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Transforming the Financing of Early Care and Education (2018)

Chapter: 5 Current Financing for Early Care and Education: Ensuring High Quality Across Settings

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Suggested Citation:"5 Current Financing for Early Care and Education: Ensuring High Quality Across Settings." National Academies of Sciences, Engineering, and Medicine. 2018. Transforming the Financing of Early Care and Education. Washington, DC: The National Academies Press. doi: 10.17226/24984.
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5

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

This chapter examines the committee’s third, fourth, fifth, and sixth principles, which focus on ensuring high-quality early care and education across settings (see Box 3-2 in Chapter 3). It begins by examining how current provider-oriented and family-oriented financing mechanisms incentivize quality and the extent to which they create or ease the administrative burden on providers. Second, the chapter assesses how well those financing mechanisms support a variety of service delivery options, taking into account the various times during which early care and education is needed by families and the needs and constraints of different types of early care and education (ECE) providers, such as center-based or home-based providers. Next, the chapter discusses the committee’s fifth principle and examines the current financing mechanisms available to support the building and maintenance of quality ECE facilities, which are important for ensuring delivery of high-quality early care and education. Finally, the chapter concludes by examining the current financing mechanisms that support ongoing accountability, evaluation, and continuous improvement in early care and education, the committee’s sixth principle.

PRINCIPLE 3: EASY-TO-ADMINISTER FINANCING WITH INCENTIVES FOR QUALITY

This section reviews the financing mechanisms for direct service delivery, describing the provider-oriented and family-oriented mechanisms by which funds are distributed to support the delivery or purchase of ECE services and analyzing them against the committee’s third principle:

Suggested Citation:"5 Current Financing for Early Care and Education: Ensuring High Quality Across Settings." National Academies of Sciences, Engineering, and Medicine. 2018. Transforming the Financing of Early Care and Education. Washington, DC: The National Academies Press. doi: 10.17226/24984.
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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.

Provider-Oriented Mechanisms

Provider-oriented mechanisms can provide incentives to improve ECE quality. Because provider-oriented mechanisms distribute funds to an entire program, the distributing entity can establish and enforce standards of quality through direct budget control or by contractual agreement.1 For example, Head Start promotes quality through requirements that staff meet certain qualifications and competencies standards. (However, Head Start does not provide commensurate compensation for staff that meet these standards; see section in Chapter 3 titled “Increasing Base Pay.”) Head Start regulations also link the receipt of Head Start funding to a center’s quality rating, thereby making quality a consideration in new or ongoing funding decisions (see discussion on financing quality improvement in the “Accountability and Improvement Systems” section below) (Administration for Children and Families, n.d.; Barnett and Friedman-Krauss, 2016). In some states, funding for state-sponsored prekindergarten programs is also linked to a provider’s quality rating under the state’s quality rating and improvement system (QRIS) (Barnett et al., 2017).

In some situations, provider-oriented mechanisms can ease navigation of ECE service options for families. For example, Head Start–eligible families have clear choices about the programs from which they can choose and need not worry about arranging payments. In addition, if providers receive funding directly, they do not need to collect and process payments from families and they can rely on steady funding throughout the year. However, providers that accept children who are eligible for different types of funding (e.g., some receive Head Start funding and others receive funding through ECE assistance programs) currently face the challenge of managing sources that have different program standards and family eligibility requirements (see further discussion below, under “Licensing, Monitoring, and Regulation”).

Provider-oriented mechanisms can also provide sustainable funding for providers, as contracts typically allow for a certain drop in enrollment or attendance, which enables providers to plan and manage their resources more effectively and to ensure ongoing and adequate compensation for their workforce (see discussion on compensation for the workforce in Chapter 3 titled “Improved Compensation”).

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1 However, some scholars argue that such standards and control may lead to unnecessary uniformity of learning approaches (Fuller, 2007).

Suggested Citation:"5 Current Financing for Early Care and Education: Ensuring High Quality Across Settings." National Academies of Sciences, Engineering, and Medicine. 2018. Transforming the Financing of Early Care and Education. Washington, DC: The National Academies Press. doi: 10.17226/24984.
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Family-Oriented Financing Mechanisms

As discussed in Chapter 2, states are responsible for setting policies on quality requirements for access to ECE assistance programs. The 2014 reauthorization of the Child Care and Development Block Grant (CCDBG) Act sets a minimum on the portion of Child Care and Development Fund (CCDF) funds that must be set aside for activities that improve the quality of ECE programs, and states have a great deal of flexibility within the requirements for spending those funds. States are required, however, to submit ECE program plans to the federal government to address system-level issues, including quality assurance.

States also set reimbursement rates for ECE assistance programs, and these rates vary greatly by state. Only one state sets its reimbursement rate at the 75th percentile of current market value (the level recommended by the federal government), while 32 states have reimbursement rates at least 20 percent below the 75th percentile of market prices (Schulman and Blank, 2016). Low reimbursement rates limit the level of quality care a provider can offer to families. At the same time, many states link payments directly to quality. As of 2016, 38 states had implemented tiered reimbursement, meaning that higher reimbursement rates for Child Care Assistance Programs (CCAP) are offered to providers as programs achieve higher quality-rating scores on that state’s quality assessment system. However, in three-fourths of these states the higher reimbursement rates for high-quality care were still lower than the 75th percentile of market rates (Schulman and Blank, 2016, p. 3). Additional challenges limit the effectiveness of this approach for achieving quality (see discussion below, in section on “Financing Quality Assurance and Improvement”).

A tiered reimbursement strategy by itself rarely generates enough revenue to significantly raise the quality of most programs. Because the cost of maintaining quality in a program is spread across all classrooms and all children, adequate funding is needed for every child, not just those receiving a subsidy. Few programs serve only subsidized children, and nonsubsidized families are frequently not able to pay the full cost of a high-quality program. Since revenue from a public ECE subsidy is only received for a small proportion of children, tiered reimbursement increases in the subsidy payments produce only a modest amount of revenue for most programs (BUILD Initiative, 2017). Moreover, 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.

Federal tax preferences do not have any direct linkage to quality standards, but a small number of states have linked their tax credits to quality standards. For example, Arkansas, Louisiana, and Vermont reward families for choosing quality programs as rated by the state’s quality assessment

Suggested Citation:"5 Current Financing for Early Care and Education: Ensuring High Quality Across Settings." National Academies of Sciences, Engineering, and Medicine. 2018. Transforming the Financing of Early Care and Education. Washington, DC: The National Academies Press. doi: 10.17226/24984.
×

system (BUILD Initiative, 2017).2 In Maine, families that purchase services from an ECE provider with a quality certificate are eligible for double the standard state ECE tax credit (Maine Child Care and Family Services, 2017). Linking the larger federal tax credit, the Child and Dependent Care Tax Credit, to a quality rating is conceptually possible but would require an expanded administrative apparatus for that credit.

Summary: Principle 3—Easy-to-Administer Financing with Incentives for Quality

Provider-oriented mechanisms can provide sustainable funding for providers, which allows providers to effectively plan and manage their resources. In turn, this allows them to offer ongoing salaries at particular levels without concern that funding will be withdrawn if children leave (see discussion in Chapter 3 on “Improved Compensation”). However, such financial stability is currently only available to a small share of providers; the higher-education system provides an example of how provider-oriented financing could be extended to all providers, easing navigation for families and the administrative burden on providers.

Provider-oriented mechanisms also support and incentivize improvements in quality through grant or contract requirements or by making funding contingent on meeting specific quality benchmarks. Existing provider-oriented mechanisms vary in terms of linking funding to and providing incentives for quality, but in theory these mechanisms could allow the funder to establish and enforce standards of quality through contractual relationships.

The current requirements for use of CCAP subsidies and tax credits do little to give providers an incentive to improve quality, though family-oriented mechanisms have the potential to support high-quality ECE options. Recent efforts by certain states to implement tiered reimbursement are an example of incentivizing quality by providing higher rates of payment for ECE service delivery that meets higher standards. Though these efforts are useful for improving quality, they are often insufficient, since it is difficult for a provider to meet higher standards if tiered funding increases in payments only apply to some of the children enrolled in the provider’s program or if the tiered funding increase is itself insufficient to cover the cost of offering high-quality services.

In summary, existing quality standards and the effectiveness of their implementation vary across financing mechanisms and programs. Typically,

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2 Louisiana also provides refundable tax credits that are linked to quality for businesses that pay expenses to ECE facilities with a Quality Start rating of at least two stars and for ECE providers whose facilities are rated two stars or higher (ChangeLab Solutions, 2016).

Suggested Citation:"5 Current Financing for Early Care and Education: Ensuring High Quality Across Settings." National Academies of Sciences, Engineering, and Medicine. 2018. Transforming the Financing of Early Care and Education. Washington, DC: The National Academies Press. doi: 10.17226/24984.
×

receipt of funding is not directly linked to the cost of 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 often are not based upon the costs of offering high-quality early care and education and are thus insufficient to drive quality improvements. Many providers lack secure funding that would allow them to maintain stable operations and invest in quality improvements.

PRINCIPLE 4: VARIETY OF HIGH-QUALITY SERVICE OPTIONS

This section analyzes provider-oriented and family-oriented mechanisms against the committee’s fourth principle: High-quality early care and education requires a variety of high-quality service delivery options that are financially sustainable.

Provider-Oriented Mechanisms

Most provider-oriented financing is currently directed to center-based providers, and offering care during nonstandard hours is generally cost-inefficient for most centers. Only about 8 percent of centers offer any nonstandard hours of ECE services, and only 2-3 percent are open evenings or weekends (National Survey of Early Care and Education Project Team, 2015b). Therefore, families who need care during these hours may find it difficult to secure affordable, quality care that meets their needs. However, provider-oriented financing could, in the future, incentivize providers to offer services during nonstandard hours. For example, a network of high-quality home-based care could receive provider-oriented financing to offer care during nonstandard business hours.

Moreover, as currently directed, provider-oriented financing varies in the duration of services supported. For example, for the 2015–2016 school year, 44 percent of children in Head Start settings and 42 percent of children in Early Head Start settings received services for an entire school day (more than 6 hours per day), 5 days a week. Of the 59 state-funded prekindergarten programs serving children during the 2015–2016 school year, the majority (37) were offered on a part-day basis (less than 4 hours per day) with only 16 offering services on a school-day basis (at least 4 hours but less than 6.5 hours per day) or an extended-day basis (more than 6.5 hours per day) (Barnett et al., 2017). This is largely a function of the amount of funding dedicated to these provider-oriented financing mechanisms and the specific requirements of each mechanism’s contract provisions. The mechanism itself does not inherently support provision of full-day over part-day services or vice versa. However, as exemplified by recently released Head

Suggested Citation:"5 Current Financing for Early Care and Education: Ensuring High Quality Across Settings." National Academies of Sciences, Engineering, and Medicine. 2018. Transforming the Financing of Early Care and Education. Washington, DC: The National Academies Press. doi: 10.17226/24984.
×

Start standards requiring that all children enrolled in Head Start receive 1,020 hours of services per year (roughly 4 hours per day) by the year 2020 (Barnett and Friedman-Krauss, 2016), provider-oriented mechanisms, when coupled with commensurate funding, can be used to require providers to offer services for longer durations. This may especially ease the burden on parents working full-time standard business hours, who rely on ECE settings to care for their children while they are working.

Family-Oriented Financing Mechanisms

Because families may use the provided assistance to purchase ECE services from the provider of their choice, family-oriented financing mechanisms give families options regarding program location, hours of operation, and approaches to child development. However, this choice may be subject to restrictions set by the program. For example, families may be required to use CCAP vouchers at licensed ECE centers (see, e.g., Louisiana Department of Education, 2017a; Maryland Family Network, 2017). Despite the potential for such restrictions, family-oriented mechanisms provide families with greater discretion for deciding which programs to use than if they were restricted to a Head Start or public-school prekindergarten program, where funds are distributed directly to a limited set of providers. However, mechanisms that support family choice among options can also be problematic. A large literature in the elementary and secondary education field demonstrates that families may use “choice” to select programs that are segregated by race or income or that are discriminatory by religion or other characteristics (Bifulco and Ladd, 2007; Booker, Zimmer, and Buddin, 2005; Cohen-Zada and Sander, 2008). Moreover, families may choose to purchase care that maximizes convenience of location and flexibility of hours for the parents, which though important to meeting family needs, may come at the expense of choosing quality programs for child well-being and development.

Summary: Principle 4—Variety of High-Quality Service Delivery Options

In summary, family-oriented financing mechanisms as currently used give families more discretion for deciding which type of ECE service option to use. However, there are a number of challenges related to such discretion, including the potential for parents to prioritize program attributes other than high quality. While provider-oriented financing mechanisms tend to support the provision of early care and education that is offered during standard business hours, provider-oriented support could be structured to incentivize offering services that extend beyond standard hours or on a full-day basis.

Suggested Citation:"5 Current Financing for Early Care and Education: Ensuring High Quality Across Settings." National Academies of Sciences, Engineering, and Medicine. 2018. Transforming the Financing of Early Care and Education. Washington, DC: The National Academies Press. doi: 10.17226/24984.
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PRINCIPLE 5: HIGH-QUALITY FACILITIES

This section analyzes provider-oriented and family-oriented mechanisms with respect to the committee’s fifth principle: High-quality early care and education requires adequate financing for high-quality facilities. As discussed in Chapter 1, quality facilities contribute to high-quality ECE services in that well-designed environments can promote learning, exploration, and physical activity. However, building or renting facilities and upgrading them when needed are often-overlooked elements of a quality infrastructure for early care and education. While service delivery funding covers ongoing facility rent, maintenance, and insurance costs, in situations requiring increases in capacity or improvements in the quality of facilities, upfront costs are difficult to cover through funding for services. While the most basic function of ECE facilities is to ensure that children stay safe and clean, high-quality facilities can also offer young children opportunities for cognitive, emotional, and physical development that go beyond basic expectations of physical protection. See Box 5-1 for a discussion of the contributions that facilities can make to recruiting and retaining a highly qualified workforce.

Some ECE providers may need funds for acquiring new facilities and maintaining, expanding, and improving existing facilities. In contrast to the K–12 system, there is no dedicated financing mechanism for ECE facilities. 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 (Gillman, Raynor, and Young, 2011). Because of this financing gap, providers have been forced to pursue a hodgepodge of approaches including loans, grants, tax credits, and intermediary services from community development financial institutions (CDFIs); many of these options are only available to center-based providers. The committee reviews these mechanisms below against its criteria for high-quality early care and education, asking whether current financing is available and adequate to sustain quality facilities for both center-based and home-based providers and whether current mechanisms are easy for providers to navigate and administer (see fourth criterion under Principle 3).

Loans

Loans are a common way to pay for acquiring or improving buildings; for example, individuals can use mortgages and home equity loans to acquire or improve a residence. However, ECE providers may have difficulty accessing or managing loans due to several factors: (1) Centers may have low value and minimal business assets to use for collateral. (2) Providers

Suggested Citation:"5 Current Financing for Early Care and Education: Ensuring High Quality Across Settings." National Academies of Sciences, Engineering, and Medicine. 2018. Transforming the Financing of Early Care and Education. Washington, DC: The National Academies Press. doi: 10.17226/24984.
×

may have razor-thin monthly cash flow margins and thus find it challenging to make payments. (3) Taking on a loan means that debt repayment costs become a competing expense in the provider’s budget, requiring resources that could be allocated to other quality improvements.

Some states have developed innovative strategies to help businesses access and manage loans, including loan guarantees, direct loans, debt service support, and performance-based loan forgiveness. Some of these programs are specific to ECE providers, whereas others are geared toward helping small, nonprofit, or otherwise needy businesses in general.

Loan guarantees can help marginally creditworthy businesses access conventional commercial loans by reducing repayment risk in order to induce a lender to make an otherwise marginal loan. North Carolina’s Self-Help, Inc. is an example of one such loan guarantee program (see Box 5-2).

Though loan guarantees can help providers access funding for facilities, only providers that have the financial ability to take on the debt are helped by these programs. Because most major facilities investments require deeper subsidies than loan guarantees offer, many ECE providers are unable to

Suggested Citation:"5 Current Financing for Early Care and Education: Ensuring High Quality Across Settings." National Academies of Sciences, Engineering, and Medicine. 2018. Transforming the Financing of Early Care and Education. Washington, DC: The National Academies Press. doi: 10.17226/24984.
×

qualify for a large enough loan to undertake a major physical infrastructure initiative (Sussman and Gillman, 2007).

States may also provide access to debt by offering direct loans. Typically, a state economic development agency serves as the lender, which absorbs the repayment risk, while the entity receiving the loan is responsible for the full capital costs through loan payments. While states offer small-business loans for which for-profit ECE programs may apply, only a small number of states offer direct loans specifically to ECE programs. One exception is Maryland; since 1988, the state through its Department of Commerce has granted ECE facility loans and loan guarantees to nonprofit and for-profit center-based programs. If the ECE provider can support the debt, the state subordinates the loan to a private lender at market or slightly below-market rates (Sussman and Gillman, 2007).

Debt-services support is another mechanism by which states have supported facilities projects. Using this mechanism, states pay an annual debt service cost rather than the total cost of the facilities project upfront. In this way, states subsidize nonprofit ECE programs by paying a proportion of the facility debt until the loan is repaid. For example, Illinois and Connecticut have used this financing mechanism with tax-exempt bond debt to create low interest rates and longer loan terms, enabling ECE providers to support a share of the bond debt. In Illinois, the capital subsidy covered 100 percent of project costs; in Connecticut about 70 percent of costs were covered (Pardee, 2011; Sussman and Gillman, 2007).

Suggested Citation:"5 Current Financing for Early Care and Education: Ensuring High Quality Across Settings." National Academies of Sciences, Engineering, and Medicine. 2018. Transforming the Financing of Early Care and Education. Washington, DC: The National Academies Press. doi: 10.17226/24984.
×

Performance-based loan forgiveness is a financing mechanism that can also be used to incentivize quality. For example, Self-Help (distinct from Self Help, Inc., which is discussed in Box 5-2) administers the North Carolina Department of Health and Human Service’s Child Care Revolving Loan Fund.3 This program ties loan forgiveness to quality improvement standards. Providers who maintain or increase the quality of their program, as measured by the state’s quality rating system, qualify for partial loan forgiveness amounting to between 30 and 50 percent of their loan principal after 4 years. Conversely, should program quality decline, the provider is required to pay the full cost of improvements. This financing mechanism incentivizes programs to adopt high-quality practices; however, it only benefits providers who are able to qualify for loans in the first place and may leave out equally deserving quality providers who do not qualify (Sussman and Gillman, 2007)

In addition to these state programs, there are some federal loan options targeted to community facilities projects, including Head Start Centers, through the U.S. Department of Agriculture’s Rural Development Community Facilities Program, and the Small Business Administration (U.S. Department of Agriculture, 2017; U.S. Small Business Administration, 2017).

Grants

Grants are another way that ECE providers can finance facilities. Grants may be provided by state, local, or federal governments or by philanthropic foundations, corporations, or other businesses. Federal grants for ECE facilities include the following opportunities:

  • The Administration for Children and Families, in the U.S. Department of Health and Human Services, makes facilities grants available to Head Start grantees.
  • The U.S. Department of Housing and Urban Development provides Community Development Block Grants to support a range of community revitalization projects, including Head Start and ECE centers.
  • The U.S. Department of Agriculture, through its Rural Development Community Facilities Program, offers small grants for ECE facilities projects in communities with fewer than 20,000 people (U.S. Department of Agriculture, 2017).

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3 See description of Self-Help at http://www.sbtdc.org/pdf/cap_opps_chap7.pdf, p. 80 [November 2017].

Suggested Citation:"5 Current Financing for Early Care and Education: Ensuring High Quality Across Settings." National Academies of Sciences, Engineering, and Medicine. 2018. Transforming the Financing of Early Care and Education. Washington, DC: The National Academies Press. doi: 10.17226/24984.
×

There are also grants available from the U.S. Department of the Treasury, U.S. Small Business Administration, U.S. Department of Health and Human Services, and U.S. Department of Housing and Urban Development for ECE programs that are housed within a multiservice agency that is engaged in implementing economic development programs in the community, such as affordable housing development, microbusiness finance, and job creation (National Center on Program Management and Fiscal Operations, n.d.; U.S. Small Business Administration, 2017). In addition, prekindergarten programs that are part of a local school district may be able to benefit from dedicated grant programs for public school facilities. ECE programs housed in public schools may also access secured local funding for the cost of operating facilities. For instance, Montgomery County, Maryland, as part of its strategic plan for early care and education in the county, has designated early care and education as a priority for use of available public facilities and inclusion in new public construction programs. Given the high rents in this county, ECE providers struggle to offer affordable quality early care and education; the county hopes that addressing ECE facilities in this way will alleviate the cost burden on families (Montgomery County Department of Health and Human Services, 2017).

Private funding—from philanthropic foundations or corporations and other businesses—is another source of grants that may be used for facilities projects. Some private funders may make grants for ECE facilities projects as a way to support their local communities, businesses, and families. Employers that sponsor onsite early care and education may be able to minimize or share costs for facility-related expenses, given that employers have a vested interest in providing and maintaining attractive facilities as an employee benefit.

Tax Credits

A few available tax credits can be used to support an ECE facilities project. The federal New Markets Tax Credit, for example, was implemented by Congress in 2000 to promote economic development and create jobs in low-income communities. These tax credits provide an incentive for banks, businesses, or individuals to invest in intermediaries that invest in projects in targeted economically distressed areas. Head Start grantees and Educare schools have successfully used this mechanism, and other ECE providers may qualify for the credit. However, the program is not specifically targeted to ECE businesses and a variety of businesses are eligible for the credit.4

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4 In 2003, the Buffett Early Childhood Fund and the Ounce of Prevention Fund partnered to expand Educare, a network of ECE schools across the country. (See http://www.educareschools.org [June 2018]).

Suggested Citation:"5 Current Financing for Early Care and Education: Ensuring High Quality Across Settings." National Academies of Sciences, Engineering, and Medicine. 2018. Transforming the Financing of Early Care and Education. Washington, DC: The National Academies Press. doi: 10.17226/24984.
×

Community Development Financial Institutions

CDFIs are financial institutions that provide credit and other financial services to populations that are traditionally underserved. CDFIs may be used to support facilities projects for ECE programs through loans, particularly for home-based providers. Loans obtained from a CDFI often are accompanied by a requirement that the program receiving money participate in some form of technical assistance training related to the loan. For example, IFF, a regional community development lender, offers loans and training and technical assistance for community facility developments including Head Start facilities in five Midwestern states. The Fund for Quality, a partnership between the Reinvestment Fund and Public Health Management Corporation, provides business planning support and facilities-related financing to high-quality ECE providers (Public Health Management Corporation, 2017).5 While these entities provide needed assistance to providers, they currently reach only a small fraction of ECE businesses.

Summary: Principle 5—Financing for High-Quality Facilities

This section considered whether current financing is available and adequate to sustain quality facilities and whether current mechanisms are easy for providers to navigate and administer. While financing may be available for ongoing facilities costs as part of the cost of service delivery for some providers, in situations where support for building and improving ECE facilities is required, no systemwide approach for addressing facilities exists. Without a consistent and effective financing system for physical infrastructure improvements, providers are forced to pursue piecemeal financing approaches, which are often insufficient to meet the need. Though loans, grants, and other financing mechanisms can help ECE providers access funds for acquisition, expansion, or improvement of facilities, existing programs using these mechanisms are limited in scope and the funding that is available is often insufficient to meet the need and often directed exclusively to a certain type of provider (e.g., center-based). For jurisdictions incorporating home-based providers into their state prekindergarten programs (or other jurisdiction-wide services), strategies for financing improvements to these homes to meet health, safety, and quality standards will be increasingly important. Moreover, many of these financing approaches require interfacing with other systems that do not have early care and education as a primary responsibility or interest and that may be difficult for ECE providers to navigate.

While ECE providers in some regions of the country are estimated to need major improvements or entirely new facilities (see Chapter 6), the

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5 See http://www.fundforquality.org/ {June 2018].

Suggested Citation:"5 Current Financing for Early Care and Education: Ensuring High Quality Across Settings." National Academies of Sciences, Engineering, and Medicine. 2018. Transforming the Financing of Early Care and Education. Washington, DC: The National Academies Press. doi: 10.17226/24984.
×

committee is not aware of any national-level survey of ECE facilities. A facilities needs assessment with a study of real estate markets should be completed to determine the financing needed to support high-quality ECE facilities (see the section in Chapter 7 titled “Assessing Quality During the Transition”).

PRINCIPLE 6: QUALITY ASSURANCE AND IMPROVEMENT

The committee’s sixth and final principle is that high-quality early care and education requires systems for ongoing accountability, including learning from feedback, evaluation, and continuous improvement. A robust system of supports is essential to improving coordination and efficiency and ensuring quality in the delivery of ECE services for children from birth to age 5. The key components of quality assurance and improvement system supports are data and information management, monitoring and regulation, and quality assurance and accountability. Improving the quality of early care and education requires multiple systems to be established, financed, and coordinated with one another. Quality improvement requires data collection and management systems so that policy makers can understand the current landscape and track changes over time. In addition to data collection, quality improvement requires systems for monitoring ECE programs to ensure that they are meeting the requirements of state licensing boards and the requirements of funding entities; for evaluating educator competencies, compensation levels, and progress in building a more skilled and less stratified workforce; and for assessing child outcomes to ensure quality. Finally, quality assurance and accountability systems can help support and incentivize shifts toward higher-quality early care and education. This section analyzes the financing mechanisms currently available to support quality assurance and improvement systems. It examines whether sustainable funds are available for planning and designing accountability systems and for monitoring and evaluations systems that promote systemwide quality improvements and whether financing is available to support accountability at the educator, program, and system levels.

Data Collection and Management Systems

Improving ECE quality at the system level requires a clear understanding of the current landscape and the ability to accurately track changes over time. For instance, to what extent is the ECE workforce becoming more professionalized over time? Are qualified ECE professionals being retained over time? Are ECE programs providing high-quality learning environments for children? Are the existing slots sufficient to meet the ECE needs of young children in a community? Have changes in the system resulted

Suggested Citation:"5 Current Financing for Early Care and Education: Ensuring High Quality Across Settings." National Academies of Sciences, Engineering, and Medicine. 2018. Transforming the Financing of Early Care and Education. Washington, DC: The National Academies Press. doi: 10.17226/24984.
×

in better outcomes for children? Answering these questions is essential to ensuring timely, data-driven decisions about how to allocate resources and for tracking the return on public investments. However, answering even fairly simple, descriptive questions about the ECE landscape is often impossible, due to the lack of data collection and management systems that comprehensively track information about program enrollment, program quality, or the ECE workforce. Systems that allow linkages across all three of these critical components are uncommon. Furthermore, few systems link with data on child outcomes over time in a way that would allow long-term program evaluation.

Though all states do collect some information about either children, programs, or the workforce, linkages across these three categories are limited. Even within each category, the data are often limited to a relatively small subsection of the population (e.g., to a sector or only those individuals or programs that opt in to participating in data collection). A 2013 analysis conducted by the Early Childhood Data Collaborative provided a snapshot of state-level ECE data and found extensive limitations in nearly every state’s data system (Early Childhood Data Collaborative, 2014). For instance, only one state had a coordinated data system that merged data from all types of publicly funded ECE programs and also linked that data to K–12 data. State-funded prekindergarten programs were more likely to be included in the state systems than were subsidized ECE or Head Start programs. These linked data systems provide a foundation, but their limitations severely curtail the utility of current data collection efforts as a tool for quality improvement efforts.

Data collection is also supported at the federal level, but many of the existing data sources about the ECE landscape provide only a snapshot for a single time and are based on nationally representative samples that do not allow for differentiation by states, whose policies and economic conditions vary. For example, the Birth Cohort of the Early Childhood Longitudinal Study, which is sponsored by the National Center for Education Statistics, was designed to provide policy makers with rich information about children’s early years. It included detailed surveys of parents, ECE educators, and program directors. However, the survey was fielded only once and thus did not allow for tracking changes in ECE quality over time.

Another limitation of some existing data sources is that they only focus on a single sector within the fragmented ECE landscape. For example, the Program Information Reports from the Office of Head Start provide detailed annual data about the Head Start workforce and about the services provided by Head Start and Early Head Start grantees. These reports are useful as a monitoring tool and source of information about this particular sector. Also, the National Center for Early Development & Learning Multi-State Study of Pre-Kindergarten & State of State-Wide Early Education

Suggested Citation:"5 Current Financing for Early Care and Education: Ensuring High Quality Across Settings." National Academies of Sciences, Engineering, and Medicine. 2018. Transforming the Financing of Early Care and Education. Washington, DC: The National Academies Press. doi: 10.17226/24984.
×

Programs focuses specifically on state prekindergarten programs. The federally funded Head Start Family and Child Experiences Survey focuses specifically on Head Start. Each of these data efforts has been enormously informative, but the lack of comparable information across sectors is a major limitation in trying to understand the full ECE landscape. Moreover, relatively more attention has been given to collecting data regarding services for prekindergarten-age children (3–5 years) than to infants and toddlers.

Data about the ECE workforce are inadequate due to limited coverage of all types of early care and education and to the ways that ECE professionals are defined and classified. At the federal level, while the National Survey of Early Care and Education covered multiple types of early care and educating—conducting interviews with more than 8,000 center directors, as well as thousands of center-based educators and home-based providers—the study was conducted only once.

States also collect some information about the ECE workforce, often through workforce registries or salary surveys, but 14 states have neither a registry nor a workforce study (Early Learning Challenge Technical Assistance, 2015; Whitebook, McLean, and Austin, 2016). State registries differ substantially from state to state, but they typically collect information about individual practitioners, their demographic characteristics, educational history, certification, employment, and professional development. However, because participation in most states is voluntary, registry data are often too limited in their coverage of the workforce to meaningfully inform efforts to improve quality. Registry data restricted to a subpopulation often do not have compensation information (not required) and are not routinely updated.

In addition to state registries, data about the ECE workforce are sometimes collected through a state’s QRIS or through its licensing and compliance systems. At the federal level, the Bureau of Labor Statistics and the National Survey of Early Care and Education report data on the number and salaries of ECE professionals (Bureau of Labor Statistics, 2016; National Survey of Early Care and Education Project Team, 2013). The lack of linkages, as well as the lack of alignment in how ECE professionals are classified, across these various data collection efforts directed at the ECE workforce poses a problem in terms of capacity for accessing evidence to inform improvement strategies.

Financing Data Systems

A series of short-term federal initiatives, including State Longitudinal Data Systems Grants, Preschool Expansion Grants, the Improving Head Start for School Readiness Act, Race to the Top Early Learning Challenge (RTT-ELC), and the Higher Education Opportunity Act, have either

Suggested Citation:"5 Current Financing for Early Care and Education: Ensuring High Quality Across Settings." National Academies of Sciences, Engineering, and Medicine. 2018. Transforming the Financing of Early Care and Education. Washington, DC: The National Academies Press. doi: 10.17226/24984.
×

explicitly made resources available to support the development of comprehensive ECE data systems or provided explicit guidelines on this topic to states to improve their data coordination capacity. For example, the RTT-ELC grants, which competitively allocated federal resources to support system building, had an optional priority category for “building or enhancing an early learning data system” (U.S. Department of Education, n.d.). Most states that ultimately received RTT-ELC funding addressed this priority area and used resources to lay the groundwork for a sustainable comprehensive data system, which requires buy-in from state leaders across agencies, a system for shared governance and data sharing, and efforts to align data across multiple existing data collections (Early Learning Challenge Technical Assistance, 2015). Though these initiatives helped states improve their data collection efforts, they were limited by the fact that they were one-time, short-term grants and were awarded to a limited number of states. Similar state systems tend to be funded either through short-term grants or through federal quality improvement funds with state matches, rather than through dedicated financing mechanisms for data collection.

Summary

The financing for data collection systems tends to be through short-term or one-time funding initiatives, contributing to the dearth of data collection systems able to answer the most basic questions about early care and education and to track improvement and changes over time. Particularly lacking are systems that track multiple factors and are coordinated with one another. The absence of data reinforces the status quo and obscures whether investments are achieving intended results.

Licensing, Monitoring, and Regulation

Most ECE providers are licensed (or registered or certified) by the states in which they operate (or they are declared exempt from licensing). This licensing may be accompanied by requirements about facilities, staffing, practices and policies, and monitoring. Under the CCDBG Act, states must verify that they have licensing requirements for providers and distinguish which types of providers are subject to licensing requirements or are exempt from such obligations.6

States require many home-based providers and most full-day center-based providers serving children from birth to age 5 to be licensed by the

___________________

6 Because many providers receive funding from a variety of sources, though a provider may be required to be licensed under the CCDBG Act, the same provider may not be required to be licensed to receive funding from other revenue streams, and vice versa.

Suggested Citation:"5 Current Financing for Early Care and Education: Ensuring High Quality Across Settings." National Academies of Sciences, Engineering, and Medicine. 2018. Transforming the Financing of Early Care and Education. Washington, DC: The National Academies Press. doi: 10.17226/24984.
×

state’s ECE licensing agency, but there is wide variation in requirements across states. Some states require home-based ECE providers to be licensed if they serve one or more unrelated children, while other states allow home-based ECE providers to care for five or more children without a license. Some states require small home-based care providers, who would otherwise be exempt from licensing, to be licensed if they serve children who receive a CCDF subsidy (National Center on Early Childhood Quality Assurance, 2015).

Beyond licensing requirements, ECE providers receiving federal and state funding often are required to comply with regulatory or grant-related requirements. Because of the inadequacy of each funding source to support the full cost of an ECE program, ECE providers often receive funding from multiple sources, requiring them to blend, braid, stack, and leverage multiple sources of revenue. In fact, 75 percent of providers report receiving and using multiple revenue streams to cover the cost of delivering services, which means that these ECE providers are regulated and monitored by multiple agencies or authorities, each of which carries its own purpose, regulatory rules, reporting requirements, and monitoring system (Maxwell et al., 2016). Further complicating monitoring functions are the differing levels of authority and operation, with some (e.g., Head Start) emanating from the federal level while others (e.g., CCDF-related licensing systems) are mandated by federal authorities but authorized and operated by states. Some programs (e.g., state-funded prekindergarten) are administered and regulated at the state level, which translates into state-by-state differences in monitoring practices and processes.

Most monitoring systems use a variety of tools and methods, and they vary in frequency or sequencing of monitoring processes, components or features emphasized for compliance and inspection, and ultimate impact or consequence from monitoring findings. Typically, these monitoring systems are focused on compliance, rather than continuous quality improvement.

Financing Licensing, Monitoring, and Regulation

Monitoring is generally not financed at the system level but rather is embedded in requirements in each of the multitude of funding streams distributed to providers for service delivery. These varying funding streams contribute to variation, and in some cases contradiction, in requirements across programs. As a result, providers may have to perform repetitive data entry efforts just to produce similar information inputs across multiple sets of standards, and they may endure duplications in their workload to engage in the monitoring visits required by each funding stream. These inefficiencies occur not only at the provider level but also at the state and local level. For example, the CCDBG Act requires states to inspect all providers receiving CCDF funds, but some states may also monitor

Suggested Citation:"5 Current Financing for Early Care and Education: Ensuring High Quality Across Settings." National Academies of Sciences, Engineering, and Medicine. 2018. Transforming the Financing of Early Care and Education. Washington, DC: The National Academies Press. doi: 10.17226/24984.
×

providers participating in state-funded prekindergarten programs. Providers that receive both CCDF and prekindergarten program funds may face dual monitoring and dual inspection visits because different state agencies may be tasked with monitoring the different funding streams. Moreover, if the requirements across these funding streams are inconsistent, additional inefficiencies will result.

A lack of incentives or resources for coordinated monitoring systems may also contribute to the current focus on compliance rather than on continuous quality improvement. Incentives and resources to share data across systems are necessary to inform technical assistance needs and identify issues that require system-level interventions.

Summary: Licensing, Monitoring, and Regulation

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. In addition, because each financing mechanism has its own set of regulatory standards or monitoring requirements, monitoring is not coordinated, resulting in inefficiencies at both the provider and state levels. This lack of coordination also contributes to the focus on compliance as opposed to quality improvement because the necessary resources and incentives for sharing data across systems are limited.

Accountability and Improvement Systems

Accountability and improvement systems go beyond data collection and management to provide supports and incentives for improvement; they are seen as a way to induce higher levels of efficiency and quality. In general, these systems promote improved integration and efficiencies; advance methods of ensuring and incentivizing quality and accountability in programmatic practice, policy, and budget strategies; foster public-private partnerships and investment; promote equity and systemic financing; and emphasize or recognize the impact and implications of a feedback loop of practice, policy, and data/research.

Given the documented lack of high-quality early care and education available and deficiencies (limitations) of the established monitoring and regulatory systems to support process quality, states have begun developing and employing QRISs (Lieberman, 2014; Workman and Ullrich, 2017). The QRIS model is an accountability and improvement system, which first emerged in the late 1990s but has recently been bolstered through funding from RTT-ELC. There are now 40 state-level QRISs nationwide, up from only 10 a decade ago. Though referred to by different names across states,

Suggested Citation:"5 Current Financing for Early Care and Education: Ensuring High Quality Across Settings." National Academies of Sciences, Engineering, and Medicine. 2018. Transforming the Financing of Early Care and Education. Washington, DC: The National Academies Press. doi: 10.17226/24984.
×

state-level QRIS generally support the following components (each carrying relative costs): management and administration of the overall QRIS; process for assessing ECE programs against state-identified sets of standards; management and monitoring of incentives; communication, outreach, and constituent engagement; and evaluation and continuous improvement of the QRIS. The logic model for QRIS suggests that in order for this accountability tool to foster real improvement in the quality of ECE services: (1) the ratings on which the system depends must accurately capture aspects of quality that are important for children’s development; (2) the incentives embedded in the system must be meaningful, ideally covering the true cost of quality improvements; (3) the supports for improvement must be well aligned with the measures of quality included in the system; (4) the quality information must be made readily available to parents; and (5) parents must be able to afford access to highly rated providers.

Over the nearly 20 years since inception of the QRIS model, states have made improvements to the efficiency of their systems. However, the proportion of programs in states participating in a QRIS and the financial incentives available to providers to meet higher quality standards are limited. Moreover, many QRISs remain limited in their focus on the workforce, particularly regarding building and rewarding workforce supports that are necessary to develop a highly qualified workforce (Center for the Study of Child Care Employment, 2016). Due to constraints in financing, from the perspectives of both parents and the system, the full benefit and impact of the QRIS strategy have not yet been realized.

Financing Accountability and Improvement Systems

Typically, states use a combination of federal CCDF funds and state matching funds to support the state’s accountability and improvement system. The states usually focus these funds on private licensed home-based or center-based programs (though they may also include Head Start and state prekindergarten programs). Funds for evaluation and research related to using a QRIS have also been distributed from one-time programs such as RTT-ELC.

Some argue that QRISs are expensive and that limited funds may be better used within ECE programs.7 The QRIS model has been validated by studies performed by states that received funding from RTT-ELC grants, which required states to research the relationship between rating levels and program quality and between rating levels and improved outcomes for children. Taken as a whole, these studies show a positive relationship in some

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7 See, e.g., https://www.washingtonpolicy.org/publications/detail/qris-rating-systems-do-not-improve-learning-or-social-development-of-children [January 2018].

Suggested Citation:"5 Current Financing for Early Care and Education: Ensuring High Quality Across Settings." National Academies of Sciences, Engineering, and Medicine. 2018. Transforming the Financing of Early Care and Education. Washington, DC: The National Academies Press. doi: 10.17226/24984.
×

but not all QRIS implementations between rating levels and program quality and more limited association between rating levels and child outcomes (see Karoly, 2014; Tout et al., 2017).

Summary: Accountability and Improvement Systems

QRISs have spread as a pivotal system-reform strategy for early care and education and serve to promote a consistent framework of quality that focuses on children’s experiences in the classroom across settings and program standards. They also empower parents to make informed choices about the quality of ECE programs from which to choose. Still, there are disadvantages to the system as well, including inconsistency between states, the costs to providers and states, and a lack of attention to ECE workforce conditions and well-being. Although QRISs are still early in their development, additional strategies for financing and improving the quality of QRISs themselves are needed in their next phase of development, to build upon their potential to improve the quality of ECE services for children. QRISs can only be effective if they are tied to a financing structure that enables providers to meet high quality-standards, especially for a well-qualified and adequately supported and rewarded workforce, and that enables parents to afford highly rated early care and education. In addition to strengthening QRISs already in existence, additional alternative approaches to accountability and improvement systems could be explored.

Summary: Principle 6—Systems for Accountability, Quality Assurance, and Improvement

In this section, the committee analyzes current financing mechanisms available to support quality assurance and improvement systems, determining whether sustainable funds are available and adequate for planning and designing accountability systems and for monitoring and evaluation systems that promote systemwide quality improvements. While improving the quality of early care and education is the focus of many states, funding entities, and educators, doing so requires a robust and coordinated system of data collection and management, monitoring, and assurance and improvement systems. Currently, financing support for this type of systemwide quality improvement is limited and often not sustained. Moreover, either resources for quality improvements within existing funding streams are not specifically earmarked for quality improvement of these systems or they are not earmarked at high enough rates to effectively incentivize and promote quality in the systems. QRISs are widely used, but the systems vary greatly between states, and financing for these systems is unstable and not sufficient.

Suggested Citation:"5 Current Financing for Early Care and Education: Ensuring High Quality Across Settings." National Academies of Sciences, Engineering, and Medicine. 2018. Transforming the Financing of Early Care and Education. Washington, DC: The National Academies Press. doi: 10.17226/24984.
×

CONCLUSION ON CURRENT FINANCING FOR EARLY CARE AND EDUACTION

This section summarizes the committee’s evaluations of the current ECE financing structure with respect to supporting a highly qualified workforce (Chapter 3), affordability and equitable access to ECE services for all families (Chapter 4), and ensuring high quality across ECE settings. We discussed how provider-oriented, family-oriented, workforce-oriented, and systems-oriented financing mechanisms support early care and education—from direct service delivery and facilities to the ECE workforce and quality assurance. These mechanisms through which early care and education is financed have implications for achieving quality and how quality can be incentivized through financing. However, the current financing structure is inadequate to recruit and retain a highly qualified workforce and ensure all children have access to affordable, high-quality early care and education.

Currently, ECE financing treats each part of early care and education—service delivery, system-level workforce development supports, facilities, and system-level quality assurance and improvement—as separate areas rather than components of an integrated system. Moreover, while a highly qualified workforce, quality facilities, and high-quality quality assurance and improvement systems are necessary and interrelated components of high-quality early care and education, they are rarely financed in an adequate, fully coordinated, efficient, and systemic fashion. Rather, funding for service delivery comes through various funding sources and mechanisms, whereas these other system components are often financed with short-term mechanisms that are separate from those that fund service delivery. The result is approaches to quality that lack the consistency or scope to effect systemwide improvements.

The inadequacies of the current financing structure stem not necessarily from having multiple financing mechanisms but from these mechanisms neither being harmonized in ways that avoid gaps in access nor structured to improve ECE service quality. These flaws are exacerbated by overall levels of funding that are not sufficient to support either provision of high-quality early care and education or its affordability by families at all income levels (see Chapter 6).

Suggested Citation:"5 Current Financing for Early Care and Education: Ensuring High Quality Across Settings." National Academies of Sciences, Engineering, and Medicine. 2018. Transforming the Financing of Early Care and Education. Washington, DC: The National Academies Press. doi: 10.17226/24984.
×

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High-quality early care and education 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 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 have 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. 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.

Transforming the Financing of Early Care and Education outlines a framework for a funding strategy that will provide reliable, accessible high-quality early care and education for young children from birth to kindergarten entry, including a highly qualified and adequately compensated workforce that is consistent with the vision outlined in the 2015 report, Transforming the Workforce for Children Birth Through Age 8: A Unifying Foundation. The recommendations of this report are based on essential features of child development and early learning, and on principles for high-quality professional practice at the levels of individual practitioners, practice environments, leadership, systems, policies, and resource allocation.

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