In an ironic twist of policy success, North Dakota’s effort to bolster its child care industry has created an unexpected $35.5 million budget shortfall, pushing state officials into a corner and forcing a series of difficult decisions that will directly impact the program’s beneficiaries. The crisis within the Child Care Assistance Program has ignited a fierce debate, pitting fiscal pragmatism against the pressing needs of working families and the state’s broader economic ambitions. With a funding gap created by overwhelming demand, the state now faces the critical question of who will ultimately bear the cost of a program that has become too popular for its own budget, a dilemma that exposes the fragile line between a successful social initiative and a financial catastrophe. The resulting mitigation plan, a complex web of benefit reductions, funding reallocations, and enrollment freezes, has managed to balance the books but has left a trail of concern among lawmakers who fear the long-term consequences for the state’s workforce and families.
The Unraveling of a Successful Program
A Crisis Born from Success
The financial strain on North Dakota’s Child Care Assistance Program can be traced directly to the remarkable success of one of its newest initiatives, the Child Care Workforce Benefit program. Launched in the summer of 2024 to subsidize care costs for individuals employed within the child care sector, the program was designed to stabilize a critical workforce. State budget planners at the Department of Health and Human Services (DHHS) had forecasted a steady enrollment of approximately 6,400 children per month. However, the actual demand far exceeded these projections, with enrollment surging to nearly 7,600 children monthly. This higher-than-anticipated uptake, while demonstrating the program’s immense value to its target audience, single-handedly created the $35.5 million deficit for the 2025-2027 biennium. DHHS officials have since acknowledged that the crisis highlights a need for more accurate and up-to-date data to inform future budgeting, admitting the initial forecasts failed to capture the true depth of need within the state.
The miscalculation was more than a simple numerical error; it represented a fundamental underestimation of the economic pressures facing the state’s child care providers and their employees. The overwhelming response to the benefit program revealed just how essential such support is for retaining workers in a low-margin, high-stress industry. This massive demand created a paradox where a policy achievement—successfully reaching and supporting its intended demographic—morphed into a significant fiscal liability. The state had allocated $124.7 million for the broader Child Care Assistance Program, but the revised projection of $160.2 million exposed a gap that could not be ignored. This situation forced the DHHS to move from a position of program expansion to one of emergency fiscal consolidation, a rapid pivot that set the stage for a series of painful but, in their view, necessary cutbacks designed to prevent the entire system from becoming insolvent before the end of the budget cycle.
Shifting the Cost to Families and Providers
To begin closing the fiscal gap, the state has implemented measures that shift a portion of the financial burden onto the very families the program was designed to help. The DHHS will lower the maximum subsidy amount for households with children older than three, a policy change expected to increase out-of-pocket expenses by as much as $100 per month for affected families. This represents a significant increase, especially when measured against the average monthly benefit of $730 that families currently receive. In a more drastic move, the state froze the Child Care Assistance Program to all new applicants effective December 1, instituting a waitlist for any future openings. As of December 11, seven families had already been placed on this list, signaling an immediate barrier to access for those in need. The department has stated that any spots that do become available will be prioritized for low-income families, but the freeze effectively halts the program’s expansion and leaves many working parents without a crucial support system.
Simultaneously, the state is reducing financial incentives for child care providers, a move that could stifle quality improvements across the industry. The cuts target the Bright & Early ND program, a system that assesses and rates the quality of early childhood services. Under the current structure, providers achieving ratings in the top three of four quality tiers are rewarded with financial bonuses. However, beginning January 1, 2026, these bonuses will be restricted to providers in only the top two tiers. This change effectively penalizes high-performing centers that fall into the third tier, removing a key financial motivation for them to maintain or enhance their quality standards. These programmatic adjustments, which include the reduced family subsidies and provider incentives, are projected to save the state a combined $13.2 million over the biennium. While fiscally necessary from the state’s perspective, these actions place additional strain on both the consumers and suppliers of child care, potentially undermining the long-term health and quality of the entire sector.
The Political Fallout and Economic Consequences
A Controversial Financial Fix
The bulk of the $35.5 million budget shortfall will be covered not by programmatic cuts alone but through a significant redirection of federal funds. The DHHS will reallocate $22.3 million from North Dakota’s Temporary Assistance for Needy Families (TANF) grants from 2025, 2026, and 2027 to plug the hole in the child care budget. State officials have defended this decision by explaining that North Dakota receives an annual TANF allocation of $26.4 million and is permitted by federal law to set aside up to 30% of that funding for child care subsidies. The DHHS chief financial officer, Donna Aukland, clarified that the money being repurposed comes from funds that had been budgeted for other purposes but were not ultimately spent, as well as from funds the state had previously “left on the table.” This strategy presents a pragmatic, on-paper solution to the immediate crisis, leveraging unspent federal dollars to avoid deeper cuts to the popular child care program and preventing the need for an emergency legislative appropriation.
Despite the technical legality and practicality of using unspent TANF funds, the move has not been without controversy, sparking questions from lawmakers about fiscal transparency and prioritization. Sen. Kyle Davison of Fargo raised a critical point regarding the opportunity cost of this decision, stating, “The reality is there’s $22 million that isn’t going to somewhere else.” His request for more detailed information on how TANF funds have been used in prior years underscores a deeper concern among legislators: that using welfare-to-work funding as a backstop for other programs, even related ones, masks underlying budgetary issues and may divert resources from other vulnerable populations that TANF is designed to serve. This financial maneuver, while solving one problem, has opened a debate about the state’s broader spending strategies and whether such reallocations represent responsible governance or a short-sighted patch that could have unintended consequences for other social safety net programs down the line.
Lawmakers Sound the Alarm
The state’s multi-pronged approach has been met with significant scrutiny from lawmakers who question not only the solution but also the process that led to it. Sen. Jeff Magrum of Hazelton challenged the DHHS directly, asking why the department did not first seek funding from the North Dakota Emergency Commission before resorting to benefit cuts. He argued that tapping into emergency funds might have sustained the program without forcing families to “ante up more” and providers to lose their bonuses. While DHHS officials expressed doubt that the commission’s contingency funds would have been sufficient to cover the entire deficit, the question highlighted a procedural dispute and a feeling among some legislators that less painful alternatives were not fully explored. This sentiment reflects a growing tension between the executive branch’s administrative actions and the legislative branch’s desire for greater oversight and involvement in major fiscal decisions, especially those with such direct impacts on constituents.
This budgetary crisis is viewed by many as more than just a fiscal issue; it is a direct threat to North Dakota’s overarching economic strategy. Senate Minority Leader Sen. Kathy Hogan of Fargo delivered a stark warning, predicting “major child care cuts” that would worsen the state’s pre-existing “child care crisis.” She placed the cuts in the context of the Legislature’s deliberate investments in child care as a key tool to combat the state’s severe workforce shortage, implying that the current plan runs counter to those strategic goals. For Senator Hogan and others, accessible and affordable child care is not just a social service but critical infrastructure for a healthy economy. She lamented a lack of proactive oversight, stating, “I think we should’ve been monitoring that budget situation more closely,” and suggested that a problem of this magnitude should be addressed by the full Legislature during a planned special session. This perspective frames the shortfall as a systemic failure that requires a legislative solution, not just an administrative fix.
A Difficult Path Forward
The state’s response to the child care funding deficit, a pragmatic but painful mix of service reductions and redirected federal funds, resolved the immediate fiscal crisis on paper. However, this series of administrative decisions sparked significant alarm among legislators, who viewed the measures as a step backward with potentially severe long-term consequences. The choices made were seen as placing new financial burdens on working families and disincentivizing quality among providers, thereby undermining the state’s broader efforts to solve its persistent workforce shortage. The situation ultimately highlighted a fundamental tension between the constraints of a state budget and the growing, undeniable demand for essential social services, leaving North Dakota at a policy crossroads.
