Introduction

Child care programs provide children with safe, nurturing environments to learn and grow, enabling parents to work to support their families and the state’s economy. Recent reports show Texas is home to about 2.3 million children under six, with 68% having two parents working. 

The shortage of affordable child care is not just a family issue, it’s a statewide economic problem. Working parents who struggle to find quality, affordable care may arrive late, leave early, miss promotions, delay professional development, or even leave the workforce altogether. A U.S. Chamber of Commerce Foundation report estimated that Texas loses $9.39 billion annually from its economy due to insufficient childcare. 

Key Issues

Access to Affordable, High-Quality Child Care is Scarce

For many working parents, the critical need for child care comes with a significant financial burden. Approximately 85% of the child care industry is privately funded, with some federal support available for eligible families. On average, American families with a child under five spend about $10,000 annually on child care, which is about 13% of their income. In Texas, the average annual cost of infant care is $9,324, which is higher than the average in-state college tuition, according to the latest data from the Economic Policy Institute. This financial strain is a stark reality for many families, making quality child care a luxury rather than a necessity. 

Despite these high costs, early childhood educators earn low wages. The median wage for child care workers in Texas is $12 per hour, or $24,000 annually, with an average wage of $11.43 per hour. These low wages contribute to a national shortage of early child care educators, reducing provider capacity and lengthening waiting lists for subsidized child care.

In 2023, the waiting list for child care in Texas was around 60,000 children. However, the issue was not a lack of capacity but a shortage of educators, causing providers to operate at only two-thirds of their capacity. The COVID-19 pandemic further exacerbated the already limited access to affordable child care. 

This situation highlights a core issue: if providers paid child care staff what they are worth, many families would be priced out of services, negatively impacting providers’ revenue.

The current private model for child care fails to meet the demand effectively. High demand is met with unaffordable prices, leading to excess capacity and potential business closures. This underscores the urgent need for increased public funding to make child care more accessible and affordable for all families.

Limited Public Funding for Child Care

The federal government offers financial assistance to states through the Child Care and Development Fund (CCDF) to help subsidize child care expenses for eligible families and enhance the quality and availability of child care. States can use matching funds to maximize these federal dollars. In Texas, this typically results in over a billion dollars in federal funding every biennium through the CCDF. The Texas Workforce Commission (TWC) administers a portion of the funds through its Child Care Services (CCS) program. 

However, federal funding covers a relatively small portion of the child care market. In Fiscal Year 2023, TWC’s $1.1 billion annual allocation will assist approximately 140,000 children daily, which represents just 12% of the total licensed capacity of privately operated child care programs in the state. 

During the COVID-19 pandemic, the federal government allocated an unprecedented $52 billion in relief funding to support the child care industry. TWC received about $5.9 billion in one-time federal CCDF funds. Approximately half of this amount was dedicated to CCDF programs, while the rest supported the broader child care industry, including wage supplements and one-time bonuses for around 10,800 HHSC-regulated child care providers. The last remaining pandemic-related funding for child care is set to expire on September 30, 2024. 

Providers relied on these funds to stay afloat during the pandemic, especially in an industry that is challenging to sustain. With pandemic-related funding set to expire next month, more provider closures are expected.

88th Legislative Session Recap

The 88th Legislature largely maintained the status quo for child care funding. While TWC received an additional $35 million in General Revenue (GR) to meet the minimum state match required to access all available federal CCDF funds, the Legislature did not approve any new state funding beyond this. Consequently, there were no additional funds to sustain pandemic-level support or enhance the existing subsidy program.

On a positive note, SJR 64, which became Proposition 2 on the November 2023 ballot, was approved. This measure authorizes local property tax exemptions for child care facilities, aiming to attract high-quality providers to child care deserts. 

Ideas for Progress

The current private childcare model is fundamentally flawed, as the actual cost of high-quality care often exceeds what many families can afford. Public assistance is critical to making childcare accessible and affordable, but we need increased funding to reach this goal. 

Highlighted below are some potential avenues to increase affordability and access to child care for families. 

Increase state funding to expand eligibility or reduce copays

States can increase funding beyond the minimum state match to expand eligibility and/or reduce family copays for subsidized child care.

For instance, Montana extended eligibility up to 185% of the Federal Poverty Level (FPL) and implemented a sliding scale for family copayments, capping them at 9% of family income. Vermont plans to eliminate copayments for families at or below 175% of the FPL and expand eligibility up to 575% of the FPL by the end of 2024. 

Support child care educators

Low wages are driving a national shortage of early care providers and educators. A common effort by states involves using general revenue to increase compensation for child care educators. 

Some states, like California, are working directly with unions to set up wage increases or retirement funds. Others, like Massachusetts, are investing in pilot programs to support educator recruitment and training. 

The TWC acknowledges the need for better wages in their Strategic Report, but notes that even significant funding increases to the Child Care Services (CCS) program would not transform the entire industry because subsidized care covers a relatively small portion of the child care market. To address this, TWC has invested some pandemic-related funding in initiatives designed to create “efficiencies in child care,” such as business coaching and shared services alliances. The TWC also funds local Workforce Boards, which invest in various initiatives to support early educators. 

Incentives for Providers

States can also use funds to incentivize providers to enter or remain in the child care industry.   

One way of doing so involves modeling reimbursement rates off of the actual cost of care. Under federal regulations, states, including Texas, typically set their reimbursement rates using a market rate survey. However, market rate surveys measure what providers are able to charge, often underestimating the true cost of providing child care Conversely, a cost estimation model uses data based on the actual cost of providing quality care and can factor in benefits that providers cannot currently offer but want to provide, such as staff raises. 

Using a cost-based model for setting reimbursement rates would likely result in higher payments to providers. This could improve staff wages and increase participation in the subsidy program.

While raising reimbursement rates is beneficial, it might not significantly affect the overall child care industry, as the Child Care Subsidy (CCS) program represents only a small part of the market. To address this, states could target funding to increase rates specifically for providers in child care deserts, similar to initiatives in Tennessee. 

Additionally, states could lower child care facility costs by reducing tax liabilities or permitting expenses. Offering low-interest loans could also support major capital improvements, helping to build new facilities or upgrade existing ones.

Any investments toward providers should also theoretically help with worker wages.

Utilize untapped TANF funds to boost child care

Federal law permits up to 30% of the Temporary Assistance for Needy Families (TANF) grant to be transferred to the Child Care and Development Fund (CCDF) for child care subsidies. While 25 states currently use this option to boost child care funding, Texas does not.

A 2023 report from the Bipartisan Policy Center notes that Texas often carries forward significant amounts of TANF dollars and has not transferred any to the CCDF since at least before 2015. However, it’s important not to become overly reliant on these carry-forward funds for ongoing costs, as they fluctuate yearly.

Conclusion

There are numerous ways to enhance Texas’s child care sector, helping families and boosting the economy. However, most of these approaches require Texas to invest more of its own dollars.

Childcare is essential for economic productivity and child development, but the current system fails to meet the needs of families and providers. Public funding and policy changes are crucial to addressing these issues to create a more sustainable childcare system that benefits children, families, and the state.