The Future of Child Care Funding in Minnesota: Are We Slowing Down Too Soon?

The Minnesota Legislature is currently reviewing Governor Walz’s proposed FY 2026-2027 budget, which must be passed for the upcoming two-year cycle, beginning on July 1, 2025.

Walz’s proposal includes funding increases in some areas while reducing allocations in others. Child care funding within this budget will have a direct impact on families, providers, nonprofits, and workforce development. The decisions made today will shape the future of child care accessibility and affordability across the state.

With funding levels set to decline significantly after FY 2025, a critical question emerges: Are we investing enough in child care, or pulling back too soon?

General Funds & Federal Funds

Walz’s budget includes proposed improvements to Minnesota’s Child Care Assistance Program (CCAP) to align with updated federal regulations. The plan allocates approximately $14 million for FY 2026-27 and over $20 million for FY 2028-29 from both state and federal funds. CCAP supports more than 22,000 lower-income families each month by reducing child care costs.

Recent federal rule changes require Minnesota to achieve full compliance by August 1, 2026, to avoid financial penalties. Walz’s proposals include lowering co-payments to ensure no CCAP family pays more than 7% of their income and simplifying eligibility renewals for families with new children. However, these adjustments only partially meet federal compliance requirements.

The budget also includes cost-neutral modifications to the Great Start Compensation Support Program, which provides funding to increase pay for child care workers. The proposal expands eligibility for higher payments to tribally licensed providers and those operating on tribal reservation land in designated Child Care Access Equity Areas—regions with limited child care availability and significant economic challenges.

Despite these investments, concerns remain about a projected $193 million funding shortfall for Early Learning Scholarships in FY 2026-27, which could significantly impact access to affordable child care for many families. Read an overview of Governor Walz’s proposed FY2026-2027 budget here.

DEED Child Care Funding

Beyond these state and federal funding allocations, the proposed budget includes key child care investments within the Minnesota Department of Employment and Economic Development (DEED). These initiatives aim to expand child care access, enabling caregivers to work, pursue education, and contribute to thriving local economies. Read Governor Walz’s proposed DEED FY2026-2027 budget here.

Trends Over Fiscal Years

The graph below illustrates funding allocations for DEED child care initiatives over four fiscal years (FY24–FY27), focusing specifically on Quality Child Care Grants and Minnesota Initiative Foundations. There are also smaller, short-term allocations directed toward special child care projects, which are funded for only one or two years.

Background:

• FY24 and FY25 funding is already in place and being spent, with a significant investment in FY25.

• FY26 and FY27 funding is currently proposed and must still be passed by the Minnesota Legislature and signed by Governor Walz to take effect.

Note: This chart was created by Rural Pathways using data from MN DEED Proposed Budget FY26-27. Data from other funding streams is not included.

Key funding allocations include:

• Quality Child Care Grants (blue line) saw a sharp increase in FY25, reaching $6.175 million, before stabilizing at $1.175 million in FY26 and FY27 (pending approval). 

• Minnesota Initiative Foundations (green line)—which distribute funding to six regional foundations working to sustain and expand child care access—follow a similar pattern, peaking at $3.36 million in FY25, before leveling off at $860,000 in FY26 and FY27 (pending approval).

• Total Funding (shaded area) represents the combined investment from both sources, with a dramatic surge in FY25 ($9.535 million) before dropping to a steady $2.035 million in FY26 and FY27 (pending legislative approval).

This funding plays a crucial role in ensuring that Minnesota families and communities have access to quality child care. The actual FY26 and FY27 funding levels will depend on legislative decisions in the coming months.

So, this raises an urgent question: Is Minnesota ready to take its foot off the gas when it comes to child care infrastructure as an economic driver? With funding levels set to decline significantly after FY25, the long-term impact on child care access and affordability remains uncertain.

Note: It’s important to recognize that additional government funding being taken up now in Congress to include provisions for families and businesses also play a vital role in supporting child care access across Minnesota. One such bill is the bipartisan Affordable Child Care Act.

Make Your Voice Heard

We want to hear from you! What do you think about the future of child care funding in Minnesota? Share your thoughts on how these decisions will impact families, providers, and communities. And don’t stop there—reach out to your elected officials to let them know where you stand on child care funding priorities. Your voice matters in shaping policies that support children and working families across the state.

To learn more about reaching out to your elected officials, check out this article: Make Your Voice Count: 7 Key Moves to Advocate for Child Care Funding in Minnesota.

Citation: Anderson, Charity & Gilpin, Staci. (2025). The Future of Child Care Funding in Minnesota: Are We Slowing Down Too Soon? Rural Pathways News.

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