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Feature Lessons on Child Care from Down Under
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How an Australian Policy Can Provide a Roadmap for Building a More Equitable US Child Care System
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Lauren Cook knows sending her daughters to college in Boston will be expensive. The local public four-year college has an annual tuition of nearly $15,000 for in-state students. But this future problem pales in comparison to her current potential spending. Placing her 1-year-old in infant care at the Boston child care center Ellis Early Learning would cost $590 per week, or more than $22,000 over an academic year.

With government subsidies serving only a small fraction of eligible families, parents in the US often pay sky-high child care costs with few other options. For the average family with a child younger than 5, child care takes up around 13 percent of their total income.

“You’re asking parents at the start of their career to shell out all of this money, even more money than you’re asking a parent at the end of their career, who have had their whole adult life to plan for their child’s college education,” Cook said. “What are they expecting, us to start saving for child care when we’re 10 years old?”

But Cook understands the steep price of child care from both sides: she’s both a mom and the chief executive officer of Ellis Early Learning. She knows that even with the high rates, the cost to parents doesn’t cover the true cost of providing child care. Between teaching supplies, salaries, rent, and other operational costs, Cook said, Ellis has to rely on philanthropy just to balance the books. For the upcoming year, Ellis needs to raise $1.4 million, nearly one-quarter of its total costs, to break even.

Cook is quick to acknowledge that the greatest burden of the current child care system is felt not by the budget-strapped service administrators, but by the parents and the underpaid teachers. Cook wants nothing more than to raise her teachers’ pay, but unless she can raise even more outside funds without strings attached, that’s not possible. “Parents are paying too much and the providers aren’t getting enough to be able to pay people what they’re worth,” Cook said.

The COVID-19 pandemic has only exacerbated these long-standing issues. Hundreds of thousands of workers across all sectors lost their jobs during the pandemic, and although the US economy has begun to recover, child care services are still struggling to reach prepandemic staffing levels. In fact, the child care sector is having a harder time hiring than the restaurant industry, with 126,700 workers still missing from its labor force.

Child care isn’t the only sector in crisis. The US currently faces an affordable housing shortage, large gaps in broadband access, a dwindling small business culture, and the negative health and well-being impacts of the looming climate catastrophe. These challenges are significant—and without easy answers. To help policymakers develop and enact solutions for each of these crises, new Urban Institute analyses look abroad for policies that could translate into a US context and facilitate an equitable and inclusive recovery from the pandemic.

One starting point: To improve the nation’s child care system, policymakers could look to the Australian Community Child Care Fund (CCCF) as a model for a more affordable, equitable child care market in the US.

How the US child care funding model leads to inequitable access

The funding model that undergirds the US child care sector is similar to that in Australia. Both are market-based systems that provide subsidies for children whose families cannot pay the full sticker cost of child care. But the two models differ in significant ways. The US model does not promote sufficient child care in some areas, with nearly 60 percent of people in rural communities, 57 percent of Indigenous people, and 57 percent of Latino people in the US living in areas classified as child care deserts.

A family’s access to quality child care in the US depends heavily on their ability to pay for it, as few families receive government support. In Australia, more families receive public funding, which also covers a larger share of the total cost of quality care.
 

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Ellis Early Learning in Boston, for example, serves more than 270 children, of whom two-thirds qualify for full or partial tuition subsidies, and charges families $118 per day. To qualify for a subsidy in Massachusetts, a family must make less than 50 percent of the state median income, or $65,626 for a family of four in Massachusetts. If a child has additional developmental needs, the family must make less than 85 percent of the area median income. Although the subsidy varies for each age group, it does not meet the full cost of child care at Ellis for any age level. For an infant who qualifies for a full subsidy, the Department of Early Education and Care reimburses Ellis $84.85 per day the child uses the service. Still, Ellis’s fixed full cost of care comes out to $140 per day, regardless of whether the child shows up. Ellis covers that gap of more than $55 per day for child care, and for an infant paying the full price, Ellis still has to cover a gap of more than $22.

This discrepancy between the cost of quality child care and the market rate means providers may not offer quality child care, or may primarily enroll private-paying families instead of subsidized families to lessen their losses. Often, providers that operate in underserved areas cannot predict how much of their operating costs the subsidies will actually cover, leading to instability. As a result, the US has a scarcity of quality child care in neighborhoods with low and middle incomes where providers have a hard time breaking even, much less making a profit.

How Australia is trying to create a more equitable child care market

Australia has faced similar issues—and has taken steps to address them.

According to Samantha Page, chief executive officer of Early Childhood Australia, an advocacy group for young children, the child care market in the country previously failed in areas with economic disadvantages. For Aboriginal and Torres Strait Islander communities, child care needs are more complex because of the history of systemic discrimination these communities have faced and the lasting intergenerational trauma of colonialization.

For much of the 20th century, government policy dictated the forced removal of many Aboriginal and Torres Strait Islander children from their families with the intention of assimilating the children into white Australian culture. Recent research has shown that present-day children who live in families that experienced forced separations are more likely to have poor health and educational outcomes than other children.

These communities need much broader services than traditional child care offers, so easing barriers to access means also addressing the “social factors” these families experience, according to John Burton, a social policy and research manager for the Secretariat of National Aboriginal and Islander Child Care, an advocacy organization for Aboriginal and Torres Strait Islander children.

Many Aboriginal and Torres Strait Islander communities have been left without access to quality child care, as the high costs left most providers unable to survive in these communities. Consequently, Aboriginal and Torres Strait Islander communities have about 70 percent of the access to child care programs that non-Indigenous communities have, Burton said. And as a result of past inequities, many Aboriginal and Torres Strait Islander families are less likely to trust or engage with the government systems that determine eligibility for child care subsidies.

In 2018, Australian policymakers passed a new Child Care Package, which included the CCCF to help create a more equitable child care system and target historically underserved rural and lower-income communities. Intended to sustain service providers who would otherwise fail or underperform in the existing private market, the CCCF offers grants for core operational costs. Within the CCCF are two types of grants: guaranteed ones for services led by or operating in Aboriginal and Torres Strait Islander communities and competitive ones for services operating in other lower-income or remote communities. The grants provide funding in addition to the subsidy over a three- to five-year timeline, after which service providers in the competitive category must reapply.
 

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The CCCF has brought some benefits, including that expanded access to funding through the competitive grant system has incentivized new service providers to open, which seemed impossible under the previous system, Page said. And for the nearly 100 providers serving Aboriginal and Torres Strait Islander communities, the program has provided essential funding without which they would have collapsed, Burton said.

Whereas the US largely relies on voucher subsidies to meet the child care needs of families with low incomes, the Australian system goes beyond that baseline benefit by providing operational grants. A recent New York Times analysis showed that every year, Australia spends more than 16 times the amount of public funding per child 2 or younger than the US. By combining more funding with more flexibility of use, providers in Australia have more stability: they can depend on set amounts of money to balance their budgets, and they can offer quality child care to parents who couldn’t otherwise afford that cost.

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But both Page and Burton pointed out that the CCCF does not solve every problem. For one, the three- to five-year timeline for the competitive grant dampens the effect that the funding has on incentivizing providers to start new services. Whereas the CCCF may allow more established service providers to expand, the limited timeline may not be enough to encourage new service providers because they would have to reapply after their grant ends, meaning there is no guarantee of sustainable, long-term revenue.

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For Aboriginal and Torres Strait Islander communities, child care needs are more complex because of the history of systemic discrimination these communities have faced and the lasting intergenerational trauma of colonialization.

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“A disadvantaged, remote community is not going to suddenly turn around and be a functioning market for child care in three years,” Page said. “It’s waiting for people to put in a submission and say we’d like to run a service here, rather than going to a community where we know there are vulnerable children, we know there aren’t any services, and finding someone who will deliver.”

Without the certainty of consistent, flexible, long-term funding, child care service providers may struggle to retain qualified staff or offer the full range of supports families need, Burton said. And without public data from the Australian government, neither Page nor Burton know how many child care providers have received funding through the CCCF.

How a CCCF model could make US child care more equitable

In the US, adopting a similar focus on improving equity in the child care market is critical. Communities of color and with low incomes face many additional barriers to child care access, with a recent Urban analysis finding that US child care policies and practices do not account for the challenges families face as a result of systemic racism and discrimination. Targeting operational funding to underresourced areas where market forces have created an inadequate supply of child care could foster a more equitable system.

For Lauren Cook, even though the CCCF has its shortcomings, the child care infrastructure in Australia “sounds dreamy.” With two-thirds of the children at Ellis Early Learning in Boston receiving subsidies, the service would potentially qualify for the competitive side of the CCCF. That money could cover building costs for Ellis to expand, or it could pay for the bus Ellis once had to transport children. And even if Ellis didn’t receive a competitive CCCF grant, a greater subsidy allocation such as Australia offers would far outpace what she currently receives.

For US state policymakers, the CCCF offers two tangible lessons: (1) target funds to providers in underserved communities and (2) offer grant-based operational funding, not just subsidies per child, to allow more flexibility. Each of these lessons improves upon the existing US system that leaves too many families without child care access and too many service providers without stable funding.

To ensure an inclusive recovery from the pandemic and create more equity in the child care system, states could use short-term federal relief funding to build from the lessons of Australia’s CCCF. By targeting flexible and consistent operational funds to rural communities and communities of color, state policymakers can reduce the current financial burden on both families and providers, create more equitable access for all families to quality child care, and advance racial equity goals by combatting a long history of discrimination.

How policymakers could fix the US child care market in the long term

Although a funding model similar to Australia’s CCCF could help the US create a more equitable child care system as it emerges from the pandemic, the program wouldn’t address the deep cracks in the foundation of the child care market.

In September, the Biden administration released a report on the state of child care (PDF) in the US, calling the child care market “unworkable” and stating that “relying on private money to provide child care is bound to come up short.” In late October, the President released the framework for the Build Back Better Act. This legislation would increase child care funding so the costs are fully covered for families with low incomes and offer universal preschool to all 3- and 4-year-olds to address the existing market failures. The plan was approved by the House in mid-November though could see changes as it moves to the Senate. But for providers and advocates like Cook, Page, and Burton, even though the bill would massively overhaul the current child care system, there are still steps to take.

In both Australia and the US, Page believes, the ideal system is one in which the government funds child care as they currently fund K–12 public schools—a system in which “every child can turn up and get an education,” she said. “We’re not relying on parents having the capacity to pay or navigating a complex welfare application process. And the teachers and educators can be employed and not subject to the vagaries of the market.”

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Offering American parents universal child care is not a new suggestion. Half a century ago, President Richard Nixon vetoed one such bill, saying it had “family-weakening implications,” and today, many Americans still disagree about the implications of a wide-ranging system. But its potential benefits are undeniable.

By ensuring that child care funding levels are adequate to support higher-quality services, vouchers are allocated equitably, and, as with public K–12 funding, funding flows are reliable, US policymakers could create a system that includes a suite of services and maintains the flexibility to meet each community’s specific needs. The exorbitant cost to families would fall and providers could pay their teachers more, Cook said.

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By targeting flexible and consistent operational funds to rural communities and communities of color, state policymakers can reduce the current financial burden on both families and providers, create more equitable access for all families to quality child care, and advance racial equity goals by combatting a long history of discrimination.

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But ensuring universal access to child care would require a large government outlay and raise complex logistical questions. Before the pandemic, Urban research found that states and localities spent $7,318 per capita on education and care for children in prekindergarten through 12th grade but only $65 on infants and toddlers.

For now, Australia’s CCCF seeks to solve some of the problems Cook highlighted. More than anything, the sector needs money to ease the cost burden on families, help providers stay open, and keep child care workers employed, and the CCCF provides a model for how to equitably distribute more money to providers most in need. But for Cook and the other providers who have dealt with a decades-long child care crisis, eventually, transformative change must happen.

“The grant CCCF is great,” Cook said, but she stressed that the uncertainty and added strings could diminish its impact. With consistent, flexible funding, providers could provide quality care more easily, she said. “That would be my request, just make it easy because what’s happening here is hard.”

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PROJECT CREDITS

This feature was funded by the Robert Wood Johnson Foundation. We are grateful to them and to all our funders, who make it possible for Urban to advance its mission. The views expressed are those of the authors and should not be attributed to the Urban Institute, its trustees, or its funders. Funders do not determine research findings or the insights and recommendations of our experts.

RESEARCH Isabella Remor and Reehana Raza

DESIGN Brittney Spinner

DEVELOPMENT Jerry Ta

EDITING Devlan O'Connor

ILLUSTRATOR Shannon Ryan (madewithrelish.com)

WRITING Wesley Jenkins