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Federal aid propping up child care isn't a long-term fix

Federal COVID-19 relief dollars for child care providers will continue to flow through the states this year, cheered by both Republican and Democratic governors who say parents need affordable child care to get back to work. 

But child care providers and advocates warn that the federal money, which expires in 2024, won’t solve the industry’s fundamental, long-term challenge: how to provide quality services and pay workers a competitive wage while keeping prices affordable.

Federal and state aid must continue, said Karen DeVos, owner of a child care business in rural Ada, Minnesota. “We can’t just say, ‘We’re nearing the end of the pandemic,’ or, ‘OK, the pandemic is now the norm: Figure it out.’”

While some states have started to spend the $39 billion for child care authorized by the American Rescue Plan Act, others haven’t. Some governors and state lawmakers are starting to announce their plans now, from setting aside grants for startup child care businesses to offering larger grants to businesses that can use the money to give workers a bonus.

States have until 2023 to spend $24 billion in child care business grants and until 2024 to spend $15 billion in child care subsidy dollars. A wide range of providers can apply for the business grants, and spend them on rent, wages, equipment and other operating expenses.

The subsidy money builds on a longstanding state and federal partnership to help low-income families afford care at licensed facilities. The federal government is encouraging states to use the money to increase subsidies for families, payments to providers, salaries for early educators or funding for training early educators.

The relief dollars come as state policymakers of both parties are increasingly talking about the important role child care plays in the economy. Idaho Republican Gov. Brad Little, for instance, said in an October speech that about 9% fewer adults in the state are working or looking for jobs now than in 1998. 

“If we want to get the participation rate up, [day care] is something we're going to have to address,” he said.

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Some conservative lawmakers remain wary, however. Idaho’s Republican-controlled legislature last spring rejected some federal funds for early childhood education. Lawmakers said they feared the money would require educators to teach social justice concepts and encourage mothers to work outside the home. 

“My concern with any federal money is the strings that are attached to it,” Idaho Republican state Rep. Charlie Shepherd said in a recent phone interview. “If they try to implement their curriculum, or if they throw in any, ‘we must teach this’ or ‘we must teach that’—for me, that’s automatically a no-go.”

Meanwhile, advocates for child care providers and some Democrats say states and the federal government need to do much more to bolster the industry, such as by expanding subsidies for low-income families or increasing access to publicly funded preschool.

Ultimately, they say, the federal government needs to step in. “States cannot do it alone. This problem is so massive that federal intervention is needed,” said Clare Sanford, government relations chair of the Minnesota Child Care Association, an advocacy group for child care centers based in St. Louis Park, Minnesota. 

Democrats in Congress have included new child care subsidies for low- and middle-income families in their sprawling social spending bill, the Build Back Better Act. States would administer the funds and eventually contribute 10% of the child care assistance costs.

That legislation is currently stalled, however. Republicans and moderate Democrats oppose its price tag and many of its provisions. Republicans say the child care portion of the bill would increase child care costs and hurt faith-based providers. 

With future funding uncertain, child care providers worry about what will happen when federal relief dollars dry up. DeVos is currently using a federal grant provided monthly by Minnesota’s human services agency to pay her employees $300-$700 monthly bonuses. 

She can’t afford the bonuses without the grants, she said. “My fear is, when those end, what happens?”

A massive infusion of federal aid

Before the pandemic, parents already were struggling to find child care and afford licensed programs that can cost as much a year as in-state college tuition. Meanwhile, child care workers typically were earning less than $12 an hour, according to the Center for the Study of Child Care Employment at the University of California, Berkeley. 

Then COVID-19 threatened to shut down whole swaths of the industry. Public health orders forced businesses to temporarily close. Parents kept their kids home to keep them safe from the virus. The federal Centers for Disease Control and Prevention recommended social distancing procedures and cleaning protocols that reduced child care businesses’ revenue while increasing costs. 

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Yet while some businesses have closed for good, federal aid has kept the industry afloat, policy experts say.

First, the March 2020 CARES Act set aside over $4 billion for child care programs and Head Start, a federal early childhood program for low-income families. Then a December 2020 budget bill allocated over $10 billion for the same purpose. And finally, the March 2021 American Rescue Plan Act authorized $39 billion for child care programs. 

That doesn’t include federal small-business loans and state grants—largely funded by federal aid—that some child care centers also have received. DeVos also received a federal Paycheck Protection Program loan, for instance.

“We have just very narrowly staved off widespread closures, as a result of federal relief dollars,” said Dan Wuori, senior director of early learning at the Hunt Institute, an affiliate of the Duke University Sanford School of Public Policy. “If the CARES Act had happened any later than it did, I think some of the more dire predictions would have come true.”

Minnesota advocate Sanford said that in her state, about as many child care providers closed in 2020 as in prior years. She attributes the sector's stability to government aid, starting with emergency grants Minnesota funded soon after the pandemic began. (The state later used federal aid to cover the $30 million cost.)

DeVos is moving ahead with her pre-pandemic plan to expand to a second location, which will more than double the number of children her business serves.  

The child care industry isn’t yet back to normal. About 11% fewer people are working in child day care services now than in February 2020, according to the federal Bureau of Labor Statistics.  

Providers and advocates say recruiting and retaining workers is now their biggest challenge. They say businesses are struggling to compete with fast-food chains and big-box stores that are offering upwards of $15 an hour. 

“Our child care programs—they simply cannot hire,” said Beth Oppenheimer, executive director of the Idaho Association for the Education of Young Children, an advocacy group based in Boise. “The wait lists are long, and that doesn’t mean there’s no space. It means they can’t hire a teacher to be in a classroom that’s sitting there empty.”

Surging COVID-19 cases and quarantine rules make staffing even more difficult. DeVos said she’s hired three more people, increasing her total staff by a third, to make sure she has backup if an employee tests positive. “We need to have somebody there to fill in that spot,” she said. 

States finalize spending plans

Governors of both parties have in recent months proposed new spending on child care programs.

New York Gov. Kathy Hochul, a Democrat, said she wants to allow families who earn up to 225% of the federal poverty line to access child care subsidies—up from the state’s current 200% limit—and she wants to spend $75 million to boost child care worker wages. Colorado Democratic Gov. Jared Polis wants to spend $30 million to renovate state buildings, including higher education institutions, to add child care facilities. The facilities would be open to the public and run by private providers.

South Dakota Gov. Kristi Noem, a Republican, blasted the federal Build Back Better bill in her annual budget address but touted her plans to distribute her state’s $100 million allocation of American Rescue Plan Act aid. The money will be spent to help new and existing child care businesses, help employers open facilities for employees, and fund scholarships for child care workers, she said.

Many of the recent proposals will likely be funded by American Rescue Plan Act funds—even if governors aren’t making that explicit, said Anne Hedgepeth, deputy chief of policy for Child Care Aware of America, a nonprofit that works with child care resource and referral agencies and advocates for child care policies. 

“You see relief [funds] driving it,” she said.

Some states have started distributing the federal child care funds, but others still are working on their plans for the money. 

That’s partly due to timing, Hedgepeth said. In some states, legislatures need to approve the spending and didn’t have time to do so last session.

State plans reveal a range of strategies for spending the business and child care subsidy funds. North Carolina and Connecticut are giving larger business grants to programs that use the money to increase worker base pay or benefits, for instance. 

Arkansas will use the subsidy funds to help essential workers pay for child care and to pay for scholarships for early childhood teachers. Georgia is expanding child care subsidies to families who earn up to 85% of the state’s median income, up from the state’s typical 50% threshold.

Some states are considering additional policy changes. Republican lawmakers and governors say lifting regulations could alleviate child care shortages by helping businesses grow.

A Utah legislative committee recently advanced a series of child care proposals that could allow non-licensed, home-based centers to serve more children and would prevent cities from exceeding state child care regulations.

The package also would include startup funds for child care businesses that partner with employers, funded with federal child care aid, and would allow child care businesses to take advantage of certain state economic development incentives. 

“All these things, we’re hoping, will help to increase capacity,” said Utah state Rep. Susan Pulsipher, a Republican and the bill’s sponsor. 

The South Dakota Department of Social Services will be reviewing child care licensing requirements, said Cabinet Secretary Laurie Gill. “I think our governor is interested in taking a look at the licensing requirements and making sure that they’re relevant today, and that we don’t have unnecessary red tape or hurdles.”  

Democrats and child care advocates are instead calling for larger child care subsidies that could help parents afford care and businesses offer higher wages. They’re skeptical that cutting regulations and other interventions popular with conservatives will solve the industry’s structural problems. 

“The small-government interventions—I would love to hear some that would actually have a positive impact, because we could actually get them done, maybe in Utah,” said Anna Thomas, a senior policy analyst at Voices for Utah Children, a Salt Lake City-based nonprofit that advocates for children.

“But there just haven’t been any viable solutions to this systemic problem that don’t require substantial government investment,” she said. 

Given the record-breaking surpluses many states expect this year, some Democrats say now’s the time for big spending increases. Minnesota Gov. Tim Walz said at a virtual panel last month that “this is the moment” to help families, according to the Star Tribune.  

Walz won’t reveal his budget until the end of January, however. Walz’s press team declined to comment further on the governor’s plans.

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Stateline is a nonpartisan, nonprofit news service of the Pew Charitable Trusts that provides daily reporting and analysis on trends in state policy.

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Government aid has helped many child care facilities remain open during the pandemic.