Optimizing Distribution of American Rescue Plan Funds To Stabilize Child Care

Author’s note: For the purposes of this issue brief, the term “child care programs” includes family home-based child care; child care centers; and nonprofit, for-profit, and franchise centers. The author interchangeably uses the terms “providers” and “early educators” when referring to the child care workforce, many members of which double as small business owners offering child care services.

On April 15, 2021, the Biden administration made the largest-ever investment in American child care, releasing a historic $39 billion from the American Rescue Plan (ARP) Act to states.¹ This investment was made in response to the extraordinary and immediate needs of the child care industry during the COVID-19 pandemic. The ARP² provided funding to states, tribes, and territories³ to help child care providers meet their immediate financial needs, preventing some programs from closing their doors for good and allowing others to reopen.

The COVID-19 pandemic has intensified a decades-old child care crisis in the United States: Public underinvestment in the child care field has exacerbated families’ struggles to find⁴ affordable child care options that meet their needs. Child care providers, who are disproportionately women of color,⁵ often earn poverty wages.⁶ And child care programs, which are often small businesses, operate on razor-thin margins.⁷ The coronavirus crisis brought increased operating costs to meet public health and safety requirements and recommendations as well as decreased enrollment in child care programs.⁸ These significant shifts in revenue and expenses created devastating impacts for businesses already struggling to make ends meet. Many child care programs were forced to close⁹ or take on debt¹⁰ to survive. Meanwhile, mothers—two-thirds of whom served as primary or co-breadwinners before the pandemic¹¹—disproportionately experienced job disruptions because of child care.¹² As the country looks to recover from the pandemic and recession, parents require affordable and accessible child care to participate in the workforce.

The American Rescue Plan Act includes multiple funding streams to support the child care industry, including $15 billion for the Child Care and Development Block Grant (CCDBG) and $24 billion for a COVID-19 child care relief and stabilization fund, which provides states with resources to offer immediate grants to child care providers struggling to stay open. The U.S. Department of Health and Human Services Administration for Children and Families indicated that states should distribute the $24 billion in relief and stabilization funds as quickly as possible to address the immediate crisis for child care providers and protect the existing child care market.¹³ This funding has the potential to extend significant and immediate financial relief to child care providers, including child care centers and family child care homes.¹⁴

This issue brief details how states can partner with community-based child care intermediary organizations to distribute the $24 billion in the child care relief and stabilization fund. The Appendix table at the end of the brief breaks down how much each state will receive in child care relief and stabilization funding as part of the total child care funding included in the ARP.

$24 billion in child care relief and stabilization grants

The ARP tasks states with distributing grants to keep providers from going out of business. These grants, according to the legislation and administrative guidance, can cover a variety of allowable expenses:¹⁷

• Personnel costs—including payroll and salaries or similar compensation for an employee (including any sole proprietor or independent contractor)—employee benefits, premium pay, or costs for employee recruitment and retention
• Rent (including rent under a lease agreement) or payment on any mortgage obligation, utilities, facility maintenance or improvements, or insurance
• Personal protective equipment, cleaning and sanitization supplies and services, or training and professional development related to health and safety practices
• Purchases of or updates to equipment and supplies to respond to the COVID–19 public health emergency
• Goods and services necessary to maintain or resume child care services
• Mental health supports for children and employees

The child care relief and stabilization fund provides an opportunity for states to quickly distribute grants to stabilize the child care industry. States have broad latitude to administer these funds according to their specific state and local policy contexts.¹⁸ While some states have procurement systems in place to directly administer grants to thousands of child care providers, other states require additional capacity to quickly distribute such a large volume of grants and ensure that all providers can access them. State procurement systems often involve onerous processes and have small offices that require additional capacity to meet the moment. Additionally, offices that administer CCDBG funds are typically set up to send money to programs that accept child care subsidies, while child care relief and stabilization funds are available to all licensed providers in the United States.¹⁹ A handful of states allow counties to administer child care-related funding at the local level.²⁰ This fact makes them potential partners for states in distributing funds quickly and with impact.

States can partner with intermediaries to target relief funds

Intermediaries have long-standing and trusted relationships within their communities, well positioning them to support child care providers—in partnership with states—in this moment of crisis. Intermediaries’ proximity to the field situates them to administer subgrants rapidly and target a wide range of child care providers that meet unique community needs. Historically, intermediaries have used public funds to administer successful programs that support child care providers while remaining responsive to providers as stakeholders.

Partnerships between states and intermediaries can also provide public accountability and transparency through the parameters states set for how public funds are administered as intermediaries must report back to states about how they used public funds.²¹ These partnerships can also increase states’ capacity to measure the far-reaching impact that the ARP’s critical public investment will have for child care providers across the country and help demonstrate the need for sustained investments.

Building off proven strategies and lessons learned from communities, intermediaries can play a variety of critical roles in partnership with states to administer public funds to providers, including the $24 billion for child care relief and stabilization. While intermediaries hold varying expertise—detailed in the text box below—there are a number of ways that intermediaries can partner with states, including through subgranting to providers; bridging outreach and communication between states and providers; and providing technical assistance to early educators.

Administering subgrants

Many intermediaries have proven mechanisms in place to efficiently get public funds to providers directly, quickly, and with impact. In states with lower capacity or lacking systems designed to review applications and administer thousands of checks directly to child care providers, intermediaries can respond by providing subgrants to child care programs.

States can contract with some intermediaries who can rapidly distribute subgrants that create immediate financial relief for programs in need of a lifeline. In March 2020, for example, Child Care Aware of Kansas—a CCR&R—partnered with the state of Kansas to establish the Hero Relief Program, which offered subgrants directly to providers to sustain the supply of child care across the state, provided revenue replacement funds as enrollment in child care programs dropped, and compensated providers serving essential workers through bonuses. The program used CARES Act dollars to distribute more than $11 million in grants to more than 4,500 child care programs in Kansas in a mere six months.²⁹

The Low Income Investment Fund (LIIF), a CDFI, used public funds to increase the supply of available child care in undersupplied areas.³⁰ In November 2018, LIIF piloted the Access to Quality Child Care Expansion grant program in Washington, D.C. This initiative increased the supply of child care by providing publicly funded grants to child care providers looking to build or expand child care facilities. LIIF worked individually with child care centers and family child care homes to award 47 grants totaling $8.1 million while ensuring that providers were supported in identifying supply-building strategies for these funds. Ultimately this grant program created 1,244 new child care slots for infants and toddlers. LIIF also worked directly with child care providers to navigate regulatory processes and shared lessons learned with agencies in the District of Columbia that serve child care facilities in order to promote policy and process changes.³¹ This initiative strategically used public resources, listening to providers in the field, to support providers’ needs. This program significantly increased the supply of child care—an encouraged activity for states to consider when administering a portion of the ARP relief and stabilization fund.³² 

Finally, St. Louis Mental Health Board (MHB), an LDF, helped the city of St. Louis distribute a significant amount of funding. In April 2020, MHB received and distributed roughly $3 million in two phases of CARES Act funding in just six weeks. They provided same-day reimbursements to child care providers for verified expenses associated with payroll, tuition support for front-line workers, and COVID-19 health and safety supplies, awarding grants up to $49,999 to 53 home- and community-based providers—every program that applied and met federal requirements. Like St. Louis, more than 50 communities across the country have established LDFs, creating ecosystems ready to deploy ARP funds to providers. LDFs, including MHB, have cultivated strong relationships with providers and work closely with diverse sets of stakeholders who best understand urgent community needs related to children. LDFs have the ability to respond quickly—on the same day, in MHB’s case—providing programs with the immediate funds they need to make timely payments on expenses such as rent, mortgage, and payroll.

Bridging outreach and communication

Community-based intermediaries are also well positioned to ensure information sharing between child care providers and the state. These third-party organizations hold trusted relationships with providers and have established processes to ensure that providers are consulted as states identify strategies to address the child care field’s most immediate needs. The organizations also ensure that child care providers can access the most updated guidance on health and safety from public health officials.

In March 2020, for example, First Steps Kent in Kent County, Michigan, (Grand Rapids) quickly assembled and convened a wide variety of stakeholders to form a local Child Care Crisis Response Team. This group included directly affected child care center providers, family child care home providers, local public health officials, and providers in the First Steps Kent shared services alliance, as well as other direct-service community-based organizations and state-level representatives. The group was tasked with coordinating efforts and aligning activities to provide comprehensive services and supports to child care providers during the COVID-19 pandemic. First Steps Kent began piloting a shared services alliance in July 2019,³³ positioning them to tap the community’s network of small business child care providers and quickly share updated health and safety guidance in 2020. Listening to providers to understand their immediate needs, the shared services program also bulk bought and distributed supplies to meet the moment. The organization used CARES Act funds to distribute easy-to-clean toys, materials and curricula, and cleaning supplies, including nearly 20,000 rolls of toilet paper, 930 gallons of soap, and more than 1,200 bottles of hand sanitizer.³⁴ Additionally, the alliance provided technical assistance to providers applying for grants and loans, accessing technology resources, preparing taxes, human resources services, and home-based child care business supports.³⁵ By substantively convening stakeholders, intermediates ensure that funding and access to resources and information best reflects the needs of the community.

Providing technical assistance

Intermediaries also provide technical assistance to child care providers, who often balance the responsibilities of running a small business with their responsibilities as early educators. Technical assistance can support providers applying for grants; conducting tax preparation and payroll; navigating financial systems; and making facility improvements to meet health and safety guidelines.

While the state of Delaware maintains an efficient system to administer grants directly to child care providers, the Delaware Association for the Education of Young Children (DEAEYC) has served as a critical intermediary throughout the COVID-19 pandemic. A trusted resource for child care providers, DEAEYC supported providers in applying for COVID-19 relief grants from the state. These grants were funded by the CARES Act and the Coronavirus Response and Relief Supplemental Appropriations Act. DEAEYC’s help allowed the state to focus on processing grants while ensuring that child care providers could access relief dollars as quickly as possible. Intermediaries can help free up capacity for states to focus on administering grants while also increasing capacity for providers balancing the responsibilities of caring for children and running a business.

Child Care Aware Kansas, meanwhile, established the Child Care Health Consultation Network using CARES Act funds. This program helped providers identify the best ways that their specific facility could work to meet U.S. Centers for Disease Control and Prevention COVID-19 health and safety recommendations—whether that meant setting up partitions to accommodate social distancing or establishing separate entry and exit points to limit contact during parent pick-up and drop-off. The child care programs were then able to apply for grants to make those changes. Child Care Aware Kansas conducted 505 health consultations in 2020.³⁶ Intermediaries can support child care providers as they work to meet requirements³⁷ associated with receiving subgrants.

Conclusion

States have an opportunity to use a historic public investment to provide immediate relief to the child care industry. Community-based intermediary organizations have the tested mechanisms and trusted relationships required to quickly and equitably distribute public resources to child care providers. Intermediaries provide an opportunity for states to increase capacity as they work to immediately distribute child care relief and stabilization funds intended to prevent more child care programs from closing. The relationships that third-party organizations hold with providers can ensure that the distribution of funds best reflect the needs of providers in the field. While the child care relief and stabilization funds included in the ARP provide critical financial relief to providers experiencing severe financial hardship as a result of the coronavirus crisis, the child care industry requires sustained federal investment to build a system that reaches more children; allows parents to choose the best affordable child care for their family; and ensures that early educators receive fair compensation and support.

MK Falgout is a research assistant for Early Childhood Policy at the Center for American Progress.

The author is grateful to the community of child care advocates who informed this work and to Laura Dallas McSorley for her valuable input.

Appendix

Table 1