Money for nothing
The City of Minneapolis is undertaking an experiment with universal basic income (UBI), paying households $500 per month for two years, no strings attached. The program will run from the…
There are numerous reasons why the Build Back Better plan should not be passed. When it comes to childcare, the plan will raise costs, discourage work and marriage, and most likely transfer resources from poor to high-income households.
Unfortunately, this is not where the bad news ends. The bill as written also has significant implications for our state spending on childcare. Like most other existing childcare programs, the bill requires that states share the cost of providing free or affordable childcare, which could double the amount that states spend on childcare. This is especially since the new programs will not replace, but add on to already-existing programs.
As explained by Angela Rachidi in a new AEI article,
The bill specifies that states must pay 5 percent of the new childcare benefit costs (they must also cover a share of administrative and other expenses). This may not seem like a large amount, but assuming the annual cost of the program will be about $60 billion, states will need to come up with an additional $3 billion per year to cover their share.
For context, from 2016–2019, states spent $1.2 billion annually in matching funds to administer the current federal childcare subsidy program — also known as the Child Care Development Block Grant (CCDBG) or the Child Care Development Fund (CCDF). Since the BBB plan does not phase out CCDBG, it appears that the new program’s match requirements will stack on top of, rather than replace, current state obligated spending on childcare, resulting in a two- to three-fold increase in state spending on childcare.
Between 2016 and 2019, the Minnesota state government spent $30 million per year for the CCDBG program. New expenses from the Build Back Better plan will require about $18 million more in spending in 2025. By 2027, Minnesota will be spending more than double its 2016-2019 level –– $65.7 million –– on childcare programs.
Worse yet, the Build Back Better plan only provides federal funding till 2027. So, unless it is extended, the Minnesota state government will have to either find billions to cover the program or let families grapple with new higher costs of childcare –– due to federal wage requirements.
But even if it is extended by the Federal government, Minnesota will be on the hook for more spending every year for the program. This does not bode well for long-term sustainability considering that we are already a high-tax, high-spending state.