The childcare sector has been rocked by the pandemic, first by shutdown orders that closed many providers’ doors, then by lagging enrollment as economies opened up, and then by an acute staffing shortage in a tight labor market where workers only make about $13 per hour at the nationwide median. Over the last few years, however, Congress responded many times, sending states unprecedented billions in federal funding to support the industry.
Blue and red states alike have not only accepted the money, but run with it, using it to enact a variety of creative policy changes that have made childcare more affordable and accessible while bolstering the people who provide it. They’ve proven not just that they know how to create a robust, functional childcare system, but that they’re willing to do it if given the opportunity.
But the federal money will fully run out by next year, and in some places it already has. The looming funding cliff puts the country at risk of backsliding on all the progress made over the last three years — progress that has left a deep impact on Americans’ lives.
Americans like Celeste Carter. After a challenging pregnancy with twins, and a rocky start to parenting when her babies spent time in the NICU, Carter stayed home with her daughters. But then in July 2020 her husband passed away — officially of a heart attack, although she suspects Covid played a role.
That’s when she realized she needed childcare. She enrolled her daughters in an Early Head Start program near her home in New Orleans, Louisiana, and hit a stroke of luck: during the pandemic her state, with the help of federal relief funding, had expanded eligibility for childcare subsidies to both higher-income families and those looking for work, not just those currently employed. She was able to get a childcare subsidy to cover the cost of after-hours care at the same program, rather than having to pay for it out of pocket.
The care allowed Carter to go back to school in January of 2021. She studied software development, hoping the field would bring in a decent income in the wake of her husband’s death. Her twins, who were born prematurely, received occupational and speech therapy at their preschool.
It also gave her family something less tangible: structure after such a catastrophic loss. Her children “had a routine going, they had a plan and a community,” she said. She was able to drop them at the school and “go home and cry,” she said. “Go through that process, go to therapy, get myself together.”
By July of that year she had landed a software developer job.
Congress repeatedly sent childcare funding to states during the pandemic. It included $3.5 billion in supplementary discretionary funding through the Child Care and Development Block Grant in the Coronavirus Aid, Relief, and Economic Security Act of March 2020, and another $10 billion in the Coronavirus Response and Relief Supplemental Appropriations Act that December. Then Democrats included $15 billion in discretionary and $3.55 million in mandatory Child Care and Development Block Grant funds, plus about $24 billion in stabilization grants for childcare providers, in the American Rescue Plan Act of March 2021.
All of that funding allowed Louisiana to make a number of important changes. The state board of education made many more families eligible for childcare assistance, raising eligibility for subsidies from a cap of $51,000 in annual income for a family of four to $67,000, and allowing job seekers, not just those who already have a job, to qualify. At its pandemic peak, its subsidy program served over 25,000 children, the cost mostly covered by federal funding — a sharp increase from 14,000 children in 2019.
Before the crisis, the state only paid childcare providers for the children who showed up, a number that can vary considerably from day to day and week to week. Instead, with the help of federal money, the board of education adopted a permanent, more reliable policy similar to the model used by private providers: It started paying based on enrollment, no matter who showed up each week. It also began paying providers what it actually costs to provide care, instead of what local parents are able to afford, giving providers more to work with. The state also gave childcare providers wage supplements paid for by federal pandemic relief.
Many other states used federal relief funding to make significant investments and changes in their childcare systems. Some have expanded subsidy eligibility like Louisiana so far more families can get help paying for childcare; New Mexico allowed families earning up to 400 percent of the federal poverty line, or $120,000 for a family of four, to enroll. Some, like Indiana and New Mexico, also waived copays on subsidies, offering care to qualifying families for free. Others changed how they pay providers along similar lines to the changes Louisiana made, paying based on enrollment and the actual cost of providing care. Many found ways to compensate providers more through stipends, bonuses, and other infusions of income.
States have even used money from the flexible State and Local Fiscal Recovery Funds, another $350 billion sent to states, localities, and tribal governments through the American Rescue Plan, to invest in childcare, including increasing subsidies for families, paying providers more, and maintaining or even building new childcare facilities.
Many of these aren’t necessarily new ideas, but they represent huge shifts in how states approach their childcare and early childhood education sectors. In many places they were ideas that had been talked about for some time, but lawmakers didn’t have the money to implement them — until the federal relief funds showed up. “States couldn’t do things or couldn’t do them well without the funds,” said Karen Schulman, director of state childcare policy at the National Women’s Law Center.
This experience, then, “shows that this isn’t an unsolvable problem,” Schulman said. “We just haven’t invested the resources and attention in it.” The very changes states made during the pandemic are all part of what a better, fully functioning childcare system would have to someday look like: ensuring providers are paid fairly and adequately, allowing more families to get help paying the exorbitant costs, and making that help more generous. But states need the money to do it.
The pandemic-era state policy changes “point the way to a childcare system of the future,” said Anne Hedgepeth, chief of policy and advocacy at Child Care Aware of America. “At the end of the day it is showing us that when you invest in childcare, it works.” In a survey of about 5,000 providers, 92 percent who had received the American Rescue Plan stabilization grants, for example, said the grants had helped them stay open. The changes also form an evidence base that could create the political will for increased funding. “When everyone sees what a difference it makes, we have more people to push the system forward,” Hedgepeth said. It helps build a case that these are things worth investing in.
This is also not a Democratic versus Republican issue at the state level. There wasn’t a single governor of any political party who refused the funding, and significant policy experiments happened in red and blue states alike. “States absolutely agreed across the board that it was worth it to take these federal dollars,” Hedgepeth said.
Louisiana is “a deeply red state,” noted Libbie Sonnier, executive director of the Louisiana Policy Institute for Children. But saving and shoring up the early childhood sector was a “true bipartisan effort.”
Despite all the good that the funding has done, these policy experiments are likely to disappear soon. When Democrats passed the American Rescue Plan, they had also included significant funding for childcare and early childhood education in their proposed Build Back Better reconciliation package, which would have allowed states to keep such innovations going. But that money was ultimately stripped out of the package when a few conservative Democratic lawmakers refused to support it.
States had to obligate American Rescue Plan stabilization funds by September of last year, and they have to fully use the money by this coming September. They have another year to spend the discretionary funding, but that will come quickly, and some states are already acting as if the money is gone — which it may be, given that states were urged to spend it quickly. West Virginia, for example, has ended childcare assistance for essential workers, while Montana ended its expanded subsidy eligibility and higher provider payments at the end of last year.
“We still have a very precarious system, and then you’re going to yank all of these efforts away. And then what happens?” Schulman asked. Employment in the childcare sector is still 5.7 percent below where it was in February 2020, and nearly 16,000 programs closed during the pandemic. “When the funding expires we could see even more stress on the system than we’re seeing already.” It’s likely more programs will close while families will struggle to hold onto care.
Many states are trying to find ways to keep their innovations going. New Mexico voters passed a constitutional amendment last year that will allow the state to invest oil and gas revenues, putting it on the road toward a universal system. There are proposals to permanently increase eligibility for subsidies in Delaware and Iowa, covered with state funding. Others may not have the resources, although they could tap SLFRF funds that can still be allocated up until the end of next year, which could “be an important bridge as other types of funding evaporate,” said Sarah Gilliland, senior policy analyst at the New Practice Lab at New America.
But it’s a huge hole. “You can’t just say $39 billion (from the American Rescue Plan) suddenly disappears and it’s not going to have a big impact,” Schulman said. “That’s not going to be replaced by private dollars, it’s not going to be replaced nationwide by state dollars.”
The federal funding was never meant to fundamentally fix a childcare system that was already failing — leaving parents on the hook for unaffordable amounts of money and, for some, unable to find a spot at all, while providers were barely able to make the finances work. “States took (federal funding), they innovated and did what they could, and now we’re approaching the end of relief dollars and we haven’t actually fixed the problem,” said Melissa Boteach, vice president for childcare/early learning at the National Women’s Law Center. “Until we actually invest in childcare as the public good that it is, in many ways we’re squeezing a balloon.”
Even with the pandemic expansions, Louisiana’s subsidy program only covered a fraction of the state’s need — as many as 173,000 children. Now the subsidy program is frozen. No new families are being accepted, just put on a waitlist, which is whittling down the number served. As federal funding runs out in the fiscal year that starts in July, it’s facing a $150 million dollar shortfall. Without more money it will fall to serving about 12,000 children, far below even pre-pandemic levels. Another 3,000 children who were able to go to preschool thanks to a federal Covid relief expansion will simply not be able to return next school year. Meanwhile, the extra funding that has allowed providers to pay staff more in order to retain them will disappear.
State lawmakers have supported the sector in recent years, but they have a lot of competing budget priorities. It’s unlikely they can come up with all that money on their own without federal help. “There is interest if the money was there,” Sonnier, of the Louisiana Policy Institute for Children, said. But “there’s only so much money a state has.”
“I’m looking at a cliff that’s massive right now,” Sonnier added.
Carter was among the first to fall off that cliff. She moved to Baton Rouge to “get away from the violence in the city,” she said, and tried to sign her children up for a childcare subsidy, only to find out that a waitlist had formed in October. “I don’t know if they ran out of funding or what,” she said.
She was still waiting when we spoke in November, and the twins were simply home while she tried to work. “Unfortunately I’m having to park them in front of an iPad,” she said. Her mother, who lives with her, helped when she could, but she’s older and not in the best health. “It’s more like a set of eyes, but not curated learning,” she said. “It’s not what they need, it’s not what they deserve.”
Carter noticed that they lost a lot of the gains made in childcare. “Because they’re not in full-time care there’s a lot of regression — regression in potty training, regression in retention of learning letters and numbers,” she said. Their schedules were all over the place — sometimes they would be up until 1 or 2 in the morning, which Carter would allow on the chance that they would sleep in and give her time to work in the morning.
She was hoping to find spots as soon as possible, but was also facing the prospect of paying the full cost for two children at once. “I’ll probably be taking a loan out to pay for it,” she said.
Reporting for this article was supported by New America’s Better Life Lab.
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