Stable Funding is Critical in Protecting the Child Care Sector from Collapse

How Head Start’s contract funding model can help

When COVID-19 struck, governors needed to act quickly to create emergency child care for essential workers. To meet this urgent demand, they relied on a proven strategy–contracting directly with child care programs. It is an approach that has built and sustained some of the best early childhood systems in the country, among them, Head Start, but one that is far too underutilized in child care. As programs start to reopen across the country, it is time for state decision-makers to heed the advice of experts like Rhian Allvin, the CEO of the National Association for the Education of Young Children, and embrace this approach of paying “by contract, not by child” to build the child care system we need moving forward.

The Head Start community knows the benefits of contract-funded early childhood funding. Head Start and Early Head Start grantees receive five-year grants that allow them to predict how many children they will serve and design a quality program. They can factor in the right level of staffing, budget for increases in teacher and staff compensation, and make quality investments that enrich a child’s experience, from mental health consultation to family support programs. The process isn’t perfect, but it has helped to build Head Start into a world-renowned early childhood system with high teacher qualifications, accountability, and staying power in local communities.

The guarantee of predictable funding to Head Start programs is particularly critical to Head Start’s mission. Head Start is a national commitment to every young child from an at-risk background that walks through the doors of one the nation’s 1,800 programs, that they will be cared for, educated, and positioned for success in school and in life. Each year, Head Start serves over one million young children and families. Guaranteed funding helps programs deliver on this commitment.

Head Start isn’t alone in being sustained by contracts to serve children. Most state pre-K programs also contract with public schools, Head Starts, and other early childhood programs. Similarly, many large corporations contract with private, multi-state child care firms to set up and operate on-site child care for employees. In exchange, the firms get a more predictable revenue stream that helps them set up and sustain high-quality programming.

The mission of child care is no less important than that of Head Start, state pre-K, and employer-sponsored child care, yet, only an estimated one in 10 children on child care subsidy are served via contracts versus the more common approach of using a voucher or certificate. Over time, the notion that vouchers provide more choice in child care has turned out to be a false premise, as the resulting financial instability has forced many small providers out of business and made it more difficult for those who remain to provide higher quality care. This is not a new phenomenon, but the shortcomings of this approach have especially been laid bare by the COVID-19 pandemic.

As the pandemic spread and families were forced to shelter-at-home, the child care sector collapsed. While temporary guaranteed public funding has stabilized some corners of the child care sector, a full return to the voucher-based funding model will likely force many additional providers to close their doors.

We already have enough experience and data to show that contract slots offer numerous benefits, especially to children:

The benefits of contract-based child care slots extend in other strategic ways:

Shifting to more contract slots alone will not solve the child care crisis in America, but it clearly offers benefits and opens the door to other supportive policies that can work in tandem to drive access and quality. Georgia’s Quality Rated Subsidy Grant Initiative is an example of a state-driven innovation using contacts AND higher reimbursement to drive quality for low-income children. As of December 2018, the state was supporting more than 3,000 infant and toddler slots through the contracts, which offered a 50% higher base subsidy rate to support quality, continuity of care, and program financial stability.

Higher contracted reimbursement must be a renewed feature of any reopened and redesigned child care system. The same Urban Institute study mentioned above that found contract slots increase quality, found even stronger effects for the impact of higher reimbursement. It details how “a $100 increase in the base reimbursement rate” for child care programs “increased likelihood of providers earning a quality rating” by 35 percent and meant they were 21 percent more likely to support professional development.

Head Start has benefited greatly from the stable funding and contracted reimbursements that allow programs to budget each year for quality, and we encourage all states to embrace this new opportunity.

As Allvin eloquently states, this moment in time is an opportunity to apply “the best of what we know about how young children thrive and learn, how families need stable child care to go to work, and how early childhood educators must be valued with far more than accolades and applause.”

For more information about how state child care administrators are using contracts and other kinds of subsidy innovation, please visit the National Center on Subsidy Innovation and Accountability.

NHSA is a nonprofit organization committed to the belief that every child, regardless of circumstances at birth, has the ability to succeed in life.