A big stake in the ground for universal childcare via the American Rescue Plan

Last Saturday, the US House of Representatives narrowly passed the massive $1.9 trillion American Rescue Plan, now under consideration in the Senate. The so-called “COVID-19 relief package” includes multiple childcare provisions: $39 billion to address “an acute, immediate childcare crisis,” along with a substantial increase in the Child and Dependent Care Tax Credit (CDCTC) estimated at $4.2 billion over two years, a permanent increase of $633 million in annual federal childcare funding to the states, and a two-year suspension of current state match requirements for federal childcare funding.

This plan is presented as an emergency response to the fallout from the pandemic, urgently needed to prevent the childcare sector from collapsing and increase access to affordable childcare to get the “economy moving again.” But its primary aims are in fact to advance a longstanding advocacy agenda: leveraging pandemic relief funds to carry out a kind of “trial run” of universal childcare while laying substantial groundwork for a major, permanent expansion of government-funded, nonparental care.

As I’ve explained at greater length in recent congressional testimony, the magnitude of proposed new funding far exceeds the pandemic’s actual impact on the childcare sector. Funds are not targeted to either the providers or the families who are truly struggling, disproportionately benefit affluent families, and aim to create new, state-level entities focused on childcare providers, rather than families and children. Most worrisome, this proposal is based on a deeply flawed assumption — that it’s developmentally optimal for all young children to spend a large proportion of their earliest years in out-of-home care.

The specific provisions of the legislation include:

  • $21.6 billion in direct payments to childcare providers (an average of almost $100,000 per licensed provider in the US), described as “stabilization funding” to “support the stability of the child care sector during and after the COVID-19 public health emergency.” Allocation of “stabilization” payments would be managed by new state entities established with $2.4 billion in federal support, as described below. Funds would be distributed based not on financial need, but rather on providers’ “stated current operating expenses.” Providers would have no obligation to rehire laid-off staff and would be eligible for funds whether they were open or closed.
  • $2.4 billion — an average of around $47 million per state — to establish new state-level administrative structures focused on building the childcare sector. These new state entities, created to manage the proposed $21.6 billion in payments to childcare providers, would “administer subgrants, provide technical assistance and support for applying for and accessing the subgrant opportunity, publicize the availability of the subgrants, and provide technical assistance” in spending them. The legislation further provides $35 million through September 2025 to fund federal oversight of these new administrative entities for the next four and a half years.
  • $15 billion in additional child care assistance through the Child Care Development Block Grant (CCDBG), the federal program that subsidizes child care for low-income families (added to the so-called “down payment” of $10 billion authorized in December). Childcare assistance funds would be provided to a broad range of families without regard for the income limits normally governing families’ eligibility for CCDBG childcare subsidies, including “health care sector employees, emergency responders, sanitation workers, and other workers deemed essential during the response to coronavirus by public officials.”
  • $4.2 billion increase in the Child and Dependent Care Tax Credit (CDCTC) over two years “to help address the childcare affordability crisis.” The credit would be increased to 50 percent of childcare expenditures up to $8,000 for one child or $16,000 for two or more children, meaning an available credit of up to $4,000 for one child and $8,000 for two or more children. Families earning up to $125,000 would receive the full credit; those earning between $125,000 and $400,000 would receive a partial credit. (The current credit ranges from $1,200 to $600 for one child and $2,100 to $1,050 for two children, declining as income increases.)
  • A permanent increase of $633 million per year in mandatory federal spending for CCDBG (from $2.92 billion to $3.55 billion annually), bringing total federal CCDBG funding to almost $9.5 billion per year.
  • A two-year suspension of CCDBG’s requirements for a state funding match (usually totaling a little more than $2 billion annually) for 2021 and 2022.

If enacted, this legislation would result in an enormous increase in federal spending on childcare. Proposed new direct spending of almost $40 billion, together with the regular annual CCDBG spending of $8.8 billion, totals almost $49 billion — around 1.4 times total current public spending (federal, state, and local) on early care and education annually. Adding the $10 billion in additional CCDBG funds authorized in December, the total reaches almost $59 billion, which is 1.7 times total public spending on early care and education and 78 percent of annual US public and private expenditures on childcare combined.

The $21.6 billion in special “stabilization funding,” separate from CCDBG, accomplishes no unique ends with respect to stabilizing childcare. Instead, it will diminish state leadership in early childhood by creating new state administrative entities overseen by the federal government. Suspension of CCDBG’s state match requirements for two years will reduce the state’s role in providing childcare even further.

Finally, little in this plan targets the low-income working families who have long struggled with inadequate care for their children and have been hurt most by the pandemic. Most of the proposed direct spending is focused on supporting the childcare industry, rather than responding to the needs of disadvantaged families and their young children. The $15 billion in additional childcare assistance does not target them. The huge increase in the CDCTC, too, will largely benefit more affluent children: Current CDCTC benefits accrue overwhelmingly to wealthier families who have more discretionary income to spend on childcare, and the proposed increase will result in a much bigger credit for those same families. While the credit would be made refundable, that’s unlikely to benefit most lower-income families who have little discretionary income to spend on childcare in the first place. Indeed, the single provision directed to lower-income working families is the $633 million permanent increase in annual mandatory federal spending for CCDBG, which has nothing to do with the pandemic.

Overall, this plan reflects rapidly growing enthusiasm for expanding federally-funded childcare to all children under age five in order to boost the economy and help advance women’s success in the workplace. The economy and women’s careers are clearly important. But what matters most of all is the well-being of young children. Our growing assumption that long hours in childcare has no negative impact on them is incorrect. I urge our policymakers to think carefully before taking the enormous step towards promoting institutional care for all young children that this legislation proposes.