The Child Care Cliff: How Ending Federal Grants Is Reshaping U.S. Child Care

The expiration of federal stabilization grants has triggered what experts call the “child care cliff,” a sharp drop in available child care services across the United States. This phenomenon stems from the end of $24-25 billion in American Rescue Plan Act (ARPA) funding on September 30, 2023, leading to widespread closures of child care facilities and profound ripple effects on families, employers, and the broader economy.

Understanding the Roots of the Child Care Cliff

During the COVID-19 pandemic, ARPA provided critical stabilization funds to keep child care programs afloat amid closures, staffing shortages, and rising operational costs. These grants prevented an immediate collapse of the sector but were temporary. As the funding dried up, providers faced unsustainable financial pressures, forcing many to reduce capacity, raise fees, or shut down entirely.¹²

Surveys of early childhood educators reveal that about one-third of programs relying on this support are at risk of closure. This isn’t a localized issue; every state will feel the impact, with some facing reductions of over 50% in licensed programs. The cliff exposes long-standing vulnerabilities in a sector already strained by low wages for caregivers, high family costs, and limited public investment.

Massive Losses in Child Care Availability

Projections indicate over 70,000 child care programs—roughly one-third of those supported by ARPA—could close, eliminating spots for approximately 3.2 million children nationwide.² Larger states bear the brunt: Texas might lose 300,000 spots, New York 250,000, Florida over 200,000, and Illinois nearly 130,000.

Even programs that survive will likely cut enrollment due to staffing issues or pass on costs through tuition hikes, exacerbating access problems for working families.

Devastating Consequences for Working Parents

With over 50 million U.S. workers having children under 14 and nearly 70% of mothers with kids under 6 employed, the cliff disrupts parental employment on a massive scale.¹ Parents face a scramble for alternatives in a market already plagued by high costs and scarcity.

• 55% of parents expect their children to be denied care.
• 50% anticipate fewer spots for new enrollments.
• 48% foresee reduced resources for enrolled children.
• 47% predict layoffs or staffing shifts at daycares.
• 40% expect rate increases.
• 36% brace for full closures.

Many will reduce hours or exit the workforce, leading to $9 billion in annual lost earnings for families.² Women, who often shoulder more caregiving, face long-term career setbacks, including lower lifetime earnings and stalled advancement. Short work disruptions compound into enduring financial losses, hindering family stability and child development.

Economic Toll on Businesses and States

Employers already lose $3 billion yearly to child care-related absenteeism and productivity dips.¹ The cliff amplifies this: parents missing work or quitting could cost companies $15,000 per employee in turnover (33% of base pay). Nearly 20% of working parents have previously cut hours or left jobs due to care shortages.

State economies face a $10.6 billion hit in tax and business revenue annually.² The child care workforce, slow to recover post-pandemic, could shed 232,000 jobs, further contracting local markets. Child care acts as economic infrastructure, enabling parental participation that boosts GDP—women’s labor alone contributes $7.6 trillion yearly.

Spotlight on Vulnerable Regions and Groups

Six jurisdictions—Arkansas, Montana, Utah, Virginia, West Virginia, and Washington, D.C.—risk halving their licensed programs, while 14 others could lose one-third.² Rural areas, already underserved, will suffer most acutely. Low-income, minority, and single-parent families, reliant on subsidies, face heightened barriers, perpetuating inequities in education and opportunity.

The “benefits cliff” compounds issues: as incomes rise slightly, families lose aid abruptly, making unsubsidized care unaffordable and trapping them in lower-wage jobs.³

Business Strategies to Weather the Storm

Companies investing in family care benefits see tangible gains:

• 30% drop in absences.
• 34% productivity boost.
• 29% better recruitment.
• 21% lower turnover.

59% of employees prioritize such benefits, with 70% more likely to stay.¹ Options include subsidies, on-site care, flexible scheduling, and partnerships with providers. These mitigate losses while attracting talent in a tight labor market.

Pathways to Policy Solutions

Averting further damage demands federal action: sustained funding, wage supports for caregivers, and subsidy reforms to eliminate cliffs.³ Gradual phaseouts aligned with local costs could maintain access without abrupt losses. States might expand public options or tax credits, but national commitment is essential.

Investing in early childhood yields returns: enhanced cognitive growth, higher adult earnings, and reduced future aid needs. Smoothing benefits cliffs promotes mobility, generating tax revenue through increased incomes.

Frequently Asked Questions (FAQs)

What exactly is the child care cliff?

The child care cliff refers to the mass closure of programs following the September 2023 end of ARPA stabilization funds, projected to affect 3.2 million children and trigger economic losses.²

How many child care spots are at risk?

Over 3.2 million spots nationwide, with 70,000+ programs potentially closing—one-third of ARPA-supported ones.¹²

What does this mean for parents’ jobs?

Millions may cut hours or quit, costing families $9 billion in yearly earnings and businesses in productivity and turnover.²

Which states are hit hardest?

Texas, New York, Florida, Illinois see massive losses; Arkansas, Montana, Utah, Virginia, West Virginia, and D.C. risk 50%+ program cuts.²

Can businesses help mitigate the impact?

Yes—offering care benefits reduces absences by 30%, boosts productivity 34%, and cuts turnover 21%.¹

What long-term solutions are proposed?

Federal funding renewal, caregiver wage hikes, gradual subsidy phaseouts to avoid benefits cliffs, and expanded public programs.³