Minnesota Set to Expand Its Daycare Funding Six-Fold
The Department of Health and Human Services (HHS) recently announced that it would withhold all funding to Minnesota following accusations of corruption surrounding daycare services in the state.
Online videos showed daycare providers in the state—which receive significant funds from the federal state, and county governments for lower income parents needing childcare—without any children. So far there have not been formal charges of fraud against those providers. Other accusations implied that Minnesota Governor Tim Walz was benefitting from the daycare subsidies somehow.
But Minnesota’s share of the daycare subsidies through the Child Care Assistance Program (CCAP) program has actually dwindled significantly in recent years. What was once $127 million a year is now down to $57 million.
The declines followed investigations into fraud at daycare programs back in 2019 and earlier, including those tied to the Somali community. While the daycare fraud was significant—with $5 to $6 million identified at the time—and instigated further investigations, the report did not confirm rumors that the fraud was widespread.
Accusations that the fraud amounted to over $100 million could not be verified, noting that “there is more CCAP fraud than has been proven in prosecutions” and confirming CCAP fraud “beyond a reasonable doubt is extremely difficult.”
But it left open the possibility of greater fraud as well as accusations of fundraising for remittances to terrorist groups like al Shabbab and ISIL through the Hawala system.
And while Minnesota chases the allegations, the state is refunding the program it stepped away from to the tune of $300 million by 2026.
While the state moved away from funding daycares since 2019, the federal government took up the burden of daycare funding through the Child Care and Development Fund (CCDF) by HHS’s Administration for Children and Families (ACF). CCDF expenditures have effectively doubled since 2018 because of the reauthorization of the Child Care and Development Block Grant (CCDBG) Act of 2014.
The increase in federal funding means that Minnesotan providers were now getting about $5,000 more per child with $7 billion more in federal dollars being spent overall.
More Money But Fewer Participants
The increase in subsidies comes as participation in the program declines year over year—both for childcare providers and children in daycare programs. The one major exception is California, which saw doubling participation around 2018 after it opened eligibility in the program around 2018 tied into the changes from the CCDBG, leading to a bump in participation nationwide.
Either fewer people qualify for the program’s income limits or other requirements or fewer are needing daycare. Census data from the Survey of Income and Program Participation (SIPP) survey show consistent declines in the number of children in daycare, whether subsidized or not.
Yet despite the sharp declines in daycare use and subsidized daycare, Minnesota is set to increase its share of CCAP funds six fold, with a report showing it increasing to $300 million in 2026 now that enough time has gone by since the original fraud accusations have passed.
