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Child Care Fiscal Cliff Looms as Federal Funds Come to an End

child care federal funding coming to an end

With Pandemic Funding Set to Expire, Communities Face Economic Disruption


By Jeff Andrews, President
Business of Child Care

The American Rescue Plan Act (ARPA) signed by President Biden in March of 2021 brought with it $24 billion in federal funding for child care providers at risk of closing during the pandemic. It also represented the largest federal effort on record to prop up an already struggling industry.

ARPA funds have reached more than 8 out of 10 licensed child care programs nationwide, impacting millions of children and their families. Because of ARPA funding, child care business owners and operators were able to keep the doors open, and parents were able to continue going to work to support the economy.

Come September, those child care stabilization grants will dry up as the program sunsets, creating what many have dubbed a “child care fiscal cliff”, but in reality, it is more like a train reaching its final destination – leaving communities stranded and woefully unprepared.

The end of the line for federal dollars will have a huge financial impact on child care businesses, families, employers, and the economy at large. A recent report from The Century Foundation found the end of ARPA dollars could mean the closure of 70,000 programs nationwide, which would result in the loss of 3.2 million child care spaces.

Working families may have no choice but to quit work or reduce hours, resulting in a possible $9 billion loss in annual income. More than 230,000 child care workers could lose their jobs. Lost business and tax revenue could cost states $10.6 billion in economic activity per year. Add that to the $122 billion the U.S. already loses annually in earnings and tax revenue due to a lack of available child care, according to a 2023 report by Ready Nation.

How Did We Get Here?

ARPA was designed to provide a lifeline to already struggling child care programs, the number of which shrank by 16,000 during the pandemic. An astounding 220,000 child care programs were helped by ARPA funds. Providers in many cases used the funding to raise wages, to attract workers, cover program and business costs to avoid raising tuition, and simply to keep the doors open. While the funds provided temporary relief, grants did not require any changes addressing the underlying issues challenging child care business owners and operators – notably a business model that may not be sustainable or pay enough to attract and retain workers.

It is difficult for many providers to grasp the need to make changes from the traditional model that they are used to operating in, let alone figure out how to do it on their own. Many child care business owners and operators who haven’t learned how to update their business models now find their backs against the wall, faced with program closures, or at the very least, having to raise tuition and reduce capacity as they try to remain viable.  Business of Child Care educates child care business owners and operators on how to create a sustainable business model so they can navigate what could be an existential change for providers nationwide.

Can’t Government Help?

It depends on the will of lawmakers, and public interest. At the congressional level, Washington Senator Patty Murray and Virginia Representative Robert Scott have re-introduced a bill that would provide federal funding, and cap family child care expenditures to no more than 7% of family income. The bill was previously unsuccessful, and hasn’t moved forward this year.

At the state level – it’s a mixed bag. Minnesota passed legislation to provide increased compensation and benefits for early child educators in programs that are deemed eligible. Other states voted down additional funding, or simply didn’t address it. Wisconsin’s governor is framing child care as a work force issue, and has called a special session for September after failing to convince lawmakers to use part of that state’s budget surplus to continue to support a state program currently funded by federal dollars.

Getting politicians to act depends on whether voters are willing to prioritize child care as something taxpayers should invest in. First Five Years Fund, a bipartisan advocacy group focused on child care, published a survey in July saying 74% of voters they asked believe increased funding for child care and early childhood education should be a priority.

Even if voters begin to press lawmakers, legislation takes time, which many child care programs don’t have. And, if states make funds available, with no provisions to create sustainable programs, child care infrastructure will remain perched on a house of cards, ready to fall if that funding ends.

Building Sustainable Child Care Begins in the Community

Creating a truly sustainable child care infrastructure can include top-down solutions, but building programs that work at a community level should begin with community stakeholders. These are the people, the employers, the school districts, and regional economic development planners who understand what their community needs, where and how to draw on existing resources, and how to frame goals that work for the people who live there.

Business of Child Care was brought in to Moultrie County, Illinois to do exactly that. By assessing the current child care landscape and existing businesses, we worked with the community to set goals. Now, 75% of family child care providers in the area are earning recognition for their quality through state’s formal quality rating system, Illinois ExcelRate, and the community is on track to create 100 new child care slots in the next 12 months.

By understanding a community’s resources plus current and future needs of both families and employers, community stakeholders can agree on goals and an intentional path forward to produce the outcomes they desire. Long term planning includes not just increasing child care capacity – but tailoring it to fit the needs of that community. Is there a need for slots for children of 2nd shift workers? What about kids with special needs, or children learning a second language?

In too many communities, this type of long term, comprehensive planning is not happening, leaving a vital part of economic infrastructure to happenstance.

Making the Business Case for Existing Child Care Providers

What can’t be forgotten is the need to recognize and support existing child care businesses. Support can range from recognition to supporting business grants and incentives as well as professional development opportunities.

ARPA provided immediate relief to child care business owners during the pandemic in part because it gave them funding to boost wages. The National Association for the Education of Young Children found 80 percent of child care centers experienced staffing shortages during the pandemic, driven by low wages. Now, in 2023, staffing shortages remain in the midst of a tight labor market.

While business owners benefited greatly from government funding during the pandemic, they were not given tools to make their businesses stronger. They got a short-term fix with no long term strategy – which is why so many are on the verge of crisis today. Simply put, if the math doesn’t work, it is impossible for a business to survive, unless the owner has the means to continue at a loss.

Real support for existing businesses includes tools to understand the local market, including local wages, what others are charging for tuition, and how to navigate existing government structure to ensure any subsidies or grants are being fully utilized. No child care business owner or operator wants to put families into a bind by raising tuition, but no provider can survive if they don’t understand the true costs of their business and charge accordingly.

Next Steps

Federal funding through ARPA provided a lifeline for many business owners, communities, and families. But the basic problems within the child care industry remain – overall lack of capacity, a one-size fits all mentality, staffing shortages, and a lack of meaningful business support for existing child care business owners and operators. The most damaging, in terms of long-term economic consequences, is lack of a community-wide approach.

The core of our work at Business of Child Care is to deploy a Whole Community ApproachTM that starts by bringing the right stakeholders into the conversation. From there we help that community determine its desired goals, and develop actionable steps toward meaningful, real-time outcomes. 

A good plan doesn’t have to solve every challenge for child care in that community. Moving forward and notching the first wins toward the overall desired outcome is, in fact, a big win. Regardless of whether a community decides to rely on outside help, the first step to any meaningful plan to improve child care infrastructure is to get organized and look at the needs of the entire community, including existing child care business owners and operators. If you don’t have a clear picture of where you stand now, your chances of creating an actionable plan to move forward are greatly reduced.

Communities don’t have time to wait for federal or state governments to solve these issues – the sustainable approach ideally focuses on building a strong child care infrastructure at the local level, with stakeholders who understand the regional economic business case for doing so. The challenges facing child care are not insurmountable. Real success, however, requires an intentional approach by stakeholders.

Learn more about how Business of Child Care helps communities organize, assess their needs and create a viable plan of action to meet their goals at

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