3.2 Million Children Likely to Lose Their Child Care with the End of Federal Funds
Julie Kashen, Laura Valle Gutierrez, Lea Woods, Jessica Milli | a Century Foundation feature
In 5 days - on September 30, 2023 - child care for millions of children and families nationwide will begin to disappear, with dire consequences for children, families’ earnings, and state economies.
We found that …
More than 70,000 child care programs - one-third of those supported by American Rescue Plan stabilization funding - will likely close, and approximately 3.2 million children could lose their child care spots.
The loss in tax and business revenue will likely cost states $10.6 billion in economic activity per year.
In addition, we project that millions of parents will be impacted, with many leaving the workforce or reducing their hours, costing families $9 billion each year in lost earnings.
The child care workforce, which has been one of the slowest sectors to recover from the pandemic, will likely lose another 232,000 jobs.
In six states - Arkansas, Montana, Utah, Virginia, West Virginia, as well as Washington, D.C. - the number of licensed programs could be cut by half or more. In another fourteen states, the supply of licensed programs could be reduced by one-third.
Our findings underscore the urgent need for immediate funding and long-term comprehensive solutions at the federal level that offer safe, nurturing, and affordable child care options to every family.
Yet, a strong majority of Americans are concerned about the looming child care cliff and overwhelmingly prefer candidates for office who champion policies to expand quality, affordable child care. See the full poll here.
Introduction
Darlene Brannan runs Kids Korner Academy in Durham, North Carolina. Kids Korner Academy has been operating since 2009, serving children ages 6 weeks to 13 years. At the height of the COVID-19 pandemic, they took out a loan to keep their program open, grateful for their dedicated teachers who came to work every day, and created a virtual option for their school-age children. Child care stabilization funds from the American Rescue Plan Act (ARPA) allowed them to reduce tuition, raise staff pay to about $20 an hour, offer professional development, and bring in new toys and furniture to make it a great place for kids during a stressful time.
The children and families served by Kids Korner Academy have benefited from the well-paid and trained early educators, the reduction in child care tuition, and an engaging environment that ARPA funds made possible. And they are in good company with the millions of children and their families around the nation whose child care programs have received this kind of support.
Just like clean water, safe food, and good public schools, high quality, affordable, and accessible child care is a national priority that benefits everyone. Families across all income levels share the same determination to provide the best possible foundation for their children, especially in their early years. Two-thirds of children under age 6 have all of their parents (either solo or coupled) in the workforce. Parents need the freedom to afford child care and to have peace of mind that their children are safe and nurtured while parents go to work or to school and make the choices that are best for their families.
Families throughout the United States need a variety of affordable child care options that employ qualified and caring early educators who are able to meet children’s diverse needs and help them thrive. But this is not the reality for most families, who are obstructed at every turn by a scarcity of child care options that meet their budget or needs. The average annual cost of child care currently is more than $10,000 per year for one child, and in some states, it’s as much as $15,000 to $20,000 per year. That’s more than the price of a mortgage, rent, or public college tuition in most states. Nor is it the reality for many child care providers, who are finding it increasingly difficult to hire or retain passionate staff members who can support themselves on child care’s paltry wages—an average of $13.50 an hour for their complex and valuable work.
The problem of high tuition prices, low early educator wages, and decreasing program supply has grown in severity for several decades, but was pushed to crisis levels by the COVID-19 pandemic, which laid bare the vulnerabilities and limitations of the United States’ child care system. All told, the United States lost an estimated 20,000 child care programs in the first two years of the pandemic, nearly 10 percent of its pre-pandemic amount of child care programs. Though these numbers represent a devastating setback for thousands of impacted children, families, and early educators, the toll could have been far worse.
The COVID-19 pandemic also made clear how great of an impact federal investment in child care and early learning can have: when a devastating disease caused an historic economic downturn, the federal government responded by making unprecedented investments in the American people and economy. The American Rescue Plan Act (ARPA), passed in 2021, gave states close to $40 billion in federal emergency relief funds for child care, which proved a much-needed lifeline for many child care providers.
While the pandemic sent the child care sector deeper into crisis, ARPA stabilization funds prevented it from collapsing altogether. The U.S. Department of Health and Human Services found that the $24 billion in relief funds distributed to states served 220,000 child care providers, saved the jobs of more than 1 million early educators, and enabled continued care for as many as 9.6 million children. Child Care Aware of America recently found that, with the stabilization funding out in the field, the number of licensed child care centers returned to pre-pandemic levels in 2022, and the trend of declining family child care homes slowed.
The ARPA stabilization funds that staved off the child care sector’s collapse will come to an abrupt end in September 2023. When these resources swiftly and suddenly disappear, this funding cliff will once again place the sector in danger, as it will be forced to contract, shedding caregivers and care slots in a cascade that will not only upend millions of families’ child care arrangements but also hurt regional economies. In this report, we analyze what children, families, and state economies stand to lose once the United States hits the “child care cliff.”
Without ARPA Funds, COVID-Era Child Care Progress Will Evaporate
Before the pandemic unfolded, families across the country were already facing child care costs that were out of reach, child care deserts, and inhospitable workplace policies due to the nation’s failure to invest in a comprehensive child care and early learning system. Slightly more than half of the country lived in a child care desert - defined as an area where there are more than three children under age 5 for each licensed child care slot. The supply of licensed family child care homes and other home-based child care (HBCC) providers was on the decline. One study found that the number of HBCC providers on state administrative lists has declined by 25 percent across the country over the past decade, despite the significant demand. Similarly, the number of small child care centers - those serving fewer than 25 children - declined by nearly 30 percent prior to the pandemic.
Once the pandemic began, school, camp, and child care closures - and the increased costs of continued operations for those programs that were able to remain open - further exposed the vulnerabilities of the child care and early education sector. As the number and variety of child care options shrank, parents and other caregivers were forced to leave their jobs, cut their work hours or scramble for other child care solutions during a time when the pandemic made isolating one’s own family the safest option.
The ARPA stabilization funds - the largest investment in child care in American history - helped stem the tide of this sectoral collapse by shoring up 220,000 providers and helping them to pay for rent and mortgage, utilities, and higher wages, and to invest in increased health and safety measures during the pandemic. When the federal funds expire in September, this progress toward a better-resourced child care sector that can provide the quantity and quality of care that America needs will be reversed, and the long-felt stresses of insufficient supply and unaffordable prices of child care will not only return, but will grow exponentially.
In November 2021, the House of Representatives passed legislation that would have significantly expanded the supply of child care and early learning options, reaching an estimated 16 million children. The stabilization funds were enacted while Congress was moving this legislation forward, imagining that the resources to provide affordable, high-quality child care to the vast majority of families would be in place by the time the stabilization funding ended. Instead, this legislation did not pass the Senate, and as a result, the nation now faces a devastating child care cliff.
More than 70,000 Child Care Programs Projected to Close
The country’s already-strained child care sector faced an unprecedented crisis during the pandemic. New federal investments in child care over the past two years have been a lifeline for the child care sector and the families who rely on it. States have been using these funds to shore up safe, nurturing options for families by keeping providers’ doors open, raising compensation and benefits for early educators, lowering costs for families, and supporting the operating costs required to temporarily stabilize the supply of child care.
Using data from a survey of 12,000 early childhood educators from all states and settings - including faith-based programs, family child care homes, Head Starts, and child care centers - and the U.S. Department of Health and Human Services Office of Child Care, we found that approximately one-third of child care providers who received stabilization funding are likely to close as a result of the loss of funding.
Our analysis finds that more than 70,000 child care programs are projected to close, shutting down child care slots for 3.2 million children and their families (Download state specific fact sheets).
While the child care cliff will affect families in every state, some will be hit particularly hard. Our projections show that in Arkansas, Montana, Utah, Virginia, Washington, D.C., and West Virginia, the number of licensed programs could be cut by half or more. In another fourteen states, the supply of licensed programs could be reduced by a third.
As these programs close, many early educators are projected to lose their jobs. Early educators, who are primarily women and disproportionately women of color, are significantly underpaid - at $13.50 an hour - for the valuable and complex work they do. The long history of Black women as caregivers is rooted in inequity and created the foundational racial, gender, and economic inequities that are reflected today through the devaluation of the child care and early education profession. And so, even though early educators receive little pay for the work they do, and demand for their services is soaring, the disappearance of stabilization funds will mean that child care providers will need to make cuts, which means shrinking staff.
When the ARPA stabilization funds cease, child care will be starved of resources. The child care staffing shortage that preceded and continued through the pandemic will return with a vengeance, putting upward pressure on prices as child care businesses choose between raising wages to attract early educators - or going out of business. And, in a historically strong job market, many early educators are leaving the sector for higher-paying jobs elsewhere. While most sectors have recovered from the pandemic-induced recession, the employment level for child care workers is 4.8 percent below what it was in February 2020. As private sector companies raised wages and improved benefits to recruit and retain workers in recent years, child care providers were largely stymied by being under-resourced, leaving the child care sector one of the lowest paid professions in the country. The lack of resources after ARPA stabilization funds cease will only further exacerbate both child care’s unaffordable prices and scarcity of options.
More than Three Million Children to Lose Child Care
As noted above, the loss of 70,000 child care programs could impact approximately 3.2 million children. Even if all of those programs don’t close, the losses to children will occur as a result of higher tuition that parents won’t be able to afford and fewer openings as a result of staffing shortages. In many larger states, the loss of funding could mean lost access for significant numbers of children and families, including more than 200,000 children in Florida, nearly 130,000 in Illinois, 250,000 in New York, and more than 300,000 in Texas (Download state specific fact sheets).
Today, most parents work, and so they need affordable, high-quality child care and early learning options for their children. Moreover, they need child care and preschool options that help their children build on the learning and development experiences they get at home with their families. Parents need safe, nurturing care options for their children. As families lose access to child care, many parents will need to leave employment or reduce their hours to fill the gap, losing earnings and jobs.
Parents Projected to Lose Nearly $9 Billion in Earnings Each Year
When parents have to reduce work hours or leave their jobs entirely due to a lack of affordable child care, there are widespread impacts for children’s well-being, family economic security, racial and gender equity, and local and state economies. This is why care investments, much like infrastructure investments, help build broader economic growth overall; child care helps parents participate in the economy. One study found that women’s labor force participation contributes $7.6 trillion to the GDP every year, but the lack of child care is a significant hindrance to that contribution. Our analysis found that, on aggregate, parents are projected to lose nearly $9 billion per year in earnings as a result of the expiration of the federal child care funding. This reflects a combination of parents leaving their jobs or cutting their work hours to address gaps left by disruptions in child care arrangements.
Two-thirds of Americans live paycheck to paycheck. This includes a growing number of higher-income households. Beyond this, 10 percent of families face food insecurity. Any disruption in employment for parents is going to make it more likely that families will face economic hardship or food insecurity. The RAPID survey found that in March 2023, one in three families faced at least one form of material hardship, including trouble affording food, rent, child care, or utilities. For all of these trends, Black and Latinx households are much more likely than white households to face material hardship.
Our findings show that as a result of the upcoming child care cliff, millions of parents will be impacted, and many will either leave the workforce or reduce their hours. In addition to the immediate earnings losses, significant evidence shows that these parents will also face long-term consequences. Research has repeatedly shown that even short disruptions in work can lead to long-term lifelong earnings losses.
A study by the Center for American Progress, found that a woman who takes five years off at age 26 for caregiving, “would lose $467,000 over her working career, reducing her lifetime earnings by 19 percent.” Even reducing hours to work part-time can have negative effects on lifelong earnings for women. Concerningly, an analysis from the Bureau of Labor Statistics found that mothers become more likely than women without children to have part-time jobs during their prime-working age years, ages 25–54, especially mothers of young children. Whether leaving work full time or choosing to take on a part-time role, these workforce disruptions have long-term consequences. Part-time jobs are also less likely to offer employer-sponsored retirement savings accounts, and short work disruptions can still reduce Social Security benefits at the time of retirement.
These disruptions also impact child well-being. Children benefit from their parents’ economic stability. Family income impacts children’s cognitive development, physical health, and social and behavioral development because it is connected not only to parents’ ability to invest in goods and services that further child development, but also to the stress and anxiety parents can suffer when faced with financial difficulty, which in turn can have an adverse effect on their children.
State Economies Could Lose $10.6 Billion in Tax Revenue and Productivity Each Year
One study found that the United States already loses $122 billion a year in lost earnings, productivity, and tax revenue due to the lack of a functioning child care system. The additional blow to the economy from the expiration of ARPA stabilization funds will have widespread effects, including the $9 billion in lost earnings noted above, the more than $300 million predicted to be lost in state income tax revenue, and more than $10.3 billion in likely losses to employers from increased employee turnover and reduced productivity from child care disruptions. States rely on tax revenues as a significant share of funding for their activities. According to the Center on Budget and Policy Priorities, 72 percent of state revenues come from income, sales, and other taxes. As a result, state revenues are inextricable from economic activity. Lower income through workforce disruptions will reduce state income tax revenues.
This means that states, which must balance expenditures with revenues, will have to make cuts if their revenues drop as a result of lower economic activity. The two biggest buckets of state spending are often spending on education and health care. Lower parental employment will mean less funding for the essential services that state and local governments provide.
Workforce disruptions are also a hardship for businesses. Lost productivity and turnover create additional costs for hiring and training new hires. One national survey found that the majority of small business owners feel that the lack of child care for their workers harms their business. ReadyNation estimated that the lack of affordable child care costs businesses $23 billion each year. Solving child care is not only essential for family economic security, but for the businesses and communities that are supported by the labor force participation of parents.
Additional losses to state economies will accrue due to the loss of sales tax and the child care workforce shrinking by a projected 200,000 jobs. While these are not well-paid jobs, despite the fact that they should be, the decline will have an impact on the economy in the loss of those wages and tax revenues as well.
States Are Scrambling as Federal Funds Expire
Given that the deadline to spend ARPA stabilization funds is now looming, states are contending with strategies for maintaining their struggling child care sectors. Federal intervention through subsidizing the child care market is the only sure way to lower the price of child care for families while raising wages for early childhood educators. With no sign of imminent federal action, many states have taken proactive measures to support their child care sectors in anticipation of the loss of federal ARPA dollars and in doing so, have identified a diverse set of pathways other states can follow as they seek to implement long-term investments in child care infrastructure.
States have had great success in using ARPA and other emergency relief funds to stabilize their child care sectors following mass job losses and program closures during the first two years of the pandemic. The end of these funds will have broad-reaching implications for child care programs and families in every state.
In Wisconsin, funding for the Child Care Counts Stabilization Payment Program will be cut in half. The support these funds provided saved more than 3,300 child care programs, 22,000 early educator jobs, and enabled continued care for 113,000 children by providing emergency assistance during the early stages of the COVID-19 pandemic. Once ARPA funds run out, our analyses show Wisconsin risks losing 2,110 child care programs, impacting more than 87,000 children. Our calculations show turnover from parents leaving the workforce would cost the state of Wisconsin more than $232 million in parental wages, a substantial but entirely preventable loss. Even while APRA funds remain, however, the dearth of accessible and affordable care has led Wisconsin families to report that they are planning pregnancies around the availability of child care slots or deferring having children altogether.
In Texas, too, emergency relief funds from the CARES Act and ARPA enabled the Texas Workforce Commission to distribute $3.45 billion in direct funding to child care programs over two years. This funding was used to subsidize overhead costs for child care programs, wages and job training for early educators, and support program expansions into child care deserts. Sixty percent of respondents in a survey by the Texas Association for the Education of Young Children said their program would have closed without this aid. Texas stands to lose nearly 4,000 child care programs once stabilization funds sunset, leaving over 300,000 children without child care. For a state as populous as Texas, the total cost of turnover and lost productivity is nearly $1 billion. And as the child care supply dries up due to program closures and job losses, tuition prices will be driven up, creating an added burden for parents already struggling to afford care.
Protestations from parents that child care is too expensive and too hard to find are echoed throughout the country. Virginia’s United Way of Greater Charlottesville warns that child care prices in the state are higher than ever before, ranging from $14,500 per year for a toddler to $24,000 per year for an infant. Early in the pandemic, Virginia invested $203 million in ARPA funding for child care and was able to expand eligibility for families with young children seeking subsidies to 85 percent of the state median income. Virginia also updated their process for reimbursing child care providers and used federal funds to reimburse providers for the true cost of care as opposed to the market rate, which severely underestimates the bills that providers pay to operate their programs. Without the support of federal funds, Virginian families will see a decline in child care options and struggle to pay for the unaffordable child care that is still available.
Parents pay the greatest share of their earnings on child care in New York, where Bronx families, for example, spend a staggering 47 percent of the median household income on care for a single child. Unaffordable child care prices put parents in an impossible double bind: child care is too expensive, but few families can afford for a parent to lose needed income by leaving their job. We project that over 10,000 New York parents across the state would be forced out of the workforce, and an additional 74,000 forced to cut their hours, standing to lose a collective $846 million in household income. This is economically unsustainable for both families and state economies.
Even when families can afford care, identifying quality care close to home can be challenging: the child care supply is dwindling as programs close classrooms and extend waitlists to compensate for poor staff retention rates. The primary reason early childhood educators leave their jobs is unsustainably low wages, and while service jobs in retail and the food-industry raised wages during the pandemic, child care wages have stagnated.
All of these issues - high tuition prices, low early educator wages, and decreasing program supply - can be attributed to a critical lack of public investment in child care. The distribution of emergency relief funds during the pandemic alleviated these issues and demonstrated that government support of child care through tuition waivers, stipends, reimbursements, expanded eligibility, and direct payments to parents and providers alike can keep child care programs open and parents in the workforce. A child care sector without public funding that is once again simply left to “the market” to support will see the return of longterm problems. States have learned these lessons from the pandemic and are seeking avenues to ensure their child care sectors can weather the end of ARPA stabilization funds.
With federal funds expiring, governors and state legislatures are attempting new measures to fund child care. For example, in Maine, Governor Janet Mills has proposed a budget that would allocate $24 million in federal funds for child care and early education to continue the investments that were initially made in early educator wages and professional development opportunities using ARPA funds. Meanwhile, Democrats in Maine’s Senate have proposed a bill that would continue pandemic-era stipends for child care workers and double their amount from $200 to $400. These investments in staff wages are a deliberate effort to stem the tide of job losses in the child care sector.
In Minnesota, the 2023 legislative session included historic investments in child care and early education. During the first year of the pandemic, 96 percent of providers in Minnesota who received child care stabilization grants said the grants helped them stay open and operate. The state required that providers spend 70 percent of their grants on compensation. Providers used the funds primarily to raise wages and provide bonuses, with 84 percent saying it helped them retain staff and 61 percent saying it helped them recruit new staff. As these funds expire, the legislature, following the leadership of Governor Walz, has voted to invest $750 million in new spending on child care and early learning, including adding 1,000 new child care slots, raising reimbursement rates for early educators, and lowering costs for families.
Oregon’s Governor and the state legislature are proposing significant new investments in child care and early learning. Unfortunately, without federal partnership, the funds come up short. Their proposal would still leave the state’s total available funding below the level they received from ARPA. This makes it abundantly clear that while states can and should dedicate funds toward alleviating the strain on their child care sectors, the federal government needs to continue to commit funding in order for states to continue strengthening their child care workforce and building an adequate supply of high-quality and affordable child care.
Other states’ efforts to find long-term funding sources preceded the pandemic. While they were not implemented as a direct response to the sunsetting of ARPA funds, they offer potential models for raising money that other states can replicate. New Mexico made history when it passed a constitutional amendment dedicating funding from the Land Grant Permanent Fund to early childhood education. In addition, in recent years, Missouri and Maryland have followed Louisiana’s lead in finding additional sources of funding, by funding early childhood education through a portion of funds raised from sports betting. Another model is the tri-share program - a public private partnership that splits the price of child care evenly among parents, employers, and the state. Michigan launched the country’s first tri-share pilot program in 2021, giving the state administrative oversight, which minimized a substantial burden for both employers and child care providers, and enabling employers to invest in a service that has improved staff retention by 80 percent. Meanwhile, North Carolina’s recent House budget proposal followed Michigan’s example and outlined a tri-share program.
States also received $15 billion in child care supplemental funds that were included in their child care development block grants. Those funds have been used to expand child care assistance to families who had not previously received it (by changing eligibility rules or simply having the resources to reach more families through a program that is historically underfunded) and making child care more affordable by reducing or eliminating family copayments or fees, and will continue to be available until September 30, 2024. In addition, some states have also used ARPA state and local relief funds to further supplement their child care spending. For example, policymakers in Rhode Island, New Jersey, and Evanston, Illinois are among those who have used these funds to support higher wages for early educators. In Connecticut, Nevada, and Fort Bend, Texas, these funds have also been used to lower child care costs for families. These temporary federal sources are helpful, but not enough.
Efforts to shore up the child care sector at the state level demonstrate nationwide awareness and a justified sense of urgency to prevent further decline in a critical sector. Without further investment at the federal level to prevent an abrupt drop-off in resources, these efforts will fall short. Providers, parents, and children will pay the price.
Mitigating Catastrophe
States can make a significant difference in improving child care’s accessibility, affordability, and quality, but to truly build the comprehensive child care and early learning system America needs requires a national effort. The federal government must contribute in partnership with states, localities, employers, communities, and families to ensure that the next generation children and their families have the resources they need to thrive.
Congress got close to achieving comprehensive child care in 1971, and again in 2021. As the largest investment in child care in American history expires in September, children and families cannot wait another fifty years. Congress must act now with immediate funding and sustainable solutions. The Child Care for Working Families Act, for example, would make child care and early education affordable so that any parent - no matter where they live or what they look like - would have great care options for their children. The stakes are high: 70,000 child care programs serving more than 3 million children; 200,000 early education jobs, 3 million parents and $10.6 billion in state economic revenue from lost productivity and taxes. When America decides something is a priority, we find the funding. It’s time to prioritize child care to ensure all our families are able to thrive.