Introduction and summary
With the Inflation Reduction Act of 2022 recently signed into law, American families will see many of their expenses, such as energy and health care costs, significantly reduced.1 The law will help families cut down on important costs, such as prescription drugs and energy bills; set a path to 40 percent lower carbon pollution by 2030;2 and reduce the federal deficit by $300 billion.3 However, child care costs—one of the most significant financial burdens for families across the country—remain unaddressed.
Emergency COVID-19 pandemic relief funds through the American Rescue Plan of 2021 have provided temporary relief and stabilization, but these resources are set to expire soon: Provider stabilization grants will expire in 2023, and expanded Child Care and Development Block Grant (CCDBG) funding will expire in 2024.4 Their expiration means that more providers will permanently close, driving down supply and leaving parents without accessible or affordable care, which will force many to leave paid work, reduce their hours, or make other difficult financial decisions for their families. Without federal intervention, the United States could lose at least half of its licensed supply,5 creating more child care deserts where there are too few child care slots to meet demand.6
A federal investment in child care must come soon. Senate Majority Leader Chuck Schumer (D-NY) made a pledge to address this crisis from the floor as the Inflation Reduction Act was passed in the Senate, and there is bipartisan support for expanding the CCDBG—an existing federal subsidy program designed to reduce cost burdens associated with child care that was reauthorized in 2014 and received a funding boost in 2018.7 More than 900,000 families and thousands of providers rely on the CCDBG to offset their significant costs and provide quality care.8 The program is the largest source of federal child care funding, making it a prime choice for additional investment.
Regardless of whether Congress follows through with a sizable increase in resources for the CCDBG, states can still choose to use their CCDBG funds to stabilize providers’ finances and build a more robust child care sector. States can:
- Expand the availability of grants and contracts and streamline applications to make them more accessible for new and existing child care providers, particularly those in low-income or marginalized communities.
- Collaborate with local partners who can ensure that providers know they are eligible for the CCDBG and have the tools to access federal funds to support and expand their services.
- Increase and stabilize provider reimbursements to ensure that funding streams are reliable and that providers can pay livable wages to their child care workers.
- Ensure that state plans for using federal dollars have clear language regarding supply-building activities and include actionable ideas to support the child care workforce.
This report considers each of these options in turn, contextualizing them within both the child care landscape before the COVID-19 pandemic and the sector since the public health crisis has worsened conditions.
The current child care landscape
Even before the COVID-19 pandemic, the U.S. child care sector was in dire straits. Child care workers are notoriously underpaid, and affordability and access have long been a challenge for families across the country. The American Rescue Plan’s (ARP) expansion of federal CCDBG funding to states has been a lifeline to providers otherwise unable to keep their doors open during the pandemic. At least 28 states have used some portion of their rescue dollars to support child care workers’ wages, which has helped retain child care workers at a time when worker shortages are prevalent and continue to lag behind recovery in other sectors.9 At least 10 states reported using some portion of their funds specifically to build new facilities or to help newly licensed providers offset start-up costs. Arkansas, for example, invested $25 million in supply-building efforts to create new child care centers across the state. Iowa invested $37 million of its rescue dollars in the expansion of existing facilities and new construction. New York, Utah, and Rhode Island offered grants to new providers to support start-up and licensing costs, and Texas did so specifically for providers seeking to operate in child care deserts.10
Many families and providers who will lose support when the ARP funding expires face a probable future where programs cut back on staff or increase tuition to cover operating expenses, thereby reducing the number of children who can access care—particularly for infant and toddler care, which can run at almost twice the cost of care for older children.11 In a worst-case scenario, rampant closures may leave families without options and thousands of care providers and early educators out of work.
How states are supplementing American Rescue Plan funding
To combat this grave outlook, many states are supplementing their ARP funds by allocating their limited state funds to protect their child care sectors. Massachusetts Gov. Charlie Baker (R), facing the closure of nearly 15 percent of the state’s programs, is spearheading a proposal to increase state spending on Commonwealth Care for Children grants through 2023.12 In 2022, the District of Columbia set aside $53 million in the first year of a new tax initiative specifically for child care workers’ wages, sending between $10,000 and $14,000 bonuses—depending on the position—to thousands of Washington child care workers in recognition of the skilled and difficult work that they do.13 Tennessee is moving to waive copays for families participating in its child care assistance program through the end of the year, ensuring that providers receive the full established state reimbursement rate.14 And Pennsylvania is increasing its state budget allotment for child care by $25 million, allowing families who earn up to 300 percent of the federal poverty level (FPL) to receive subsidy payments—reaching more than 160,000 more children under the age of 5.15 Some states have even adopted permanent changes to their policies; Illinois,16 for example, has reduced family copays to just $1 for low-income families at or below 100 percent of the FPL as of June 2021 and for child care workers who, as of summer 2022, are receiving child care subsidy payments for their own children.17 As of July 1, Illinois Gov. J.B. Pritzker (D) announced that providers enrolled in the state’s Child Care Assistance Program will receive an 8 percent base salary increase in addition to a 3 percent cost-of-living adjustment to their subsidy reimbursements.18
When ARP funding expires, the nation’s child care sector will face the devastating reality that having fewer child care workers—either laid off or driven away by poverty-level wages and/or facilities closures—represents a severe depletion of the country’s supply. The child care workforce dropped by 11 percent from 2012 to 2019 and has not fully recovered.19 The workforce lost an additional 12 percent from 2019 to 2020 alone, largely due to the inability of child care providers to offer competitive wages to their workers.20 The average salary for an infant or toddler classroom teacher, for example, is less than $11 dollars per hour.21 From 2012 to 2019, wages across the sector declined, and the wage gap between Black early educators and white early educators has widened significantly.22 According to the updated employment numbers released in August 2022, an additional 8,800 child care jobs were added in July, but this recovery fails to match overall jobs growth and is still 8.4 percent behind employment numbers from February 2020. Since then, more than 88,000 child care jobs have been lost.23
Families and providers who rely on Child Care and Development Block Grants
In more than half the country, there are too few child care slots to meet demand, which may be exacerbated by this loss of staff.24 During the first 18 months of the pandemic, for example, Texas saw an additional 242 communities become child care deserts when it lost approximately 21 percent of its child care providers to permanent closures; 41 percent of these providers served infants and toddlers, and 79 percent operated as family child care centers (FCCs).25 However, these data show that of a large sample of providers who received federal stabilization grants through the ARP, more than 98 percent were able to remain open. This suggests that the ARP had significant positive impacts. Without bold child care reform from Congress, states will need to consider creative uses for the existing CCDBG program and supplemental state funding—which many have already earmarked for their child care sectors26—to build their child care supply and prevent the creation of additional deserts.
Until more substantive federal funding can be secured, states can take the steps outlined below to leverage the CCDBG program to support their child care sectors’ supply-building activities in an effort to ensure that families have adequate child care options.
A caveat about prioritizing funding initiatives
Increasing workers’ wages, lowering costs for parents, and increasing the number of child care slots are often at odds with one another when there is a limited pool of funds available. The author does not advocate favoring one of the three at the expense of the others, but the following sections make several key recommendations for supply-building activities specifically, assuming some infusion of federal dollars at least in the existing CCDBG program but recognizing that none of these initiatives are sustainable unless Congress passes substantial federal investments or states invest new resources in their child care sectors. While proposed fiscal year 2023 budget appropriations include some increases to the CCDBG,27 these increases do not match the pace of inflationary pressures driving up the cost of operations.28 Without additional resources, there will continue to be trade-offs among workers’ wages, the number of child care slots available, and the quality of care.
Expand grant applications for new and existing providers
Application materials should become more streamlined, straightforward, and accessible so that new providers can access federal funding through start-up grants. The grant applications to access federal support dollars are often lengthy and convoluted and vary from state to state, sometimes with additional requirements beyond the minimum federal guidance.29 For many new providers seeking to establish centers or family child care programs, accessing this support is essential to offset the financial burden of start-up and licensing costs, regardless of whether the provider receives CCDBG reimbursements. In child care deserts, streamlining the process for new providers to open their doors and establish their businesses is critical to ensuring that families can access care. Applications materials therefore must be widely available, both in print and online and in a variety of languages.
Making more grants and contracts available and accessible to a wide range of providers would enable programs in low-income, marginalized communities to access federal funding. The cost of child care for infants and toddlers can exceed the cost of housing in many parts of the country.30 To keep the ratio of caregiver to infant or toddler at a safe level for providing care, classrooms with young children must staff more educators. Increasing the number of workers, however, significantly drives up costs for providers, who can spend more than 70 percent of their operating costs on educators’ salaries.31 Making sure that a wide range of providers—including centers, family child care, and faith-based care—who serve young children and/or operate in areas with higher proportions of child care deserts have access to clear procedures to apply for federal funding is critical to ensuring that these communities receive services.
Collaborate with intermediaries
Providers must be aware of their eligibility for federal support, and materials should be as accessible as possible to providers from many different communities. Before applying for funding, providers must know that support is available and that they are eligible for it. This will allow them to remain in operation and build the supply of additional child care slots.
States should enable local resource and referral agencies to serve as intermediaries between themselves and providers in their respective sectors. Child care resource and referral agencies, such as local offices of Child Care Aware of America,32 are important community-based intermediaries that can increase awareness about available financial support, particularly among FCC providers who may not know of their eligibility or may have difficulty accessing application materials; ensure that information is translated into the appropriate languages;33 and help providers register and connect with these resources.34 States should partner more comprehensively with these intermediaries to ensure that providers know of their eligibility and that the application process is accessible.
Increase and stabilize provider reimbursements
Policymakers should adapt the reimbursement calculus and increase payments to providers to account for the true cost of care. An additional barrier to building supply is the slim return that providers receive through reimbursements for tuition covered through subsidies. This low return in profit reduces their willingness to offer services to subsidy-eligible children, since reimbursement often limits the amount in tuition that providers can request from families who do not receive subsidies. This is particularly problematic because the reimbursement rates are often derived from market-based estimates rather than the true cost of care, and they almost never amount to the total expenses necessary to operate a center. Using cost estimation models is one key way to guarantee that reimbursement rates can account for the actual cost of paying workers and affording necessary supplies, facility fees, insurance, and the various other expenditures of running a child care facility.35
Furthermore, providers should be reimbursed based on enrollment, rather than attendance, to help them keep payments stable and guarantee income to afford their staff. Oregon is increasing state reimbursement rates to providers to ensure that families have equal access to child care at a variety of provider types, including center-based care; licensed home-based care; and family, friend, and neighbor care.36 Many other states, however, make reimbursements contingent on attendance; when a child is absent, the provider does not receive their corresponding payment. Delinking reimbursements from attendance and basing them on enrollment instead, as Maine has done, helps make sure that providers have a more stable income, reinforcing their ability to provide care.37 It also creates more reliable funding streams. Both increasing and stabilizing reimbursements are central to supporting providers in paying their workers a living wage, thereby strengthening their workforce and ensuring that they have the staff to remain in operation. Analyses by Child Care Aware of America of policies enacted statewide in Massachusetts and in two counties in southern California found that 82 percent and 95 percent, respectively, of subsidized providers were able to stay in business during the early months of the pandemic when, upon reopening, their reimbursement rates were based on their pre-closure enrollment numbers rather than subsequent attendance rates.38 In California, FCC providers saw a particular benefit, with a nearly 99 percent retention rate.
States’ American Rescue Plan spending as a roadmap
When provider stabilization grants and expanded CCDBG funds expire in the coming years, states will be left to draw on their own budgets to replace these funds or leave families and the child care sector behind. With available relief funding, many states made significant strides toward equitably supporting families and providers. California waived family copays while prioritizing the distribution of funds to providers in communities with the most need,39 and Rhode Island dedicated $27 million of its CCDBG allotment to increasing provider reimbursements and capped copayments for families at 7 percent.40 New Mexico engaged providers in conference calls and conducted regular meetings with community-based intermediary organizations to ensure that home-based providers, such as family child care providers or those whose primary language is not English, could access necessary financial support.41 Connecticut recently allocated $25 million in state funding to increase infant and toddler reimbursement rates to providers—creating 1,300 new slots—and established a new state-level stabilization program that can be used to supplement child care worker wages.42 These strides are not a long-term solution, but they demonstrate that states can use federal dollars effectively to support their child care sectors, improve affordability for families, and boost the child care workforce. Using lessons learned from relief funds made available during the pandemic, with additional resources dedicated specifically to supply-building efforts, states could meaningfully increase the number of families who could receive these critical services.
Specify policy language about supply building
Since 2016, states and territories have been required to disclose three-year plans detailing how they plan to use CCDBG funds to support their respective child care sectors. When states submit their plans to the Administration for Children and Families, which oversees the administration of CCDBG funds, they should include specific language regarding how they plan to use a portion of their funds for supply-building activities and the mechanisms by which they will measure growth, workforce development, and enrollment among children who receive care.43 States should also be required to pay particular attention to marginalized populations, communities with higher proportions of child care deserts, and plans to build supply in areas with few infant and toddler care providers or those with nontraditional hour options. These efforts will help to ensure that states are supporting the expansion of a mixed-delivery network that provides for multiple child care arrangements, including centers; FCCs; family, friend, and neighbor care; and faith-based care.
In addition, states should adapt quality rating systems to celebrate the strengths of home-based care and support more providers outside of centers in becoming CCDBG providers, specifically those providing care for children in underserved areas, infants and toddlers, children with disabilities, and children in care with nontraditional hours. States are also encouraged to develop new plans for measuring program quality that reflect the strengths of FCC settings, which historically perform more poorly on standard quality rating and improvement systems than center-based care.44 To enable more programs to meet CCDBG licensing requirements, states must adopt more equitable methods for measuring quality. This will enable FCC providers to transcend quality rating scales and bring their nuanced and durable connections to children and families. Quality rating systems should be reformed to capture the strengths of FCC providers and demonstrate that they can be on par with the more traditionally measured outcomes of center-based care.45 This can bolster the broader system of care arrangements and offerings.
For decades, the child care sector has faced both downward pressures from what parents can afford to pay and upward pressures from the rising costs to provide care. Most providers have managed to scrape together services, but they are left with less than a 1 percent profit margin, on average.46 During the early months of the pandemic, many went into debt in order to keep their doors open.47 But as the pandemic continues to take its toll on the sector, more employees—who are historically undervalued for the deeply challenging and personal work that they do48—will leave to find more stable and substantive income, and more families will struggle to make ends meet in the face of the continuing economic crisis.49
Americans across the country agree that the United States needs to take action on child care: By nearly a 6-1 margin, voters believe that the federal government spends too little on health, safety, and children’s well-being.50 Without a robust infusion of new resources in child care, however, there will continue to be trade-offs among workers’ wages, the number of slots available, and the quality of care that parents can hope to secure for their children. Furthermore, when federal relief dollars expire in 2024, the child care sector will no longer have any structural support to prevent additional closures, increasing the number of child care deserts across the country and leaving families and communities desperate for solutions.
Congress still has an opportunity to pass legislation that includes meaningful funding for child care.51 Yet absent such a robust overhaul to the sector, existing programs such as the CCDBG, supplemented with additional resources, can be leveraged as a buffer, perhaps allowing policymakers and advocates to continue to fight to secure real investments for children and families.
The author would like to thank Stephanie Schmidt, Diane Girouard, Maureen Coffey, Julie Kashen, Mara Rudman, and Allie Schneider for their invaluable support and guidance in the development of this report.