Report: States and Cities Are Reimagining Early Childhood Funding

The Institute of Child Success is proud to release a new report, Funding Early Childhood Care Through State and Local Tax and Fiscal Policy, by Averi Chen, Hannah Ford, Zhimin Xia, and Steven Zheng, in partnership with the Master of Public Administration program at the Wagner School at New York University. 

Key Question

How can states and cities build an ecosystem of support for early childhood care and education (ECCE) so this public good can be appropriately funded across the nation?

The Takeaways

1. The U.S. spends far less on early childhood education than on K–12 education, despite the fact that ECCE strengthens families, communities, and economies.
2. States and local governments are increasingly stepping in to fill federal funding gaps through innovative tax and fiscal policies. 
3. Securing funds for early childhood education hinges on understanding your local audience – their priorities, motivations, needs, and values. No single approach fits all. 
4. You can win support when the message is on benefiting children. Depending on priorities, messaging may include “returns on investment,” or “kindergarten readiness.” 
5. There is no one-size-fits-all solution. The strongest funding approaches reflect local values, economies, and political realities.

A National Child Care Crisis Requires Local Solutions

Early childhood care and education supports children’s development while making it possible for parents and caregivers to work, pursue education, and support their families. Yet, the U.S. continues to dramatically underinvest in young children.

While billions are spent nationally on ECCE programs, funding averages only about $1,268 per child under age three and $2,799 for children ages three to five. These numbers are far below what is spent on school-age children.

Meanwhile, an estimated 4.2 million children who need care cannot access a child care slot, and the national child care crisis costs the U.S. economy an estimated $172 billion annually in lost productivity and wages.

In response, states and local governments are increasingly experimenting with dedicated funding streams to build stronger early childhood systems.

Read More: The Child Care Crisis Costs the U.S. Economy $172 Billion Each Year

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What Innovative Early Childhood Funding Looks Like

The report highlights a growing number of communities using creative fiscal strategies to fund child care and preschool programs. These approaches range from broad-based taxes to highly localized funding models. In each case, the needs of the local community are essential to building support for funding. 

“The message needs to bring the invisible dependency out into the open. Because states and localities differ in context, needs, and values, no single fiscal approach fits all. Different strategies will offer distinct advantages and tradeoffs depending on the community.”

Equity and Sustainability Matter

The report emphasizes that funding mechanisms are not just financial decisions — they are equity decisions.

Some taxes, like sales taxes and tobacco taxes, can disproportionately impact lower-income households. Others may rely on industries with declining or unstable revenue streams.

That means policymakers must balance several priorities at once:

• Stability and long-term sustainability
• Equity and fairness
• Political feasibility
• Community trust and transparency

The research also underscores that new funding alone is not enough. Communities must invest in implementation infrastructure, provider capacity, workforce development, and public communication to ensure programs succeed.

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Read More

• Inadequate Child Care for Working Families: The Burden on the US Economy (ReadyNation)
• Cincinnati Early Childhood Leaders Learn from the Hello Family Model (Institute for Child Success)
• Shortchanged Project (The Center for Early Learning Funding Equity)
• Denver Preschool Program
• New Mexico Early Childhood Education & Care Department

About Us

The Institute for Child Success advances human-focused and equity-centered policies, partners and practices to transform systems that impact young children and their families. Learn more about our offerings, including policy research and advocacy support, innovative financing for communities, and measurement and evaluation support. This paper was completed in partnership with the Master of Public Administration program at the Wagner School at New York University through their Capstone program.