Child Care is Broken. Here’s How Governments are Trying to Fix it

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Public Finance Update - Dec. 6, 2022

Hello and welcome back to Route Fifty’s Public Finance Update! This week I’m writing about the child care crisis. Some years ago, I had a conversation with my mom about what child care cost back in the 1980s and what my husband and I paid in the 2010s. Even accounting for inflation—which of course I calculated—we were paying twice as much as she and my dad did. We’d also started paying a couple months early to hold our spot on the waitlist. Even so, we felt lucky because we’d found a great place, close to home and it was on the lower end of the going rate in the Washington, D.C. area at the time.

Things have gotten much worse in the last few years for an industry where the math already didn’t make much sense. In 2019, the national average monthly cost of child care, at $840, was already like making a second mortgage or rent payment. (Prices in metro areas are often much higher.) Low-income households spent comparatively even more—an average of 35% of their income on child care. Meanwhile, most caretakers worked long hours for minimum pay.

Now, the pandemic’s blow to the workforce, particularly on working women and those in caring occupations like nurses, teachers and child care professionals, has exacerbated the situation for everyone involved. When day care centers were temporarily closed in 2020 and kids sent home to learn remotely for much longer, it caused a care-taking reshuffling that threatens to have long-term fallout. The child care industry continues to struggle to recover from sharp job losses it experienced early in the pandemic and the Bureau of Labor Statistics reports there are more than 8% fewer workers than in February 2020. 

As a result of the labor shortage, waitlists are longer and the cost of child care is higher owing to a much-needed increase in average pay for workers. The new math also means that working parents—particularly Latina and Black women—are struggling to return to the workforce either because they can’t find care or because they can’t afford it. What many are calling a child care crisis threatens to stall our economic growth. As the executive director of Urban Sprouts Child Development Center said during a Federal Reserve Bank of St. Louis webinar last year, “There is no recovery of the economy without child care.”

The issue is also directly affecting the public sector workforce recovery. According to the latest MissionSquare Research Institute survey, nearly half (49%) of workers said it has been more difficult now to manage child care needs compared with prior to the pandemic. And nearly one-quarter (23%) said child care was a major factor causing the increase of workers quitting.

Getting into the Day Care Business

McKenzie County, North Dakota, is perhaps an extreme example of how the economics of child care can strain communities. The county seat of Watford City was already facing a child care demand crunch prior to the pandemic. The county was the fastest-growing in the U.S. between 2010 and 2020, a trend driven by petroleum industry jobs in the surrounding oil fields. Many of the new arrivals were families with young children.

“All of a sudden we had an influx of people using our school system and day care services,” County Economic Development Director Daniel Stenberg told Route Fifty. “Forty percent of our population is under 25 years old right now. And in our school system there are two times as many kindergartners as there are seniors in high school.”

The population boom of high-paid oil industry workers also increased home prices and threatened affordability for public sector and other service workers. So the city, county and school district pooled funds to build a 42-unit housing complex for their employees and an adjoining 17,000-square foot child care center. The nonprofit Wolf Run Village and Wolf Pup Daycare opened in 2014 and the day care immediately filled up and started a waiting list, according to operator Tessa Moberg.

As demand has grown, the county has continued to support the day care. In 2019, the post office next to the Watford City Hall was turned into a preschool to accommodate more children. When Wolf Pup Daycare’s staff increased to the point where it was federally required to pay for employee health insurance, the county started covering the building operating costs so that the day care could keep its rates affordable.

The onset of the pandemic forced the day care to temporarily cut down on staff. But demand (and the oil industry’s production) has not only returned, leaders across the state now see child care as a key to supporting economic growth. “Workforce is one of North Dakota’s top barriers to economic growth, yet in many cases, parents are having to choose between working and paying for child care, or not working at all,” Gov. Doug Burgum said recently while unveiling his framework for legislation supporting the expansion of quality child care.

McKenzie County recently approved $18 million to build an additional day care facility, which is slated to open in 2024 and will nearly double Wolf Pup Daycare’s capacity. The county is being held up as a model in the state for its approach to meeting rapidly growing demand.

“For us, it’s really an investment—by having more day care available, it’s a better situation for all of our residents and employers,” said Stenberg. “We didn’t necessarily intend to get into the day care business at the beginning. But the numbers just aren’t there for the private sector to want to go and operate a child care center.”

Pay Boosts, Matching Funds and Infrastructure

Elsewhere, most states are contemplating or have already passed legislation in response to the child care crisis. A total of 46 states took up 457 bills related to childcare in 2022, according to the National Conference of State Legislatures. On the operational side, New York established a $100 million grant program to build and expand child care capacity in areas with the least supply, known as child care deserts. West Virginia created a tax credit subsidizing up to 50% of the startup and operating costs for qualified child care properties.

Most places are focusing aid to workers or families. For example, the District of Columbia established a grant program for pay parity for early childhood educators with the intent to send direct payments of $10,000 per eligible child care worker. (However D.C. also has a rule requiring many child care workers to get an associate’s degree, which some say will worsen the shortages of day care workers and day care slots.) Kentucky established the Employee Child-Care Assistance Partnership, a revolving fund that incentivizes employers to contribute to the child care costs of employees by offering a state match up to 100% of contributions. And New Mexico has waived copays for families in its Child Care Assistance Program and expanded eligibility.

But as the economy recovers and more parents return to work, the St. Louis Fed recently warned that governments face a delicate balancing act when it comes to supporting the economy via child care. 

“As the labor market recovers and parents seek ways to get back to work, a decline in child care capacity, combined with higher wages, could continue to push up the cost of care in the short run,” wrote authors Charles S. Gascon and Devin Werner. “Expanded federal aid to families may ease the burden of child care costs, but more income for families with children could just increase demand—and thus, to some extent, prices—until supply catches up.”