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Alaska child care providers see long delays in monthly payments, background checks after state cyberattack

Federal grants could help in the long-term as planning begins to distribute $40 million next year
Building Blocks in Anchorage, shown here in June 2020.
Building Blocks in Anchorage, shown here in June 2020.(KTUU)
Published: Oct. 21, 2021 at 5:01 PM AKDT
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JUNEAU, Alaska (KTUU) - Alaska’s strained child care system has been hit by delays in monthly payments from the state and long waits for background checks to hire new staff.

The Alaska Department of Health and Social Services was struck by a cyberattack in May. It knocked out critical systems, including one that is automated that distributes Child Care Assistance payments to roughly 480 Alaska providers. Since then, they had to be done manually, outside the system.

Shawnda O’Brien, director of the Division of Public Assistance, has heard from frustrated child care providers waiting for payments which help low-income families.

“We know that this is detrimental for them maintaining their businesses and being able to continue to serve families,” she said.

For the first few months after the cyberattack, the payments were not impacted as greatly due to staffing levels, O’Brien said. But then there were resignations at the Child Care Program Office.

“The team has been working to fill the vacancies and have other staff assisting,” O’Brien said. “Training new staff to do the work takes additional time and slows down the process.”

August and September payments, worth around $1.3 million in total across Alaska, were delayed and left the department scrambling for other options.

Shauna Donnelly, director of Imagination Station Early Learning Center in Anchorage, said that wait was frustrating. The payments come from the federal government through the state and then onto providers. They get disbursed after the month is over, meaning providers typically wait weeks to receive their checks. This wait stretched into months.

“We have a lot of financial difficulties,” Donnelly said.

Imagination Station is licensed for 192 children across two centers, but it has been operating at close to 50% capacity with staffing shortages. Around half of those kids receive this assistance.

Donnelly roughly estimates that 60 children each receive around $800 per month, meaning the Imagination Station waited two months to get roughly $92,000.

“Would any other business be able to sustain on that long-term?” Donnelly asked.

Lori Berrigan, owner of Palmer LifeWays, said her business is “healthy” but these payments make up “a huge chunk of our monthly budgets.” Around 20% of the center’s children receive those payments, adding up to between $5,000 and $7,500 per month, depending on attendance.

She has also been frustrated with the long delays.

“When we don’t get paid, we’re having to borrow from reserves or me as an owner needs to put in personal money to make payroll and pay our regular bills,” Berrigan added.

O’Brien said the health department used July billing figures from providers to get the payments out last week. The department was also working to get money out to providers that didn’t file claims in July. But it’s an imperfect solution.

Once the system comes online again, there will need to be a true-up so providers that were underpaid can be made whole. Providers that were overpaid may need to pay the state back or have deductions taken from future months’ payments.

The state’s health department also doesn’t know when these online systems will be fixed, meaning next month’s payments may also rely on July’s attendance figures.

Blue Shibler, executive director of Southeast Alaska Association for Education of Young Children, said Juneau providers have been somewhat insulated from the delays. The Juneau Assembly approved paying $625,000 to help the child care industry this year after distributing federal pandemic assistance to providers last year.

That has seen $500,000 go out in stipends for children for year-round operators. Parents of infants can receive $200 per month and pre-kindergarten age kids can receive $50 per month with extra help for low-income families.

Shibler said that program, which is likely unique in Alaska, has been a big help, but she emphasizes that the child care business model is fundamentally flawed. Payments from parents is the industry’s one source of revenue and owners exist on a 1-2% profit margin with very little cushion.

“When you’re operating on such a razor thin margin, any loss of revenue is going to have a huge impact,” she said about the payment delays.

Kyle Gardner got worn down by the industry. He owned Building Blocks in Anchorage but sold it to a new owner at the beginning of the year. He said he loved the job but COVID-19 “craziness” and the lack of stability and uncertainty led him to make that decision.

Federal pandemic grants and loans and child care assistance were the only way his business could survive, he added.

The other challenge facing providers has been staffing, which has impacted capacity. Berrigan said she has a waitlist of around 30 infants from families that need child care. Donnelly said the Imagination Station is turning away 20 or 30 kids each day.

The cyberattack also knocked out the health department’s background check system, meaning that work needs to happen manually and there are long delays in hiring new staff. Donnelly said it typically takes two to three weeks to get a background check completed, but one she submitted earlier in the year took three months to get back.

Some prospective staff found other jobs during those long waits, she added.

Other staffing issues existed long before the pandemic. With razor-thin margins, the industry has long paid low wages and few benefits. A tight labor market means other types of businesses are offering benefits packages and even retirement plans.

“That’s not something that under current conditions that child care businesses are really going to be able to offer,” Shibler said.

A federal pandemic grant program could help. The state received $45 million from the American Rescue Plan Act with $40 million set to be distributed next year.

O’Brien said talks are beginning with providers for how that money can best be spent. A focus is on sustainability.

“Being able to provide for a more comprehensive wage package or benefit package for folks working in the child care industry is one area I think folks have really talked about,” she said.

But there is also the balancing act of not wanting to increase wages or benefits in a way that those costs will be passed onto parents, increasing already high rates.

“It’s a really complex issue that needs a lot more attention,” O’Brien said.

Pandemic grants worth $5 million have started to be distributed to stabilize child care businesses. Jenni Pollard, chief development officer at thread, said the organization is helping to disburse those funds. As of last week, it had received 350 applications, she added. Businesses are eligible to receive between $5,500 and $11,500, based on the program type and size of the business.

Donnelly said the center applied in September for this stabilization grant, but it’s tough to budget without knowing exactly how much the Imagination Station will receive. She said the business may struggle to survive without grants and if future assistance payments are delayed.

As of 2019, thread estimated that 36,000 Alaska children were in child care programs with annual costs for parents exceeding those of college tuition. It’s tough to estimate how many kids are in programs currently as it changes month to month. The cyberattack also makes it difficult to monitor attendance.

Shibler says the industry is failing and it needs long-term help from the state to survive and thrive. Berrigan suggests there is an economic prerogative behind supporting the industry and put it simply why it needs help: “Parents can’t work if they can’t find child care.”

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