Is America’s child care crisis about to get worse?

Experts weigh in.

by Andrew Dorn | Oct. 12, 2023

Story at a glance

More than 220,000 child care programs received federal assistance through the American Rescue Plan’s Child Care Stabilization Program.

Those COVID relief funds expired last month, leaving many child care programs vulnerable.

Some states and counties are pursuing their own solutions.

(NewsNation) — America has a child care problem, and some advocates fear it’s about to get worse.

Over the past two years, more than 220,000 child care programs have received federal assistance through the American Rescue Plan’s Child Care Stabilization Program. Now, many of those same providers are at risk of closing after the $24 billion in COVID relief funds expired last month.

A June report from The Century Foundation — a progressive think tank — projects more than 70,000 child care programs serving over 3 million children could shut down without additional funding.

“(The child care) sector has been struggling for a really long time, and the shock has left things more precarious,” said Laura Valle-Gutierrez, a fellow at the organization and co-author of the report.

At issue, is what Treasury Secretary Janet Yellen has called a “textbook example of a broken market,” where those who provide child care aren’t paid well and many who need it can’t afford it.

In 2022, the average annual price for U.S. child care was $10,853 per child. Meanwhile, the median pay for a child care worker is just $13.71 an hour, or about $28,500 a year, according to the Labor Department.

That pay, Valle-Gutierrez says, has made it difficult for child care programs to recruit and retain staff — a challenge that was exacerbated by the pandemic. As low-wage workers saw earnings rise, many switched industries.

In order to remain competitive, providers raised wages using federal funds, but that solution was temporary.

Although it has improved, the child care workforce still hasn’t bounced back from the pandemic and currently sits about 40,000 employees short of where it was in February 2020, Labor Department data shows.

States take it upon themselves

Democratic lawmakers have introduced legislation that would provide billions in mandatory funding to continue the federal stabilization program, but the plan has failed to gain bipartisan support.

Instead, many states have acted on their own, approving unprecedented investments in child care over the past year.

In Alabama, lawmakers greenlit the largest year-over increase in state funding for pre-K and early childhood education. Elsewhere, legislators in Vermont passed a bill investing $125 million annually into the child care sector.

State-level efforts like those are one of the reasons why some policy experts are skeptical of what has been called the “child care cliff.”

“There are things we can do to improve the child care market but this shouldn’t be a five-alarm fire,” said Patrick Brown, a fellow at the Ethics and Public Policy Center — a conservative think tank.

Brown said he wasn’t opposed to the initial funding during the pandemic but doesn’t think it should be treated as “the new baseline.” He pointed out several states had already run out of federal support well before the recent deadline and doubts the estimates in The Century Foundation’s report will come to pass.

Others, like Notre Dame economist Chloe Gibbs, have called the report’s dire projections “extreme” and “unlikely,” while noting that the expiring funds are still likely to reduce child care supply.

Valle-Gutierrez acknowledged that the forecasts were done before a lot of states had finished their legislative sessions but thinks more federal funding is necessary to address the full scale of the issue.

In New York, where child care costs are among the highest in the nation, lawmakers took steps to shore up financing for the sector, which will allow more middle-income families to qualify for government subsidies.

Pete Nabozny, policy director at The Children’s Agenda in Rochester, said the expanded state funding will help more people afford child care but thinks sustained federal support is needed to address labor supply challenges long-term.

“It’s hard to raise wages for a year or two and then what is that program supposed to do after that?” he said. “If the funding dries up, [providers] have to increase costs on families and that’s something that a lot of them know they can’t do.”

In a densely populated area like New York City, where smaller home-based child care providers outnumber larger center-based facilities, Nabozny said programs are more vulnerable to changes in the economy.

However, not every state has rushed to approve additional investments.

Earlier this year, dozens of nonprofits and early education advocates sent a letter urging the Texas Legislature to increase state funding to keep providers from going out of business. Lawmakers ultimately decided against a $2.3 billion budget proposal for child care.

Instead, Texans will vote on a proposition that would allow property tax exemptions for operating child care facilities.

Of the more than 1,500 child care programs surveyed by the Texas Association for the Education of Young Children in February, 44% said their program is “likely or maybe likely” to close within the next year.

Alternative solutions

All three policy experts agreed the child care industry poses unique business challenges. Labor makes up the bulk of the cost for providers, and there’s a ceiling on how “productive” those workers can be. At the end of the day, children, particularly infants, need specific, attentive care.

Some local governments have tried to address the problem at the county level. In Oregon, Multnomah County voters approved a personal income tax to fund Preschool for All. In its first year, the program supported 700 preschool slots.

But for Valle-Gutierrez, the market dynamics underscore the need for more federal investment.

“There’s still time to really mitigate a lot of the harms that we’ve projected,” she said. “If Congress doesn’t act, then a lot of families are just not going to have any choice.”

Brown thinks there are other ways to increase child care supply without relying on an influx of federal dollars.

“States can be talking about capacity building grants for nonprofits and other institutions that want to offer child care but need to retrofit a space or get a program off the ground,” he said.

There are also tax policy options that would incentivize businesses to provide child care for their employees, Brown suggested.

“A lot of parents don’t feel comfortable with the child care status quo but they don’t want a one-size-fits-all solution, either,” he said. “They want policies that are going to recognize that parents’ preferences are heterogenous.”