Reimagining Subsidy: Could the Recently Proposed CCDF Rules Changes Open the Door to Transform Child Care?

Catherine Davis | 9.7.2023

Reimagining Subsidy: Could the Recently Proposed CCDF Rules Changes Open the Door to Transform Child Care?

Child care is a critical component of a thriving society, providing support for working parents, fostering early childhood development, and helping families achieve economic stability. The Child Care Development Fund (CCDF) has played a pivotal role in this regard, enabling states to offer financial assistance to low-income families (via the child care subsidy system) and enhancing the quality and availability of child care services.

However, our current system of care continues to be challenged by inadequate funding and the broken structure of the child care subsidy system, resulting in barriers to access for families, financial instability for programs, and severe child care workforce shortages. To address these growing challenges, Health and Human Services announced earlier this summer that they would be considering a series of proposed rule changes to CCDF.

Among the most significant proposed changes are:

Capping CCDF co-payments at no more than 7% of an eligible family’s income;
Requiring Lead Agencies to use grants and contracts to stabilize programs and build child care supply in underserved areas and for underserved populations;
Encouraging Lead Agencies to waive co-payments for families with incomes up to 150% of the federal poverty level (FPL) along with eligible families caring for a child with a disability;
Paying providers prospectively and based on enrollment rather than attendance;
Clarifying that Lead Agencies may pay amounts above the provider’s private pay rate to support quality, offset the costs of providing care, and support the continued stability of providers;
Expediting families’ access to services by facilitating presumptive enrollment and encouraging an online application option.

It is important to note that, in the absence of sufficient funding, it will be extremely challenging to fully and faithfully implement the proposed changes without trade-offs or risk of unintended consequences. However, several of these proposed changes do reflect positive steps. Among them, one change stuck out in particular because it opens the door for a much-needed conversation: is it time to reimagine the child care subsidy system?

How do grants & contracts set the stage for a subsidy system reimagined?

The requirement for states to include grants and contracts to increase supply and quality of care represents a promising shift in child care supply building. But, it is also a critical step towards right-sizing the broken child care revenue model and overall subsidy system.

Why? It opens the door for states to direct child care funding towards entire programs (in addition to individual per-child subsidies) in the form of foundational funding grants. In return, programs agree to meet certain contractual obligations—such as providing high-quality services for high-need populations, increasing educator wages, or expanding enrollment. So how might this simple requirement be the catalyst for turning around the broken child care system?

Right-sizes the business model by addressing the continuous revenue gap. Child care programs currently rely primarily on per-child funding paid mostly by parents. This means that the costs of increased quality or additional support services for high-need populations are often borne on the backs of working families. Attempts to increase quality or raise wages through increases in reimbursement rates for child care subsidies have largely proven ineffective, due to the fact that only a minority of children (and in many programs, no children) receive these subsidies. This ever-changing enrollment makeup leaves programs scrambling to understand what they need to charge full-pay parents in order to balance their books. Grants and contracts directed towards an entire program (rather than an additional slot) is a more efficient way to both build supply and strengthen programs because it reduces provider uncertainty due to fluctuating enrollment. Programs who receive foundational funding grants are able to take on the costs associated with the higher quality thresholds outlined in their contract because the revenue is guaranteed. This ultimately allows them to reduce and stabilize costs for all families, not just those who receive individual subsidies.
Supports all children, not simply the lucky few. Many programs–particularly those in high-need areas where quality supply issues are the most acute–often serve more CCDF-eligible students than the number of students in their program actually receiving subsidies. While it is important to recognize that the lack of eligible children receiving individual subsidies is certainly a result of an underfunded system, the movement towards grants and contracts creates a more efficient way to impact more Enabling CCDF funding to be used for both individual child subsidies and direct-to-program grants creates a rising tide for the entire program, enhancing the overall quality and affordability by offsetting fixed costs, including improved services and higher wages for child care educators. Therefore, a child care program that receives this programmatic offset to expand services and increase quality and affordability is doing so at the benefit of all children enrolled, rather than simply offsetting costs for a select few. Ultimately, foundational funding grants better fulfills CCDF’s intent to increase access to services for all CCDF-eligible students (not simply those who have made it off a waitlist and are currently enrolled).
Enables states to utilize CCDF resources to meet individual community needs. Tying foundational funding grants to contract agreements gives states and communities a newfound ability to subsidize a child care system that meets their unique child care needs and policy aims. For example, communities that need to increase supply of programs that offer non-traditional hour care can award grants to programs that contractually agree to do just that. Similarly, communities that wish to increase educator wages can contractually require programs receiving foundational funding grants to meet a set minimum wage threshold. Contracts aren’t required to be one-sized-fits all. Rather, they enable communities the flexibility to make targeted decisions and to ensure that grants and contracts are adequately meeting local and regional needs. This is particularly important in large states or states with diverse communities, population densities or workforce needs.

Acknowledging the Need for Increased Public Investment

We believe that move towards grants and contracts opens the door for a dramatic positive transformation of how the child care system as we know it today. It represents a departure from the hamster wheel of a continuous revenue gap experienced by programs and creates the space for communities to intentionally build up the supply, stability and quality of child care needed in their community. However, it is important to acknowledge the critical role that per-child subsidies will continue to play in making child care affordable for many families. As states transition to providing more grants and contracts, there will inherently be less resources available for per-child subsidies. To avoid having to make difficult tradeoffs, we urge HHS to create—and fund—an additional funding stream that is explicitly reserved for grants and contracts that is distinct from the funding streams directed towards per-child subsidies and quality supports.

The public comment period for the Child Care & Development Fund Notice of Proposed Rule Making closed on August 28^th. We anticipate HHS to release their final rule later this fall. To read Child Care Associate & The Institute to Advance Child Care’s full public comment submission and recommendations to maximize the potential impact of grants and contracts, click here.