Federal funding for child care assistance is set to increase by $5.8 billion over the next two years under the terms of the bipartisan budget agreement passed earlier this month. But how will state agencies spend these new funds?

One pressing priority is to expand the number of children served. Currently, 1.4 million children from low-income families are in child care arrangements subsidized by federal and state governments.  This represents 15 percent of children eligible under federal law. More families are on waiting lists or are too discouraged by the scarcity of subsidies to even apply for assistance.

Among centers, a $100 increase in the difference between the lowest and highest tiers in a tiered reimbursement rate is associated with a 40 percent increase in the likelihood that participating centers meet our summary measure of quality.

Yet federal child care assistance has dual purposes. It supports parents who are working or in training and education programs, and it promotes children’s healthy development and school success. To meet the second goal, states should consider putting some of the new funding into raising the level of maximum reimbursements to providers.

This recommendation is based on our recent research, which finds that the quality of child care centers participating in the subsidy program is higher in states with higher payment rates, after controlling for differences in licensing standards and other factors that affect quality.

Read the full article on increased child care assistance by Julia B. Isaacs and Erica Greenberg at Urban Institute