What Is the Child Care Funding Cliff?

What Is the Child Care Funding Cliff?

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INSIGHTi

What Is the Child Care Funding Cliff?
September 20, 2023
Recently, the possibility of a child care funding cliff has received considerable attention from Congress,
stakeholder groups, and the media. At issue is whether the child care market (and the families who rely on
it) will be negatively affected by expiring one-time COVID-19-related investments in child care.
Background
The main federal child care program supporting low-income working families is the Child Care and
Development Fund (CCDF). The CCDF receives both discretionary appropriations via the Child Care and
Development Block Grant (CCDBG) and mandatory appropriations via the Child Care Entitlement to
States (CCES). Funds are allotted by formula to lead agencies for states, territories, and tribes. Lead
agencies generally must spend these combined funds according to CCDBG Act rules.
Table 1 presents child care funding for FY2019-FY2023. During this period, regular CCDF
appropriations increased by $3.4 billion (+42%). These increases were largely driven by the CCDBG,
which saw 53% growth in regular nominal appropriations between FY2019 and FY2023.
In addition, multiple one-time appropriations were enacted during this period in response to disasters and
the COVID-19 pandemic. Several substantial COVID-19-related appropriations in FY2020 and FY2021
sought to stabilize the child care market and support families through the pandemic, including
• $3.5 billion in FY2020 discretionary supplemental CCDBG appropriations in the
Coronavirus Aid, Relief, and Economic Security Act (CARES Act; P.L. 116-136);
• $10.0 billion in FY2021 discretionary supplemental CCDBG appropriations in the
Coronavirus Response and Relief Supplemental Appropriations Act, 2021 (CRRSA; P.L.
116-260, Division M);
• $15.0 billion in FY2021 one-time mandatory appropriations for the CCDBG in the
American Rescue Plan Act (ARPA; P.L. 117-2); and
• $24.0 billion in FY2021 one-time mandatory appropriations for a new Child Care
Stabilization grant program in ARPA.
The CARES and CRRSA supplemental appropriations were to “prevent, prepare for, and respond to
coronavirus.” Funds could be used under regular CCDBG authorities (e.g., to subsidize child care or
improve the quality and supply of care), though additional provisions clarified, expanded, or otherwise
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changed allowable uses. The ARPA CCDBG appropriation effectively further supplemented CCDBG
funds, with similar changes, but did not include explicit COVID-19 response language. The ARPA Child
Care Stabilization funds supported a new program to stabilize child care operations amidst provider
closures and pandemic uncertainties. Lead agencies made subgrants to providers to cover allowable
program costs (e.g., wages/benefits, rent/mortgage, supplies).
All told, one-time COVID-19-related appropriations augmented regular CCDF appropriations for
FY2020-FY2021 by $52.5 billion (+289%).
Table 1. Child Care Appropriations, FY2019-FY2023
(dollars in billions)
Funding Source
FY2019
FY2020
FY2021
FY2022
FY2023
CCES—Mandatory Regular
$2.917
$2.917
$3.550
$3.550
$3.550
CCDBG—Discretionary Regular
$5.258
$5.826
$5.878
$6.104
$8.021
CCDBG—Discretionary Supplemental
$0.030
$3.500
$10.000
—
$0.100
CCDBG—Mandatory ARPA
—
—
$14.990
—
—
Child Care Stabilization—Mandatory ARPA
—
—
$23.975
—
—
Total
$8.205
$12.243
$58.393
$9.654
$11.671
Source: CRS Report R47312, plus enacted FY2023 levels.
Notes: Reflects transfers, where known, but excludes $35 mil ion (pre-rescission) in ARPA federal administrative funding.
Use of COVID-19-Related Funds
The U.S. Department of Health and Human Services (HHS) published initial national- and state-level data
on ARPA Stabilization grants as of December 2022. HHS released further reporting on combined
COVID-19 funds in May 2023, finding these funds had
• provided stabilization grants to 220,000 providers associated with up to 10 million
children;
• lowered child care costs for more than 700,000 children;
• increased compensation for more than 650,000 child care workers; and
• created 300,000 new child care slots.
Approaching Deadlines
As the end of FY2023 approaches, lead agencies are facing obligation or liquidation deadlines for the
one-time COVID-19-related child care appropriations (Table 2). An obligation legally commits funds for
a particular use (e.g., entering into a grant with a child care provider), whereas a liquidation is the point at
which the funds are expended (e.g., funds are actually paid to a provider).
Most of these appropriations must be liquidated by the end of FY2023 (September 30). Only the ARPA
CCDBG funds may remain available for expenditure for another year—though lead agencies may have
spent these funds already. Lead agencies may already have exhausted their allotments from any of these
funding streams in advance of spending deadlines, meaning any potential cliff will not necessarily occur
on a single day, but rather on a rolling basis.

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Table 2. One-Time COVID-19-Related Child Care Appropriations
(dollars in billions)
Funding Stream
Appropriation
Obligation Deadline
Liquidation Deadline
FY2020 CARES CCDBG
$3.500
September 30, 2022
September 30, 2023
FY2021 CRRSA CCDBG
$10.000
September 30, 2022
September 30, 2023
FY2021 ARPA CCDBG
$14.990
September 30, 2023
September 30, 2024
FY2021 ARPA Child Care Stabilization
$23.975
September 30, 2022
September 30, 2023
Source: Deadlines per instructions for ACF-696 and ACF-696T forms. Some territories and tribes received deadline
extensions from HHS.
Looking Ahead
The COVID-19-related child care funds were provided on a one-time basis to support families and child
care providers as they dealt with unprecedented challenges and uncertainties arising from the pandemic.
While the influx of funding was sparked by COVID-19, some of the underlying market challenges
predated and were exacerbated by the pandemic. The infusion of a proportionally large amount of
funding, available for a relatively short time, has raised questions about a possible cliff effect for families
and providers.
Some have raised concerns that failing to sustain policies and activities supported by COVID-19-era
funds could have negative effects on the child care market and families seeking care. For instance, some
worry that prices may increase or providers may close if they struggle to retain staff. Child care worker
shortages are widely reported and the Center for the Study of Child Care Employment recently noted the
number of child care workers nationally still lags 4% behind pre-pandemic levels. Broad questions remain
about child care affordability and access, with some suggesting child care has reached a crisis point that
could potentially affect the labor force participation of parents and the health of the economy.
Amidst these concerns, the 118th Congress has demonstrated sustained interest in child care. Hearings
have been scheduled by multiple committees. An array of child care bills have been introduced. There is
great variation in the sponsorship and focus of these bills, which touch on everything from working
families to facilities, the workforce, supply gaps, tax benefits, and more. With respect to the funding cliff,
a bicameral letter led by Representatives Bonamici and Jacobs and Senators Kaine, Smith, and Warren
expressed support for sustaining certain COVID-19-era funding. More recently, a Child Care Stabilization
Act was introduced (H.R. 5433, S. 2777), which would appropriate $16 billion for each of FY2024-
FY2028 to continue the Child Care Stabilization program first authorized by ARPA.

Author Information

Karen E. Lynch
Conor F. Boyle
Specialist in Social Policy
Analyst in Social Policy

Congressional Research Service
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Disclaimer
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Congress. Information in a CRS Report should not be relied upon for purposes other than public understanding of
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