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### Overview of the Child Care and Development Fund (Fiscal Years 2006-2007) ( October 2006)

**Background**

**The Child Care and Development Fund (CCDF)** is the primary Federal
program specifically devoted to child care services and quality.  It
enables low-income parents and parents receiving Temporary Assistance
for Needy Families (TANF) to work or to participate in the educational
or training programs they need in order to work.  Funds may also be used
to serve children in protective services.  In addition, a portion of
CCDF funds must be used to enhance child care quality and availability.

The component funds of the CCDF were provided under the Personal
Responsibility and Work Opportunity Reconciliation Act of 1996 (PRWORA).
As of October 1, 1996, PRWORA repealed the old welfare-related child
care programs provided under the Social Security Act (AFDC/JOBS Child
Care, Transitional Child Care, and At-Risk Child Care).  The repealed
programs were replaced by Mandatory and Matching Funds appropriated for
fiscal years (FYs) 1997 through 2002 under a new section (418) of the
Social Security Act.  The Administration for Children and Families (ACF)
re-named the block grant funds provided under the Child Care and
Development Block Grant (CCDBG) Act of 1990, as amended, the
Discretionary Fund, to signify that it must be appropriated annually.
PRWORA required that the new Mandatory and Matching Funds be transferred
to a State\'s Lead Agency for the CCDBG and be administered by that
agency, using the provisions of the CCDBG Act, as amended by PRWORA.

Although the Discretionary Fund is authorized at \$1 Billion (B) a year
through FY 2002, Congress has routinely appropriated amounts in excess
of \$1 B for each fiscal year through FY 2006 and has proposed
appropriations in excess of \$2 B for the CCDBG in FY 2007.  In 2006,
Congress passed legislation appropriating \$2.9 B in Mandatory and
Matching Funds for each of FYs 2006 through 2010.

ACF selected the name CCDF to signify the unification of the CCDBG and
new child care subsidy funding under the Social Security Act. The
preponderance of the funds is distributed to States to operate child
care subsidy programs and improve the quality and availability of child
care.  All children receiving CCDF services benefit from the health and
safety requirements, consumer education, parental choice, and other
provisions of the CCDBG statute. 

The first regulations governing the CCDBG were published on August 4,
1992, and became effective on the same date.  ACF published proposed
regulatory amendments responding to PRWORA on July 23, 1997. ACF
subsequently published the final CCDF regulations on July 24, 1998,
effective August 24, 1998.

An ACF-approved CCDF Plan, describing how a Lead Agency will implement
the provisions of the CCDBG Act, is required of all grantees on a
biennial basis.  The current Plan period for FYs 2006-2007 began on
October 1, 2005. 

**Distribution of Funding**

Subject to the availability of appropriations, the CCDF is distributed
as follows:

-   Each fiscal year, ACF reserves ¼% of the CCDF funds (Mandatory,
    Matching, and Discretionary) for providing technical assistance to
    grantees.

-   Of the Discretionary Fund, each fiscal year, Indian Tribes and
    Alaskan Native Villages or regional or village corporations receive
    2%, and Territories receive ½%. Of the remaining amount appropriated
    for FY 2006, nearly \$10 million (M) was set-aside for use by the
    Secretary for child care research, and nearly \$1 M was set-aside
    for the Child Care Aware toll free hotline. States receive the
    remaining funds out of the Discretionary Fund.

-   Of the Matching and Mandatory Funds, Indian Tribes receive 2%, which
    is comprised entirely of Federal funds. States receive 97¾% of the
    Mandatory Funds and are eligible to receive up to 97¾% of the
    Matching Funds.

-   Grantees must apply for funds and have an ACF-approved biennial CCDF
    Plan.

**States' Share of Funding - FY 2006      **

**In FY 2006, States (including the District of Columbia and Puerto
Rico) received over \$4.8 B in Federal funds (\$4,848,014,257).  This
includes Mandatory and Discretionary Funds and the Federal share of
Matching Funds.**

**Mandatory Funds.** **States (including the District of Columbia)
received nearly \$1.2 B in Mandatory Funds (\$1,177,524,781).**

These are 100% Federal funds. A State's share of the funds is based on
the Federal share of its funding for the now-repealed AFDC-linked child
care programs (AFDC/JOBS Child Care, Transitional Child Care, and
At-Risk Child Care).  The share is based on Federal funds received in FY
1994, FY 1995, or an average of funds received in FY 1992-1994,
whichever is greater.

**Matching Funds.  States (including the District of Columbia) were
eligible to receive nearly \$1.7 B in Matching Funds
(\$1,676,466,941).**

Matching Funds are remainder funds, i.e., the difference between the
amount appropriated by Congress for a given year (under section
418(a)(3) of the Social Security Act), less amounts reserved for
technical assistance and tribal mandatory funds, and the amount of
Mandatory Funds distributed to States.  Matching funds are allocated to
States on the basis of the number of children under age 13 in a State
compared with the national total of children under age 13.  (The data is
to be based on the best that is available for the second year preceding
the allocation.)

In order to receive these funds, a State must: (1) Provide Matching
Funds **at the** **current Medicaid match rate**; (2) Obligate the
Federal and State share of Matching Funds in the year in which the
Matching Funds are awarded; (3) Obligate all of its Mandatory Funds in
the fiscal year in which the Mandatory Funds are awarded; (4) Obligate
and expend its Maintenance of Effort (MOE) Funds in the year in which
the Matching Funds are awarded.  (MOE means a State must continue to
expend its own funds at the level it was matching the former AFDC-linked
child care programs in FY 1994 or FY 1995, whichever was greater.)

**Discretionary Funds.**  **Public Law 109-149, the Labor, Health and
Human Services, and Education Appropriations Act (2006) appropriated
nearly \$2 B in Discretionary Funds for FY 2006 (\$1,994,022,535) for
States (including the District of Columbia and Puerto Rico). **

Discretionary Funds are 100% Federal funds and are allocated to the
States using a proportional formula based on three factors: 

1.  The Young Child Factor:  The ratio of the number of children under
    age 5 in the State to the number of such children in all States;

2.  The School Lunch Factor:  The ratio of the number of children
    receiving free or reduced lunch in the State to the number of such
    children in all States;

3.  The Allotment Proportion Factor:  The per capita income of all
    individuals in all the States (averaged over a three-year period)
    divided by the per capita income of all individuals in the State
    (averaged over a three-year period).

**Portions of the Discretionary Funds were appropriated in FY 2006 for
the following specific (earmarked) purposes:**

\$18,777,370 for child care resource and referral and school-age child
care activities, of which \$982,080 was earmarked for the Child Care
Aware toll-free hotline;

\$267,785,718 for quality expansion, including \$98,208,000 to improve
the quality of infant and toddler care; and

\$9,520,800 for child care research, demonstration, and evaluation
activities.

**Statutory Limits and Requirements on State Expenditures**

**States must spend no more than five percent of their CCDF funds
(Discretionary, Mandatory, and State and Federal share of the Matching
Funds) on administration.**  Activities such as eligibility
determination, child care placement, and providing parents with
information about child care services are not considered administration.

**States must spend [at least]{.underline} four percent of their CCDF
funds (Discretionary, Mandatory, and State and Federal share of the
Matching Funds) on activities to improve the quality and availability of
child care.** Appropriate activities include those designed to provide
comprehensive consumer education to parents and the public, activities
that increase parental choice, and activities designed to improve the
quality and availability of child care.

**States must spend at least 70% of their Mandatory and Matching Funds
on families receiving TANF, transitioning from TANF, or at-risk of
becoming eligible for TANF.**  States are required to demonstrate how
they serve those populations in their CCDF Plan. States have the
flexibility to define the term \"at-risk\" and the majority define it as
"low income."

**Eligible Families**

**By statute, States may serve families whose parents are working or in
education or training, and families whose children are receiving
protective services.**

**By statute, States may serve families whose income level does not
exceed 85% of the State Median Income (SMI) for a family of the same
size. **

The CCDF Plans approved for the FY 2006-2007 biennium indicate that five
States placed eligibility levels at 85% of the SMI.  (Five States also
set their eligibility levels at 85% of the SMI during the 2004-2005
biennium.)  Forty States set eligibility levels in the 50% through 85%
range.

**Eligible Children**

**By statute, a State may serve children under age 13.**

**By regulation, a State may serve children under age 19 who are under
court supervision or are mentally or physically incapable of
self-care.** ACF\'s analysis of the FY 2006-2007 CCDF Plans found that
32 States indicate they will serve children under court supervision; all
48 States will serve children who are incapable of self-care.

In FY 2004, States served approximately 1.74 M children through the CCDF
program.  Center-based providers served 59% of these children.  Four
percent were in group home child care; 29% were in family child care,
and eightpercent received care in their own homes.

**By statute, States must give priority to children with special needs
and to children from very low-income families.**  States have the
flexibility to define \"special needs\" and \"very low income.\"

**States can also give priority to other categories of children.** An
analysis of State plans for the FY 2006-2007 biennium shows that States
additionally have chosen to give priority to such categories as: teen
parents, families receiving TANF, families transitioning off TANF,
non-TANF teen parents with no high school diploma or GED, families with
medical emergencies, parents who are students in post-secondary
education, parents in homeless or spousal abuse shelters, children in
protective services or in foster care, and children in need of
before-and after-school care.  

**How Families Receive Subsidies and Contribute to the Cost of Care**

States have established a variety of methods for accessing CCDF
services.  In all States, families may apply for child care at the local
office of the Lead Agency or at a local voucher management agency or
other agency under contract with the Lead Agency to determine
eligibility, e.g., local child care resource and referral agencies. Some
States allow families to apply for child care by telephone or mail.   

**The statute provides for parental choice of child care provider.**
Parents may choose any legally operating child care provider. The
regulations define child care provider as one who provides child care
either in a center, a group home, a family home, or in the child\'s own
home. (States may limit the use of in-home care.)  Care by a sectarian
provider, a relative provider, and any other type of legally provided
child care are allowable choices.

**The statute requires that the family offered CCDF-subsidized care be
given the choice to enroll the child with a provider who has a grant or
contract to provide services or to receive a child care certificate.** A
certificate is defined in the statute as a check or other disbursement
that is issued by a State or local government under the statute directly
to a parent who may use the certificate only as payment for child care
services.  Some States run all-certificate programs.  Others offer a
mixture of certificates and grants or contracts.  

**By statute, a State\'s CCDF Plan \"shall certify that payment rates
for the provision of child care services for which assistance is
provided \[under the CCDF\] are sufficient to ensure equal access for
eligible children to comparable child care services in the State or
sub-State area that are provided to children whose parents are not
eligible to receive assistance \[under the CCDF\] or for child care
assistance under any other Federal or State programs.\"** The
regulations require that the State describe in its CCDF Plan: 1) How a
choice of the full range of providers is made available; 2) How payment
rates are adequate based on a local market rate survey conducted within
the past two years; and 3) How co-payments based on a sliding fee scale
are affordable.

**The statute requires that the family contribute to the cost of care on
a sliding fee basis**.  The CCDF Plan must include the scale or scales
used to determine the family\'s contribution.  The statute requires that
the scale be based on family size and income.  The State may add other
factors, e.g., the number of children in care, rules for counting
income.  By regulation, States may exempt families below the poverty
level from paying the CCDF co-payment.  (Nine States exempt all families
below the poverty level; thirty-eight States exempt some families below
the poverty level.)      

**Quality of Care**

**By statute, a State must certify that it has in effect licensing
requirements applicable to child care services provided within the
State.** The State must describe those requirements in its CCDF plan as
well as how they are effectively enforced.  The statute specifies,
however, that the requirement does not mean that licensing requirements
must be applied to specific types of child care providers.

**By statute, a State must certify that there are in place requirements
designed to protect the health and safety of children that are
applicable to the providers that serve CCDF children.  The requirements
shall include:**

> **\--the prevention and control of infectious diseases (including
> immunization);**
>
> **\--building and physical premises safety; and**
>
> **\--minimum health and safety training appropriate to the provider
> setting.**

With the exception of relative providers, all providers of care to CCDF
children, must meet the basic health and safety standards\--whether
through licensure or regulation or through requirements designed by the
Lead Agency that apply to unregulated  providers serving CCDF-subsidized
families.  (Relative providers are defined as: grandparents,
great-grandparents, siblings (if living in a separate residence), aunts,
and uncles.)

In view of the language regarding immunization in the statutory health
and safety requirements, ACF amended the CCDF regulations in 1998.  The
regulations now require States to incorporate in their CCDF health and
safety standards the latest recommendations of the State public health
agency concerning immunizations.  However, States are allowed to exempt
certain CCDF-subsidized children from the immunization requirement,
e.g., for religious reasons, or if children are cared for in their own
home.  The immunization provision does not impose Federal standards, but
permits individual State decisions about immunization requirements and
implementation.

In addition to requiring basic licensing and health and safety measures,
the current statute supports quality in child care by requiring a
minimum State expenditure to improve the quality and availability of
child care.  States also have flexibility within the CCDF to create
payment rates that reward higher quality care, such as establishing
higher payment rates for accredited centers or other child care
facilities or rewarding in-home providers with appropriate child care
credentials.  

Prepared by:

Child Care Bureau

Administration for Children and Families