Subsidizing Success with Child Care
State Legislatures Magazine--April 1998
With the need for more and better child care becoming more urgent, state lawmakers are deciding how to help.
By Scott Groginsky and Laurie McConnell
It's one of the hardest decisions a parent must make: Who takes care of your child while you go to work? Regardless of your economic status, you must have good, reliable care. If you're trying to find a job and move out of welfare, lack of child care can be an insurmountable hurdle.
It's a hot topic these days, and it seems as if everybody has a plan. As state policymakers address the burgeoning demand, they face significant challenges:
- How much child care funding is needed?
- Who should be eligible for publicly funded care?
- How much should a parent contribute to the cost?
- How much should the state reimburse child care providers?
- How should child care be funded?
- How do you ensure good child care?
Federal, state and local policymakers from both major parties have offered proposals to provide more and better care for young children while their parents work. These ideas encompass a variety of services: out-of-home day care for preschoolers, after-school initiatives and early education programs that help prepare children for school. State legislatures are at the forefront of these plans, with at least half the states looking at ways to help low-income parents.
"With more and more working parents and more two-worker families, child care is necessary," says California Senator Cathie Wright. As the country moves to get everyone employed, Wright says the focus has to be on quality child care. It's difficult to learn a new job or be a good worker if your mind is on your children while you are on the job, she says.
Pushing child care issues is the new welfare system that requires families on welfare to work. The 1996 federal reform law provided nearly $3 billion in child care funding to support state efforts for meeting the new work requirements and to help other low-income working families stay off welfare. There's no question that affordable, reliable child care is essential to a parent's ability to keep a job. And we now know that young children's brains develop language, thinking and social skills during the first three years of life and more rapidly than was previously believed. This new information underscores the importance of early childhood experiences. Nurturing, stimulating care from a consistent caregiver early in life supports readiness to learn and healthy emotional development.
As states complete the first full year of welfare reform, legislators are examining the effects of their child care policies. In "The Child Care Challenge: States Leading the Way," the American Public Welfare Association says 25 states plan to appropriate more money than is required for federal matching funds. States are spending more money than ever before to provide for the increasing demand for child care, the report says.
HOW MUCH FUNDING IS NEEDED?
"Some states have recognized the importance of [child care] funding," said Helen Blank of the Children's Defense Fund, "but there are other states with long waiting lists or that have no way to serve all the low-income families who are eligible." Blank says putting funds into child care can only save money in the long run. "One-third of children whose mothers work are poor or would be if their mothers didn't work."
Illinois and California have dramatically increased funding to either eliminate or shorten waiting lists for subsidized child care.
Illinois legislators added $100 million in state money to the child care system--$30 million more than the governor proposed--in 1997. With these funds, the state will no longer have a waiting list for child care services.
"We prevailed on the issue," says Senator Dave Syverson, a lead sponsor. "In the long run, it saves a large amount of money because it advances true welfare reform. The state is better served because the funding will help move and keep thousands of people off welfare and working."
Praising the legislation that eliminates the state's waiting list of nearly 30,000 children, a Chicago Tribune article declared: "The legislature has laid the groundwork for a better future for tens of thousands of families by recognizing unequivocally the pivotal role child care plays in their lives. That's a bold move--and a promising one."
Other states such as Minnesota, North Carolina and California, also increased state child care funding last year. In Minnesota, legislators approved an additional $113.3 million for the upcoming biennium, a 130 percent increase. North Carolina lawmakers expanded the state's child care funding level by 30 percent, or more than $22 million. State law earmarks 30 percent, and allows 50 percent, of these funds for subsidies.
California legislators took steps in the 1997 session to provide child care subsidies to all families on welfare and to significant numbers of working poor families on waiting lists. They increased funding to those two groups by more than $90 million. "With more subsidies, we are promoting greater independence to work," said Senator Wright, a lead supporter of the increase. To continue addressing California's substantial child care demand, Governor Pete Wilson has proposed a $665 million hike in state and federal child care funding this year.
This isn't to say that other states haven't substantially increased child care subsidies. Almost every state has done something; most have made moderate increases or at least maintained previous funding levels.
For more information about federal proposals, call Sheri Steisel of NCSL at (202) 624-5400 or send e-mail to sheri.steisel@ncsl.org.
DECIDING WHOM TO HELP
Several state legislatures, including Illinois, Wisconsin, Vermont, Rhode Island and Colorado, used new funding to help all families that meet certain income eligibility guidelines, whether or not they are on welfare. In Illinois, eligibility is now capped at about 165 percent of the federal poverty level, or $21,819 gross per year for a family of three.
Senator Syverson says Illinois switched to income-based eligibility because the state "needed to create more than enough slots for people it believed would move from welfare to work in the first year."
"The new single-tiered system treats the welfare population and the working poor in the same way," he says. "Our philosophy is not to punish [by denying child care subsidies] a family struggling and working hard just to stay above poverty. We want to help those families--the working poor--with child care."
The Illinois legislation was a bipartisan effort. Representative Carol Ronen, who chairs the House Children and Youth Committee, calls the policy fair and says it creates a "seamless system with equal access and quality care for young children, regardless of their welfare status."
Other states continue to base child care eligibility on whether a family is on or making the transition off welfare. Some states have ranked populations for eligibility, and some prioritize waiting lists so that families with the lowest incomes receive child care services first. Although this policy may help a state avoid penalties for failing to meet work requirements, other low-income families excluded from eligibility often are placed on waiting lists and could end up on welfare if child care is not available.
HOW MUCH SHOULD PARENTS PAY?
In deciding who should get help, legislators are looking at several important issues, including the parent fee scale, commonly based on family income. States are required to set a fee structure and have flexibility to design it. This includes deciding a copayment amount and the methods to determine it. These policies have great implications for low-income families' abilities to afford child care and achieve self-sufficiency.
According to the U.S. Census Bureau, poor families spend 18 percent to 25 percent of their incomes on child care, compared with only 7 percent for families who aren't poor. To help guide state decision making on parent fees, the federal government proposed a maximum copayment limit of 10 percent of family income. State fees vary.
Illinois was one state that decided to raise parent fees in order to serve more families. It increased its maximum to about 13 percent of income for a family of three, or $54 a week. "It was too low before--25 cents in some cases," says Senator Syverson. "If we ask the taxpayers to help subsidize child care, then those participating should have some sacrifice. The slight increase in copayments allowed us to help more people."
California legislators decided against using a fee increase to fund expansion. Assemblywoman Dion Aroner says the Legislature continues to pay all costs for families below the poverty level "because the high cost of care, especially infant care, is a disincentive for poor families to work." Once a California family's income exceeds the poverty level, parents pay a fee that increases with the family's income. A family of three, earning just above the poverty level, pays about 2 percent of its gross income for child care. This fee increases to about 10 percent of gross income for families at 200 percent of the poverty level.
Some states, such as Wisconsin, Delaware and Louisiana, factor the cost of care into the parent fee. Basing copayments on the cost of care may discourage low-income families from choosing higher cost care, which is often higher quality care. This is especially likely if it consumes a sizable portion of the family's income.
Differing Rates Help in Finding Care
To make high quality or harder-to-find child care services more available, some states are using differential reimbursement rates. Many states, including Connecticut, Mississippi, Oklahoma, Kentucky, Minnesota, New Jersey, South Carolina, Vermont and Wisconsin, pay higher reimbursement rates to programs that meet national accreditation or other specified standards.
"Differential reimbursement rates are important, especially if you want to support good care," contends Helen Blank of the Children's Defense Fund, "because the higher cost of being accredited must be reflected in the rates or low-income children won't be able to get into more comprehensive or enriched programs."
HELPING THE HELPERS
Quality is another big issue in child care policy, and many believe it is tied directly to the amounts states pay for subsidized care. Advocates express concern that low reimbursement rates discourage centers from enrolling poor children.
Representative Nancy Benoit, who chairs Rhode Island's legislative commission on child care, says reimbursement rates tie directly to ensuring quality programs. She says that rate increases allow providers to pay caregivers more, which results in more consistent care. "Consistency of caregivers is very important to young children. Increases help retain staff because they can be paid better."
Better pay was also an issue in California and Illinois. "Wages of workers are so low that there is a disincentive for people to become child care providers. Until we deal with this issue of wages, we may not be able to increase slots," says Assemblywoman Aroner.
In order to promote quality, Representative Ronen says that adequate wages for providers will be a focus of Illinois' legislative discussion this year "so we minimize the potential for staff turnover."
More than half the states raised their reimbursement rates in 1997, according to a recent Children's Defense Fund report. Some advocates, and the federal government in its proposed rules, recommend a minimum reimbursement at the 75th percentile of current market rates. Rhode Island, for example, will increase rates to the 75th percentile by the year 2000. To reach this level, rates will increase 14 percent in 1998 and about 9 percent in 1999 and 2000. That means by 2000, a child care center will be reimbursed $129.50 a week for infant care, compared with today's $98 rate. Rhode Island legislators also ensured that rates remain current by requiring a market study every two years so that as the cost of care goes up, reimbursement rates go up too.
Another recent Rhode Island law also provides health care coverage to licensed in-home providers who accept subsidized children. Representative Benoit believes these benefits will help maintain the continuity of providers and attract others who will accept subsidized children. There are plans this legislative session to expand health coverage to child care centers that accept subsidized children.
USING WELFARE FUNDS FOR CHILD CARE
States are acting to meet child care needs at a time when the economy is generally good, and welfare rolls are dropping dramatically. Within this context, child care is widely viewed as a logical place to invest money that had been set aside for welfare. Some states, such as Michigan, used state welfare money to draw down federal matching funds that increased the state's child care base. To eliminate the waiting list in Wisconsin, policymakers budgeted more than $80 million in federal welfare funds in FY 1998. Florida policymakers also sought to reduce the number of families on the state's waiting list by using part of the federal Temporary Assistance for Needy Families (TANF) block grant for child care. The Sunshine State chose to provide child care within the TANF program rather than transfer TANF funds to the Child Care Development Block Grant (CCDBG), according to state agency officials, because TANF allows the state to take more time in deciding how to spend the money.
But some legislators are worried about providing child care with TANF funds because the five-year lifetime limit for TANF eligibility applies even if a family receives only child care assistance. The time limit does not apply if a state transfers TANF money to its child care block grant, but that action is tied to federal requirements that a percentage of the money be used to promote quality care.
North Carolina legislators debated, but ultimately rejected, a transfer of a significant amount of TANF funds to Smart Start, the state's comprehensive child care initiative in 1997. Some opponents of the transfer were concerned that the state's commitment to welfare reform could be hindered by moving money out of welfare programs, since Smart Start includes activities that extend beyond welfare reform and subsidized child care. Senator Bill Martin, who co-chairs the Joint Appropriations Subcommittee on Health and Human Services, supports Smart Start but voted against the transfer. He says that the legislature "should not transfer, but should find additional revenue to support Smart Start out of other budget surpluses."
This year, North Carolina Governor Jim Hunt is proposing to transfer TANF funds to the child care block grant for child care subsidies, citing big increases in demand for these services and reduced welfare caseloads. Although Martin looks favorably on the governor's proposal, he believes that, in order to persuade legislators, the state administration needs to "document the correlation between the use of TANF funds for child care subsidies and preventing folks from getting on welfare or helping them stay off welfare." Representative Lanier Cansler, who co-chairs the same joint subcommittee, believes that since the number of public assistance families on the child care waiting list is very small, it makes more fiscal sense to appropriate general fund money. He suggests that the legislature should be "very protective of TANF dollars this early in the game, to make sure that adequate funds are available to cover the needs of the welfare population."
WHAT'S AHEAD?
Many states are responding to the widespread concerns about child care for low-income families. Policymakers realize that good care enables parents to work and encourages children to learn. With decreasing welfare caseloads and the positive economic climate that most states are enjoying, there is a growing legislative consensus that strengthening and expanding states' child care systems now is a wise investment for the future.
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