Build Back Better plan could double Iowa spending on child care

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Iowa's spending on federally subsidized child care would increase under the Build Back Better plan, according to research conducted by a national think tank.

Angela Rachidi, of the American Enterprise Institute, who authored the report, said in a Nov. 23 article the Congressional Budget Office’s estimate the program will cost $273.5 billion through 2031 hides the full cost of the program by requiring states to contribute through increasing government assistance for families along with wage mandates and quality requirements.

“The bill specifies that states must pay 5 percent of the new childcare benefit costs (they must also cover a share of administrative and other expenses),” Rachidi said. “This may not seem like a large amount, but assuming the annual cost of the program will be about $60 billion, states will need to come up with an additional $3 billion per year to cover their share.”

Iowa’s mandatory allocation in 2019 for the Child Care Development Fund (CCDF) was $8.5 million, state share matching funds was $11.3 million, and total federal-only funds (discretionary, mandatory and federal share of matching funds) was $70.4 million, according to the U.S. Department of Health & Human Services’ Office of Child Care . Under the fiscal year 2019 appropriations law, targeted funds for quality expansion, infant and toddler quality and school-age/resource and referral were not included. States had to meet an 8% quality spending requirement and 3% infant and toddler quality spending requirement.

From 2016 through 2019, states spent $1.2 billion annually to match funds for administering the Child Care Development Block Grant (CCDBG) or CCDF, Rachidi said.

“Since the BBB plan does not phase out CCDBG, it appears that the new program’s match requirements will stack on top of, rather than replace, current state obligated spending on childcare, resulting in a two- to three-fold increase in state spending on childcare,” she said.

Iowa would contribute $20.4 million in fiscal year 2025, $24.1 million for fiscal year 2026 and $27.5 million for fiscal year 2027, compared with an average annual (from 2016 through 2019) payment of $12.6 million for the CCDF program, a table accompanying the article said. Congress could extend the program beyond 2027, requiring states to match funding, continue funding the program or leave families with increased costs of childcare, Rachidi said.

New Horizon Academy Director of Government and Community Relations and Minnesota Child Care Association Vice President of Government and Community Relations Clare Sanford told The Center Square the legislation would be a more dramatic change for Iowa compared with Minnesota.

“Every state will have to make some changes if Build Back Better passes, but I think it stands to be a bit more of a shock to the system for Iowa, because they will have farther to go,” she said.

For example, under the Build Back Better plan, states would need to factor in cost variations between varying levels of population density and economics in determining subsidies. Minnesota already considers that in reimbursement rates, but Iowa has the same reimbursement rate statewide, she said.

“The governor of Iowa has made child care a big talking point over the last few years and the state legislature has actually passed some bills that have moved Iowa further along in terms of paying attention to child care and investing in it, but not to the level that Build Back Better will require,” she said.

She said Congress would need to continue funding the subsidies to make the program viable – and that this is a common phenomenon in legislation, whether it’s tax cuts or investments.

“It’s politicians’ method of kicking the can down the road and saying … Let’s give it a few years to work, and then at that point, whoever’s in power then and the public will decide if it’s going to continue or not.”

A White House fact sheet on the plan’s benefits to Iowa said Iowa families with two young children spend, on average, 22% of their income on child care. Iowa would be able to provide access to child care for about 200,000 young children aged up to 5 years old for families that earn under 2.5 times the state median income (about $228,558 per family of four). Costs would remain under 7% of income for the 90% families the plan would cover.





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