Current Financing for Early Care and Education: Ensuring High Quality Across Settings

1. The way most ECE programs receive funding is not linked to the cost of maintaining quality standards and does not adequately incentivize high quality.
2. Families who need care during evenings and weekends find it very difficult to access such care.
3. No system-wide approach for funding high-quality ECE facilities currently exists so providers are forced to pursue piecemeal, often insufficient, financing approaches.
4. Financing for data collection systems is typically comprised of short-term or one-time funding initiatives which leads to a lack of data systems capable of measuring whether investments are achieving their intended results.

There are a few ways that current financing mechanisms incentivize ECE quality. For example, Head Start promotes quality by requiring that staff members meet certain qualification standards, and regulations link funding to a center’s quality rating. Some states also link funding for state-sponsored pre-K to a provider’s rating under the state’s quality rating and improvement system (QRIS). States are also responsible for setting policies on quality requirements for access to ECE assistance programs. The 2014 CCDBG reauthorization mandates that CCDF funds be set aside for activities that improve quality and states have flexibility in how to spend those funds. While states also set provider reimbursement rates for ECE assistance programs, only one state sets its reimbursement rate at the 75th percentile of current market value, the level recommended by the federal government. Low reimbursement rates limit the quality of care that a provider can offer children and families, and a tiered reimbursement strategy by itself rarely generates enough revenue to significantly raise the quality of programs. So, increasing reimbursement rates to “market rate” is a step toward quality, but alone it will not bring in enough revenue to meet the true cost of quality. Quality standards and their implementation vary greatly across ECE programs.

It’s important that families have a variety of affordable, high-quality ECE program options to choose from. However, there is currently a lack of availability of care during nonstandard hours, such as nights and weekends, because offering care during these hours is generally not cost-effective for centers. In fact, only about 8 percent of centers offer any nonstandard hours. ECE programs vary greatly in the duration of hours available to families. In the 2015–16 school year, only 44 percent of children enrolled in Head Start received services for an entire school day five days out of the week. And of the 59 state-funded pre-K programs serving children during the 2015–16 school year, a majority were offered for less than four hours per day. While family-oriented financing mechanisms may give more options in regard to program location and hours of operation, research suggests families often choose care based on convenience and flexibility at the expense of program quality.

Because high-quality ECE requires safe and modern facilities, it’s important that programs have access to the necessary financing to acquire new facilities or improve existing ones. However, unlike the K–12 system, there is no dedicated financing mechanism for ECE facilities. The federal programs Head Start and CCDF do not include allowances for facilities acquisition, expansion, or improvements. Providers are forced to pursue a hodgepodge of approaches to fund facility improvements, such as loans, grants, and tax credits. Many ECE providers are unable to qualify for a loan large enough to undertake a major facilities upgrade, however, because only providers with the ability to take on such debt are helped by loan programs. It is difficult to accurately estimate the scope of these improvements needed around the country because there is currently no national-level survey of the state of ECE facilities.

Improving the quality of ECE programs also requires data collection and management systems to help policymakers understand the current landscape and changes that take place over time. Answering even fairly basic questions about ECE is often impossible due to the lack of a comprehensive data system that tracks information about program enrollment, program quality, and the workforce. Additionally, few systems link with data on child outcomes over time in a way that allows for long-term program evaluation. A 2013 analysis found that only one state had a coordinated data system that merged information from all types of publicly funded ECE programs and linked it to K–12 data. Generally, financing for data collection systems tends to be through one-time or short-term funding initiatives, making it difficult to measure whether investments are achieving their intended results over the long term.

Finally, accountability and improvement systems are designed to provide supports and incentives for quality improvement. Most states have adopted a QRIS to provide more quality information to parents and offer financial incentives for programs to improve quality. However, the original vision of QRIS has yet to be realized due to limited financial incentives available for providers that meet higher quality standards.

See graphic, “Only Three States Reimburse Personal Child Care Costs at Federally Recommended Level” from the previous section, Current Financing for Early Care and Education: Affordability & Equitable Access

Key quotes from the report:

1. "Levels for tiered reimbursement rates are commonly set without a determination that the higher rates are sufficient to meet the costs to providers of attaining higher quality-standards." (p. 137)
2. "Only about 8 percent of centers offer any nonstandard hours of ECE services, and only 2–3 percent are open evenings or weekends." (p. 139)
3. "Despite the importance of facilities in ensuring quality early care and education, most financing mechanisms that support service delivery—such as Head Start or CCDF—do not include allowances for facilities acquisition, expansion, or improvements." (p. 141)
4. "Because most major facilities investments require deeper subsidies than loan guarantees offer, many ECE providers are unable to qualify for a large enough loan to undertake a major physical infrastructure initiative." (p. 143)
5. "The complexity and cost of compliance obligations to multiple funders is burdensome for providers, as they currently must meet the demands of many masters to cobble together enough revenue to support the costs of even the most basic services." (p. 152)

Questions for policymakers:

• How can ECE providers be financially incentivized to offer care on nights and weekends?
• What additional strategies are there for financing and improving the quality of QRIS?
• What level of reimbursement rate is needed to incentivize high-quality ECE in your state?

Question for funders:

• How can more private funders be encouraged to support their local communities by making grants for ECE facilities projects and projects to improve learning environments?

Question for other stakeholders:

• How can partnerships with the business community support the expansion of high-quality early learning?

See the Glossary for key word definitions.