The Looming Childcare Cliff

April 22, 2024


  • Childcare programs in North Carolina are drifting toward collapse
  • Our current model for funding childcare doesn’t work without exploiting low-paid workers
  • State support is needed to keep child care centers open and operating


Childcare programs all across North Carolina are headed toward a large-scale die-out, as neither Congress nor the state legislature shows any sign of interest in filling the financial gap left by the sunset of pandemic-era funding. Surveys of childcare providers in the state say nearly 29% of the childcare locations in the state could close their doors, leaving over 91,000 children without care – creating a potential labor crisis that would have far-reaching implications for North Carolina’s economy.

During the COVID pandemic, both the Trump and Biden administrations passed separate and different short-term measures to keep childcare programs afloat. The widely-held (and correct) view was that if daycares and preschools across the nation went under due to the snap recession caused by COVID, the lack of available childcare would severely impair any economic recovery. After all, as any parent knows, if your childcare falls through, someone in your household just lost their job – and with it, the economy loses productivity, wages, tax revenue and more

The Biden administration’s American Rescue Plan Act, passed in 2021, subsidized childcare workers’ wages helping to alleviate costs. Just through 2022, 3,180 childcare centers in North Carolina received funds averaging $218,000 – a game-changing sum given the razor-thin margins many programs operate with. Yet along with the rest of the economy, many childcare facilities have seen their labor, rent, and supply costs increase dramatically. These programs could raise tuition, as many already have, but childcare is already at the bleeding edge of affordable for most families as it is. Childcare programs already operate on thin or nonexistent profit margins as it is, making it extremely difficult to eke out operating revenue without greatly increasing prices.

A market failure

The fundamental reality is that the market-based funding model for childcare is broken. In a childcare facility, there are required child-to-staff ratios mandated by law. Those ratios drop (eg. more children permitted per staff member) as children get older, but for children between 3 months and 5 years, it can be as low as 1 worker for every 3 children. A more realistic average at a typical center might be somewhere around 1 for every 5 children. These laws exist for obvious reasons of essential child safety.

That means that, at minimum, every family is responsible for 1/5th of the wages of a childcare worker. Adding their share of the rest of the facilities’ considerable overhead costs – rent, insurance, food and supplies, not to mention administration – the price of childcare becomes easier to understand. Caring for children is simply very expensive to provide. Nor are there clear ways to reduce that cost: computers cannot be programmed to care for children. The Jetsons notwithstanding, robots are not a suitable alternative. Childcare is essentially a labor-intensive activity that requires humans.

When the economy was worse-off, and unemployment was high, many childcare centers were able to pay their workers – overwhelmingly women – at or close to minimum wage. But particularly since the pandemic, the American labor market has shifted. Workers who may have once been willing to work for $7.25 have found that they can make $15-$20 an hour at Target, Starbucks, Amazon or a local restaurant. Childcare is hard, skilled work, and it requires emotional intelligence and a lot of physical endurance. As a result, childcare in North Carolina now costs nearly $9,000 per family, on average, and the state ranked 51st in affordability in 2023. North Carolina is already classified as a childcare desert, with 5 families competing for every 1 licensed childcare spot.

Without outside intervention, the market price for childcare could easily be $2,000 or $3,000 a month or higher, placing it solidly out of reach for the vast majority of families. This would very disproportionately impact women, delaying their career growth and limiting their financial freedom. This is even more acute in rural counties where per capita childcare options are most limited.

The looming childcare program die-off

When the Biden administration’s pandemic-era childcare stabilization funds sunset later this year, federal subsidies for childcare programs will drop from $1.3 billion to $400 million: a “fiscal cliff.” The thousands of childcare programs that this funding kept open across North Carolina will face a choice: either massively raise prices, or go out of business entirely.

States across the country have dealt with this same issue in a variety of ways. Maine, Illinois and New Mexico, for example, have found innovative ways to fill the funding gap, all of which essentially boil down to using state funds to keep childcare centers open and prices no less out of reach. Yet North Carolina’s lawmakers have faced the same issue with much more skepticism. In one hearing, Republican State Rep. Donnie Lambeth’s response was, “I’m like, ‘Well, why the heck are we subsidizing childcare in North Carolina? Why is that a taxpayer’s responsibility? We have this fiscal cliff we’re gonna fall off of, and you guys have got to put in tens of millions of more dollars… That’s not the answer, quite frankly.”

Unfortunately – at least for North Carolina parents, if not Rep. Lambeth – that is the answer, quite frankly. If North Carolina’s Republican leaders sit back and do nothing while a third of North Carolina childcare programs fold, voters will certainly take notice – and will rightly blame the lawmakers who let it happen.

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