The American Rescue Plan Shored Up Child Care, But a Long-Term Solution Is Necessary

For more than two years, families across the United States have been engaged in a battle. They have been fighting to protect themselves and their children from infection; to balance the demands of their work with the demands of their families; to ensure that their children have uninterrupted access to school, whether in-person or remote; and to find trusted, affordable child care options as more and more providers shutter. Under the weight of the COVID-19 pandemic, some of the most critical—and distressed—sectors of American economic infrastructure have been placed under enormous strain, particularly child care services. Indeed, the pandemic has laid bare how decades of underinvestment have weakened the sector and contributed to deep wealth and workforce inequity among families and child care professionals.¹

The Child Care and Development Block Grant (CCDBG),² through which the federal government subsidizes child care for low-income families, has been historically underfunded³ and, therefore, struggles to keep pace⁴ with increasing costs for caregivers, leaving early educators desperately underpaid and families with few affordable child care options. Moreover, only families with very low incomes are eligible for the CCDBG, meaning that middle-income families earn too much income to qualify, despite the fact that they struggle to afford child care costs. Of those children who are eligible for CCDBG funding, only 1 in 9 under age 6 receive the assistance they need.⁵

Parents can spend anywhere from 11 percent to 35 percent of their annual income on care for a single child⁶ and more than $233,000 to raise a child born in 2015 to age 18.⁷ A recent Child Care Aware of America report found that in the Midwest, the Northeast, and the South, the average cost of child care exceeds the average cost of housing, and in every region across the United States, the average cost of care exceeds the cost of tuition at public four-year universities.⁸ Meanwhile, child care programs often struggle to offset the high cost of providing quality care with the revenue they bring in from parent fees and public subsidies,⁹ forcing them to pay early educators extremely low wages.¹⁰ As a result, as many as one-quarter of early educators take at least one other job just to make ends meet.¹¹

Fortunately, the American Rescue Plan Act (ARPA) provided $39 billion in emergency funding to stabilize the existing child care sector—a historic investment that helped halt the closure of even more child care programs and bolster supply for families desperate for care so that parents could continue working.¹² Yet the ARPA is, by design, intended to meet a limited, short-term need. And the child care sector—as a public good that boosts economic participation and growth, workforce development, and child well-being¹³—needs permanent infrastructural and fiscal intervention to create lasting changes in access and affordability for families.

The rescue funding provided through the ARPA was critical to halting the damage done to a destabilized and vulnerable sector.¹⁴ It provided support in the form of approximately $24 billion in stabilization grants that states could subgrant to qualified child care providers to help them sustain operations as they weathered the ongoing pandemic. It also authorized a temporary expansion of CCDBG funding—to the tune of approximately $15 billion—to help families afford care.

This report examines how states have used ARPA dollars to address the immediate needs of their respective child care systems, paying particular attention to those that have used an equity-based framework in their implementation efforts. Examining how states distributed this critical short-term funding provides insight into how longer-term investments can generate the greatest impact.

Several key themes arose from this review:

1. The emergency expenditures were fundamental to stabilizing the sector.
2. Short-term funding cannot support long-term advancements in access and affordability.
3. The sunset provisions in the ARPA concerning by when funds need to be spent limit the scope of its impact.
4. Equity-focused approaches by states serve as lessons on how to implement long-term investments.

The interactive below illustrates which states have implemented sustained policy changes and which have implemented time-limited policy changes using ARPA and public funds to support their respective child care industries. See the Appendix for definitions of key terms.

Short-term federal support provided by the ARPA gave states the resources they needed to meet the demands of their respective child care sectors, particularly through advancing equity initiatives to support marginalized communities¹⁵—who have often been most affected by the pandemic’s negative impacts on health outcomes,¹⁶ economic security,¹⁷ and child care coverage.¹⁸ State leaders used innovative strategies, including partnerships with local advocacy and referral groups, to accelerate the distribution of funds to child care centers and to extend CCDBG offerings to more eligible families. These ARPA dollars enabled states’ child care sectors to stabilize their budgets, maintain staffing, and increase supply.¹⁹ Such relief was essential as the mounting pressures of the pandemic generated urgency among providers to remain in business, among families to be able to work, and on behalf of children who need enriching early experiences, particularly at a time of unprecedented social and economic upheaval.²⁰ In the immediate sense, the ARPA has been a success.

In fact, recent analyses from The Century Foundation and the Center for American Progress reveal that ARPA dollars helped prevent the permanent closure of more than 74,000 child care facilities, amounting to more than 3.2 million slots for children²¹—more than twice the population of North Dakota, South Dakota, and Vermont combined. Indeed, the historic infusion of federal dollars helped states avert a catastrophic loss of facilities in this sector, stabilizing the workforce for hundreds of thousands of child care workers and families.

Yet ARPA funding has its limitations. While critical to rescuing the child care sector from collapse, it cannot—nor was it intended to—generate the longer-term overhaul necessary to create enduring organizational and social structures to support children and families. Provider eligibility requirements for applying for ARPA stabilization grants²² stipulated that child care programs must either be currently open and operating at the time of their application or have temporarily closed due to some emergency related to the COVID-19 pandemic. At a time when more than half of American families live in child care deserts,²³ expanding fiscal support to only those child care providers currently in operation, or that could soon be in operation with ARPA funding, will provide care predominantly to communities that already have access. The ARPA was not designed to close the gaps in supply that create child care deserts, so a significant child care shortage remains. In fact, despite the fact that the ARPA shored up a significant number of child care programs, more than 16,000 centers and home-based care providers have closed,²⁴ and nearly half a million families are still struggling to find care.²⁵

Still, some states have approached these investments as an opportunity to build new child care infrastructure to compensate for the burden that undersupply places on existing, struggling centers. For example, certain states have shared resources across child care providers and supported mixed-delivery systems in one unified network, while also matching ARPA dollars with supplemental state spending to help build and staff new centers. Other states have required child care providers to raise their workers’ wages in order to qualify for increased stabilization grant funding or have earmarked a significant margin of grant funding for increased wages, benefits, or premium pay for child care workers in an effort to retain them.

Notably, the ARPA’s one-time $15 billion increase to the CCDBG, which must be obligated by 2024, allowed states to target families directly to reduce copayments for child care and provide immediate relief to child care workers.²⁶ Many states, including Georgia, Illinois, Kansas, New Hampshire, and Virginia, increased income eligibility to families or waived their copayments altogether. New Mexico, meanwhile, increased income eligibility to 200 percent of the federal poverty level,²⁷ as did Nebraska²⁸—though the extended eligibility window for these initiatives in these and other states is temporary. In some states, the window is set to close by late next year, when household income requirements will return to their previous eligibility levels.²⁹ However, affordability is only one challenge to families’ access: Unless the child care sector receives an infusion of stable, long-term funding to support the growth of the industry and the reduction of child care deserts, families will continue to struggle to find care for their children.

Importantly, funding stipulations have sunset provisions for their duration, limiting the scope of what state granting officers can extend to individual providers and, therefore, the coverage that providers can offer to families. ARPA stabilization grants and extensions to the CCDBG were, by design, short term and allowed for flexibility within states, tribes, and territories to distribute funds at their discretion.³⁰ As a result, local child care administrators have been forced to be judicious about how they use these funds since they will wane over the course of the next two years and must be obligated at intervals during that time.

The Administration for Children and Families (ACF), which distributed and provided guidance on the use of ARPA relief funds, required states to obligate their respective ARPA emergency relief funds to qualified providers by the end of 2021. If states were unable to obligate at least half of their available funds in that time, the ACF reclaimed and reallocated them. As of now, states must liquidate their CCDBG funds by September 2024. The support offered by stabilization grants operates on an even stricter timeline: They must be liquidated by September 2023.³¹

The initial obligation requirement was complicated by the fact that at least 10 states could not obligate the relief funds without the approval of their state legislatures.³² It has taken the better part of the past year³³ for many states to start their application processes, let alone distribute the federal funding they have received to providers and families. This massive influx of funding was critical, and implementation plans were intentionally hastened to provide immediate support to providers and families in desperate need amid the pandemic and its devastating impact on the child care sector. However, many states lacked the capacity and infrastructure to distribute those funds efficiently—a significant barrier to ensuring that they were received at scale.

Sunset provisions built into the grants and funding extensions have also limited the scope of impact that providers can have on workers’ salaries, as states know that funding is temporary and that they won’t have continuing funds to commit to longer-term policy initiatives that extend beyond the scope of the ARPA timeline. Some states, including Connecticut³⁴ and Nevada,³⁵ are using stabilization funds to provide sustained increases in compensation to their workers. Yet most others—such as Alabama,³⁶ Delaware,³⁷ Georgia,³⁸ Illinois,³⁹ Maine,⁴⁰ Michigan,⁴¹ New Jersey,⁴² and Tennessee⁴³—instead offered one-time bonuses, incentive pay, grants for professional development or scholarships, or funds for paid leave time. While both strategies have positive impacts on the child care sector—and indeed, ARPA dollars were not designed to meet long-term needs—it is the sustained changes to worker compensation or the building of new facilities that can help build the supply necessary to bring the long-term change that the sector desperately needs.

Parents’ struggles to afford child care also affect the longevity of the policy decisions that states make when it comes to compensating their child care workforces. Parent tuition makes up the largest source of funding for child care and early education—and is not sufficient to pay higher wages.⁴⁴ Without an infusion of state or federal funding, child care providers and the families who rely on them will continue to be jointly at odds with the demanding cost of care.

Yet affordability is not the only consideration. Even when parents receive financial support to cover child care services, if there is limited availability—if centers or home-based providers near them have closed because of declining worker counts and enrollment—families will still struggle to find care. Recent data released by Child Care Aware of America reveal a staggering loss in supply: From December 2019 to March 2021, more than 8,800 child care centers and almost 7,000 licensed family child care (FCC) programs shuttered, and child care costs soared 5 percentage points above overall inflation.⁴⁵

For families, this loss is devastating, driving up demand for an increasingly depleted supply and contributing to the creation of more child care deserts.⁴⁶ This is especially true for families with low incomes, who more often rely on family friend and neighbor (FFN) care and FCC programs because they tend to be less expensive or may be run by people they know and trust—and who, along with Hispanic and Latino families, already disproportionately live in child care deserts.⁴⁷  Without the stable infusion of federal funds that allow child care providers to adequately compensate child care professionals, more centers will continue to close once they run out of available short-term funding.

Implementation of federal funding varies widely across states, but key states that have prioritized equity in their implementation strategies can serve as models for future sustained federal investment. Historically, families with high incomes have experienced fewer issues finding high-quality, affordable child care services when and where they need them.⁴⁸ Such families can typically afford more comprehensive child care services or may hold jobs that are more conducive to the hours and offerings of most providers. Federal guidance for the administration of ARPA funding includes recommendations for supporting providers that contribute to the supply of nonstandard-hour care, that extend their offerings to infants and toddlers and children with disabilities, and that provide services in historically underserved communities.⁴⁹ Moreover, states should consider partnerships with culturally relevant organizations that can serve as trusted messengers to local child care leaders and provide support to providers who may need help navigating the complex application process to access the grant funding for which they are eligible.

It is vital to focus additional attention on state models that have centered equity-based approaches in their stabilization grant programs and have been successful in getting federal dollars to the providers and communities who need them most. Doing so would provide unique insight into how longer-term investment initiatives can generate the greatest returns for historically low-income communities. These communities have suffered from decades of disinvestment and have also borne the largest brunt of the pandemic’s impacts on the fractured child care sector.⁵⁰ To alleviate these burdens, some states are employing a variety of equity-focused implementation strategies, from ensuring that child care providers are engaged at the policy decision-making table to creating equity-adjusted grant formulas that award higher stabilization subgrant payments to child care programs in communities with higher concentrations of low-income families.⁵¹

More work lies ahead. In order to create a wider array of child care options for working families, policymakers must develop a comprehensive child care sector through robust federal investment that allows for mixed delivery—center-based care, as well as home-based family child care programs and faith-based care—all while compensating child care workers fairly and reevaluating quality rating standards.⁵² As it stands, communities across the country rely on inconsistent funding streams from different sources, sometimes supplemented by state or local dollars, sometimes not. This approach creates inefficiencies that make it difficult for policymakers and child care advocates to monitor, report out, and react to the needs of the broader child care system.⁵³ Furthermore, inconsistent funding streams perpetuate inequities, as communities with lower tax revenues often have inequitable access to resources because they lack the funding necessary to build child care supply. Invariably, communities and child care providers with the least infrastructural and financial support—particularly FCC programs that often serve communities with low incomes—suffer the consequences of these realities.

Rapid relief spending, such as that provided in the ARPA, has served as public investment in a critical sector. However, time-limited spending that fails to address the fundamental issue of low wages that has plagued the child care sector for generations—either through barriers to paying wages or by virtue of the number of child care workers who have left the industry—also exacerbates existing inequities within the workforce.⁵⁴

The child care sector is in crisis. Long before the pandemic, from 2000 to 2012, the industry saw a 24 percent increase in cost relative to median household income.⁵⁵ Meanwhile, even before the pandemic, more than two-thirds of mothers who served as primary breadwinners for their households saw dramatic drops in employment specifically due to child care issues;⁵⁶ their workforce participation has yet to recover.⁵⁷ In fact, a recent National Women’s Law Center report notes that it would take 10 months of the job growth experienced in January for women to recover to pre-pandemic levels of workforce participation.⁵⁸ It has not been any easier for child care providers, two-fifths of whom report taking on personal debt or dipping into their own savings.⁵⁹ In fact, nearly 60 percent of providers reduced expenses through worker layoffs during the first year of the pandemic, ultimately contributing to the challenge providing adequate coverage to families in need of care.⁶⁰ In a more recent survey of child care providers, 60 percent reported receiving ARPA relief funds, and of those, 92 percent reported that they would have permanently closed without that support.⁶¹

Families have fought on for two years, with no end in sight. The American Rescue Plan was a landmark achievement in providing immediate support—particularly for those in the child care sector—to help the nation endure the challenges of an ongoing pandemic. COVID-19 has closed centers,⁶² put more than 100,000 child care professionals—many of whom are women of color⁶³—out of work, and placed enormous pressure on parents during a time of extreme insecurity.⁶⁴ ARPA funding saved many centers from permanent closure, helping hundreds of thousands of families across the country in the process. However, short-term legislation will only generate short-term solutions, and temporary bridges cannot yield long-term changes to infrastructure.

Successful, sustained support for the child care industry in the form of long-term federal investment can help stabilize the sector and grow child care supply.⁶⁵ Building capacity, adequately compensating child care workers, and expanding access to more families will involve coordinating efforts across multiple participating entities—parents, staff and educators, state leaders, and other early childhood advocates—to distribute critical funding. In addition, industry relief through stable, comprehensive investments must inform subsequent public policies and investments that aim to address the underlying deficiencies that have made the child care sector particularly vulnerable to collapse and reactive to the exacerbation of inequity among families and child care workers during the pandemic.⁶⁶ Now is the time for congressional leaders to approve long-term spending that can better support children, parents, and child care professionals.

“Sustained policy changes” refer to spending initiatives that will extend beyond the lifespan of ARPA funding dollars, such as wage increases, the construction of new child care centers, and the development of unified networks that enable families’ access to services.

“Time-limited policy changes” refer to initiatives tied specifically to the funding or the duration of the act, such as bonuses, premium pay, temporary increases to benefits or retirement contributions, and temporary increases to family income eligibility. While spending initiatives such as temporarily increased contributions to health benefits or retirement for child care workers may have longitudinal benefits for employees, the authors categorize them as time-limited spending initiatives due to the finite nature of the supportive funding.

The interactive lists the term “ARPA funds” when policies were funded by both supplemental Child Care and Development Fund (CCDF) funds that were authorized by CCDBG and ARPA stabilization funds. If initiatives only pertained to one or the other source of funding, that source has been listed (for example, “Stabilization grant through the ARPA”).

“Premium pay” refers to increases in child care workers’ base pay rate for the duration of the stabilization subgrant to the provider or until funds have been exhausted.

“Social Vulnerability Index” (SVI) refers to a composite assessment of the negative effects that structural or external stresses on human health may have on communities.

“CCDF families” refer to subsidy-eligible families with low incomes; states set eligibility criteria as well as subsidy rates—that is, the value of the certificates families receive. Subsidies determined based on the market rate often result in reduced offerings to CCDF families because the market rate is calculated based on what families can afford to pay, not necessarily the cost of child care.