Michigan lawmakers are considering a House budget proposal that would save $19.5 million on paper but could ultimately cost the state far more by forcing child-care small businesses to close, pushing parents out of the workforce and limiting opportunities for thousands of children.

At issue is a proposal to change how providers participating in Michigan’s Child Development and Care (CDC) Scholarship program are reimbursed. Under the current system, providers are paid based on enrollment. The proposed budget would revert to attendance-based reimbursement, meaning providers would only be paid when a child is physically present.

While this may sound like a minor administrative adjustment, it represents a significant threat to one of Michigan’s most important small-business sectors.

Child-care providers face the same fixed costs as every other business. They must pay employees, rent, utilities, insurance and licensing costs regardless of whether a child misses a day because of illness, a family vacation or an emergency. Enrollment-based reimbursement recognizes that reality and provides the stability providers need to operate.

Attendance-based reimbursement does not.

No other small business is expected to reserve capacity for a customer while absorbing financial losses every time that customer is absent. Yet that is exactly what this proposal would require of child-care providers.

Many providers already operate on razor-thin margins. For some, especially smaller independent providers and those serving rural communities, this change could mean reducing enrollment, cutting staff or closing their doors altogether. The impact could be particularly severe for businesses owned by women and entrepreneurs of color, who make up a significant portion of Michigan’s child-care sector.

The irony is that the proposed savings are small compared to the broader economic costs. Michigan already loses nearly $3 billion annually in economic productivity due to inadequate child care. Saving $19.5 million by destabilizing providers risks creating far greater losses for employers, families, and communities across the state.

Michigan cannot claim to support small businesses, workforce participation and economic growth while adopting policies that make it harder for child-care businesses to survive.

The consequences would extend far beyond those businesses.

More than 47,500 children from low-income working families rely on CDC scholarships so their parents can participate in the workforce. When child-care programs close or reduce capacity, parents lose access to reliable care. Some are forced to reduce hours. Others leave the workforce entirely. Employers then face greater challenges filling positions and retaining talent.

Michigan is already struggling with a shortage of child-care options. In many communities, families wait months for an available opening. Weakening the financial stability of providers will only make that problem worse.

Children also bear the cost.

Research consistently shows that stable, high-quality early learning environments support healthy development, school readiness and long-term educational success. When programs close or families are forced to change providers, children lose the consistency and relationships that are critical during their earliest years.

This debate is about far more than a line item in the state budget. It is about whether Michigan will continue strengthening the systems that support working families and economic growth — or undermine them.

Lawmakers should reject this proposal and preserve enrollment-based reimbursement for CDC scholarships. Doing so will protect small businesses, support working families, strengthen Michigan’s workforce, and ensure more children have access to the stable early learning environments they need to succeed.

The question before policymakers is simple: Will Michigan invest in a stronger workforce and economy, or will it make it harder for the very businesses that make both possible?

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