With federal funds gone, US states turn to trusts to sustain early education and child care systems
The COVID-19 pandemic exposed just how essential child care is to the functioning of families, communities, and economies. During the crisis, US states relied heavily on federal funding through the American Rescue Plan (ARP) to keep early childhood systems running.
These temporary funds were used to lower costs for families, support providers, and stabilize a system that had long been under pressure.
Now, with that federal funding gone, states are facing a familiar challenge: how to sustain and scale early education and child care programs without relying on inconsistent, short-term budgets. A growing number of states are responding with a new approach—permanent trust funds dedicated to early care and education.
These funds are designed to provide reliable, long-term support for children, families, and educators across the country.
The shift toward permanent funding structures
Federal relief during the pandemic enabled states to make meaningful improvements in early care—from boosting wages for workers to expanding access for low-income families. But these improvements were largely temporary. As federal funding expired, states needed a way to preserve and expand these gains.
Rather than relying on unpredictable annual appropriations, some states are building trust funds—dedicated financial reserves that generate stable funding year after year. These funds help insulate child care systems from economic downturns and political shifts, offering a more sustainable alternative to emergency aid or short-term grants.
New Mexico: A model for other states
New Mexico became one of the first states to embed early childhood education into its long-term financial planning.
In 2022, it redirected a portion of its oil and gas revenues—traditionally set aside in a state land fund—toward early education.
The trust has since enabled the state to make child care free for nearly all families, increase compensation for early educators, and create thousands of new child care slots. In 2025, lawmakers took the additional step of expanding the fund's minimum annual contribution, further securing its long-term impact.
Connecticut: Using surplus revenue for children
Connecticut established an early childhood trust fund in 2023 and began funding it in 2025 using unspent surplus revenues. The state's strict spending caps often leave funds unallocated at the end of the fiscal year. Instead of letting this money sit idle, lawmakers directed it into a dedicated trust.
With an initial allocation of ₹300 million and potential for annual contributions of the same amount, the fund is expected to reach ₹1 billion by 2028.
The goal is to eliminate child care costs for middle-income families and limit expenses for others, while also expanding the availability of early education services.
Montana: A conservative state, a bold move
In a significant move for a conservative-leaning state, Montana launched the 'Growth and Opportunity Trust' in 2025. The fund is broad in scope, with allocations for infrastructure, tax credits, and child care.
Child care received an initial investment and a share of future interest generated by the fund.
While the amount is modest compared to the overall fund, it marks a foundational shift in how the state views early care—not just as social support, but as core infrastructure.
Other states and strategies
Several other states have also created or expanded trust funds for early education. Louisiana, for instance, matches local investments in child care through a state-level fund. Kentucky used tobacco settlement money and private funding to establish a similar trust in 2022.
Meanwhile, states like Washington and Massachusetts have implemented dedicated taxes to support early learning systems.
Each model varies, but the underlying principle remains the same: stable, long-term funding is essential for a healthy child care system.
Limitations and future outlook
While trust funds offer stability, they are not a complete solution. The cost of building a truly universal early childhood system—including access to care from birth to age five and fair compensation for providers—is significantly higher than what most trust funds currently generate.
Additionally, the continued health of these funds often depends on surplus revenues or investment returns, which may fluctuate. If state budgets tighten, future contributions to the funds could shrink or stop altogether. There is also a risk that lawmakers treat these trust funds as replacements for broader systemic investment, rather than complementary supports.
Building long-term resilience in child care
As federal support recedes, US states are increasingly taking child care funding into their own hands.
Trust funds represent a forward-thinking approach that moves beyond short-term relief and toward permanent investment in children, families, and educators.
By embedding early childhood care into their financial infrastructure, states like New Mexico, Connecticut, and Montana are not just reacting to a crisis—they are laying the foundation for long-term resilience in a system that families rely on every day.
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