Some States Have Avoided the Child Care Cliff - Early Learning Nation

Some States Have Avoided the Child Care Cliff

By Keeping Investment Going, About a Dozen States Have Kept Providers Open and Tuition Increases Down.

The federal American Rescue Plan Act, signed into law in early 2022, sent the child care sector the single largest amount of federal funding it had ever received. The biggest tranche of the $39 billion in funding went to stabilization grants for providers to help them keep their doors open, to much success. But then the money for those grants ended this past September, prompting the industry to worry about what came to be known as the child care cliff—the sudden lapse of funding that was helping them keep their doors open. One estimate anticipated that more than 70,000 programs would close after the money was gone, leaving 3.2 children without a spot.

Yet the child care cliff was in many ways a misnomer. The entire sector didn’t fall off a financial precipice all at once. Instead, the ground underneath child care providers is being slowly eroded at different rates in different places; some have already tumbled over, while others will be able to hold on. Crucially, a number of states have stepped into the void and, so far, have found ways to avoid the cliff altogether.

Massachusetts is one of them. If the child care sector could be said to be flourishing anywhere, you could make a good case for the state. There are 7,100 more child care slots now than there were before the pandemic, a rebound of about 37,000 seats. Last year alone the state’s capacity actually grew by 7 percent even as the cliff began to hit.

“We haven’t seen the cliff,” noted Amy O’Leary, executive director of Strategies for Children, a nonprofit that advocates for investment in children birth to age five in Massachusetts.

Massachusetts has pulled this off by essentially keeping pandemic-era relief flowing on its own after the federal spigot ran dry. To get ARPA’s stabilization grants out the door to child care providers, the state had created the Commonwealth Cares for Children, or C3 program. That money was “a gamechanger for our field, allowing programs to not just stay in business but hire more staff, make quality investments, expand the number of children they are serving, and do that predominantly without passing the costs onto families,” said Amy Kershaw, the Massachusetts commissioner of Early Education and Care.

Then the cliff came into view, and Massachusetts lawmakers made a crucial decision: they found $475 million in state funding to keep the C3 grants going at the same level that they had been with federal relief dollars. The money has come from a number of sources, including revenue from the Fair Share Amendment voters approved in November 2022 that added a 4 percent income tax on residents who make more than $1 million.

“What we’re seeing is actually not stability but growth in the sector,” Kershaw said.

The child care cliff has certainly already hit in many places. Kansas sent out its last stabilization grants in May 2023; between June and September that year, it lost a net 42 programs, about the number it lost over the entire previous year. In a January survey, about half of child care programs across the country said they have had to increase tuition. Those that can’t bear an increase may be forced to slash their staff’s pay, which is likely to lead to an exodus that could shut down classrooms or, eventually, entire programs. Almost twice as many of the survey respondents knew of programs that had closed in their communities than those who knew programs that had opened.

The lapse in federal pandemic funding is “adding more and more burden to providers and families and they hold out as long as they can, but at some point you reach that breaking point,” said Karen Schulman, director of state child care policy at the National Women’s Law Center. When that breaking point hits will vary for each program.

Those lucky enough to be in the states trying to avert the cliff could be spared entirely. Eleven states and Washington, D.C., including not just Massachusetts but red states like Alaska and Kentucky, have dedicated their own money to continuing grants for child care providers. In those states, providers have been less likely to have to raise tuition or increase their waiting lists. “States are getting really creative with how to keep it going,” said Diane Girouard, state policy senior analyst at Child Care Aware of America.

At the state level, last year was “such a big year for child care,” Girouard said. “So many states ended up putting in record levels of investment and continuing stabilization grants.”

Massachusetts lawmakers seem committed to keeping their support going for the long term. Governor Maura Healey called for another $475 million for C3 in her budget for next fiscal year starting in June, and the state senate unanimously passed legislation in mid-March that would make the grants permanent, although the house still has to consider it. The legislation also doesn’t articulate a dollar amount nor where the money would come from.

Leaders have taken other steps, too. The state has switched the way it reimburses child care providers who accept government subsidies so that they are paid based on the actual cost of what it takes to care for children, not just what local parents can afford to pay, which increased reimbursement rates by at least 5.5 percent for each provider. They made it easier for families to apply for subsidies, as well as for providers to opt into accepting them, and about 2,500 more children are enrolled in subsidies now compared to the start of 2020. The state has ensured that people who work in child care are prioritized for getting subsidies for their own children to attend child care, which has “been a really important recruitment and retention tool,” Kershaw said. Nearly 2,200 children are enrolled through the new program. All of these steps have resulted in “more programs who are interested in participating in child care financial assistance,” Kershaw said.

Senate lawmakers have also proposed increasing eligibility for child care subsidies to families making 85 percent of the state’s median income, or $124,000 for a family of four; erasing copays for families who live below the poverty line; and capping copays for all other families at 7 percent of their income.

“We’re at an inflection point with this program as we transition from Covid-era stabilization into what we hope will be long-term supports,” Kershaw said. “We’ve left no stone unturned.”

If the child care sector could be said to be flourishing anywhere, you could make a good case for Massachusetts. There are 7,100 more child care slots now than there were before the pandemic, a rebound of about 37,000 seats. Last year alone the state’s capacity actually grew by 7 percent even as the cliff began to hit.

The state’s dedication to funding child care comes from viewing it through a dual lens, Kershaw said. The governor sees it as an economic engine, allowing families to work and afford to live in the state, as well as an important investment in children’s development. “To be the kind of state where people want to move here and stay here, grow businesses and raise families here, we need access to early education and care,” Kershaw said.

Lawmakers’ attention on the sector may also be a silver lining of the pandemic experience. As the world shut down, O’Leary’s organization started a daily 9:30am call between providers that were attended by the Early Education and Care commissioner and other government leaders. That fostered “direct contact to the people who were doing the work instead of bureaucrats in a room about what might help,” O’Leary said. “The early education community recognized its power as advocates, as leaders, as people doing this important work, and as problem solvers.” Kershaw agreed. “The pandemic did expose what many of us working in early education and care have known for a long time about a basic systemic failure,” she said.

Not everything is going completely smoothly in Massachusetts. Child care providers recently found out that their monthly C3 payments will be reduced in May and June based on a complicated formula that takes into account the economic characteristics of each provider. The funding is, essentially, a victim of its own success: so many child care programs and classrooms have opened and gotten signed up for support that the money ran out faster than state leaders expected. Governor Healey has called for the same amount of money for next fiscal year, which means payments may once again have to be reduced unless lawmakers come up with more funding—the budget process for next fiscal year is still playing out.

The country’s child care sector is still at risk of being further winnowed away. Although ARPA’s stabilization grant funding is at this point long expired, another bucket of money has been available for states to make child care higher quality and more affordable. That funding expires this September. “The impact could be even greater when those funds run out,” Schulman said. “It’s another cliff.”

Even those states that have shaken out the couch cushions to find their own funds to keep the sector healthy may find they can’t sustain those efforts if their budget outlooks change. State budgets have been relatively healthy in recent years, in part boosted by pandemic relief money that kept local economies humming and tax revenues flowing in. But if the economy hits a rough patch, things could quickly worsen, and under the requirement to balance their budgets they may no longer be able to come up with the funding to sustain child care investments. Some, like New Mexico and Vermont, have found stable funding sources; others are on shakier ground.

It’s not to say that the federal government has done nothing after the cliff hit. In the appropriations funding package Congress passed in mid-March, lawmakers included a 9 percent increase in the Child Care and Development Block Grant, which helps states fund subsidies and make care more affordable. The Biden administration also recently finalized a rule that requires states to pay providers based on enrollment, not attendance, to ensure reliable funding. The rule also caps copayments for CCDBG subsides at no more than 7 percent of families’ incomes and encourages states to waive copayments for those earning 150 percent of the federal poverty line or less.

States also seem eager to keep funding child care: At least 23 governors mentioned child care in their state of the state addresses this year. But they need federal money to actually meet all of the sector’s needs. The Build Back Better legislative package that Democrats wanted to pass in 2021 would have spent nearly $400 billion on universal pre-K and affordable child care. It was ultimately doomed, taken down by opposition from Republicans and Democratic Senator Joe Manchin. “We are still nowhere near where we need to be across the country,” Girouard said. “We do need Congress to also step up and support states, because states can’t do this alone.”

In Massachusetts, “We certainly continue to need help from the federal government,” O’Leary said. She noted that “the commitment is there” to funding child care, but that as with all states the budget has to be balanced every year. “To really get it done we will probably need federal dollars.”

Bryce Covert is an independent journalist writing about the economy. She is a contributing op-ed writer at the New York Times and a contributing writer at The Nation. Her writing has appeared in Time Magazine, the Washington Post, New York Magazine, the New Republic, Slate, and others, and she won a 2016 Exceptional Merit in Media Award from the National Women’s Political Caucus. She has appeared on ABC, CBS, MSNBC, NPR, and other outlets. She was previously Economic Editor at ThinkProgress, Editor of the Roosevelt Institute’s Next New Deal blog, and a contributor at Forbes. She also worked as a financial reporter and head of the energy sector at mergermarket, an online newswire that is part of the Financial Times group.

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