How to Cover the Complex World of Child Care Funding

The fractured state of the child care industry has become especially clear during the coronavirus pandemic, as thousands of child care centers have closed permanently, and many more are struggling to find workers and survive economically.

Many of the issues facing these centers are related to the complexities of funding and lack of public investment in child care. It is expensive to provide, unaffordable for many families, and child care workers make such meager wages that many live in poverty, something that has led to an exodus of early educators during the pandemic.

“It’s definitely a money problem,” said Stephanie Schmit, the director of child care and early education at The Center for Law and Social Policy, a nonprofit focused on poverty solutions. “There are not enough resources in child care.”

For reporters covering child care, it’s critical to understand the complexities of funding and how centers braid together money from various sources yet still fall short of being able to sustain their business and offer living wages to staff.

How Much Does the United States Spend on Child Care?

Although nearly 60% of children ages 5 and younger were in a weekly, nonparental care arrangement before the pandemic in 2019, paying for and providing child care has largely been seen as a private issue in the United States. Many other developed nations spend thousands on care per child each year. By contrast, the United States only subsidizes care for low-income families, and that amount often falls far below the true cost.

“Our current system is absolutely inadequate,” said Cara Sklar, the deputy director of early and elementary education policy at New America, a left-leaning think tank. And because current funding is lacking and parents are often unable to afford or access high-quality care, “it results in this horribly inadequate, unequal system,” she said.

President Joe Biden’s Build Back Better plan, which narrowly passed the House of Representatives in November with only Democratic support, could change this significantly if passed by the Senate. As of early January, the plan’s future was in question due to lack of consensus among Senate Democrats. The measure as approved by the House addresses pay for child care workers, subsidizes the cost of care for many families and provides specific funding to expand the supply of care providers, which is so lacking that many parts of the country are considered “child care deserts.”

Although these measures were praised by many advocates for an increased federal role, the American Enterprise Institute, a conservative-leaning think tank, has raised concerns. Senior fellow Angela Rachidi argues that the legislation would “drive up costs” in two ways: “It will send more government assistance to a larger share of families across the income scale, and it will increase the overall cost of child care through wage mandates and added quality requirements for providers.”

How Is Child Care Funded?

Several federal funding streams support child care and preschool, although not all providers can access these funds, especially if they are informal or unlicensed providers. There are often separate eligibility and reporting requirements for each program, meaning providers must carefully balance various logistics and paperwork to receive funding, something that can be a challenge, especially for small centers.

Federal funding sources:

• The Child Care & Development Block Grant (CCDBG), which is funded at $5.9 billion for FY 2021, gives states money through a partnership program called the Child Care and Development Fund (CCDF). This program provides funding for child care quality improvement initiatives and subsidies, which are distributed to low-income families to help pay for child care. During the pandemic, the federal government has allocated additional funds into the block grant to support child care programs.

• Preschool development grants from the federal government build out and support public preschool programs in states, which generally allow the funds to be used in a variety of settings, including child care programs, if they meet certain requirements.

• Money for food reimbursement is provided through the federal Child and Adult Food Care Program. Providers say this is a cumbersome program to participate in, but the funding can help defray the cost of providing healthy meals to children.

• Early Head Start-Child Care Partnerships allow federal Early Head Start funds, which are aimed at infants and toddlers up to age 3 and expectant families, to be used to improve the quality of early ed classrooms and expand access to high-quality care, within a variety of child care programs.

• Temporary Assistance for Needy Families (TANF) funds can be used by states to assist with child care subsidy programs and other early childhood education initiatives.

State funding sources:

• State funding sources for child care and preschool also exist. Some of this money comes from the federal government, and some is allocated or provided as a match from state funds to pay for state preschool programs. While many states have managed to keep funding stable for their public pre-K program during the pandemic, some programs had to close or expansion plans were tabled due to enrollment and funding declines during the past 18 months.Local funding for early education is “inconsistent across states,” said Schmit, noting  that it’s hard to track city and county spending on child care and pre-K. “There’s no way to have a good sense of what that looks like,” Schmit said.

Other funding sources:

• Nonprofit or foundation funds help child care programs pay for various needs, such as  improving facilities, supporting employees, raising the quality of care by paying for needs like supplies, curriculum or teacher training or in emergency situations, like during the pandemic. Some child care programs raise money through fundraisers or by soliciting private donations.
• Parent tuition is often the main source of funding for many programs, especially those that do not enroll low-income children who are subsidized by the state. The cost for parents varies greatly by the age of the child, state and type of center. Infant care is the most expensive, as states require lower staff-to-child ratios for infant settings than preschool and pre-K classrooms. Many programs are unable to charge parents the full cost of providing quality child care, as families would be unable to afford that fee. Full-time infant care at a licensed child care center, for example, costs an average of $1,300 a month, or about 21% of the U.S. median income for a family of three, according to a cost-estimation tool developed by the Center for American Progress, a left-leaning think tank. When centers are unable to charge families for the true cost of providing care, they must operate at a loss or must find other funding sources to make ends meet.

How Would the ‘Build Back Better’ Plan Impact Child Care Funding?

The Biden administration’s plan would pour billions into the child care system, raising the minimum wage for child care teachers, providing funds for quality improvement measures, subsidizing child care for more families and building a greater supply of child care programs. The plan would also provide free preschool for 3- and 4-year-olds and ensure staff at those programs are compensated at rates comparable with elementary educators, based on education and credentials, although some Republican lawmakers have expressed concern over the amount of funding their states would have to contribute to the plan..

Three Ideas for Child Care Funding Stories:

1. Reimbursement rates: Look at your state’s current child care reimbursement rates, which are often set based on outdated market rate surveys. Talk to providers to see how this reimbursement rate matches up with their cost to provide care, and how low reimbursement rates impact their quality of care.
2. COVID-19 relief aid: Dig in to how your state is using an influx of federal funding that was provided during the pandemic. Was it used to help child care centers survive? Improve quality? Did states change policies, such as pay based on enrollment instead of attendance, and did those policy changes help centers?
3. Challenges facing providers: Bring readers inside child care centers to show what it’s like to try to provide care to children and the many challenges providers are up against. Break down the funding streams and the impact funding challenges have on providers, both professionally and personally.