A new report from the NC Chamber Foundation presents potential child care policies and reforms to increase access and affordability for working parents.
The report comes as the state legislature kicks off its budget-making process, and child care is top of mind for policymakers and state leaders across the aisle. The chamber and its foundation in recent years have highlighted child care as a necessity for the state’s workforce participation and economic growth.
“The reason that the NC Chamber Foundation is so focused on child care is because it is a statewide workforce issue,” said Meredith Archie, president of the foundation, in an interview with EdNC. “We’ve heard this now from businesses across all parts of North Carolina, across all industries.”
The report outlines policies that incentivize businesses to support their employees’ child care needs and also increase overall child care access in their communities. It also goes beyond employer-focused policies to lay out ways the state can support and develop the early childhood workforce, make care more affordable for families, and reform rules, regulations, and governance to strengthen the system.
More on child care’s economic impact
The solutions in the report are based on ideas from other states, as well as local communities, advocacy groups, and providers in North Carolina.
“The main takeaway is this is not an easy fix,” Archie said. “Certainly we’re not the only state that is facing these challenges. I think North Carolina has a great opportunity to really lead when it comes to child care, but it will take everyone rolling up their sleeves.”
Employer-focused policies from 28 states
Researchers looked at employer-focused child care policies from 28 states that were similar to North Carolina in governance and population growth. They then surfaced the most common strategies.
The report highlights three main policies:
Employer child care tax credits
Many states use tax credits to encourage businesses to subsidize and expand child care for their employees and their communities. This was the most common strategy the researchers found in their 28-state analysis.
Available in 25 states across the country, these credits reward a mix of activities, including businesses directly providing care, contracting with a community provider to support employees’ care, providing vouchers to help employees pay for care, or expanding the supply of care through other strategies.
Businesses have to know about these tax credits to use them, the report says. Critics argue that these credits, including the federal child care tax credit, are ineffective because of low participation rates and are insufficient to cover child care costs. The report points to Iowa and Alabama as recent examples of states passing such credits.
It also says credits would be more effective if they were larger and fully refundable, the way a recent bill in Congress, filed by Rep. Ryan Mackenzie, R-PA, would redesign the federal credit.
Heavily subsidized child care for child care teachers
The second most common policy among the 28 states was subsidizing care for the children of child care teachers. Kentucky in 2022 was the first state to use federal and state subsidy dollars to help child care teachers afford child care for their own children, regardless of income.
In 2023, 3,200 parents were employed in early care and education, and 5,600 children had benefited from the program, its leaders said.
More than a dozen states have since passed similar policies. In North Carolina, Rep. David Willis, R-Union, told EdNC in January that he would back similar legislation this session.
More on other states’ approaches to child care
The report says each new teacher enticed to the field could open five child care slots for infants and 20 slots for 4-year-olds, based on state ratio regulations. This would help recruit and retain teachers to programs that otherwise struggle to find and keep staff, the report says:
It is well documented that high-quality child care programs operate on thin margins and therefore have difficulty offering competitive compensation (wages and benefits) to attract and retain employees without raising tuition and pricing families out of care. This potential solution provides a powerful recruitment and retention tool to help child care providers fully staff their programs, expand services, reduce waitlists, and reduce high turnover.
Capacity-building grants
Six of the 28 states studied have grant programs that send money to a variety of entities, such as businesses, child care providers, and local communities, to encourage investment from other stakeholders, including public funding from local and state governments.
Iowa, for example, started two grant programs to create more child care slots. The first, the Child Care Business Incentive Grant, gives funds to businesses looking to expand child care. Go here for examples of employers using these funds in 2024 to build on-site programs and contract with community providers to expand capacity and train new child care teachers. The state has allocated $75 million and added about 10,700 new slots over two years.
The second program from Iowa, the Child Care Challenge Fund, awards grants to local and regional projects increasing access to affordable, high-quality care for working families. The grant program matches local fundraising efforts and has added about 4,800 child care slots with a $35 million investment. Go here for examples of the projects from 2022.
In 2023, North Carolina’s Division of Child Development and Early Education (DCDEE) used $20 million in federal funding for “Expansion and Access Grants” for providers to expand their programs, improve their facilities, or increase their quality. DCDEE reported that it received $759 million in requests. The division gave out 200 one-time grants of up to $125,000 for these purposes, but did not report on the funds’ impact. This program did not require other stakeholders to contribute in order to use the funds, the report notes.
Policy solutions from advocacy groups
The researchers also got input from 10 early childhood organizations in North Carolina, surfacing the proposals that had the most alignment among the groups.
A shared policy agenda among several early childhood advocacy groups is expected to be public in the near future.
Increasing subsidy rates and lowering geographic disparities
The most common proposal was to increase the rates that providers receive from the state to serve children through the subsidy program, which helps low-income working families afford child care.
Although most of the program’s funding comes from the federal government, states have a required match to draw down those funds. Many states have increased their investments in the program in recent years to expand its reach and increase the amount providers are reimbursed to more accurately reflect the cost of providing care.
The current rates that child care programs receive for participating in the subsidy program depend on their county, their quality rating, and the age of children they serve. These rates are based on market surveys, which ask providers their private tuition rates. The state then sets the county rate at the 75th percentile of the market.
This rate-setting methodology does not accurately reflect estimated or actual costs, the report says, because providers have no choice but to set their private rates at what families can afford. According to DCDEE, current rates cover about half of the cost.
The report notes how widely the rates vary from county to county, even among programs with the same quality that are serving the same ages. It looks at neighboring Randolph and Chatham counties, where programs receive $867 and $1,582, respectively, for providing the same care (highest quality infant care). The report explains that place-based cost differences do not account for a variation that wide:
The two biggest child care cost drivers are labor (70-80 percent of a typical program’s operating costs) and property. Therefore, there should be some market differences between counties that would impact subsidy reimbursement rates. It is likely far from accurate, however, that Randolph County child care operators can provide the highest quality care for an infant for $700 less per month than is required to provide the care in Chatham County.
There are two main policy proposals to reform the subsidy model in order to stabilize the finances of programs relying on subsidy funding, incentivize more programs to provide subsidized care, and lower the funding disparities across counties.
DCDEE contracted with American Institutes for Research to study alternative methods to set subsidy rates. That research recommends setting rates at the actual cost of providing high-quality care and retaining staff, which would require doubling what the state spends on the program: about $500 million.
Advocates are rallying around a statewide subsidy rate floor, which would help programs in counties with lower rates, sometimes referred to as “the rural penalty.” Programs in counties with rates below the statewide average would receive the average rate instead. This would cost the state about $220 million each year.
QRIS
The state’s Quality Rating and Improvement System (QRIS) has been around since the turn of the century. Since 2023, the Child Care Commission has been making changes to “modernize” the system, which rates licensed child care’s quality from one to five stars.
Participation is voluntary, but carries multiple incentives. Only programs with three, four, or five stars can participate in the subsidy program. Only four- or five-star programs can host NC Pre-K classrooms.
Although the state’s new QRIS framework was passed into law in 2024, the details of the proposed changes are not final. Members of the public may weigh in until April 4.
The proposed rules change the QRIS from one points-based system to a system with three different pathways that programs can choose. Each pathway then has requirements under each star level. Relative to the old system, the new one places more emphasis on educators’ experience rather than formal education and focuses on child-teacher interactions rather than supplies and materials.
The report notes that child-teacher interactions are the biggest indicator of quality, according to research on QRIS systems across the country. Research is inconclusive, the report says, on whether QRIS systems actually indicate differences in outcomes for the children. It says the state’s proposed rules still are complex and place too much value on education requirements of teachers.
It also notes that some states are moving toward upfront payments and compensation boosts regardless of QRIS rating to address inequities in quality and access.
The report says the ideas in this section came from NC Child, NC Early Childhood Foundation, Care-and-Learning (CandL) Coalition (led by NC Child, NC Early Childhood Foundation, and Black Child Development Institute – Charlotte), NC Early Education Coalition, NC Licensed Child Care Association, MDC’s NC Home-based Child Care Initiative, NC Partnership for Children (Smart Start), and the John Locke Foundation.
Scalable strategies already working
The report pays special notice to the staffing challenges faced by the child care industry. Providers are struggling to recruit and retain qualified staff with the wages they can offer without pricing out families.
“If they don’t have the child care workforce, we’re not going to be able to expand capacity and accessibility to North Carolina families,” Archie said.
Child care teachers’ median starting wages were $14 in 2023, with the starting median wage for an assistant teacher at $12, a study from Child Care Services Association (now Early Years) found.
The report points to two efforts under way in North Carolina communities as innovative solutions that should be scaled to build a pipeline of high-quality, adequately compensated teachers.
The first is the apprenticeship program Building Bright Futures, announced in 2023 by then-Gov. Roy Cooper, which provides wage boosts and other financial supports to high school students and postsecondary students going to school while working in child care.
The effort is a partnership between the North Carolina Business Committee for Education and DCDEE.
The report notes that there were 49 early childhood apprentices in 2022, before BBF’s launch. In the first year, that number increased to 171. In the second year, it was 378. The organization’s website says the effort has supported 497 pre-apprenticeships and apprenticeships to date.
The second promising model, Child Care Academies, came from local community college and Smart Start partnerships in Catawba and Buncombe counties. The report says at least seven other counties have hopped on board in recent years to provide free two- to three-week training programs that rapidly prepare otherwise inexperienced individuals to work in licensed child care.
In Johnston-Wayne’s program, 18 teachers graduated from the first two academies. This work was supported by the philanthropic Camber Foundation.
According to the report:
Elements of the academy include classroom management, understanding a child’s development and challenging behaviors, recognizing child abuse and trauma, and health-and-safety practices, including required CPR and first aid, medication administration, and sudden infant death syndrome (SIDS) trainings.
Participants can then take a competency exam to earn the credential necessary to work in licensed child care. The program also covers required criminal background checks and help with job placement.
Regulatory reforms
There are lots of rules and regulations that licensed programs must meet. The report lays out feedback from providers and legal experts that would “improve the operating climate” for child care providers.
DCDEE is the entity in charge of ensuring those rules are met to ensure the safety of young children.
The report says a consultative branch of the division would be helpful. It could offer support to providers navigating the laws and rules and be separate from the licensing consultants in charge of compliance and violations. The report points to the Division of Labor’s Consultative Services Bureau, which provides free, confidential support to business owners on rules and regulations, with the understanding that it is then the business’s responsibility to correct any health and safety issues identified within a reasonable period. The head of the bureau may notify compliance staff if the employer doesn’t verify the problem was resolved or refuses to resolve it.
The report recommends the state establish “due process” rights and procedures so that providers may challenge violations and have time to correct them to avoid administrative actions. It also says funding should not be affected while administrative actions are being appealed.
Such measures would protect child care businesses from arbitrary government actions or overreach, ensure they have an opportunity to defend themselves against accusations, and preserve critical funding streams.
The report also says the state should establish reasonable time limits to complete investigations of violations that might lead to administrative actions. It says providers report long wait times “that cost programs significant revenue and can damage their reputations.”
The report points out “eye-popping” increases in liability insurance costs for child care providers in recent years. Although the state does not require liability insurance for licensed providers, most lenders and landlords do. The report cites a survey from the National Association for the Education of Young Children (NAEYC) in August 2024 that found 80% of respondents saw their liability insurance costs increase in the last year and 62% reported difficulty finding or affording it. A third reported being denied or cut off from their insurance in the previous year, and 65% said they would have to close if they could not obtain coverage.
Providers suggested the following to NAEYC in terms of what can be done to help:
- Educate insurance and licensing agencies on the context and impact of regulations and citations, and help them work together to support safety, clarity, and consistency.
- Directly subsidize and/or control the costs of insurance through discounts, reinsurance pools, caps, policy changes, and other mechanisms.
