States Are Taking Action To Address the Child Care Crisis

Families need access to high-quality child care so that parents can work, go to school, or train for a job and so that young children can have the supports they need to thrive. More than 14.4 million, or 67.8 percent, of children in the United States have all available parents in the workforce, but lack of access to affordable care often forces families to make difficult decisions about their work to care for their children. This can include cutting back on work hours, forgoing promotions to more demanding roles, or leaving the workforce entirely. Even prior to the pandemic, approximately half of the population of children under age 5 in the United States lived in a child care desert, and COVID-19 had a devastating impact on the supply of child care nationally.

The federal government delivered an unprecedented $52 billion in COVID-19 relief funding for states to prop up the child care industry during the pandemic. This included both Child Care and Development Fund expansion dollars and stabilization grant dollars, the latter of which grants states flexibility in how they use the funding to address the needs of the child care industry. In particular, it gave states an opportunity to implement innovative policies and programs to assist families and child care providers. According to U.S. Department of Health and Human Services estimates, states have used these funds to provide stabilization grants to 220,000 providers, lower costs for more than 700,000 children, increase compensation for more than 650,000 child care workers, and create 300,000 new child care slots.

Yet the majority of federal funding for COVID-19 relief in the child care industry ended in September 2023, and experts are predicting a wave of tuition increases and possible closures of child care programs without further public investment to prop up the industry. Until Congress passes robust funding increases for child care, states will be left to fill the funding gap to address the burgeoning child care crisis. Fortunately, in an effort to increase the supply of affordable child care for families, several states stepped up their investments in 2023.

This column examines the strategies that states have taken during the 2023 legislative session to make child care affordable for more families, increase compensation for child care providers, and reimburse providers based on enrollment rather than attendance, among other strategies.

Making child care affordable for more families

Child care is unaffordable for far too many families across the United States. The average price of licensed child care is nearly $11,000 a year, which is 33 percent of the median household income for single-parent families. States have significant flexibility under the Child Care and Development Block Grant (CCDBG) to define who is eligible to receive child care assistance and what level of copayment is required. This flexibility provides an opportunity for states to make changes to improve access to high-quality programs for families who rely on child care subsidies.

Some states are not only taking advantage of the flexibility offered under CCDBG but also investing money from their state budgets to increase subsidized child care slots and the number of children served by CCDBG:

• California will not require child care subsidy copayments for families earning less than 75 percent of the state median income (SMI)—up from 40 percent. Copayments will also be capped at 1 percent of monthly income for families earning more than 75 percent of the SMI.
• Maine’s fiscal year 2024–2025 budget increases eligibility for child care subsidies from 85 percent to 125 percent of the SMI.
• Michigan is extending its COVID-19 relief policy, which establishes eligibility for child care subsidies at 200 percent of the federal poverty level (FPL).
• Minnesota will increase funding for its Early Learning Scholarships program by $252 million in FY 2024–2025, with another $58.9 million increase in FY 2026–2027. The state is also expanding scholarship eligibility to children ages 0 to 5 and increasing the number of subsidized child care slots by more than 50 percent.
• Montana is expanding child care subsidy eligibility up to 185 percent of the FPL and will use a sliding scale for family copayments, not to exceed 9 percent of family income.

• New Hampshire is investing $45.5 million to increase child care subsidy eligibility for families earning up to 85 percent of the SMI. The state will also eliminate copayments for families below 100 percent of the FPL and limit copayments to $5 per week for families below 138 percent of the FPL.
• New York is increasing its state general fund investment by $123 million from the previous year—for a total of $446 million in FY 2023–2024—to expand child care subsidy eligibility from 300 percent of the FPL to 85 percent of the SMI. The state will also cap copayments at 1 percent of household income for families whose income is above the FPL.
• North Dakota is investing $66 million in new state funding to provide incentives to increase the supply of care for infants and toddlers. It is also waiving copayments for families making less than 30 percent of the SMI.
• Vermont will invest $125 million annually in child care to, among other things, end copayments for families who are at or below 175 percent of the FPL, expand child care subsidy eligibility up to 575 percent of the FPL by the end of 2024, and address gaps in support for children with special needs.

Increasing compensation for child care providers

The child care industry is facing a national shortage of early care and education providers and teachers. As of November 2023, the child care sector was still more than 30,000 jobs below February 2020 levels. Many child care programs have openings, but the sector is still struggling to hire workers to fill those empty slots due to low wages. A key component of attracting and retaining workers is offering good jobs that include competitive, family-sustaining wages and benefits. However, current child care subsidy rates—the amount that providers receive for each eligible child served by the CCDBG—are prohibitively low, and many child care centers do not accept subsidies because of this.

In 2023, several states raised reimbursement rates and/or are investing in compensation initiatives in an attempt to bolster the child care workforce and address child care shortages:

• Alaska increased its investment in child care by $7.5 million to raise wages for child care workers and stabilize child care provider operations.
• More than 40,000 California child-care providers who receive subsidies for providing care will see a 20 percent average pay increase under a union agreement with the state. The state will invest $600 million to fund the rate increase over two years. The new contract also provides $80 million to create the nation’s first retirement fund for child-care providers as well as $100 million for health care coverage. In addition, the state has agreed to change the way child care subsidy reimbursement rates are calculated, from a market rate survey to a rate structure-based cost modeling of the true cost of care.
• Connecticut instituted a 10 percent increase to its reimbursement rate for child care providers who accept subsidies. Moreover, under an agreement with SEIU/CSEA Local 760, Connecticut will increase payments rates for child care providers by 11 percent each year for the next three years.
• Kentucky invested an additional $50 million in state funds to issue another stabilization payment to regulated child care providers in December 2023.
• Maine will double its investment in wage stipends for child care providers—from $200 to $400, on average.
• Massachusetts will invest $475 million in new state funding for its Commonwealth Cares for Children grants to child care providers to offset their operating costs, including higher educator pay. The state will also increase its investment in the Early Education and Care Staff Pilot Program by $5 million, for a total of $15 million in FY 2024. The pilot supports subsidized care for the children of early educators and is a tool for recruiting new staff.

• Under the Illinois Smart Start initiative, the state is investing $130 million in its child care workforce compensation contracts, which will stabilize providers and give child care workers a raise.
• Minnesota will invest $316 million over two years in a new grant program that will enable child care centers to increase wages by an estimated $400 per month for a full-time employee. Minnesota also increased its child care subsidy reimbursement rate to the 75th percentile of the most recent child care market survey.
• New Hampshire allocated $15 million to support child care workforce recruitment, retention, and scholarships for early childhood professionals. In addition, the state will increase reimbursement rates to the 75th percentile of the most recent market rate survey.
• New Jersey’s 2024 state budget invests $112 million in new state funding to further increase reimbursement rates for child care providers and make permanent the supplemental payments made to child care providers during the COVID-19 pandemic. The payments total $300 for full-time care and $150 for part-time care.
• New York is investing $500 million for its Workforce Retention Grant Program. Funding from the program will support 150,000 child care workers and can be used to provide bonus payments to staff, ranging from $2,300 to $3,000, as well as to recruit new staff and offer sign-on and referral bonuses.
• Vermont will raise its subsidy reimbursement rates for child care providers by 35 percent. It will also expand subsidies up to 575 percent of the FPL and eliminate copayments for families at or below 175 percent of the FPL.

• Washington will pay $256 million for a family child care collective bargaining agreement. It will also invest $218 million to increase reimbursement rates to the 85th percentile for child care centers and family child care homes and $4 million to increase reimbursement rates for non-standard-hour care.
• Wisconsin is directing $170 million in federal emergency funding to continue the Child Care Counts: Stabilization Payment Program at current levels through June 2025. The funding is possible primarily through reimbursements from the Federal Emergency Management Agency.

Reimbursing child care providers based on enrollment, not attendance

Child care subsidies are typically administered as portable vouchers that families can use in the child care market to help cover the cost of programs. In many states, however, programs are typically reimbursed based on child attendance rather than enrollment. Since providers are not able to anticipate which children will be present on any given day, they cannot anticipate how many staff they will need, and this misalignment can lead to staffing costs that exceed the state reimbursement.

To address this issue, several states are establishing policies to reimburse providers accepting CCDBG-funded vouchers based on enrollment, not attendance:

• California’s budget includes a policy to reimburse providers based on enrollment rather than attendance through June 30, 2025.
• Michigan will continue its COVID-19 relief policy to pay providers based on enrollment, not attendance.
• Montana passed legislation that included paying providers based on enrollment.
• Under New Hampshire’s budget, programs will permanently be paid based on enrollment.
• New Jersey’s $112 million investment, among other things, allows the state Department of Human Services to continue its policy of paying child care providers based on enrollment rather than attendance.
• Vermont’s new legislation will also pay providers based on enrollment.

Investing in other strategies

Some states have invested in other strategies to improve quality, increase recruitment and retention of child care providers, and partner with businesses to provide child care to families:

• Alabama passed a $30 million increase in state funding for its Quality STARS: Quality Rating and Improvement System for child care. The additional investments will pay for coaching and incentives to improve the quality of teaching and classroom settings.
• Maine is investing $2.5 million in grant eligibility for child care staff subsidies as a recruiting and retention strategy.
• Minnesota allocated $5 million in state funds to recruit and prepare community members to become early childhood educators through the Grow Your Own program. The state also allocated $3.2 million to establish an early childhood apprenticeship grant program.
• New York’s FY 2024 budget includes $4.8 million for a new Employer-Sponsored Child Care Pilot Program for families who fall between 85 and 100 percent of the SMI. Under this program, participating employers, the state, and employees will split the cost of child care.

Conclusion

With the end of federal COVID-19 relief stabilization funding, the child care industry faces grave challenges to its ability to offer a sufficient supply of affordable care to working families—with another cliff on the horizon in September 2024 as the CCDBG expansions from the pandemic also wane. In the absence of federal funding, state investments can go a long way in providing relief to the sector. Additionally, it is important that states are investing to prepare their systems to accept and effectively implement the future robust federal funding that is needed to transform the sector.