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Chapter Two: Child Care Expenditures for Fiscal Years 1997-2001
In establishing the Child Care and Development Fund, the Federal government greatly increased the overall funding available for child care. For Federal fiscal year 2001, $4.6 billion in CCDF was made available to states, territories, and tribes. This compares to $935 million in 1996. The newly created TANF block grant was an additional source of Federal funding, and many states had a history of spending their own funding for child care. How much public funding did states use for child care, and from what sources, during this time period?
The first and second State and Community Study Interim Reports (2000 and 2004)documented subsidy spending by study states between 1997 and 2000. In those years, the great majority of states spent their full CCDF allocations and more. This chapter updates the two reports, taking the story of state spending through Federal fiscal year 2001. In these years, growth in child care spending continued in the majority of study states, although at a slower rate, given changed fiscal realities.
Summary of Findings
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Child care subsidies grew dramatically in every study state between Federal fiscal years 1997 and 2001. The average1 increase in child care spending over this period was 110 percent. In most of the states, spending grew very rapidly between 1997 and 1999, and much more slowly between 1999 and 2001. Between 1997 and 1998, average growth was 77 percent. Between 2000 and 2001 it slowed to 29 percent.
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Average state spending per low-income child2 more than doubled in the study states from Federal fiscal years 1997 to 2001. After rising each year between 1997 and 2000, average spending dropped slightly in 2001.
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Adjusted for state differences in child care costs, average state spending per subsidized child rose each year, increasing by 140 percent between Federal fiscal years 1997 and 2001. Average spending per child rose from $3,019 in FFY 1997 to $4,640 in FFY 2001.
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Contrary to early fears that many states would not take advantage of all available CCDF funding, all study states spent sufficient state dollars to draw down their full allocations of Federal CCDF dollars in Federal fiscal years 1997 and 1998. All except two states drew down their full allocations in 1999, 2000, and 2001.
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Beyond dedicated child care funds from the CCDF, states made substantial use of optional Federal and state funds not specifically earmarked for child care. The Federal TANF Block Grant was the prime source of optional child care funding. Average child care spending from all Federal and state optional sources as a percentage of total expenditures for child care tripled between 1997 and 2001, rising from 16 to 47 percent. In 1997, just one state drew more than 20 percent of child care expenditures from its TANF Block Grant; in 2000, 15 states did.
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States’ patterns of spending—and not spending—their own optional funds on child care changed little between 1997 and 2001. In FFY 1997, in seven of the 16 states, optional state funds constituted 9 percent or more of child care spending. In the rest of the states, optional state funds constituted 3 percent or less of child care spending. By FFY 2001, six of the seven states spent 14 percent or more on child care from state optional funds, and the rest spent 4 percent or less.
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Growth in state spending on quality outpaced the growth in total child care spending. Over these years, average per-child spending on quality nearly quadrupled in the study states. The adjusted average increase in spending per child of employed parents on quality and supply-building activities rose 259 percent between 1997 and 2001, more than twice the increase in overall spending. Every year, all study states met the required 4 percent quality spending from designated streams within the CCDF, and, in 2001, 15 of the states exceeded 4 percent of their total child care spending from all sources, not just the designated streams within the CCDF.
Provisions of the Child Care and Development Fund
The CCDF replaced previous Federal child care programs, each of which had either a separate funding formula and/or a slightly different target population. Instead of relying on a completely different system of funding allocation, the CCDF combines aspects of the previous pieces of legislation. The CCDF has three funding components—"mandatory," "matching," and "discretionary." Upon application, a state automatically receives its "discretionary" amount, but in order to draw down mandatory or matching funds it must either prove its maintenance of a certain level of spending or match Federal funds. These matching and maintenance-of-effort requirements are less than the requirements under previous legislation, and there was initial concern that, as a result, states would reduce the commitment of their own funding for child care.
Not every Federal source of child care funding was consolidated into the CCDF, and states can tap into these other sources as well as use state funding to support child care. Federal sources include: (1) the TANF Block Grant, which may be spent directly on child care or transferred into the CCDF; (2) the Social Services Block Grant (SSBG; sometimes known as Title XX), although the size of this block grant diminished substantially during the 1990s; and (3) Title IV-E of the Social Security Act, which several states use to provide child care subsidies for children in their child welfare systems.3
Many states also spend more of their own funds than is necessary to draw down their full Federal CCDF allocations. In fact, before the CCDF, some states had spent more than the minimums necessary to access funds from the predecessor Federal programs, and there was some concern that states might draw back from these commitments once more Federal funding was available under the CCDF.
Finally, although state spending on prekindergarten and other early childhood education programs is beyond the scope of this report, it is important to note that states invest significantly in these programs.4 The CCDF allows states to use prekindergarten funds to meet portions of the maintenance-of-effort and matching requirements, when states demonstrate that their prekindergarten programs support the needs of low-income employed parents.5 In 2001, of the 17 study states, five used prekindergarten expenditures to meet maintenance-of-effort and/or matching requirements.6
Changes in Child Care Spending
Sustained Growth in States’ Child Care Spending
Spending for child care subsidies grew substantially in the 17 study states between 1997 and 2001. For the 16 states that could report data for both FFY 1997 and 2001, median child care spending more than doubled; growth ranged from 45 percent in Massachusetts to 384 percent in Louisiana. 7 Spending more than tripled in five of the states. (See Exhibit 2-1 and Appendix Table 2-A.)
In most states, most of the growth occurred between Federal fiscal years 1997 and 1999. Between FFY 1999 and 2001 spending grew at a much slower rate in most states and actually decreased in Michigan and Virginia. Exhibit 2-2 shows spending increases between 1997 and 1999; in that time period, the average spending increase was 77 percent. Between 1999 and 2001, the average increase was 29 percent. (See Exhibit 2-3.)
Individual state patterns varied, although every state except Ohio experienced its greatest annual growth in child care spending either between FFY 1997 and 1998 or between 1998 and 1999. Between FFY 1999 and 2000, Michigan and Minnesota reported single-digit percentage decreases in spending, though both again reported increases the following year. Between FFY 2000 and 2001, three states reported decreases—Alabama (5 percent), Illinois (3 percent), and Virginia (19 percent).
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Per Capita Growth in Child Care Spending
To compare the states’ impressive increases in spending for child care subsidies, state differences in child care costs and size of the population of low-income children must be taken into account. Each state’s child care expenditures have been adjusted to account for differences in child care costs.8 To adjust for differences in population size, we used an estimate of the number of children under age 13 living in families with incomes below 62% of SMI, with all parents in the household employed, as well as all children under age 19 with disabilities. We chose the figure of 62% of SMI because that is where the average state sets its eligibility ceiling.9 We divided the adjusted spending amount by the number of children living in families with incomes below this ceiling.
Exhibit 2-4 summarizes expenditures per low-income child (defined in the paragraph above) in the study states from FFY 1997 through FFY 2001. Across the states, adjusted spending per child more than doubled over the five-year period, increasing each year through 2000, before dropping slightly between 2000 and 2001. Average spending increased 40 percent from FFY 1997 to 1998, 48 percent from FFY 1998 to 1999, and 19 percent from FFY 1999 to 2000. Between 2000 and 2001, average spending decreased by 3 percent.
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FFY 1997 | FFY 1998 | FFY 1999 | FFY 2000 | FFY 2001 |
|---|---|---|---|---|---|
| Range | $182 - $885 | $391 - $984 | $491 - $1,155 | $572 - $1,400 | $574 - $1,618 |
| Average | $419 | $588 | $872 | $1,035 | $1,005 |
| % Change From Previous Year | 40% | 48% | 19% | -3% |
| Source: Information provided by study states, drawn from their ACF-696 and ACF-196 financial reports to the U.S. Department of Health and Human Services and additional sources. |
Among study states, the bottom and top of the spending range were widely separated in all five years; the widest separation ($1,044) occurred in 2001.
Exhibit 2-5 provides information on growth in state spending per child under 62% of SMI. Three of the five states with the biggest increases (Indiana, Louisiana, New Mexico) were also among those with the lowest adjusted annual spending per child below 62% of SMI in 1997. Similarly, of the six states in which spending grew by less than 100 percent, four were among the highest per-child spenders in FFY 1997 (Illinois, Massachusetts, Michigan, and Tennessee). (Also see Appendix Tables 2-B.1-5.)
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Another way of comparing states’ spending is to look at average amounts spent for each child served by subsidies, again adjusting state spending to account for state differences in child care costs. As Exhibit 2-6 shows, average adjusted spending per child served grew substantially each year.
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FFY 1997 | FFY 1998 | FFY 1999 | FFY 2000 | FFY 2001 |
|---|---|---|---|---|---|
| Range | $2,050 - $6,364 | $2,437 -$5,064 | $2,849 -$5,189 | $3,174 -$5,288 | $2,784 - $5,495 |
| Median | $3,012 | $3,323 | $3,761 | $4,168 | $4,583 |
| % Change From Previous Year | 10% | 13% | 11% | 10% |
| Source: Information provided by study states, drawn from their ACF-696 and ACF-196 financial reports to the U.S. Department of Health and Human Services and additional sources. |
Exhibit 2-7 provides information on spending per child served by state, for Federal fiscal years 1997 and 2001, for the 13 states reporting sufficient information in 1997 and 2001. In 10 of the 13 states, the adjusted amount states spent per child increased between the two time periods, in some cases quite substantially. (See Appendix Tables 2-C.1-5 for further details.)
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Sources and Use of Child Care Funds Available to the States
We have broadly grouped the funds available to the states for child care into two categories, the same categories we used in the Interim Report (2000). The first, which includes all the Federal and state funding through the CCDF, is "dedicated" to child care. When states use these funding sources, they must use them for child care. The second category includes all other "optional" Federal and state sources, not specifically earmarked for child care. These are funds that states may, at their option, spend on child care.
Dedicated funding under the CCDF consists of three distinct Federal components and two state components. These components and their associated requirements are described in Exhibit 2-8. Exhibit 2-9 presents similar information for optional Federal and state sources of child care funds, which include the Federal TANF and Social Services Block Grants and state general revenue funds.
| Source | Requirements | |
|---|---|---|
| Federal Funds | Child Care and Development Fund (CCDF)/Mandatory | Annual base amount for each state, determined by funding for former Title IV-A child care programs: AFDC, Transitional, and At-Risk. |
| CCDF/Federal Matching | Funds above the annual base amount, available to states meeting Maintenance of Effort and State Matching spending requirements. Amounts available to states determined by number of children under age 13 in each state. | |
| CCDF/Discretionary | Annual amount for each state based on formula for former Child Care and Development Block Grant program. | |
Former Child Care and Development Block Grant (CCDBG) |
Funds carried over from earlier CCDBG allocations. | |
| State Funds | CCDF/Maintenance of Effort | Annual amount based on historic state spending on former Title IV-A child care program. |
| CCDF/State Matching | State’s required annual matching amount based on Medicaid matching rate. | |
| Source | Requirements | |
|---|---|---|
| Federal Funds* | Temporary Assistance for Needy Families Block Grant (TANF)/Funds Transferred to CCDF | A state may transfer up to 30 percent of its Federal TANF Block Grant to its Child Care and Development Fund each year. Transferred funds come under the rules and regulations of the CCDF and are treated as Discretionary Funds. |
| TANF/Direct Expenditures | A state may also spend Federal TANF funds for child care that are not transferred to the CCDF. There is no limit on these expenditures, which may be made whether or not a state transfers any TANF funds. According to final TANF regulations, an employed family’s receipt of child care paid with direct TANF funds is not "assistance" and therefore does not count against a family’s Federal lifetime limit on TANF benefits. | |
| Title XX Social Services Block Grant (SSBG) | Historically used by many states to fund child care. PRWORA implemented gradual reductions in funding levels. Of the 30 percent maximum that states may transfer from its Federal TANF Block Grant, up to 10 percent may be transferred to SSBG. (In Federal fiscal year 2001, the maximum that states may transfer from Federal TANF Block Grants dropped to 4.25 percent.) | |
| Title IV-E | May be used by states to fund for child care related to Child Protective Services. | |
| State Funds | TANF/Child Care Maintenance of Effort (in addition to CCDF Maintenance of Effort) | States may count the same child care expenditures, based on historic Title IV-A spending for child care, toward both TANF and CCDF Maintenance of Effort requirements. States may also count additional state spending on child care toward TANF Maintenance of Effort. |
| Separate State Program/Child Care Maintenance of Effort (in addition to CCDF Maintenance of Effort) | States may count spending on some non-TANF child care programs toward TANF Maintenance of Effort. This may include spending in addition to that included in CCDF Maintenance of Effort. Receipt of child care paid with these funds does not count against a family’s Federal lifetime limit, whether or not the family is employed. | |
| General Revenue | States may appropriate funds for child care. | |
| Protective Services | States may appropriate funds specifically for child care for children in protective services and foster care. | |
| * Other optional Federal funds include Reallotted CCDF (states may apply for any CCDF funds unused by other states) and Food Stamp Employment and Training (funds used by states for the child care costs of legal aliens who must be employed or in a work activity in order to receive food stamps). One study state reported a small amount of Reallotted CCDF spending; another reported a small amount of Food Stamp Employment and Training spending. |
All the states in the study except Michigan and Alabama made full use of their dedicated sources of child care funding between 1997 and 2001: they met their maintenance-of-effort and matching requirements to draw down the full Federal share of their CCDF allocations.10 While Michigan maximized its dedicated sources for child care for all other years, in 1999 it spent no state matching dollars and therefore left unclaimed its entire Federal matching allocation of more than $33 million. Alabama left portions of its Federal matching allocations unclaimed three years in a row: $1.3 million in FFY 1999, nearly $1 million in 2000, and $7.2 million in 2001.11 (For information on funds dedicated for child care spending, see Appendix Table 2-D.1.)
In addition to spending to draw down their dedicated Federal funds for child care, states also made substantial use of Federal and state funds that they could choose to spend for child care. (See Exhibit 2-10.) In FFY 1997, the study states used optional funding sources sparingly. That year, an average of 16 percent of total child care spending came from optional sources. By FFY 2001, the average percentage—of the far higher absolute level—of child care spending derived from these sources nearly tripled, reaching 47 percent. (See Appendix Tables 2-D.2.)
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FFY 1997 | FFY 1998 | FFY 1999 | FFY 2000 | FFY 2001 |
|---|---|---|---|---|---|
| Range | 0% - 56% | 0% - 67% | 4% - 81% | 11% - 82 % | 0% - 78% |
| Average | 16% | 29% | 40% | 46% | 47% |
| % Change From Previous Year | 81% | 38% | 15% | 2% |
| Source: Information provided by study states, drawn from their ACF-696 and ACF-196 financial reports to the U.S. Department of Health and Human Services and additional sources. |
In FFY 1997, only California and Michigan covered more than half their child care spending from optional sources. In FFY 2000, the number of study states for which this was the case peaked, at eight of the 17, and dropped back to six in FFY 2001. (See Appendix Tables 2-D.1 and 2.) As state budgets began to tighten, 10 states reduced the percentage of child care spending from optional funds between FFY 2000 and 2001. Although Michigan consistently spent high proportions of funds from optional sources, the state was exceptional in FFY 1999 in choosing not to spend the dedicated state funds necessary to draw down any of its dedicated Federal matching funds.
Optional Spending from TANF Block Grants to the States
Federal TANF Block Grants were the main new optional source for child care funds between 1997 and 2001. As welfare caseloads fell, states redirected significant portions of their unspent Federal TANF funds to child care. In 1997 only Massachusetts, Michigan, and Tennessee used TANF funds for child care—either transferred into TANF or spent directly. In FFY 1999, 2000, and 2001, all reporting states, with the exception of Virginia, made use of TANF funds for child care.12
Already striking in FFY 1999, states’ use of Federal TANF funding climbed in 2000, then slipped back a little in FFY 2001. In 1997, Massachusetts was the only state to draw more than 20 percent of its child care expenditures from its Federal TANF Block Grant. At the FFY 2000 peak, 15 of the 17 states met 20 percent or more of their child care spending needs with Federal TANF funds, and, in six of the 15, Federal TANF money accounted for 40 percent or more of child care expenditures. In FFY 2001, 13 states met 20 percent or more of their child care spending with these funds and, in 5 of the 13, TANF funds accounted for 40 percent or more for child care expenditures. (See Exhibit 2-11; also see Appendix Table 2-E.)
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Child care financed with funds transferred from TANF into the CCDF is subject to CCDF health and safety regulations. Transferred TANF funds are also governed by the CCDF requirement that at least 4 percent be spent on activities to enhance quality and expand supply. Of the three states reporting use of Federal TANF funds for child care in FFY 1997, Massachusetts and Tennessee used transferred TANF funds exclusively, and Michigan used a combination of transferred funds and direct spending. By FFY 2000, all 17 study states used transferred TANF funds and of these, seven used only transferred TANF funds. States used similar combinations in FFY 2001. (See Exhibit 2-11.)
States became more willing to spend TANF funds directly on child care after final TANF regulations, published in 1999, held that receipt of these funds would not count against the lifetime limit for TANF benefits for working families, defined as TANF "non-assistance." (For non-working families, child care subsidies are counted in the TANF "assistance" category.) As a result of this new ruling, in FY 1999, 10 of the 16 reporting states used direct TANF funds. This trend was sustained through 2001, when 10 of 17 states spent direct TANF dollars, and five of them spent more direct TANF than transferred funds.
In financial reports to the Federal government for FFY 2000, for the first time states were asked to distinguish between direct TANF child care spending for "non-assistance" and "assistance." Eight of the 10 states reporting direct TANF spending in FFY 2000 and 2001 spent more for "non-assistance" than "assistance." The exceptions were Louisiana (FFY 2001), New Jersey (FFY 2000), and Tennessee (FFY 2000 and 2001). (See Appendix Table 2-E.)
Optional Spending from Social Services Block Grant, Title IV-E, and Other Federal Sources
The Social Services Block Grant (SSBG, also known as Title XX) declined in importance as a source of child care funding between 1997 and in 2001. (See Appendix Table 2-E.) Although 10 states used SSBG in 1997, and 11 in 2001, it accounted for a declining amount of child care spending each year in most states, as diminishing SSBG allocations were available to them.13, 14 In 1997, among the 10 states that reported using SSBG funds for child care, the proportions of total child care spending from SSBG ranged from less than 1 percent in Ohio and Washington through 4 to 9 percent in seven states, up to a high of 26 percent in Michigan. In 2001, the range among the 11 states using SSBG funds had narrowed from less than 1 percent in eight states to 8 percent in New York.
Each of the study years, four or fewer states made modest use of Title IV-E funds for child care. Small amounts of spending from Food Stamp Employment and Training funds were reported by one state in FFY 1997 and 2001, two in FFY 1999, and three in FFY 2000. (See Appendix Table 2-E.)
Illinois and New Mexico used state appropriations earmarked for child care for children in protective services during all five years. In addition, Ohio used this optional state source in FFY 1997 and 1998, as did Massachusetts in 1998 and 2000, Alabama in 2000, and Washington in 2000 and 2001.15
Sustained State Patterns of Optional Spending from State Funds
Fears that states that historically had spent more than the required minimum on child care might abandon their commitments as a result of increased funding available from the Federal government were unrealized. Study states largely held to their traditional practices of spending—or not spending—their own optional funds on child care between FFY 1997 and 2001. In FFY 1997, in seven of the 16 reporting states, 9 percent or more of child care assistance came from optional funds. In all of the rest of the states, the proportion was between 0 and 3 percent. In FFY 2001, in six of the 17 reporting states, 14 percent or more of child care came from state optional funds; in the rest the proportion was 4 percent or less. Six of the seven states in the group that spent more optional funds in FFY 1997 were also in that group in FFY 2001 (See Exhibit 2-12 and Appendix Table 2-F.)
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As Exhibit 2-9 shows, optional state funds include those spent on TANF or Separate State Child Care programs that states count toward TANF maintenance-of-effort requirements. Three reporting states used funds so designated in FFY 1997; 10 did so in FFY 2001. (See Appendix Table 2-F.)
Individual State Spending Patterns
Exhibit 2-13 shows individual state spending patterns for the years 1997 through 2001. For each state, the exhibit shows the amount of adjusted state spending per child under 62% of SMI that came from each major source: Federal dedicated funds (i.e., Federal CCDF, not including amounts transferred from TANF), Federal TANF funds, other Federal optional funds, state dedicated funds, and state optional funds.
Spending for Activities to Enhance Quality and Expand Supply
In addition to spending on direct child care services, all the states fund a host of activities designed to improve the quality and expand the supply of child care. CCDF regulations require states to spend a minimum of 4 percent on quality activities from their aggregate allocations of Federal mandatory, matching, and discretionary funds (including those transferred from TANF) and state matching funds. Activities supported with these funds include training and education for child care practitioners, salary enhancements for teachers, consumer education for parents, and child care resource and referral systems for parents, practitioners, and communities. Tiered reimbursement rates, another way of supporting quality, are paid for with direct services funds.
Continued Growth in States’ Spending on Quality and Supply-Building Activities
Growth in states’ spending on activities to enhance the quality and expand the supply of child care outstripped the growth in their overall spending on child care.16 All 16 states that reported information for both FFY 1997 and 2001 spent more—usually much more— on quality activities in the later year.17 Over these years, the percentage growth in such spending spanned a wide range--from a low of 10 percent in Minnesota to a high of 877 percent in California. Average growth was 259 percent, more than double the average increase in overall spending. Three of the four states with the lowest growth rates (Massachusetts, Minnesota, and New Jersey) were also among those states reporting the highest adjusted per capita quality spending in the study’s first year, FFY 1997. (See Exhibit 2-14 below and Appendix Table 2-G.)
State spending on quality was more likely to spike and dip from year to year than spending on direct services. For example, Minnesota made a significant one-time investment in quality spending in FFY 1998. California spent $13 million more on these activities in FFY 1999 than it did either the year before or the year after, then increased quality spending by $75 million in 2001.
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Per Capita Growth in States’ Quality and Supply-Building Activities
To compare states’ per capita spending for quality and supply-building activities, we used a two-step process similar to that used above to compare states’ total child care expenditures. First, we adjusted states’ quality and supply-building expenditures by their child care labor costs.18 Second, we divided each state’s adjusted quality and supply-building expenditures by an estimate of the number of children in each state with employed parents. We used the metric of number of children with employed families, rather than number of children in low-income families, for these comparisons, because the CCDF intends quality expenditures to upgrade communities’ child care supply and thereby benefit all children using child care—subsidized and unsubsidized.19
Quality spending per child of employed parents nearly quadrupled between Federal fiscal years 1997 and 2001. As Exhibit 2-15 shows, the average per-child expenditure across the reporting states increased by between 43 and 56 percent each year from 1997 to 2000. The rate of increase slowed to 13 percent between FFY 2000 and 2001.
| FFY 1997 | FFY 1998 | FFY 1999 | FFY 2000 | FFY 2001 | |
|---|---|---|---|---|---|
| Range | $1.95 - $15.74 | $3.91 - $19.16 | $7.41 - $19.12 | $6.80 – $29.05 | $10.44 - $32.69 |
| Average | $5.07 | $7.80 | $12.17 | $17.39 | $19.70 |
| % Change From Previous Year | 54% | 56% | 43% | 13% |
| Source: Information provided by study states, drawn from their ACF-696 and ACF-196 financial reports to the U.S. Department of Health and Human Services and additional sources. |
Exhibit 2-16 provides state information on per capita quality spending between for 1997 and 2001 and shows how some states’ positions as relatively high or low spenders on quality changed during that time. For example, Washington, Michigan, and New Mexico went from relatively low per child expenditures in 1997 to being among the highest spenders in 2001. New Jersey went from relatively high spending in 1997 to relatively low spending in 2001. No matter where they ranked, each study state appears to have satisfied the 4 percent requirement throughout the five years of this study.20, 21
States’ Quality and Supply Spending as a Percentage of Their Total Child Care Spending from All Sources
To analyze state spending on quality and supply building from a broader perspective, we calculated states’ annual spending on quality as a percentage of their child care spending from all sources, even if the source is not included in the pool for which a minimum spending of 4 percent on quality activities is required. Viewed this way, spending on quality activities more than kept pace with the overall growth in child care spending between FFY 1997 and 2001. With the exceptions of Minnesota, Texas, and New Jersey, every reporting state devoted the same or a higher proportion of total spending to quality activities in 2001 than it had in 1997. (See Exhibit 2-16 and Appendix Table 2-H.)
The number of states with quality spending exceeding 4 percent of their spending from all sources grew steadily over the first five years of the Child Care and Development Fund. In 1997, seven states spent more than 4 percent on quality. By 2001, quality spending exceeded 4 percent in 16 of 17 reporting states.
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These changes in the numbers of children served reflect states’ spending patterns. The next chapter compares the numbers of children served by subsidies among the study states.
1 Throughout the report, averages were calculated using the median rather than the mean, to avoid distortion by extremes at both ends of the distribution. (back)
2 To make state comparisons using a similar metric, we divided spending by the number of children in working parents under 62% of State Median Income (SMI). We chose this level of income because it was the average income cut-off among states in 2003, as indicated in their CCDF state plans. For more information on the estimate, please see Footnote 9. (back)
3 Also, under AFDC, significant support for child care came indirectly through the "child care disregard" mechanism. Rather than making explicit payments for AFDC child care, many states deducted families’ child care costs before calculating their cash assistance levels. With the creation of TANF, states were no longer required to offer a child care disregard. As of October 1999, 21 states and the District of Columbia had some form of child care disregard for TANF recipients, but only three used the disregard of some or all child care costs as the sole method of subsidy provision. See State Policy Documentation Project, TANF Child Care: Subsidy Provision/Copayments as of October 1999. (2000). <http://www.spdp.org/tanf/copayments.PDF> (back)
4 In 2000, 41 states and the District of Columbia spent $2 billion annually on prekindergarten initiatives. Ann Mitchell, Prekindergarten Programs in the States: Trends and Issues, Early Childhood Policy Research, 2001. (Copies available at nccic.org.) (back)
5 The CCDF allows a state to use prekindergarten funds to meet up to 20 percent of its maintenance-of-effort requirement, only if the state has not reduced its expenditures for full-day/full-year child care services. The CCDF also allows a state to use prekindergarten funds to meet up to 20 percent of its matching requirement, provided its state CCDF plan includes a description of efforts to ensure that its prekindergarten program meets the needs of employed parents. (back)
6 Alabama, Michigan, Texas, and Washington used state prekindergarten spending to help meet maintenance-of-effort requirements. Alabama, Massachusetts, Michigan, and Texas also used prekindergarten expenditures to meet matching requirements. See U.S. Department of Health and Human Services, Administration for Children and Families. (2002). Fiscal Year 2001: Child Care and Development Fund (CCDF). Maintenance of Effort Summary and Matching State Share Categorical Summary. Quarter End Data 9/30/01. In addition, as allowed by the CCDF, Texas counted $1 million in private spending toward its state matching requirement. (back)
7 Expenditure data are available for the state of New York only for Federal Fiscal Years 2000 and 2001. When reporting expenditures for 2000 or 2001, five states also revised some expenditure amounts for 1999 that they had previously reported for the State and Community Substudy, Interim Report (November 2, 2000). The Appendix Tables note all states with revised 1999 amounts.. (back)
8 Expenditures were adjusted using a child care cost index based on the relative average hourly wage for a child care worker. The Child Care Cost Index is defined as: CCCII = WI /WN), where Wi = average hourly wage rate for child care workers in Regioni, and WN = national average hourly wage rate for child care workers. Adjusted child care expenditures in Statei = actual child care expenditures in Statei divided by the CCCIi , when Statei is located in Regioni . For the CCCI used for FFY 1997 and 1998, average hourly wage rates for child care workers were obtained from the Census Bureau’s 1997 National Compensation Survey. For the CCCI used for FFY 1999 and 2000, average hourly wage rates for child care workers were obtained from the Census Bureau’s 1999 National Compensation Survey. For the CCCI used for FFY 2001, average hourly wage rates were obtained from the Census Bureau’s 2001 National Compensation Survey. Wages are estimated for nine Census regions, nationally. (In the first Interim Report, the CCCI developed to adjust FFY 1999 expenditures was based on the Census Bureau’s 1997 National Compensation Survey; this updated report uses the CCCI based on the 1999 Compensation Survey to adjust FFY 1999 expenditures.) (back)
9 Estimated numbers of children under 62% of SMI were developed to provide a common benchmark across the states that is unaffected by state policy. This is not an estimate of potentially eligible children under Federal law; under current law, states are allowed to set their eligibility ceiling as high as 85% of SMI. In some study states, such as Minnesota and North Carolina, children are eligible for subsidies when families have incomes that are higher than 62% of SMI. In other states, such as Alabama, Massachusetts, and New Jersey, children in families with incomes at 62% of SMI are ineligible. It is also important to note that, in reality, the number of children with incomes below that level is different each year because of changing numbers of families that enter or leave the labor force and relative changes in family income. However, data limitations for this report make it necessary to use an estimate for a single time period to compare use numbers from several years. The estimates were created by the Urban Institute using data on income, employment, and disability status from the combined March 2000, March 2001, and March 2002 Current Population Surveys, which cover calendar years 1999-2001. (The first Interim Report used a different benchmark, i.e., children in families earning 85% SMI or less with parents working or in other activities that confer potential eligibility.) (back)
10 While the funds included in the CCDF must be used for child care, time frames for using them vary. Federal mandatory funds are available until expended, unless Federal matching funds are requested. Matching funds are available provided the state obligates all its mandatory funds by the end of the Federal fiscal year and expends its required state maintenance-of-effort. Federal matching funds must be obligated by September 30 of the year in which funds are received; state matching funds must be obligated by September 30 to cover the state share of the Federal un-liquidated obligation. Obligations must be liquidated by September 30 of the following year. Federal discretionary funds must be obligated by September 30 of the fiscal year immediately following the fiscal year in which they were awarded. States must liquidate obligations within one year after the end of the obligation period. See U.S. Department of Health and Human Services, Administration for Children and Families. (2001). Fiscal Year 2000 State Spending Under the Child Care and Development Fund (CCDF) as of 9/30/2000. <http:/www.acf.dhhs.gov/programs/ccb/research/00acf696/overview.htm> (back)
11 Email communication from Catherine Wade, U.S. Department of Health and Human Services, Administration for Children and Families, to J. Lee Kreader, July 1, 2003. (back)
12 All study states except New York provided financial information for FFY 1997 through FFY 1999. All 17 study states provided financial information for FFY 2000 and 2001. In FFY 2001, Virginia reported just 0.12 percent of its child care spending from TANF. (back)
13 As noted earlier, PRWORA called for gradual reductions in SSBG funding levels. During FFY 1997-2000, states could increase available SSBG funds by transferring up to 10 percent of their TANF Block Grant into SSBG. (back)
14 Some SSBG funds spent on child care had been transferred by states into the SSBG from TANF. (See Exhibit 2-9 above for more information about the use of SSBG and TANF funds on child care.) All but Louisiana and New Mexico transferred some FFY 2001 TANF funds into the SSBG, but for most study states, we do not know the amounts—if any—of transferred funds these states spent on child care. See HHS, 2002 TANF Annual Report to Congress, Table 2:11:a, p. II-55. North Carolina, however, did explain that the bulk of its SSBG child care spending came from transferred TANF funds in 2000. (See note in Appendix Table 2-8.) Funds transferred into the SSBG may be spent in the year received, but may also be spent in the subsequent year. Schumacher, Greenberg, and Duffy, The Impact of TANF Funding on State Child Care Subsidy Programs, Center for Law and Social Policy, 2001, pp. 27-28. (back)
15 While other states also purchased child care for children in the child welfare system, they did not have identified appropriations for this purpose. (back)
16 In addition to asking states to report amounts spent on quality/supply-building activities from the dedicated funding of the CCDF, we asked them to report amounts spent on quality from optional funding sources. (back)
17 For brevity, we will sometimes use the terms "quality" activities or "quality" spending to describe state activities both to enhance quality and expand supply. (back)
18 As noted above, we used an index based on labor price differentials to adjust quality expenditures in the 17 study states. We constructed this index using the Child Care Cost Index (CCCI), which is based on wage rates for child care workers, to adjust quality expenditures. See footnote 10 for further information. (back)
19 The estimated number of children of employed parents is derived from a simulation model developed by the Urban Institute using data on income, employment, and disability status from the combined March 2000, March 2001, and March 2002 Current Population Surveys, which cover calendar years 1999-2001. We used these estimates in the absence of data on children in all forms of child care. (back)
20 Conversations and emails with Catherine Wade at HHS, July 2003. (back)
21 The CCDF’s 4 percent requirement applies to each Federal fiscal year’s allocations from each source, but only at the end of their various multi-year liquidation periods. The 4 percent requirement does not apply to spending during each Federal fiscal year from each of these sources—the amounts states reported for this study. (back)
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