Department of Early Childhood warns federal action could cut $91 million from child‑care budgets

The Colorado Department of Early Childhood told the Joint Budget Committee on Jan. 14 that federal action this month put a major child‑care revenue stream at risk and could force program reductions unless reimbursed.

“We received … official notification from our Federal partners that funding from the Child Care and Development Fund, known as CCDF, would be restricted,” said Dr. Lisa Roy, executive director of the Department of Early Childhood. She said a federal Jan. 6 letter prompted potential limitations that were then paused when a court on Jan. 9 granted a temporary restraining order blocking the freeze.

Jeanne Stefanik, the department's chief financial officer, told the committee the agency is still drawing down some federal payments but warned of a potential state shortfall if ACF does not reimburse outstanding CCDF expenses. “Should the Administration for Children and Families not reimburse Colorado for any remaining CCDF expenses this year, the potential shortfall would be approximately $91,000,000 over the remainder of this fiscal year,” Stefanik said.

The department said the federal Payment Management System (PMS) changes and the Jan. 6 letter are distinct and that the department has been submitting additional documentation to support drawdowns. Stefanik said CDEC received a routine disbursement on Jan. 12 after supplying requested paperwork but that the agency is monitoring further federal steps closely.

Committee members pressed the department on how much of the CCAP roll‑forward and fund balance could be used to relieve county freezes and statewide waitlists. Stefanik said the department estimated about $76.1 million rolled from FY24‑25 into FY25‑26 in CCDF funds, but cautioned that the department is required to hold and allocate those funds under federal rules and to plan for multi‑year obligations. She said a full allowance to admit all children on the freeze/waitlist would cost roughly $105 million — a figure that does not include the additional cost produced by required provider rate increases under the alternative rate methodology.

Several lawmakers urged the department to consider using roll‑forward balances sooner to reduce CCAP freezes. Representative David Brown said he was unconvinced by the department's plan and highlighted a $51 million current‑year roll forward the department had reported. “I'm struggling to understand why the Department is sitting on a bunch of money that could be useful to families who can't get childcare for their kids,” he told the panel.

CDEC called for federal flexibility and said it is exploring every option — including working with federal partners on waivers, seeking to limit the next phase of rate increases and, if necessary, seeking more state general fund support. Dr. Roy framed the choices as constrained by federal rules: “If we continue to get a steady amount or no amount of CCDF funding from the federal government, then it is up to the state if we want to put more money in,” she said.

The committee asked CDEC to provide clearer costings for: (1) the expense to eliminate the current waitlists and freezes at either a 10% or a 7% family copay, (2) how rate phase‑ins change cost-per‑child calculations, and (3) updated balances and likely federal drawdown timing. The department agreed to follow up with a detailed table of assumptions.

What happens next: The department said it will continue to submit documentation for draws and to update the committee on any legal or federal developments; the Jan. 9 TRO remains in place while litigation proceeds.

Sources: Joint Budget Committee hearing transcript with Dr. Lisa Roy, Jeanne Stefanik and Sarah Dawson.