Kentucky economy, families face crisis as ARPA child care money comes to end
Hundreds of millions of federal dollars have helped prop up child care centers in Kentucky over the past two years, but those funds are slated to disappear in 2024, leading to concern about closures and families' already challenging access to affordable care.
The American Rescue Plan Act passed by Congress in 2021 has delivered $470 million to address child care in Kentucky, which the state has used to fund quarterly sustainability payments to at least 1,700 child care providers, allowing them to keep their doors open by raising workers' wages and lowering tuition.
However, the final ARPA-funded sustainability payments in Kentucky went out in September, while a separate pool of ARPA funding — $293 million for one-time child care and development block grants — dries up next September.
Though Gov. Andy Beshear's administration recently announced it identified an additional $50 million it will use to make one last round of sustainability payments to child care providers this December, this funding cliff remains on the forecast in 2024 — just as the Kentucky General Assembly convenes next year to craft a two-year state budget bill that may shape the future of the industry.
The issue is not unique to Kentucky, as the already challenged industry that has relied on $24 billion of ARPA sustainability payments nationally must now figure out what to do without the money.
The Century Foundation, a left-of-center think tank, issued a report this summer estimating that unless these ARPA funds are replaced, 70,000 child care centers across the country could close — one-third of the total accepting ARPA funds — displacing more than 3 million children.
In Kentucky, the Century Foundation estimated this loss of funding could lead to the closure of 554 of the state's roughly 2,000 providers, displacing care for more than 41,000 kids — along with nearly 4,000 jobs in the sector and $104 million less in employer productivity as parents are forced to leave the workforce — though some have argued the study's estimates are significantly inflated.
Brigitte Blom, the president and CEO of the Prichard Committee, a Kentucky education advocacy nonprofit, believes those figures are not overstated, as the business model of the industry is simply unsustainable without significant intervention.
"It relies primarily on families being able to pay the cost of quality child care, and that cost is steep," Blom said, noting the $7,000 average cost of annual tuition rivals that of college tuition. "And this is why we see child care deserts across the state, why we see it's difficult for child care to stay open once an entrepreneur decides to open a child care center."
According to Blom and others advocating on this issue, a key ingredient to fixing this model without federal funding available is state money.
Dustin Pugel, a policy director at the left-leaning Kentucky Center for Economic Policy, said the looming cliff for child care constitutes "a real market failure that families are facing and providers are facing, and it's got to be up to the General Assembly at this point to do something about it."
"It took hundreds of millions of dollars, essentially, just to keep us from sliding further into losing centers," Pugel said, noting Kentucky lost about 1,600 centers between 2012 and the onset of the COVID pandemic in 2020. "And when that money goes away, I don't think it's a stretch to think that we're going to continue to see centers closing their doors moving forward."
Kentucky Chamber: 'A significant economic problem'
Among the groups calling attention to the child care funding cliff is the Kentucky Chamber of Commerce, a business advocacy group that is typically right-leaning on fiscal policy. It has warned how lack of accessible child care hurts the economy by driving parents out of the workforce.
Charles Aull, the policy and research director for the chamber, says that if providers raise rates and close amid the federal payment drying up, "that'll factor into that kitchen table calculus for a lot of these families and potentially pull some of these folks out of the labor market."
"It is a mess, to say the least," Aull said. "It is a significant economic problem at a macro level, and it's also a big problem for these individual families."
While the state certainly has to play an increased funding role in the child care solution as it crafts its next budget, Aull warned it would be "a huge reach" to think state government could step in to continue pandemic-era sustainability payments at the same level past December. "I don't think that's a realistic expectation," he said.
Instead, Aull said he believes stakeholders must identify what new policies and funding for child care have been the most effective in recent years, and then direct more funding in the next budget to those specific areas. He added that the Cabinet for Health and Family Services is conducting such an analysis that is expected to be unveiled in the coming months.
"(A larger appropriation) can be a daunting challenge, there's a lot of needs in the state," Aull said. "But this is one of those things that we think can have a strong economic impact, because it enables a lot of these folks to be able to participate in the labor market."
Aull said one part of the solution could be the newly implement Employee Child Care Assistance Program, a pilot program with $15 million of state funding to provide matching funds to employers who provide child care assistance payments to middle-income employees.
State Rep. Samara Heavrin, R-Leitchfield, was the lead sponsor of the 2022 bill to create the pilot program and also co-chaired an early childhood education task force that year. In a June interim committee meeting, she questioned whether the state could step in to deliver the same sustainability payments previously funded by the federal government.
“I think a lot of us here in the General Assembly are trying to figure out if it’s the government’s place to help with those sustainability payments," Heavrin said. "Because if it’s a broken system, how do we need to revamp that to help child care owners to be able to fix that?”
Heavrin told The Courier Journal last week that she and fellow legislators are "having conversations with stakeholders within the child care industry about creating a comprehensive plan for funding. We're still trying to figure out what that looks like at this point, but conversations are moving in a positive direction."
She added that she will push for continued funding of the employer-based child care pilot "and for that to become a concrete program."
'Not investing in child care will be a real problem'
Blom of the Prichard Committee hopes the legislature "takes this issue really seriously" in the budget session, noting that the group in 2019 had asked for $331 million annually to address the state's child care and preschool needs — which were only temporarily addressed by ARPA.
"We need to continue to strengthen the early childhood ecosystem for today and for the future, and that's going to require a real state commitment to doing so," Blom said.
"We're looking at tuition payments going up for families, we're looking at child care owners having to reduce pay to their employees, we're looking at child care centers having to close across the state," Blom said. "We already don't have enough child care and estimate at least 100,000 (additional) children need access ... So not investing in child care will be a real problem."
Without the regular quarterly ARPA payments of roughly $50 million to prop up the child care industry — as well as the additional ARPA funds expiring next September — Pugel of the Kentucky Center for Economic Policy notes that this would drop state funding to roughly $40 million annually. Of those funds, $25 million would go to payments for low-income families, while $15 million could be directed toward middle-income families in the employer-based pilot program.
Blom argues that state funding for child care alone won't solve the problem, noting it will also take policy adjustments. One such change at the top of her list is allowing preschool services to be delivered by high-quality child care centers.
"That would add to the revenue stream for high-quality child care centers, strengthening the business model, and increase access for 4-year-olds to high-quality early learning environments," Blom said. "So fixes like that are what we're looking for to strengthen the ecosystem alongside deepened investment."
The Prichard Committee estimates that a $331 million annual investment by the state in child care could sustain current payments to low-income families while also expanding preschool services, supporting more than 20% of children in most counties.
Susan Dunlap, the spokeswoman for the Cabinet for Health and Family Services, did not directly answer questions asking where the Beshear administration identified the $50 million to be used for the final sustainability payment to child care providers in December, only referring to the governor's statement in August that it comes from "an influx of federal dollars."
Dunlap added that the separate pool of ARPA child care money will continue through next September, going toward higher provider reimbursement rates, higher eligibility thresholds, transitional child care for those exiting the state program and scholarships for child care employees.
The 2024 session of the Kentucky General Assembly kicks off in January, where lawmakers are expected to pass a budget for the fiscal years beginning this July and July 1 of next year.
Reach reporter Joe Sonka at jsonka@courierjournal.com and follow him on Twitter at @joesonka.
This article originally appeared on Louisville Courier Journal: Kentucky child care centers, families face hardships as ARPA funds end
