Report Trends in Federal Policy on Child Care and Early Childhood Education

Across the country, families are facing high child care costs and limited availability of slots. Families spend between 8% and 19% of household income on child care, with 35% of families dipping into their savings to cover child care costs. In 2018, an estimated 51% of the country lived in a community with more than three young children for every one licensed child care slot, and in 2019, 73% of center-based child care providers had excess demand for slots.

With cost and access affecting so many families, child care and early learning has become an increasing priority for policymakers at all levels of government and across political parties. State legislatures have taken the lead in addressing child care and early learning needs in the last few years. At the same time, there have been a growing number of federal proposals to update existing early childhood programs, many of which have not been reauthorized by Congress in over a decade.

Congress appropriated $52.5 billion for the Child Care and Development Fund (CCDF) and $2 billion for Head Start through three rounds of pandemic relief aid and has increased annual appropriations for some early childhood programs. Yet, no recent federal legislation has passed that permanently addresses concerns about child care cost and access. As a result, the administration has used rulemaking to make major changes to child care and early learning programs.

This report examines several of the most significant federal child care and early childhood legislative and regulatory proposals, explains the implications for states, and highlights areas of potential bipartisan agreement.

Significant Federal Proposals

There is bipartisan interest in supporting child well-being and parental involvement in the workforce, yet there are different visions of what the federal role should be in these areas, both between and sometimes within parties. Recently, Democrats generally favored large-scale changes to existing programs or creating new universal programs, while Republicans tend to favor modest changes to existing programs.

In the last few years, a variety of bills have been introduced in Congress and rulemaking from the administration related to the accessibility and affordability of early childhood programs.

Build Back Better

In 2021, the Biden administration released the Build Back Better Plan (BBB), a proposal to address many of the Democrats’ priority issues, including child care and early childhood education. The House passed the Build Back Better Act, but the early childhood provisions were dropped during negotiations in the Senate.

Though the child care and preschool proposals in BBB ultimately did not become law, they still represent the early childhood policy goals of the Biden administration and many Democrats in Congress. Much of the proposal is reflected in the Child Care for Working Families Act, which was initially introduced in 2017 and has been introduced in both the 117th and 118th Congresses with strong Democratic support.

BBB addressed both child care and preschool but did so in different ways. The child care provisions built on the existing Child Care and Development Fund (CCDF) model by expanding eligibility for child care subsidies and capping the cost to families based on income level. In contrast, the preschool provisions would have established universal preschool in states that opted to take new federal preschool grants. Both the child care and preschool provisions would have maintained a mixed-delivery system by making center-based, home-based, religious and other types of providers eligible for both funding streams.

Child Care

The child care provisions in BBB would have expanded eligibility for subsidies to families making up to 250% of the state median income (SMI)—up from 85% SMI—with at least one parent meeting a work requirement. Family co-payments would be waived for families at or below 75% SMI and would be capped for those making between 75%-150% SMI with caps increasing with income to a maximum cap of 7%.

The child care provisions would have created new requirements for states, including meeting standards for licensure and ensuring a pathway to licensure for providers seeking it, and setting payment rates using a cost estimation model that would be adequate to have pay parity between child care educators and elementary educators with equivalent credentials and experience. The provisions would also have created new requirements for child care providers participating in the subsidy system, including licensure and participation in state Quality Rating and Improvement Systems.

BBB would have also included significant changes to funding requirements for states. The maintenance of effort requirement would have changed to the average of state spending on child care in the preceding three years. The matching requirement would have changed to include three different matching rates. The federal share would be 95% for direct child care services, the Federal Medical Assistance Percentage (FMAP) matching rate for quality improvement activities, and 53% for administrative costs.

Preschool

The preschool provisions in BBB would have created a new universal preschool program with no income or work requirements for family eligibility. Funding for the program would flow through the state level and states would have the option of whether to participate in the program. This is a contrast to the existing Head Start preschool funding which is federal-to-local. In states that opted not to participate, the federal government would have made grants available directly to localities and Head Start providers to provide preschool services.

Participating states would have had to submit a state plan addressing standards, support for a mixed-delivery system, educator qualifications, and educator pay parity with elementary school educators. States also would have been required to prioritize funding for high-need communities and to use some funds on administrative activities. The grants to states would have had two matching requirements – one for preschool services and one for state-level activities. For preschool services, federal funding would cover 95% of costs in fiscal year 2025 and decrease over the next two years to 63% in FY 2027. State-level activities would require a 50% state match each year.

CCDBG Reauthorization Proposal

In response to both Build Back Better and continuing national conversations about child care access and affordability, Republican Senators Tim Scott (R-SC) and Richard Burr (R-NC) introduced a bill to reauthorize the Child Care and Development Block Grant (CCDBG) Act, which was last reauthorized in 2014. The bill (S. 3899) would have kept much of the program the same, with some changes that were similar to those proposed in BBB, such as expanding eligibility and setting caps on family co-payments.

The bill would have expanded eligibility from families making up to 85% SMI to those making up to 150% SMI and added new types of categorical eligibility. It would have eliminated co-payments for families below 75% SMI, used a sliding scale of co-payment caps for families between 75-150% SMI, and capped family co-payments at 7% of family income. States would also have been required to use cost estimation models to set provider payment rates, reducing state flexibility for the type of method used.

Other changes included providing grants and allowing a portion of state funds to be used for facilities and supplies to address lack of available providers; expanding the allowable uses of state quality improvement funds; and requiring states to review state and local health and safety requirements for redundancies.

Child Care for Working Families Act

This bill, first introduced in 2017, was the basis for the child care and preschool provisions in Build Back Better. The bicameral bill (H.R. 2976/S.B. 1354) was reintroduced in 2023 by Rep. Bobby Scott (D-Va.) and Sen. Patty Murray (D-Wa.) and is the leading Democratic proposal on early childhood education. The bill has four main components: a federal-state partnership for birth through five early learning, early education formula grants to states, a universal preschool program, and increasing services and educator wages in Head Start.

The federal-state partnership would make all families eligible for child care subsidies while waiving co-payments for families making below 85% SMI and capping co-payments at 7% for families making 85% SMI or above. The federal government would pay for 90% of the costs, with states required to pay for 10%. The funding would also provide grants to open new child care providers and increase child care options. In states that choose not to take the grant funds, the federal government would make grants available to localities.

The formula grants to states would be used to increase the wages and benefits of child care staff to improve financial stability among providers and increase the provision of quality-care. The funding would be allocated to states using the CCDBG distribution formula and states would determine how to distribute funds to eligible providers while prioritizing underserved communities and families needing care during nontraditional hours.

The universal preschool program closely mirrors the preschool provisions in BBB, and the Head Start portion of the bill would provide funding for full-day, full-year Head Start programs and increases in staff wages.

Recent Rulemaking

While the administration was not able to move its child care agenda through Congress, it has used rulemaking to make some of the changes that were proposed in BBB.

CCDF Final Rule

In February 2024, the Department of Health and Human Services released a new final rule related to CCDF. The regulation has several components, some of which are mandatory for states, and some of which are optional. Two of the biggest requirements are paying providers based on enrollment at the beginning of the month rather than paying based on attendance at the end of the month, and capping family co-payments at 7% of family income. The rule encourages, but does not require, states to waive copayments for families with income at or below 150% of the federal poverty line and to consider the siblings of CCDF-eligible children to be presumptively eligible, among other changes.

Because the rule does not come with additional federal funding, it will be up to states to incur any associated costs. Because the rule has a combination of requirements and encouraged changes, and because some states have already adopted some of the practices in the rule, the estimated annual costs will vary significantly by state. The rule went into effect on April 30, but states may request waivers of up to two years for certain required provisions.

Head Start Proposed Rule

In November 2023, HHS released a proposed rule that would make a wide variety of changes to the Head Start Performance Standards. The rule is intended to stabilize and better compensate the Head Start workforce and to improve the quality of services provided to families. The proposed changes are spread across three topic areas: workforce supports, mental health and other quality improvements.

To improve workforce supports, the rule proposes increasing staff wages, benefits and wellness through a variety of requirements. The most significant is making progress towards pay parity between Head Start staff and local K-3 teachers.

Mental health support requirements include requiring programs to have a multidisciplinary mental health team with certain responsibilities, provide mental health consultations at least monthly and integrate mental health into support services for families.

Other quality improvements address family engagement, child health and safety, and identifying and meeting community needs, including setting a maximum caseload of 40 families per family service worker and adjusting families’ gross income to account for excessive housing costs in the community.

The rule does not come with additional federal funding. Yet without additional funding, compliance with the rule could cause Head Start providers to reduce the number of spots available to children to meet new salary requirements. In its notice of proposed rulemaking, the administration argues that this trade-off is worthwhile to decrease high turnover rates among Head Start educators and reduce staff vacancies that can lead to under enrollment.

Implementation timelines would vary among the proposed changes, ranging from 60 days to 7 years. Standards for staff wages would have the longest implementation timeline, going into effect in August 2031. A final rule is forthcoming and expected to be released by the end of 2024.

Areas of Potential Bipartisan Support

Though visions for federal early childhood policy vary across political parties, certain aspects have some support from both sides of the aisle and represent areas of potential consensus. The most significant area of bipartisan support recently has been the expansion of tax credits for families to address child care affordability and tax credits for employers that provide child care for their employees.

There are currently several tax credits related to the cost and availability of child care and other costs associated with caring for young children, including the Child and Depending Care Tax Credit (CDCTC), the Child Tax Credit (CTC), the 45F tax credit for employer-provided child care, and the Dependent Care Assistance Program (DCAP) which allows families to contribute to Dependent Care Flexible Spending Accounts.

A variety of bills have been introduced in the 118th Congress that would make changes to existing child care-related tax credits, some of which are bipartisan.

The bipartisan and bicameral Tax Relief for American Families and Workers Act (H.R. 7024) included provisions that would expand the CTC for low-income families. The bill, led by Sen. Ron Wyden (D-Ore.) and Rep. Jason Smith (R-Mo.), passed the House but did not receive a vote in the Senate. The CTC measures in the bill would have phased in the credit on a per-child basis, increased the maximum credit amount per child over the course of three years, tied additional per-child increases to inflation, and allowed taxpayers to use earned income from the prior year to calculate their credit.

The Child Care Investment Act (H.R. 4571), sponsored by Rep. Salud Carbajal (D-Calif. and Rep Lori Chavez-DeRemer (R-Ore.), would make changes to two tax credits and DCAP. Specifically, the bill would make the CDCTC fully refundable and increase credit rates, expand the 45F credit for employers, allow multiple businesses to work partner to create new shared child care options for their employees, and double the maximum amount families can put in dependent care FSAs. The bill was endorsed by the bipartisan Problem Solvers Caucus.

In addition to introduced legislation, in January 2024, co-chairs of the Bipartisan Pre-K and Child Care Caucus wrote a letter to the chair and ranking member of the House Ways and Means Committee urging them to include enhancements to the CDTC, CTC, DCAP, and 45F in tax package negotiations. The letter includes specific desired changes for each of the four credits and notes that many of the changes would be addressed by the Child Care Investment Act.

Another area of bipartisan interest is supporting the establishment and maintenance of child care facilities to address supply issues. Both BBB and the Republican CCDBG reauthorization proposal would have allowed states to use a portion of state funds to help providers with facilities-related needs. Additionally, a current draft of the Farm Bill in the House includes a provision that would encourage using Department of Agriculture Rural Development grants for child care facilities in rural areas.

NCSL will continue to track and report on federal legislative and regulatory updates to early childhood policy. NCSL also continuously tracks state legislation through the Early Childhood Database.