Annapolis leaders hope a newly approved tax credit will expand access to child care at a time when some providers are struggling to stay in business.

The City Council on Monday night unanimously passed a $4,000 tax credit to benefit child care providers. It will take effect in fiscal year 2028.

The hope is that the tax credit will provide enough relief for operators to hire another care provider or stay open.

The high cost of child care is “crushing working parents in Annapolis,” said Alderman Brooks Schandelmeier, a bill sponsor.

“This is one of the tools we have in a toolbox to help address high child care costs,” he said in an interview.

The tax credit will be available for in-home day cares and larger day care centers. If a day care operator is running their business out of a rented property, their landlord would also be eligible for the credit.

During a council work session in early April, Diego Medina said he was preparing to open a day care center at the Calvary United Methodist Church on Rowe Boulevard.

Because the center would be in a religious center, it would not be eligible for the credit. But speaking generally, Medina said, that sort of tax credit “would definitely help.”

Medina said he has other child care centers in the area, but not in Annapolis. A similar credit for those centers would help him make improvements or repairs, he said.

Schandelmeier said during Monday’s meeting that the tax credit must be applied for annually, so a landlord could not, hypothetically, apply for the credit and then “cut and run” with the money in subsequent years.

A fiscal impact report identified 48 eligible child care centers in Annapolis. The report found a total of 85 centers, but 37 of them are religious or nonprofit, and therefore not eligible for the tax credit.

The legislation was initially proposed as a $10,000 credit, but that number was reduced for two reasons.

One, Schandelmeier said, was cost. A staff report found that the city could lose more than $800,000 annually in tax revenue if every eligible business took the full $10,000 credit.

City staff also determined that a $10,000 credit was much higher than necessary, Schandelmeier said. They investigated and found that most businesses that would be eligible for the credit had a tax burden of $2,500 to $3,500 in city property taxes.

“So scaling it down to $4,000 gives a lot of people full coverage, and we’re still getting something passed,” he said.

The fiscal note estimates Annapolis could see a maximum tax liability of $192,000 annually if all the eligible centers applied for and received the credit.