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The childcare sector is plagued by market failures. It’s too expensive for families, who often spend more on childcare than on their rent or mortgage, but at the same time the profit margins are too low for providers to pay an attractive wage.
These kinds of constraints in the sector indicate a need for government support, but right now, state spending on childcare is far too low to meet the needs of families and our economy, which relies on workers having affordable, high-quality care for their children. Our state spending on care and early education is lowest for our youngest children despite these early years being some of the most critical for their development.
Bigger investments in childcare are needed as more parents enter workforce, report says
The lack of affordable, high-quality childcare has received heightened attention in recent years as the pandemic saw providers close their doors or struggle to hire and keep workers, but these unique disruptions really just shined a light on challenges that have long existed in Michigan’s childcare sector.
The vast majority of funding for childcare – 85% – comes from federal dollars. In fiscal year 2024, the state put less than $55 million into the two publicly funded childcare programs in our state, the Child Development and Care (CDC) program and MI Tri-Share. For perspective, this represents less than 1% of the $21.5 billion we spent on schools.
As a result of insufficient state funding, we saw that just 3.5% of young children received publicly subsidized care through the CDC program in December 2022, leaving the vast majority of families to cover the cost of care themselves or rely on the unpaid care of friends or relatives. But it’s not just families that are harmed by this underinvestment–by one recent measure, the insufficient availability of affordable, high-quality childcare is costing Michigan $2.88 billion in economic activity each year.
It doesn’t have to be this way. In recent years, states have stepped in to address the market failures affecting the sector, providing stabilization funding to increase rates for providers and improve wages for the perpetually underpaid, but essential and skilled childcare workforce.
Michigan lawmakers, too, raised rates for providers in the budget passed this summer, but these new rates remain below pandemic-era levels, when federal relief dollars were available to help providers remain open and attract workers. To really meet the needs of workers with children, Michigan will need to increase public funding and eliminate barriers that keep families from accessing childcare scholarships.
The good news is, we don’t have to come up with the solutions ourselves. We can learn from other states that are already using innovative approaches to improve access to care and increase compensation for workers in the sector.
These include states like Massachusetts, which increased taxes on the rich to make care more affordable for working families, or New Mexico, where voters overwhelmingly approved a constitutional amendment recognizing a right to early education and providing a consistent source of funding for childcare.
We also see states that have expanded access to childcare scholarships such as in Minnesota, which provides exemptions from work requirements for families experiencing homelessness, or Kentucky, which recently established automatic eligibility for childcare subsidies for workers in the sector.
In addition, a growing number of states are now adopting “presumptive eligibility” for their subsidy programs so families meeting some basic requirements can begin to access care while completing paperwork to demonstrate eligibility. In fiscal year 2023, over 11,600 subsidy applications were closed or denied when families failed to provide required information within a 10-day window.
Solving our state’s childcare crisis may seem daunting, but doing so is absolutely necessary to achieve our state’s goals to grow our economy and have a thriving workforce.
Here are our recommendations to make high-quality childcare more accessible and affordable for Michigan’s families:
Increase state spending on the Child Development and Care Program by increasing taxes on the rich to make care more affordable for working families.
Improve access to childcare scholarships by eliminating burdensome rules that make it difficult for families to afford care where and when they need it.
Increase compensation for childcare workers to ensure a robust workforce in this essential sector that enables us all to work.
To learn more, read our report.
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