Early Education Investments: Economic Importance and Policy Implementation


Early Education Investments: Economic Importance and Policy Implementation

With record numbers of parents in the workforce, helping parents with child care has become critical for long-term economic growth, strengthening families, and creating equality for women. As the child care and early education needs of families continue to increase dramatically, the cost or unavailability of high-quality child care and early education programs often place parents in an impossible position -- they need to work but they also need to know that their kids are taken care of in order to work.

The American Recovery & Reinvestment Act (ARRA) dedicated tens of billions of dollars to providing families access to affordable quality child care and pre-kindergarten programs.  Recognizing that any true effort to invest in the long-term strength of our economy must not just initiate "shovel-ready" transit projects, but also ensure that our future workforce has the educational foundation it needs to be globally competitive.

States have been expanding early education programs in recent years by strengthening funding for child care tax credits and subsidies for child care.  Additionally, in FY08 33 of the 38 states that have a state-funded pre-k program expanded enrollment.  Given the present fiscal crisis, some states have felt pressure to cut pre-k spending, however, others have taken advantage of the federal recovery funds to expand investments in the next generation.  For example, Pennsylvania's Governor is proposing to expand the number of kids in pre-k by 8.5%, and the Minnesota House recently voted for a modest early education funding increase

As this Dispatch will discuss, despite the tough fiscal times, funding from the federal recovery plan can help offset the costs of maintaining and even expanding early education programs. ThisDispatch will also highlight the economic and educational benefits of supporting early education programs, as well as the different methods that state governments are employing to help reduce the cost of and promote the expansion of quality early child care and state pre-k programs.


Families and Work Institute
National Women's Law Center
National Institute for Early Education Research

Center for Law and Social Policy:  Child Care and Early Education 


How the Recovery Plan Supports Child Care and Early Education Programs

The ARRA provides numerous resources to help states fund early childhood education programs.  The goal is to capitalize on economic benefits in both the short-term -- by making it easier for parents with young children to afford child care and rejoin the workforce -- and the long-term -- by investing in children's education to ensure that we have a competitive work force. Early childhood education funds will be spent over a two year period and move through current formulas unless it is stated otherwise.  In addition, the Act implements standards to increase transparency and accountability.  

Specifically, the ARRA extends funding support to early-childhood programs, primarily through Child Care and Development Block Grants (CCDBG), Head Start and Early Head Start.

Beyond these specific funding sources, the joint statement by House-Senate conferees includes language for tens of billions of other education funding in the ARRA.  Specifically, “the conferees expect States to use some of the funding provided for early childhood programs and activities.”  Title I funds of $13 billion for low-income school districts will provide an especially fruitful source of support for early childhood education programs.


Pre[k]Now - Recovery Round-Up 
National Women's Law Center -  Making Use of Economic Recovery Funds: Child Care Policy Options for States (March 9, 2009)Child Care is Essential to Economic Recovery
National Governor's Association - State Opportunities under the American Recovery and Reinvestment Act: Early Childhood Programs 
Pre[k]Now - American Recovery and Reinvestment Act: Provision Pertaining to Early Childhood Education 
New America Foundation 

Department of Education 


Why Early Education is so Critical to Economic Growth and Equity

Early childhood education and care programs provide both immediate and long-term benefits for children, parents and communities. Specifically, they provide both an immediate and long term stimulus to the economy, while also achieving greater equity in the educational system.   

An Immediate Stimulus Creating Jobs:  Spending on child care is one of the most effective ways to create new jobs and stimulate economic recovery.  A recent Cornell University study found that funds spent in the early education sector have more stimulative effect on the economy than most other spending. The study stated, "[c]ompared to other economic sectors, child care purchases more of its inputs locally, and expenditures on child care circulate longer in the state economy."  In fact, as an earlier study found, the early education sector is far larger and more critical to local economies than most people understand.  For example, in New York State, one of the largest American tourist destination, early education has more employees than the hotels and transportation.

Helping Parents Stay at Work: Early education programs also helping parents to take advantage of opportunities to participate in the workforce.  In fact, nearly 85% of the workforce consists of parents, and currently about 64% of women with children under age 6 are part of the workforce.  

Knowing that their children are in a safe and healthy environment allows parents to be more focused on their jobs.  It has been shown that providing child care improves parents' productivity at work, lowers their absenteeism rate, reduces turnover rates and can increase a companies' value.  Further, public early education and childcare programs ease the financial burden on parents, which in turn provides two benefits.  First, it ensures that working families are not forced to put their kids in substandard and potentially unsafe care situations out of financial desperation.  Second, families who are not burdened with paying high child care cost have more discretionary income, which they can spend to purchase goods and services and thus stimulate the economy. 

Long-term Economic Returns:  As numerous studies indicate, increasing the accessibility of quality and affordable early education and child care programs leads to improved communities, economically and socially.  It has been shown that single mothers with young children receiving child care assistance were 39%, and former welfare recipients were 82%, more likely to still be employed after two years than those who did not receive any help paying for child care. 

Ensuring that children have the basic skills to be successful can decrease the drain on taxpayers down the road.  Research has continually shown that early education is important in maximizing children’s learning potential and creating an equal foundation for educational success. Some of the demonstrated benefits of early education and child care programs include reduced drop-out rates and need for special education, and increased college attendance, as well as less criminal activity and reduced dependence on welfare.  All of these benefits combat costly issues that drain national resources.  Two studies have attempted to aggregate the specific financial savings to tax payers. The Economic Promise of Investing in High Quality Preschool, released by the business-backed Committee for Economic Development, estimated that for every dollar invested in preschool, there was an expected return of $2 to $4 in future societal benefits, including savings to states from less crime and lower remedial educational costs.  Another study, "The Economics of Investing in Universal Preschool Education in California," found that every $1 invested in high-quality pre-k saves taxpayers up to $7.  

Assuring Long-Term Economic Equity:  Providing access to quality and affordable early education and child care programs also creates more equity in education which in turn provides more equal employment opportunities. Research has shown that oftentimes children from low-income households are already trailing their wealthier peers at the start of kindergarten.  Pre-k programs are one way that states have attempted to address the readiness gap. Studies have shown that early education and child care programs improve language and math skills, and increases literacy rates.  These initial skill improvements in school age children translate into better standardized test scores, fewer instances of grade repetition and higher high school graduation rates.  In the long run, attending quality early education and child care programs lead to greater employment opportunities and higher wages.  

The Challenge:  The cost of quality child care is continuously rising.  According to the National Women's Law Center, in 2007, "the average fee for full-time, center-based child care ranged from over $3,800 to $14,600 annually," varying based on factor such as a family's geographic location and childrens' ages.  However, despite the rising cost of early education and child care programs the necessity of and demand for such programs continues to increase.  In order to help families afford quality early education and child care, states must adopt a comprehensive set of policies and extend access to state-funded programs to all those in need.   


Cornell University Linking Economic Development and Child Care Project-

The National League of Cities' Institute for Youth, Education and Families - The American and Reinvestment Act of 2009:  Expanding Access to Early Care and Education 
Federal Reserve Bank of Minneapolis - Early Childhood Development: Economic Development with a High Public Return
Rand - Preschool Delivers - documents the benefits of increased lifetime earnings, improved K-12 schools, and significant reductions in violent juvenile offenses and costs of incarceration.
NIEER - The Effects of State Prekindergarten Programs on Young Children’s School Readiness in Five States.  A study of pre-k programs in five states finding that children in those states had clear gains in early language, literacy, and mathematical development.

Georgetown University - The Effects of Universal pre-k on Cognitive Development. Study of the Oklahoma pre-k program which found across-the board gains from preschool for all socio-economic groups.
National Women's Law Center - The Reality of the Workforce:  Mothers Are Working Outside the Home 
U.S. Health and Human Services - The Head Start Family and Child Experiences Survey. Found children at Head Start pre-k centers had more advanced skills, allowing teachers to spend more time working directly with children and less on classroom management. 

Chicago Longitudinal Study found that Chicago children who attended a pre-k program were 29 percent more likely to graduate from high school and 41% less likely to require special education services. 

State Policies to Support Early Child Care

The child care sector allows parents to earn more than $100 billion annually by providing a service that enables them to be members of the workforce.  Not only does access to quality child care help our nation by helping build a stronger workforce, it also helps prepare our workforce of tomorrow.  Unfortunately, for many households, and not just those who are considered low-income, high-quality child care is just not an affordable option.  However, by providing well structured tax credits and subsidies, among other options, states can help make child care a more accessible.

Child Care Tax Credits:  Many states provide a tax credit for working families linked to the value of the federal government's Child and Dependent Care Credit for tax payers with children. According to the National Women's Law Center, 28 states (including the District of Columbia) have their own, additional, child and dependent care (CADC) tax provision and in recent years, the value of these provisions has increased in most of these states.  The federal credit is not available to many working families with children who do not make enough to pay income taxes.   Additionally, a 2006 study by the National Women's Law Center found that 17 states provide a tax credit that is a percent of the federal tax credit, 4 states provide a tax deduction for expenses eligible for federal credit and 4 states provide a tax credit whose amount is a percent of expenses eligible for the federal credit.  

Many of the state tax credits improve upon the federal credit, such as by having their credits be refundable or  by establishing a more generous income test for receipt of the state benefits. For example, thirteen states (ArkansasCaliforniaColorado, HawaiiIowaLouisianaMaine, MinnesotaNebraskaNew MexicoNew YorkOregon and Vermont) provide either a fully refundable (nine states) or partially refundable (four states) credit for child care expenses.  A refundable credit is important because it means a family gets a check back from the state if the family’s credit exceeds the tax owed. The maximum value in any state for a CADC tax provision is New York's, which extends a credit of $2,310 for families.  However, in Louisiana, an eligible family may claim both a child care tax credit and a household expense tax credit, for a maximum combined value of $3,150.  Aside from providing the aforementioned figures, The National Women's Law Center lays out a comprehensive list of best policies states should consider when developing or reformatting their state CADC.

Direct Child Care Subsidies:  Instead of families needing to wait until they file a tax return to receive child care tax credits, some states provide direct subsidies for child care up front for low-income families. However, these subsidies are often so restricted that families lose help once they get a job that pays even a bit more than a poverty wage.  Further, since federal block grants, including the Child Care Development Fund and TANF have not been keeping pace with inflation states have cut direct child care subsidies in recent years and limited eligibility.

While federal law limits eligibility for child care subsidies to those earning less than 85% of a state’s median income, states set their own policies for child care generally based on family income as it relates to the poverty line or the state's median income.  According to a report by the National Women's Law Center, across different states income eligibility for a family of three can range from $20,604 (38% of the state's media income) in Nebraska to $47,124 (71% of the state's median income) in Hawaii.  In seventeen states even families that are eligible for child care subsidies face long waiting lists, with nine of those states lists increasing between 2007 and 2008.   For example, from the beginning of 2008 to October, the waiting list in Pennsylvania grew from 8,424 children to over 13,000 children.  

All of this can leave many lower-income families too poor to benefit from income tax credits, but with too much income to qualify for direct child care subsidies or just stuck on waiting lists.  In addition, to the issues mentioned above, it is important that states consider the economic impact of required copayments on parents receiving child care asistance and/or reimbursement rates.  


National Women's Law Center - 

Urban Institute - State Tax Credits for Child Care 




Striving for Universal Access to Pre-K

In order to ensure that all children's early education needs are met states need to implement a comprehensive multi-faceted approach, which includes funding for low-income as well as middle-income households.  Policy experts, educators and state leaders have acknowledged the benefits of pre-kindergarten, sparking an acceleration of state pre-k expansion.  

Expanding Pre-k Programs:  According to the State of Preschool 2008 report by the National Institute for Early Education Research, in FY08, "40 states and the District of Columbia fund some type of state pre-k program or provide additional state funding for Head Start."  Specifically, the report found that:

  • In 33 of the 38 states that have state-funded pre-k programs, enrollment climbed in recent years.  In fact, today pre-k program now serve more children nationally than Head Start. 
  • During the 2007-2008 school year, states increased spending for pre-kindergarten, enough to support both increases in enrollment and improvements in quality standards.  
  • State funding for preschool rose to almost $4.6 billion and funding from all reported sources exceeded $5.2 billion, an increase of nearly 23 percent over the previous year. 
  • The increase in spending helped raise the enrollment of 3- and 4-year-old's in state-funded preschool, including pre-k and state-funded Head Start, by more than 108,000 to 1.1 million children, 973,178 at age 4 alone

Unfortunately, while pre-kindergarten programs expanded during the 2007-08 school year the gains may be short-lived.  Securing adequate funding for pre-k will be more challenging as the states are forced to slash budgets in order to cope with the worst economic downturn in a generation. According to the New York Times, thus far at least nine states, (including CaliforniaFlorida,New York, and North Carolina) have announced plans to cut pre-k spending. While other states may have yet to announce specific cuts to pre-k there are some that are considering enrollment cuts, reductions in program standards, and postponing plans for expansion. 

Despite Recent Growth State Funded pre-k Remains a Program Primarily for Low-Income Children: A 2008 report on the cost of child care by the National Association of Child Care and Referral Agencies, stated that child care for a four-year-old can account for up to 14% of the median income of a two-parent family; if a household has two young children, the added cost of care can raise the burden to as much as 32% of the state median income.  For many families, child care ends up using a large portion of discretionary income, costing families more than food, health care and for some more than in-state college tuition.  

Despite the high cost of pre-k, Pre[k]Now reports that as of 2008 only "eight states and the District of Columbia have passed legislation to extend eligibility for pre-k to all children whose families want to enroll them."  Of the other "38 states currently funding pre-k programs, 20 use family income as determining eligibility criteria." Therefore, in most of these states families are not eligible for state funded programs if they earn more than 200% of the federal poverty line ($42,400 for a family of four in 2008).  These extremely low thresholds for eligibility render many working families who cannot afford quality child care ineligible for state funded pre-k.  Even more troublesome than states with high income eligibility requirements are that 12 states provide no state pre-k programs.  The only publicly funded early education program is Head Start -- in order to be eligible for Head State, a family's income must be no higher than the federal poverty level ($22,050 for a family of four). 

Growing Disparities Between State Universal pre-k Efforts:  The State of Preschool 2008 also highlighted that access to state pre-k programs grew during the 2007-08 year due to the "development of new initiatives in three states (PennsylvaniaIowa, and Ohio) and increased capacity in 30 other states."  Despite an overall growing trend in states to expand pre-k programs, major discrepancies exist in terms of how close each state is to achieving universal access to pre-k, including who is eligible for pre-k and the quality of programs.  Since a study of the Oklahoma program indicated that lower-income children gained more benefits when programs included middle-income children, this creates a strong argument for more universal preschool programs that bring children together from all communities. 

Pre-k at Age 4: States Making Positive Progress and Those Falling Behind: The Oklahoma Preschool Program is the longest standing state pre-k program and approximately 72 percent of the 4-year-olds in Oklahoma enroll in state funded pre-k. The link above highlights key statutory provisions on defining eligibility, the responsibility of local school boards, and the creation of both curriculum and teacher certification standards for the pre-k program.  According to NIEER's the State of Preschool 2008 report, Florida, Georgia and Vermont have more than 50 percent of 4 years olds enrolled in state pre-k.  Click here for a list of the top ten states serving 4-year-olds who attend a public preschool program of some kind.  

In severe contrast, 12 states, (AlaskaHawaiiIdahoIndianaMississippiMontanaNew Hampshire, North DakotaRhode IslandSouth DakotaUtah, and Wyoming) have "no regular state preschool education program." In eight states, fewer than "20% of children four years of age are enrolled in a public preschool program, even when including preschool special education and Head Start figures."

Pre-k at age 3 is much more limited than pre-k enrollment for 4-year-olds, despite the fact that for many children the effects of inadequate educational opportunities are clearly evident by age 3.  While enrollment in private programs is very similar at ages 3 and 4, nationally only 4% of 3-year-olds in this country attend a state-funded pre-k program, compared to 24% of 4 year olds.  This discrepancy in 3 and 4-year-old enrollment in pre-k programs is mainly because state provisions for pre-k for 3 years old are less expansive. 

Even the leaders in pre-k for three-year-olds are far from providing universal access.  Illinois is the only state committed to serving all 3-year-olds and during 2007-08 close to 20% of 3 year olds were enrolled.  ArkansasVermont, and New Jersey are the only other states to serve more than 15% of 3-year-olds in state pre-k programs, and Kentucky and Massachusetts were the only states to serve more than 10 percent of their 3-year-olds outside of preschool special education.  The State of Preschool 2008 found that most states, outside of special education programs and Head Start, only provide education for about 1 or 2% of their 3-year-olds; and only a handful of states make substantial efforts to serve 3-year-olds without disabilities.


 NIEER - The State of Preschool 2008:  The Preschool Yearbook 

Pre[k]Now - Funding the Future: States’ Approaches to pre-k Finance 2008 Update 
Pre[k]Now - State Profiles 
The Center for Public Education - pre-k: What the research shows
Georgetown University - The Effects of Universal pre-k on Cognitive Development. Study of the Oklahoma pre-k program which found across-the board gains from preschool for all socio-economic groups.

Assuring Quality in Early Education Programs- Design and Workplace Standards

In addition to providing universal access to pre-k it is also important that states are running or supporting quality programs.  High-quality pre-k can not only improve children's educational success and thus reduce dropout rates and crime, but it has also been found to provide economic, social, and health benefits.  One way to measure quality has been set forth by the National Institute for Early Education Research (NIEER) which tracks 10 benchmarks that all high-quality pre-k programs should meet. 

A NIEER's  study the State of Preschool 2008 found that In 2007-08 state "pre-k spending per child rose to $4,061" nationally, but across states ranged from zero to more than $10,000 per child. Despite the increase in state pre-k spending, the level of funding per child still seems not to be enough to meet all 10 quality benchmarks. In fact, the NIEER study found that while most states meet a majority of the benchmarks for program quality standards, 5 states meet less than half. Highlights of the report include:

  • North Carolina and Alabama remain the only two states to meet all 10 benchmarks.
  • Louisiana NSECD, Maryland’s prekindergarten program, and Minnesota Head Start increased their quality standards and met nine out of 10 benchmarks for the first time.
  • Seven other states continued to fund programs that met nine out of 10 benchmarks—ArkansasIllinoisNew JerseyNew MexicoOklahomaTennessee, andWashington.
  • Five states that meet less than half of the quality pre-k benchmarks are Arizona,California, Florida, Ohio (ECE) and Texas.

Training:  The success of a state's pre-kindergarten system depends not just on the accessibility or affordability of the system, but also on the quality of teachers.  It has been shown that properly trained teachers promote language and early literacy skills and the social development needed for later academic and professional success.  However, currently, training and certification requirements for pre-k teachers vary by state.  As a compliment to expanded early education and child care programs it is important that states institute policies to ensure that the teachers being hired meet certain standards.  Pre[k]Now sets forth policies that can help states to expand their base of qualified pre-k teachers, such as: requiring a bachelor's degree for pre-k teachers; a certification for assistant teachers and some form of specialized training for both; providing on-going professional development opportunities; and expanding access to teacher training and evaluating and monitoring of teachers in the classroom.  Some specific state programs policies and programs highlighted by Pre[k]Now include:

  • Bachelor's Degrees and Specialized Training for Pre-k Teachers: As research demonstrates the positive impact of properly trained teachers in the classroom, more states are instituting policies to ensure that pre-k teachers have special certifications or a bachelor's degree.  "A comprehensive education reform effort in 2004 in Kentucky led to the passage of a bill requiring that all new pre-k teachers have a BA degree and an early childhood certificate."  On the other hand, there are some critics who argue that bachelor degrees are not needed for early education and child care teachers.   

  • Assistant Teacher Requirements:  Pre-k students benefit not only from having a qualified teacher, but also a qualified teaching assistant.  Therefore, many states mandate specific training for assistant teachers. One way for states to increase their number of qualified pre-k educators is the "TEACH early childhood program (Teacher Education And Compensation Helps) which provides funding for child care professionals to attend classes at a participating college or university, and earn credits toward a CDA or an associate or bachelor's degree in early childhood education."        

  • Require Ongoing Professional Development:  An on-going investment in professional development is key to maintaining quality a pre-k program and retaining highly qualified teachers.  "CIRCLE, the professional development component of the Texas Early Education Model project (TEEM), offers teachers training that includes sessions on best practices, language development, reading and writing." In 2004, Louisiana's Non-public Schools Early Childhood Development Program added a "requirement of "18 hours of in-service per year" for all pre-k teachers as well as a mandatory, two-day training workshop.

Wage Standards for Early Education Workers:  The documented benefits of quality early education and care for children, parents and communities are clear and studies have shown that employee compensation is often linked to the care and education children receive.  Yet, despite the important role child education and child care providers play in shaping our country's future, they are among the lowest paid workers and are often forced to take on second jobs or forgo health insurance.  A direct result of low wages is high turnover in the industry. 

A report by the National Women’s Law Center finds a growing trend to "give home-based child care providers the freedom to form unions is proving to be a promising strategy for securing increased public investment in child care and improving working conditions for providers."  

  • For example, in 2006, the Washington State legislature approved HB 2353 which "allows family child-care providers to collectively bargain rate subsidies and reimbursements, as well as health benefits, training and grievance procedures."
  • Illinois issued an executive order  in 2005 permitting child-care providers to bargain with the state through a union.  Six months after the order, the Illinois state legislature approved a bill that made subsidized child-care providers public employees of the state in regards to collective bargaining rights.
  • New York, issued an Executive Order in 2007, "opening the door for the unionization of 60,000 home-based day-care providers paid in whole or in part by state funds," to provide  for the children of working parents. New York was the eighth state to permit the unionizing of home-based child care providers.

According to the National Women's Law Center as of 2007, the legislatures or governors in at least eleven states have taken action to authorize collective bargaining for home-based child care providers.  At least seven states in total (Illinois, IowaMichiganNew Jersey, Oregon,Washington, and Wisconsin) have "authorized union representation for providers."  In four states (CaliforniaMassachusettsNew York, and Rhode Island) bills passed by the legislature authorizing child care providers to unionize were vetoed by the governor.  In states where child care educators have signed contracts with unions, educators have seen "improvements in compensation, training and treatment for home-based providers."  In addition, educators have used their unified voices to encourage the governors of these states to request additional funding for the home-based providers as well as other child care centers as well.  For more details regarding the states contracts click here


NIEER - pre-k What the Research Shows 
Pre[k]Now - Model Professional Development Policy 
National Women's Law Center -  Fact Sheet - Child Care Providers: Increasing Compensation Raises Women's Wages and Improves Child Care Quality
Equal Opportunity Institute -  Early Childhood Education Career and Wage Ladder 
WA HB 2353 - Washington State law giving child care workers collective bargaining rights 
IL Executive Order on Collective Negotiation by Day Care Home Providers 
SEIU Child Care and Head Start Workers 
AFSCME Child Care Providers Together 

United Federation of Teachers Family Child Care Providers 



Support for quality affordable early education and child care is a core part of valuing families and growing the economy.  Investments in quality early education and child care do not just offer immediate economic gains, but also offer long-term economic and societal benefits.  States, especially in tough economic times, need to commit to providing quality and affordable early education and child care for all.