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Journal Issue: The Next Generation of Antipoverty Policies Volume 17 Number 2 Fall 2007

Next Steps for Federal Child Care Policy
Mark H. Greenberg

Goals and the Limits of Current Policy

Measuring the effectiveness of current child care policies and evaluating the strengths and weaknesses of alternatives necessarily depend on one’s goals. My own view, noted above, is that a sound national child care policy should have four goals: every parent who needs child care to enter or sustain employment should be able to afford care that does not risk leaving children in unhealthy or dangerous environments; all families should have the opportunity to have their children in settings that foster education and healthy development; parental choice should be respected; and good choices should be available to families.

The current U.S. policy structure falls far short of meeting these goals. Rather than ensuring assistance to all families who need child care to go to or sustain work, current policy offers aid to only a small minority of low-income families. Even those receiving subsidies may not be able to place their children in care that fosters education and healthy development.

The tax system provides a small entitlement to middle- and upper-income families, but no help to the poorest families. In theory, the CDCTC could provide up to $2,100 to a family with child care costs of or exceeding $6,000. In reality, the credit is small in relation to child care costs, wholly unavailable to poor families, and provides little help to other low-income families. For example, Leonard Burman and his colleagues have calculated that in 2005, because of the CDCTC’s interaction with other credits and effective tax rates, a single-parent family with $6,000 of countable expenses would qualify for no credit at an income of $21,000; for a credit of $810 at an income of $25,000, and for a maximum credit of $1,560 at $33,000.28

Subsidy policy principally relies on providing block grants to states and letting them design their own policies to ration these funds. Overall, about one in seven children eligible for CCDF assistance receives it. Coverage is probably most extensive for families receiving or leaving TANF assistance and least extensive for working families without any recent welfare connection.29 Because available funding is not sufficient to serve all those eligible under federal law, states must make choices about how to allocate their funds. There are large variations across states concerning who is eligible for assistance and how much assistance eligible families receive.30 For example, in 2006 a family of three was ineligible for assistance in fifteen states if it had income of $25,000; in contrast, in eight states, a family of three with income exceeding $35,000 could still be eligible for assistance. State eligibility thresholds ranged from 110 percent to 284 percent of the poverty line and from 34 percent to 89 percent of state median income. Within their stateestablished eligibility rules, some states serve all eligible families, while others have closed doors or have established waiting lists for categories of eligible families. In 2006, eighteen states reported waiting lists or frozen intake for nonwelfare families.

Provider payment rates are an important dimension of child care policy because they affect whether families will be able to choose from a broad range of providers in the local market and pay for higher-quality care. Some states set payment rates high enough to meet provider charges in much of the local market, but most do not. In 2006 nine states were basing their rates on relatively recent (2004–05) market rate surveys and paid providers at or above the 75th percentile for the local market. In contrast, ten states had not updated their maximum reimbursement rates for providers since 2001 or earlier.

Family copayment rules are another important dimension of policy. Copayment levels affect the amount of family income available for all other costs of living after child care expenses. Setting a copayment level too high may affect whether families participate in the subsidy system. In 2006 a family of three with one child in care and income at the poverty level had no required copayment in four states but faced a copayment exceeding $100 a month in eleven states. In 2005 the mean copayment for families with copayment obligations was 10 percent of family income or higher in six states and 3 percent of family income or lower in another six.31

Just as there is variation in child care policies across states, in some cases there is variation within states. Although most states have uniform state policies, three states leave key determinants of eligibility, such as income thresholds, to local discretion.

It is hard to see a rationale for a national policy that leaves virtually every major policy decision about the provision of child care assistance for low-income families to state discretion and results in such wide variation across states. One might argue that child care should be viewed as analogous to TANF—that is, a lump sum federal payment accompanied by a set of broad goals and state discretion to design policies to effectuate the goals. The analogy is flawed. The goal of TANF is not to ensure that an eligible population receives a needed service—to the contrary, federal law has encouraged states to reduce the number of families getting assistance. A key rationale for TANF’s structure was the virtue of allowing for flexible funds and experimentation to help policymakers learn “what works.” However, in child care, it is doubtful that the nation is learning anything valuable by allowing diverse approaches to eligibility and assistance. Instead, the result is an inequitable patchwork in which families with the same needs are treated differently from state to state and within states, in which many low-income working families receive no help, and in which states are constantly forced to make difficult trade-offs between coverage, adequacy of payment rates, quality, and affordability.

Moreover, the existing structure does not ensure that families have access to care that promotes the health and development of children. Although the law provides that families receiving subsidy assistance should have “equal access” to the care available to higherincome families, it also states that families have no right to seek enforcement of this requirement. The Department of Health and Human Services has said that it will presume that a state’s payment rates are sufficient to provide equal access if, based on a market rate survey, the state’s payments to providers are set at a level high enough to give families access to 75 percent of local providers or slots. Most states, however, do not meet this standard, and the federal government has never taken action against a state for failure to do so.