This Congress, NAEYC has endorsed bipartisan, legislation introduced in the House and the Senate to reauthorize the Child Care and Development Block Grant (CCDBG) – the Child Care Modernization Act. With the bill’s recent introduction in the House, we want to provide more information to the ECE field about the current state of the law, the ways this legislation could benefit ECE programs and educators, why its passage must be tied to a much needed and substantial funding increase for CCDBG, and how our support of this legislation fits with our broader goals of passing more visionary legislation.  

CCDBG Background and Policy 

CCDBG, also referred to as Child Care and Development Fund (CCDF), is composed of two funding streams – the discretionary block grant and the Child Care Entitlement to the States. This federal program supports access to child care for working families with young children, and supports states in investing in efforts to improve the quality of child care available in their states. The program serves approximately 1.6 million children each month, reaching nearly 250,000 providers serving children in licensed, regulated or registered centers and homes. Congress funded the discretionary portion of CCDBG at $8.8 billion in FY26, with an additional $3.6 billion in federal funding supporting the program through the Child Care Entitlement to the States, the mandatory portion of the program which remains stable from year to year and does not require yearly Congressional approval. In the most recent year for which data are available, the program served approximately 15 percent of children eligible under federal rules and 22 percent of those eligible under state rules.

As a block grant program, the federal government provides the majority of funding for CCDBG, and establishes basic policy guardrails around eligibility caps, minimum health and safety requirements, and prioritizing investments in quality. Within those guardrails, states have broad leeway to set their own policies and practices regarding issues such as child and family eligibility, family copayment requirements, licensing standards governing programs, how funds are distributed to programs, the amount of subsidy per child a participating program receives (reimbursement rate), and how quality set-aside funds are invested. 

Our Current System Falls Short for Families and Educators 

• Funding levels are too low to support all eligible families 
• Provider payment rates and practices disincentivize program participation 
• Supply and demand do not match 

Under current law and federal and state funding levels, states’ policies governing child care subsidy vary widely. While many states have made additional investments to their child care programs beyond what they are required to contribute in order to draw down federal CCDF funds, states are largely not able to provide sufficient additional funding on their own to ensure the program reaches all eligible children and families while supporting adequate payment practices for providers.  

On eligibility, just 15 states set their family income limits at (or above with state funding) the federal cap of 85 percent of state median income in 2025, while more than half the states set limits below just 200% of the federal poverty line. In 2024, this would equate to just over $50,000 a year for a family of four. Yet even with these low eligibility limits, states are still unable to serve anywhere near all eligible children who need access to child care. With the expiration of pandemic relief funds for child care in recent years (which successfully supported states in preventing a broader collapse of the sector during the pandemic), we have seen a significant increase in the number of states who have re-established waiting lists or frozen enrollment for child care assistance. Between 2024 and 2025 alone, the number of states with waiting lists or frozen intake increased from 13 to 17 and the number of children on waiting lists increased from approximately 119,000 to more than 225,000 – a 90% increase. 

At the same time, payment rates for providers participating in the subsidy system remain far too low in most states, discouraging provider participation in the system and making it harder for programs to compensate educators as professionals. Most states currently set provider payment rates at a percentile of the rates that families in the private market pay – the federal government recommends states pay programs at the 75th percentile of market rates to support families’ access to subsidized care – and many adjust those rates based on factors such as the quality of a program or the ages of children served. Just 12 states met this recommended mark in 2025.

This market-rate strategy could be effective if the private child care market was set up in such a way that the majority of parents could afford to pay the true cost of quality care out of pocket (inclusive of worthy compensation rates for educators), but that is not the case in child care. Instead, economists recognize that the child care system is representative of a failed market – parents cannot afford the true costs of services, so absent an additional payer, the system is subsidized on the backs of too low wages for educators, making it impossible for the sector to attract enough qualified educators to ensure sufficient supply for families. By linking subsidy reimbursement rates to the private market then, states are reinforcing those broken market conditions when they are seeking to serve children with subsidies, making it difficult for participating programs to adequately compensate educators and staff. 

In acknowledgment of the basic economic failures of the child care market, some states have, in recent years, turned to an alternative methodology – cost estimation modeling – to set payment rates for providers participating in the subsidy system. Rather than basing payment rates on a failed market, cost modeling instead asks what the actual cost of offering child care services is to providers, and should provide states a more accurate tool in which to set payments to encourage provider participation and support supply. Of course, these tools can only be effective in transforming payments to providers and educators if they are designed thoughtfully with data and field input, and funded adequately to result in a meaningful increase in provider payments. In 2025, just three states were relying on cost estimation modeling to set payment rates for providers.

So, to summarize, under our current system, the child care market is largely broken for families, and the providers and educators that serve them. The existing subsidy system helps to an extent, making it easier for some low-income families to access the care they need, but also perpetuates existing market failures, disincentivizing provider participation and limiting provider pay. Supply remains a significant challenge, both in the subsidy market and the private pay market, exacerbated by both unsustainably low wages for the workforce and unaffordable costs for most families, and the vast majority of children who are eligible for child care subsidies are unable to receive them.  

How the Child Care Modernization Act Would Help (If Funded) 

• Encourages shift to improved payment practices that could benefit programs and families 
• Allows intentional funding for supply building and facilities 

The bipartisan authors of the Child Care Modernization Act designed the legislation to take aim at several of the major challenges we’ve identified above in the existing system. While there are parts of the bill that could still be improved to ensure states are accountable for improvements, especially following recent regulatory changes to CCDBG, NAEYC’s support for the legislation is grounded in two particular updates it makes to CCDBG that have significant potential to improve on our existing system.  

First, the bill requires states to, within five years of enactment, shift from using market rate surveys to set provider reimbursement rates based on a cost estimation model, built in consultation with the field, and designed to reflect the fixed costs of operating a child care program; the staff salaries and benefits necessary to recruit and retain a qualified workforce; reflect variations in costs based on region, age, quality, and additional needs of children; and be updated every few years to provide a cost of living increase. 

This shift represents an enormous opportunity to improve how child care providers are paid in the subsidy system and to increase wages for educators, if implemented effectively by states and adequately funded. Delinking provider payment rates from a broken market and instead basing them on the actual cost of offering quality care could be transformative for a field that has been too long constrained by inadequate wages based on what parents can afford to pay. Bipartisan understanding of these challenges in Congress and alignment around a solution is worthy of celebration. 

Second, the bill authorizes a funding stream for child care supply and facilities grants within CCDBG – a critically important opportunity to address the supply-side challenges facing communities. Under current law, there is no dedicated federal funding stream to directly support the supply side of the child care crisis. This legislation would change that, allowing states to leverage federal funds to provide direct subgrants to providers to support startup and expansion costs; the costs of meeting quality, licensing and health and safety requirements; and the additional costs of supporting inclusive services for children with disabilities, among other priorities. In addition to supply and expansion costs, the bill would authorize specific funding for subgrants to support the construction, repair, or renovation of child care facilities – again filling a pressing need that current law does not currently address.  

NAEYC’s own workforce surveys throughout the pandemic illustrated the ways in which direct, supply-based funding to providers benefits programs, families and educators. Programs who received direct grants from the federal government during the pandemic, albeit in a different context focused on stabilization, were able to leverage those funds to support increased compensation for educators, reduce costs for families, and support the stability of their program’s operations. While we are no longer operating in the pandemic context, we are appreciative of the bipartisan recognition in Congress that the child care challenges families face continue to persist and require solutions on the supply-side as well as the demand-side.  

The Risks of Moving this Bill Without Funding 

• Unfunded requirements would stretch already-strained state budgets and force hard tradeoffs 
• Room for significant progress under existing authorizing policy 
• Missed opportunity to maximize impact of policy improvements 

As introduced, the Child Care Modernization Act is intended to be an authorizing bill, making policy changes while providing Congress with the flexibility to appropriate such sums, as needed, to fund the program. And Members of Congress on both sides of the aisle have publicly elevated the importance of funding the bill, committing, upon introduction that “we will continue to work to fund the program to ensure these changes can be implemented and continue to serve families who need child care assistance.”  

Their commitment is valuable, but it would be a mistake to under-estimate the amount of new funding needed to achieve that goal. As we’ve established, current funding levels do not allow the existing program to come anywhere near serving all eligible children, or support states in providing reimbursement rates to providers that reflect the cost of offering high quality care to children and families. Policy changes in the bill are designed to help with these challenges, but without funding, could either force states into challenging tradeoffs or blunt the impact of important policy changes.  

Take, for example, cost-modeling. Ideally, a shift from market-based reimbursement to cost estimation modeling should result in an increase in reimbursement rates to providers that allow for increased pay for educators, reflective of the true cost of offering quality child care. Yet if Congress does not make adequate funding available, requiring states to move towards cost-modeling would force hard choices. At current federal funding levels, states would either have to identify new sources of state funding to pay for these improvements, reduce access to subsidies for families to ensure higher payment rates for providers, or design their cost models in a way that keeps payment rates low, missing the opportunity for a significant shift in payment practices and rates that could be truly transformative for the field. The 5-year implementation timeline proposed in the Modernization Act should help, but states are also facing significant fiscal constraints over the next decade due to tax and spending changes that Congress passed in its budget reconciliation legislation (HR1) last summer, making it more difficult for states to shoulder the cost of needed improvements without substantial federal support.  

As Congress is intended to work, the funding needed for successful implementation would be made available through the annual appropriations process, in which Members determine funding levels for discretionary programs, including CCDBG. While funding for the program has increased significantly since the 2014 reauthorization, expanding with bipartisan support from $2.4 billion in FY2015, to $8.8 billion in the current fiscal year, that pace has slowed in the current Congress. House and Senate appropriators were only able to agree on a modest $85 million increase in FY26, with a similarly modest outlook for FY27. House Appropriators have proposed a $10 million increase for the program, while as of early July, Senate appropriators have not yet been able to agree on topline spending numbers for the discretionary budget.  

Given the clear needs and gaps in the existing program and the risks of imposing new requirements without funding in a challenging fiscal landscape, Congress should prioritize significant new investments in CCDBG before or alongside passing policy changes like those included in the Child Care Modernization Act. States could use the funding now to serve more families, improve reimbursement rates, or design cost-estimation models, and be better positioned to make sure that the important policy changes included in the legislation have their intended impact in improving access to quality child care for children and families. Given the bipartisan support for the policy, and historic bipartisan support, this should be an achievable priority for the 120th Congress.  

A More Universal System is Still Needed 

A funded Child Care Modernization Act would be an important step in the right direction for many families, educators, and young children. It has the potential to increase the supply of quality care for families relying on subsidy, raise provider wages, and support more families in accessing the care they need. Advocates should be deeply encouraged by bipartisan support for these longstanding goals, and we should embrace the opportunity to make meaningful improvements in policy and funding for the current system.  

That said, we should also recognize that the bill is limited to improvements to the current system and falls short of the transformational changes we need to see if we want to achieve our mission of ensuring each and every child has access to high-quality early childhood education, supported by well-prepared, supported, and compensated educators. While NAEYC works towards improving the existing system, we are also excited to engage in and support more transformational efforts that recognize and fund quality child care as a public good for all. We continue to pursue and advocate for legislation designed to fund a child care system that ensures every child has access to high-quality child care, and every educator has the opportunity for professional support, recognition, and compensation.  

Incremental improvements to the existing system should not be seen as a barrier to transformational progress, but rather an important step towards achieving it. The closer we can bring our system today to a stronger, more equitable system for educators and families, the closer we get to realizing a vision that recognizes and funds child care as a public good. We look forward to continuing to work alongside the field with policy leaders on both sides of the aisle to make this vision a reality.