HB 574: Improving Child Care Subsidy Rates

April 2021
Preschool teacher excited about what her students are doing

Parents need choices for child care. Across the state, parents face a shortage of quality child care, which has been made worse by the pandemic. Increasing the subsidy rates to the 2018 statewide average rates can help child care centers stay open, or reopen, to serve more children & families going back to work after the COVID-19 pandemic.

Setting Smarter Rates

North Carolina’s child care subsidy program helps cover some of the costs of licensed early childhood education for more than 100,000 children each year.

Child care providers in North Carolina are reimbursed for child care subsidy according to rates set by the NCGA. The subsidy rates are based on county-specific market rates, which are determined from a statewide survey of private fee-paying rates for child care. Subsidy rates vary by county, the age of children served, and other factors. Current rates are still based on 2015 data, even though the most recent survey was conducted in 2018.

Using different rates for each county creates major geographic inequities. Many child care providers in low-income and rural counties receive thousands of dollars less per month than in urban counties. As a result, child care programs are not financially viable, and there are not enough programs to meet the community need.

House Bill 574 increases the rates. The bill also creates a new statewide floor to help families in every county access quality child care close to home, while supporting local businesses.

Supporting the Workforce Behind the Workforce

Low subsidy rates are a long-standing problem. Most child care providers are small businesses operating at razor-thin margins. The pay for teaching staff is extremely low, and benefits are scarce. The average wage of a child care teacher in North Carolina is just $12/hour, despite the fact they have one of the most important jobs in our state.

An increased subsidy rate would allow providers to improve quality and availability for families. These could include increasing teacher pay & benefits, professional development, and more.

Child Care is Vital for Getting Families Back to Work

Families can’t go back to work without child care. However, the COVID-19 pandemic has put major pressure on our child care system. Providers are now facing increased costs, reduced revenues, and labor shortages as a result of the pandemic.

One-time relief funding has been vital to staying open during the pandemic. However, without significant long- term funding changes, it will be extremely difficult to build back a sustainable child care system that can actually meet families’ needs – especially in rural counties where providers are scarce (2).

Increasing the subsidy rates to the 2018 rates and raising the floor on the rates to the statewide average helps shore up the system and move toward greater sustainability over time.

Raising subsidy rates has several very important components:

  • Hold harmless providers in counties where the subsidy reimbursement rate is already at or above the new rates and statewide floor, to avoid damaging cuts. Counties where subsidy rates are already higher than the statewide average will still receive their county rates.
  • Eliminate the restriction that child care programs cannot receive subsidy rates higher than their private-pay rate. This would protect parents who do not receive subsidy from being subject to higher rates – rates that are already unaffordable.

98 counties would see increased investment under this proposal. Increasing the subsidy rate to the statewide average ensures providers in every county can stay open, offer more services, and provide high-quality learning to North Carolina’s youngest children.

HB 574 is a necessary interim step. North Carolina needs to develop a better method for calculating subsidy rates that reflects the true cost of high-quality child care. NC DHHS is planning to pursue an alternative methodology that will better align subsidy rates with the true cost of care. However, child care is essential for our economic recovery from COVID-19 and this interim step to increase rates will help these vital small businesses open.

Endnotes

1 Borom, G., Rockefeller Harris, L. Sirota, A.F., & McHugh, P. (2021). Equitably Financing Child Care for North Carolina Families: 2021 Update. Budget & Tax Center. Retrieved from https://www.ncjustice.org/publications/equitably-financing-child-care-for-north-carolina-families-2021-update/

2 Workman, S. & Hamm, K. (2020). 6 state strategies to improve child care policies during the pandemic and beyond. Center for American Progress. Retrieved from https://www.americanprogress.org/issues/early-childhood/reports/2020/10/29/492546/6-state-strategies-improve-child-care-policies-pandemic-beyond/#fn-492546-12

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