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Introduction

A well-functioning, affordable child care system is essential to the economy. Yet, access to and affordability of quality child care continues to be a pressing concern in Colorado, hampering many parents from entering the workforce or remaining fully or consistently employed.

Because of its necessity for working parents, the child care system can have a significant impact on economic opportunities and upward mobility for families. Some parents who would otherwise prefer to work, must exit the workforce to raise children full-time due to the lack of child care access or affordability. Others maintain part-time work, potentially stalling their careers.

In the past several years, law makers have attempted to address the challenges in child care by enacting a number of bills to increase supply, address high operating costs, incentivize workers to move into child care, and improve affordability for parents.

These efforts have extended to the local level as well, most recently through the passage of SB24-002 which allows county commissioner boards to establish “areas of local concern” that can receive select tax incentives. These areas of concern can range from affordable housing to access to quality education, to child care. This legislation has the potential to add other reforms including 2023 legislation that expanded child care facilities eligible for property tax incentives.

While some of the child care challenges will remain, there is an opportunity for local governments to further enable the sustainability of the child care business model and to increase the productivity of their local workforce.

Key Findings

• Licensed child care slots lagging –
  • There are 2 licensed child care slots for every 3 children under 6 in a household where all parents are in the labor force, creating a deficit of 88,500 slots.
  • 8 of 9 front range counties, home to 80% of the state’s population, have deficits in child care slots ranging from 21% to 60% of the number of children who could use them.
• Child care challenges are sidelining parents –
  • 10,200 mothers sidelined from the labor force due to child care could generate $3.787 billion in GDP and create 29,000 total jobs if their child care issues were resolved and chose to return to employment.
  • Nearly 1 in every 5, or 60,000 of the 330,000 moms with children under 6 do not participate in the labor force but will once their child reaches school age. This is because the labor force participation rate of mothers with younger children is 11.7 percentage points lower than it is for mothers with children 6-17.
• Large number of recent bills presents some opportunities to address costs –
  • Rather than creating additional government and public funding streams, it is important to educate leaders on 25 recent state bills, including many for local governments to improve the financial sustainability of the child care business model. As an example, just 3 of the initially projected 56 child care centers, have taken advantage of the enhanced property tax exemption granted under HB22-1006. Local government can now declare child care a local need and enhance existing targeted state tax credits.

Child Care Strain on Labor Force and Economic Mobility

Finding available and affordable child care is a pressing concern for many Colorado parents, particularly those with younger children. The lack of adequate child care produces a range of negative outcomes for Colorado’s workers and the state’s labor force. While some choose to exit the labor force entirely, parents who remain in the labor force face high costs and productivity challenges.

Impact on Workforce

• Access - 88,464 fewer licensed child care slots than children under 6 with parents in the workforce.
• Labor Force Participation - 60,000 more moms with children under 6 would be in the labor force if they had the same participation rate as moms with children over 6.
• Career Advancement - In the U.S, 71% of parents with children under the age of 12, and 77% of parents with children under age 5 reported negative career impacts due to child care issues, according to 2018 data.
• Affordability - Colorado was ranked 8^th in the country for the most expensive infant care and 11^th for most expensive state to have a child.[i] An average Colorado family will spend 38% of their annual income on child care for an infant and a 4-year-old.[ii]  

Access – Child Care Slots Versus Number of Kids

In 2023, there were 356,954 children under the age of six in Colorado. Of these children, an estimated 172,252 had both parents in the labor force, and another 95,253 lived with one parent, of which 78,633 were working.[iii] However, from October 2022 to September 2023, there were only 162,421 licensed child care slots available, including those offered by child care centers, home providers, and preschools.[iv] This gap left a shortage of 88,464 children under six whose parents were working but did not have access to a licensed child care slot. While many families utilized a network of friends, family and neighbors for care, this equates to a deficit of 35% of the number children who could use them.[v]

Figure 1

*Due to Covid, there was not a 1-year ACS estimate in 2020, so a 5-year ACS estimate was used.

The Center for American Progress estimates that 51% of Coloradans live in a child care desert. 55% of the lowest income neighborhoods are in deserts, whereas 47% of the highest income neighborhoods are.[viii] Urban, suburban, and rural areas all experience deserts, with the greatest shortage occurring in the suburbs.

8 out of 9 counties examined for this report, which are home to 80% of the state, have deficits in child care slots, as shown in Figure 2 below.

Figure 2

*All parents available for child care; i.e., two parent or single parent households.

Figure 3

The shortage of child care slots is caused by a variety of challenges within the industry. Child care centers are expensive to operate because of zoning, insurance and labor costs representing a large share of their overall costs. The COVID pandemic led to 16,000 child care centers closing across the US (approximately 20% of the total) and created a reduction in capacity for many others.

Labor Force Participation - Sidelined Workers in Colorado

As shown in Figure 6, the average labor force participation rate for younger moms was 11.7 percentage points lower than moms with older children. Put another way, mothers with younger children were 15% less likely to be in the workforce than those with older children.

Many parents choose to raise a family full-time, however this gap shows the broad impact on the labor force for parents of young children. While some parents choose to exit the labor force exclusively due to child care issues, for many it is simply the primary factor among others. If mothers of younger children participated in the labor force at the same rate as those with older children, an additional 60,000 women in Colorado would be part of the labor force.

Of all parents out of the labor force who want a job, 17% of women with young children and 8% of women with older children cite child care problems as the reason they are not looking for work. 4% of men with children under 18 cite child care as the reason for not looking for work.[ix] Using these figures to estimate the number of workers sidelined in Colorado due to child care challenges is difficult. Just 5.7% of those outside the labor force indicated they wanted a job in August of this year.[x] For parents with young children who have exited the labor force, this figure is likely low, given the decision to leave is complex and motivated by multiple factors.

Economic Impacts of Sidelined Workers and Childcare Challenges

The economic impacts associated with costs and challenges due to child care arise in different ways.

Research by Ready Nation found the economic impact to Colorado parents, employers, and taxpayers stemming from insufficient child care for children under the age of three totaled over $2.7 billion annually.[xi]  In this analysis, the economic impacts resulting from child care challenges are primarily driven by costs borne by parents who remain in the labor force.

• Half of Colorado parents report having made sacrifices that affect their employment situations and/or economic mobility due to the lack of affordable child care, including cutting their work hours, taking unpaid time off, leaving a job entirely, or not looking for a job to take care of children.[xii]
• The US Chamber of Commerce cited child care as a key contributor for why 1.6 million workers are marginally attached to the workforce.[xiii] Studies show that leaving the workforce or moving to part-time work can have a long-term effect on pay and opportunities for promotions.
• The Healthier Colorado 2023 Voter Opinion Survey found that a third of respondents indicated they had worked less because of expensive child care.[xiv]

To isolate the economic impacts associated with sidelined workers, it is possible to return to the 60,000 sidelined mothers with children under 6. If 17% of these mothers have left the workforce due primarily to child care, as reported by research from the Chicago Federal Reserve Bank, this leaves 10,200 mothers who would otherwise choose to be working in Colorado.[xv] Assuming the average annual county wage, the lost wages of these 10,200 women was over $640 million per year in just 9 counties, and $770 million across Colorado in total.[xvi]

Figure 4

If all 10,200 mothers had their child care issues resolved and returned to full employment, they would produce an economic impact of $3.787 billion dollars. That is the estimated increase to the state’s Gross Domestic Product resulting from the 10,200 mothers returning to full employment.

To arrive at this impact, an economic simulation was run in the REMI PI+ model. Model inputs consisted of two variables.

• Direct employment – Employment was increased by 10,200 across all sectors proportionally to their share of the baseline. This captures the potential economic impact of mothers who were estimated to be outside the labor force due to child care but would otherwise prefer to be working.
• Wage adjustment – Total wages were adjusted to take into account the likelihood that mothers returning to work would earn less than the median wage. This was input into the model as an adjustment in wages toward the 25^th percentile wage from the median wage, an approximate reduction of 46%. This approach mimics a similar approach described in a recent report by the North Carolina Department of Commerce.[xvii]

Figure 5

Figure 6

*Totals may not sum due to rounding

Not all parents can leave the labor force when they experience problems with child care, but half of Colorado parents report having made sacrifices that affect their employment situations and/or economic mobility due to the lack of affordable child care, including cutting their work hours, taking unpaid time off, leaving a job entirely, or not looking for a job to take care of children.[xviii]

Figure 7

*Certain forms of child care such as Neighborhood Youth Organizations are not counted due to irregular and infrequent hours.

Career Advancement

In a 2018 national survey, 71% of parents with children under the age of 12, and 77% of parents with children under age 5 reported negative career impacts due to child care issues. These negative impacts can range from working fewer hours, passing up a promotion, or choosing not to pursue upskilling opportunities.[xix]

In Colorado, 9% of parents with a child 17 or younger stated there was at least one week in the past year when they needed child care but were unable to get it.[xx] Leaving the workforce, either temporarily or permanently due to child care issues has an outsized effect on women that can affect their entire careers.

As cited in a previous report from this fellowship, a Motherhood Penalty clearly exists. In 2019, 75% of parents reported having at least some difficulty finding child care in the summer months because of both availability and cost.[xxi] Women with children are six times less likely to be recommended for hire than childless women and have 10% lower competency ratings compared to otherwise equally qualified candidates.[xxii]

Affordability – Income Versus Child Care Spending

To address child care affordability, it is important to consider both sides of the equation: both fees for parents and the operating costs for the centers.

37% of Colorado parents report having to cut into their savings or increase debt because of the cost of child care.[xxiii] In Colorado, the average annual cost of infant care is $15,325, or $1,277 per month. A minimum wage worker ($14.42/hour) would have to work 89 hours per month to pay for child care alone. This ranks Colorado as the state with the 8^th most expensive infant care. Additionally, infant care is 9.8% more costly than the average rent, and 60.6% more than in-state tuition for a four-year public college.[xxiv]

Low-income families can apply for the Colorado Child Care Assistance Program (CCCAP), the funding for which originates from the federal government and is distributed at a county level across the state. Through its subsidy, CCCAP pays a portion of the cost of child care at licensed facilities or to qualified (unlicensed) providers on a sliding scale based on household income and family size.

But families and providers experience several challenges with CCCAP. Due to funding constraints prior to the pandemic, only 8% of income qualified families received CCCAP benefits. Though expanded funding during the pandemic increased CCCAP’s impact, those funds have expired, effective September 30, 2024. Even when a family does get funding, they can struggle to find a center that accepts CCCAP payment.

Child care centers complain about the administrative burden of CCCAP billing and reimbursement. Additionally, the program historically does not pay for enrollment, and instead pays only for days the child attends the center. If the child is ill or does not attend for any reason, the center does not get paid. These fluctuations are challenging for centers with fixed costs regardless of attendance.

Alternatives that are less expensive to operate, such as licensed home child care and friends, family, neighbor (FFN) care could help improve access for families. The average annual price of infant care from a Family Child Care provider in Colorado was $12,750 compared to $19,573 for center-based care providers in 2023 – 54% less expensive.[xxv]

The Child Care Business Model Does Not Produce Ample and Affordable Care

Previous CSI reporting has outlined the challenges to the financial sustainability of child care center business models.[xxvi] Though labor costs are the largest share of a child care center’s budget, lowering labor costs through reduced staffing, shorter hours, or reduced wages, has adverse impacts on quality of care and teacher turnover which costs more in the long run.

The report modeled alternatives to reducing costs of operating a child care center by reducing debt service, rent and property taxes and found that higher enrollment capacity did not necessarily translate to improved profitability. That is because both rent and labor costs scale with the growth in students as there are regulatory constraints on the square feet per child. The most important factor is ensuring that enrollment is near capacity, regardless of level, at all times.

Child Care Workers

Any conversation about increasing supply must also include how centers will staff themselves. Across the US in September 2023, there were 39,400 fewer child care workers than in February 2020. However, if the number of childcare workers had continued at its pre-pandemic trajectory and the pandemic recession had not occurred, there would be 150,000 more jobs in the industry today.[xxvii] The field is one in which child care workers receive notoriously low pay, with child care careers falling near the bottom of all US occupations when ranked by pay.[xxviii] This leads many care providers to need public benefits despite being full-time employed. Nationally, child care workers are twice as likely to live in poverty as other workers’ families.[xxix] Turnover is high in this profession and workers who leave the field often move to higher paying industries.

Prior Legislation to Address the Strained Child Care Business Model

Legislators have passed several bills to address the strains child care presents to Colorado communities. As mentioned above, in a prior report, CSI examined the child care business model in Colorado.[xxx] One of the key takeaways from the report was, “Rather than creating additional government and public funding streams, targeted policy and regulatory reform should be utilized to address the operating gaps in the child care business model, such as cost of care differentials for younger children, regulatory compliance, rent, and state/local taxes. This, in turn, will reduce the amount of additional public investment required.”

Figure 8 shows 25 state legislative changes that focused on child care market reforms since 2021.

• 21 address the child care business model
• 4 emphasize decreasing costs for families
•  4 are temporary bills which have already sunset or will expire within a year.

Figure 8

The plethora of bills speaks to the complexity of the child care system. A few of the bills (HB20B-1002, SB21-236) were temporarily enacted to help child care providers during the pandemic and have since sunset.

Bills to Increase the Supply of Child Care

In some communities Friends, Family and Neighbors (FFN) care is the best option for expanding access to child care. Support and education for FFN providers was the result of SB22-213.

Other bills attempt to increase home providers, making it easier to operate home child care centers (SB20-126 and HB21-1222) by allowing the centers to exist in homes that are part of a homeowner’s association and ensuring homes continue to qualify as a residence for the licensure, zoning, building codes, etc.

Future child care center locations may be identified by creating an online inventory of unused, state-owned real estate (HB21-1274) and/or promoting the development of public/private partnerships to create additional child care options (SB22-130).

Local municipalities are encouraged to allocate taxes received from marketing and promotion and lodging toward housing and child care for the benefit of workers who support tourism (HB22-1117), while also allowing them to create a special district for the benefit of child care (HB22-1070). Though the latter requires voter approval, it also means the entities within the special district can accept gifts, grants, and donations.

HB20-1427, enacted when Proposition EE was passed by voters, generated the funding for the Preschool Programs Cash Fund to create the Universal Preschool Program. This program creates slots for preschoolers across the state and decreases the pressure on families to pay for private preschool.

Bills to Address the High Operating Costs

Some bills work to address the administrative burden of operating child care centers, such as SB21-167, which allows centers to forego an additional inspection if a satisfactory inspection has been completed in the prior 12 months.  

To address the challenges larger child care centers face, there are attempts to decrease their operating costs through property tax exemptions (HB22-1006). The property owner must apply for the exemption for the portion of the property used for child care purposes, and then pass those savings on to the child care center through their rent.

HB24-1223 encourages child care centers to accept parents supported with CCCAP funding. One aspect of the bill pays providers based on enrollment, rather than attendance, which has been a barrier for centers to accept CCCAP in the past.

Bills to Address the Child Care Ecosystem and Worker Shortage

By establishing the Department of Early Childhood (HB21-1304) to support child care programs, workers and administrators, and families, this bill acknowledges the importance of early childhood education by assigning the industry its own department. Subsequently, this department was assigned responsibility for Colorado’s Universal Preschool Program (HB22-1295).

Several attempts have been made to address the challenges of attracting workers into the field where the current workforce is aging out at a rate faster than the replacement level of new workers (HB20-1053). Other bills incentivize workers who are in the field by offering refundable income tax credits to eligible early childhood educators (HB22-1010). There are also bills which have helped incentivize individuals to become preschool providers by I) providing a one-time bonus payment (SB23-269 repeals 7/1/2025) when the Universal Preschool Program was implemented, II) establishing scholarships for students for post-secondary education for in-demand fields, including early childhood education (SB23-205 for 2024/2025 academic year) and III) a bill that directs the state board of community colleges and occupational education to expand the number of qualified professionals in child care and other in-demand careers (HB23-1246). There are also state workforce grants that overlap with child care workers such as Colorado’s new Opportunity Now grant program which awarded over $55 million to support workforce training in 17 industries, including child care in March 2024.[xxxi]

Another incentive for child care workers and informal care providers was created with HB24-1312 which creates a refundable income tax credit of $1,200 for a single filer and $2,400 for joint filers.

SB24-002 authorizes county commissioners to offer property tax credits or rebates to encourage improvements in areas that house child care centers, among other special concerns. Such action could lead to increased safety around child care centers or encourage centers to move into areas they might not otherwise be able to. Additional local programs include activities to decrease barriers to entry for child care centers, such as a facility development toolkit and technical assistance program, and a development cash fund (HB24-1237).  

Bills to Address Family Affordability

Fewer bills have been aimed directly at families, however, HB23-1091 temporarily allows families to receive an income tax credit equal to 50% of a qualifying child care contribution. Qualifying contributions include those to facilities, schools, or programs that provide child care among others.[xxxii] It does not apply to family tuition.

The creation of the Universal Preschool Program (HB23-1290) can help families offset some of the cost of child care during the preschool years, particularly if it is expanded in the future to allow full-time preschool for all families who wish to have it. Other bills already mentioned that directly relate to the creation of the Colorado’s UPK program also directly support family affordability of child care including HB20-1427 and HB22-1295.

Recommendations

Any recommendations focused on improving child care access and affordability must start with addressing the business model constraints. Legislation passed thus far has nibbled around the edges of the challenges faced by this complex industry.

Local Government Solutions

• Explore opportunities presented in SB24-002 to identify areas of local concern and create further tax incentives to foster child care centers or to create public private partnerships with employers to support their workforce.
• Continue to support friends, family and neighbor care as an alternative to child care centers. These providers could address the gaps in many communities across the state.
• Raise awareness of existing property tax reduction opportunities for centers. A communication and education program will be needed to encourage the use of this exemption for the benefit of child care centers, as just 3 of the expected 56 centers have applied for the expanded 2022 property tax exemption.
• Consider renewal and expansion of existing state legislation to include greater opportunity for private contributions to offset costs of local child care facilities, such as through the donation of real estate.

Increase Child Care Workforce

• Consider expanding income tax credits for child care workers from the current $1,200 for a single filer.
• Continue free or low-cost programs to incentivize more workers to get the training needed to become child care providers.
• Loosen child care licensing requirements to allow FFN providers to care for slightly more children than currently allowed (4 unrelated children with no more than 2 children under the age of 2 years), particularly for before- and after-school care.

Improve Family Affordability/Decrease the Cost Burden of Child Care

• Disburse the CTC monthly rather than annually to help ease the monthly cost of child care.
• Consider mild reforms to child-teacher ratio requirements from toddler and beyond. A small shift in these ratios could have a large impact on the cost model for child care centers.
• Support Friends, Family, Neighbor networks by continuing to provide education, training and other support as an alternative solution for developing more child care centers across the state.

Bottom Line

Access to early child care opportunities are predictive of educational attainment for children, which then corresponds to adult earnings and health. It also allows parents who need and want to, the ability to be more productive, and support their families. As anyone with small children knows, availability and affordability are a challenge, often leading to parents to decrease their work or leave the workforce entirely. Ensuring a robust child care ecosystem in Colorado is an investment in the future of our state.

The variety of legislative actions speaks to the complexity of problems the industry faces. Solutions will require addressing the supply of child care slots, while also finding ways to incentivize workers to join this field with notoriously low pay. Attempts to address access must also improve the affordability of this high fixed-cost service for families.