Tackling the Childcare Shortage: Empowering Governors to Act

The childcare industry in the United States is facing a severe national shortage of providers and programs, causing a significant decline in the number of licensed providers, and leaving thousands of parents struggling to find suitable care for their children. The situation has reached a critical point as over 16,000 childcare programs have shut down in the past two years, resulting in a staggering 9 percent decrease in licensed providers. Shockingly, nearly 90,000 providers have left the industry between February 2020 and March 2023, leading to a distressing 9.7 percent drop in childcare employment, with a staggering 102,400 jobs lost.

The repercussions of this childcare crisis extend far beyond the industry itself. The inability to find adequate childcare has severely impacted parental employment, as evidenced by a U.S. Census Bureau survey revealing that over 365,000 adults lost their jobs in just a four-week period due to the need to care for children under the age of 5. An astounding 1.3 million respondents reported that someone in their household had left their job in the past two weeks to care for children. The economic toll is astronomical, with childcare challenges estimated to have cost the economy a staggering $122 billion in lost earnings, productivity, and revenue in 2022 alone, with further increases expected in 2023.

One of the major reasons for the childcare crisis is the exorbitant cost of care for families. The average monthly cost for licensed center-based care is an astonishing $1,300 for infants and nearly $900 for preschool-aged children. Consequently, more than half of parents with children under 15 years old are forced to allocate 20 percent or more of their household income to childcare. The situation is particularly dire for infant care, with the costs being 49 percent higher than for preschool-aged children, while the average subsidy rate is a mere 26 percent more for infants. This financial burden often leaves childcare providers struggling to cover their expenses when caring for the youngest children.

Adding to the problem, public funding for childcare is woefully inadequate, with the primary source, the Child Care and Development Fund (CCDF), only reaching 1 in 7 eligible children. This leaves many families ineligible for assistance and struggling to afford childcare, exacerbating the crisis even further.

To address these challenges, governors can take action by calculating the true cost of care, developing wage scales for educators, creating new financing strategies, compensating providers based on enrollment, and offering incentives to expand childcare options in underserved areas. To increase the supply of affordable and high-quality childcare, this report outlines five key steps that governors can take:

1.       Calculate the true cost of care and set childcare subsidy rates accordingly

The current childcare subsidy rates often fall short of covering the actual cost of providing high-quality care. To address this, states should develop models that accurately determine the true cost of care. This includes considering factors such as staff compensation, appropriate teacher-to-child ratios, safe and developmentally appropriate environments, and other operational expenses. By calculating the true cost, states can set subsidy rates that better reflect the actual expenses incurred by childcare providers, ensuring that providers can sustain their operations while offering affordable options to families.

2.       Develop wage scales that create parity with K-12 compensation

Childcare workers are crucial to providing quality care, yet they are often paid low wages. This leads to high turnover rates and a demoralized workforce. To address this issue, implementing wage scales that provide transparent and equitable salary increments based on qualifications and experience can create a more competitive and sustainable career path in early childhood education. By offering better compensation, states can attract and retain skilled childcare professionals, leading to improved quality of care for children.

3.       Create new financing strategies to address the pending fiscal cliff

While the American Rescue Plan has provided temporary funding relief, long-term financing solutions are needed to ensure the stability and growth of the childcare system. One approach is to establish dedicated funding streams specifically for early childhood education. This can include sin taxes (levying taxes on products like tobacco, alcohol, or sugary beverages), lottery dollars, sales taxes, or incorporating childcare funding into school funding formulas. By securing sustainable funding sources, states can reduce reliance on unpredictable annual budget appropriations and ensure consistent investment in the childcare system.

4.       Compensate providers based on enrollment, not attendance

Currently, childcare subsidies are often based on attendance, which can create financial challenges for providers. If a child is absent, the provider loses income even though they still have fixed expenses. To address this issue, reimbursement rates should be based on enrollment rather than attendance. This allows providers to anticipate their staffing needs and allocate resources accordingly, regardless of daily attendance fluctuations. States like Maine, Wyoming, and Montana have already adopted this approach, which helps providers maintain financial stability.

5.       Offer incentives to expand child care options in child care deserts

Childcare deserts, which are areas with limited access to licensed childcare, pose challenges for families, especially those in rural and low-income communities. To address this issue, policymakers can provide incentives to encourage the expansion of childcare services in underserved areas. This can include grants, tax credits, or other financial incentives for providers who establish childcare facilities in these deserts. By increasing the availability of childcare options, families will have better access to quality care, supporting both parental employment and early childhood development.

Implementing these strategies requires collaboration between state governments, childcare agencies, providers, and other stakeholders. By prioritizing the affordability, quality, and accessibility of childcare, policymakers can create a more robust and sustainable childcare system that supports both children and families.