Our country is in a child care crisis, exacerbated by the pandemic, which has shown how difficult it is for families to access quality, affordable care and for providers to make ends meet. Absent a robust federal investment and universal child care program, the Better Life Lab team at New America set out to better understand what innovations existed in the child care and early education space. Although no single innovation is enough to solve the national crisis, these innovations aim to improve existing parts of the child care delivery system. This five-part series is designed to share our findings as to what innovations could work in improving child care access, quality and affordability to create an equitable system that works for us all.
Zonia Sanchez works a long day. She begins at 6 a.m. and remains on the clock until 5 p.m., taking care of her four grandchildren, aged 2 months, 3, 5 and 11 years old. She logs her hours into a notebook, and submits the total each month to the Child Care Resource Center (CCRC) in Palmdale, California, where she lives. She’s paid different hourly rates for each child – $3.61 per hour for the 3 year old, $3.34 for the 5 year old, and $2.63 for the 11 year old. For the infant, she receives nothing; his paperwork has not yet been processed into the CCRC system.
“These are my grandkids and my daughter has to work,” she explained in an interview with Better Life Lab, published in the Washington Post. “If it wasn’t for me, who would take care of my [grand]baby for no pay?”
The complicated, bureaucratic process around child care subsidies and payments is something many child care experts believe must be addressed for the system to work for more families. In better news, innovations surrounding the subsidy model are showing great promise for correcting some of these problems – including changing the way rates are set.
“For years, subsidies were set by a market rate,” explained Simon Workman, principal of Prenatal – Five Fiscal Strategies, a consulting group focused on early education. States determine the “market rate” via a survey of what parents are willing to pay for care.
But in 2016, federal regulations changed and states were allowed to explore alternative models for setting subsidy rates. Instead of looking at market rates (what families are willing to pay), innovative states began to look at true cost (how much actual care costs to deliver). What followed was a burst of innovations across the states focused on the way subsidies are determined, delivered and at what amount to a variety of providers.
Understanding the flaws of the current subsidy system
Currently, only a small fraction of families that qualify for child care subsidies actually receive them, and the vast majority of children receiving subsidized care (75 percent) attend licensed child care centers. Only two percent of federal subsidies go to families who use informal, Family, Friend and Neighbor (FFN) caregivers like Sanchez in the child’s own home.
Much of the funding for child care assistance comes from the federal Child Care and Development block grant (CCDBG), established by Congress in 1990. The CCDBG gives states flexibility in how they develop their child care programs and policies, and distribute funds given to them annually by the federal government. Under federal regulations, the block grants subsidize child care for families with incomes up to 75 percent of state median income (there are proposals to raise this rate to 85 percent), and also provide funds for activities to improve the overall quality and supply of child care, including quality programs in subsidized care, and creating health and safety standards.
”The problem with relying on states for child care innovations is that at some point, states will run out of money. States have traditionally been these laboratories of democracy, they serve that role well. With the political realities at the federal level, states have more of the burden to bear. States can help lead the way, to help inform and have a two way dialogue. There is no way we are going to get a fair system until we get federal funding flowing.” — Elliot Haspel, nationally recognized child and family policy expert and commentator, with specialties in early childhood and education issues.
Today, approximately 1.8 million children receive CCDBG-funded child care in an average month, but that includes just one in seven eligible children. It is through these funds that a provider like Sanchez can get paid, in a state like California which allows FFN providers, who are unlicensed, to receive child care subsidies. (Eight states and D.C. require providers to be licensed to receive subsidies). FFN care is especially crucial for marginalized communities, who may seek a cultural connection or relation for their preferred caregiver, as in Sanchez’s case where the preference is for a grandmother to care for her grandchildren.
In addition to subsidies going to too few children, another major flaw is the way subsidies are calculated that makes quality care out of reach for families. Until recently, the subsidy reimbursement amount set forth in the rules of the CCDBG was pegged to the 75th percentile of that market rate. That means if a state finds the market rate for child care is $419 per week (as it is in D.C. – the most expensive in the country), then families who qualify for child care subsidies will receive three-fourths of that price to send their child to a qualifying provider. In most instances, it is up to families to pay the differences or for providers to absorb the cost difference.
But this model often doesn’t work well, explains Workman. In practice, most states can’t afford to set the subsidy rate at the 75th percentile. Even with the federal block grants and any additional state revenue earmarked for child care (only some states contribute; others rely solely on federal funds), there often isn’t enough.
Further, in rural areas, the subsidy rate is even lower. The market rate of child care established in surveys could be very low, and yet the cost of providing care still remains high. For example, rural providers must still pay for educators, facilities, supplies, equipment, food and all other expenses, even if their clientele are more dispersed and live farther from the provider. Finally, the low rates from subsidies mean providers take in less money per child, and then are forced to cut costs even further. “What it really means is that providers who cannot get much money from parents get very little from the government. Inequities from the market continue into the subsidy system,” said Workman.
Key finding → Innovations are still needed around subsidies and making the process more accessible and understandable for families. This includes making more subsidies available at higher dollar amounts and for different types of care, including home-based and family, friend and neighbor care.
→ Washington, D.C.’s cost estimation model. In 2016, the Office of the State Superintendent (OSSE) developed and conducted a cost-estimation model methodology to further understand the actual costs of care. This model, which was later revised in 2018 and 2021, took into account different types of child care, at different ages, in both home-based and center-based offerings.
This was the first locality to set rates based on true cost, not market rates. True cost is defined as how much care costs to provide; market rate is the the sticker price a family is willing to pay.
According to Workman, this cost modeling has helped inform other improvements surrounding child care: reforming licensing rules, improving ratio and group size requirement, updated quality rating and improvement systems, and including additional support staff (coaches, health consultant etc.) in calculating the base rate of what constitutes quality care.
→ New Mexico’s cost-modeling.As reported earlier in this child care innovation series, New Mexico’s governor, Michelle Lujan Grisham, made creating a universal early childhood education system a big part of her platform. The state built a cost model, similar to that done in D.C., to find the true cost of quality care, and then set reimbursement rates based on costs, not market rate. Under this new approach, centers are incentivized to accept the subsidies and better compensation to provide high quality care.
New Mexico also drastically increased the income level of families who qualify for subsidies, raising it to 300 percent of the poverty line. As of May 1, 2022, New Mexico has since waived all co-payments, the only place in the country to do so.
→ Higher subsidy reimbursement for FFN in California. Traditionally, non-center-based care models—including home-based or family-care, or Family, Friend and Neighbor Care—are paid less money per subsidy for the same work. And in eight states and D.C., unlicensed providers, like FFN, are not eligible for subsidies at all.
California is an example of a state that provides subsidy reimbursement for unlicensed Family, Friend and Neighbor Care providers like Sanchez, and California recently negotiated an increase for those providers’ pay.
Some of this support can be attributed to the new union: California’s Child Care Providers United (CCPU). The union has successfully negotiated better reimbursement rates both for FFN and family-care providers. Licensed family caregivers who accept families on child care subsidies receive up to 75 percentile of the regional market rate (RMR) survey (from 2018), and FFN caregivers get 70 percent of the licensed caregiver rates – a 40 percent increase in their previous pay.
The CCPU also negotiated with the state to provide one-time supplemental payments to family child care providers as a bonus during Covid. For one time payments in spring and summer 2022, large family child care providers (over 6 children) received $10,000, and small family child care providers (under 6 children, though with certain requirements, can be under 8 children) received $8000. And FFN providers each received $1500. Additional payments will be forthcoming in FY 22-23.
“What we hear from our members is that this [stipend] allowed them to pay off credit cards and expenses from COVID,” said Aroner. “It was these providers that carried the ball during the pandemic. They were the ones that stayed open and put themselves at risk.” And if the money runs out? Nationally this continues to be a problem, as sixteen thousand child care providers closed during the pandemic, due in large part to operating costs.
→ Georgia’s Quality Rated Subsidy Grant Program. To address the shortage of licensed high-quality infant and toddler care, Georgia’s Department of Early Care and Learning (DECAL) began its Quality Rated Subsidy Grant program in 2015 to change the way providers and families interacted with child care subsidies. Rather than using a traditional child care voucher, in which a voucher is paid to a child care center when an eligible child enrolls, Georgia’s new program relied on grants to pay providers directly and to contract a select number of slots. Using this “contracted spots” modeling, the state guaranteed the providers a level of income that allowed them to pay staff and stay open, even as a child’s circumstances changed and enrollment dipped.
Participating centers received reimbursement that was 50 percent higher than the base subsidy rates, a strong incentive to participate in the program. The providers were trained by DECAL staff in how to recruit families, and verify and recertify family eligibility. Families in the program did not owe copayments, unlike in Georgia’s traditional subsidy program.
This process achieved several goals.
It kept a certain number of slots in high quality programs for low-income children.
It allowed the child care providers to maintain some stability even as families and children changed child care centers.
It allowed participating centers to receive more money for accepting children with subsidies, rather than less.
Katrina Coburn, Senior Manager of State Policy at Zero to Three, who provides technical assistance to state advocates and policy makers, says that more states are beginning to explore this model as a way to stabilize child care programs and to increase access to high quality programs. The infusion of funds through ARPA has given some states the means to pilot this approach.
Unfortunately, Georgia cut funding for the program in 2020, which Coburn attributed to the political landscape. Mindy Binderman, the executive director of the nonprofit Georgia Early Education Alliance for Ready Students (GEEARS), and child care advocate, explained that each state department was directed by the governor to come up with a 4 percent across-the-board cut. “In the context of the budget cuts mandated by the Governor, it was the least worst option,” said Binderman in an email.
Key question – is it enough? Not without more federal support.
Georgia’s break with a successful program exposes the limits of state innovations, even successful ones. Coburn says that the contracted spots model of Georgia is “starting to be recognized as the norm,” with the funding for ARPA being used for similar programs underway in Pennsylvania and Illinois.
“The issue is that subsidies can only do so much,” explained Workman, the early education consultant. Unless a program runs on 100 percent subsidies, there isn’t going to be a guarantee that the teachers and staff can get a salary. Even improvements in the level and availability of subsidies will not fully solve the fragmentation as only dedicated funding streams create stable jobs at affordable salaries. Under our current system, subsidies reach only one in seven eligible children, and many more families who are not eligible for subsidies still struggle to afford quality care.
Even the states that have worked to institute such significant public investment — like Vermont and New Mexico, discussed in part 1 of this series, will face other limitations.
“The problem with relying on states for child care innovations is that at some point, states will run out of money,” explains Elliot Haspel, author of Crawling Behind, and a top voice in child care and early education.
“States have traditionally been these laboratories of democracy, they serve that role well. With the political realities at the federal level, states have more of the burden to bear. States can help lead the way, to help inform and have a two way dialogue. There is no way we are going to get a fair system until we get federal funding flowing.”