Gaps between families’ child care needs and federal investments in early care and education (ECE) have compelled states to develop innovative approaches to funding ECE infrastructure. Although these local policies solutions alone cannot solely resolve the deep-rooted and longstanding child care challenges facing the country — which estimates suggest yields a $122 billion loss to the economy — they offer valuable insights and public/private capital models that could inspire replicable state policies and scalable federal solutions. As the new Administration and Congress work to fulfill campaign promises including improving the affordability and accessibility of child care, the federal government should draw on successful and proven state models to develop comprehensive solutions to the national child care crisis. Together, regional, state, local and the federal government should partner by working in parallel to prioritize impactful child care investments. This three-part series will explore innovative state strategies for effectively investing in child care to address community needs (Parts 1 and 2) and examine how the federal government can adapt these lessons to create impactful national solutions (Part 3).
Part 1: States such as North Carolina, New York and New Mexico have demonstrated the power of leveraging effective financing solutions to make child care more affordable and accessible. This includes collaborative public-private partnerships, well-designed tax incentives, and permanent child care funds. Lessons from these states should serve as a blueprint for building a strong ECE ecosystem, which is fundamental to thriving communities.
North Carolina: Public-Private Partnerships
Tri-Share Child Care Program (NC Tri-Share)
North Carolina leverages innovative public-private partnerships, such as the Tri-Share Child Care Pilot Program (NC Tri-Share), to reduce child care costs and expand accessibility for working families. By creating collaborative funding models where employers, employees and government share child care expenses, the State is addressing critical workforce and economic development challenges.
Tri-Share programs entail cost-sharing models, in which the employer, the employee and the State government each pay for one-third of the cost of child care. Their structures include participating employers who join the program through a facilitator hub, which is traditionally a nonprofit. The facilitator hub is responsible for program administration and serving as an intermediary between employers, families, child care providers and the State. As a leading national community development financial institutions (CDFI) in the ECE space, LIIF has demonstrated the power of public-private partnerships to address funding gaps and effectively mobilize capital. Our approach leverages our expertise and multiplier effect to help funders and communities overcome financial barriers in building communities of opportunity. Additionally, we partner with government agencies to support with ECE program delivery and fund administration.
North Carolina established NC Tri-Share in 2023 through appropriated funds. Specifically, state lawmakers allocated $900,000 for Fiscal Year (FY) 2023-2024 and FY 2024-2025 for The Division of Child Development and Early Education (DCDEE) and the North Carolina Partnership for Children (NCPC) to establish a two-year pilot program. It was modeled after Michigan’s bipartisan MI Tri-Share program, which launched in 2021.
In North Carolina, DCDEE and NCPC were responsible for selecting three local partnerships to serve as regional facilitators in geographically diverse areas across the state. DCDEE and NCPC selected The Cleveland County Partnerships for Children; The Martin-Pitt Partnership for Children; and Partners for Children and Families of Moore County. Each regional hub provides administrative support of the program at the local level and works to recruit businesses and child care providers. North Carolina also contracted a central administrator, Catapult Employers Association, to coordinate its regional hubs. Families are eligible to participate if they are employed by a participating business, have an income between 185% and 300% of the federal poverty level and are ineligible for other subsidized child care. In North Carolina, NC Tri-Share can reduce family’s child care costs by up to two-thirds.
Key Lessons
Public-private partnerships that utilize cost-sharing models like Tri-Share programs improve child care affordability by reducing out-of-pocket child care expenses for families and strengthen the economy by supporting working parents. Additionally, offering child care support through employers simultaneously improves accessibility for parents while helping employers more effectively retain their existing workforce. One of Michigan’s goals when it launched its Tri-Share program was to better support workers, particularly women, seeking to return to work by lowering their child care cost by 66%.
Tri-Share programs offer a promising approach to stabilizing the ECE ecosystem; however, challenges remain regarding its reach. For example, Tri-Share programs require businesses to opt in, which may lead to larger, wealthier companies participating while potentially excluding smaller businesses and other employers. Additionally, they often serve a limited range of family incomes. To that end, when designing Tri-Share programs, governments should consider strategies to recruit diverse employers and industries to better engage all working parents and to serve different income levels, including using them to eliminate family fees.
New York: Tax Incentives
Low-Income Housing Tax Credit
New York leverages tax incentives, such as the Low-Income Housing Tax Credit (LIHTC) to increase the supply of ECE facilities, making child care more accessible for families. By driving investments in comprehensive community-development efforts that meet the child care needs of communities, the state is addressing crucial supply gap challenges.
Traditionally, the LIHTC is a tool utilized to encourage private investment in affordable housing for low-and moderate-income (LMI) individuals and families .The LIHTC is the largest form of subsidy for affordable housing construction in the country and is a tool LIIF leverages to advance our mission of building communities of opportunity, equity and well-being. Under the LIHTC program, the Internal Revenue Service (IRS) allocates tax credits to states based on their population. States are then able to set their own community-development priorities and award credits based on those priorities, such as co-location strategies that pair child care facilities in affordable housing developments.
In New York’s FY 2024 budget, the State took action to prioritize investments in child care facilities. The state budget includes language incentivizing expanding the supply of affordable homes by rewarding applications for the LIHTC that incorporate child care facilities. Specifically, it directs New York State Homes and Community Renewal (HCR) to expressly favor LIHTC applicants with housing development projects that include a dedicated child care space. This policy built upon a previous $100 million investment to boost program capacity in child care deserts.
Key Lessons
Often, child care centers struggle to afford high rent and must vie for space in a competitive real estate market. By favoring LIHTC applications that include child care spaces, New York is taking a proactive approach to increase the availability of ECE options as well as addressing community needs. As the leading national CDFI in the ECE space, LIIF is an advocate for leveraging tools like LIHTC and state Qualified Allocation Plans (QAP) to advance co-location strategies that center comprehensive community development. LIIF’s research and work has demonstrated how this approach can successfully unlock economic opportunities through ECE supports, especially for historically excluded communities.
While this approach has the potential to strengthen the ECE ecosystem, there are still limitations. Specifically, many logistical and financial challenges can hinder the advancement of such projects in communities in most need of these resources. While the LIHTC is one of the country’s strongest community-development resources, additional federal tax reform – such as the bipartisan Affordable Housing Credit Improvement Act – is needed to strengthen and expand the Housing Credit. Moreover, further reforms are needed to bolster other vital community development tools. Dedicated federal investments in child care facilities are also key to addressing this challenge.
New Mexico: Permanent Child Care Fund
Land Grant Permanent Fund (LGPF)
New Mexico leverages permanent ECE funding streams through the Land Grant Permanent Fund (LGPF) to provide child care at no cost for most families in the state. By expanding its child care subsidy program through targeted funding, the state is addressing key affordability challenges.
Child care subsidies come in various forms to help cover gaps or offset child care costs for families. Most states offer subsidies through the Child Care and Development Fund (CCDF) program. CCDF is a federal and state partnership program authorized under the Child Care and Development Block Grant Act (CCDBG) and administered by states to provide financial assistance to low-income families to access child care. States also use CCDF to invest in child care quality through workforce, programming and consumer education supports. Head Start and Early Head Start are also federal programs that provide child care for children from birth to age 5 at no cost to eligible families with low income. In addition to CCDF and Head Start, many states use voucher or certificate programs to provide financial assistance for eligible families; however, these federal funding streams are often insufficient to meet demand and depend on Congressional appropriations, which is contingent on political will. As a national non-profit financial and Technical Assistance (TA) intermediary for low-income child care and Head Start programs, LIIF is a longstanding champion for strengthening programs that improve access to child care for the most economically disadvantaged families.
Recently, New Mexico became the first state to establish a constitutional right to child care and created a permanent fund for child care. New Mexico established dedicated funding through a constitutional amendment that directs a portion of the state’s LGPF to child care. LGPF is the state’s largest educational endowment and is primarily funded by fees from leases and royalties on oil and gas production and returns on invested capital. Specifically, the amendment allows the State to draw an additional 1.25% from the fund, of which 60% goes toward early childhood education (with the remaining 40% directed towards public education). This annually yields about $150 million, which provides funding for free child care for families earning up to 400% of the federal poverty level. In 2022, New Mexico built on this policy effort by dedicating $10 million toward supply-building grants designed to expand the availability of child care.
Key Lessons
New Mexico’s Early Childhood Education and Care Department (ECECD) estimates that over 30,000 families now qualify for free child care, demonstrating the impact of establishing dedicated ECE funding. Additionally, one of the essential features of New Mexico’s approach to making child care more affordable included the establishment of ECECD. Building the infrastructure needed to accommodate an expansion of services through the creation of a new State department for ECE was essential in ensuring that the expanded funds translate into programming.
Although New Mexico is leading the country in cost-free child care, it is important to recognize limitations. For example, not every state has the natural resources to establish a trust fund comparable to LGPF. To that end, governments should explore creative financing solutions to fund ECE projects. This could include partnering with CDFIs, which specialize in crafting innovative approaches to financing community infrastructure, like child care.
Conclusion
Despite the proven role ECE plays in improving children’s development, strengthening communities and catalyzing a robust economy, federal funding policies have not kept pace with the growing need and rising costs of quality child care. According to the Organization for Economic Cooperation and Development (OECD), the United States has invested fewer public dollars in early childhood care relative to gross domestic product than almost any developed country. States such as North Carolina, New York and New Mexico have stepped up to address the evolving child care needs of communities, offering dynamic solutions like cost-sharing, tax credits and trust funds to increase child care access and affordability; however, states alone cannot fix the complex child care crisis. These efforts must be matched by the federal government to ensure robust investments in child care. As an ECE stakeholder, LIIF values and lends support for sustainable investments, partnerships and solutions across the ECE ecosystem.