New NC Budget Takes Aim at the Child Care Crisis with $97 Million Investment to Support Families and Providers
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In 2024-2025, the WNC Health Policy Initiative partnered with the WNC Early Childhood Coalition and other regional partners in the early childhood/childcare space to address the expiration of pandemic-era federal stabilization grants. This so-called “funding cliff” precipitated a massive crisis. By late 2025, the state suffered a record loss of 45 licensed programs in a single quarter, and over 18,500 children remained on waitlists for subsidized slots.
As we learned, North Carolina's childcare gap contributes to a $5 billion annual economic loss, affecting workforce participation and local revenue. It also means more children being cared for in unlicensed, unstable and potentially even unsafe care environments, potentially contributing to lifelong disparities in learning and health outcomes. And the impacts of Tropical Storm Helene only worsened that situation. Western North Carolina’s childcare centers, schools and other providers either closed or face reduced capacity due to worker shortages, regulatory burdens, and/or damaged structures. As of Dec 1, 2024, over 500 childcare slots were unavailable due to center closures. (Learn more in WNC HPI’s Podcast Ep 9)
In March of 2025, our WNC Legislative Summit was focused on this issue, bringing regional advocates together with state lawmakers to learn about key health policy priorities for Western North Carolinians, make connections, and share their own concerns and questions about these issues. This included a special report, Building a Foundation for the Future - Strategies for a Sustainable Childcare Solution in WNC (pdf) which outlined the severity of the issue, the challenges being faced by early childhood educators and providers across WNC, and shared collaboratively-developed recommendations to address them.
Download the report, along with other related papers and resources, on our 2025 WNC Legislative Summit event page.
As a result of these and other advocacy efforts across the state, on March 10, 2025, Governor Josh Stein announced the establishment of a bipartisan Task Force for Child Care and Early Education, and temporary funding was put in place to maintain subsidies. On July 7, the governor signed the NC 2026-2027 budget, which includes several funding allocations to support early childhood centers and providers, as well as addressing several issues that surfaced during these discussions.
NC 2026-2027 Early Childhood Education and Child Care Funding Allocations
Highlights from the 2026-2027 budget related to child care and early childhood education include:
Child Care Subsidy Program
The budget directs $97 million in recurring federal funding to increase reimbursement rates paid to child care providers participating in the Child Care Subsidy Program.
This raises the total annual funding for the Child Care Subsidy Program to ~$593.1 million for FY 2026-27.
This funding is intended to improve access to affordable child care for low-income working families who qualify for subsidy assistance.
New Statewide Reimbursement Floor
Establishes a statewide minimum ("floor") reimbursement rate for child care subsidy payments.
Ensures providers in every county receive at least the statewide average reimbursement rate, reducing long-standing disparities between rural and urban counties.
The legislation ensures providers receive the higher of two metrics: rates set at the 75th percentile of the 2023 Child Care Market Rate Study, or the statewide reimbursement floor (aligned with the 2021 market rate). This major policy shift is designed to:
End the "Rural Penalty": Historically, rural centers were reimbursed up to $700 less per infant than urban facilities, undermining their viability. This is because the “market rate” that the subsidies were based on was artificially suppressed by free and low-cost programs provided by churches or other community centers which were filling in childcare gaps.
Stabilize Facilities: Provides a predictable and higher baseline of revenue to keep rural doors open and shrink waitlists.
Reinvest in Staff: Childcare workers are historically underpaid, often making less than fast-food or entry-level retail workers despite being highly trained and certified early childhood education professionals. This subsidy increase will allow providers the necessary financial margin to increase wages and maintain or even expand classroom operations.
Mental and Behavioral Health and Workforce Development for Smart Start Partnerships
$7.3 million (one-time) for Smart Start partnerships to expand mental and behavioral health services for children, families and child care staff in child care facility settings and out-of-school programs.
$1.5 million (one-time) for Smart Start partnerships to establish Child Care Teacher Academies.
This funding will support children and staff struggling with mental health issues (much needed in WNC to address a surge in mental health needs the wake of Hurricane Helene), strengthen the pipeline of qualified early childhood educators and support workforce recruitment and development.
Family Child Care Home Supports
$5.8 million in federal funds are allocated to fund an “Early Education Information System project and a Family Child Care Home Direct Support pilot program to help increase the supply of family child care homes in North Carolina.”
Family Child Care Homes (FCCHs) are licensed child care arrangements located in a provider's residence. In North Carolina, they serve up to 8–10 children, offering smaller, home-like settings, which many families prefer. These smaller centers fill provider gaps that exist across WNC, and can be more accessible in rural areas where larger child care facilities may be unavailable, unaffordable, have long waitlists or would require significant travel from parents’ homes and jobs.
Liability Support Study
$350,000 in nonrecurring funds to the Department of Insurance to study and produce a report on the feasibility of creating a liability insurance program for North Carolina child care providers, with the report due to the General Assembly by May 1, 2027.
As the WNC HPI learned in its discussions with regional child care advocates, and as others have also found, liability insurance costs for child care providers have skyrocketed, and are often the primary barrier for employers, nonprofits, schools and others seeking to offer child care services. A state-run insurance program could distribute the costs and provide a more affordable option to support an much-needed expansion of child care services across NC.
Implementation Changes
A companion technical corrections bill delays implementation of the new subsidy reimbursement rates from July 1, 2026, to October 1, 2026.
Licensed child care centers can now count the work and education experience of two facility staff members instead of one to meet the state’s Quality Rating and Improvement System (QRIS) administrator requirements. The state has also recently updated its QRIS to provide more options for programs to demonstrate quality.
A Good Start, But More is Needed
While the funding allocations and other policies in this budget represent much-needed relief and support for our region’s early childhood educators and child care providers, it is far from a complete victory. For starters, the budget does not fundamentally change eligibility requirements for the Child Care Subsidy Program. And it does not fully address broader concerns raised by advocates, including:
The gap between reimbursement rates and the actual cost of providing high-quality care.
Persistent shortages of early childhood educators.
Overall shortages in child care capacity and long waiting lists in many communities.
We will have to wait for the next round of budget talks to address these remaining concerns. But for now, early childhood providers who caring for the next generation of North Carolinians have at least some additional means to support the financial and legal stability of existing child care services, and potentially expand them. We look forward to continuing to support these policy discussions in WNC to inform the ongoing policy conversation as it develops.
Disclaimer
This content was developed by the WNC Health Policy Initiative in consultation with people and organizations with connections to the health of people of Western North Carolina. Individual or organizational opinions, findings, conclusions, or recommendations are those of the relevant author(s)/interviewee(s) and do not necessarily reflect the view of the WNC Health Policy Initiative or its host institutions of the University of North Carolina Asheville (UNCA), Mountain Area Health Education Center (MAHEC) or our funders.
