NACo Legislative Toolkit: Federal Policy Levers for Stabilizing the Child Care Industry

County Child Care Priorities

• High-quality child care services are needed to ensure that we meet the developmental needs of children.
• Federal support for child care should be available to all public assistance recipients who need it while participating in employment, education, or training.
• Funding for the Child Care and Development Block Grant must be increased to meet eligible families' needs while maintaining the funding and flexibility in TANF.
• Federally funded childcare should be available to working parents as they leave public assistance and continue to be available on a fee scale based on their ability to pay. At the very least, there should be enough federal child care funds to ensure that quality services are available to families with incomes of up to 225 percent of the federal poverty level and for families that leave TANF.
• Financial support should be made available for infant care, child care for children with special needs, children in foster care, and child care during non-traditional hours when needed.
• Public child care resources such as licensing and monitoring of providers, information and referral, and assistance in selecting appropriate care should be available to all, without regard to income or resources.
• State and local licensing laws should be carefully monitored to ensure the adequacy of facilities and caretakers.
• Employers should be given increased financial incentives to provide child care for their employees on-site or as a benefit.
• The Dependent and Child Care Tax Credit should be made refundable.
• Counties support legislation that would protect and increase investments in early childhood development to ensure that needed educational, nutritional and social services are available to children in the critical years of development between birth and age three, including publicly funded child care and support of the early childhood workforce.

The COVID-19 Child Care Crisis

Many of the challenges currently facing the child care industry—from the limited supply of licensed providers and high cost of care to the poor profitability and low wages plaguing the workforce—predate the COVID-19 pandemic. In 2018, according to the Center for American Progress, 51 percent of Americans lived in neighborhoods that qualified as child care deserts, defined as a more than 3-to-1 ratio of children under age 5 to the cumulative capacity of licensed or registered child care. A similar analysis from the Bipartisan Policy Center suggests that in 25 states, some 32 percent of children under age 6 face a "child care gap," meaning all available parents are in the workforce, but the children lack access to formal care. This limited supply of quality child care is especially prevalent in rural areas.

Not only is formal child care hard to find, but it is also often incredibly expensive. According to the federal government, child care is considered affordable when it constitutes 7 percent or less of a household's income. However, research suggests that among working families with children under age five that pay for child care, average child care spending amounts to nearly 10 percent of the average family income. In addition, in all United States regions, average child care prices for an infant in a child care center exceed the average amount that families spend on food and transportation combined. Meanwhile, CCDF—the primary federal program offering child care assistance—has not kept pace, reaching just 14 percent of eligible children in FY 2017.

However, the high cost of care does not translate to large profits for providers or competitive wages for the workforce. Before the Covid-19 pandemic, the average early childhood worker earned just $11.65 an hour. This workforce is significantly underpaid relative to K-12 educators and has continuously shown high utilization of public income support programs. These conditions contribute to high levels of stress, depression and turnover among early educators.

The COVID-19 pandemic spun the child care industry into a full-on crisis. At its height, 60 percent of the nation's licensed providers had closed, and one-third of the nation's child care workers were laid off or furloughed. Two years since the onset of the pandemic, the child care industry remains in crisis. The sector netted a loss of 108,000 workers between February 2020 and November 2021. Child care providers surveyed by the National Association of Education for Young Children (NAEYC) in July 2021 reported operating at an average enrollment rate of 71 percent of their licensed capacity, 80 percent reported a staffing shortage and a majority said they had taken on debt to stay open during the pandemic. An estimated 20,000 child centers reported closing for good by December, 2020. 

With young children still ineligible for vaccination and schools facing ongoing COVID-related disruptions, these challenges are likely to persist. At the same time, providers face steep costs associated with lost enrollment, the need for physical safety improvements to adhere to public health guidance, classroom size reduction, the cost of Personal Protective Equipment (PPE) and more.

Federal Policy Levers to Strengthen Child Care Systems

Congress has provided emergency relief for child care throughout the pandemic through direct sources, such as funding for CCDF, stabilization grants for child care providers, and targeted tax credit expansions. However, federal relief packages have also created funding streams, such as the Coronavirus Relief Fund, Paycheck Protection Program, and State and Local Fiscal Recovery Fund, that have also offered opportunities to stabilize the industry.

The Child Care and Development Fund

Congress has authorized a total of $28.5 billion in emergency appropriations for CCDBG since the start of the pandemic. The Coronavirus Aid, Relief, and Economic Security (CARES) Act, enacted in March 2020, offered $3.5 billion in supplemental funding for CCDBG, available through September 30, 2022. In addition, the Coronavirus Response and Relief Supplemental Appropriations Act, 2021 (CRRSA), enacted in December 2020, offered an additional $10 billion for the program available through September 30, 2022. These funds provided broad flexibility to lead agencies to respond to the pandemic, including:

• Providing child care assistance to health care sector employees, emergency responders, sanitation workers, and other workers deemed essential during the response to the coronavirus, without regard to the income eligibility requirements
• Subsidizing providers based on pre-pandemic enrollment, rather than attendance
• Helping providers closed during the pandemic meet operational expenses so they can reopen in the future
• Waiving copayments for parents
• Helping providers pay for the increased cost of following public health and safety guidelines, such as Personal Protective Equipment, enhanced cleaning and reduced classroom sizes

Finally, the American Rescue Plan Act of 2021 (ARPA), enacted in March 2021, provided an additional $15 billion for CCDBG available through September 30, 2024. Agency guidance for these funds strongly recommends that lead agencies focus the resources on strengthening the child care system and ensuring that families have equal access to quality, affordable child care to support them during and after the pandemic. In particular, HHS suggests that lead agencies prioritize child care workforce incentives such as increasing provider payment rates and workforce compensation and that they implement policies that will build the supply of child care in low-income communities, especially for historically underserved populations and those who have lost employment or income during the pandemic.

ARPA also created a permanent annual increase to the CCES of $633 million. During FY2021 and FY2022, states are exempt from meeting their typical state match requirements above what was required of them under previous levels.

Most states, including those with county-administered CCDBG programs, opted to quickly disburse the emergency CCDBG funds provided under the CARES Act to support the dual needs of frontline workers and child care providers during the crisis and to cover the operational costs of providers that were closed to help them eventually reopen. Similarly, most states intend to use the emergency CCDBG funds provided under CRRSA to offer grants to providers to assist with covering costs related to the COVID-19 pandemic. Several also plan to cover parent copayments, increase subsidy reimbursement rates, offer payments based on enrollment instead of attendance and expand the supply of child care support to the child care workforce.

How counties can leverage this resource: County leaders can work with their state CCDF lead agencies to develop plans for the final round of CCDBG funding that will help meet the child care needs of their local communities.

Emergency CCDBG Funding for County Administered States

(in millions of dollars)

View chart

Child Care Stabilization Grants

Along with increased funding for CCDBG programs, the ARP authorized a one-time pot of funding worth $24 billion for child care relief and stabilization grants. States receive an allocation based on the CCDBG formula and may use those dollars to make subgrants to child care providers who are at risk of going out of business. Allowable expenses for the grants include personnel costs, rent, meeting public health and safety standards, updates to equipment and supplies, goods and services needed to stay open, and mental health supports for children and employees. ACF guidance encouraged states to quickly distribute the funds to protect the existing child care market and is providing states with significant flexibility in designing their grant programs. Most states are in the process of making subgrant applications available to their child care providers.

How counties can leverage this resource: County leaders can facilitate connections between states and community-based child care organizations who would serve as effective partners in distributing funds, doing outreach to providers, offering technical assistance and more. Counties that distribute CCDBG funds may also be partnering with states in distributing the stabilization funds.

Child and Dependent Care Tax Credit (CDCTC)

Along with direct spending on child care relief, ARPA authorized a temporary expansion of Child and Dependent Care Tax Credit (CDCTC), which provides tax assistance for families with out-of-pocket child care expenses. Under ARPA, the CDCTC is refundable for tax year 2021, providing new access to the credit for low-income families who previously did not have sufficient tax liability to qualify and increasing the value of the credit for many moderate-income families. The law also increases the amount of the credit to a maximum of $4,000 for one child and $8,000 for two or more children for 2021.

How counties can leverage this resource: County leaders can conduct outreach to ensure residents, especially low-income residents who did not previously qualify for the CDCTC, are aware of this new resource when filing taxes for the year 2021. Counties can also fund or partner with Volunteer Income Tax Assistance (VITA) sites to assist vulnerable residents with free tax filing prep.

Paycheck Protection Program (PPP)

Under the CARES Act, Congress authorized the Paycheck Protection Program (PPP), which provided loans backed by the Small Business Administration to help small businesses keep their workforce employed during the COVID-19 crisis. If certain conditions were met, borrowers were eligible for PPP loan forgiveness. Congress used subsequent relief bills to extend and add additional funds to the PPP.

PPP loans offered a lifeline to some child care providers, though the sector represents a small share of total recipients. According to the Bipartisan Policy Center, in 2020, the PPP supported 43,000 child care providers across the country with at least $2.3 billion in funding and allowed almost 460,000 child care workers to keep their jobs. This funding represents less than 1 percent of the total $525 billion in lending through the program during 2020.

On March 30, 2021, President Biden signed the PPP Extension Act of 2021 into law to extend the PPP deadline to May 31, 2021 and gave the Small Business Administration (SBA) until June 30, 2021 to process loans.

How counties leveraged this resource: County leaders conducted outreach to ensure child care providers are aware of their potential eligibility for a PPP loan, including by connecting providers with resources and technical assistance to apply.

State and Local Aid

Given the pandemic's significant economic impact on state and local governments, both in the form of lost revenue as well as increased expenses associated with COVID-19 prevention, response and recovery, Congress has also provided fiscal relief to its intergovernmental partners.

Coronavirus Recovery Fund (CRF)

The CARES Act established a $150 billion Coronavirus Relief Fund (CRF) for state, county and municipal governments with populations of over 500,000 people to address necessary expenditures incurred due to the COVID-19 public health emergency. The deadline for counties to invest CRF dollars was December 31, 2021. 

ARPA included a new $362 billion State and Local Fiscal Recovery Fund (Recovery Fund) to help states, territories, counties, cities, and tribal governments cover increased expenditures, replenish lost revenue and mitigate economic harm from the COVID-19 pandemic. Of this amount, $65.1 billion in direct, flexible aid is going to every county in America. On January 6, 2021, the US Department of Treasury released a final rule highlighting eligible uses for these funds that make specific reference to the expansion of early education and child care programs in communities and households impacted by the pandemic, as well as premium pay for child care workers.

How counties can leverage this resource: U.S. Treasury outlines a variety of eligible uses for addressing negative economic and public health impacts associated with the pandemic, many of which can help stabilize the child care sector. Counties may use Recovery Funds for services to those negatively or disproportionately impacted by the pandemic, such as:

• Direct assistance to households: Including cash grants to help families and individuals meet a variety of expenses. Counties may consider directing cash assistance to families struggling to afford child care. 
• Assistance to unemployed workers: Including child care expenses associated with accessing employment or job training.
• Aid to impacted industries: Such as tourism, travel, hospitality, and other impacted industries. Child care providers may qualify as an impacted industry so long as the county can provide evidence supporting a negative economic impact due to COVID-19.
• Assistance to small businesses and non-profit organizations: To adopt safer operating procedures, weather periods of closure, or mitigate financial hardship resulting from the COVID-19 public health emergency. Counties may therefore be able to provide loans, grants, in-kind or technical assistance to child care providers falling in this category. Counties might also offer support to non-profit organizations that provide or assist families in finding or affording child care.
• Services to promote healthy childhood environments: Including childcare and early learning. Counties may invest in new or expanded child care services, increasing access to services, efforts to bolster, support or preservice existing providers and services, and similar activities.  
• Premium Pay for Essential Workers: Counties may also use recover funds to provide premium pay (defined as up to an additional $13 per hour) to eligible county workers performing essential work during the public health emergency. They can also provide grants to third-party employers within the county to compensate eligible workers who perform essential work. Child care workers are included in the definition of eligible workers performing essential work during the pandemic.
• Lead remediation in water: Counties may use funds to replace lead service lines and perform water testing and remediation activities in child care facilities.
• Capital expenditures: As a reasonably proportional response to a public health or negative economic impact of the pandemic and within parameters outlined by the U.S. Treasury, Recovery Funds may be used for certain capital expenditures. Counties may invest funds in  improvements to or new construction of childcare, daycare, and early learning facilities.

Counties are also supplementing state and local aid with local dollars to stabilize the child care industry.

Beyond emergency COVID dollars, the Biden administration and lawmakers from both sides of the aisle have called for additional child care relief to stabilize the industry in the long-term by boosting the supply of safe, high-quality and affordable child care and improving conditions for the child care workforce.

Biden Administration Proposals

American Jobs Plan

On March 31, 2021 President Biden unveiled the American Jobs Plan (AJP), a $2.3 trillion investment in America's infrastructure. The AJP proposes $25 billion for a new Child Care Growth and Innovation Fund that would increase the availability of childcare services for infants and toddlers through facility improvements and new construction in high-need areas. It also suggests expanding tax credits for employers that would refund 50 percent of the first $1 million of construction costs for on-site childcare facilities.

American Families Plan

On April 28, 2021, President Biden released the American Families Plan (AFP), a $1.8 trillion proposal to strengthen the economy through investments in child care, education, nutrition and other supports for children and families. The framework includes $225 billion to increase the supply of high-quality, affordable child care. These funds would expand the existing federal child care subsidy program to a sliding scale ranging from no-cost to 7 percent of household income. They would also support quality improvement costs for child care providers and a $15 hourly minimum wage for child care workers along with other professional supports. Under the plan, the CDCTC would also see a permanent expansion, with families earning less than $125,000 annually receiving a tax credit worth 50 percent of their spending on qualified child care for children under age 13, up to a total of $4,000 for one child or $8,000 for two or more children. Families with incomes between $125,000 and $400,000 would receive a partial credit no less generous than their current CDCTC refund.

Congressional Proposals

The Child Care for Working Families Act

 On April 22, 2021, Sen. Patty Murray (D-Wash.), and Reps. Bobby Scott (D-Va.), Chair of the House Education and Labor Committee, reintroduced a bill (S. 1360/H.R. 2817) that would use federal and state funding to cap child care costs for working families, invest in child care quality and supply, expand preschool programs for low-and-moderate-income families and fund higher wages for child care workers.

The Child Care is Infrastructure Act

On March 16, 2021, Rep. Katherine Clark (D-Mass.) reintroduced a bill (HR 1911) to fund physical improvements in child care centers and direct the Administration for Children and Families to conduct a needs assessment of the critical infrastructure and supply issues facing the child care industry in the wake of the COVID-19 pandemic.

Universal Child Care and Early Learning Act

On April 27, 2021, Sen. Elizabeth Warren (D-Mass.) and Rep. Mondaire Jones (D-N.Y.) reintroduce a bill (S. 1398/H.R. 2886) that would authorize $700 billion over ten years to support mandatory federal investments in child care centers and family child care providers to guarantee access to affordable care. Funds would be administered at the local level and support certain quality standards as well as preschool services and capped costs for working families and competitive wages for the child care workforce.

Building Child Care for a Better Future Act

On May 26, 2021, Sen. Ron Wyden (D-Ore.) introduced a bill (S. 1842) that would increase funding for the CCES to $10 billion annually. This investment would support grants to improve child care supply, quality, and access in areas of particular need, including covering the cost of facilities construction and renovation and workforce investments.

Protecting Worker Paychecks and Family Choice Act

On May 27, 2021, Reps. Kevin Brady (R-Texas) and Jackie Walorski (R-Ind.) of the Ways and Means Committee unveiled draft legislation combining several Republican proposals for paid family and medical leave as well as affordable child care. The bill would amend the Employer-Provided Child Care Tax Credit to improve take-up. It would also authorize changes to CCES aimed at eliminating the "benefit cliff" for working families and targeting a newly authorized increase to states with the largest share of young children in poverty. The legislation and create a bipartisan commission to make recommendations to Congress on how to streamline and reduce duplication in the financing of early care and education programs. It would also give states the option to repurpose unobligated Child Care Stabilization Grants from the ARP to boost the long-term supply of child care and/or utilize the grants to support facilities improvements and offer start-up grants to employers to establish and expand child care programs for employees. Other provisions include:

• The Child Care Act of 2021 (HR 1973), introduced by Rep. Ashley Hinson (R-Iowa), would require the Secretary of Health and Human Services to report to Congress on state and local child care regulations, including overburdensome regulations that increase the cost of child care.
• The Working Families Child Care Access Act (HR 2714), introduced by Rep. Jackie Walorski (R-Ind.), would improve dependent care flexible spending accounts (FSAs) by tripling contribution limits, allowing funds to roll over at the end of the year without penalty, and expanding eligible expenses.
• The Family Child Care Networks Act of 2021 (HR 3545), introduced by Reps. Elise Stefanik (R-N.Y.) and Lloyd Smucker (R-Penn.), provides states the option to use Child Care Stabilization Grants from the ARP to include support for the creation or enhancement of family child care networks, to increase or improve the quality of child care provided by family child care providers.

Affordable Child Care for Economic Strategies and Success (ACCESS) Act

On March 25, 2021, Sen. Joni Ernst (R-Iowa) and Reps. Ashley Hinson (R-Iowa) and David Trone (D-Md.) introduced a bipartisan bill (S.1049/H.R. 2221) that would allow communities and public-private partnerships to use grants through the Department of Commerce to increase access to child care.

Improving Child Care for Working Families Act

On March 23, 2021, Sens. Join Ernst (R-Iowa), Maggie Hassan (D-N.H.), Thom Tillis (R-N.C.) and Kyrsten Sinema (D-Ariz.), along with Reps. Cindy Axne (R-Iowa) and Brian Fitzpatrick (R-Penn.) introduced a bipartisan bill (S. 897/H.R. 2121) that more than doubles the amount of money that can be placed in dependent care assistance plans (DCAPs), employer-offered flexible spending accounts that allow working parents to set aside pre-tax income for child care.

Child Care Workforce and Facilities Act

On January 28, 2021, Sens. Amy Klobuchar (D-Minn.) and Dan Sullivan (R-Alaska), along with Reps. Josh Harder (D-Calif.) and Jamie Herrera Beutler (R-Wash.), reintroduced a bipartisan bill (S. 133/H.R. 540) to create a $100 million grant program supporting the development and expansion of the child care workforce or child care facilities in locations with insufficient available child care. Grants would cover 50% of the cost of programs to support the education and training of caregivers or projects to build, expand, or renovate child care facilities in these areas.

Build Back Better Act

On November 19, 2021, the U.S. House passed the Build Back Better Act (BBBA, H.R. 5736), a $1.75 trillion reconciliation package that is offset with new increases in revenue. The measure represents efforts by the Majority in Congress to advance the Biden Administration's social spending agenda as outlined in the American Families Plan and American Jobs Plan, though the legislation is significantly scaled back from those proposals to minimize the impact on the deficit. Included in the BBBA are significant investments in child care and universal preschool. 

The bill would authorize an optional federal-state partnership, administered by the Department of Health and Human Services (HHS), guaranteeing access to affordable child care for working parents, through FY 2028. The program would involve a 3-year phase-in in which the federal government provides funds help states meet wage, quality and licensing system requirements to ensure adequate supply of affordable care, after which states would begin meeting various match and maintenance of effort requirements. Once fully implemented, families earning up to 250 percent of State Median income would pay a sliding scale co-pay capped at 7 percent of household income for children under age 6. Quality dollars would be eligible to support child care facilities construction and improvements.

The bill would authorize six-years of funding for an optional federal-state partnership to ensure universal access to high-quality preschool education for 3- and 4-year-olds via a mixed delivery system (meaning eligible providers include Head Start agencies, local educational agencies and licensed child care providers). States would begin contributing a 10 percent non-federal match in the fourth year of the program, gradually increasing to 40 percent in FY 2028.

In states that do not participate in the new programs, localities—including county governments—would have the option to apply directly for funds. Additionally, HHS would provide additional Head Start funding for any state that opts out of new initiatives.

Child Care and Development Block Grant (CCDBG) Reauthorization Act of 2022

On March 22, 2022, Sens. Tim Scott (R-S.C.), Richard Burr (R-N.C.), Lisa Murkowski (R-Alaska), Susan Collins (R-Maine), Ben Sasse (R-Neb.), Chuck Grassley (R-Iowa) and Todd Young (R-Ind.) introduced The Child Care and Development Block Grant Reauthorization Act of 2022. This legislation serves as an alternative approach to the Democrats social spending plans’ child care proposals and is the most significant Republican counter proposal to improve affordability of child care programs.

The CCDBG Reauthorization Act of 2022 would:

• Increase family eligibility for CCDBG from 85 percent State Median Income (SMI) to 150 percent, which will increase participation by more middle-income families
• Ensure an eligible family making less than 75 percent SMI pays no child care copay and that no eligible family has a copay greater than 7 percent of family income
• Improve reimbursement rates for child care providers so they can recruit and retain qualified staff
• Support the education and professional development of child care staff and to support child care providers in the recruitment and retention of a qualified child care and early education workforce
• Allow states flexibility in developing a mixed-delivery system (centers, family child care, homes, faith-based, public, private) of child care and preschool for children ages 0-5 and before-school, after-school, and summer care for school age children

However, the bill provides no new funding and authorizes a FY2022 appropriations of $6.165 billion, which is the amount already signed into law by President Biden as part of the recent omnibus package. 

Murray-Kaine Child Care Proposal

On May 16, 2022, Sens. Patty Murray (D-Wash.) and Tim Kaine (D-Va.) released a framework to expand access to affordable child care and high quality preschool in the U.S. The plan represents a scaled-back version of the child care and early learning provisions included in the Build Back Better Act of 2021 (H.R. 5376), which stalled in the Senate after passing the House in November 2021. The revised plan put forth by Sens. Murray and Kaine primarily seeks to strengthen the child care and early learning sector by increasing resources under CCDBG. Over six years, the proposal would provide:

• An additional $72 billion in CCDBG funding to increase the value of child care subsidies going to families and raise payment rates for participating providers. Of these funds, $18 billion would specifically be set aside to fund Supply and Compensation Grants to all states to expand child care supply, improve facilities, and raise compensation for early childhood educators
• Dedicated funds for a pilot Child Care and Development Expansion program, in which participating states would offer child care assistance to children under six in working families on a sliding scale basis (capped at 7 percent of household income) in exchange for a 90 percent match from the federal government to pay for the services
• High-Quality Preschool Grants to states worth $18 billion
• An additional $12 billion for raising wages for Head Start teachers 

According to the sponsors, the plan would benefit more than 1 million children with increased access to affordable child care and early learning services. 

Legislative Outlook

It remains unclear whether any major child care proposals can gain enough bipartisan support to pass both chambers of Congress. Following passage in the House, intra-party negotiations on BBBA remain stalled in the Senate, with certain lawmakers objecting to the size and scope of the package, as well as the need to pursue enactment via the partisan reconciliation process. Similarly, the Murray-Kaine plan, though a scaled back version of the BBBA child care proposal, would also require unanimous support from Democratic lawmakers in the Senate in order to utilize the reconciliation procedure to bypass the filibuster and pass legislation with a 50-vote threshold so long as it meets a series of budgetary requirements. Meanwhile, without guaranteeing additional funding for states to implement its provisions, it is unlikely the CCDBG Reauthorization Act of 2022 will receive support from Democratic lawmakers. 

NACo will continue to monitor federal proposals to stabilize the child care industry, the implementation of COVID-19 resources for the child care sector, and opportunities for county governments to strengthen local child care systems to help families return to work and ensure the children in our communities have a safe place to play, learn and grow.