For two years, the United States has been effectively running an experiment in federally funding child care providers. The $24 billion disbursed in pandemic relief has been the largest investment in child care in U.S. history. Child care providers have used the money to raise teachers’ pay, buy supplies and pay mortgages.
In September, those funds expire, one of the last of the pandemic-era safety net benefits to end. It is a looming crisis for the industry, and could lead to tuition hikes, layoffs and closures. In all, child care could be disrupted for three million children, close to a third of those in child care, according to a report released Wednesday by the Century Foundation.
The National Association for the Education of Young Children regularly surveys child care owners and workers. In its most recent survey on the grants, in October 2022, four in 10 directors and owners nationwide said they would have to raise tuition when grants ended this fall.
More than a quarter said they would have to cut wages — from a median hourly wage of about $12. Nearly a third of providers, including 44 percent at those owned by minorities, said they might consider leaving their job or, in the case of home-based child care, closing altogether.
“Federal funding made a huge difference,” said Julie Kashen, a senior fellow at the Century Foundation and an author of the new report. “There are going to be huge and dire consequences for child care employees, for families, for employers.”
Children’s Corner, which cares for 80 children in Millcreek, Utah, has been receiving $26,000 a month in grants, said its director, Jen Whyte-Frederickson. Without the grants, she said, the center, which her parents started 40 years ago, would have closed during the pandemic.
She used the money to raise hourly pay to $15 “because they all deserve it,” she said. When the grants end, she said, “the plan is raising tuition.” She already increased it to $985 from $900 monthly for a 2-year-old, and will probably raise it above $1,000.
For Lorna Adkins, who runs Growing Places from her home in Huntington, W.Va., that’s not an option for her families: “Raise tuition? Not in West Virginia, not in this economy, not here.”
She has been receiving $3,200 a month. She has spent it on wages, cleaning supplies, utilities and to offset rising food prices. After expenses, she said her take-home pay without the grants was about $2.50 an hour. With the grants ending, combined with rising costs and new regulations on providers, she said, she plans to retire early.
“There are a lot of people in child care that are going to close down because of this,” she said. “It’s just a fact.”
The federal relief funds saved the industry, analysts and providers say. One in three child care providers — 70,000 — receiving the grants might have closed. Unlike public schools, child care is almost entirely financed by private tuition. When it dried up during lockdowns, providers could not stay afloat.
But the sector was precarious even before the pandemic. Treasury Secretary Janet Yellen has called child care a textbook example of a broken market. Workers are paid less than in 98 percent of other professions, but many providers cannot raise prices because parents often can’t afford it. Already, half of parents spend more than 20 percent of their household income on child care.
“The grants were really designed to prop up a system that had already been failing before the pandemic,” said Caitlin McLean of the Center for the Study of Child Care Employment at the University of California, Berkeley.
The pandemic also reshaped the business. In some places, parents are not using regular child care as often as they had been, with many working from home. Hiring has also become much harder, as other jobs, in many cases less demanding, have begun paying more.
In the National Association for the Education of Young Children survey, two-thirds of providers said they were experiencing a staffing shortage, and of those, nearly half said they were caring for fewer children than they would like because of it.
Three-quarters of child care providers who received grants have used funds to pay teachers. Now they face cutting pay — while in a hiring bind.
“We are backed into a corner now, because we can’t decrease their wages because then we will definitely not have teachers, and we can’t increase our rates for parents because parents cannot pay any more than they are,” said Brooke Skidmore, who owns the Growing Tree in New Glarus, Wis., with her brother.
The $24 billion to stabilize the industry came in the American Rescue Plan, and the grants were distributed by states according to varying rules. More than 80 percent of providers received them. Previously, federal support for child care came mainly through block grants that states use to subsidize care for low-income parents. Congress also increased these grants by $29 billion during the pandemic, set to expire in September 2024.
Some Democrats in Congress want subsidies for child care to be extended or made permanent. Some Republicans have also proposed increased federal funding for child care.
Senator Bernie Sanders, who recently released a report on the subject with Senator Patty Murray, said, “If we allow this cliff to take place and lose the billions of dollars that we put into stabilizing child care, it will make a disastrous situation even worse.”
Yet Democrats’ large social safety net bill, which included subsidized child care and universal pre-K, failed to pass. Republicans, along with a Democratic senator, Joe Manchin, said the investments were too expensive, among other concerns. Senior Biden administration officials said billions in additional funding for child care providers appeared unlikely, especially given the recent push from Republicans to limit government spending.
Some states and localities have found ways to continue to subsidize child care, and others are considering it. Minnesota made an investment of $750 million. Policymakers in Maine have proposed continuing pandemic-era investments. In November, New Mexico passed a constitutional amendment to guarantee a right to early childhood education.
Adaeze Ngoddy, owner of the Rex Childcare and Early Learning Center in Rex, Ga., said she hoped there was a way to keep financial help coming. Even with $51,000 in monthly grants, her business has not fully recovered from the pandemic, she said, and has been unable to hire for six open teaching positions.
“I’m hoping they continue until things actually do normalize,” she said.