Changes Needed to Boost Outcomes and Improve Implementation of the Pay Equity Fund

Chairman Mendelson, members of the committee, thank you for the opportunity to testify. My name is Anne Gunderson, and I am a Senior Policy Analyst at the DC Fiscal Policy Institute (DCFPI) and a member of the Under 3 DC Coalition (U3DC). DCFPI is a non-profit organization that shapes racially-just tax, budget, and policy decisions by centering Black and brown communities in our research and analysis, community partnerships, and advocacy efforts to advance an antiracist, equitable future.

DCFPI commends the Office of State Superintendent (OSSE) and DC Health Benefit Exchange (DCHBX) for making bold progress on fair compensation for nearly 4,000 early educators, most of whom are Black and brown women, through the implementation of the Pay Equity Fund (PEF). DCFPI also thanks the Chairman for his support to reconvene the Early Childhood Educator Equitable Compensation Task Force (the Task Force) to identify improvements to the program. While DC has made great strides on pay equity, DCFPI encourages the DC Council to work with OSSE to make the following changes to boost outcomes and improve implementation:

• Redesign the formula to ensure that all facilities receive enough funding to meet minimum salary requirements, and continue to monitor the effectiveness of the equity adjustment;
• Protect DCHBX’s ability to enroll more employees into HealthCare4ChildCare (HC4CC) by ensuring it maintains adequate funding levels;
• Require OSSE to collect more robust data on how facilities are spending awards; and,
• Prepare for growing costs to the PEF, such as higher salaries tied to public school teachers’ pay.

OSSE has also made child care subsidy more accessible by quickly expanding the program to more children in moderate-income families and launching an online application for benefits in the last year. Despite this progress, many caregivers continue to face barriers to accessing the program and underutilization is high. The DC Council and OSSE can help address those barriers by:

• Further streamlining the application process to make it easier for parents to access subsidy; and,
• Building the supply of child care to address caregivers’ needs, like child care for infants and toddlers, care during non-traditional hours, and care for bilingual children and children with special needs.

These recommendations would better position OSSE to fulfill the promise of the Birth to Three for All DC Act (B3A), the blueprint underpinning the PEF, and build towards a racially-just early education workforce and system.

The Pay Equity Fund is Making Progress on Pay Parity for Early Childhood Educators

Since the PEF launched, OSSE has distributed more than $90 million to increase pay for early educators, boosting teachers’ economic security and benefitting more than 270 facilities.^[1] Additionally, nearly 1,500 early childhood educators and their dependents now receive health insurance through HC4CC, which makes free or low-cost health care coverage available to child care workers who live in the District and non-District child care workers whose employers purchase coverage through the DCHBX.

OSSE Should Redesign the PEF’s Funding Formula

There is consensus among early education stakeholders that the design of the PEF funding formula is flawed and requires a fix before fiscal year (FY) 2025. OSSE aimed to address this flaw by offering a temporary 30 percent increase to all PEF base awards in FY 2024, because without it, some facilities’ awards would fall short of what’s needed to meet the minimum salary requirements.^[2] OSSE also created a waiver from meeting the minimum salaries for child development facilities (CDFs) that remain unable to meet such requirements even with the supplemental support.^[3] OSSE, with input from the Task Force, should redesign the funding formula to ensure all child development facilities receive grants sufficient to meet minimum required salaries.

The primary flaw in the formula stems from setting the base award as the difference between average current salaries, by role and credential, and the minimum OSSE-required salaries, as DCFPI has stated in previous testimonies.^[4] For providers with a higher share of teachers with below average current salaries, their base award could be too small for them to fully meet the program requirements without the supplemental support. A better method would set the base award as the difference between the median of current salaries or the minimum wage and the minimum OSSE-required salaries to align the award amounts more closely to the reality of how much educators are currently being paid.^[5]

Some CDF directors have reported that the administrative enhancement and equity enhancement within the funding formula are insufficient to cover the increased payroll costs associated with higher PEF salaries, including higher payroll taxes and higher 401k contributions. OSSE should continue collecting feedback from participating facilities to better understand the shortfalls of the current formula and provide that feedback to the Task Force, so that they can take into consideration these shortcomings when making recommendations on PEF improvements.

The Task Force should plan for the adoption of the full salary scale.

After prioritizing fixes to the funding formula and other implementation shortcomings, and if funding and timing allows, OSSE should also encourage the Task Force to revisit the original recommendation of adopting a full salary scale that awards educators for their credentials and years of experience. Failing to permanently fix the design of the award formula (and eventually adopt the full salary scale versus just minimum salaries) could result in unnecessarily limiting pay for educators and disincentivizing longevity in the field. If DC retains fewer experienced educators, it could reduce the quality learning for young children.

Such shortcomings underscore the importance of the DC Council protecting the non-lapsing status of the PEF and ensuring adequate funding to reward experience in future years, as intended in B3A.

Continue Monitoring the Impact of the Equity Adjustment

OSSE’s formula includes a strong equity adjustment, which provides additional funds on top of the base award to CDFs serving families with low and moderate incomes enrolled in the child care subsidy program. A CDF’s equity adjustment is calculated by multiplying the share of total licensed slots comprised of subsidy slots by a percentage of the base award.^[6] For example, a CDF that fills all its licensed slots with subsidy vouchers receives an equity adjustment equal to 60 percent of their base award; if the share of filled licensed slots drops down to 50 percent subsidy, the CDF receives an adjustment equal to 30 percent of their base award.

Providers predominantly serving families participating in the subsidy program need more funding to offer pay parity and high-quality care because they face ongoing and historic inequities that force them to operate on tighter margins. The additional funding resulting from the adjustment may also incentivize additional subsidy participation among CDFs, which could increase the supply of high-quality slots for DC’s most vulnerable children.

OSSE and the Task Force should evaluate outcomes associated with the equity adjustment to ensure the supplemental funding is meeting lawmakers’ intended equity goals, and refine the 60 percent threshold, as needed, over time.

Maintain Adequate Funding for Educator Health Coverage Given Projected Increase in Utilization and Cost

Health insurance is a critical component of PEF compensation. The PEF law allows OSSE to use “excess funding” available after CDF payments to pay for a health care program called HealthCare4ChildCare (HC4CC).

DCHBX has been working diligently with community-based organizations to build trust with and educate CDFs on the value that HC4CC offers and to solicit feedback on program design. As DCHBX implements improvements and outreach continues, more facilities are likely to utilize HC4CC, especially as the child care industry recovers and enrollment and staffing levels increase; this would increase HC4CC expenditures. The cost of health care increases annually, which will also drive up HC4CC expenditures over time. The current $18 million allocation for HC4CC is adequate to absorb these growing costs, and it is important to maintain adequate funding to ensure that this benefit remains available to all early educators.

After the implementation of the PEF in quarter one of FY 2024 and Medicaid redeterminations in spring 2024, DC will have more accurate data on utilization rates and a better understanding of why early educators may not be accessing this resource, as well as the cost to implement HC4CC over time.

Collect More Robust Information and Data

Teachers and teacher assistants are the intended beneficiaries of the salary provisions of the B3A and PEF laws. The PEF law requires OSSE to submit to Council robust triennial reports beginning February 1, 2024, describing the implementation of the program, including “staffing costs associated with applying the salary scale.”^[7] When OSSE reports on these staff costs, they should publish the share of the total award payments dedicated to higher pay for eligible roles, higher pay for non-eligible roles (if applicable), administrative costs, and other expenditures by facility type and status of subsidy participation.^[8] This will help lawmakers assess how well the funding formula is meeting its intended goals and what changes are needed to improve outcomes.

Prepare for Growing Costs to the Pay Equity Fund

As DC local fund revenue growth slows, lawmakers must protect all non-lapsing funding in the PEF and anticipate the natural growth in cost that accompanies its successful implementation. While FY 2024 funding is enough for what is required in the law and for those who are currently eligible—thanks to prior year carryover dollars—additional funding in future years may be needed depending on the Task Force’s recommendations on how best to fix the funding formula. More funding will also be needed in future years as teacher salaries rise, more early educators qualify for higher salary levels due to higher credentials, and administrative costs increase.^[9]

Explore and Address Barriers to Accessing Child Care Subsidy

The child care subsidy program makes high-quality child care more affordable and accessible for more than 5,000 DC families with low and moderate incomes. At the beginning of FY 2024, OSSE expanded eligibility for the program to families making up to 300 percent of the federal poverty line.^[10] DCFPI commends OSSE for quickly expanding this program to more children, but underutilization remains an issue as less than half of income-eligible families are currently tapping into this benefit.^[11],[12]

More research is needed to better understand persistent underutilization issues, particularly among District families with the highest need, but some causes may be challenges with the application process, meeting federal work requirements, and a mismatch between the child care needs of parents and the availability of child care that meets those needs. District caregivers and community stakeholders reported that the child care subsidy application process is “confusing, overwhelming, and not-customer service-oriented,” according to a study recently published by DC Next.^[13] To help resolve challenges with the application process, OSSE recently launched an online application for child care subsidy, but they need to continue to improve the process to make it more streamlined and efficient.

Once the District approves a family for child care subsidy, caregivers have to take on the challenge of finding a child care facility that accepts subsidy and meets their needs. Over the past five years, the District has experienced a decline in both the supply of and demand for child care, but gaps remain, particularly for “quality child care for economically disadvantaged families and for children who need specialized services such as nontraditional hours and bilingual settings.”^[14] Demand for subsidized infant and toddler seats is outpacing the supply by over 3,000 seats.^[15] That gap grows for families seeking care during nontraditional hours, bilingual services, and care for children with special needs. These supply-side issues require deeper research and better data to understand the full scope of the barriers facing providers who want to offer subsidy seats.

The process of refining the Child Care Development Fund (CCDF) state plan is an opportunity for OSSE to address some of these issues, like streamlining eligibility determinations for families, using grants and contracts to increase the supply of child care for nontraditional hour care and for children with disabilities, and spreading awareness about the child care subsidy program. These changes would support greater participation in the subsidy program and increase choice for families facing economic barriers.

Thank you for the opportunity to testify. I am happy to answer questions.