Childcare Industry Faces Hurdles but Looks to Rebound

September 1, 2020

Amid the ongoing public health crisis, the critical role that the childcare industry plays in enabling working families to bounce back from the pandemic has rarely been more evident. The COVID-19 pandemic has exposed the frailties of the system.

Like other industries, childcare has been severely strained by the coronavirus outbreak. But unlike some other industries, childcare did not come to a complete stop when other businesses locked down. Throughout the pandemic, many childcare providers have been meeting the needs of first responders and personnel who have not been able to work from home.

Demand up, supply down

As the back-to-school season shifts into high gear in the coming weeks—with some districts mandating in-person attendance—many more families may need to make childcare arrangements. Childcare is a business with high operating costs, mostly financed by fees from parents. Even during a strong economy, finding high-quality, affordable options can be difficult, particularly for low- and moderate-income families. Studies have found that a low-income family can spend up to 40 percent of its income on childcare for an infant (see the table).

The Growing Cost of Childcare

Type of Care Weekly Cost, 2013 Weekly Cost, 2020
Nanny $472 $565
Childcare center $186 $215
Family care center $127 $201
Au pair $360 $401
Source:'s 2020 Cost of Care Survey

“Low-income working families have been hit hardest by the pandemic, and if we don’t think about how to support their access to childcare, their recovery is going to be completely challenged,” said Brittany Birken, a principal adviser in the Federal Reserve Bank of Atlanta’s community and economic development group.

In a June report on the issue, Birken said the tension between what families are able to pay and the high cost of high-quality childcare is a problem. Though states make childcare subsidies available to lower-income families based on eligibility requirements under the federal Child Care Development Block Grant program, the percentage of families who received assistance as of 2015 was 15 percent because of a lack of funding, the report notes.

photo portrait of Mels de Zeeuw
The Atlanta Fed’s Brittany Birken, Photo by David Fine

Families who can’t afford to pay for childcare have to make tough choices, including forgoing work and educational opportunities to stay home, asking friends or relatives to watch their children, or seeking out cheaper care options that may be of questionable quality.

“It’s not that there aren't places for people to go to receive childcare—it’s a lack of access to high-quality learning experiences,” said Rachel Spector, associate director of early childhood, after-school, and summer programs at the Children’s Trust, a Miami organization that funds comprehensive services for children and families. “We know from the research that poverty is one of the greatest threats to children’s development.”

The reopening U.S. economy, concurrent with new outbreaks of COVID-19, presents more hurdles for the childcare industry. The number of childcare programs open for business has not returned to prepandemic levels, and many states require those programs that are up and running to limit the number of youngsters they serve to comply with health and social distancing requirements. In Georgia, for example, 36 percent of licensed childcare centers were closed as of early August because of COVID-19, and 23 percent of licensed homes are not open, according to data from the Georgia Department of Early Care and Learning.

“Very few of [centers] are at full capacity and childcare is an industry where you have to have almost 100 percent of the slots filled to make ends meet,” said Mindy Binderman, the founding executive director of the Georgia Early Education Alliance for Ready Students.

Grappling with uncertainty

Sheltering Arms Early Education and Family Centers, a nonprofit early education provider that serves 3,000 children at 14 locations in the Atlanta area, reopened in late June after closing in mid-March because of COVID-19. Its centers are not operating at full capacity for safety reasons, said Blythe Keeler Robinson, president and chief executive officer.

The financial hardships faced by families that depend on Sheltering Arms have been exacerbated by COVID-19. “The majority of the families we serve are living in poverty, and when there’s not a pandemic, life is a challenge,” Robinson said. For example, children receive two meals and a snack each day they attend the center, she said—food that budget-constrained parents don’t have to worry about buying. The nonprofit also supplies diapers, baby formula, and wipes to those it serves.

“Our families struggle for some basic necessities that others have available to them or are able to purchase,” Robinson said. To determine which children to admit first when it reopened, Sheltering Arms coaches talked to families to identify those most in need.

Operating during a pandemic has been different, and childcare programs have adjusted class sizes and invested in new cleaning and safety measures knowing that they will garner less than full enrollment. “There are a lot of unknowns,” Robinson said. “There will be many programs that struggle to maintain or even reopen, which will lead to a point of families not having the options they had six months ago for enrolling their children into a childcare program.”

A survey of 5,000 childcare providers released in July by the National Association for the Education of Young Children found that 40 percent of respondents expected to permanently shut down without additional public aid.

Help on the way?

This year, childcare advocates have called on U.S. lawmakers to set aside more funds to help the industry endure the health crisis. The CARES Act approved earlier this year provided $3.5 billion in funding through the Child Care and Development Block Grant that states can use to provide subsidies to assist childcare centers. The industry’s advocates are seeking government support of $50 billion.

As Congress considers another COVID-19 relief package, more funds could be on the way. In late July, the U.S. House of Representatives approved bills that would provide more than $60 billion for the childcare industry to help centers reopen and provide safe services. Legislation proposed in the Senate would allocate at least $15 billion for childcare.

Educators and advocates say policymakers can aid the childcare industry in a number of ways. Robinson cited a need to implement policies for early childhood programming that put early childhood education on the same footing with policies already applied to kindergarten through high school.

Binderman expressed concern that state budget cuts in wake of COVID-19 could hurt pre-K and other youth education programs. She said setting aside funds for minority childcare providers would help, if more money becomes available under the U.S. Payroll Protection Program, which was launched to help small businesses keep their workers employed during the pandemic. She also said the private sector can help by providing childcare scholarships.

“We need a federal investment of $50 billion that recognizes childcare as a public good and helps stabilize the system so that parents are able to work, children are in safe, high-quality learning environments, and early educators are valued and paid accordingly,” Binderman said.

Birken suggested a couple of policy moves that could help make good childcare more available and affordable for working families: increasing investments in the federal Child Care and Development Block Grant and expanding the Child and Dependent Care Tax Credit offered to taxpayers who pay for the service out of pocket. “Public investments that support the childcare industry and affordability of care can effectively act as wage increases for millions of [low- and moderate-income] families,” Birken wrote in her June report.

Focusing on quality

Erin Grall, a Vero Beach, Florida, attorney who serves in the state’s House of Representatives, believes states need to rethink how they set reimbursement rates to childcare providers so they have incentives to deliver quality performance. She has proposed legislation that would require early learning programs to meet certain standards before they could receive state funding. She said government funds should not be spread evenly across all childcare suppliers. A childcare provider that invests time in developing curricula, keeps teacher-child ratios low, and makes other efforts to improve quality should not receive the same reimbursement rate per child as one that doesn’t take those steps, she said.

“We’re spreading the resources so thin and treating every provider as equal when we know that the results are different,” Grall said. She said reallocating funds so that high-quality centers receive more would, in turn, allow those providers additional resources to keep raising their standards.

The question of how to make first-rate childcare more affordable and accessible over the longer term is not an easy one to answer, but some communities have sought to address it. In 2002, voters in Florida’s Miami-Dade County approved devoting a portion of their property taxes to create the Children’s Trust. With a budget of $200 million, the trust works with children’s agencies, policymakers, and others to offer hundreds of programs to improve the lives of children. One of its initiatives, called Thrive by 5, provides tiered incentive payments to childcare providers based on teacher-child interaction measures and offers two-year scholarships for eligible low-income families who do not qualify for a federal childcare subsidy to use good childcare programs. Last year, it paid 750 such scholarships.

“It says a lot about Miami residents that they tax themselves to support children and families,” said James Haj, president and chief executive officer of the Children’s Trust.

As community, state, and federal leaders grapple with strategies to support economic recovery, access to childcare will be essential for working parents with young children. The industry is banking on public support for stability and to keep operators from going out of business, a result that would have adverse effects on families and the larger economy.

photo of Karen Jacobs
Karen Jacobs

Staff writer for Economy Matters

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