Group of small nursery school children sitting and listening to teacher on floor indoors in classroom

Navigating the childcare crisis: government-led initiatives

Authors

  • Jeri Culley

    Senior Manager, Health and Human Services Lead, Ernst & Young LLP

  • Drew Weiskopf

    Senior Manager, Government & Public Sector, Ernst & Young LLP

07 minute read 01 Oct 2024

The childcare crisis in America is at a critical point that is impacting families, workforce participation and, ultimately, the economy.

In brief
  • The childcare crisis in the US strains budgets, limits early development, and challenges providers' financial sustainability.
  • Federal and state initiatives aim to improve affordability and quality, with new CCDF rules enhancing accessibility.
  • States are responding with innovative strategies, public-private partnerships, and workforce development to tackle the crisis.

The childcare crisis in America is at a critical point that is impacting families, workforce participation and, ultimately, the economy. With costs soaring and availability dwindling, parents and caregivers are facing increasing challenges to find affordable reliable care for their children. This crisis is straining household budgets, especially among single parents, and limiting early childhood development. In response, a federal agency and state governments have begun to explore and implement innovative solutions and are assessing their impacts on our communities.

In many areas of the country, some forms of childcare cost more than housing, placing a significant financial burden on parents. The average yearly cost of center-based infant care exceeds the cost of annual in-state public university tuition in 39 states.¹ Furthermore, the childcare industry is marked by low wages and high workforce turnover, which in turn results in inconsistent quality of care. 

How EY can help

The onset of the COVID-19 pandemic exacerbated these issues as many childcare providers were forced to close their doors either temporarily or permanently, reducing capacity and driving up prices even further. As a result, the childcare system is in a state of disarray, with parents struggling to find and afford care and providers grappling with how to achieve financial sustainability.

 

The end of the American Rescue Plan Act (ARPA) childcare stabilization grants has created a significant challenge for providers relying on this funding to cover operational and workforce costs. Many childcare providers are finding themselves in the same position they were in during the early pandemic, grappling with how to pay their employees a living wage to maintain a stable workforce and create a sustainable financial model that prevents service disruptions.

 

As states aim to solve these unique issues while also grappling with the unwinding of initiatives and programs funded by ARPA, they should consider:

  • The need to develop a strategic roadmap to help plan for short- and long-term childcare transformation initiatives 
  • Modernization of their childcare subsidy management systems to improve the user experience along with increased data and reporting functionality as well as compliance with state and federal regulations, including the Child Care and Development Fund (CCDF) final rule
  • Integration of innovative tools and technologies aimed at supporting childcare providers and their workforces, and, in turn, increasing quality and access to care 

The approach should be centered on innovation that focuses on sustainable solutions that leverage public-private partnerships, empower providers and enhance the business operations of lead state agencies. As states navigate this transformative process, it is advised to cater to the diverse needs of families by forming lasting and adaptable outcomes. 

 

Federal action

 

The Health and Human Services Administration for Children and Families published the CCDF final rule, which became effective April 30, 2024. This rule updates regulations to increase the accessibility to and quality of childcare, as well as establishing mandates for states to compel more effective management of subsidies and data collection from providers. These requirements are designed to streamline processes, enhance transparency and improve the overall quality of childcare services. States are now tasked with carrying out background checks for childcare employees, implementing financial sustainability practices around paying providers prospectively and establishing that copays be no more than 7% of family income.

 

In response, various states have enacted legislation and policies to align with the federal rule, e.g., Massachusetts has implemented a policy to pay providers based on enrollment as required by the CCDF final rule. Virginia, on the other hand, recently established Building Blocks for Virginia’s Families, which includes $25 million to provide direct services through grants or contracts in underserved areas to address childcare “deserts” as required by the CCDF final rule.

As the federal agency continues to address accessibility, affordability and quality through the CCDF, another recent effort is the Creating Helpful Incentives to Produce Semiconductors (CHIPS) Act. This act, while primarily focused on semiconductor manufacturing, includes provisions that address providing affordable childcare to attract the workforce needed for this industry. The act requires semiconductor companies to provide a plan to the Department of Commerce that addresses how they will provide access to affordable, reliable and high-quality childcare for their workers. This is the first childcare-related requirement of any federal grant program and it acknowledges the economic impact of a stable childcare infrastructure on employee productivity and retention.

State-led initiatives to address the crisis

In response to the childcare crisis, state governments have begun to implement a variety of their own strategies aimed at increasing childcare affordability, accessibility and quality. These initiatives include:

  • Subsidy programs and tax credits: States are expanding subsidy programs to assist low- and middle-income families with childcare expenses. By states increasing the income eligibility thresholds, more families can access financial support. Additionally, some states are offering tax credits to offset childcare costs and to encourage providers to serve a greater number of children or improve their facilities.
  • Public-private partnerships: States are fostering collaborations between government agencies, childcare providers, businesses and philanthropic organizations. These partnerships aim to pool resources, share best practices and develop sustainable funding models. For example, some states have established grant programs aimed at expanding childcare availability.
  • Workforce development: Understanding that a qualified and stable workforce is critical for quality childcare, states are investing in professional development and higher wages for childcare workers. Initiatives include scholarship programs for workers to pursue credentials in early childhood education and wage supplementation programs to retain experienced staff.
  • Regulatory reform: To reduce the burden on providers and increase the supply of childcare, some states are reassessing regulations around licensing and zoning. Streamlining the licensing process and allowing for more in-home and community-based providers can help increase access, especially in rural and underserved communities.
  • Universal pre-K programs: Several states are leading the way in establishing universal pre-kindergarten programs, providing publicly funded access to early childhood education for 3- and 4-year-olds. These programs not only prepare children for academic success but also provide quality childcare for families.

Case studies

Several states are leading the way in addressing the childcare crisis:

  • Washington state’s Fair Start for Kids Act aims to make childcare more affordable and accessible while improving quality and supporting providers. This includes available grants in Complex Needs Funds to support children with developmental delays, disabilities, behavioral needs or other unique needs. This aligns with the CCDF’s emphasis on access and affordability while supporting providers to improve quality.
  • Oklahoma’s universal pre-K program has attracted high participation rates and positive educational outcomes. Currently, 65% of Oklahoma 4-year-olds participate in the pre-K program and are served by an early childhood-certified teacher. In 2021 Oklahoma ranked second in the nation in access to preschool programs. This initiative is in line with the CCDF’s goal of enhancing early childhood education.
  • Nebraska recently added childcare and school readiness tax credits aimed at reducing the financial burden on parents and childcare providers, while also encouraging private sector involvement in growing the childcare infrastructure. In addition to eligible parents with children enrolled in childcare, tax credits are provided to businesses and other entities that make a qualifying contribution to strengthen local childcare options. These tax credits encourage the private sector to invest in childcare in underserved areas, especially those with heavy participation in the childcare subsidy program.
  • Tennessee’s Non-Profit and Employer Workforce (NEW) Care Partnership Grants are aimed at encouraging nonprofit organizations to propose strategies and innovative models of partnership with private employers to expand access and availability for their workforce. Recently Tennessee partnered with Tyson Foods to provide employer-sponsored on-site childcare. In this model, the employer pays part of the copay for families eligible for childcare subsidy assistance, with the added convenience of on-site childcare.

The views reflected in this article are the views of the author and do not necessarily reflect the views of Ernst & Young LLP or other members of the global EY organization.


Summary

State governments are implementing a range of carefully considered strategies to help families access affordable high-quality childcare. This is being accomplished by investing in subsidy programs, fostering public-private partnerships, supporting workforce development, reforming regulations, expanding universal pre-K and implementing the final CCDF rule. Processes such as strategy and roadmap planning can help states address specific needs in the childcare market with innovative solutions, web-based statewide childcare directories to help families identify the best provider for their child, and programs to help childcare providers keep their center open when there is an employee absence.

About this article

Authors

  • Jeri Culley
    Senior Manager, Health and Human Services Lead, Ernst & Young LLP
  • Drew Weiskopf
    Senior Manager, Government & Public Sector, Ernst & Young LLP
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