As part of the American Rescue Plan passed in March of 2021, states were given $39 billion for childcare support, the largest-ever injection of federal support into the sector. All numbers in Washington seem big these days, but for perspective, this is eight times the amount of money that is normally given to states for childcare each year.
The money is a welcome investment, but there is an urgent need for Congress to increase the flexibility around the tens of billions of dollars earmarked for childcare sitting in state legislatures. Some of the money comes with flexibility and allows states to direct the childcare funding to its “highest and best use.” But most of it doesn’t—and that needs to be fixed.
For example, states have broad flexibility for how to use the $15 billion portion of pandemic-relief for state-based childcare block grants (CCDBG), a long-running program where states provide vouchers to low-income working parents to go to a childcare provider of their choice. In essence, a school choice program for early childhood care.
While the CCDBG successfully targets needy households with emphasis on choice, the program has only served 20% of eligible children due to chronic underfunding. The pandemic emergency funding could change this and significantly help more eligible families get access to high-quality childcare.
However, the $24 billion earmarked for childcare stabilization funds is only allowed to go to providers (for wages, rent payments, facilities, or pandemic-specific safety measures, among other uses).
Where the money needs to go
Provider-specific support made the most sense in the height of the pandemic last year, when 70% of parents reported that their childcare programs were closed or operating at reduced capacity, according to a Bipartisan Policy Center poll. But the vast majority of childcare providers have now reopened. As of June 2021, only one in ten parents reported their provider was still closed, while a much larger percentage cited affordability as a key challenge, according to the Bipartisan Policy Center.
That’s not to say there aren’t still supply challenges in the childcare industry. Even before the pandemic, there were a dwindling number of providers, with 35% of small in-home providers closing their doors between 2011 and 2017. Like many other sectors, the childcare industry is facing a worker shortage.
But states are not authorized to use stabilization funds to support new childcare providers. Instead, the funds must go to childcare providers that were open and operating as of March 2021, which does little to encourage the proliferation much-needed new and innovative providers.
Moreover, the nature of a one-time payment to the industry—even a $24 billion one—limits the ability of providers to make long-term structural changes or to build capacity in a sustainable way. For example, if childcare providers use the funds to hire more staff, raise pay, or to move to a larger facility, what will happen to these staff positions when the cash infusion runs out?
Another design flaw: states must have plans to spend at least half of the stabilization funds by December 2021. It makes little sense to encourage states to spend such a historic sum of money so quickly.
The fix falls on Congress
The most comprehensive fix, as proposed by House Republicans on the Ways and Means Committee, would be for states to be allowed to repurpose any funds that have not yet been spent from the stabilization fund for CCDBG vouchers or other uses, like giving funds directly to families for whom the cost of childcare is a barrier to work and high-quality childcare is out of reach.
At minimum, the timeline for the childcare stabilization fund should be extended to encourage thoughtful investment, and any licensed provider should be eligible for funds.
That said, the pandemic has given us a historic opportunity to make a meaningful investment in a generation of at-risk children and their parents. States should be given the flexibility to do that.
The Chamber Foundation’s Center for Education and Workforce has resources and solutions for businesses that want to improve their childcare options, and the latest research on how childcare breakdowns impact the economy.
About the authors
Abby McCloskey
Abby M. McCloskey is founder and principal of McCloskey Policy LLC. Her work largely centers around economic opportunity, including issues of work, education, taxation, family, and social capital.
