Child care providers around Indiana will see reimbursement rate cuts of 10-35% as the state’s Family and Social Services Administration tries to close a $225 million funding gap.

The sustainability maneuver could push providers to drop out of a low-income child care program, however.

“We made this decision to protect the children and families that depend on (Child Care Development Fund) vouchers. There is only one pot of money — we could either protect providers or kids, and we chose kids,” said Adam Alson, director of the Office of Early Childhood and Out-of-School Learning.

CCDF is a federal program that provides financial assistance via subsidies or vouchers to low-income families to help them pay for child care so parents can work or attend education and training programs.

The rate cuts weren’t an easy decision, Alson said, but the only other way to rein in spending would’ve been to cut the number of families in the program.

Right now, 55,000 children receive a voucher — above the pre-pandemic average of 35,000 participants.

Alson said former Gov. Eric Holcomb’s administration used federal COVID-19 dollars to raise rates and expand eligibility. The program peaked at 68,000 children, costing almost $900 million in state and federal funding.

When the pandemic assistance waned, the state tapped surplus money from the Temporary Assistance for Needy Families program in fiscal year 2025 to cover the loss. But those funds are no longer available for CCDF, which means the state would have to pull from its General Fund to make up the difference.

The legislature set aside $147 million in additional dollars for the ongoing fiscal year — which started July 1 — to preserve income eligibility criteria for families already on the program. Lawmakers tightened the requirements for new enrollees.

The program is expected to cost about $400 million in fiscal year 2027.

To establish “equitable” reimbursement rates, the state received surveys from 25% of licensed child care providers and analyzed their cost data, arriving at reimbursement levels that “reflect current operating realities,” a news release said.

Rates for infant and toddler care, for instance, will drop by 10%. Rates for preschoolers between the ages of 3-5 will be cut 15%. And rates for school-age children will be cut by 35%.

The new rates go into effect Oct. 5, with the first pay date being Nov. 6.

Alson acknowledged some providers might drop out of the program.

“There’s definitely a possibility of that occurring. That’s part of the regrettable part of this decision, right? That it does affect business models of child care businesses throughout the state of Indiana. There’s no getting around that,” he said.

The change aligns reimbursements with federal regulations that require the rates to be sustainable, according to the news release. The federal government hasn’t notified the state of any compliance violations.

The cuts are the latest challenge for the program, which added a waiting list for applicants seeking services last December.

Sen. Shelli Yoder, D-Bloomington, has likened the waiting list to “a moral failure and fiscal disaster,” criticizing the Republican majority’s decision to expand private school vouchersto high-income Hoosiers during the last legislative session rather than boosting early childhood education for low-income residents.