Summary

High-quality early care and education¹ for children from birth to kindergarten entry is critical to positive child development and has the potential to generate economic returns, which benefit not only children and their families but also society at large. Despite the great promise of early care and education, it has been financed in such a way that high-quality early care and education has only been available to a fraction of the families needing and desiring it and does little to further develop the early care and education (ECE) workforce.² It is neither sustainable nor adequate to provide the quality of care and learning that children and families need—a shortfall that further perpetuates and drives inequality. In light of these challenges, the National Academies of Sciences, Engineering, and Medicine were asked to convene a committee of experts to study how to fund early care and education for children from birth to kindergarten entry that is accessible, affordable for families, and of high quality, including a well-qualified and adequately supported workforce consistent with the research and vision outlined in the 2015 report by a study committee of the Institute of Medicine and National Research Council, Transforming

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¹ Early care and education can be defined as nonparental care that occurs outside the child’s home. Given the report’s focus on financing, the committee discusses only paid nonparental care. ECE services may be delivered in center-based settings, school-based settings, or home-based settings.

² The ECE workforce consists of practitioners working in ECE settings and includes, for example, educators (lead educators, assistants, and aides), administrators, and coaches (also called “mentors”).

the Workforce for Children Birth Through Age 8: A Unifying Foundation (the Transforming report).

Transforming the financing structure for early care and education to meet the needs of all children and families and the workforce that provides services will require greater harmonization and coordination among financing mechanisms and significant mobilization of financial and other resources. The necessary changes will not come quickly, easily, or without cost.

LANDSCAPE OF EARLY CARE AND EDUCATION FINANCING

Early care and education has served multiple purposes in the United States: to promote child development and parental employment and as an investment in the future workforce. Each purpose has been reflected in the evolution of early care and education over the past century and has been prioritized differently in various ECE policies over time. Furthermore, funding for ECE services comes from a multitude of revenue streams, including families’ payments, public sector expenditures, and other private sources such as philanthropy and employers. As a result, the financing for early care and education in the United States is a layering of separate programs, with different funding streams, constituencies, eligibility requirements, and quality standards. Table S-1 demonstrates this fragmentation across public sector programs and investments.

CURRENT FINANCING FOR EARLY CARE AND EDUCATION

These funds are distributed through financing mechanisms, defined here as the methods by which funds are distributed to entities that include ECE service providers (provider-oriented financing mechanisms), families (family-oriented financing mechanisms), the ECE workforce (workforce-oriented financing mechanisms), and system-level actors (system-oriented financing mechanisms), in order to support the provision of early care and education. These financing mechanisms have consequences for the accessibility, affordability, and quality of ECE programs. The ways in which funds are distributed and to whom they are distributed can have effects on which children are served, which families benefit, and whether the care delivered is of high quality, as well as affecting the well-being and qualifications of the ECE workforce. Drawing from the Transforming report and from the science of child development and early learning, the committee extracted six principles for high-quality early care and education. From these principles, we developed a set of criteria by which to judge the existing financing mechanisms that make up the current, fragmented financing structure.

TABLE S-1 Major Public ECE Programs

NOTE: FPL = federal poverty level.

Financing a Highly Qualified Workforce

Principle 1: High-quality early care and education requires a diverse, competent, effective, well-compensated, and professionally supported workforce across the various roles of ECE professionals.

A highly qualified ECE workforce is essential to the provision of high-quality ECE services. For a workforce to be well qualified, educators and staff need to be well compensated, have affordable opportunities to access higher education, and receive appropriate ongoing support and professional development. Despite an increased emphasis on raising the qualifications and education level of ECE educators over the past two decades, there has not been a commensurate emphasis on raising workforce compensation. More often than not, these poor wages are also accompanied by limited benefits and workplace conditions that are not conducive to quality professional practice.

Though various programs and financing mechanisms have been used to supplement ECE practitioners’ wages, their overall compensation is still low, and the temporary nature of such supplements does not create the predictable and steady salaries necessary for recruiting and retaining a highly qualified workforce. A notable exception, albeit limited, are initiatives in some state-funded prekindergarten programs to increase base pay through contracts with providers that set compensation levels, which is the most direct way to guarantee that ECE professionals are adequately compensated. Compensation levels are highly variable across ECE settings (e.g., different funding streams, differences in ages of children served, and center- versus home-based care). Mechanisms that raise wages only for some of the ECE workforce may exacerbate these differences rather than ameliorating them, necessitating effective mechanisms for systematically improving compensation.

Despite increased awareness of the need to improve the foundational knowledge and the skills and competencies of the ECE workforce, financial supports for ongoing professional learning and higher education are generally provided only on a limited basis and, like financing for improved compensation, typically are neither integrated into nor coordinated with the financing of direct service delivery. Existing resources and financing mechanisms are insufficient to overcome the barriers, which include affordability, access, and availability, that ECE educators face when pursuing professional education and training. Furthermore, the mechanisms available to help ameliorate the racial and ethnic stratification across job roles that persists throughout the ECE workforce are limited in scale.

None of these financing mechanisms addresses the quality of higher education for ECE. Financing is largely absent for system-level improvements to ensure that higher-education programs prepare students with the knowledge and competencies necessary to work with young children. Without proper investment to ensure quality in higher-education programs, financing to support pursuit of higher education for the ECE workforce may do little to improve the quality of ECE professional practice.

Affordability and Equitable Access

Principle 2: High-quality early care and education requires that all children and families have equitable access to affordable services across all ethnic, racial, socioeconomic, and ability statuses as well as across geographic regions.

The inability of families to access high-quality early care and education stems from a financing structure that places a large burden to pay for early care and education directly on families in the form of fees and tuition,

making high-quality early care and education prohibitively expensive for many families. Even for those families that qualify for subsidized programs, many are not receiving assistance due to inadequate funding. Moreover, current ECE utilization rates suggest that many middle-income families are unable to afford center-based services.

While both provider-oriented and family-oriented mechanisms can help improve ECE access and affordability, in their current form both types of financing have drawbacks that can exacerbate inequality in access. Head Start, state Child Care Assistance Programs, and state-funded prekindergarten programs tend to target resources to low-income families, while tax preferences benefit middle- and upper-income families. The current lack of harmonization among these financing mechanisms leads to gaps in ECE affordability for some low-income families, economic segregation within ECE settings and classrooms, and under-utilization of ECE services by middle-income families. Current requirements that make assistance conditional on parental employment or participation in education and training programs also limit participation in high-quality ECE programs by all children and position a child’s early learning and development as dependent upon a parent’s employment status, rather than basing it on the child’s developmental and learning needs.

Ensuring High-Quality Across Settings

Principle 3: High-quality early care and education requires financing that is adequate, equitable, and sustainable, with incentives for quality. Moreover, it requires financing that is efficient, easy to navigate, easy to administer, and transparent.

Principle 4: High-quality early care and education requires a variety of high-quality service delivery options that are financially sustainable.

Principle 5: High-quality early care and education requires adequate financing for high-quality facilities.

Principle 6: High-quality early care and education requires systems for ongoing accountability, including learning from feedback, evaluation, and continuous improvement.

Provider-oriented and family-oriented mechanisms have the potential to promote quality. However, existing quality standards and the effectiveness of their implementation vary across financing mechanisms and programs. Typically, receipt of funding is not directly linked to attaining or maintaining quality standards and does not offer incentives for attaining

high-quality early care and education. Levels of support to providers and to families are rarely based upon the costs of offering high-quality ECE services and thus are insufficient to drive quality improvements. Many providers also lack secure funding that would allow them to maintain stable operations and invest in quality improvements.

Building and upgrading facilities are often-overlooked elements of a quality infrastructure for early care and education, and ECE providers need funds for acquiring new facilities and for maintaining, expanding, and improving existing facilities. Currently, no systemwide approach exists for providing support for building and improving ECE facilities. Without a consistent and effective financing system for facilities investment, providers are forced to pursue piecemeal financing approaches, which are often insufficient to meet the need.

Improving the quality of early care and education also requires a robust and coordinated system of data collection and management, monitoring, and assurance and improvement systems. Currently, financing supports for this type of systemwide quality improvement are limited and often not sustained. Resources for quality improvements within existing funding streams are not specifically earmarked for quality improvements or provided at high enough levels to effectively incentivize and promote quality. While quality rating and improvement systems are commonly used, these systems vary greatly between states and are limited in their capacity to support and reward workforce supports for developing a highly qualified workforce.

ESTIMATING THE COST OF HIGH-QUALITY EARLY CARE AND EDUCATION

The flaws in the current financing structure are exacerbated by overall low levels of funding that are not sufficient to enable families at all income levels to access high-quality ECE services. Given this context, the committee developed an illustrative, albeit hypothetical, cost estimate for implementing a high-quality ECE system, under a specified set of assumptions, in order to gauge the likely magnitude of total resources that need to be invested to achieve an affordable, high-quality ECE system.

Drawing from existing literature on the costs of various elements of a high-quality ECE system, the committee produced this national, aggregate estimate of the total cost of providing high-quality early care and education for all children, as well as an estimate of the costs of transitioning to this high-quality ECE system over four phases of implementation (see Chapter 6 and Appendix A). The committee’s illustrative estimate is that by the final phase of implementation, the total cost of providing high-quality early care and education would amount to at least $140 billion, equivalent to about three-quarters of 1 percent (0.75%) of U.S. gross domestic product (GDP),

or slightly less than the current average of 0.8 percent of GDP allocated to early care and education for the nations in OECD. Average funding levels of federal and state programs are substantially lower than the amounts necessary to support high-quality services. Given the increased costs of a high-quality system, more families, including low- and middle-income families, will need assistance in order to access and afford high-quality care and public investments will need to grow over the four phases by at least $5 billion (in phase 1) to $53 billion (phase 4) a year above the actual current level of public investments.

A VISION FOR FINANCING ECE

To realize the considerable potential benefits of early education, an integrated framework of laws and policies that uses financing to bring about an accessible, affordable, and high-quality ECE system should be implemented. Such a financing structure would ensure that the following objectives are met:

• Support for early care and education will be based on paying the total cost of high-quality early care and education (i.e., the costs of service delivery with a highly qualified and adequately compensated workforce and system-level supports, including mechanisms for accountability and improvement) and will hinge on a consistent set of quality standards across a mixed delivery system.
• All ECE providers meeting high quality-standards will have access to a core amount of institutional support based on the cost of recruiting, retaining, and professionally supporting a well-qualified workforce and meeting the developmental needs of all children.
• Families from all socioeconomic, racial, ethnic, ability status, and geographic backgrounds who choose ECE programs will pay either no fee or an amount they can reasonably afford, with a systemwide harmonized combination of assistance mechanisms that do not leave gaps for any income groups and that are easy to navigate.
• Ongoing investments are being made in an infrastructure for support and accountability for attaining quality goals, ensuring access, and spending funds effectively.
• Public funding is substantially increased, phased in over a transition period, to enable transformation and building of an adequate, equitable, and sustainable system.

Such a financing structure should include adequate and integrated funding for service delivery, workforce supports, and system supports including mechanisms for accountability and improvement. The financing structure

should provide flexibility to reduce silos and facilitate nimble and efficient coordination of funding streams, standards, and requirements from disparate sources. The committee offered the following specific recommendations for implementing such a system. When the committee recommends that federal, state, or local governments take action, we are recommending that all relevant agencies at each level of government participate in such actions. To realize its coordinated vision of a cohesive ECE system, the committee stresses that implementation and reforms will need to take place across agencies.

An Effective Financing Structure

Recommendation 1: Federal and state governments should establish consistent standards for high quality across all ECE programs. Receipt of funding should be linked to attaining and maintaining these quality standards. State and federal financing mechanisms should ensure that providers receive payments that are sufficient to cover the total cost of high-quality early care and education.

Recommendation 2: All children and families should have access to affordable, high-quality early care and education. ECE access should not be contingent on the characteristics of their parents, such as family income or work status.

2a. ECE programs and financing mechanisms (with the exception of employer-based programs) should not set eligibility standards that require parental employment, job training, education, or other activities.

2b. Federal and state governments should set uniform family payment standards that increase progressively across income groups and are applied if the ECE program requires a family contribution (payment).

2c. The share of total ECE system costs that are not covered by family payments should be covered by a combination of institutional support to providers who meet quality standards and assistance directly to families that is based on uniform income eligibility standards.

Recommendation 3: In states that have demonstrated a readiness to implement a financing structure that advances principles for a high-quality ECE system and includes adequate funding, state governments or other state-level entities should act as coordinators for the various federal and state financing mechanisms that support early care and education, with the exception of federal and state tax preferences that flow directly to families.

To ensure support for the full cost of high-quality early care and education, the federal government and states should use consistent, high quality-standards across all publicly financed ECE programs. The federal government should specify consistent, high quality-standards for all its financing mechanisms in consultation with the states, and any funding it provides should be linked to meeting those standards. Any state or local funding supporting those federal programs should also be linked to the same standards. In this way, the federal funding would act as a policy lever to induce high-quality early care and education with a highly qualified workforce at the state level. Individual states should also set consistent, high quality-standards across any financing mechanisms for which they are the primary funders, including any ECE mechanisms that the state is funding out of coordinated funding streams, which may include funds from the federal government. States may exceed federal standards, but all programs in a state should be required to meet the same high quality-standards regardless of funding source.

Access to early care and education should be child-centered (based upon the developmental needs of children) and not contingent on family income or work status (with the exception of employer-based programs), to ensure that all children and families have access to affordable, high-quality early care and education. A combination of provider-oriented and family-oriented financing mechanisms should be available to all families and to ECE providers that meet high quality-standards; they should be designed to jointly cover the full costs of high-quality early care and education and to eliminate gaps in family eligibility for assistance that inhibit utilization. Such a harmonized set of financing mechanisms would benefit all ECE providers by creating financial stability and enabling investment in the ECE workforce; it would benefit all families by allowing them to select among high-quality providers that meet their needs and preferences.

Because most tax preferences that assist families come from the federal tax code, elimination of state flexibility regarding eligibility for ECE assistance programs and restructuring of tax preferences to be equitably progressive across income groups is required to avoid affordability gaps that arise for many middle-income families. These families are currently unable to access funding from ECE assistance programs because their household income exceeds the eligibility threshold set by their state, yet they do not benefit from federal and state tax preferences because their incomes are not high enough to incur a tax liability. This harmonization of funding mechanisms would increase ECE access, provided that states and the federal government adequately fund their ECE assistance programs so that all eligible families are served.

Though the committee believes its recommendations will improve access and affordability of early care and education for all families, we note

that greater access to mediocre- or low-quality care will not result in the desired developmental outcomes for children. While there may be a tension between improving access and improving quality if funding is insufficient or distributed through poorly designed financing mechanisms, the committee stresses that quality and access go hand-in-hand. In order to realize the potential for positive child development and early learning outcomes possible with early care and education, improved and equitable access to high-quality early care and education is needed.

To maintain the multiple financing mechanisms that support early care and education, while also eliminating the heavy administrative burden placed on ECE providers, who must manage the various sources of funding, state governments should act as coordinators of most of the revenue streams and financing mechanisms supporting early care and education, but only after a state has demonstrated a readiness to implement a financing structure that advances the principles for high-quality early care and education, including adequate and coordinated funding for service delivery, workforce supports and adequate compensation, and system supports such as mechanisms for accountability and improvement. The exceptions to this coordinator role for states are the federal and state tax preferences that flow directly to families. States may choose to manage this coordinator role themselves or create a quasi-governmental entity or public/private intermediary organization at the state level to act as the coordinator.

In addition, the current ECE financing structure lacks stability and assured funding that would allow providers to invest in raising staff salaries and supports, recruiting qualified personnel, and expanding or improving facilities. Advance, multiyear funding for early care and education would address this problem.

Sharing the Cost for High-Quality Early Care and Education

Recommendation 4: To provide adequate, equitable, and sustainable funding for a unified, high-quality system of early care and education for all children from birth to kindergarten entry, federal and state governments should increase funding levels and revise tax preferences to ensure adequate funding.

Recommendation 5: Family payments for families at the lowest income level should be reduced to zero, and if a family contribution is required by a program, that contribution, as a share of family income, should progressively increase as income rises.

The cost of providing accessible high-quality early care and education far exceeds the amount of funding currently in the system. Substantial

increases in funding are needed to realize the envisioned transformation of the ECE system. To build adequate, equitable, and sustainable financing with effective incentives for quality, additional resources will need to come from a combination of public and private resources, with the largest portion of the necessary increase coming from public investments. These multiple sources of revenue may come from families, employers and the private sector, the public sector, or various combinations of these sources, but revenue should be raised in ways that ensure that the burden of neither family payments nor tax revenue collection falls disproportionately on those with the fewest resources.

As ECE costs increase over the phased transition period, the public’s share of cost will necessarily increase because higher quality-standards and cost will make ECE services less affordable for additional families unless they receive public or private assistance. How the burden can best be distributed among the levels of government and among revenue sources must be determined through political processes in which decision makers weigh different options for transitioning to and implementing a high-quality ECE system and weigh the benefits of such a system against the potential political and economic costs of reducing other public expenditures or raising taxes. But the dual function of early care and education at a critical educational period and as economic security for families with parents in the workforce argues for continued public responsibility for ensuring ECE access for all children. The committee supports an ongoing significant federal role but also supports important roles for state and local governments.

The public cost of high-quality early care and education will be reduced through any contributions from other stakeholders, including potential contributions from families, employers, and philanthropy. There are several approaches to determining a reasonable share for families to pay, and the evolving policy and practice landscape in early care and education does not provide an unequivocal path for determining whether families, at any income level, should make out-of-pocket payments for early care and education. Decision makers at the state and local level will need to balance ensuring significant economic barriers do not prevent families from using high-quality ECE services, increasing progressivity through family payments or tax revenue collection, and ensuring public funds to cover ECE costs are adequate and expended effectively (see discussion in Appendix C). Where programs require a family contribution, a restructured family payment schedule that requires less from low- and moderate-income families and progressively more from higher-income families will be needed to eliminate barriers to utilization and achieve an equitable distribution of family contributions.

Planning for the Transition to High Quality

Recommendation 6: A coalition of public and private funders should support the development and implementation of a first round of local-, state-, and national-level strategic business plans to guide transitions toward a reformed financing structure for high-quality early care and education.

The process of transitioning from the current state to the committee’s vision of an integrated system will take time, resources, and intentional coordination and planning. The nonparental private sector’s (including businesses/employers and philanthropic organizations) role and influence in asserting the importance of and setting the vision for systemic transformation are essential. These stakeholders have the potential to play a critical role by advocating for policies and leveraging available dollars to support high-quality ECE services and systems, particularly during the transition from its current broken state to an effective, high-quality ECE system.

In short, the nonparental private sector, specifically private funders engaged in supporting high-quality early care and education, should work with public funders and other key stakeholders, including national and statewide coordinating bodies, as well as interested parent, provider, and ECE workforce representatives, to develop and implement local-, state-, and national-level strategic business plans to guide transitions toward a reformed financing structure for high-quality early care and education with a specific emphasis on business, financial, and systems strategies.

Financing Workforce Transformation

Recommendation 7: Because compensation for the ECE workforce is not currently commensurate with desired qualifications, the ECE workforce should be provided with financial assistance to increase practitioners’ knowledge and competencies and to achieve required qualifications through higher-education programs, credentialing programs, and other forms of professional learning. The incumbent ECE workforce should bear no cost for increasing practitioners’ knowledge base, competencies, and qualifications, and the entering workforce should be assisted to limit costs to a reasonable proportion of postgraduate earnings, with a goal of maintaining and further promoting diversity in the pipeline of ECE professionals.

7a. Existing grant-based resources should be leveraged, and states and localities, along with colleges and universities, should work together to provide additional resources and supports to the incumbent workforce as practitioners further their qualifications as professionals in the ECE field.

7b. States and the federal government should provide financial and other appropriate supports to limit to a reasonable proportion of expected postgraduate earnings any tuition and fee expenses that are incurred by prospective ECE professionals and are not covered by existing financial aid programs.

Recommendation 8: States and the federal government should provide grants to institutions and systems of postsecondary education to develop faculty and ECE programs and to align ECE curricula with the science of child development and early learning and with principles of high-quality professional practice. Federal funding should be leveraged through grants that provide incentives to states, colleges, and universities to ensure higher-education programs are of high quality and aligned with workforce needs, including evaluating and monitoring student outcomes, curricula, and processes.

Resources to strengthen the qualifications and competencies of the ECE workforce will be critical both during the transition period and to sustain a high-quality ECE system. However, increasing per-child funding to programs is not guaranteed to lead to better compensation for the ECE workforce, and some policy leverage will likely be necessary to ensure that resources in the form of adequate wages are distributed to the workforce, at least initially. While the transition to a highly qualified and adequately compensated workforce is taking place, testing the market’s response to changes and accountability to ensure that the workforce is receiving improved compensation will also be necessary.

Given the ECE workforce’s low levels of compensation, asking ECE professionals to contribute out of pocket to their educational expenses or to cover them using loans that must be repaid with future wages is not feasible during the transition to high quality. A number of grant-based resources for higher education are currently available from a variety of sources, and these resources should be leveraged to offset the costs of tuition and fees for ECE professionals pursuing higher education. Additional funding will likely be necessary to ensure that ECE professionals are able to pursue higher education and other forms of credentialing at an affordable rate. States and localities should work with colleges and universities to provide these additional resources, especially to the incumbent workforce as they pursue additional qualifications as professionals in the ECE field.

Once compensation reaches adequate levels, it may be appropriate to ask ECE professionals to contribute to their costs of attaining additional qualifications as ECE professionals. However, states and colleges and universities should promote high-quality, affordable higher education for ECE

professionals by providing financial support to limit any tuition and fee expenses to a reasonable proportion of postgraduate earnings. Targeted financing mechanisms to support professionals with culturally, linguistically, and professionally diverse backgrounds who are pursuing opportunities for higher education and credentialing will also be needed, to reduce the racial and ethnic stratification across job roles that persists in the current ECE workforce.

States should also promote greater alignment of higher-education programs with the core competencies needed by ECE professionals and develop a pipeline of qualified ECE faculty to ensure positive outcomes for children. Federal funding could be used to further incentivize high-quality higher education by providing grants to state systems and to colleges and universities to both align curricula with the science of child development and early learning and ensure affordability for the ECE workforce.

Assessing Progress Toward Quality

Recommendation 9: The federal and state governments, as well as other funders, should provide sustained funding for research and evaluation on early childhood education, particularly during the transition period to ensure efforts to improve the ECE system are resulting in positive outcomes for children and in the recruitment and retention of a highly qualified workforce.

Recommendation 10: The federal government should align its data collection requirements across all federal ECE funding streams to collect comprehensive information about the entire ECE sector and sustain investments in regular, national, data collection efforts from state and nationally representative samples that track changes in the ECE landscape over time, to better understand the experiences of ECE programs, the ECE workforce, and the developmental outcomes of children who participate in ECE programs.

As early care and education transitions from its current state into the coordinated system envisioned by the committee, it will be essential to monitor and evaluate the changes made, including the extent to which they are leading to improvements in the well-being of the workforce, families, and children. Systems for ongoing accountability and quality assurance are essential to an ECE system in general, but especially during the transition period. It will be critical to evaluate progress so that the system can be adapted if necessary, as it is being expanded. Creating continuous improvement in the ECE landscape also requires meaningful and sustained investments in research to ensure that efforts to transform the workforce and ECE jobs are successful.

Assessment of progress needs to be made at the levels of children and families, the workforce, the providers, the state, and the nation as a whole, using a diverse set of measures that include adequacy of resources, accessibility for families, workforce characteristics and well-being, program quality and costs, and ultimately, measures of children’s development across a broad set of domains. It is essential that such a system allow for learning over time, ensure coverage across different types of programs, measure quality beyond structural inputs to include processes and outcomes, and use methodologies appropriate for studying policy and systems change to understand how progress on different quality components are operating in the context of each other. The committee offers specific guidance to fill research and data gaps in Chapter 7.

CONCLUSION

Reliable, accessible high-quality early care and education for young children from birth to kindergarten entry, including a highly qualified and adequately compensated workforce, can be achieved, and there is great urgency in beginning the work to realize such a vision. The committee recommends that this be accomplished through greater harmonization and coordination among multiple financing mechanisms and revenue streams and through greater uniformity in standards to incentivize quality. It will require significant mobilization of financial and other resources shared across the public and private sector, including a more equitable distribution of the share from family contributions and a commitment to major increases in public investment.

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