The District’s Pay Equity Fund is a Success and it Deserves Full Funding

Chairman Mendelson, members of the committee, thank you for the opportunity to testify. My name is Anne Gunderson, and I am a Senior Policy Analyst at the DC Fiscal Policy Institute (DCFPI) and a member of the Under 3 DC Coalition (U3DC). DCFPI is a non-profit organization that shapes racially-just tax, budget, and policy decisions by centering Black and brown communities in our research and analysis, community partnerships, and advocacy efforts to advance an antiracist, equitable future.

The District’s early childhood programs, including the Pay Equity Fund (PEF) and the child care subsidy program, have shown tremendous success in providing children safe and supportive learning environments so that District parents can work or pursue an education. These programs provide a strong foundation for DC’s economy and require greater investments to meet needs.

DCFPI commends the mayor for protecting current investments in DC’s early childhood programs in her fiscal year (FY) 2026 budget, but flat funding is not enough to serve those currently benefitting from these programs. The mayor also proposed eliminating PEF funding in FYs 2027-2029, which would end the progress this program has made towards establishing pay parity to attract more educators to early childhood classrooms. Protecting investments in PEF for the next fiscal year but eliminating it in all future years undermines her purported support for the program, stability in wages and healthcare for early educators, and the sustainability of child care in DC. To continue making progress toward a high-quality, accessible, and affordable early childhood ecosystem in DC, DC Council should:

• Enhance the FY 2026 budget for the PEF by $10 million, for a total of $80 million, to keep up with growing costs and restore funding for FYs 2027-2029;
• Ensure the Budget Support Act (BSA) includes a provision that increases transparency and equity in the PEF; and,
• Enhance the child care subsidy program by $20 million, for a total of $106.3 million in FY 2026, to maintain current caseloads and allow new families to access the program.

Maintaining the Vast Success of the Pay Equity Fund Depends on Increased Investments

DCFPI commends the Office of the State Superintendent of Education (OSSE) and DC Health Benefit Exchange (DCHBX) for making bold progress on fair compensation for more than 3,600 early educators, most of whom are Black and brown women, through the implementation of the PEF.^[1] DCFPI also thanks the Chairman for his support for PEF, including saving it after Mayor Bowser eliminated the program in her FY 2025 budget, and for reconvening the Early Childhood Educator Equitable Compensation Task Force (task force) to identify program improvements and cost containment strategies.

The council should provide recurring investments in the PEF in each year of the financial plan because the program yields positive results for children, families, educators, and the entire District. In the past two and a half years of implementation, the PEF has improved the recruitment and retention of educators at early learning facilities.^[2] In fact, the PEF grew the early childhood educator workforce by 7 percent—or 219 workers—which leads to greater availability of child care for District parents.^[3] It has also helped improve the quality of participating programs because when we pay our educators a living wage and provide healthcare, they are better able to focus on the needs of the children in their classrooms and provide high-quality interactions that contribute to their learning and growth.^[4] These positive outcomes are not limited to the classroom—in the first two years of implementation, the PEF yielded a 23 percent return on investment.^[5] This is evidence that investing in our children, families, and workers is an investment in the wellbeing of the entire District.

Flat funding for FY 2026, as currently proposed in the mayor’s budget, would stall the incredible progress DC has made in the PEF. OSSE is projected to spend at least $74 million by the end of FY 2025, assuming that spending remains steady for the remainder of the fiscal year.^[6] The council will need to enhance the PEF budget by at least $4 million just to serve the educators currently enrolled in the program at their current role and credential level, even with the current waitlist in place, or risk having to make additional cuts to the program, like further restricting who can participate or reducing payments to facilities to help them maintain salary minimums for their educators.

The council should also restore full funding to PEF in the out years of the budget to ensure that DC can continue to grow on the progress it has made in being a national leader in early education. A delayed cut to PEF is still a cut. If DC expects early educators to remain in the field, lawmakers cannot continue to eliminate the funding that maintains their wages and healthcare. They need to know today that the funding will be there and that the council will keep their promises to protect this funding in the future.

PEF is a Lean Program and Has Already Been Scaled Back in Recent Years

The PEF is a lean program—over 97 percent of funding goes directly to salary awards and healthcare—so any cut to the program will mean reducing awards to facilities, limiting who can participate in the PEF, or reducing salary minimums.^[7] The council allocated less funding for the PEF for FY 2025 than OSSE spent on the program in FY 2024. That led to DC cutting over 500 educators from the program and all facilities losing the supplemental funding that many child care directors depended on to meet salary minimums. Without an enhancement going into FY 2026, DC risks having to make more difficult decisions, like reducing awards to facilities, which could make it even harder for facilities to maintain current salary minimums without applying for a waiver to pay their educators less or passing the cost along to the families they serve. Currently, 15 of the total 331 participating facilities have approved waivers due to their inability to meet salary minimums.^[8]

The purpose of the PEF is to establish pay parity with DC Public Schools, and those educators recently renegotiated their contracts and received long overdue cost-of-living adjustments. Educators in the PEF also deserve a cost-of-living adjustment, especially as the cost of food, rent, and other necessities continue to get more expensive. The council should enhance the PEF budget by an additional $1.2 million to provide a two percent cost of living adjustment to participating educators.

Finally, lawmakers need to enhance the PEF budget further to allow educators who gain higher credentials and/or who are promoted to receive higher salary awards commensurate with their role and credential level. Total payments for the salary component grew by nearly $500,000 between quarters one and two this fiscal year due to educators gaining higher credentials and being promoted into higher-paying roles, so the budget for the program needs to grow by $3.4 million to meet higher costs.^[9] OSSE also implemented a waitlist in April for new facilities wishing to join the PEF, so the budget will need to be enhanced to absorb facilities from the waitlist into the program.^[10] Together, we are asking for an $8.6 million enhancement to the salary component of the PEF (Table 1).

The mayor’s proposal to eliminate all funding for the PEF starting in FY 2027 is a slap in the face of the task force members and community stakeholders who spent months following the last budget cycle refining the funding formula to reduce costs and better ensure the sustainability of the program over the next few years. It also directly contradicts claims she made in early April that she would support early learning programs, including the PEF.^[11] Educators’ trust in the program was already shaken after OSSE implemented changes recommended by the task force and cut over 500 educators from the program to contain costs. Threatening all future funding for the program sows even greater uncertainty among those who have grown to depend on these wage supplements and healthcare after two and a half years of implementation. The council should restore funding for the PEF in the out years to keep their promises to early educators and families across the District that they would protect and support this program.

The HealthCare4ChildCare Budget Needs to Slightly Grow to Meet Increasing Costs

As of January 2025, HC4CC covers nearly 2,000 people across 220 facilities, which represents a 79 percent penetration rate for eligible facilities.^[12] However, participation varies by ward, with Wards 7 and 8 having the lowest percentages of eligible facilities enrolled, at 59 percent and 68 percent respectively.^[13] Due to funding constraints, the Health Benefits Exchange (HBX) instituted a waitlist for new facilities starting in January 2025, so progress toward covering all eligible facilities will be stalled unless the Council increases the budget for the program. As of May 2025, HBX confirmed that one facility is on the waitlist, and that HBX has enrolled that facility’s workers living in DC into HC4CC but nonresidents remain on the waitlist, per current policy.^[14]

Healthcare costs also grow annually and at a higher rate than economic inflation.^[15] Last year, HBX estimated an 8 percent annual increase in premium costs for HC4CC. In the absence of updated projections, DCFPI suggests that the budget for this program should at least grow at the same rate to continue to cover those enrolled in the program.^[16] By increasing the budget for HC4CC by $1.4 million, those currently enrolled should be able to maintain their coverage and facilities currently on the waitlist can be absorbed into the program, expanding healthcare coverage to more early educators. Any federal changes to the marketplace, and potentially Medicaid, could impact the cost of HC4CC, which makes this enhancement especially pressing and necessary to keep our educators and their families insured.

New PEF Legislation Should Set the Vision for the Future of the Program

When the mayor eliminated the PEF last year in her proposal, she eliminated the legislation supporting the program, which the council approved and subsequently passed a short-term bill that codified fair pay for lead teachers with a Bachelor’s degree after the BSA of FY 2025 reduced minimum salaries for this group. Lawmakers have an opportunity to rewrite the legislation that determines how the program operates through Bill 26-176, the Early Childhood Educator Pay Scales Amendment Act of 2025. We are grateful to have worked closely with Hannah Kozik, legislative policy advisor to Chairman Mendelson, to ensure that this legislation reflects what we have learned from two and a half years of implementation and helps make the program better in the years ahead, but further improvements are needed.

Some of DCFPI’s suggested improvements to Bill 26-176 include:

• Only allow OSSE to make reductions to the salary scale as a last resort to balance the PEF budget. Council should write the bill language to be specific about the options OSSE has to reduce program costs to ensure that stakeholder voice is included in those decisions, that the options available are rooted in equity, and that any changes to award amounts are announced with enough time for participating facilities to pivot and fill funding gaps through other methods. The law currently allows OSSE to adjust the payroll formula mid-year or reduce the number of facilities who are eligible to participate, like reducing participation to only those facilities who serve child care subsidy-eligible families, to contain program costs. Bill 26-176 would newly allow OSSE to revise the early educator salary tables set by law. While this may become a necessary option for the agency, it should be an option of last resort to safeguard the longevity of fair pay for early educators who have worked so hard to obtain newly required credentials.
• Require the task force to reconvene prior to OSSE pursuing any revisions to contain costs, especially before pursuing changes to minimum salaries. The task force successfully came together at the end of last budget season and thoughtfully redesigned the formula to reduce costs while centering equity, including reducing awards for high-tuition facilities that have more resources to pay their educators, and increasing awards for facilities that serve families with low incomes, facilities serving infants and toddlers, and home-based facilities who operate on tighter margins and need greater support to meet salary minimums.^[17] If program expenditures for the current fiscal year outpace the funding allocation for the following fiscal year, OSSE should reconvene the Task Force to figure out how to implement additional cuts if necessary.
• Increase transparency by requiring OSSE and/or the Chief Financial Officer (CFO) to provide quarterly reports on the reach and expenditures of both the salary awards and HC4CC. Insufficient funding for the PEF, and the changes to the formula to respond to lower funding levels, has created some uncertainty among early educators and facility directors about the future of quarterly salary awards and benefits. If funding continues to fall short of what is needed to implement the program as designed, participating facilities need sufficient time to adjust their budgets to try to fill gaps created by lower PEF awards or to decide if they can afford to continue to participate in the program at all. By mandating quarterly reporting, facilities can better plan for the future, especially if OSSE decides to reduce awards. This legislation should also require OSSE to collect and report the share of facility awards that go to enhancing the wages of qualified educators and the share that goes to other expenses so stakeholders can assess how well the program is reaching eligible educators and recommend ways to more efficiently allocate future program funds.
• Funding levels codified in law should reflect the real costs of the program, not the $70 million in annual funding as currently written. The annual cost of the PEF is driven by the number of participating educators, their roles and credential levels, and cost of living adjustments. As the workforce grows and educators gain higher credentials, the budget for the program should grow to meet these needs. An important way Bill 26-176 can be structured to ensure the long term success of the PEF is by adding language requiring the FY 2026 funding level, and annually thereafter, to be set at, “funds sufficient to meet salary table requirements for all child development facilities and educators projected to be enrolled in the Pay Equity Fund program in the coming fiscal year, including funding necessary to operate the HealthCare4ChildCare program.” The council should also work with OSSE and advocates to estimate the true cost of the program and codify those funding levels into law. This will help ensure the longevity of the program, which will encourage participation among child care providers and help grow the supply of affordable, high-quality care in the District.

The Child Care Subsidy Budget Should Grow as Utilization Grows

DC’s child care subsidy program helps more than 8,100 families with low and moderate incomes pay for quality child care.^[18] The subsidy program is an avenue for predominately Black and brown parents—who have faced centuries of systemic oppression—to give their children a jumpstart on their education and to have a safe and supportive environment for their children while they work or pursue an education.^[19]

The council should enhance the child care subsidy budget by $20 million, for a total of $106 million in local and federal funds, in FY 2026 to maintain current caseloads and allow new families to take advantage of this resource. OSSE’s actual spending levels for child care subsidies in FY 2024 was $105.5 million. This is higher than the $96.3 million in the FY 2025 approved budget, which means OSSE already faced a $9.2 million shortfall to maintain previous caseloads. Although OSSE has not made FY 2025 spending data available, it is likely that they closed this gap with temporary federal funding that will no longer be available in FY 2026. The mayor’s proposed FY 2026 budget of $86 million shows another year-over-year $5.6 million cut in federal funds for subsidy, a cut that may require OSSE to implement a waitlist for new families seeking a child care subsidy .^[20]

Overall subsidy enrollment has been increasing since FY 2022, primarily driven by increases to infant and toddler subsidy utilization, which dropped during the pandemic (Table 2).^[21] In FY 2024, infant and toddler enrollment in the subsidy program nearly hit FY 2019 levels, and this growth is expected to continue given the recent improvements and income expansions implemented by OSSE. In fact, DC has seen a recent spike in child care subsidy utilization, which has increased from 5,767 children served in October 2024 to 6,796 in March 2025, an 18 percent increase.^[22],[23] The need for subsidies is much greater than current utilization rates reflect because of a variety of barriers that continue to exist for parents to access subsidies, including complex application requirements, difficulty finding a subsidy provider who meets their needs, and other obstacles. OSSE has implemented some changes to ease these burdens, like putting the subsidy application online and simplifying some of the components of the application. As a result, enrollment in the program has grown and is likely to continue growing.

The council should be working to fulfill the promise of the Birth-to-Three For All DC Act, which set the vision to incrementally expand eligibility for child care subsidies to more District families each year, but this requires increasing investments each year.^[24] The future of DC’s economy depends on the investments we make in our families and communities. Expanding access to child care subsidies has the potential to pump billions of dollars into the District’s economy because when children are in safe and supportive learning environments, parents can work, make money, and spend money at local businesses.^[25] Investing in our children means investing in our future.

Thank you for the opportunity to testify. I look forward to discussing these recommendations with you further.