Glossary of Financing Terms

[ A | B | C | D | E | F | G | H | I | J | K | L ]

[ M | N | O | P | Q | R | S | T | U | V | W | X | Y | Z ]

A

Appropriations - Annual (or biennial if legislature meets every other year) determination of amount spent on authorized programs. Appropriations are necessary for discretionary spending programs, not mandatory or entitlement programs. Head Start, for example, is dependent upon annual appropriations. Most state programs require appropriations. Tax credits and other tax mechanisms do not need appropriations.

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B

Balanced budget - When a government's total revenues (money that it takes in) equals its total outlays (spending) in a fiscal year. Some state governments, but not the federal government are required to have balanced budgets.

Biennial budget - A budget that covers a two-year period. Some states operate on biennial budgets because their legislatures meet every other year.

Block grants/block granting - A program can be created as a block grant. In a typical federal block grant, the allocation of funds to the states is based on a formula and states have broad discretion in how they allocate the funds to the local level and the purposes for which those funds can be spent. "Block granting" occurs when Congress combines separate programs with distinct purposes and funding streams (known as categorical programs) into a new, single program and repeals the categorical programs. The new block grant program has fewer requirements and a broad use of the funds. For example, the Safe and Drug Free Schools Program was created as a block grant. The Child Care Development Fund was created through the block granting of the AFDC Child Care Program, the Transitional Child Care Program, the At-Risk Child Care program, and the Child Care and Development Block Grant.

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C

Capital budget - A separate budget used by state governments for items such as new construction, major renovations, and acquisition of physical property. Capital budgets are different from operating budgets, which cover most other general expenses.

Community Development Financial Institution (CDFI) - A financial institution whose primary mission is community development and the development of programs and strategies to meet the needs of low-income communities. CDFIs make loans to entities unable to get approved by traditional banking institutions. CDFIs provide comprehensive credit, investment, banking and development services. Some are chartered banks, others are credit unions, and many operate as self-regulating, non-profit institutions that gather private capital from a range of investors for community development or lending. In 1994 the Community Development Banking and Financial Institutions Act created a source of federal funding to fund community development financial institutions.

Community Development Corporations (CDCs) - Non-profit, community-based organizations that work to revitalize the economic and social base of low-income urban and rural communities across the nation. They usually have a specific geographic focus and are engaged in a wide range of development activities, including child care facilities.

Consumer Price Index (CPI) - The difference in the price of everyday goods one month to the next, or from one year to the next. The CPI measures inflation and is used to adjust payments made to Social Security beneficiaries and other programs. The CPI is determined by the Department of Labor.

Community Reinvestment Act (CRA) - A federal statute enacted in 1977 that prohibits redlining (the practice of restricting credit in low-income or minority neighborhoods within a bank's business area). Under CRA, banks are required to invest in the communities where they are chartered. Traditionally, this obligation has been fulfilled with investments in housing. In 1996 the regulations were broadened to encourage investments in other community supports, including child care programs.

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D

Deficit - The difference produced when a government's spending exceeds its revenues in a fiscal year.

Direct expenditure - When the government spends money directly, such as a grant or loan.

Direct revenue source - Sources that provide revenue to the government for spending on programs or individuals, such as state and local taxes, excise taxes, property taxes and other forms of income for the state, local or federal treasury.

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E

Earmarking - The designation of a specific amount of funds in an appropriations bill or a direct revenue source for a particular project or entity.

Employer income tax credits - Credits available to businesses to allow them to reduce their business taxes. Half of the states provide some kind of tax credit to employers who help to subsidize their employees' child care costs. Usually the amount of the credit is a percentage of the employer's expenses for creating or operating a child care center, or reimbursing or purchasing child care for its employees, with a capped amount on the total size of the credit.

Entitlement - A program that obligates the government to make payments to any person who meets the criteria for eligibility unless and until the law is changed. Entitlements are a binding obligation on the part of the government, and eligible recipients can take legal action if the obligation is not fulfilled. Examples of federal entitlement programs include: Social Security; Medicare; Medicaid; unemployment benefits; food stamps; and federal pensions.

Excise taxes - Taxes that consumers pay on certain goods, such as tobacco and liquor. For example, California charges a 50-cent excise tax on cigarettes, and the revenue generated by the tax is used to fund early childhood care services.

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F

Financing mechanism - The specific ways in which social benefits are paid for by families, employers, or the government. A financing mechanism may involve direct or indirect funding. Examples of financing mechanisms include: fees paid by families for child care; tax credits for employers who subsidize employees' child care; tax credits and deductions to families; direct government grants from general revenues; insurance policies; loans; bonds; and scholarships.

Fiscal Year - The twelve-month legal, accounting, and budgetary cycle for a government or other entity. The federal government's fiscal year begins on October 1 and ends September 30. The fiscal year varies for each state.

Forgivable loans - Loans made with the understanding that if the borrower meets certain requirements, repayment of the loan will not be required.

Forward funding - Funding appropriated in one fiscal year that is spent in the current appropriation year and into the next fiscal year. This funding mechanism is primarily used by the federal government for certain elementary and secondary education programs. For example, Title I funds are appropriated on or about October 1, but the funds are sent to school districts the following summer.

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G

General obligation bonds - Debt instruments issued by states and local governments to raise funds for public works and capital expenditures. These bonds are backed by the full faith and credit of the issuing municipality. This means that the municipality will uses its full resources to repay bondholders, including general taxation, and the ability to raise more funding through credit. Voter approval is required to issue a general obligation bond. The State of Minnesota has used general obligation bonds to help pay for Head Start and other early childhood learning facilities.

General public revenue - Revenue derived from taxes, levies, and fees that go to the government and are available for spending. These funds are not designated or earmarked for specific activities or programs. General public revenue is appropriated in the budget by the controlling body (e.g., Congress, state legislature, school board, or county council).

Guarantor - An individual or entity that agrees to repay the lender all or part of the principal and interest on behalf of a borrower, in the event that the borrower fails to make these payments as required by the loan agreement.

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I

Indirect expenditure - Money spent on activities through tax exclusions, deductions, and credits. For example, the government indirectly spends money on child care when taxpayers claim the Dependent Care Tax Credit.

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L

Linked deposits - Funds deposited into a bank or other conventional lending institution to encourage the bank to lend funds at a reduced rate to specific borrowers. This strategy can be used to lower the cost of short-term construction loans made to non-profit entities including child care programs.

Lottery - A form of legalized gambling administered by a state to raise revenue for various programs and activities. Lottery revenues may be designated for a specific purpose (such as education or universal prekindergarten in Georgia) or for general revenue.

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M

Maintenance of effort - A requirement in a federal program that a funding recipient maintain a specified level of funding separate from program funds it receives from the federal government. For example, a state must continue to fund child care subsidies at a certain level (usually based on a prior fiscal year's spending) as a condition of receiving the federal grant.

Mandatory spending - Required spending that is not subject to the appropriations process. Examples of federal mandatory spending are Social Security, Medicaid, Medicare, and a portion of the Child Care and Development Block Grant. Congress can amend the level of spending on mandatory programs as part of the authorizing process.

Matching funds - A requirement that a government or organization receiving a grant must provide a certain amount or percentage of its own funding.

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P

Property tax - Taxes levied on real property based on a percentage of the value of their real property. Public education is largely funded through local property taxes. Several cities designate a portion of their local property taxes for child care.

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S

Supplement not supplant - A requirement in law that a grant recipient may not use those grant funds to replace other sources of funding. For example, the statute may state that federal funds may not supplant any local, state or private education funding sources.

Set-aside - The amount of the grant (expressed as a percentage or a certain dollar amount) that must be for particular activities or purposes. For example, Congress appropriates a set-aside for infants and toddlers under the Child Care and Development Block Grant.

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T

Tax credit - A specific reduction in tax liability. The taxpayer applies the credit after the amount of tax liability (taxes owed) is calculated. For example, a taxpayer with a liability of $10,000 and a tax credit of $500 would be required to pay $9,500 in taxes owed.

Tax deduction - An amount that is subtracted from the taxpayer's adjusted gross income to reduce the amount on which the tax is then calculated.

Tax-exempt bonds - Debt obligations issued by the federal government, states, cities, counties, and other governmental entities, to raise money to build schools and other capital projects. The issuer of the bond allows the investor to purchase the bond for a set price, pays the investor a specified amount of interest (usually paid semiannually) and returns the principal to the investor on a specific maturity date.

Tobacco settlement funds - Settlement funds that all 50 states, the District of Columbia, and most of the U.S. territories received as a result of class action lawsuits brought against the major tobacco companies. These lawsuits were brought to recoup the loss that states sustained paying for Medicare and other forms of health coverage and care for long-term smokers who developed smoking related illnesses. Some states use a portion of their tobacco settlement dollars to fund child care and early childhood education.

Trust funds - Government funding placed into a special account to pay for specified programs. Some or all of the funding placed into these accounts is invested. The interest earned from the investments is redeposited into the account. Money for a trust fund can come from a variety of sources. In some instances, specific taxes are levied solely to create funding for a trust fund. Funding also can come from a sudden windfall that a government might receive, such as tobacco settlement monies.

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U

User fee - Direct charges for the use of public goods or services, such as admission to a state or national park, or charges at a public hospital.

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W

Working capital fund - The financial resources required to meet immediate obligations in anticipation of earned income. In other words, funds used during the length of time required to convert services (which involve a cash outlay) into cash payments for those services. Human service organizations often require working capital in order to pay staff on a biweekly basis, in anticipation of pubic sector contract reimbursement payments that arrive a month or more after services are delivered and payrolls are met.

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