LOUISVILLE, Ky. (WDRB) -- Kentucky is trying a new approach to get parents into the workforce: enticing employers to pick up a portion of their workers' child care costs.
Described as "innovative," the recently launched Employee Child Care Assistance Partnership promises employers that, if they pitch in for their workers' child care costs, the state will match those contributions.
If a worker pays $1,200 a month for day care, for example, the employer might pick up $400 and the state another $400 — cutting the worker's bill by two-thirds.
But the new assistance won't help any low-income families, state officials acknowledge. That's because there's already a longstanding subsidy program for low-income Kentuckians' child care, one that serves about 37,000 children across the state.
The new employer-based program isn't remotely on track to use all of the $15 million that lawmakers budgeted for it. Only 88 children are receiving assistance thus far, according to state figures.
While that money risks going unspent, Kentucky is about to lose more than $700 million in temporary child care funding from the federal government. The influx of federal dollars propped up the state's child care industry since 2021, but now subsidy payments to licensed day cares, a major expansion of the state's longstanding low-income child care program and other temporary measures are in danger of ending when the federal money dries up.
Some day cares have raised prices, while others are planning increase, in anticipation of the loss of that federal support.
"Directors and owners (of child care businesses) are really nervous about how you'll make the decisions about what to cut to get back to a balanced budget, and it'll eventually affect the quality of care," Bridget Yates, executive director of Cornerstone Childcare Development Center in St. Matthews, told WDRB earlier this month.
Dustin Pugel, policy director for the Kentucky Center for Economic Policy, a liberal group that advocates for more public funding of child care, said the new employer-based program is a worthwhile experiment but hardly sufficient to address the looming "hole" in child care funding.
"If lawmakers think that this project is really fixing the problem, then they need to go back to the drawing board, because the problem is so much bigger," he said.
Employers playing 'really powerful role'
Child care in Kentucky costs an average of $6,600 per year per child, or 11% of the median Kentucky household's income, according to 2021 research by Federal Reserve Bank of St. Louis.
While child care is less of a burden for Kentucky families than those in the nation as a whole (15% of U.S. household income), the high cost is still considered a major barrier to women entering the workforce, the Fed economists concluded.
Kentucky's new employer-based child care program won wide, bipartisan support in the 2022 legislative session. Its backers included the Kentucky Chamber of Commerce, an influential group in the Republican-dominated General Assembly.
The idea is that businesses and employers — who need workers in a tight job market — should be part of the solution.
"When it comes to the affordability side of it, we really think that employers can play a really powerful role," said Charles Aull, executive director of the Chamber's Center for Policy and Research. "And, at the same time, employers have a lot to gain from that."
While nearly half of states have some sort of child care-related subsidy — such as tax credits — Kentucky is one of only five states with an employer-based matching system, according to research by The Conference Board's Committee for Economic Development. The others are Iowa, Michigan, North Dakota and Wisconsin.
Between her employer's contribution and the state match, Olivia Cady's child care costs plunged by more than half when the program started las…
Kentucky's program is officially a "pilot" project authorized for only a year.
Olivia Cady, a mother of three young kids, teared up when asked about the new child care benefit from her employer, Zoom Group, a Louisville nonprofit that serves adults with intellectual and developmental disabilities.
Between Zoom Group's contribution and the state match, Cady's child care costs plunged by more than half when the program started last month, she said.
"It's just such a relief off our shoulders to not have to spend one (whole) paycheck (per month) on day care," she told WDRB News in an interview this month. "And I know for some people, it's even more than that."
Executives with Zoom Group said the child care benefit is a valuable tool helping them retain employees in a competitive job market and they hope more Kentucky employers sign up for the program.
"It rewards people that are trying to do what's best for their families and be a meaningful partner in the workplace," said Audrey Poppe, Zoom Group's director of finance and administration. "... You can pay people more, and they can spend it however they want, but this is a targeted benefit that really draws people."
Program excludes low-income families
But the reach of the employer-based child care program is limited, even if lawmakers didn't intend it to be. That's because low-income Kentuckians already get most, if not all, of their child care covered under the longstanding Kentucky Child Care Assistance Program, or CCAP, which is primarily funded with federal dollars.
CCAP is available to all Kentuckians whose incomes qualify them for assistance. It does not depend on the consent or generosity of their employer. Any household earning less than $5,504 monthly ($66,048 annually) for a family of four qualifies for CCAP.
CCAP pays a fixed, daily rate to child care providers for each eligible child, with parents sometimes responsible for a co-payment and any amount the provider might charge on top of the state-paid rate.
Because CCAP covers a higher share of the worker's child care costs than the new employer program would, the state will not pay matching funds under the new employer-based program for any worker whose household income qualifies for CCAP.
"The cabinet took this direction because it ensures that the family receives the most benefit," said Susan Dunlap, a spokeswoman for the Kentucky Cabinet for Health & Family Services.
Yet, the distinction means every dime committed to the new employer-based program will go to Kentuckians who earn at least 85% of the state's median income, which is the threshold for CCAP.
The employer-based program will subsidize employees no matter how high their income, though the state's matching payments scale down to as little as 50% for employees in households earning $139,860 or more annually.
Cady's is one of 61 families who have been approved for the new employer-based program so far. Another 21 families have been denied because their incomes are low enough to qualify for CCAP, according to statistics provided by CHFS.
Rep. Samara Heavrin, a Republican from Leitchfield who sponsored the 2022 bill creating the employer-based program, said lawmakers didn't intend to exclude low-income families from its benefits.
"That might be something we have to go back and look at it in the future," said Heavrin, who also chairs the House of Representatives' Families & Children Committee.
But the new program remains helpful for workers who earn too much to qualify for traditional child care assistance but still struggle with the cost, she said.
"This bill is really to help middle-income families," Heavrin said. "I think that the middle-income families are the ones that are struggling the most with this."
Aull, the Kentucky Chamber official, said the employer-based program could serve as a cushion for families who may have to move off CCAP subsidies as their incomes rise. The loss of those child care payments is one of the steepest "benefit cliffs" that Kentuckians face when transitioning from public assistance, he said.
"I think what working families need to understand is instead of just having that one option that's out there to get child care assistance, we now have a whole new program that offers another form of assistance for them to access," Aull said. "And so we're just broadening the options that working families have and that employers have."
However, the model Aull envisions only works for those Kentuckians whose employers are willing to chip in toward their child care costs.
So far, 17 employers have been approved for the program, according to statistics shared by CHFS. Sign-ups started in April.
While CHFS was unable to say how many families or children might benefit if the program were at full capacity, only about $168,000 of the $15 million has been spoken for based on the current participation, the state's top child care official said during an Aug. 1 webinar.
"Obviously, we have a large sum of money (and) the cabinet is going to continue to market this program," Andrea Day, director of the Kentucky Division of Childcare, said on the forum.
Federal funds drying up
As the state stands up the new program, Kentucky is on the precipice of running out of $761 million in federal funds that have propped up the state's child care industry over the last two years.
The money came from the American Rescue Plan, the $1.9 trillion COVID-related spending bill that Democrats pushed through without Republican support in early 2021.
The loss of the funding could mean 41,409 fewer child care spots in the Kentucky, according to the Century Foundation, a think tank that advocates for continuing the federal support.
That's nearly a quarter of the state's total childcare capacity — 162,615 kids, according to CHFS.
Most of the federal money — $470 million — has gone directly to child care providers in a series of quarterly "stabilization payments" that are set to end next month.
Child care providers used this money to raise pay and benefits for their workers, who earn notoriously paltry wages, to make rent and other business needs, Yates, the day care operator in St. Matthews, told WDRB.
The remainder of money, which runs out in September 2024, has funded about a dozen initiatives, from ensuring child care workers have subsidized care for their own to kids to waiving copayments for low-income families receiving CCAP.
One change — expanding CCAP's eligibility to cover more Kentuckians — has resulted in an additional 7,768 children receiving subsidized care in the last 12 months, Day told lawmakers during a hearing last month.
Pugel, of the Kentucky Center for Economic Policy, said lawmakers ought to use money from the state's budget reserves to replace the federal money propping up the child care sector.
But Aull, of the state chamber, argues it would be "extremely difficult and unrealistic" for Kentucky to completely replace the federal childcare money on a permanent basis.
"I think we need to be as strategic as possible, and really think through what programs are the most successful (and) what makes the most sense," he said.
Heavrin, the chair of the House's Families & Children Committee, said she wants to investigate other changes — such as tweaking regulations — that might help child care providers with costs.
"I'm very much for helping and being supportive of the childcare industry," she said. "I just don't want to throw money at a problem."
Heavrin added that spending money to prop up child care conflicts with a major Republican priority: continuing to cut the state's individual income tax.
"As we're making decisions as a state to lower the income tax, that means that we're having to make harder spending decisions," she said.
