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7 Child Care Policies and Programs Previous chapters have documented trends in family structure, women's labor force participation, and types of child care (Chapter 2) and the range of child care services (Chapter 6~. In this chapter, we focus on public and private child care policies and programs, emphasizing their costs and the groups they serve. We begin with an overview of child care expenditures and federal, state, and local government policies and private initiatives. We then detail specific policies that provide subsidies for parents, subsidies for service providers, and subsidies to strengthen the child care infrastructure. CHILD CARE: EXPENDITURES AND POLICIES Conceptual problems and the lack of adequate data make it very difficult to estimate with any precision the total amount and types of resources spent on child care in the United States. It is possible, however, to piece together a general picture from various sources of information. Parents have increased the inflation-adjusted amount they spend di- rectly on child care at least fourfold over the past 20 to 25 years, from less than $3 billion in the early 1960s to approximately $12 billion in 1989 (in constant dollars). This large increase undoubtedly reflects the growing labor force participation of mothers with young children and the rising need and willingness of parents to depend more on paid child care. However, not all of this increase reflects a greater financial burden on parents. A sig- nificant share of it was underwritten by public policies at the federal (and, to a much lesser extent, the state) level. As shown in Table 7-1, subsidies for parental child care expenditures, provided through the personal income tax system (e.g., the child care tax credit) currently amount to more than $4.1 billion. This is an increase from only a few hundred million dollars (in 194

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CHILD CARE POLICIES AND PROGRAMS 195 1989 dollars) in the mid-1960s. Subtracting these federal subsidies from the $12 billion total, we estimate that out-of-pocket expenditures by parents are about $8 billion annually. In addition to these so-called tax expenditures, governments at all lev- els spend money on child care by subsidizing providers who deliver these services, by supporting programs such as Head Start and preschool edu- cation, and by supporting the development of a child care infrastructure, including staff training and resource and referral networks. The amount allocated to these activities is more difficult to estimate, but probably cur- rently amounts to almost $2.6 billion at the federal level and at least another $1 billion at the state and local levels (see Able 7-1~. Finally, in recent years, employers, unions, churches, and various charitable organizations have increasingly provided and subsidized child care services. No reliable national data exist on the magnitude of these activities, but local data suggest that the dollar value is somewhat less than $1 billion. Although significantly less than the level of public contribution, this private support is clearly important to programs and parents. In total, approximately $15-$17 billion is currently spent on an annual basis on child care in the United States, either directly by governments or by parents or other private sources. This amount is expected to increase three fold by 1995 to $48 billion (Institute for American Values, 1989~. Even this increase, however, is believed by many observers to represent only a small fraction of what might be required to adequately care for all children in the United States in the future. To understand this point it is useful to consider what the monetary costs would be if every child under age 6 was in full-time paid care that met the standards of quality detailed in Chapter 4 and if every child aged 6 to 14 was in paid care during nonschool hours. At an estimated cost of $4,000 per preschool-age child and $2,000 per school-age child (see Chapter 8), the total would be approximately $126 billion. Although it is unlikely that the United States would ever have a fully monetized child care system or that every child would be in paid care, this calculation provides a vivid illustration that monetary expenditures from whatever source parents, employers, government, and other private sources cover only a portion of the economic costs for child care. A parent or other relative who stays at home to care for a child does not provide "free child care" even though these services are unpaid to the degree that they do not involve a monetary exchange. Federal Policy There is no single system of federal support for paid child care. Rather, there is a fragmented array of consumer, provider, and infrastructure poli- cies and programs that have developed over the past 40 years. Stephan

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196 WHO CARES FOR AMERICA'S CHILDREN? TABLE 7-1 Federal Subsidies for Child Care Fiscal 1988 EstimatedFiscal Subsidy(in millions)1980 Consumer Subsidiesa Dependent care tax credit$3,920$ 956 Dependent care assistance plan65- AFDC disregard4460 Food Stamp disregard5036 Housing disregard18- Support for education661 Total$4,163$1,053 Provider Subsidies Social services block grantb$ 591$ 600 Child Care Food Program (including Special Milk Program)584216 Head Start1,200736 Special education and rehabilitative programs21939 Work-welfare programs19- School-age programs3- Provider tax incentives3- Total$2,619$1,591 Infrastructure Subsidies Human Services Reauthorization Act resource and referral$2- Child Development Associates Program1- Total$3- Total$6,785$2,644 NOTE: Data on federal subsidies for child care are imprecise. These figures are based on Besharov and Tramontozzi (1988), Kahn and Kamerman (1987), Robins (1988), and U.S. Department of Labor (1988~; they do not include expenses for child care provided to government or military personnel. aThese consumer subsidies do not include general income support programs: personal tax exemptions, Aid to Families with Dependent Children (AFD C), and the beamed income tax credit. Figures are averages from sources.

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CHILD CARE POLICIES AND PROGRAMS 197 and Schillmoeller (1987) identify 22 child care programs, and the U.S. De- partment of Labor (1988) details 31 programs in 11 federal agencies (with some disagreement among scholars and government agencies concerning which federal programs should be included in an accounting of child care expenditures). These initiatives include an array of targeted activities and subsidies, including Head Start, the provision of food to children from low-income families who are cared for in approved settings, and tax cred- its to assist employed parents offset a portion of the costs of child care as work-related expenses. During the past decade, the policy debate has shifted from whether the federal government should play a role in the provision and financing of child care to what its role should be in light of current budget constraints (Besharov and Tramontozzi, 1988; Robins, 1988; Stephan and Schillmoeller, 1987; U.S. Department of Labor, 1988~. As, shown in Bible 7.1, we estimate that the total amount of federal support for child care in fiscal 1988 was $6.8 billion. The amount of assistance has been increasing. Besharov and liamontozzi (1988) found that federal child care assistance rose from $1 billion in fiscal 1972 to $6.2 billion in 1987, reflecting a real increase (after inflation) of 127 percent. They project a further 24 percent rise by 1989, to appro~nately $8 billion. The mix of consumer, provider, and infrastructure subsidies provided by the federal government for child care, and thus the mix of beneficiaries, has changed substantially over the past two decades. In 1972, 80 percent of federal child care dollars were targeted at low-income families through provider subsidies. In 1980, low-income families benefited from 50 percent of federal expenditures, primarily through the Social Services Block Grant (SSBG) program and Head Start. By 1986 these programs accounted for only between 26 and 30 percent of the total: funding for Head Start and the Child Care Fond Program had increased, whereas child care support for recipients of welfare and job training programs had declined. From the limited data available, it appears that SSBG funding also declined during the 1980s (Besharov and Iramontozzi, 1988; Kamerman and Kahn, 1987; Robins, 1988~. In contrast, by the early 1980s direct consumer subsidies, which pri- marily benefit middle- and upper-income families, had become the pre- dominant form of federal support for child care, and they have greatly increased since then; see Figure 7-1. In particular, the child care tax credit, which accounted for about one-third of total federal expenditures at the beginning of this decade, now accounts for nearly two-thirds. Infrastruc- ture subsidies, which generally benefit all income groups, are a very small but growing area of federal expenditures. In sum, despite the increasing number of poor children, federal child care resources no longer primarily benefit low-income families; instead, they increasingly benefit middle-class families in which the mother is employed outside the home.

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198 WHO CARES FOR AMERICA'S CHILDREN? 5 4 cl) o . _ ._ ~3 G CO CC o 2 o Fiscal 1980 : 1 Fiscal 1988 1 //W -.. ............. :~:~:~:~:~:~: :-:-:-:-:-:-: .............. :~:~:~:~:~:~: :-:-:-:-:-:-: :.:.:-:.:.:.: :-:-:-:-:-:-: I:::::: ............. :-:-:-:-:-:-: :.:-:-:.:.:.: .:.:.:.:.:.:, I:::::: a:.:.:::: :-:-:-:-:-: , ...... :-:-:-:-:--- .~ : :-:-:-:-:-: ,,.,,.. ~ Consumer Subsidies Provider Infrastructure Subsidies FIGURE 7-1 Federal subsidies for child care, 1980 and 1988. State and Local Policies The total amount of financial support for child care is much more modest at the state level than at the federal level, but state governments also provide an array of consumer, provider, and infrastructure subsidies. Unlike the federal government, however, the states establish and enforce regulations for out-of-home child care (discussed in Chapters 4 and 6~. In addition, state governments are responsible for administering many of the federal and state programs. They administer welfare programs, manage reimbursement systems, provide job training for caregivers, and provide services to children with disabilities. City and county governments are often designated as the agencies responsible for implementing these child care programs and policies. Responsibilities for child care at state and local levels fall within the jurisdiction of several departments and public agencies, adding to the complexity of the system. Although states and local governments play a key role in child care, very little information is available about their revenues or expenditures. From the panel's state survey, we estimate state subsidies at approximately $500 million annually. It appears that some states have significantly increased expenditures in recent years, whereas in other states they have decreased

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CHILD CARE POLICIES AND PROGRAMS 199 (Kahn and Kamerman, 1987). Only 12 states in our survey provided data on total state spending for child care. Of the total $390 million reported, 72 percent was spent in California, which has the most extensive child care system in the country, spending more total dollars and more dollars per child than other state (Grubb, 1988; Mitchell, 1988~. California provides approximately $315 million in direct funds for a wide variety of child care programs, nine times as much as the next most generous state, Massachusetts Other states provide considerably less funding, and most of that is limited to part-day preschool programs. Private Initiatives The private sector includes charitable organizations, not-for-profit and for-profit child care providers, employers, and unions. Although the total amount of resources involved are small and difficult to quantify relative to governmental efforts, these groups have responded to the demand for child care in a variety of ways that are often influenced by public policies. Charitable organizations for example, churches and the United Way- have contributed primarily by developing child care centers directly and by making monetary and in-kind contributions to existing service providers (such as child care centers in church basements). A 1979 study estimated that approximately 6 percent of child care center budgets came from in- kind donations of space, materials, volunteer time, and so on, usually to not-for-profit programs (Coelen et al., 1979~. These programs are often targeted for low- and middle-income families, with combinations of funding from sliding-scale fees, public subsidies for children in low-income families, and some tax benefits. It is likely that the number of church basements and volunteer hours may be reaching their practical limits; further expansion of private support for child care is likely to be limited. The private sector also includes for-profit child care centers, and it has expanded in recent years. As described in Chapter 6, several large chains and thousands of independent centers have developed into a mul- timillion dollar business over the past decade. Large chains tend to target their programs to meet the needs of middle- and upper middle-income, two-earner families; thousands of "mom-and-pop" operations reach lower income families. Merrill Lynch estimates that publicly held for-profit child care corporations account for about 5 percent of center care providers and places (unpublished 1988 market data on publicly held corporations that provide child care services). Finally, employers and unions are active and growing participants in the child care market. In response to the need to attract and retain a productive work force, which is increasingly comprised of women with young children; to union negotiations on behalf of these women employees;

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200 WHO CARES FOR AMERICA'S CHILDREN? and to tax incentives, a growing number of employers are developing a variety of supports for working parents. The primary child care support programs include on-site child care centers, benefit plans such as flexible spending accounts, financial assistance for purchasing child care services in the market, resource and referral programs, tremble schedules, and parental leaves. The most rapidly growing form of employer support is dependent- care assistance programs, in which employers establish benefit plans that allow employees to reduce their taxable income by using a fixed portion (up to $5,000) for child care expenses. This benefit costs the employer little or nothing other than administrative expenses; it is financed by federal and state tax expenditures (i.e., by forgone tax receipts). Many private- and public-sector employers have established a range of informal maternity and disability leave policies through contract and labor law (Piccirillo, 1988~. These programs are available primarily to employees working in large companies, for federal and state governments, and to employers with special scheduling needs, such as workers in the military and hospitals. Although the number of employers with such programs appears to be increasing, even the most optimistic accounts suggest that only 11 percent of the nation's firms with 10 or more employees provide some specific benefits or services to workers to assist with their child care arrangements (Bureau of Labor Statistics, 1988~. Infant care leave rarely exceeds 4 months, is generally unpaid, and may not include job guarantees or continued health insurance. In addition to direct benefits and services, there are other employment- related child care policies that may ease work-family strains (e.g., flexible schedules, counseling, parenting seminars) or that may enable parents themselves to care for children (e.g., part-time work, job sharing, work- ing at home). The number of employers offering these types of policies has been increasing, and currently about three-fifths of firms with 10 or more employees provide such assistance (Bureau of Labor Statistics, 1988~. There are no data available on the costs associated with these programs. Largely untouched by direct and indirect policies and programs are parents, particularly mothers, working at low wages for small employers, the domain where job growth has been the greatest in the past several years and is expected to be greatest during the 1990s. Surveys suggest that the primary reason employers invest in child care is to address problems of recruitment, productivity, absenteeism, turnover, morale, and public relations (Friedman, 1985; Galinsky, 1988~. Employers have generally opposed government mandates of anv Darticular Programs or benefits (Meyer, 1989; Shaine, 1987~. ~1 1 C;7 Unions are less likely to see child care as a recruitment- or produc- tivity issue for their growing number of women members. Although some unions increasingly negotiate child care supports in local union contracts, they are more often strong advocates of national child care legislation and

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CHILD CARE POLICIES AND PROGRAMS 201 mandated parental leave. Public-sector unions have been particularly active (Joyce Long, American Federation of State, County, and Municipal Em- ployees, personal communication, June 8, 1988; Peggy Connerton, Service Employees International Union, personal communication, May 5, 1988~. Employers and unions in both the public and the private sectors provide important and growing sources of support, responsive to diverse parental needs. The 1989 agreement between AT&T and its union (see Chapter 6) represents a significant step toward joint support for child care. CONSUMER SUBSIDIES: SUPPORT FOR PARENTS Programs and policies offering direct support to parents to subsidize their child care expenses take several forms, most linked to employment and earnings. The largest of these are the federal tax subsidies provided through the dependent care tax credit (DCTC) and employer-based dependent care assistance plans (DCAPs). Other forms of support are provided through voucher plans, the welfare-related income disregard programs, and parental leave policies. In this section we also discuss the major forms of more general federal income supports that are not tied to parents' employment and paid child care expenses-personal income tax exemptions, the earned income tax credit, and the Aid to Families with Dependent Children (AF DC) program. These programs affect families with children, and proposals for their change are often related in part to child care concerns. Dependent Care Tax Credit Employment-Related Support The federal child care tax credit permits parents with taxable earnings to deduct a portion of their child care expenses for children under age 13 (until 1989, under age 15) from their federal income taxes. Credits for documented child care expenses are available to families in which a single parent or both parents are employed. Transportation costs are not covered. If parents use child care that is provided for seven or more children, the providers must meet state licensing requirements. Payments to relatives qualify only if these individuals are employed by an organization or are self-employed and Social Security tax is withheld. Relatives who are caregivers cannot also be declared as dependents for tax deduction purposes (Burud et al., 1984; Friedman, 1985; Marr, 1988~. The credit treats child care as an allowable employment-related ex- pense. By providing only partial support, however, it also recognizes that child care costs are, to some extent, optional personal expenses. In 1976

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202 WHO CARES FOR AMERICA'S CHILDREN? child care tax benefits were changed from a deduction to a credit in order to provide more support to middle-income rather than upper-income fam- ilies and were made more progressive by providing a higher proportionate subsidy to lower and moderate-income groups. Currently, the credit is 30 percent of allowable expenses to a maximum of $2,400 for one dependent and $4,800 for two or more dependents for families earning $10,000 or less; it decreases to a minimum of 20 percent for families earning $28,000 or more. Nearly half of all families with working mothers now claim the credit; an estimated half of families claiming the credit have incomes of more than $25,000 per year. Because the credit is nonrefundable, working poor people who have no tax liability do not benefit (Marr, 1988; Nelson and Warring, 1982; Robins, 1988~. In 1985 approximately $3.1 billion in child care credits was claimed, with an average credit of $372 (Besharov and llamontozzi, 1988~. Use of the credit had increased dramatically, from claims on 2.7 million tax returns in 1976 to 8.4 million tax returns in 1985 (Robins, 1988~. The percentage of returns claiming the credit rose from 3.9 percent to 9.8 percent of taxpayers in those years, in part in response to the 1983 change in the tax law enabling families to use the 1040 short form to claim the credit. The most dramatic increase, however, came in the percentage of families with working mothers that claimed the credit. The number rose from 18 percent in 1976 to 44 percent in 1986. In fact, most of the dollar increase in child care subsidies through the tax credit came from more people claiming the credit rather than from larger subsidies per family. Adjusting for inflation, the average credit per family increased by only 12 percent during that 10-year period. In 1988 the estimated total claimed was $3.9 billion. Currently, 29 states that tax income also provide dependent care tax credits or deductions, and only 6 of these states limit eligibility for the credit or deduction on the basis of income. Although state policies generally provide much more modest tax relief than the federal credit, some are designed to benefit low-income families. In Minnesota, for example, taxpayers are entitled to as much as $720 per dependent, up to $1,440 total. The credit is available as a refundable cash payment to families that have no tax liability. In Alaska, which has no income tax, families with dependent-care expenses may file a return to obtain a small allowance of up to $115 per dependent, or $230 total (Issensee and Campbell, 1987~. Employer-Based Dependent Care Assistance Plans In the Economic Recovery Act of 1981, dependent care was made a nontaxable benefit: employers can provide this benefit to employees with children under age 15 by establishing a D CAP under section 129 of the

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CHILD CARE POLICIES AND PROGRAMS 203 Internal Revenue Code.1 These plans allow employees to specify anticipated expenses up to $5,000 per year and to exclude this amount from their gross taxable income. Preschool and kindergarten programs that charge tuition are eligible. Designated amounts not used in a given year are forfeited by the employee. The plan must not provide "excessive" benefits to higher income employees, particularly shareholders, directors, and officers. The provider cannot be an employee's own child under age 19 or any person for whom the employee or spouse can take a personal exemption (Burud et al., 1984; Friedman, 1985; U.S. Department of Labor, 1988~. The benefit can be offered either under a comprehensive "cafeteria benefit plan" or as a freestanding flexible spending account. Under cafeteria plans, there are usually a core set of benefits such as health and life insurance, vacation, and retirement-as well as an optional set of benefits, such as nonreimbursed medical or legal expenses, from which employees can choose according to their needs and preferences. Dependent care can be offered as an optional nontaxable benefit if the plan meets IRS requirements. Flexible spending accounts (FSAs) are separate accounts added to an existing benefits package, almost always funded through salary reduction plans, with a $5,000 maximum. Employers can, but rarely do, provide an additional contribution up to the $5,000 limit. Employees pay for child care out of pretax dollars at no expense (other than administrative) to the employer. In fact, an employer may save money since unemployment and Social Security taxes do not have to be paid on that portion of the salary allocated for child care. The Bureau of National Affairs (1984) reports that FSAs are now one of the most popular types of employer benefits and that they are expected to grow rapidly in the coming several years, but there are no available estimates of their current or projected cost to the federal government. In 1985 the Conference Board estimated that 500 medium-sized com panies and large corporations offered dependent care as a part of their benefit plans (Kamerman and Kahn, 1987~. A more recent survey of more than 2,000 large and small employers found that 19 percent of the respon- dents offered flexible benefit programs; of those, almost three-quarters had flexible programs that offered a dependent-care reimbursement option (The Wyatt Company, 1988~. The estimated loss of tax revenues for dependent care was $30 million in fiscal 1987 and $65 million in 1988. Because rapid expansion is expected, the Office of Management and Budget projected a large increase in this revenue loss, perhaps totaling $150 million in 1989 (in Besharov and liamontozzi, 1988~. 11he Family Support Act of 1988 (commonly referred to as the Welfare Reform Act), lowered the age limit for eligible dependents to 13 as of 1989 (Bureau of National Affairs, 1988~.

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204 WHO CARES FOR AMERICA'S CHILDREN? FSAs are regressive in their distribution because the subsidy is worth more to families in higher tax brackets. For example, a $5,000 FSA is worth approximately $750 to a family in the 15 percent tax bracket, but $1,400 to a family in the 28 percent tax bracket. This regressive effect is compounded by the fact that many low-income families, particularly single women with young children, are less likely to work for large firms and are therefore less likely to receive this benefit (Bureau of National Affairs, 1988; Robins, 1988~. Friedman (1985) reports that most companies interviewed in one survey hoped to reduce benefit costs, especially for health premiums, and to improve recruitment and retention by offering cafeteria programs. They found that 1.5 to 6 percent of employees use dependent-care options in cafeteria benefit plans. These rates, however, can be deceptive. At Proctor and Gamble, for example, approximately 5 percent of the employees chose dependent-care assistance, but that represents 25 percent of the employees with children. Utilization rates for FSAs ranged from a low of 2 percent of Mellon Bank employees, to 6 percent at Pepsico, to 8.7 percent at the Chemical Bank. The Wyatt Company (1988) found that 7 percent of eligible employees participated in the dependent-care reimbursement plans. An average of slightly over $2,000 per employee was contributed to such accounts in 1988. Although a relatively small number of companies provide dependent- care programs, they represent a relatively large increase in employer as- sistance for child care. The Bureau of Labor Statistics (1988) reports that 3 percent of the establishments in its recent survey were providing some form of financial assistance specifically for child care. These sentences were more likely, although not exclusively, to be offered by establishments with 250 or more employees and a high percentage of female employees (e.g., those in finance, insurance, and real estate). They were more likely to be found in service industries (3.5%) than in manufacturing industries (1.9%) or government (2.9%~. Voucher Programs: Employer and Public As discussed in Chapter 6, voucher programs are designed to expanded parental choice, but with more constraints than tax credits or flexible spending accounts. Private employers as well as public agencies offer vouchers, although they are not widely available in either sector; there are no data on the costs of the subsidy. In the public sector, vouchers are one method of payment under the SSBG program. This program, a form of provider subsidy, primarily con- tracts directly with providers and reimburses them for services to children in low-income families. A small percentage of payments are made through

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216 WHO CARES FOR AMERICA'S CHILDREN? Organization, which accepts administrative and financial responsibility for the program; family day care homes must participate under a sponsoring organization. Tax-exempt organizations are eligible for the program as are those private for-profit centers that receive compensation under SSBG for at least 25 percent of the children in care. All programs receiving funds through the CCFP must be licensed or approved. There is no apparent pattern to the distribution of funds between centers and family day care homes. In some states (e.g., New York and Florida) substantially more monies are distributed to center-based programs; in other states (e.g., Minnesota and North Dakota) the lion's share of USDA funding is received by family day care homes. Head Start Head Start is a direct program subsidy addressing compensatory educa- tional needs of children in families below the federal government's poverty guidelines. As discussed in Chapter 6, it was created to provide a quality early childhood education program to children in low-income families in order to help break the cycle of poverty. The program provides educational, social, medical, and nutritional services to preschool children in low-income families, usually between the ages of 3 and 5. Most programs operate part day, although some have been extended to full day. Head Start requires parental involvement and is not intended to meet the child care needs of working parents. Although Head Start is a federally funded child development program, it is locally administered by education agencies, community action agencies, and public and private not-for-profit organizations. In recent years, funding for the program has increased modestly. In fiscal 1989 somewhat more than $1 billion was distributed directly to Head Start grantees, and the program served approximately 450,000 children; this number represented less than 20 percent of the total number of eligible children. Head Start funds are allocated to states on the basis of a formula that takes into account their fiscal 1981 allocations and the proportion of all poor children and of children in families receiving AFDC who are residing in each state. The funds are distributed in the form of competitive grants to local Head Start agencies, with local grantees providing an amount equal to 20 percent of the federal share. In addition to the federal funds available to local programs to provide Head Start services, nine states have passed legislation providing funds for the expansion or enhancement of Head Start programs. Ho states, Con- necticut and Massachusetts, specify that these funds be used to increase staff salaries. In Massachusetts, Head Start programs were allocated $359.67 per child and strongly encouraged to use the funds to improve staff salaries.

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CHILD CARE POLICIES AND PROGRAMS 217 1b reinforce this intent, the state established suggested hourly minimums for many Head Start positions on the grant application (Goodman et al., 1988:104). Children with Disabilities Federal funds are available to support a variety of child care services for children with disabling conditions: the Education for the Handicapped Act (P.L. 94-142 and its amendment, P.L. 99-457) provides funds for the education of children with disabilities under the direction of the public schools; Chapter I of the Elementary and Secondary Education Act (P.L. 89-313) provides funds for the education of children with disabilities in state schools or institutions. The 1986 amendments to the Education of the Handicapped Act (P.L. 99-457) included services to children under the age of 3 and was less specific in its definition of eligible handicapping conditions than the general act. Therefore, states must now determine the population to be served, the delivery system for screening and provision of services, and the mechanisms for coordination of services. The definition of disability directly affects services and costs (Graham and Scott, 1988~. In some states there is growing pressure from advocacy groups to include children who are at risk of developmental delay and disability as well as those with physical and mental handicaps. During the 1985-1986 school year, over 4.32 million students, approximately 11 percent of the total public school population, received services under P.L. 94-142; during the 1986-1987 school year, 265,814 children aged 3 to 5 were served under its amendment (U.S. Department of Education, Office of Special Education and Rehabilitative Services, unpublished data). As noted above, states also receive Chapter I funds (P.L. 89-313) for the education of institutionalized children with disabilities. These funds flow from the federal government to the states for services to children in state schools or institutions. In 1988, 29,693 children with disabilities under the age of 3 and 48,462 children aged 3 to 5 received services under this program. Besharov and ~amontozzi (1988) report that the U.S. Department of Education provided states with $178 million in 1987 through this program for 3- to 5-year-old children and estimate that $219 million was provided for 1988. Both Chapter I and P.L. 99-457 are designed to provide education services to children with disabilities, but the legislation recognizes that some children require more than educational services to be successful in school. The original Education of the Handicapped Act (P.L. 94-142) provides funds for related services, such as transportation and other support services necessary to enable students to take advantage of the benefit from the

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218 WHO CARES FOR AMERICA'S CHILDREN? educational program. The amendments (P.L. 99-457) also reflect concern about the poor coordination across programs seizing very young children with disabilities (Hauser-Cram et al., 1988~. To address this concern, a primary intent of the law is to make federal funds available for the establishment of a coordinated state-level service system. It also involves the coordination of services for individual families through the individualized family service plan (IFSP). An IFSP involves the identification and the inclusion of family strengths and needs (Hauser-Cram et al., 1988~. This component of the law has potential implications for the provision of child care to young children with disabilities, in that parents may identify child care as a necessary service to complement early intervention. Carole Brown (Office of Special Education Programs, U.S. Department of Education, personal communication, Feb. 21, 1989) confirms that child care could fall within the framework of services under an IFSP, although a monograph describing IFSP best practices (Johnson and McGonigel, 1989) does not discuss child care extensively. The U.S. Department of Education's acknowledgment of the needs for child care for children with disabilities is more directly expressed in a "priority" (#84024), which appeared in the Federal Register on January 26, 1989. This priority called for multidisciplinary training of child care personnel to meet the needs of children with disabilities in early education settings. Federal legislation and administrative actions reflect an emphasis on placing children with disabilities in the least restrictive care and education settings possible and enhancing them to take advantage of free public ed- ucation. Although most states have yet to implement the IFSP component of P.L. 99-457, it is possible that many will interpret the law to include child care services as a complement to early intervention programs. Public Schools As discussed in Chapter 6, public schools have a long history of in- volvement in early childhood education programs. They provided nursery school classes during the Great Depression (under the Work Programs Ad- ministration) and day care centers during World War II (under the Lanham Act). More recently, compensatory programs for children from low-income families, including Head Start, have operated in public schools. Since the mid-197Os, a growing number of states and local school systems have ex- panded their elementary schools to include prekindergarten programs for 3- and 4-year-olds, as well as before- and after-school programs for older children.

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CHILD CARE POLICIES AND PROGRAMS 219 According to a recent survey by Marx and Seligson (1988), 23 states and the District of Columbia provide funds for pilot or statewide prekinder- garten programs; half serve only 4-year-olds and half serve 3- to 5-year-olds. I~o-thirds of all public prekindergarten programs are targeted to children from low-~ncome families or those with other special needs that put them at risk of later academic failure. A majority are half-day programs; just over one~uarter are full-day programs. Levels of funding and the numbers of children served vary dramatically from state to state. In fiscal 88, for example, funding ranged from $197,000 in Alaska, serving 45 children, to $46.2 million in Texas, serving 54,493 children. The number of before- and after-school programs operated in or by the public schools is unknown because most are operated by local schools or school systems and the data are not reported. However, 12 states legislated some form of state funding for school-age child care; one state (Ohio) restricts school-age child care funding to public schools; all other states permit the schools to contract with community organizations (Marx and Seligson, 1988~. School-age child care programs may also use funds provided by the USDA for the school breakfast program to reimburse the cost of children's meals. The federal government also provides funding to states for the plan- ning, development, establishment, expansion, and improvement of school- age child care services. Under the Human Services Reauthorization Act, in 1986, a total of $4,785,000 was distributed to states and territories un- der this act. The federal share of the state grant ranged from $50,000 to $445,289 on the basis of state population. Sixty percent of these funds were to be used for school-age child care services. Thus, the federal share of funding for school-age child care was approximately $3 million. The act requires that the federal share of any project supported under this program shall not exceed 75 percent, thereby requiring a minimum 25 percent match from state or local funds. Tax Incentives for Providers There are several mechanisms by which providers indirectly receive support for child care services. Under Internal Revenue Code 502(C)~9), Voluntary Employees Beneficiary Associations (VEBAs) can provide for payment for life, health, and accident insurance or other benefits to em- ployees and their dependents. VEBA funds can be used to offer grants to child care centers that serve employees' children and for which employees have financial responsibility for the child care program. Typically, unions have negotiated these programs for child care support (Burud et al., 1984; Friedman, 1985~.

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220 WHO CARES FOR AMERICA'S CHILDREN? Employers can make contributions to qualified tax-exempt organiza- tions, such as child care centers or information and referral agencies, and deduct them as charitable contributions. The contributions cannot be tied to reduced fees or reserved admissions for employee children. Employers can also deduct child care business expenses, if they are intended to reduce absenteeism and turnover. If an employer establishes a child care center, the capital costs are eligible for depreciation under the Accelerated Cost Recovery System, Internal Revenue Code 168. Under section 501(K) of the Internal Revenue Code, not-for-profit child care centers can receive deductible contributions, and they have been exempt from taxation since 1984. The U.S. Department of Labor (1988) estimates the annual federal revenue loss at approximately $3 million. Several states provide other tax benefits to employers. In Connecticut, a 50 percent tax credit is offered to businesses that subsidize part or all of their employees' child care costs, and there is a tax credit up to 40 percent of the costs incurred by employers who provide financial or technical support to begin child care services for their employees. Rhode Island provides a tax credit of up to 30 percent for employers who provide property, in lieu of cash, for child care (Virginia Department for Children, 1988~. Additional tax benefits to not-for-profit centers are also available in some states. In Arizona, for example, child care providers can take advantage of tax deductions for purchase, construction, renovation, or equipment costs over 5 years. In Connecticut, low-interest loans, payable over 5 years, are available to not-for-profit child care providers. Similarly, Massachusetts has a set-aside program to assist child care providers with extraordinary insurance and rent costs (Gnezda, 1987~. As discussed in Chapter 6, employer- and union-sponsored child care programs have been increasing during the past 10 years (Friedman, 1988; U.S. Department of Labor, 1988~. However, there are no data on how much money employers currently spend on providing child care services, whether on site or in consortium centers or through contracted centers, union operated, or discounted slot programs. Nor are there data on how many employers receive tax benefits or the amount of these tax benefits. There is some sense, however, that the amount of employer tax benefits is small, and in fact the number of employers supporting the direct provision of child care is known to be small. There are no studies on the relationship of these tax incentives to employers' decisions; Douglas Besharov (American Enterprise Institute for Policy Research, personal communication, 1989) suggests that although tax incentives may be helpful to a company or union, they appear to be a minor part of public policy discussion. Our review of the existing research on employer initiatives suggests that issues of cost and tax liability are generally secondary considerations in an employer's decision of whether to provide child care benefits. Of more immediate concern are the economic

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CHILD CARE POLICIES AND PROGRAMS 221 health of the company, the degree to which child care provision can solve management problems, the needs of the employee population, the availability of child care in the community, and the general attitude of corporate decision makers toward family issues in general, and child care in particular. Accordingly, it appears that tax credits or deductions may affect decisions about how to structure child care benefits only after employers have decided to provide some type of support. SUBSIDIES TO STRENGTHEN THE INFRASTRUCTURE Governments, employers, and unions have also created policies and programs to enhance and expand the existing paid child care system, particularly the development of resource and referral services. Smaller efforts have been made in the areas of caregiver training, regulations, and service coordination. In addition to allocating funds for training Head Start personnel, the federal government provides $1.2 million through Title VI of the Human Services Reauthorization Act-(P.L. 99-425) for the training and credentialing of approximately 2,700 early childhood caregivers through the Child Development Associate (CDA) program. Scholarships are available to CDA candidates who are employed in family day care homes or privately and publicly funded child care centers and have incomes below the poverty line (Whitebook et al., 1986~. State and local governments and community organizations have also allocated funds for training caregivers but no data are available on expenditures for this purpose. In addition to funds for training of caregivers, several state and lo- cal governments provide funds for salary initiatives. For example, Mas- sachusetts provides supplemental funds to child care programs that contract with the state and Head Start programs, through a grant process. Using a different strategy, Minnesota links funds to salaries: to receive a higher rate of reimbursement, programs must show that they pay 110 percent of the county average rate for child care workers (Whitebook et al., 1986~. To date, public monies to supplement caregiver salaries have only been avail- able to caregivers in programs that provide child care services for children who receive public subsidies. Recognition of the need for coordination among programs at the state and local levels is not new. For example, as discussed in Chapter 6, the USDA Child Care Food Program serves as a focal point for organizing independent family day care homes. In 1968 the U.S. Department of Health, Education, and Welfare (HEW) initiated the Community Coordi- nated Child Care (4-C) program. Some of these 4-C agencies still exist, notably in communities in Madison, Wisconsin, and in central Florida. Re- cently, several states have begun to organize statewide efforts to coordinate child care services. In March 1983, Thomas Kean, then governor of New

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222 WHO CARES FOR AMERICA'S CHILDREN? Jersey, created the Governor's Committee on Children's Services Plan- ning. In a similar effort, Lamar Alexander, when governor of Tennessee, appointed the Governor's Task Force on Child Care to recommend ways to encourage the development of child care for children of working par- ents. Maryland and several other states have launched similar initiatives. Recommendations from these groups are now under consideration by the states. Under the Human Services Reauthorization Act of 1984 (P.L. 98-558), the federal government provided grant funds for the planning, development, establishment, expansion, and improvement of dependent-care resource and referral services and school-age child care services. Of the total $4.8 million allocation, 40 percent was earmarked for independent resource and referral activities. Therefore, federal monies allocated to the states for resource and referral are estimated at $2 million for 1988. The act required that the federal share of any project not exceed 75 percent, thus requiring 25 percent in state or local funds. Few data are available on expenditures and effectiveness of the grant funds. In 29 states, resource and referral agencies operate without state financing or coordination; 14 states and the District of Columbia assist in the funding of resource and referral agencies. This assistance may be in the form of start-up grants (Iowa), contracts with resource and referral agencies for services to state employees (Vermont), matching-fund grants (Oregon), or operating funds (the District of Columbia, Maine, Maryland, Minnesota, New Jersey, New Mexico, New York, Pennsylvania, and Rhode Island). Three states California, Massachusetts, and Michigan fund resource and referral services and provide funds for coordination among the referral services in the state (U.S. Department of Labor, 1988~. One of the fastest growing models of employer and union support for child care is resource and referral services. The Bureau of Labor Statistics (1988) reports that S.1 percent of establishments provide this service. In a survey by the U.S. Department of Labor and the Service Employees International Union of a small sample of unions, 14 percent of public- sector unions and 32 percent of ~rivate-sector unions reported negotiating A ~ 1 C) O resource and referral services. According to Kahn and Kamerman (1987), such services are considered an inexpensive and simple yet helpful and highly visible way for employers and unions to address the child care needs of employers. Galinsky (1988) makes an important distinction between resource and referral and information and referral programs. Resource and referral pro- grams provide both counseling to help employees make child care decisions and money (or other resources) to help increase the quantity or quality of the child care available in the community. The California initiative (discussed in Chapter 6) is an example of several private corporations' join- ing with the state and federal governments to help raise both the quantity

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CHILD CARE POLICIES AND PROGRAMS 223 and the quality of care. The combined funding for this program is now approximately $2 million annually. SUMMARY -r ~ The major federal policy response to the dramatically increasing num- ber of young children with employed mothers In recent years has been a substantial increase in consumer subsidies, largely benefiting middle- and upper-income families, in the form of tax expenditures to offset the cost of employment-related paid child care (i.e., the dependent care tax credit and the dependent care assistance plans). The primary federal response to the needs of economically disadvantaged children over the same time period has been a much more modest increase in provider subsidies, especially through Head Start and the Child Care Food Program, both of which support children whether or not their mothers are employed. The most recent new federal initiative related to child care Is the Family Support Act, which requires poor women with young children to participate in training or employment and provides support for child care. States and localities, as well as businesses and unions, have also become more active in the child care arena in a variety of ways. However, their resource commitment remains quite small, both absolutely and relative to that of the federal government. Parental leave remains at the discretion of employers, whereas most states and localities are just beginning to address infrastructure needs and preschool compensatory care. REFERENCES Besharov, D., and P. liamontozzi 1988 The Costs of Federal Child Care Assistance. Washington, D.C.: American Enterprise Institute for Policy Research. Blank, H., A. Wilkins, and M. Crawley 1987 State Child Care Fact Book 1987. Washington, D.C.: Children's Defense Fund. Bureau of Labor Statistics 1986 Employee Benefits in Medium and Large Firms 1985. Bulletin 2262 (July). Washington, D.C.: U.S. Department of Labor. 1988 BLS reports on employer child care practices. News (Jan. 15~. Washington, D.C.: U.S. Department of Labor. Bureau of National Affairs 1983 Policies on Leave From Work. Washington, D.C.: Bureau of National Affairs. 1984 Employers and Child Care: Development of a New Employee Benefit. Washington, D.C.: Bureau of National Affairs. 1988 Employers' dependent care programs slanted to fund welfare reform. Tax Management Weekly Report (Nov. 14~:1446-1447. Washington, D.C.: Bureau of National Affairs. Burud, S.L^, P. Aschbacher, and J. McCroskey 1984 Employer Supported Child Care: Investing in Human Resources. Boston, Mass.: Auburn House.

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224 WHO CARES FOR AMERICA'S CHILDREN? Catalyst 1986 Report on a National Study of Parental Leaves. New York: Catalyst. Coelen, C, F. Glantz, and D. Calore 1979 Day Care Centers in the US.: A National Profile 197~1977. Cambridge, Mass.: Abt Associates. Congressional Budget Offlee 1989 Work and Welfare: The Family Support Act of 1988. Washington, D.C.: U.S. Government Printing Office. Ellwood, D. 1988 Poor Support Poverty in the American Family. New York: Basic Books. Friedman, D. 1985 Corporate Financial Assistance for Child Care. Research Bulletin No. 177. New York: The Conferenee Board. 1988 Estimates from the Conferenee Board and other national monitom of employer supported child care. Unpublished memorandum. The Conferenee Board, New York. Galinsky, E. 1988 Child Care and Productivity. Paper prepared for the Child Care Action Campaign. Bank Street College of Edueation, New York. Garfinkel, I., and S. MeLanahan 1986 Single Mothers and Their Children: A New American Dilemma. Washington, D.C.: The Urban Institute Press. Gnezda, T. 1987 State fiscal policies for child care and early childhood education. State Legislature Report, Vol. 12, No. 7. Denver, Colo.: National Conferenee of State Legisla- tures. Goodman, I., J. Brady, and B. Dueeh 1988 A Committment to Quality: The Impact of State Supplemental Funds on Mas- sachusetts Head Start. Newton, Mass.: Edueation Development Center, Ine. Graham, M., and K. Scott 1988 The Fiscal Impact of Definitions of High Risk for Edueation of Infants and Toddlers. Unpublished paper. University of Miami. Grubb, N. 1988 Choices for Children: Policy Options for State Provision of Early Childhood Programs. Paper prepared for the Education Commission of the States, Wash ington, D.C. Hauser-Cram, P., CC. Upshur, M.W. Krauss, and J.P. Shonkoff 1988 Implications of P.L. 99457 for early intervention services for infants and toddlers with disabilities. Social Policy Report of the Society for Research in Child Development 3(3). Hewlett, S., ~ Ilehman, and J. Sweeney, eds. 1986 Family and Word Bridling the Gap. Cambridge, Mass.: Ballinger Publishing Company. Institute for American Values 1989 Everything money can buy: An economic analysis of child care. Family Affairs 2(1, Spring). Isaacs, J. 1988 Estimating the Costs of Transitional Child Care. Paper presented at the Na tional Association for Welfare Research and Statistics, 28th annual workshop, Baltimore, Md., July 28. Issensee, L., and N. Campbell 1987 Dependent Care Talc Provisions in the States: An Opportunity for Reform. Wash- ington, D.C.: National Women's Law Center.

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CHILD CARE POLICIES AND PROGRAMS 225 Johnson, B.H., and MJ. McGonigel, eds. 1989 Guidelines and Recommended Practices for the Individualized Family Service Plan. Washington, D.C.: Association for the Care of Children's Health. Kahn, A.J., and S.B. Kamerman 1987 Child Care: Facing the Hard Choices. Dover, Mass.: Auburn House. Kamerman, S.B., and AJ. Kahn 1983 Maternity Policies and Working Women. New York: Columbia University Press. 1987 The Unresponsive Workplace: Employers and a Changing Labor Force. New York: Columbia University Press. Kean, T. 1988 The state's role in the implementation of infant care leave. Pp. 333-340 in E. Zigler and M. Frank, eds., The National Parental Leave Crisis: Toward a National Policy. New Haven, Conn.: Yale University Press. Makuen, K. 1988 Public servants, private parents: Parental leave policies in the public sector. Pp. 195-210 in E. Zigler and M. Frank, eds., The Parental Leave Crisis: Toward a National Policy. New Haven, Conn.: Yale University Press. Marr, M. 1988 The Child Care Crisis: Are Tax Credits the Answer? An Analysis of Sever: Child Care Talc Credit Bills. Washington, D.C.: Citizens for Tax Justice. Marx, F., and M. Seligson 1988 The Public School Early Childhood Study: The State Survey. New York: Bank Street College of Education. Maximus, Inc. 1988 An Equatability Assessment of Child Care Options for Work-Welfare Programs. Prepared for Assistant Secretary for Planning and Education, Office of Social Services Policy, U.S Department of Health and Human Services. Falls Church, Va.: Maximus. Meyer, J. 1989 Mandated Benefits for Employees: A Policy Analyses. Washington, D.C.: National Chamber Foundation. Minnesota House of Representatives 1987 Matemi~y Leave Policies: A Research Report. St. Paul: Minnesota House of Representatives Research Department. Mitchell, A. 1988 The Public School Early Childhood Study: The Distnct Survey. New York: Bank Street College of Education. National Association of Working Women 1988 New Work Force Policies and the Small Business Sector: Is Parental Leave Good for Small Business? Cleveland, Ohio: National Association of Working Women. National Federation of Independent Businesses 1985 Small Business Employee Benefits. Washington, D.C: National Federation of Independent Businesses. Nelson, J.R., and WE. Warring 1982 The child care tax credit deduction. Pp. 206-265 in C.D. Hayes, ea., Making Policies for Children: A Study of the Federal Process. Committee on Child Development Research and Public Policy, Commission on Behavioral and Social Sciences and Education, National Research Council. Washington, D.C.: National Academy Press. Piccirillo, M. 1988 The legal background of parental leave policy and its implications. Pp. 293-314 in E. Zigler, ea., The Parental Leave Crisis. New Haven, Conn.: Yale University Press.

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226 WHO CARES FOR AbIERICA'S CHILDREN? Pleck, J. 1988 Fathers and infant care leave. Pp. 177-191 in E. Zigler and M. Frank, eds., The Parental Leave Crisis: Toward a National Policy. New Haven, Conn.: Yale University Press. Robins, P. 1988 Federal support for child care: Current policies and a proposed new system. Focus 11~2~:1-9. Shaine, F. 1987 Statement on S. 249, the Parental and Medical Leave Act of 1987, before the Subcommittee on Children, Drugs, and Alcoholism of the Senate Subcommittee on Labor and Human Resources. U.S. Chamber of Commeree, Washington, D.C. Spalter-Roth, R., and H. Hartmann 1988 Unnecessary Losses: Costs to Americans of the Lack of Family and Medical Leave. Washington, D.C.: Institute for Women's Policy Research. Stephan, S., and S. Sehillmoeller 1987 Child Day Care: Selected Federal Programs. Division of Education and Public Welfare, Congressional Research Service, Library of Congress. Washington, D.C.: - U.S. Government Printing Opine. I1zeinski, E. 198& Incidence and Determinants of Maternity Leave Coverage. Unpublished paper. Department of Consumer Economies and Housing, Cornell University. 1988b Wage and Employment Effects of Mandated Leave Policies. Unpublished paper. Department of Consumer Economies and Housing, Cornell University. U.S. Chamber of Commeree 1985 Employee Benefits 1985. Washington, D.C.: U.S. Chamber of Commeree. U.S. Department of Labor 1988 Child Care: A Workforce Issue. Report of the Seereta~y's Task Force. Washington, D.C.: U.S. Department of Labor. Virginia Department for Children 1988 Report of the Governor's Corporate Advisory Commission on Employers' Initiatives for Child Day Care. Richmond: Virginia Department for Children. Whitebook, M., C. Pemberton, J. Lombardi, E. Galinsly, D. Bellam, and B. Fillinger 1986 Raising Salaries: Strategies That Work. Berkeley, Calif.: Lee Child Care Employee Project. The Wyatt Company 1988 A Survey of Health and Welfare Plans Covering Salaried Employees of U.S. Employers. Washington, D.C.: The Wyatt Company. Zigler, E., and M. Frank, eds. 1988 The ParentalLeaveCnsis: Toward aNationalPolicy. New Haven, Conn.: Yale University Press.