The childcare cliff

The American Rescue Plan's childcare provisions included $24 billion in stabilization grants distributed through states to individual providers, plus a separate $15 billion in supplemental Child Care and Development Block Grant funding. The stabilization grants were unusually flexible. Providers could use them for personnel costs, including wage increases and hiring bonuses, for rent and mortgage payments, for cleaning supplies and personal protective equipment, and for mental health services for staff. The flexibility was deliberate. The funds were designed to keep the sector functioning through a period of unprecedented disruption, not to advance a particular policy vision. They were nonetheless the largest federal investment in childcare in American history.

Evaluations of the stabilization grants found that they reached roughly 220,000 providers, serving approximately 10 million children. Provider closures during the grant period ran below pre-pandemic baseline rates, despite the pandemic itself. Worker wages rose, modestly but measurably, in states that used the grants aggressively for personnel costs. Parent fees, contrary to some predictions, did not rise significantly, because providers used the grants to absorb costs that would otherwise have been passed through. The grants worked in the way they were designed to work, and the working was documented in detail by state agencies, advocacy organizations, and academic researchers.

The stabilization grants were authorized to be obligated by September 30, 2023, and to be liquidated by September 30, 2024. The phrasing matters. Providers could continue spending previously obligated funds into 2024, which meant the cliff was not a single date but a gradient over which different providers ran out of money depending on their grant award timing and spending pace. This made the cliff harder to observe in real time, because the impact arrived staggered across markets and across the calendar year. By mid-2024, however, the staggered effects had aggregated into a visible contraction.

Closure data from the post-cliff period is imperfect because no national registry tracks childcare providers in real time. State licensing data, where available, showed elevated closure rates through 2024 in most reporting states, with the largest effects concentrated among small home-based providers in lower-income areas. The 70,000 closure projection from the Century Foundation likely overstated the magnitude. The actual contraction was probably closer to 30,000 to 50,000 providers, which is still substantial. The contraction was uneven. Urban centers held up better than rural areas. Wealthy suburbs held up better than working-class neighborhoods.

Closures do not map one-to-one onto capacity loss because some closures involved very small providers and some surviving providers expanded. The net capacity change after the cliff is harder to estimate than the closure count, and competing analyses have produced different numbers. The most defensible estimate is that national childcare capacity declined by something in the range of one to three percent in the year after the cliff, with much larger declines in specific markets and demographics. The decline was small in aggregate. It was catastrophic in the markets where it concentrated.

Wages in the childcare sector had risen during the stabilization period, narrowing the gap between childcare workers and comparable workers in other sectors. After the cliff, wage growth slowed but did not reverse, in part because the broader labor market remained tight. The wage gap began to widen again. Worker exits from the sector resumed at rates closer to pre-pandemic norms. The longer-term implication is that any future stabilization effort will start from a workforce that is older, smaller, and more skeptical than the one that existed in 2020.

Parent fees rose modestly in most markets after the cliff, by amounts that varied with local conditions. The fee increases did not fully cover the lost grant revenue, which meant providers were absorbing the gap through reduced operating margins, deferred maintenance, and reduced staffing. The strategy is not sustainable. The next economic downturn, or the next provider-specific shock, will produce additional closures from providers who entered the post-cliff period with thinner margins than they had before.

The political fight over extending the stabilization grants was lost in late 2022 and early 2023 as part of the broader budget negotiations that followed the 2022 midterm elections. The childcare extension was attached to various legislative vehicles, including the Build Back Better proposal in 2021 and various continuing resolutions in 2023, and was dropped from each as bills were narrowed. The pattern is familiar. Family policy expansions consistently fall out of legislative packages during the negotiation process, because the constituencies that defend them are weaker than the constituencies that defend other priorities.

A handful of states responded to the cliff by allocating their own funds to continue stabilization at reduced levels. Minnesota, New Mexico, and Vermont were among the most aggressive. New York and California provided substantial but partial bridges. Most states did not. The result is a deepened geographic stratification in childcare conditions, with families in some states facing meaningfully different conditions than families in others. The federalism that has long structured American family policy intensified after the cliff, producing a landscape that is harder to describe in national aggregates and easier to describe state by state.

Coverage of the cliff in the general press was substantial in the months before and after the expiration, and then declined sharply. By 2024, the cliff had largely disappeared from national political discussion, even as its effects continued to unfold in local labor markets. The information cycle did not match the policy timeline. The decisions that produced the cliff were made in 2022 and 2023. The consequences will be felt for years. The political accountability for the decisions has dissipated in the interim, which is the typical pattern for policy choices whose effects are diffuse, lagged, and demographically concentrated.

The cliff revealed, more clearly than the chronic crisis had revealed, that the American childcare sector cannot sustain itself on parent fees and worker wages alone. The pandemic-era funding worked. Its removal produced the predicted decline. The natural experiment thus delivered a clear result. Whether the result will inform the next policy debate depends on whether the political system is capable of learning from an experiment whose findings are inconvenient for fiscal conservatives and whose beneficiaries are politically weak.

The pattern of temporary expansion followed by abrupt termination is likely to repeat. The expanded child tax credit followed it in 2021 and 2022. The childcare stabilization grants followed it in 2021 through 2024. The next emergency, whether economic, public health, or other, will likely produce another round of temporary family support, which will likely expire in turn unless the political coalition for permanent infrastructure has been built in the interim. The cliff was not the end of the cycle. It was one iteration of a recurring cycle that the American policy system has not yet found a way to break. Breaking it would require treating family support as infrastructure rather than as emergency relief, which is the argument that the entire field has been making for decades without managing to persuade the political system that allocates the funds.

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