Federal child care funding freeze could devastate Silicon Valley

California and four other democratic-led states are challenging the federal government’s abrupt decision to freeze billions of dollars that allow low-income families access to child care and other social services.

The freeze could have a major effect on the financial health of child day care centers across Silicon Valley, with the region already struggling with a dearth of providers. One provider who operates a day care center in East San Jose said 80% of her clients rely on these federal subsidies to put their children in her care — and a majority of her business operates with federal dollars.

“It’s very scary,” Lakisha Harris, owner of Brilliant Minds Daycare, told San José Spotlight. “That’s why I have another job. That’s what supports me right now.”

Harris said her December reimbursements should be hitting her bank account in the next week or two. But payments for January are uncertain, given the lack of clarity on how long the funding freeze will last.

The freeze is directed toward California, Minnesota, New York, Colorado and Illinois across three funding categories, which President Donald Trump’s administration claims has “serious concerns about widespread fraud.”

The feds are withholding $2.4 billion from the Child Care and Development Fund, which provides low-income families with child care subsidies, $869 million from the Social Services Block Grant, which supports social services, and more than $7 billion from Temporary Assistance for Needy Families — also known as CalWORKs in California—which provides cash assistance. Together the total freeze is more than $10 billion in funding.

California accounts for about $5 billion of the $10 billion of funds being frozen across all five states.

Santa Clara County receives more than $63 million for CalWORKS, which provides cash assistance to support employment goals, child care services and other pathways to sufficiency for 6,100 families, according to data provided by the county.

County Executive James Williams said the county has yet to see the direct impacts of the freeze, but is deeply concerned about the harm this could cause statewide.

“The Trump administration’s freeze on federal funding for child care and social services is yet another attack on some of our nation’s most vulnerable families, threatening essential programs that millions of Californians rely on for stability and dignity,” Williams told San José Spotlight. “Our social services programs remain available and accessible, and we will continue to stand up for the families who depend on them.”

The county is assessing and monitoring the situation as more information comes from the state.

Jessica Chang, CEO of child care provider network Upwards, said delays in payments will create stress for families and impede their ability to go to work, since they rely on these subsidies to put their children in day care.

It will also affect home-based day care providers, who are already operating on thin margins.  Closures of any more day care facilities will put additional strain on the county, where roughly 700 local child care location have closed over the past decade.

“This could be the straw that breaks the camel’s back,” Chang told San José Spotlight. “Do you (choose to) have a business, or do you need to shut your doors down?”

A lawsuit filed Jan. 8 by all five states alleges the federal government’s claim on potential fraud is based on “pretext” since it failed to produce evidence.

The federal government is asking these states to turn over nearly all their documents related to these programs within 14 days.

“As Defendants know, that is an impossible task on an impossible timeline,” the lawsuit states. “This request reveals the fundamental problem with Defendants’ position: they did not engage in any meaningful investigation before taking the draconian step of withholding all funding under the programs and only now seek to find any evidence of noncompliance.”

A spokesperson with the U.S. Department of Health and Human Services, which oversees these grants, simply replied with a link to its announcement of the freeze when San José Spotlight asked the department to provide instances of fraud in child care funding and how long the freeze will continue.

Chang said that in any government assistance program, misuse of funds is inevitable but that isn’t the majority of providers. There are guardrails in place for compliance, including a licensing entity that provides oversight.Aside from the fraud, there are inefficiencies in the system that point to a larger problem and make it harder for families to get the subsidies they need, and providers to be sustained, Chang said.

For example, it can take a family up to six months to receive approval for federal subsidies. And providers need to submit attendance sheets — oftentimes in paper format — at the end of every month in order to be reimbursed. This delays payments for weeks and makes providers hesitant to care for low-income families, Chang said.

“We absolutely 100% want to be able to address fraud,” Chang said. “But a way to make the whole system easier is to have technology in that equation.”

Contact Joyce Chu at [email protected] or @joyce_speaks on X.