The U.S. Department of Health and Human Services (HHS) has initiated a freeze on federal funding for child care and family assistance programs in several states, including Colorado, California, Illinois, Minnesota, and New York. This action, alongside announced revisions to federal child care funding rules, stems from concerns regarding potential fraud and misuse of funds. States are now required to provide additional verification and administrative data to resume funding.
Federal Funding Freeze and Increased Verification Demands
HHS announced a freeze on federal funding for the Child Care and Development Fund (CCDF), Temporary Assistance for Needy Families (TANF), and Social Services Block Grant (SSBG) in Colorado, California, Illinois, Minnesota, and New York. This action was communicated via letters to state governors.
Federal officials cited concerns about the "potential for extensive and systemic fraud" within these programs. Deputy HHS Secretary Jim O'Neill stated the freeze reflects a commitment to program integrity and compliance with federal requirements, indicating the response addresses "blatant fraud" observed nationwide.
To resume funding, individual states must furnish specific "administrative data," justification, and receipt documentation for federal payments. Initially, O'Neill indicated all Administration for Children and Families payments would require photo evidence, though HHS later clarified these additional verifications apply specifically to CCDF payments. A dedicated fraud reporting portal has also been launched at childcare.gov.
Minnesota faces additional scrutiny, with requirements for more verification from child care centers suspected of fraud, including attendance and licensing records, past enforcement actions, and inspection reports. The administration has also called for an audit of some Minnesota child care centers.
Policy Revisions to Child Care Funding Rules
HHS also announced the rescission of specific rules from the previous administration regarding federal child care funding, stating plans to reestablish certain practices.
Under the prior administration's rules, states were encouraged to calculate payments to child care providers based on enrollment figures rather than verified attendance. These rules also advocated for advance payments to providers and prioritized guaranteed child care slots over a voucher system.
HHS's new directives aim to reestablish attendance-based billing practices, eliminate the requirement for advance payments to providers, and restore the prioritization of vouchers. Alex Adams, assistant secretary for family support at HHS's Administration for Children and Families, stated, "When controls are not in place, bad actors can bill for children who aren't there. Families and taxpayers deserve proof that services are being delivered to children." Deputy Secretary Jim O'Neill added that "The reforms we are enacting will make fraud harder to perpetrate."
Child care advocacy organizations have responded, with Susan Gale Perry, CEO of Child Care Aware of America, noting that "longstanding program integrity requirements... have been in place and are regularly updated." Melissa Boteach, chief policy officer at Zero to Three, characterized the proposed policy changes as introducing "chaos and confusion," stating they reverse provisions designed to enhance stability and affordability within the child care industry. Boteach also highlighted a lack of clarity for states administering these programs regarding funding reinstatement and interim measures. Perry suggested that even a one-month disruption in funding could lead to facility closures due to narrow profit margins.
The announced rule changes are subject to a 30-day public comment period.
Context: Allegations of Fraud
The federal actions follow allegations of fraud within child care programs. The freeze in Minnesota, for example, was reportedly triggered in late December 2023 by allegations of fraud at Somali-run child care centers.
On December 26, a social media influencer posted a video alleging that Somali-American-run day care centers were defrauding the federal government. On December 30, HHS Deputy Secretary Jim O'Neill posted on X concerning "serious allegations" of "millions of taxpayer dollars to fraudulent daycares across Minnesota."
U.S. Homeland Security officials have conducted a fraud investigation in Minneapolis, questioning workers at unidentified businesses. President Trump has commented on these cases in relation to the Somali population in Minnesota. O'Neill referenced claims from a right-wing influencer regarding alleged fraud at day care centers operated by Somali residents in Minneapolis. Concerns have been raised regarding potential harassment of home-based day care providers and members of the Somali community, with Washington State Attorney General Nick Brown issuing a statement cautioning against harassment and unverified accusations.
A letter to Colorado Governor Jared Polis indicated a federal belief that the state was "illicitly providing illegal aliens with CCDF benefits intended for American citizens and lawful permanent residents."
State Responses and Impacts
Minnesota
Minnesota officials were given a deadline of January 9 to provide information on federal child care fund recipients to the Trump administration. Failure to comply could result in the state losing federal funding. Minnesota's Department of Children, Youth, and Families (DCYF) informed child care providers via email about this deadline.
Minnesota Democratic Attorney General Keith Ellison announced he is exploring legal options. Governor Tim Walz described the administration's move as politicizing the issue to defund programs in Minnesota, while acknowledging the seriousness of fraud. State Senate Majority Leader Erin Murphy criticized the decision, stating it could negatively impact Minnesota families and the state's day care system.
Beyond child care, the administration has initiated efforts to track fraud in other programs within Minnesota. White House Press Secretary Karoline Leavitt confirmed ongoing investigations into potential fraud sites in Minnesota and indicated plans for deportations and considering denaturalization of citizens. The Department of Labor is also investigating Minnesota's unemployment insurance program. Additionally, the administration has threatened to withhold SNAP food aid funding from Democratic-controlled states, including Minnesota, unless they provide information about recipients. Agriculture Secretary Brooke Rollins previously sent a letter to Minnesota threatening SNAP disqualification and funding cuts unless over 100,000 households were recertified and interviewed in person within 30 days, leading to a lawsuit filed by Minnesota's attorney general.
Colorado
If the CCDF freeze remains, Colorado stands to be short $91 million for the remainder of the fiscal year, with federal child care funds projected to be exhausted by January 31. This could affect approximately 27,000 children from 18,000 families, along with specialists and contractors supporting child care quality. The defunding of other federal programs is projected to impact 120 state workers by February 15. The Colorado Department of Early Childhood receives about $138 million annually from the CCDF, constituting one-fifth of its total funding. Child care providers have expressed concerns about maintaining operations without federal reimbursements.
Governor Jared Polis issued a statement asserting that the federal actions would "hurt vulnerable Coloradans" and described the data demands as "unrealistic." He affirmed the state's commitment to supporting families and exploring all available options. State officials and advocates maintain that Colorado possesses robust fiscal accountability systems and internal controls designed to prevent fraud, exceeding federal minimum standards. These include daily, jointly confirmed attendance tracking, monthly risk-based monitoring, and verification of family income, activity, and residency. Officials stated that Colorado Child Care Assistance Program (CCCAP) eligibility mandates citizenship or legal status, verified by identification.
Colorado's child care system was already facing challenges prior to this federal freeze. The CCCAP served only about 11% of eligible families and had a waitlist of 13,000 children, with 19 counties experiencing enrollment freezes, attributed to the expiration of COVID-19-era funding, chronic underfunding, and increased provider reimbursement rates. Both the Department of Early Childhood and Governor Polis have stated their intention to work collaboratively with child care providers and families to navigate the evolving situation.