House Bill 574 essential to building strong, equitable childcare system in NC

Next week, the state House Committee on Families, Children, and Aging Policy will consider a bill that would provide a significant boost to the state’s early childhood education system.

House Bill 574 would revise the reimbursement rates paid to those who care for children who receive childcare assistance. Increasing these rates is an important step to fully investing in North Carolina’s youngest children and the skilled educators who care for them. This bill would help build the strong and stable childcare system that our state needs to recover from COVID-19. 

Parents who are returning to work need accessible and affordable high quality educational opportunities for their children. This is especially true for working mothers who have been far more likely than men to leave the workforce during the pandemic because they’re caring for children. 

The Budget and Tax Center has just released Equitably Financing Child Care for North Carolina Families, a newly revised version of our 2020 report on implementing a statewide floor for childcare subsidy reimbursements. HB 574 would put this statewide minimum reimbursement rate in place, driving investment to childcare providers and creating greater equity across counties. Federal and state dollars are available to make this investment; it is not only possible but essential to our recovery.

North Carolina’s childcare subsidy program serves over 100,000 children in low-income families each year; childcare providers are reimbursed each month by the N.C. Division of Child Development and Early Education (DCDEE) for delivering this care. These reimbursement rates are based on a market rate survey of private fees and are different for each of the state’s 100 counties. Current rates use data collected in 2015, and they can differ by hundreds of dollars from county to county. 

Higher subsidy reimbursement rates are associated with higher-quality care in both childcare centers and family childcare home settings. But in many counties — especially in rural areas — the current rates do not meet the true costs of providing high-quality care. Childcare providers are small businesses that are anchors in their communities, but they frequently operate on razor-thin margins because the price of high-quality care is so far out of reach for many parents. Reimbursement rates that don’t reflect the cost of delivering high-quality early education replicate the problems with the private-pay model, leaving providers with little financial cushion and unable to hire and retain skilled educators.

Currently, huge differences in reimbursement rates among the counties exceed differences in the cost of living. This leads to major geographic inequities and financially strains providers in rural areas where access to child care is already a major problem. The graph below shows current reimbursement rates for five-star centers caring for infants in three neighboring counties, and the increased rate they would see under HB 574. 

Our analysis found that 98 counties would see a boost in investment, and the greatest increase in reimbursement rates would go to economically distressed, rural counties where the gap between current market rates and the state floor is the largest.

Many childcare providers remained open throughout the pandemic, and most of those that temporarily closed have re-opened. Yet many providers are still facing low enrollment, and the families they serve are struggling to make monthly payments. Higher and more equitable subsidy rates will not only stabilize bottom lines so that providers can remain in operation, but they also will help providers pay educators more competitive wages, support facility improvements, and encourage more providers to serve children who participate in the subsidy program, expanding families’ access to care. 

In the long term, North Carolina needs to develop a better method for calculating subsidy rates so that providers receive payments that reflect the true cost of delivering quality care. The Division for Child Development and Early Education should move quickly to pursue a new method, but the early education system needs action now. Too many providers are teetering on the edge and facing increased costs due to COVID-19. HB 574 is an interim step that will provide a key support that these small businesses need to stay open and serving North Carolina’s families and children.