In a Year of Economic Uncertainty, Differing State Approaches to Spending on Young Children

2025 was a year of fiscal challenges for states across the country due in part to economic uncertainty caused by slowing revenues, rising spending pressures, and declining consumer sentiment. The massive tax and spending bill signed into law by President Trump in July, dubbed the “One Big Beautiful Bill”, only adds to the uncertainty as states face substantially higher costs in the future.

States have taken a number of steps this year to reduce their spending on young children. Some, such as Maryland, have stopped enrolling new families into their child care subsidy programs. Several others, including New Jersey and Virginia, have raised copays for families already enrolled in child care assistance programs.

In Arkansas, higher copays were just one change made in an effort to reduce the child care waitlist and make the subsidy program more financially sustainable. In September, the Arkansas Department of Education also announced a new reimbursement structure that could see some providers losing $39 per day for each eligible infant enrolled in their program. The updated reimbursement rates could cost providers statewide $727,000 per week according to a provider survey. While implementation of the rate cuts was delayed until November 1, advocates warn that the changes could result in job losses for child care staff, poorer quality of care, and higher costs for parents.

Indiana is another state that has recently announced reimbursement rate cuts in an effort to close a $225 million funding gap. As of October 5, the state’s child care providers are experiencing cuts of 10 to 35 percent, causing worries that providers might decide to drop out of the program altogether. Specifically, rates were cut by 10 percent for infants and toddlers, 15 percent for preschool-aged children, and 35 percent for older children. The changes are expected to collectively cost providers about $3.8 million a week. The reimbursement change comes on top of an earlier announcement that the state will be limiting the number of available spots in the state pre-K program.

Despite the difficult fiscal environment, however, a handful of states were able to increase early learning funding in 2025. For example, New York legislators approved $400 million in extra funding for the state’s child care subsidy program. Additionally, Arizona lawmakers added $45 million to their state’s subsidy program and Pennsylvania spent $25 million to improve the recruitment and retention of child care staff.

Texas lawmakers took advantage of previously unallocated federal dollars to secure $100 million in the state budget for child care scholarships. “This $100 million is going to help us ensure that, especially as child care costs skyrocket and thus the cost of scholarships skyrockets with them, that we can serve as many families as possible with this program,” says David Feigen, director of early learning policy at Texans Care for Children. “There are approximately 150,000 children who receive scholarships from this program today. Unfortunately, there's nearly just as many who are on a waitlist and being on that waitlist means waiting for care for anywhere from six months to two years," says Feigen.

The initial hope was that the extra $100 million would fund 10,000 more scholarships to needy families and also reduce the size of the waitlist. However, due to rising costs of food, supplies, and payroll, the extra money is primarily going to cover higher tuition costs for families already receiving the scholarships. Without the extra funding, however, thousands of existing scholarships would likely have been eliminated, leaving families without options for affordable care.

Illinois is another state that invested in early learning in 2025 despite budget difficulties. The FY26 budget approved over the summer includes $85 million in new state funding for the Child Care Assistance Program (CCAP) as well as $90 million in new funding for Smart Start Workforce Grants. The workforce grants consist of payments to child care programs designed to raise wages for personnel without increasing tuition or co-pays for families. Programs that receive the grants are required to pay classroom staff a wage floor. “It doesn't create living wages for everybody who needs it, but it is a really great way for programs to have higher wage floors and to hopefully retain some staff,” says Jonahan Doster, director of legislative affairs at Start Early.

The extra CCAP funding is expected to lead to higher reimbursement rates for home providers and help avoid waitlists and delayed payments. “Our Department of Human Services has been good about not having a waitlist. That’s another reason why they invest a lot of funding into our subsidy program is that they don’t want to have a waitlist,” says Michael Kim, director of public policy at Illinois Action for Children. The $85 million in funding is on top of an additional $75 million that was appropriated about nine months after the FY25 budget was finalized, an indication of the growing caseload the state has experienced over the past 18 months. “There’s lots of other states that, as their caseloads grow, they continue to flat fund the program. And then you have a big problem where people can’t get service,” says Doster.