Vermont child care funding faces carryover limits, new federal rules; agency hires contractor for supply-demand analysis

Vermont’s Department for Children and Families told the House Appropriations Committee on April 29 that the Child Development Division (CDD) relies heavily on a mix of federal grants and state special funds but faces uncertainty about whether multi‑year federal grant dollars can be carried into future fiscal years.

Janet McLaughlin, deputy commissioner for the Department for Children and Families, said federal funds are expected to total about $43,000,000 for state fiscal year 2026 and special funds about $115,000,000, including roughly $18,250,000 from the new childcare payroll tax and about $15,000,000 from an earned income tax credit (EITC) swap. "Of that grant that we get in, we have to use 70% of it for direct services," McLaughlin said, describing federal Child Care and Development Fund (CCDF) requirements for direct‑service spending.

Why this matters: CDD staff described large multi‑year grants that finance training, data systems and local program grants; those awards are designed to produce lasting systems improvements but typically must be spent on a prescribed timetable. Officials said recent guidance from federal program staff offers little assurance that remaining PDG (Preschool Development Grant) carryover funds or similar award balances will be permitted into future years, which could require the state to accelerate spending or risk losing funds.

Most important facts

- Funding mix and key figures: McLaughlin and Megan Seaton, financial director for DCF, said the governor’s FY2026 recommendation shows roughly $43 million in federal funds and $115 million in special funds for CDD. Seaton said the payroll tax portion is about $18.25 million and the EITC swap about $15 million. Head Start local grantees receive about $27 million directly from the federal office of Head Start; the state receives a much smaller Head Start collaboration grant to operate the state collaboration office.

- Grant rules and timelines: Officials described PDG (Preschool Development Grant) funds that must be expended by Dec. 30, 2025, and said they are seeking federal approval to carry prior‑year funds forward. McLaughlin said some competitive grants do not carry a multi‑year guarantee and that recent communication from federal program officers suggests limited flexibility to carry funds forward: "We have no indication to believe that you'll be able to carry funds over into future years," she said.

- CCDF spending requirements and program uses: Seaton and McLaughlin described the federal Child Care and Development Fund (CCDF) as the largest single federal funding stream for childcare. "We have to use 70% of it for direct services," McLaughlin said, and the award framework also reserves money for quality and workforce development (the presentation cited a roughly 12% set‑aside for quality under current grant structure). CCFAP (Child Care Financial Assistance Program) payments, licensing activities and workforce supports are funded from CCDF and other sources.

- New federal requirements: Officials flagged two pending federal CCDF requirements that will affect operations next year: (1) a cap that families receiving CCDF cannot pay more than 7% of their income for childcare; and (2) a move toward prospective (advance) payments to providers. Both changes will require adjustments to state subsidy design and program rules.

- Supply‑demand work: CDD has engaged a contractor to perform supply and demand analysis, with results officials said they expect by next December, to guide how limited grant and incentive dollars are allocated to infants/toddlers, children with disabilities, and underserved areas.

- Program capacity and access: Officials reported about 34,000 licensed child care spaces in the state and acknowledged local variation and waitlists, especially for infant/toddler care. McLaughlin said some communities have stronger access to pre‑K slots while infant/toddler capacity and regulated after‑school availability vary by community.

- Related federal and state streams: Committee members heard descriptions of multiple funding streams that intersect with CDD work, including IDEA Part C (early intervention for infants and toddlers), Global Commitment (Medicaid funding for certain services), TANF transfers used as special funds and SSBG (Social Services Block Grant) transfers. McLaughlin described PDG as a multi‑agency grant that flows to several state agencies and to Building Bright Futures as a non‑state partner.

Discussion, direction and decisions

- Discussion: Committee members questioned agency leaders about enrollment numbers, eligibility rules for workforce and scholarship programs, and the relationship between Head Start, parent‑child centers and CDD services. Officials described program uses for CCDF quality dollars (scholarships, loan repayment, tuition support, professional development and incentives) and clarified that some workforce supports are available statewide to regulated program staff.

- Direction/assignment: McLaughlin said CDD has already engaged a contractor to perform a supply‑and‑demand analysis to inform targeting of grants and future CCDF requirements. Agency staff also said they will pursue approval from federal program officers for carryover or liquidation of existing multi‑year PDG funds and will continue communications with federal partners about grant timelines.

- Formal action: The committee did not take formal votes on CDD budget items during the hearing segment covered in the transcript.

Context and limitations

The officials emphasized that some funds are entitlements or formula grants (for example, CCDF and parts of IDEA funding include formula components), while other awards are competitive and time‑limited. Officials said some federal regional office reorganizations have slowed responses to financial and reporting questions and that administrative contacts recently changed, complicating routine communication with federal program staff.

Ending note

Officials told the committee they will provide additional budget detail on TANF flows and related transfers and that the supply‑demand analysis will inform program targeting and possible budget proposals later in the year. In the near term, the agency is focused on securing carryover or liquidation approvals so multi‑year grant projects can continue without interruption.