A huge chunk of pandemic relief funding that kept child care programs afloat for the past few years ran out Saturday, and policy advocates say the economic impact will be profound, with the ripple effect hurting labor force participation and consumer spending at a time when the country is still trying to avoid a recession.

Parents struggled to pay for child care and child care centers strained to retain workers well before 2020, but the pandemic accelerated many of the industry’s struggles and without the federal money many would have shut their doors.

Now some of that money is going away. American Rescue Plan Act stabilization funds — $24 billion distributed by states that allowed child care to continue for 9.6 million children — ran out Sept. 30. According to The Century Foundation’s analysis of the impact of the loss of these funds, Arkansas, Montana, Utah, Virginia, Washington, West Virginia, and the District of Columbia can expect the supply of child care programs to be cut by half or more as a result. The end of this funding will cost states $10.6 billion in economic activity according to the TCF report because of the loss in tax and business revenue that results from reduced productivity and staff turnover.

States had to liquidate another $13.5 billion — provided by the Coronavirus Aid, Relief, and Economic Security (CARES) Act and Coronavirus Response and Relief Supplemental Appropriations Act that funded child care and development block grants — by the same date. Meanwhile, $15 billion in increased funding for the Child Care Development Block Grant expires in September 2024.

The House passed a legislative package in 2021 which would have expanded the Child Care Development Block Grant to apply to far more families, ensuring they had universal pre-K and reliable child care, as Congress approved relief funds to deal with the immediate problems of families and child care providers. But $400 billion to address longer-term problems in child care did not make it through the Senate.

“We have this temporary funding in this context where we thought when we were at the end of the temporary funding, we’d actually have a system we’d be building. We still need that system. Just because it didn’t happen doesn’t mean it’s not necessary. It just means that politics got in the way,” said Julie Kashen, senior fellow and director for women’s economic justice at The Century Foundation.

Karen Schulman, director of state child care policy at the National Women’s Law Center, said the relief funds that will expire in 2024 also served many purposes to keep child care centers afloat. The American Rescue Plan Act Child Care and Development Block Grant supplemental funds were used for many different purposes.

“They also use a portion of those funds to improve quality, which can be a range of activities, whether professional development or wage supplements for child care providers or training or licensing and health and safety — just a variety of initiatives to help providers,” she said. “That money supplemented the existing child care and development block grant program, which is very important for families, but has always been vastly underfunded.”

The Downtown Children’s Center in St. Louis, Missouri, was able to stay open for working families during the pandemic by using federal grants. (Photo by Rebecca Rivas/Missouri Independent)

Demand for child care, competition for workers

Shona Lamond, executive director of the Downtown Children’s Center in St. Louis, Missouri, said she took advantage of every grant she could find to keep her center open. “The federal [Paycheck Protection Program], the American Rescue Plan Act [funds] … Anything that we qualified for, I applied for, and for the most part we received the grants that I applied for to help us,” she said.

Lamond said the nonprofit has used most of the ARPA money on the center’s biggest expense — teachers’ salaries. It has increased salaries in the past few years to try to keep up with inflation and stay competitive, which has involved an 8% increase over the past three years.

“I think it’s really tough to compete with these other places, these major corporations that have that ability to start paying $17 or $18 an hour …” Lamond said. “I don’t fault people for people who get out of education. We do a really difficult job … It’s stressful. It comes with a lot of responsibility and if you don’t do it right, you could lose your license and your livelihood and they’re getting paid rock bottom wages.”

Lamond said the center is still short-staffed and that two classrooms have been closed for more than a year.

“We’ve been low enrollment pretty much since COVID hit. We’ve never returned to our regular capacity,” she said.

Charles Gascon, senior economist at Federal Reserve Bank of St. Louis, said that because workers at child care centers were also more exposed to COVID-19 and it took time for child care centers to figure out how to adhere to different social distancing requirements and maintain capacity, a lot of workers left.

“The policy standpoint played a role but then the fact that these were not very desirable jobs to have in the middle of a pandemic and the wages really didn’t compensate workers for the added risk they were taking on,” he said.

Gascon said a lot of today’s challenges in child care were the same issues it had in 2019.

“In some cases, it may be a little more exacerbated as older people left the workforce so there are shortages in the sector just like other sectors. The labor market has recovered really quickly so the demand for care is there,” he said. “… Now we can add to that a couple compounding factors: one, the population demographic that is having kids now is larger than the demographic from about 10 years ago, so that means there is likely going to be more people that are demanding these kinds of services. We’ve also seen a shift in where the jobs are at so we see women’s labor force participation rates are higher.”

The lack of affordable child care options is pushing more families to consider informal child care that doesn’t necessarily have an educational component, Lamond said. Other than families reaching out to grandparents and the nextdoor neighbor as well as watching kids as they work remotely, she said she’s seeing people connect through local Facebook groups to find parents who come with good references to watch their kids.

“As long as your kid is safe and being really well cared for and loved, sometimes that’s the best you might be able to do so that you can get to work,” Lamond said.

She said she regularly works with families who have to make hard decisions about whether they take a new job or stay home because they struggle to afford child care.

Katherine Gallagher Robbins, senior fellow at the National Partnership for Women and Families, said that the end of the funding is bad news for women’s labor force participation, consumer spending, and for the economy in general. Women ages 25 to 54 have played the biggest role in boosting overall labor force participation in the economic recovery, according to Brookings’ August analysis. But Gallagher Robbins said that it’s still much lower than countries with better caretaking support.

“… It’s very clear that women’s labor force participation will take a hit,” she said.

And, in turn, consumer spending will be affected, she said.

“As the supply of child care decreases, you’ll very likely see an increase in cost that will be borne by families,” Gallagher Robbins said. “This will lead to less disposable income to spend on other essential items. And for some families the balance will tip and a parent may have to leave the labor force altogether which will decrease income in both the short- and long-term. I suspect these effects will be largest for Black and Latinx families with low-incomes for whom child care is already the least affordable.”

She also argues that by expanding the labor supply by offering policies that are more supportive of caregiving, the government could reduce inflation without trying to cool the labor market.

Advocates in Congress, state leaders push for better funding

Legislation introduced in the U.S. Senate this year to address these issues did not pass, but some senators have continued to call for more funding of child care. U.S. Sens. Bernie Sanders (I-VT) and Patty Murray (D-WA) released a report in May to draw attention to the child care funding cliff. Murray reintroduced comprehensive child care legislation in April.

Sen. Tina Smith, (D-MN) and co-sponsor of the Expanding Childcare in Rural America Act of 2023, told States Newsroom this summer, “The whole business model for childcare in this country is not working — not for families, not for businesses, and not for providers themselves. Addressing our country’s looming childcare cliff will require significant, federal investments in childcare so that our kids, their parents, and our economy can reach their full potential.”

The Biden administration has also taken steps this year to improve access to child care and stabilize the industry. A Health and Human Services Department proposed rule, announced on July 11, would cap co-payments for child care to 7% of a family’s income, encourage states to take online applications for families trying to access the Child Care Development Block Grant, and pay child care providers participating in those block grants in a timely manner to stabilize child care operations. The rule would also make it clear to states that they should consider siblings of children who already receive subsidies to be eligible for the Child Care Development Block Grant.

On July 19, White House officials met with more than 90 state legislative leaders and child care advocates to discuss how to address the funding needs, according to the White House.

Kashen said New Mexico and Maine are some of the states taking the most advantage of these funds but states need federal help. Maine has provided 7,000 child care workers with $200 stipends but is using state funding to make the stipends permanent. New Mexico allocated $77 million for a program to fund raises for about 16,000 child care workers.

“There are states that are really taking leadership here,” Kashen said. “That said, when you talk to advocates in those states, they will tell you it’s not enough money … This is an emergency and Congress needs to do something and put money in quickly because I think we’re going to keep losing the workforce.”