The passage of the American Rescue Plan Act (ARPA) in March 2021 afforded states with crucial financial assistance to help boost the industries that were most affected by the COVID-19 pandemic, including the child care sector. As part of ARPA, both Child Care Stabilization Grants and the Supplemental Child Care and Development Funds (CCDF) provided states with essential, but also temporary, relief to steady their child care infrastructure and support families. Some states have also used their ARPA state and local relief funds to further support their child care needs. States welcomed the influx of federal funds, and most took swift action by allotting the money through their state budgets to fund child care programs, which had been profoundly impacted by the pandemic. The infusion provided much needed help for families struggling to pay for child care.
This brief looks at three states in particular—Vermont, New York, and New Mexico—that capitalized on the distribution of these funds, primarily through the leadership of their governors and state legislatures, and built on prior policy progress they had been working on even before the pandemic. In November 2022, New Mexico, for example, passed a ballot initiative that had long been in the works to ensure there would be a more permanent source of revenue to fund child care (an initiative whose timing is particularly helpful, given the funding expiration). In all three states, state policymakers implemented robust responses by taking executive actions and passing legislation to secure funding for child care programs that ultimately granted families a substantial amount of support and financial assistance.
Pairing ARPA Funds with Policies for Sustainable Funding
In Vermont, the state legislature passed sweeping legislation, H.171 Act 45, to finance the state’s child care system by allocating $12.7 million of state and federal funds to subsidize various programs relating to affordability and workforce initiatives.
The New York legislature also took quick action through its FY 2023 Budget, where they designated $7 billion of federal ARPA funds over four years to address child care needs, specifically in terms of supporting areas with the least supply and families in need of financial assistance. This includes $1.1 billion in ARPA Stabilization Grants, nearly $700 million ARPA Supplemental CCDF Funds, and additional federal funds. The state legislature took immediate action to ensure ARPA funds were allocated in a timely manner, aiming to sufficiently try and address child care issues directly affecting New York families.
Lastly, New Mexico used a different approach to ensure there is a more durable source of funding for their state’s early childhood education programs, paired with a newly established state department to oversee the expansion of early education and care services and programming. During the midterm elections in November 2022, the state introduced a ballot measure asking voters to decide whether there should be a constitutional amendment to guarantee stable funding from the state’s Land Grant Permanent Fund to finance New Mexico’s pre-K education system. This ballot initiative passed with overwhelming support from voters, making New Mexico the first state to enshrine pre-K early childhood education as a constitutional right. Notably, long-term efforts ten to twelve years in the making culminated in the successful passage of this ballot initiative, as New Mexico state advocacy groups have long campaigned for state policymakers to value child care workers, as well as boost funding to help improve the state’s child care system.
While all three states addressed these problem areas in different ways, they all identified them as areas in need of serious reform, and promptly acted to ensure ARPA funds were distributed effectively and appropriately to improve their child care system as a whole.
Child care supply and affordability, its workforce, and child care deserts are all areas in which these three states allotted funding and resources to in order to strengthen and stabilize the industry. While all three states addressed these problem areas in different ways, they all identified them as areas in need of serious reform, and promptly acted to ensure ARPA funds were distributed effectively and appropriately to improve their child care system as a whole.
Child Care Supply and Affordability
All three states prioritized expanding access to child care as well as identified ways to decrease child care costs for families. As part of its $12.7 million investment in H.171 Act 45, Vermont’s state legislature designated $5.5 million to increase funding for Vermont’s Child Care Financial Assistance Program to help families pay less out of pocket for child care by reducing family co-payments and increasing income eligibility based on current Federal Poverty Level (FPL) guidelines, while also adjusting for the size of the family.
To address child care affordability in New York, policymakers leveraged a portion of the nearly $700 million federal funds to supplement existing funds in order to increase the income eligibility cap from 200 percent to 300 percent FPL for families applying for state child care subsidies. This will be rolled out over three years, and started in August 2022. The adjustment in the income eligibility cap means that a family of four making $83,250, which is at or below 300 percent FPL, can now apply, whereas before, the income cut off for a family of four was $55,500, which is at or below 200 percent FPL. This allows more families who are in most need of financial assistance to become eligible for subsidies to help them pay for child care costs.
New Mexico increased its income eligibility to 400 percent FPL from 200 percent FPL for the state’s Child Care Assistance Program, which the New Mexico Early Childhood Education and Care Department (ECECD) projects will allow 30,000 more families statewide to qualify for free child care. To make it affordable for everyone, all families enrolled will no longer be charged copays for child care services, making it free for these families. In addition, the approval of Constitutional Amendment 1 was a huge accomplishment, because it established a permanent source of revenue to fund child care and pre-K education for all children in New Mexico. This reliable funding originates from the state’s Land Grant Permanent Fund, which already requires that 5 percent be withdrawn every year to support schools, hospitals, and other entities, and now requires an additional 1.25 percent be used for this purpose. Constitutional Amendment 1 increases the supply of child care and pre-K education slots for kids under the age of 5 in New Mexico, especially those who may not have had a spot prior to the passage of this amendment.
Child Care Workforce
In addition to improving supply and affordability, all three states put forth financial resources to stabilize the child care workforce in different ways, including student loan repayment, scholarships programs, and wage increases. Workers in the child care industry are historically underpaid, and, because of the COVID-19 pandemic, the industry continues to face staffing shortages, as workers are not being adequately compensated for their essential work. According to the Economic Policy Institute, the average hourly wage for child care workers is $13.51 an hour, which equals less than $30,000 a year. In addition, data collected from the RAPID Project shows that as many as 32 percent of providers considered leaving their jobs, while 71 percent of providers reported feeling burned out “often” or “always” and less able to provide high-quality care due to inadequate resources, staff shortages, low wages, and a general lack of systemic support for the system at large.
Workers in the child care industry are historically underpaid, and, because of the COVID-19 pandemic, the industry continues to face staffing shortages, as workers are not being adequately compensated for their essential work.
As part of H.171 Act 45, the Vermont state legislature designated $2.5 million of ARPA Supplemental CCDF funds to go towards early childhood education workforce scholarship and student loan repayment programs. In addition, some of these funds will help provide up to $4,000 annually to reduce the student debt of full-time educators who earned an early childhood-specific degree within the past five years. Financially supporting those who are interested in pursuing a career in this field may encourage more individuals to work in this industry without feeling as if they are insufficiently compensated. Unfortunately, this limited funding may only have a temporary impact.
New York State distributed $343 million of additional rounds of stabilization grants, requiring that at least 75 percent must be used for workforce initiatives, including wage increases, bonuses, tuition reimbursements, and contributions to staff retirement plans and health insurance costs. Apportioning 75 percent of these funds towards reinforcing the workforce was intended to go towards programs that would increase pay for workers or provide student loan forgiveness for professionals in the child care sector, for example.
In October 2022, New Mexico’s Governor Michelle Lujan Grisham announced the Competitive Pay for Professionals Grant, which allows the state to permanently raise the wages of child care provider staff by $3 an hour. The grant was initially funded with $77 million from federal ARPA dollars, and the state’s ECCD projects that this grant will benefit at least 16,000 staff across the state.
Child Care Deserts
Child care supply and affordability as well as its workforce are crucial areas where long-term reform is needed in order to strengthen the state’s child care systems. Leveraging this short-term funding, New York and New Mexico both specifically targeted funds to the areas of greatest need by administering funds to underserved areas of their state with the least supply of child care slots. New York allocated $100 million of federal ARPA funds, which was approved in the enacted FY 2021 budget, to underserved areas of the state where the number of child care slots do not meet the demand. $70 million of those funds were designated for new programs to help providers build their program, cover start-up and personnel costs, recruit, train and retrain staff, while $30 million went towards existing providers to help them increase the number of child care slots by building and expanding capacity in areas of the state with the least supply.
Similarly, New Mexico designated $10 million of ARPA Child Care Stabilization Administration funds to a Child Care Supply Building Grant to increase the number of child care slots across the state, which the state’s ECCD estimates will open up an additional 800 child care slots.
Vermont invested financial resources to increase capacity by administering an annual investment of $800,000, from ARPA Supplemental CCDF funds, to expand infant and toddler child care capacity across the state. They also provided an additional $1 million of ARPA Supplemental CCDF funds to build capacity through actions including, but not limited to, small business development, training, additional technical assistance, and incentives for longer hours of operation.
Looking Ahead: States’ Plans for 2023 So Far
The actions taken by state leaders in Vermont, New York, and New Mexico helped stabilize the child care sector in each state. However, the work to revamp their child care systems is not finished: the leaders in each state understand that more needs to be done, despite all the work they have accomplished so far. Ultimately, federal ARPA funds were not intended to reform the systems as a whole, but rather to provide temporary relief to states in the immediate aftermath of the pandemic.
In Vermont, state lawmakers are working to pass legislation to make child care more accessible and affordable for Vermont families. If it were to pass, S.56 would expand the eligibility guidelines for the state’s Child Care Financial Assistance Program (CCFAP) by increasing the income threshold for families who would have no family co-pay from 150 percent to 185 percent FPL as well as the income threshold for those who could receive a subsidy through CCFAP from 350 percent to 600 percent FPL. In addition, the bill would establish a Prekindergarten Education Study Committee to provide recommendations for how to expand access to affordable, high-quality pre-K education for 3–4-year-old children. Passing this bill would allow for a greater number of families to access affordable child care and potentially increase the supply of pre-K education slots, which would ultimately benefit more families and children in the state. As of March 2023, this bill has passed the state Senate chamber, but it still needs to pass the House and be signed by Governor Phil Scott before it is enacted into law.
The New Mexico state legislature passed a bill, HB 148, which would require the state’s ECCD to work with tribes through intergovernmental agreements to administer and provide funding for early childhood programs, using a tribe’s cultural teachings on tribal lands. As of March 2023, this bill is now enacted after Governor Michelle Lujan Grisham signed it into law. HB 148 further indicates New Mexico’s intention to work with underrepresented and underserved areas in the state. In addition, New Mexico needs to take steps to enact the ballot initiative and distribute the additional funds from the Land Grant Permanent Fund to help boost child care and pre-K education. To do this, New Mexico plans to administer nearly $100 million of the new funds to recruit staff and provide free or low-cost child care and pre-K education, as well as ensure these funds reach all parts of the state.
State leadership in New York is also working to prioritize child care needs during their current legislative session and FY 2024 budget negotiations. In listing out her priorities for the FY 2024 budget during her State of the State speech earlier this year, Governor Kathy Hochul said she would like to utilize $389 million in unused federal funds to go towards a workforce retention program to assist child care providers with payments, an initiative which could help up to 17,000 programs statewide. Meanwhile, the state legislature has introduced two child care bills in the current legislative session. S5237 intends to provide caregivers full-time child care under the child care block grant regardless of how many hours the parents work, whereas S3245 would authorize certain funds to provide for the establishment and financing of universal child care.
While lawmakers in Vermont, New York, and New Mexico have all succeeded in utilizing ARPA federal funds to help bolster their state child care systems, much work still needs to be done. These three states have provided a solid framework for other states to model by outlining how federal funds can spur the process of revising child care policies in their state.
Much work still needs to be done. These three states have provided a solid framework for other states to model by outlining how federal funds can spur the process of revising child care policies in their state.
As demonstrated by the various actions of each state, federal ARPA investments were transformative in stabilizing the child care industry at a time when families were questioning whether they could afford child care, and providers were either struggling to remain open or fearing they would have to close if they did not receive supplemental financial or workforce support. Each of these states maximized their access to ARPA funds by including plans in their state budgets to finance various child care programs over a duration of a few years. However, the law requires that the stabilization funds be fully spent by September 2023, and that the supplemental funds be fully spent by September 2024.
States need to decide whether and how they will continue the policies that federal ARPA child care funds supported. Therefore, it is crucial for the federal government to formulate long-term solutions in order to maintain a steady stream of funds for child care specifically, as not all states have a Permanent Land Grant Fund to tap into like New Mexico, and even with that, the state still needed additional federal funding to meet their needs. Without long term federal plans to financially support the child care sector, states will be forced to revert to the funding levels that prevailed prior to the pandemic, which would worsen massive struggles for the child care industry at large.