The COVID-19 pandemic revealed deep fractures in the United States’ care sector. During the first year of the pandemic, Congress passed several stimulus bills to temper the economic devastation it caused, in part by stabilizing sectors critical to our country’s functioning. Child care proved foundational to the economy’s health when its lapse caused millions of women to drop out of the labor force. Accordingly, several stimulus bills either directly allocated federal funding for child care or included funds that could be used for child care. The most significant contribution came from the American Rescue Plan Act (ARPA), which designated $24 billion in stabilization funds and another $15 billion in CCDF discretionary funds for child care.

The expiration of ARPA stabilization funds this past September has put financial strain on child care providers who relied on these funds to continue their business operations, and this strain will be worsened by the expiration of CCDF discretionary funds next September. It is imperative that states use all available sources of funding to continue providing grants to stabilize their child care sectors, thereby mitigating the impact of the child care cliff.

The federal government distributed $350 billion to states and territories through the Coronavirus State and Local Fiscal Recovery Funds (SLFRF) program and child care is one of its many allowable uses, but many states have obligated only a fraction of these funds. States must both understand how SLFRF can be used to continue stabilizing the child care sector and develop immediate plans to obligate these funds. While SLFRF do not need to be obligated until December 31, 2024, most states have already begun making budget decisions and will soon propose budgets this spring. By using SLFRF to make needed investments in the child care sector, states and localities can help stabilize and support child care providers and also make child care more affordable for families.

The Ongoing Need for Stabilization

Although ARPA stabilization funds were effective in keeping many child care businesses open during the height of the pandemic, many of the external pressures that providers faced before the pandemic have persisted. States and localities can use SLFRF to help child care providers cover operating costs, including overhead and staffing, thereby keeping them in business.

Staffing is the most significant expense for providers, and is the most important factor for ensuring high-quality care. Yet today, the early educator shortage poses an existential crisis for the child care sector. Many child care programs across the country have the capacity to care for more children, but have been forced to close classrooms, or shut their doors entirely, due to their inability to find and retain qualified early educators. This is in part because early educators are among the lowest paid hourly workers in the country, paid a median wage of $13.71 an hour. Their comparatively low wages leave providers struggling to compete with other sectors—including fast food, retail, and K-12 education—that are able to pay higher wages.

Child care businesses typically operate on a profit margin of less than 1 to 5 percent, according to some estimates. The main avenue providers have to increase their revenue and early educator pay is by raising tuition rates, but parents are already experiencing difficulty affording tuition prices and finding care amidst a diminishing supply of local programs. It’s for this reason that Treasury Secretary Janet Yellen has referred to child care as a broken market. The child care affordability crisis has been exacerbated by rising inflation rates, which have made it more difficult for providers to cover fixed expenses such as rent, wages, licensing fees, and food. These expenses leave little money left over for toys, enrichment tools, facility upgrades, or other costs associated with running a quality child care program. Providers need flexible funding to cover necessary business expenses so that they can continue to offer and improve upon their child care programs.

The main avenue providers have to increase their revenue and early educator pay is by raising tuition rates, but parents are already experiencing difficulty affording tuition prices and finding care amidst a diminishing supply of local programs.

In order for states to build a robust supply of quality child care programs, they must support child care providers in paying for living wages, benefits, and professional development opportunities. Many providers used stabilization funds to increase staff wages and offer benefits such as paid sick days, but fear they may need to cut wages and rescind benefits now that stabilization has ended. States can strengthen their child care workforce by using SLFRF to increase early educator wages, train new workers, and help veteran early educators develop new skills.

Several States and Localities Are Successfully Using SLFRF to Stabilize the Child Care Sector

Many states and localities have already recognized the need to bolster their child care workforce and are using SLFRF to get it done. The stated purpose of New Hampshire’s CCOER program, for example, is to strengthen the workforce by helping to cover costs so that providers can invest in recruitment and retention efforts. SLFRF can also be used specifically for early educator pay. Travis County in Texas set aside $3.4 million for child care assistance programs, part of which was used to help providers increase pay and incentives. Milwaukee allocated $5.1 million for a stipend program that distributed three installments of $1,500 directly to early educators. The total $4,500 distribution was significant enough to increase the average annual salary of a full time early educator in Milwaukee—just over $22,000—by 7 percent.

Other localities have used SLFRF for hiring, training, and retention. Boston spent $1.7 million to incentivize hiring and retention of early educators through hiring bonuses, and San Luis Obispo County in California was awarded $54.9 million in SLFRF and used $3 million to stabilize and grow its child care sector, in part by offering early educators higher pay and training opportunities through the Ticket2Teach apprenticeship program and Quality Counts program.

Several states have distributed SLFRF to help providers cover rent, mortgage or other facilities expenses. New Hampshire’s $3.5 million Child Care Operating Expense Reduction (CCOER) grant program is set to give providers funding for rent, mortgage, or lease payments; facility maintenance, repair, and enhancement; new outdoor playground spaces; business infrastructure such as payroll software; and supplies for play and learning. Last November, the New Jersey Economic Development Authority (NJEDA) approved the use of $20 million in SLFRF to launch the Child Care Facilities Improvement Program, which distributes grants of $50,000 to $200,000 for licensed providers to make interior and exterior building upgrades.

Funding has also been used to cover the development of new child care programs and the expansion of existing ones. In Maine, for example, the Portland Growing Child Care (PGCC) grant program offers providers $15,000 to open new home-based child care programs or $11,000 to expand existing child care programs, including home-based, center-based, and before- and after-school programs. Iowa’s Child Care Challenge Fund used close to $6.8 million in SLFRF to assist thirty-three providers in building supply by expanding hours and increasing capacity in centers with long waitlists. Harris County in Texas allocated $1.5 million to expand summer enrichment programs. States may also use SLFRF grants to help providers convert existing spaces into child care facilities to meet demand in areas that lack child care options. These efforts can create much needed child care options for families. However, with limited funds, it makes sense to prioritize sustaining the existing supply first.

Investing in early educators is one of the most impactful actions states can take to stabilize their child care sectors. Flexible funding ensures providers can both cover fixed expenses and make necessary investments to improve the quality and safety of their programs. This is a critical means for states to help stabilize their existing child care supply and support providers in offering high-quality child care services.

States Can Make Child Care Affordable for Parents

Child care is one of the largest household expenses for parents of young children. Child care tuition can range from $5,824 to $24,472 each year, depending on the child’s age and family’s location. In half of states, child care tuition exceeds the tuition of an in-state public college. Increases in child care prices have consistently outpaced the rate of inflation, and parents today are paying 30 percent more for child care than they were just four years ago.

In half of states, child care tuition exceeds the tuition of an in-state public college.

As child care tuition eclipses the amount families are able to afford, parents are forced to make tough decisions about whether to quit their jobs or continue paying for care. Subsidizing overhead expenses and early educator wages reduces the need for providers to raise tuition rates, but states can also make child care more affordable and accessible to a greater number of families by using SLFRF to continue expanding eligibility for child care subsidy programs. In addition to the ARPA stabilization grants, several pandemic relief programs (CARES, CRRSA, and ARPA supplemental) supplemented Child Care Development Block Grants (CCDBG), enabling states to extend child care assistance to essential workers,increase income eligibility under CCDBG, and waive copayments for families.

For example, Nevada allocated $50 million in SLFRF to cover 100 percent of child care co-pays for low- and moderate-income families. These SLFRF resources were used to increase funding for Nevada Child Care Fund, the state’s CCDBG program. This funding enabled Nevada to expand eligibility for the Nevada Child Care Fund to families of four with an annual household income of $60,000 to $70,000, nearly twice the previous income limit ($36,075 for a family of four). This ensures all families, regardless of income, are able to access needed child care services. It is critical that states continue these kinds of investments to shore up the sector and lower the amount families pay for child care.

Obligating State and Local Fiscal Recovery Funds for Child Care is a Smart Move for States

Child care shortages pose an economic threat to states, which stand to lose workers and revenue from taxes and business. The precarity of the child care sector also jeopardizes the economic stability of families and child care providers: a child care closure can upend an entire community. States and localities across the country have successfully used SLFRF to expand their child care sectors. Now that stabilization funds have expired, it is critical for state and local governments to invest in the continuation and growth of their child care sectors by filling the funding gap left by child care stabilization and distributing SLFRF grants to providers. With a December 31 deadline to obligate these funds, there’s no time to waste.