RATIONALE

According to testimony before the Senate Committee on Housing and Human Services, Michigan's child care industry is struggling, and some believe that the State is not doing enough to address the needs of working parents and childcare providers. Reportedly, 14% of family members have left the workforce to take care of their children due to the cost of child care. The Child Development and Care Program (Program) is generally a subsidy program wherein the State reimburses licensed child care providers to reduce the cost of services to eligible families (see BACKGROUND for more information). The bill would require reimbursements rates made to the Program's child care providers to be adjusted by the Consumer Price Index (CPI), which would enable providers to employ staff at adjusted wages while allowing families access to child care that they can afford.

CONTENT

The bill would enact a new law to require reimbursements made to a child care provider under

the Program to be adjusted for inflation annually using the CPI.

Under the bill, "Detroit-Warren-Dearborn Consumer Price Index" would mean the most comprehensive index of consumer prices available for the Detroit-Warren-Dearborn area from the United States Department of Labor, Bureau of Labor Statistics.

Specifically, beginning 90 days after the bill's effective date and every July 1 after, the Department of Lifelong Education, Advancement, and Potential (MiLEAP) would have to determine the average percent change to inflation for the preceding 12 months of the CPI. Beginning October 1, 2027 and every October 1 after, MiLEAP would have to adjust payment rates under the Program made to a child care provider for the corresponding fiscal year by the average percent change to inflation if the determination from the CPI resulted in an increase in payment rates and if MiLEAP had not adjusted payment rates for the corresponding fiscal year.

PREVIOUS LEGISLATION

(This section does not provide a comprehensive account of previous legislative efforts on this subject matter.)

Senate Bill 311 is a reintroduction of Senate Bill 836 from the 2023-2024 Legislative Session, which passed the Senate but received no further action.

BACKGROUND

Generally, the Program is a subsidy program wherein the State reimburses licensed child care providers to offer reduced cost services to eligible families. To participate in the Program, a parent or legal guardian must apply to MiLEAP. Once an application has been approved, a parent or guardian must select a licensed child care provider to provide child care services and notify MiLEAP, which will begin reimbursing the provider. Depending on a family's income and size, a family may be required to pay a Family Contribution.¹

ARGUMENTS

(Please note: The arguments contained in this analysis originate from sources outside the Senate Fiscal Agency. The Senate Fiscal Agency neither supports nor opposes legislation.)

Supporting Argument

Tying child care scholarship rates to inflation would help families pay for child care while allowing parents to continue to work. Program scholarship rates have not increased since the fiscal year (FY) 2024-25 budget, which has led to child care providers having difficulty accepting scholarships for children to attend child care. Meanwhile, inflation has reportedly risen by 2.7%, and child care costs have risen 35% since 2019. Reportedly, 14% of parents have left the workforce in the last six months to take care of their children. Finding care has been cost prohibitive for Michigan families, and parents have had to make the decision to leave the workforce to be the child care provider. Tying the scholarship rate for child care to inflation would reduce the child care cost barrier for parents.

Supporting Argument

Sholarship rates that reflected inflation would provide stability for child care providers to pay their employees at a consistent rate. According to testimony, Michigan child care workers earn about 61% of the average State wage, and some child care providers operate on thin margins. Without funding from Program scholarships, child care providers struggle to offer sustainable wages to their own employees, which makes retaining employees and maintaining quality of child care difficult. Tying the reimbursement rate to inflation would keep scholarship rates consistent and cover the rising costs of resources such as diapers and food that child care providers make available for children in the State.

Legislative Analyst: Jessica Gebbie

FISCAL IMPACT

The bill would not have a fiscal impact on State revenue but would affect State spending by way of requiring increased annual spending on provider rates in the Program. In the current FY (FY 2025-26), the State’s appropriation for the Program is $543.3 million, of which $380.8 million in spending comes from Federal assistance and the remaining $162.5 million comes from the State’s General Fund. Consumer price indexes can increase or decrease from year to year, though they most often go up from one to five percentage points per year. The Detroit-Warren-Dearborn index, with its current version established in 1984, averages an annual increase of 2.64% per year. At that rate, the annual increase in child care spending required under the bill would be $14.3 million in the first year, $14.7 million in the second, $15.1 million in the third, etc. The increased appropriations for these adjustments likely would come from the General Fund, as currently the State is maximizing its usage of Federal funds for childcare.

Indirect fiscal impacts could include a more stable child care marketplace statewide, which also could have a positive impact on the child care workforce and on income tax revenues from working parents. These impacts are indeterminate.

Fiscal Analyst: Michael Siracuse