Democrats appear ready to protect much of their proposed child care spending in a sweeping budget bill as negotiators close in on a far smaller package than most sought, according to lawmakers and aides familiar with the discussions.

The total under consideration for two new child care programs is around $350 billion, which is still about three-fourths the amount House Democrats initially proposed. Their original $3.5 trillion-plus reconciliation package is expected to be cut by at least half to appease Senate centrists, and other priorities like paid family leave and child tax credits could get whittled down to roughly one-fourth their original size.

One of the child care programs would fund universal prekindergarten for 3- and 4-year-olds, prioritizing funding for communities based on poverty rates and existing access to quality care. The other is a new “early learning” day care program for children under 6 not enrolled in pre-K that’s designed to ensure families don’t spend more than 7 percent of their income on child care.

Lawmakers designed the two programs to work together to provide more affordable child care. That would help more women return to the workforce and boost the post-pandemic economic recovery, they argue.  

“Child care is the issue that I hear across my district — and across the country — as what is needed to get the doors back open and get people back to work,” Assistant Speaker Katherine M. Clark, D-Mass., said in an interview. “This has to be one of our major priority areas.”

The child care programs appear less vulnerable to cuts because of their popularity and the complexity of implementing them. 

In the House bill, both programs would be phased in over three years to give states time to build up their supply of facilities and workers. The measure would provide federal pre-K funding through fiscal 2028 and money for the day care program through fiscal 2027. 

Those program timelines are what is most likely to change to get down to the new $350 billion total, but the exact structure is still being negotiated.

State decisions

While lawmakers envision the pre-K and day care programs working in tandem, the House bill would allow states to opt in to just one program, or neither. Some Democrats fear the child care programs could become like the 2010 health care law’s Medicaid expansion, in which several states chose not to participate. 

“We have been advocating that there not be this opt-in option because we’ve seen too many times … governors that put, I think, more stock in their own political interests than actually running their state effectively who opt out of some of these programs,” Rep. Mikie Sherrill, D-N.J., said in an interview.

Rasheed Malik, associate director of research for early childhood policy at the Center for American Progress, said he thinks the child care programs would fare better than the Medicaid expansion because it’s a less partisan issue and the benefits are more universal.

“It would be a very cynical move that I don’t think would be politically popular if a state government rejected child care or pre-K,” he said. 

While states would have to do complex cost-benefit analyses on whether it’s worth participating in either program, Malik thinks most would find there’s “very little fiscal risk.”

The pre-K program would start with the federal government providing 100 percent of funds in the first year and then slowly increase the state contribution by 10 percent until it reached a 40 percent state match to the 60 percent federal contribution. 

The day care program, meanwhile, would be fully federally funded for the first three years, after which states would have to provide a 10 percent match. The state matching rate would be higher for funding used for purposes like increasing provider wages, but the expectation is that most of those costs would be incurred in the three-year transition period, when there would be a 100 percent federal match.

After the phase-in period, states participating in the day care program would no longer be able to spend more than 10 percent of federal child care and development block grants on care for kids under 6.  

Linda Smith, director of the Bipartisan Policy Center’s Early Childhood Initiative, said if a state participates only in the pre-K program, that could take most 3- and 4-year-olds out of day care centers. That would likely raise costs for providers because they’d have to fill slots with more infants and toddlers, who on average cost three times more to care for, she said. 

Malik said cities like Washington, D.C., and New York offer examples of what can happen if governments invest only in pre-K. “That can have unintended consequences on the supply of infant and toddler child care,” he said, noting the D.C. Council has since approved funding to try to address those shortages.

An Education and Labor Committee aide pointed out that the federal match is more generous for the day care program, so states would be unlikely to participate only in the pre-K program.

Copayments 

Although the pre-K program would be universally accessible, the day care program has restrictions on who qualifies based on family income. Participating states would establish networks of eligible providers and certify families that are eligible for subsidies. Approved families would take certificates to providers, which the state would reimburse for most costs.

Families earning 75 percent or less of their state’s median income would pay nothing, while others would be charged a sliding scale copayment up to 7 percent of family income. Only households earning up to the state median would qualify in 2022, a threshold that would gradually scale up until full implementation in 2025.

The original House Education and Labor Committee proposal cut off subsidies for families earning above 200 percent of state median income starting in 2025; a Sherrill amendment removed that limit but retained a requirement that families attest they have less than $1 million in assets.

With some Democratic centrists like Sen. Joe Manchin III of West Virginia pushing to means-test entitlements in the reconciliation package to ensure it targets only the neediest families, the income cap is back in play. 

“Given that we’re in tough negotiations now with the Senate, I think what we need to make sure is that the majority of women are covered,” Sherrill said, noting she’s “hearing some good numbers” on the income cap but nothing final. 

Sherrill faces a potentially tough reelection fight in a swing district that’s among the nation’s wealthiest, according to Census Bureau data.

She said the income cap is expected to be higher than 150 percent, which was the starting point in legislation that House Education and Labor Chairman Robert C. Scott, D-Va., and Senate Health, Education, Labor and Pensions Chairwoman Patty Murray, D-Wash., introduced earlier this year. 

Murray argues that means-testing the day care subsidies is “irrelevant” since many wealthier households are already paying less than 7 percent of income for child care.

President Joe Biden said in a CNN town hall Thursday that no couple earning less than $300,000 — or $150,000 for a single-parent household — would have to pay more than 7 percent of their income under the day care program. That’s at least double the median income in most states. 

Limiting eligibility could increase costs for families cut off from the subsidies because the House bill would require states to factor in costs for providing quality care in its payment rates to providers, Smith said.

For example, states must ensure the funds would provide staff with “a living wage” that’s “equivalent to wages for elementary educators with similar credentials and experience.”

Since raising wages would increase the cost of care, Smith said it’s not clear who would pick up the difference for families that don’t qualify. The House bill only says states shall “implement payment practices that support the fixed costs of providing child care services.”

“So you think about how you squeeze this bubble, it could get really interesting,” Smith said.