Child Care

Child care policy is economic policy. The state of Maryland doesn’t treat it that way. But it is time to think differently. The choices we make about child care are deeply influential in shaping outcomes later in life. We need to take an investment approach to child care.

The Problem

Affordability and Financing for the Middle Class

Affordable child care is not just a problem for the working poor. It is a problem for the entire middle class. Annual fees for a toddler in a quality child care center in Maryland can easily cost $15,000. For most parents, that represents a hefty chunk out of the family budget. Most parents in the state will struggle to cover these costs, particularly if they have kids early in their careers. For families with more than one small child, the costs can add up to a majority of monthly income or the entirety of the income for one of two working parents.

Equal Access for Children in Poverty

In a nutshell — here’s how the program works in Maryland today. We have a voucher-based system of reimbursements to defray the cost of child care for low-income households. We have had this program for years, but its viability is in steep decline. The federal government provides a big block grant to Annapolis (~$60M) and the state adds more money to the pool (~$40M). (The federal grant program was reauthorized in 2014 after a strong push from then-Senator Barbara Mikulski.) Families eligible for support receive a voucher that shows the amount of their credit (per child) and the amount of the co-pay for which they are responsible. The voucher and the cash co-pay are given to a licensed child care provider, and the provider gets reimbursed by the state for the voucher.

Last year, more than 14,000 children in Maryland got quality childcare under this program and maxed out available funding. Disastrously, that represents only 22% of the total number of eligible children. That means tens of thousands more are not getting the care they need to prosper; or their parents have dropped out of the workforce; or we are forcing parents to choose between quality child care and the other basic necessities of life that must come from every paycheck. Worse still, the resulting shortfall in revenue into the child care system means we have fewer child care centers, fewer spots available, teachers are paid less, and quality declines in ways that affect children across the system.

Child Care Providers

Meanwhile, the downward pressure of underfunding is not just falling on parents and children. It is also carried by the people that work in child care. They are perhaps the worst paid, most important members of our society. This is a national problem, but we have not addressed it in Maryland. A 2016 study by the Center for the Study of Child Care Employment found that 40% of the families of child care workers were participants in at least one public assistance program. We pay poverty level wages to the people that work with our children during the most important phase of child development. The result is high stress, high turnover (30%), difficulty recruiting qualified staff into the profession, and ultimately, a negative impact on quality.

Annual fees for a toddler in a quality child care center in Maryland can easily cost $15,000.

Annual fees for a toddler in a quality child care center in Maryland can easily cost $15,000.

Child care center workers earn 60% less than public school teachers.

Child care center workers earn 60% less than public school teachers.

Real Solutions for Working Families

We need to invest in our children. It’s the right thing to do, and it is smart policy to promote economic prosperity — both now and in the future. To do that, we need to make immediate changes to our child care policy.

Equity-Based Child Care Financing for Working Families

We should start planning to build a public-private Child Care Equity Fund to make dedicated financing available to working families to address the cost of childcare. A successful investment fund using the model described here could eventually reach as many as half of all Maryland families with children under 5 years old. The Equity Fund model will be based on innovative solutions to the expanding student loan crisis. The central idea is to shift away from loan-based finances to a system equity-based financing. These programs — known as Income Sharing Agreements (ISAs) — are getting a lot of positive attention and currently being tested at educational institutions around the country

The Child Care Equity Fund will invest capital in eligible families that apply for the program to cover a portion of child care costs. The terms of the agreement — size of the investment, payback percentage and duration — will vary from family to family based on the amount of financing, income, and risk profile. The payback period will start once the child has entered school and last a period of years (at maximum until the child graduates high school). Like a company repaying an investor (rather than a debtor repaying a lender), the parents will not owe a monthly debt payment but rather a fixed percentage of monthly income to the Fund.

This Income Sharing Agreement (ISA) has many advantages over a conventional loan. First, it does not impact a family’s creditworthiness for other purchases (e.g. a home or a car) to the same degree. Second, it is not a fixed payment, it is a percentage of income. If income declines or rises, so do the payments — making the payback align with the economic health of the family. This is the shared risk of the Fund and the family. If income drops below a threshold in the ISA, payments stop but interest does not accrue and the Fund loses money. If income rises quickly, the Fund gets a strong return on investment, but the total repayment amount is capped to avoid penalizing successful families beyond a pre-established amount.

For the state of Maryland, this is about more than doing the right thing by our kids. It is about growing prosperity for all of us by expanding economic opportunities for working families and delivering high quality care for all kids regardless of whether their parents are bankers or bus drivers.

Equal Opportunity Child Care

We will seek to restore the health and viability of the existing program that supports child care costs for children from very low-income families.

  • Over a period of years, we will work to restore reimbursement rates that make 75% of local child care providers affordable for all families in a community.
  • We will eliminate the freeze on enrollment and its waiting list of thousands.
  • We will set a goal of raising eligibility levels to 50% of median income and work with families to keep co-payments at a manageable 7-10% of monthly income.
  • To streamline implementation of this program for more families and to hold costs down, we will build and implement digital interfaces and data management systems that reduce transaction costs, save time for families and agencies alike, and track compliance among participants to cut down on errors and waste.
  • We will continue efforts in the state to raise the quality of care by working with providers to achieve quality accreditation (accompanied by increased reimbursement rates to incentivize higher standards).

Raising the Quality of Child Care

Like every other institution in our society, child care providers are only as good as the skills and motivation of the people that work in them. We cannot continue to starve these critical service providers, pay teachers poverty wages, and foreclose access to career advancement without a steep decline in the quality of care.

  • We will explore ways to increase compensation and retention for child care workers by expanding benefits such as training programs and credentials that yield meaningful salary increases upon completion.
  • We will explore establishing a T.E.A.C.H. Early Childhood Program in Maryland — a successful program that has been implemented in 20+ other states. The initiative works with a blend of public-private funding to address the challenges in the child care workforce — retention, training, and salaries. In particular, the program offers higher education scholarships for child care workers. In Pennsylvania, the program sponsored more than 1000 scholarships in 2016 alone. T.E.A.C.H. boasts impressive 90%+ retention rates and increased salary for staff that have been awarded scholarships in the program.
  • We will work with private sector partners to explore establishing a “Teach for Maryland, Early Education” — to bring talent, public service spirit and investment to the profession.
  • We will leverage digital tools to increase communications between parents and child care providers, to help educate parents of high-need children about how they can support child care providers, and to alert families about financing options that can make child care more affordable.

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