Minnesota lawmakers agree to hike reimbursement rates for child care providers serving low-income families

While many in the GOP had previously been uneasy about using state money to raise rates for the Child Care Assistance Program amid fraud concerns, the deal brokered Friday will use only federal cash to hike reimbursements to meet federal standards.

Democrats and Republicans hailed the CCAP bill as a way to help poor families manage the high cost of child care and help a critical industry that was struggling to make ends meet even before the COVID-19 pandemic.

State Rep. Mary Franson, an Alexandria Republican who has frequently criticized CCAP, said the measure would help providers that have “stepped up” to serve families during the outbreak, even if it wouldn’t entice many workers into an industry she said is overregulated. Franson helped negotiate the bill, which some Republicans voted against, but passed with wide GOP support.

“The Child Care Assistance Program is a great program when it is used appropriately,” Franson said in a speech on the House floor.

Lawmakers said the new cash is expected to bring the state into compliance with federal rules on reimbursement rates — and stave off a costly penalty. The reprieve, however, will only be temporary, and Democrats say they’re intent on trying to raise rates even higher next year.

In the 2019 fiscal year, CCAP served roughly 30,700 Minnesota children each month, at an annual cost of $250 million. The vast majority of that money is split between the state and federal government, though county governments pick up a small portion.

Currently, maximum reimbursement rates in Minnesota only cover the full cost of child care for 16.3 percent of in-home family providers and 23 percent of child care centers, according to an up-to-date market-rate survey.

Those rates fall well short of federal recommendations, which say CCAP payments should be high enough to meet the 75th percentile of a regular market-rate survey of tuition costs, which means rates would cover the full cost of child care at roughly three in four providers.

Minnesota is nowhere close. The state’s CCAP rates even fall below what the federal government requires: reimbursement rates at the 25th percentile.

As a result, Minnesota was expected to face a penalty after September worth 4 percent of the child care block grant the federal government offers to help with program costs. The state Department of Human Services estimates that the penalty would likely be between $2.75 million and $5.5 million. Still, the feds can also withhold the entire grant, or take other actions to penalize Minnesota for being out of compliance.

Given the possibility of sanctions, Democrats have advocated for a spike in reimbursement rates. One proposal from Gov. Tim Walz in 2019 would have brought Minnesota to minimum compliance at a cost of $61.8 million over four years. 

State Rep. Dave Pinto, a St. Paul DFLer who chairs the House’s Early Childhood Finance and Policy Division, said when he tells legislators in other states how low Minnesota’s CCAP reimbursement payments are, “people’s jaws drop.”

“This is something where we are really rock bottom,” he said.

Democrats have also billed a hike in the reimbursement rates as a way to help child care providers make more money in an industry that gets by on tiny profit margins, as well as help low-income parents pay for costly tuition.

Many Republicans, however, have balked at the notion of pumping money into CCAP after a series of reports and investigations revealed fraud in the program that state government had been unable to rein in. In 2019, lawmakers approved a sweeping set of anti-fraud measures.

The bill passed Friday says Minnesota will meet the 25th percentile of the most recent market-rate survey, which is from 2018.

Lawmakers from both parties also said the decision to hike rates was important since Minnesota’s child care industry has been crimped by Gov. Tim Walz’s restrictions meant to slow the spread of COVID-19. Far more people are working from home or unemployed, leading parents to pull children from child care and leaving those providers with far less tuition.

“Our child care providers have gone through a lot being shut down through COVID, remaining in place for the essential workers while the rest of the workforce perhaps withdrew their children,” said Sen. Michelle Benson, a Ham Lake Republican who chairs the Senate’s Health and Human Services Finance and Policy Committee. “We think this is an important step to help stabilize some of those providers and make good use of federal money that has been sitting since 2018 in some cases.”

Pinto said that Minnesota will be able to stay in federal compliance for now, but will need to update its reimbursements again once the next market-rate survey is released. And he said Democrats will make another push to inject cash into CCAP in 2021 as both parties debate how to boost the industry. 

Still, Pinto said raising CCAP rates was significant. As an “advocate for young kids and their families” he believes CCAP and other early childhood programs are “the very best place for us to be investing our resources as a state,” he said.