- HHS is rolling back parts of a 2024 child care rule, reinstating attendance-based billing, limiting upfront payments, and restoring voucher flexibility to tighten oversight.
- After fraud allegations in Minnesota went viral, HHS froze roughly $185 million in the states annual child care funds and launched the nationwide Defend the Spend documentation requirement.
- The new rules apply to all states and require proof of services before payments, with expanded audits and a fraud tip line.
- Mississippi, which received about $170 million last year, is awaiting federal guidance on how the changes and potential delays will be implemented.
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These developments mark a significant shift in U.S. federal policy on childcare funding oversight. The restoration of attendance verification and payment after service delivery reverses prior rules that critics said opened the door to misuse, especially illustrated by recent allegations in Minnesota. HHS’s “Defend the Spend” program and requirement of disbursements only after substantiation represent a tightening of controls across all states.
In Minnesota, the policy changes were triggered by a viral video by YouTuber Nick Shirley alleging that some daycare centers were nonfunctional yet receiving federal funds. Deputy Secretary Jim O’Neill called these “credible and widespread allegations” and moved to freeze funding to the state pending audit of centers’ attendance records, licensing, complaint histories, inspections, and other documentation. However, state regulators and the Star Tribune found that many of the accused centers were licensed and open; some were closed or inactive, but others operated as usual.
Financially, the federal government funds the Child Care and Development Fund (CCDF) with about $12.3 billion in FY 2025, split between the Child Care and Development Block Grant (CCDBG) and the Child Care Entitlement to States (CCES). Minnesota’s share under CCDF/Federal-State child care subsidies is approximately $185-218 million annually; Mississippi expects roughly $170 million. States that rely heavily on provider payments made upfront or based on enrollment may see immediate disruption while adjusting to stricter evidence requirements.
Politically and socially, these actions raise concerns about racial and community targeting. Providers in Minnesota—many Somali or Somali-American—assert they are unfairly singled out. Critics argue the measures stem more from political pressure and viral media than thorough investigations. Mississippi and other states will similarly need clarity to prevent funding interruptions for legitimate providers and families relying on subsidies.
Strategic implications for states like Mississippi include potential cash flow pressures for childcare providers, administrative burden increases, and risk of service reduction if funding is delayed. They might need to assess readiness to comply with new documentation rules, audit of existing centers, and adjust their scheduling or payment structures to align with the revised regulations. States should closely monitor guidance from HHS and possibly seek waivers or transitional supports.
Open questions include: how will “legitimately spent” be defined and measured; whether states already meeting stricter standards will be unduly penalized; how long freezes or delays will last; and what support, if any, will be available to childcare providers during transition. Also, the long-term effects on low-income families, especially in minority communities, remain uncertain.
Supporting Notes
- HHS through the Administration for Children and Families is rescinding parts of the 2024 Child Care and Development Fund rule that allowed payment based on enrollment rather than attendance, upfront payments, and contracts over vouchers.
- These changes restore attendance-based billing, remove mandatory upfront billing, and restore voucher flexibility.
- Since December 30, 2025, the “Defend the Spend” system has been activated and a fraud-reporting tip line has received more than 245 reports.
- The funding freeze impacts Minnesota’s CCDF funds of roughly $185 million per year; federal government share for Minnesota for current fiscal year expected at about $218 million.
- Total funding for CCDF in FY 2025 is approximately $12.3 billion: $8.75 billion from CCDBG and $3.55 billion from CCES.
- Mississippi received about $170 million in childcare funding in the previous year and is awaiting federal clarification.
- A viral video alleging active fraud at Somali-run daycares in Minnesota triggered these measures; state regulators later found most centers still held active licenses and up to six centers were closed or inaccessible in the reporter’s visit.
- Political leaders in Minnesota have condemned the freeze as politically motivated, with concern about racial targeting; advocates warn of funding delays harming providers and families.