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Chapter One: Context for the State and Community Substudy
The Federal Context
The decisions that states make about child care are dictated in large part by the Federal dollars they receive for child care and the regulations that govern the uses of that money. The purpose of the study is to develop a better understanding of how these Federal policies are interpreted at the state level and ultimately implemented at the community level. The major policies and programs that are the focus of the study are the Child Care and Development Fund (CCDF), and those aspects of the Temporary Assistance for Needy Families (TANF) that are directly related to child care, such as TANF-funded child care programs, time limits for cash assistance, and work requirements.
Section 103 (c) of the PRWORA repealed the child care programs authorized under Title IV-A of the Social Security Act: AFDC Child Care, Transitional Child Care, and At-Risk Child Care. In addition, PRWORA appropriated new entitlement child care funds under Section 418 of the Social Security Act, required that these funds be subject to the Child Care and Development Block Grant (CCDBG) Act, and reauthorized the Act. Since PRWORA required that these child care funds be administered as a unified program, the combined funds were named the Child Care and Development Fund. (Under the legislation, Congress provided approximately $8.5 billion for the unified child care program over the fiscal years 1997 – 2000.)
The State Context
To implement the CCDF, states’ decisions include: determining the level of state resources; setting eligibility guidelines and identifying priorities among eligible populations (including priorities for serving TANF and non-TANF families); establishing requirements for notification, outreach, and the frequency of eligibility determination; developing co-payment scales; and developing fee schedules and payments for providers. States must also decide how to deliver child care subsidies (although this may be determined at the local level), including whether or not subsidy administration is privatized and whether subsidy programs are to be administered separately for TANF and non-TANF recipients. Also at the state level, policy decisions are made about relevant aspects of the TANF program, such as the time limits, work requirements, diversion programs, and child care benefits tied to prior TANF receipt. Each of the major decision points is described briefly below.
Although all these decisions could be made in a rational manner by carefully weighing the benefits and costs of various approaches, it is important to remember that states make these decisions within a political environment of competing demands for limited resources, intense time pressures, and little information about the relative benefits of one approach versus another. Prior to the passage of PWRORA, the majority of these decisions (beyond determining state funding levels) were made by state child care administrative offices. Since the passage of PWRORA, many administrative decisions have been elevated to state legislatures and governors’ offices, which are subject to pressures from advocacy and interest groups representing child care providers, low-income families, and others.
State Financial Commitment
An important consideration for states is how much of their own funds to spend on child care subsidies and how to use flexible Federal sources, such as the TANF Block Grant, which can either be spent directly on child care or a portion of which can be transferred into the CCDF. Ongoing appropriations establish a maximum amount of Federal child care subsidy funds in the CCDF available to each state in a given fiscal year. In order to draw down its Federal allocation, a state must commit some of its own funds to meet Federal requirements for matching and maintenance of effort.
Therefore, the first policy decision that a state must make is how much of its own money to spend for child care. Funding within the CCDF falls into three categories: mandatory, matching, and discretionary funds. Upon application, a state automatically receives its “discretionary” allotment, but to receive its full “mandatory” allocation a state must demonstrate that its spending for child care programs linked to cash assistance is no less than spending just prior to PRWORA. To “match” Federal CCDF funding, a state must provide its own funds at the same rate it is required to do for its Medicaid funding. States may elect to draw down some or all of the Federal allocation. Beyond the spending necessary to obtain the full share of Federal child care funds, a state may elect to spend additional state funds to provide child care subsidies to low-income children. It may also choose to spend a proportion of TANF funds for child care subsidies. (Again, it is important to recognize the highly political context in which states must balance the need for state spending on child care against other competing state needs.)
Whom to Serve
The Federal statute allows states to assist families in paying for child care if their income falls below 85 percent of state median income (SMI), and if they need child care to support employment and/or education and training. Most states, however, exercise the flexibility allowed under the law and set their eligibility limits below the Federal maximum.1 Within this eligibility pool are families who are currently receiving TANF or who have recently received it. The former group needs child care in order to comply with job preparation and/or employment requirements, in order to continue to receive TANF. The latter group—guaranteed at least one year of child care assistance under previous legislation if they left cash assistance for reasons related to employment—remains a high priority for many states. While states have a good deal of flexibility, the CCDF stipulates that they must spend at least 70 percent of CCDF mandatory and matching funds for families receiving TANF, transitioning from TANF, or at risk of TANF dependency.
These three groups of families that need child care for employment, education, or job preparation — current TANF, former TANF, and non-TANF families — become increasingly hard to differentiate as TANF caseloads decrease and as many former TANF families enter the workforce. Nonetheless, states establish income ceilings and other eligibility requirements to set the outer boundaries of the population eligible for services, and often tie these requirements to a family’s TANF or former TANF status. In addition, some states use CCDF funds to provide child care for children in need of protective services.
States are not required to serve all of the families that are eligible, but may choose how many to serve and which groups to serve first. In addition to choosing to set the eligibility ceiling at or below 85 percent of the SMI, states can choose whether or not to serve all applicant families that are eligible. Those that do not serve all applicants must choose which families to serve first and whether and how to establish waiting lists for subsidies.
How Much to Spend for Each Child Served
In addition to decisions about how many families to serve, states must decide the level of services. States set maximum reimbursement levels for child care providers. Often subsidies provide only partial payment to child care providers; many parents must contribute a co-payment, and that amount may be significant.2 The cost to the state per child equals the maximum reimbursement level minus the parent’s contribution, or the co-payment. States can spend less per child by requiring parents to pay a larger portion or by lowering the maximum reimbursement levels. They make these decisions in order to provide subsidies to the maximum number of children, while providing a level of subsidy support that will enable families to find and use child care that is adequate to meet their needs.
The Community Context
Several policies and programs implemented (and sometimes developed) at the community level have an impact on low-income families’ access to child care. These include the implementation of child care subsidy programs, the development and/or implementation of initiatives to improve families’ access to high-quality child care, the implementation of welfare policies and programs, and the development and implementation of other early care and education programs.
Child care subsidy programs and other early care and education programs are implemented at the community level. With few exceptions, it is at this level that parents interact with case workers, or resource and referral counselors, who determine their eligibility and inform them of child care options that are available to them. It is where child care providers find out about payment procedures and interact with staff when there are problems with payments. Agencies and staff at the community level interpret and apply the rules related to eligibility, fee schedules, co-payments, etc., that are determined at the state level.
Other efforts are also made to increase families’ access to high-quality child care, from provider recruitment and training programs, to consumer education efforts, to facilities loan programs. These efforts are initiated and funded through a variety of mechanisms, including state programs, public-private partnerships, community-level initiatives, and hybrid programs. In some communities, coordinating bodies are also developed to rationalize the early care and education system.
TANF policies set by the state are interpreted and implemented at the community level. These include diversion programs, time limits, work requirements, and rules related to child care for TANF recipients.
At the community level, other early care and education programs are developed and/or implemented. In addition to state prekindergarten programs and state investments in Head Start programs, school districts and other community-level agencies may have early care and education programs.
The implementation of early care and education policies is influenced by the community context, including demographic characteristics (e.g., poverty levels, the number and age distribution of young children, women’s labor force participation), the economic base and conditions (e.g., the types of industries in the community, unemployment levels, wage rates), and the existence and scope of public transportation systems, as well as social norms and attitudes.
1 State CCDF plans indicate that states’ income eligibility ceilings ranged from 40 percent of SMI to 85 percent of SMI. According to a report summarizing state plans for 2002–2003, 33 states set eligibility ceilings at 69 percent of SMI or lower. (back)
2 Under the CCDF, states are required to implement a sliding fee scale for co-payments. At the option of the state, co-payments may be waived for families at or below the Federal poverty level. (back)
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