This article identifies the extent to which fiscal and regulatory action by state governments shapes the formation of sectors--in this case, including the local availability, organizational formalization, and quality of teachers in child care centers nationwide. These state-level effects are compared to the local effects of family demand and associated demographics of households. Although demand factors (e.g., maternal employment, income levels, and ethnic composition of communities) explain a greater share of the variance in the availability and formalization of child care centers, state governments have been effective in spurring organizational growth within low-income communities, advancing formalization and quality in particular. Communities with more civic organizations and churches per capita display a stronger capacity to expand and formalize child care centers. The formation of this sector appears to stem from pluralistic politics, resulting in variable state spending and regulatory actions, not simply from a deterministic advance of rationalized institutions.