Minnesota got $500 million for early childhood programs. Here’s where it’s going.

Child care and early learning programs in Minnesota will get a $500 million funding boost over the next two years, under the state budgets signed into law last week.

It’s an unprecedented sum for the struggling industry — but advocates worry it isn’t a sustainable investment. Virtually all the money comes from federal COVID-19 relief aid, which won’t last forever.

“We’re thrilled to have that money. I don’t want anyone to think that’s not the case. But I think some of us are extremely nervous — that’s a two- to three-year timeframe,” said Ann McCully, director of Child Care Aware of Minnesota. “If you value child care as an important part of the economic puzzle, you need to keep funding it.”

Quality child care benefits a child’s development in the short-term and is linked to lifelong positive effects on educational attainment, earnings, criminal activity and employment, experts say. It also allows more parents — especially women — to enter the workforce.

But the child care industry has been in dire straits for years. More than 25% of Minnesotans lived in “child care deserts” before the pandemic, and businesses operated on razor-thin margins.

“The uphill climb for getting (public) investments in children is really, really steep,” said Ericca Maas, executive director of the early learning nonprofit Close Gaps by 5. “When parents have the least amount of money to invest as they’re starting up their families, that’s when we’re asking them to foot the bill.”

Child care providers here fared better than many feared early in the pandemic, which McCully credited to the state making emergency funds available quickly.

Fewer than 25% of Minnesota providers closed by September 2020, while the rate was closer to 75% in some states, Department of Human Services Commissioner Jodi Harpstead told legislators in June.

With these challenges in mind, advocates and some lawmakers started the legislative session eager to make sweeping investments and structural changes to Minnesota’s child care system. But after difficult negotiations, lawmakers agreed to just $24,000 in new state funding for early childhood programs.

“I feel pleased at the progress (with federal funding), though well aware of how much more there is to do,” said Rep. Dave Pinto, DFL-St. Paul, who chairs the House Early Childhood Committee. “This sector was in crisis — deep crisis — long before the pandemic, and we really need to get on a different path when it comes to early childhood.”

Stabilization grants for providers

More than $300 million — the vast majority of the early childhood funding — will go to monthly stabilization grants for child care providers. Providers have to use at least 70% of the money to increase pay for workers and can spend the rest on rent payments, insurance, training and supplies.

There’s also $2 million for scholarships for child care workers to earn a bachelor’s degree, and $1 million for competitive bonuses to child care workers who pursue training or higher education.

Another $22.5 million will be available for daycare facility upgrades, $3 million for business training and $1.5 million for workforce development.

The “dizzying” list of grants could be a game-changer, McCully said. 

“With the combination of those grants with steady monthly payments … we can get ourselves back into a reasonable place, hopefully,” she said. “But then it’s going to depend on sustaining all that another two or three years.”

Child care assistance

Minnesota will spend $101.8 million over the next two years to increase a child care subsidy and rework the waitlist for another program for low-income families, which supporters say will give more families access to state aid. 

The boost to the Child Care Assistance Program for low-income families has long been sought after by providers and families. The program, funded by state and federal dollars, costs about $250 million each year and serves roughly 30,000 children each month.

Reimbursement rates will be set at the 40th percentile for infants and toddlers — meaning they’ll cover the full cost of daycare at 4 in 10 child care providers — and the 30th percentile for older kids.

When the state subsidy doesn’t cover the full price of child care, providers either have to take a loss or ask families to pay the difference. Low reimbursement rates make it difficult for providers to participate in the program, according to a 2019 report by the state.

Currently, Minnesota’s reimbursement rates are set at the 25th percentile — well below the federal guidance to keep them at the 75th percentile. Minnesota lawmakers increased the rates last year for the first time since 2014, as the state was facing a potential multimillion-dollar fine for keeping rates below the 25th-percentile minimum mandated by the federal government.

Initial proposals from the DFL-controlled House called for raising the rates higher, but Senate Republicans objected. Federal funds would pay for the change through fiscal year 2025, but it would cost the state in fiscal years 2026 and 2027, according to a letter sent from the Senate to the House during negotiations.

“That was a significant source of disagreement,” Pinto told legislators in late June. “It’s obviously a significant rate increase, which I’m really thrilled about. On the other hand, I think it’s important that we recognize that our state has an interest in making sure that young kids get off to a great start.”

Work groups to study long-term changes

The budget directs a new Great Start for All Minnesota Children Task Force to develop a 10-year plan to provide high-quality, affordable early education for all children and livable wages for teachers.

Additionally, the Governor’s Children’s Cabinet will consider consolidating the state’s early childhood programs under one agency, similar to a bill introduced by Pinto this session to create a new Department of Early Childhood.

Currently, the state’s early childhood programs are spread across four agencies. Minnesota’s Office of the Legislative Auditor has reported several times in recent years that the programs are “complex and fragmented,” which is challenging for families, providers and agency staff.

This fragmentation also means there’s no data to show whether children are ready for school, since different programs use different tools to measure progress, according to a 2020 report.

Early learning scholarships and voluntary preschool

An expansion of the state’s early learning scholarship program didn’t make it into the budget this year. Advocates had hoped lawmakers would agree to increase spending for the program, which receives about $70 million a year to help the state’s most vulnerable families pay for quality child care.

About 16,500 children received the scholarships in fiscal year 2018, according to the Minnesota Department of Education. 

Maas said the organization estimates about 35,000 low-income children don’t have access to quality early learning because their families can’t afford it.

Maas said she was optimistic that the state’s $1.6 billion surplus and influx of federal relief funds would give the scholarship expansion momentum this session, but proposals to fully fund the program weren’t included in final budgets.

“There’s been a lot of emphasis on helping child care providers weather the pandemic, which obviously is huge,” she said. “But for families that cannot afford to access those programs, it does nothing for those children. Those children continue to be left behind.”

The K-12 education budget includes $46.5 million to maintain 4,000 voluntary pre-kindergarten slots that were set to expire in 2022. The funding is a victory for the House Democrats who advocated for the program, but still falls short of their hopes to extend the seats beyond 2024.