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OCR for page 194
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
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o
Fiscal 1980
: 1 Fiscal 1988
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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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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.
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WHO CARES FOR AMERICA'S CHILDREN?
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CHILD CARE POLICIES AND PROGRAMS
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Representative terms from entire chapter:
parental leave
