Finance — Alliance for Early Childhood Finance



Attempts to solve a narrowly framed ECE “problem” typically result in creating a new initiative — something with a catchy name, aimed at a specific and generally limited group of children, something that will fix the problem because it is finally the “right” way to provide services. Funds are allocated for the initiative and a set of standards, rules, regulations, and monitoring practices is established to ensure accountability. While each new initiative has something to offer, the approach results in a fragmented system that not only fails to adequately serve America’s children and families, but makes it extremely difficult to gather comprehensive data or plan and finance an effective ECE system.

The Alliance takes a different approach. We focus on crafting system-wide standards and a range of portable and direct financing strategies linked to those standards. We build on what unites the ECE system rather than what divides it and seek to build financing strategies and ECE policy that span the many sectors and sub-systems. We also acknowledge that some ECE services function outside formal markets, such as child care provided by family, friends and neighbors. And we believe that an ECE system must include supports for parents, including paid family leave and high-quality part-time jobs and flexible work schedules.

Nearly every state has, or is developing, an early care and education quality rating and improvement system (QRIS). But many states find that only a small percentage of providers participate and that parents often do not use the system to guide decision-making. One way to shift consumer and practitioner behavior is to strategically link dollars to QRIS participation. There are many ways to accomplish this end. Documents that describe and discuss a range of approaches can be found in the Financing Strategies section of this site.  A significant challenge in ECE finance is that payment for services has historically been linked to the price of care in local markets rather than the cost of delivering the service. The Alliance has been instrumental in pushing for a new rate-setting approach, rooted in cost modeling.  Examples of how states have used cost modeling to better understand the cost of a QRIS and to guide financial incentives and rate-setting can be found here.

The Provider Cost of Quality Calculator (PCQC) is a new, easy-to-use, dynamic Web-based tool that calculates the cost of quality-based on site-level provider data. The tools helps state policymakers understand the costs associated with delivering high-quality early care and education. The tool can demonstrate whether there is a gap between the cost of providing quality services and the revenue sources available to support a program. Knowing the size of the gap at different quality levels for various provider types can inform the design of financial support and incentive packages.

The PCQC is useful to States that have a Quality Rating and Improvement System (QRIS) and to States that want to understand the cost of operating a particular type of quality program, such as prekindergarten. The tool can model the cost of quality for any jurisdiction​ (state, county, city)​. A user can manage and share multiple scenarios and provider profiles, and store and print reports.

Two issue briefs were written to illustrate how the PCQC can be used to model and understand the impact of quality and program characteristics on the revenue and expenses of an early childhood center or family child care (FCC) home. This brief discusses the effects of 3 quality variables on provider financial health and viability: increased levels of quality; changing ratios and group sizes; and compensation increases.

This brief on program characteristics discusses the effects of 4 variables on provider financial health and viability: participation in the Child and Adult Care Food Program (CACFP); program size and ages of children served; enrollment efficiency; and bad debt or uncollected revenues.