By Grace Vitaglione
With the end of pandemic-era federal supports for child care centers earlier this year, many centers across North Carolina faced a funding “cliff” that threatened their stability, and for some, even their survival.
State lawmakers extended funding in June, so child care centers across North Carolina are afloat for now. But those funds will likely dry up in late winter. Many providers had used those funds to pay teachers more through raises or bonuses.
Looking ahead, some of the providers who care for more than 220,000 children across North Carolina are wondering how they’ll survive in the long run.
A survey of child care centers released in March shows that without extra government funding, centers can expect to lose teachers, close classrooms, raise tuition and fees, or a combination of those measures.
State Republican leaders have said that the funding crisis is a result of the federal government injecting a large amount of funding that supported child care centers during the pandemic, then ending that funding stream. It’s not sustainable for the state to try to fill that gap, they’ve argued.
But an analysis by NC Health News shows it’s more complicated.
Rising costs make it hard for providers to keep up, said Sherry Melton, a lobbyist and consultant for the NC Licensed Child Care Association, which represents child care centers at the state legislature.
Plus, public funding for child care in North Carolina was largely flat for a decade before the pandemic.
Combined, those two factors are part of why the sector is in crisis now, advocates say.
State lawmakers may direct more money to stabilize child care providers in 2025. House Speaker Tim Moore (R-Kings Mountain) said after passing the funding in June that the rest would come through in January.
But that money is not guaranteed. Nor is it clear that Congress will rescue child care centers again.
As the extra money dwindles, providers worry lawmakers won’t step up — and they may lose teachers or have to close classrooms.
Cost of care
Heather Vuncannon owns a child care center in Thomasville, North Carolina, that could serve 199 kids, but she only has enough staff for 118. She ended care for 1-year-olds and infants because she couldn’t find enough staff, she said.
“Inflation has really brought this demand for increased wages to the forefront, and now owners are kind of pinned against the wall,” she said.
To meet rising costs, she increased tuition about 3 percent in August 2023. The pandemic-era injection of federal funds helped, but she worried that if she spent too much on wage increases, the money would run out. Vuncannon didn’t want to take back an increase from someone if she couldn’t maintain it, so she stuck to smaller wage increases and, instead, provided more benefits such as paid time off and bonuses, she said.
The average annual cost of care for two children in North Carolina — an infant and a 4-year-old — was $17,593 in 2020, according to the Economic Policy Institute, an independent nonprofit policy think tank based in Washington, D.C. In comparison, in-state tuition at a university in the UNC system in 2020 was $7,354 a year, and the average annual rent was $10,375.
Inflation in recent years has doubtless added to those prices.
The labor intensive nature of education is costly, but child care hasn’t been considered a core part of state infrastructure in the way K-12 has been, according to Ariel Ford, who recently stepped down as the director of the Division of Child Development and Early Education at the N.C. Department of Health and Human Services.
North Carolina’s budget allocations for K-12 and higher education have consistently increased since 2011, while funding for child care has remained relatively flat, according to a DHHS presentation made to the Joint Legislative Oversight Committee on Health and Human Services in February.
“We have to acknowledge that one’s been defined as a public good (K-12 education), and the other has not,” Melton said.
And the public money that has gone into child care programs just hasn’t kept up with the rising costs, she said. The pandemic changed the labor market, with fast food restaurants and big businesses like Amazon raising hourly wages.
“You can hardly get anybody to work in any industry right now for less than $15 to $20 an hour,” Melton said.
DHHS also added requirements over time to improve the quality of care for children, but the funding hasn’t risen to help meet them, she said.
That reality has affected programs such as the Southwestern Child Development Commission, a nonprofit with regional and statewide programs that operated nine childcare centers in Western N.C. in October 2023. By January 2024, the organization closed four of its programs due to low enrollment, staff shortages and higher operating expenses. Five are still open under new ownership, according to Deidre McMahon, former executive director.
The organization employed around 100 teachers before closing, she said, but wages were already too low even before the pandemic, McMahon said. The rising costs for equipment and labor were just too much to keep up with state requirements.
“We were at a point where we just could not do it anymore, and it really hurt our hearts beyond belief,” McMahon said.
‘We can’t staff them’
Child care programs are often private businesses, and according to Ford, most of a child care provider’s budget goes to salaries.
But their profit margins are slim, said Melton, who argued it’s not realistic to expect providers to take even more cuts.
According to state statistics, the average salary for an early childhood teacher is around $14/hour. Even with those low wages, providers often can’t afford to hire more staff, meaning the demand still outpaces supply.
“We can’t staff them to the capacity that we’re licensed for, because we can’t find anybody that’ll go to work for us for what we can afford to pay them,” Melton said.
The child care subsidy program, in which the government helps eligible low-income families pay for care, has a lower reimbursement rate than the true market rate, Ford explained. Depending on the provider, the government-funded subsidy could cover anywhere from 30 percent to 75 percent of the actual cost.
To make up some of the difference, parents receiving the subsidy are required to pay 10 percent of their income for child care, but may be asked to make up more of the difference between the private pay rate and the subsidy reimbursement rate, Ford said.
About 20 percent of centers charge the parents at least some of the difference between the subsidy rates and their costs, according to a 2023 study done by DHHS to determine market rates.
If that extra cost isn’t possible for families, the provider has to make up for it another way, sometimes by increasing fees to the families that can pay in full.
All of this skews the market, Ford argued.
With more funding and approval from the General Assembly, the Division of Child Development and Early Education could implement a minimum subsidy amount paid to all providers statewide, said Candace Witherspoon, acting director of the division. Then the programs could receive an increase in rates to pay for the actual cost of care.
Treating it like a business
The U.S. spends less than other countries on child care. Compared with the average country in the Organization for Economic Cooperation and Development, which spends 0.8 percent of their gross domestic product on early education and child care services, the U.S. spends roughly 0.4 percent of its GDP on similar services, according to statistics compiled by Business Insider.
In North Carolina, a prekindergarten child must be part of a family earning at or under 200 percent of the federal poverty level ($51,640 for a family of three) to initially qualify for a subsidy.
The number of North Carolina kids qualifying for the subsidy has decreased from around 300,000 children in 2006 to a little more than 240,000 children in 2022 according to Carolina Demography.
Nonetheless, with relatively flat funding the subsidy is still “drastically underfunded,” Kristi Snuggs, president of the nonprofit Child Care Services Association, wrote over email. The association advocates for early child care and education, as well as provides services for child care providers and families seeking child care.
Because many providers can’t make up the difference between the cost of running their businesses and what the subsidy actually pays for, it exacerbates the salary problem, she argued, keeping those salaries too low.
If providers really operated as businesses, they would charge the government the market rate, Iheoma Iruka, professor in the Department of Maternal Child Health at UNC Chapel Hill, argued. But then many families wouldn’t be able to afford services, and larger companies wouldn’t have a workforce.
That might force businesses to consider providing child care themselves.
But child care has long been a largely privatized function.
Emma Biggs, director of Pathway Preschool Center in Charlotte, said in a comment over text that providers and educators “have never been treated as professionals” and given deserved respect, especially in terms of wages.
The historical legacy of child care in the U.S. was that it was often done by first enslaved, and then underpaid Black women and thought of as merely babysitting, Iruka said.
She argues that mindset still colors how the industry is perceived and perhaps is why it’s taken less seriously.
In the mid to late 19th century, day nurseries were developed to care for children of low-income families while parents worked, according to a 1996 article by Columbia Business School economist Abby Cohen. Services were typically provided by philanthropic organizations, private individuals and community service organizations, and funded through parent fees, private contributions and occasionally state funds.
The federal government started creating child care programs for parents during the Great Depression and World War II. In 1965, then-President Lyndon Johnson established the Head Start program, according to the Bipartisan Policy Center.
National problem
North Carolina isn’t alone — many states are now struggling with making child care affordable and accessible.
Child Care Aware of America, a not-for-profit research and advocacy organization that also works with child care resource and referral agencies, hasn’t seen a “major shift” yet in terms of centers closing or long waitlists. According to Diane Girouard, state policy senior analyst for the organization, many states are at different points in exhausting their federal pandemic relief money.
The child care supply across the country grew through the pandemic but remained flat in 2022-23, she said, likely linked to the exhaustion of those one-time federal dollars and the policy flexibility that came with them.
It takes investment at all levels of government for adequately funding child care to work, she said. Missouri, Kentucky and Washington are examples of states that are starting to increase reimbursement rates to align with the true cost of care, she said.
Kentucky, Indiana, Iowa, Maine, Massachusetts, North Dakota and Washington also recently funded efforts to make staff in licensed child care programs eligible or prioritized for child care subsidies for their own children, Girouard said.
In North Carolina, some communities are stepping up. In far-western Clay County, community members were able to keep two child care centers open that the Southwestern Child Development Commission was planning to close, according to county Department of Social Services director Todd Goins.
A private donor made it possible to keep one center open until they could find new owners to take it over, and the county donated the use of a county-owned building for it, he said. The private donor funds also allowed the center to meet licensing standards and expand classrooms.
The other center was taken over by the public school where it operated out of and was able to stay open.
But the problem isn’t fully solved. “It is still a major, major need,” Goins said.
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