Delaware Recognizing the True Cost of Quality Early Learning

Last year, Delaware committed to changing how it calculates payment rates for “Purchase of Care,” the state subsidy that helps cover child care tuition for low-income families. The legislature passed HB 250, which required:

1. The Department of Health and Social Services (DHSS) and the Department of Education (DOE), in consultation with the Delaware Early Childhood Council (DECC), to create a cost of quality child care estimator tool.
2. Apply to the Administration for Children and Families to be approved for alternative methodology for rate setting by July 1, 2022, when the state would begin using this approach to set rates.

In order to address No. 1, a working group supported by Prenatal to Five Fiscal Strategies came together and recently released a report and estimator tools for child care centers and family child care. These tools will enable the state to determine the actual cost to child care providers for subsidy-eligible children—which currently covers children in families under 185 percent of the federal poverty level and whose parents are working, in training, or have a medical need.

Why does this matter? Purchase of Care is critically under-funded, in part because the state relies on a clunky method for determining the rates that go to providers in the form of reimbursements. This approach will provide budget-makers with a more accurate cost of providing the care, compared to the previous, problematic approach known as  a “market rate” study.

While the new approach doesn’t guarantee a higher subsidy rate (and has not yet been funded), this tool provides much more transparency on the gap between what’s truly needed and what is provided today.

What costs are considered and what do we mean by quality?

The tool calculates the total cost of child care—which is primarily driven by the educators in the classroom: their qualifications and salaries, and the size of the group of children and role/responsibilities. Typically in education, early childhood or K-12, personnel comprise about 70 percent of costs.

Research demonstrates that adults with professional qualifications (AA/BA degrees in child development or a related field) that have smaller group sizes (three children at infant age group, up to 15 in preschool settings) are the most successful in supporting child development. Another key element is providing time for these professionals to plan, assess, engage with families—and partner with other experts like behavioral health consultants, occupational therapists, and curriculum coordinators.

The tool incorporates Delaware’s increasing minimum wage, as well as the new target compensation scale, which aligns early childhood workers’ pay with K-12 educator compensation, adds benefits, and provides a pathway (and incentives) for educators to reach higher levels of qualifications. Child care deserts and shortages are driven by low wages paid to educators—in many cases minimum wage–which are driven by low state reimbursement rates.

Other costs in the tool include occupancy costs, insurance, taxes, food, classroom supplies, inclusion supports, reserves for capital costs, screening (developmental, vision, hearing). And, the tool assumes other sources of revenue for eligible programs, including CACFP food program.

(Not included are all the systemic supports needed to achieve these goals, including scholarships, professional development, quality improvement systems, monitoring, and more.)

One key recommendation of this working group was regional rates should be discontinued. Today, providers in New Castle County are paid 40 percent more per child (ages two to five) and  50 more for infants, compared to Sussex and Kent counties.

What did the group find?

How much more is needed to truly fund the cost of care—and the cost of the quality care all children deserve? A lot! Delaware needs to invest:

1. More per child – to reach the quality level recommended by Delaware experts (certified teachers, paid a fair wage, and with small group sizes), we need to invest 12-86 percent more per child just to pay for the basic legal requirements established by the state–and 163-181 percent more (or 263-281 percent of what we pay today) to fund quality, researched-backed care.

Center Based Child Care Example – Annual Child Care Subsidy Reimbursement Rates Per Child (Purchase of Care)

* average among three counties (Kent/Sussex are paid at a lower rate than New Castle County); Centers are open about 250 days/year; about 70 percent of centers in Delaware participate in Stars, which provides additional funding for reaching higher quality levels, at ~10-30 percent more.

** state licensing requirements – includes benefits and paid time off.

1. In four times as many children as we are today (and based on their needs). Today, Purchase of Care  supports only 22 percent of eligible children. And only about 15 percent of three- and four-year-olds are served in Head Start, state pre-K (ECAP), and district special education programs. That means Delaware is not investing in at least 75 percent of children’s participation in educational programming before Kindergarten. State funding for children with special needs is extremely limited, and additional funding for English learners is nonexistent.

Recent proposals, including Build Back Better, proposed covering child care for families earning under 2.5 times the Delaware median income and no families would pay more than seven percent of their income on high-quality child care. These types of proposals require state investment.

The majority of a child’s brain is developed before Kindergarten. How do our investments compare with K-12 education? In Delaware:

When federal, state and local dollars are taken into consideration, we spend $2.5 billion per year on K-12 education. But many costs are greater during birth to five–early learning requires more adults, more consumable goods (diapers, wipes, etc.), and more equipment (cribs, cots, separate sanitary toys) per child than in later years – so we expect costs to be larger per child.

What’s Next?

Part 2 of HB 250 required the state to apply to ACF for approval to use this approach to set rates going forward; New Mexico and Washington, D.C. were approved in recent years.

As the state moves in this direction, it will be important to consider governance changes that will streamline funding to ensure programs are as accessible to programs and families as possible – for example, merging funding streams and funding incentives for quality, pre-K programs, and others that will be considered this year as regulations are aligned as required by SCR 55.

This process does NOT mean that rates will automatically increase–it does mean that we will better understand the gap between today’s rates and the actual costs to demonstrate the need for policymakers.

State revenue strategies may need to be explored– and a number of states are pursuing these to support early childhood investments. For example, just in the last 2 years several states have increase revenue measures to pay for early learning. Maryland taxed “big tech” digital advertising sales, New Mexico taxed natural resources, D.C. taxed high-income individuals, and many states use statewide property tax or sales tax to fund public services, which are not in place in Delaware.

This study is the beginning of a huge opportunity and long-term movement–for Delaware to provide foundational services that all children deserve, that are the strongest investments government can make, and that most developed countries already provide.

Related Topics: build back better, Delaware education, early child care, early learning workforce, legislation, purchase of care