Child Care for Low Income Families

Chapter 5: The Structure and Consequences of Child Care Subsidies

SUMMARY OF RESEARCH PRESENTED

Access and Affordability of Child Care

Questions of the adequacy with which these aims are being served, however, and for whom, were actively discussed at the workshops. Public funds fall far short of meeting the needs of all eligible low-income and poor families. Furthermore, the fragmentation of federal subsidies for child care poses burdens on state agencies in their efforts to establish "seamless" child care subsidies for low-income families. Workshop participants identified a series of detrimental consequences that flow from this confusing mix of policies and from shortages of funds relative to the eligible population.

Foremost among the concerns noted by state and local child care administrators was the zero-sum decision making that necessarily characterizes the allocation of limited funds between the working and nonworking poor. Although federal child care subsidies have been greatly expanded in the past five years, overall levels of public assistance at the state level still leave a sizable proportion of the eligible population unserved. For example, Bruce Liggett from Arizona stated that he is serving 30 percent of the families eligible for Transitional Child Care assistance. A recent report from the U.S. Advisory Commission on Intergovernmental Relations notes that "utilization of the Transitional Care Program is apparently low in many states, probably due to limited awareness and confusion about eligibility requirements" (1994:39).

Trade-offs are particularly acute between serving AFDC families who are making efforts to obtain job skills or enroll in school and serving families with employed parents who are living in or near poverty. Current incentives appear to favor getting families off welfare, rather than providing assistance to the even larger number of very low-income families with working parents. States, for example, are mandated to provide job training accompanied by child care for those families who require this service, in conjunction with federal welfare reform legislation enacted in 1988. There are no comparable pressures to prevent welfare dependency and, hence, to serve working poor and very low-income families. In addition, tight state budgets create disincentives for states to provide the matching funds that are required to draw down federal child care dollars in several of the subsidy programs (see Table 3). Meyers summarized her work with the GAIN program in California by noting that inadequate federal funding and inconsistent financing mechanisms create incentives for states to ration assistance and underutilize funds that are available. This is particularly true for those subsidies that require a state match and/or are targeted on the working poor (e.g., Transitional Child Care and At-Risk Programs) (Meyers, in press).

Empirical data from parent interviews indicate that, in fact, large majorities of potential recipients are unaware of the targeted child care subsidies for which they might be eligible. Pressures to keep state costs down and the difficulty of adding outreach activities to already beleaguered state agencies were noted by the workshop participants as contributing to this problem. Among Meyers's random sample of AFDC recipients in California in 1994, for example, 61 percent were unaware of the AFDC Disregard--a benefit that allows AFDC recipients to deduct their child care expenses if they go to work; 85 percent were not familiar with Transitional Child Care subsidies.

The agency administrators expressed grave concerns that they are penalizing precisely those families who have achieved the goals of welfare reform, often at just the moment that they have "made it." Some, in turn, felt that this was contributing to churning--the term that was used to describe families' cycling back through AFDC in order to quality for subsidies. As noted by Rebecca Maynard, however, as AFDC becomes a time-limited program in many states, many families will no longer have the choice of moving between low-income jobs and AFDC.

Among families who learn about and apply for subsidies, many spend some time on waiting lists. Virtually each of the state administrators expressed concerns about what happens to families on waiting lists and also about the validity of the counts that derive from these lists. Stephanie Fanjul from the North Carolina Department of Human Resources shared her experience that, as subsidies became available, her waiting lists grew. This occurred, she speculated, because more families had hope of getting assistance. The administrators noted that they know quite a bit about the families and children they are serving, but nothing about those they are not serving. Most states attempt to regularly recontact families on the waiting lists and typically find that, after just a few months, many of the families could not be found. Karen Tvedt from Washington state reported that her surveys of families on waiting lists show that they have more difficulties with child care, are working fewer hours, and are three times more likely to be using illegal child care compared with similar families who are receiving subsidies.

Even families who are successful in receiving benefits can have a difficult time maneuvering through the current array of programs. Although, according to Christine Ross, many states and cities have achieved a high degree of coordination among the various child care programs, with a single place to apply for all child care assistance and relatively good linkages between AFDC and other child care subsidies, families in states that have not coordinated the subsidy programs face a confusing mix of eligibility rules, reimbursement rates, and even time-limited benefits (Ross and Kerachsky, 1995). Few states can afford the case managers and child care staff that can assist families as they make the transition from one source of subsidy to another.

Access to care also appears to be especially affected by the relationship between reimbursement rates and local child care prices, and also by delays in payments to providers. An Urban Institute survey of resource and referral staff in six communities (Long and Clark, 1995), presented by Sharon Long, found wide variation in child care prices within and across the six communities, as well as variation in local reimbursement rates. Some variation in reimbursement rates is a result of genuine differences in the cost of care. In other cases, states establish reimbursement rates that are lower than the market costs in certain localities.

In some communities, Long and her colleagues found that the reimbursement rate was consistently lower than the providers' standard rates; in others, it was generally commensurate with the providers' rates. In each community, some providers were unwilling to accept children with subsidies, primarily because the reimbursement rate was lower than their prices and they were unable to absorb the difference. Siegel and Loman reported that delays in receiving payments were a major barrier to providers' willingness to accept subsidized children in their Illinois sample. They also found that difficulties finding nonrelatives willing to accept state rates, particularly from other AFDC recipients whose benefits would be reduced because of this income, restricted access to care.

The state and local child care administrators provided additional insights into the role of reimbursement rates in low-income families' access to care. Bruce Liggett from the Arizona Department of Economic Security, for example, noted that the cost of center-based infant care has increased 31 percent and the cost of school-age care has increased 21 percent over the past four years. The reimbursement rates have not been adjusted to reflect these increases, however, further exacerbating shortages of subsidized care for these two age groups. Karen Tvedt reported that Washington was able to raise reimbursement rates to the 75th percentile allowed in federal law. The number of licensed family day care homes in her state has grown from 6,000 to over 8,700 and the number of centers grew from 1,000 to 1,600 since 1990.

In sum, although it is clear that more low-income families are now receiving child care assistance than has been true in the recent past, the structure of federal subsidy programs is often confusing to families and aggravating to the agencies that are responsible for helping them. Furthermore, scarce funds relative to the population eligible for subsidies, pressures on state budgets that affect their willingness to match federal dollars, and fragmentation militate against providing consistent support to families as they shift from nonworking to working-poor status, make it difficult for families to act as informed consumers of care for their children, and also appear to create perverse incentives to states to underutilize some sources of child care support. Some states have done a better job of reducing the negative consequences of fragmented federal subsidies than others. Each of those represented at the workshop, however, voiced a remarkably similar set of concerns.

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