Following Vermont’s Act 76 Investment, New Family Child Care Picture Emerges

By Ellen Nikodym, Child Care Systems Coordinator

Nationally – and historically in Vermont – family child care has often been perceived as low-earning, undervalued work. However, recent cost modeling in Vermont reveals it is feasible to operate a family child care home and have business earnings roughly on par with median wages in the state. In the following post, we explore how this happened, what it looks like, and what challenges remain.

Using Cost Modeling to Understand Vermont’s Big Investment in Family Child Care

In 2023, Vermont passed Act 76, a landmark child care investment that included significantly expanded subsidy eligibility and a sequence of rate increases that narrowed the difference between family child care and center rates. Starting in 2024, Vermont Child Development Division partnered with First Children’s Finance to build and annually update a child care cost model to understand whether the new rates are sufficient to support the cost of high-quality care—and whether they’re incentivizing the kinds of care Vermont children and families most need.

What Is Cost Modeling?

Most states set child care subsidy rates using market rate surveys—essentially, the private tuitions charged to families. The problem: Market prices reflect what families can afford to pay, not what quality care actually costs. When subsidies track an already-constrained market, they lock in chronic underfunding. Alternatively, cost modeling is a data-driven approach to estimate what it costs to run a quality program and how these costs compare with available revenue from subsidies and private pay tuition across program types, geography, and age of children. States must consider cost data when setting subsidy rates and may elect to base rates exclusively on cost models.

The Finding: Family Child Care Is a Financially Viable Business Model in Vermont

The 2026 cost model delivered a notable result: Vermont’s investments in its subsidy system result in a family child care business model that is financially viable. Providers can cover the expenses associated with offering high quality care, pay themselves a meaningful wage, purchase health insurance on the state exchange, save for retirement, and have something left over for reinvestment in their business.

To achieve these goals, the family child care cost model assumes providers maximize functional enrollment (85% of licensed capacity) and have at least 70% of their enrollment funded through the subsidy program, which can reimburse more than what most families can afford to pay out of pocket.  Providers are entrepreneurs who may choose to run their business differently than this model; however, this proof of viability is a meaningful milestone.

Sustainability Isn’t the Same as Supply-Building

Improving the financial model for existing family child care homes is essential, but it doesn’t automatically produce new programs. Vermont still faces meaningful supply gaps, particularly in rural areas where family child care homes are often the only child care option. And as veteran providers retire, those programs will need to be replaced.

The barriers to starting a new family child care home go beyond the economics of child care. Access to housing that can be licensed for child care is a growing constraint—particularly as Vermont’s broader housing affordability crisis worsens. A sustainable subsidy rate structure is a necessary condition for supply, but it’s not sufficient on its own.

First Children’s Finance partnered with Vermont’s Child Development Division to develop and annually update Vermont’s child care cost model beginning in 2024.  Review the 2025 and 2026 Vermont reports on our website and find more information about FCF’s cost modeling in other states, here: Cost of Care Study – First Children’s Finance