 13 b. The amount of the grant. 14 c. Annual certification by the person to the department of 15 compliance with the requirements of the agreement, the program, 16 and this chapter. 17 d. The repayment of the grant, or a portion of the grant, 18 if the person does not meet all of the requirements of the 19 agreement, the program, and this chapter. 20 e. If a new center or a new home for which the grant was 21 received goes out of business within two years of the date the 22 new center or new home becomes fully operational pursuant to 23 subsection 2, the grant shall be subject to repayment. If an 24 expanded center or an expanded home for which the grant was 25 received goes out of business within two years of the date on 26 which the grant was received, the grant shall be subject to 27 repayment. 28 DIVISION III 29 SMALL BUSINESS CHILD CARE TAX CREDIT 30 Sec. 5. NEW SECTION . 237A.32 Small business child care tax 31 credit. 32 1. As used in this section “small business” means any 33 enterprise which is located in this state, which is operated 34 for profit and under a single management, and which has either 35 -4- LSB 1982YH (7) 90 dg/rh 4/ 11

H.F. 695 fewer than twenty employees or an annual gross income of less 1 than four million dollars computed as the average of the three 2 preceding fiscal years. This definition does not apply to any 3 program or activity for which a definition for small business 4 is provided for the program or activity by federal law or 5 regulation or other state law. 6 2. A small business may receive a child care tax credit 7 for providing child care employee benefits to employees of the 8 business. The credit may be applied against income tax imposed 9 under chapter 422, subchapter II or III, the franchise tax 10 imposed under chapter 422, subchapter V, the gross premiums 11 tax imposed under chapter 432, or the moneys and credits tax 12 imposed in section 533.329. The amount of the credit equals 13 the costs to provide the benefit up to three thousand dollars 14 per employee per year. 15 3. The aggregate amount of tax credits authorized pursuant 16 to this section shall not exceed a total of two million 17 dollars per fiscal year, and shall be awarded on a first-come, 18 first-served basis. 19 4. To be eligible for a small business child care tax 20 credit, the small business must provide child care employee 21 benefits to employees of the business through any of the 22 following: 23 a. Build a new structure or rehabilitate an existing 24 structure to be used as a child care center at or near the small 25 business where the children of the employees of the business 26 are provided child care. A small business may construct or 27 rehabilitate the structure in conjunction with another business 28 but only the actual cost of the business shall be considered in 29 determining the credit. 30 b. Operate or lease a child care center at or near the small 31 business where the children of the employees of the business 32 are provided child care. 33 5. A taxpayer who elects to claim the small business child 34 care tax credit shall not claim the employer child care tax 35 -5- LSB 1982YH (7) 90 dg/rh 5/ 11

H.F. 695 credit under section 237A.31 1 6. Any credit in excess of the tax liability is not 2 refundable but the excess for the tax year may be credited 3 to the tax liability for the following five years or until 4 depleted, whichever is earlier. The director of revenue shall 5 adopt rules to implement this section. 6 Sec. 6. NEW SECTION . 422.12P Small business child care tax 7 credit. 8 1. The taxes imposed under this subchapter, less the credits 9 allowed under section 422.12, shall be reduced by a small 10 business child care tax credit received pursuant to section 11 237A.32. 12 2. An individual may claim the tax credit allowed a 13 partnership, S corporation, limited liability company, estate, 14 or trust electing to have the income taxed directly to the 15 individual. The amount claimed by the individual shall be 16 based upon the pro rata share of the individual’s earnings of a 17 partnership, S corporation, limited liability company, estate, 18 or trust. 19 Sec. 7. Section 422.33, Code 2023, is amended by adding the 20 following new subsection: 21 NEW SUBSECTION . 33. The taxes imposed under this subchapter 22 shall be reduced by a small business child care tax credit 23 received pursuant to section 237A.32. 24 Sec. 8. Section 422.60, Code 2022, is amended by adding the 25 following new subsection: 26 NEW SUBSECTION . 16. The taxes imposed under this subchapter 27 shall be reduced by a small business child care tax credit 28 received pursuant to section 237A.32. 29 Sec. 9. NEW SECTION . 432.12P Small business child care tax 30 credit. 31 The taxes imposed under this chapter shall be reduced by 32 a small business child care tax credit received pursuant to 33 section 237A.32. 34 Sec. 10. Section 533.329, subsection 2, Code 2022, is 35 -6- LSB 1982YH (7) 90 dg/rh 6/ 11

H.F. 695 amended by adding the following new paragraph: 1 NEW PARAGRAPH . n. The moneys and credits tax imposed under 2 this section shall be reduced by a small business child care 3 tax credit received pursuant to section 237A.32. 4 Sec. 11. APPLICABILITY. This division of this Act applies 5 to tax years beginning on or after January 1, 2023. 6 DIVISION IV 7 STATE CHILD CARE ASSISTANCE 8 Sec. 12. Section 237A.13, subsection 8, paragraph c, Code 9 2023, is amended to read as follows: 10 c. Families with an income of more than one hundred 11 percent but not more than one two hundred forty-five percent 12 of the federal poverty level whose members, for at least 13 twenty-eight hours per week in the aggregate, are employed 14 or are participating at a satisfactory level in an approved 15 training program or educational program. 16 Sec. 13. DIRECTIVE TO DEPARTMENT OF HEALTH AND HUMAN 17 SERVICES —— CHILD CARE ASSISTANCE. 18 1. The department of health and human services shall amend 19 its administrative rules pursuant to chapter 17A to do all of 20 the following: 21 a. Provide income eligibility for state child care 22 assistance, according to family size for children needing basic 23 care, to families whose nonexempt gross monthly income does not 24 exceed two hundred percent of the federal poverty level. 25 b. Adjust the state child care assistance copayment 26 schedule in incrementally increased amounts for families whose 27 nonexempt gross monthly income does not exceed two hundred 28 percent of the federal poverty level. 29 2. The rules adopted pursuant to this section shall take 30 effect January 1, 2024. 31 EXPLANATION 32 The inclusion of this explanation does not constitute agreement with 33 the explanation’s substance by the members of the general assembly. 34 This bill relates to economic development including child 35 -7- LSB 1982YH (7) 90 dg/rh 7/ 11

H.F. 695 care, grants and tax credits relating to child care, and state 1 child care assistance. 2 DIVISION I —— CHILD AND DEPENDENT CARE TAX CREDIT. The 3 bill adjusts the percentage of the federal child and dependent 4 care tax credit by which a taxpayer may reduce the taxpayer’s 5 individual state income taxes. A taxpayer with net income of 6 $45,000 or less receives 100 percent of the credit; a taxpayer 7 with net income exceeding $45,000 but not exceeding $50,000 8 receives 88 percent of the credit; a taxpayer with net income 9 exceeding $50,000 but not exceeding $60,000 receives 75 percent 10 of the credit; a taxpayer with net income exceeding $60,000 11 but not exceeding $70,000 receives 63 percent of the credit; a 12 taxpayer with net income exceeding $70,000 but not exceeding 13 $80,000 receives 50 percent of the credit; a taxpayer with net 14 income exceeding $80,000 but not exceeding $90,000 receives 38 15 percent of the credit; a taxpayer with net income exceeding 16 $90,000 but not exceeding $100,000 receives 25 percent of the 17 credit; a taxpayer with net income exceeding $100,000 but 18 not exceeding $125,000 receives 13 percent of the credit; a 19 taxpayer with net income exceeding $125,000 but not exceeding 20 $150,000 receives 10 percent of the credit; a taxpayer with net 21 income exceeding $150,000 but not exceeding $175,000 receives 22 5 percent of the credit; a taxpayer with net income exceeding 23 $175,000 but not exceeding $200,000 receives 3 percent of the 24 credit; a taxpayer with net income exceeding $200,000 but not 25 exceeding $250,000 receives 2 percent of the credit; and a 26 taxpayer with net income exceeding $250,000 receives 0 percent 27 of the credit. 28 DIVISION II —— CHILD CARE CENTER AND CHILD DEVELOPMENT HOME 29 GRANTS —— FUND. The bill creates a new Code chapter relating 30 to child care center and child care development home grants. 31 The bill creates definitions for “child”, “child care”, 32 “child development home”, “department”, “facility”, “fund”, 33 “home”, “licensed child care center”, and “program”. 34 The bill creates a child care center and child development 35 -8- LSB 1982YH (7) 90 dg/rh 8/ 11

H.F. 695 home grant fund (fund) in the state treasury under the control 1 of the department of health and human services (HHS). The fund 2 may consist of any moneys appropriated by the general assembly 3 for purposes of the fund and any other moneys that are lawfully 4 available to HHS. Moneys in the fund do not revert to the 5 general fund of the state, and interest earned on the fund is 6 credited to the fund. 7 The bill requires HHS to adopt rules to establish and 8 administer a child care center and child development home 9 program (program) to provide for the allocation of moneys 10 in the fund in the form of grants, not to exceed $50,000 11 per grant, to eligible persons for costs related to the 12 establishment of a new licensed child care center or a new 13 child development home, or for the expansion of an existing 14 child care center or child development home. For any one 15 fiscal year, HHS may not approve more than $4 million in 16 grants. Rules adopted by HHS must specify the eligibility 17 requirements for applicants of the program grant and the items 18 eligible for a program grant. Items eligible for a program 19 grant must include costs related to licensing or registration, 20 supplies, employee salaries, and infrastructure. 21 The bill requires a program grant recipient to build and 22 make a new child care center or child development home fully 23 operational within two years of receiving a program grant. 24 The bill requires that a new or expanded facility that 25 receives a program grant must have a minimum of 20 percent of 26 its children from families that qualify for state child care 27 assistance. 28 The bill requires a person who receives a program grant 29 to enter into an agreement with HHS that specifies the 30 requirements that must be maintained throughout the period of 31 the agreement in order for the person to retain the grant, as 32 detailed in the bill. 33 DIVISION III —— SMALL BUSINESS CHILD CARE TAX CREDIT. The 34 bill creates a small business child care tax credit. 35 -9- LSB 1982YH (7) 90 dg/rh 9/ 11

H.F. 695 The bill defines “small business” as any enterprise located 1 in this state, which is operated for profit under a single 2 management and which has either fewer than 20 employees or an 3 annual gross income of less than $4 million computed as the 4 average of the three preceding fiscal years. 5 The bill allows a small business to receive a tax credit 6 for providing child care employee benefits to employees of the 7 business. The amount of the credit equals the costs to provide 8 the benefit up to $3,000 per employee per year. The aggregate 9 amount of tax credits cannot exceed a total of $2 million per 10 fiscal year and are awarded on a first-come, first-served 11 basis. The bill requires a small business to provide child 12 care employee benefits to employees through certain methods 13 in order to be eligible for the small business child care tax 14 credit. 15 The small business child care tax credit applies toward 16 reducing personal net income taxes, the taxes on corporations, 17 the taxes on financial institutions, and the taxes on insurance 18 companies. The tax reduction applies to tax years beginning on 19 or after January 1, 2023. 20 DIVISION IV —— STATE CHILD CARE ASSISTANCE. The state 21 offers child care assistance (CCA) to persons who meet certain 22 eligibility requirements. CCA is only open to a certain number 23 of participants at one time. If CCA is currently unavailable 24 to new participants, families applying for CCA will be placed 25 on a waiting list. The priority of families on the waiting 26 list are, in descending order of prioritization, families with 27 an income at or below 100 percent of the federal poverty level 28 (FPL) whose members, for at least 28 hours per week in the 29 aggregate, are employed or are participating at a satisfactory 30 level in an approved training program or educational program, 31 and parents with a family income at or below 100 percent of 32 the FPL who are under 21 years of age and are participating 33 in an educational program leading to a high school diploma 34 or the equivalent; parents with a family income at or below 35 -10- LSB 1982YH (7) 90 dg/rh 10/ 11

H.F. 695 100 percent of the FPL who are under 21 years of age and are 1 participating, at a satisfactory level, in an approved training 2 program or in an educational program; families with an income 3 of more than 100 percent but not more than 145 percent of 4 the FPL whose members, for at least 28 hours per week in the 5 aggregate, are employed or are participating at a satisfactory 6 level in an approved training program or educational program; 7 and families with an income at or below 200 percent of the 8 FPL whose members are employed at least 28 hours per week 9 with a special needs child as a member of the family. The 10 bill changes the maximum income to be eligible for the third 11 category of prioritization for purposes of the waiting list 12 from 145 percent to 200 percent. 13 The bill directs HHS to amend its administrative rules 14 to provide income eligibility for state CCA, according to 15 family size for children needing basic care, to families whose 16 nonexempt gross monthly income does not exceed 200 percent 17 of the FPL and to adjust the state CCA copayment schedule in 18 incrementally increased amounts for families whose nonexempt 19 gross monthly income does not exceed 200 percent of the FPL. 20 The bill makes such adopted rules effective January 1, 2024. 21 -11- LSB 1982YH (7) 90 dg/rh 11/ 11