Child Care: States Increased Spending on Low-Income Families
Published: 2001-02-02T00:00:00

Fast Facts:

Highlights:
section_title: What GAO Found
paragraphs: Nationwide, states reported that federal and state expenditures for child care under the Child Care and Development Fund (CCDF) block grant and the Temporary Assistance for Needy Families (TANF) block grant grew from $4.1 billion in fiscal year 1997 to $6.9 billion in fiscal year 1999 and totaled over $16 billion in constant fiscal year 1997 dollars for this three-year period. More than half of the children whose child care was subsidized with CCDF funds were cared for in centers, and CCDF subsidies for all types of care were primarily provided through vouchers. Eligible parents who were subsidized by CCDF were offered a choice of receiving a voucher to pay a provider of their choosing or using a provider who had a contract with the state. More than half of all the states gave TANF and former TANF families transitioning to work first or second priority for receiving child care subsidies while other eligible low-income families were assigned lower priorities. Officials reported that their states funded the child care needs of their TANF and former TANF families transitioning to work, and were serving all of these families who requested child care assistance. However, some of these officials were concerned that their states' funding levels were not sufficient to serve all other low-income families who were eligible for aid.

section_title: Letter
paragraphs: Since the enactment of the Personal Responsibility and Work Opportunity  Reconciliation Act of 1996 (PRWORA), child care has become one of  several important services provided by states to support low-income  families in their efforts to find and retain jobs. PRWORA created the  Temporary Assistance for Needy Families (TANF) block grant which has,  for the last 5 years, provided the states over $16 billion annually and the  flexibility to design programs and choose among various services that best  support their low-income families, particularly welfare recipients moving  into the workforce. In addition to help with child care, these services  include work-related activities such as job search and counseling,  transportation assistance, and cash assistance. PRWORA also created the  Child Care and Development Fund (CCDF) block grant, which will provide  states over $20 billion for child care between fiscal years 1997 and 2002.  PRWORA requires states to use a portion of their CCDF funds to improve  the quality and availability of child care services for all families. Along with  specified amounts of state dollars that are required to be spent under the  TANF and CCDF block grants, these funds help states develop and pay for  child care programs for a broad population of low-income families,  including those on welfare and those who are not, in order to enable low- income parents to work.
The recognition of the link between child care and the success of welfare  reform has given rise to questions about how states are spending child care  funds provided through TANF and CCDF. We agreed to report on (1) child  care expenditures by states under the CCDF and TANF block grants; (2)  the type of care selected by families who receive subsidies with these funds  and the mechanisms by which states provide child care subsidies to eligible  families; and (3) states’ priorities in providing child care subsidies to low- income families and their views about the adequacy of the current levels of  funding for child care.
To determine expenditures for child care, we analyzed data on TANF and  CCDF expenditures for fiscal years 1997 through 1999 reported by all states  to the Administration for Children and Families (ACF), Department of  Health and Human Services (HHS), and conducted site visits to seven  states to collect more detailed expenditure data on child care spending for  state fiscal years 1994–95, 1998–99, and 1999–2000. (Expenditure figures  throughout the body of this report are expressed in fiscal year 1997  dollars.) The states we visited—California, Connecticut, Maryland,  Michigan, Oregon, Texas, and Wisconsin—were selected because they are  diverse geographically and demographically and differ in the ways in which  they operate their child care and TANF assistance programs, but they are  not representative of all states receiving TANF and CCDF funds. Except for  the expenditure data collected during our site visits, we did not  independently verify the states’ reported expenditure data sent to HHS but  did check a sample of the states’ financial reports on which these data are  based. To report on types of care and subsidy mechanisms, we used data  the states reported to HHS about the type of care used by children  subsidized with CCDF funds and states’ payment mechanisms for providing  parents a subsidy, as well as past GAO work and other recent research.  Similar data are not available for care paid for with TANF funds, except for  TANF dollars that have been transferred to CCDF and are included in the  CCDF data, because states are not required to collect or report this  information for TANF families. To obtain more information about the  selected states’ priorities for providing child care subsidies to low-income  families and their opinions regarding the adequacy of funding for child  care, we conducted telephone interviews with program officials in these  states. In addition, we reviewed portions of approved CCDF plans for the  50 states and the District of Columbia covering fiscal years 2000 and 2001.  Finally, we interviewed officials at HHS’ Child Care Bureau, advocacy  organizations, and other research groups about child care funding issues  nationwide. We conducted our work between March and November 2000 in  accordance with generally accepted government auditing standards.
subsections: section_title: Background
paragraphs: Federal funds for subsidizing child care for low-income families,  particularly those on welfare, are primarily provided to the states through  two block grants—CCDF and TANF. Within certain guidelines established  by the block grants, states have discretion in deciding how these funds will  support child care, including who will be eligible, the payment mechanism  to be used to pay providers, and the portion of TANF funds to be used for  child care versus other eligible support services.
The cost of child care can create a barrier to employment, especially for  low-income families. To help these families meet their child care needs,  PRWORA created CCDF by repealing three former child care programs and  modifying a fourth one; it also included in CCDF the target populations of  the programs it replaced. Between fiscal years 1997 and 2002, CCDF will  provide states with a total of $20 billion in federal funds—ranging from $2.9  billion in fiscal year 1997 to $3.7 billion in fiscal year 2002—to subsidize  child care for both welfare and nonwelfare families. Each state’s annual  federal allocation consists of separate discretionary, mandatory, and  matching funds. A state does not have to obligate or spend any state funds  to receive the discretionary and mandatory funds. However, to receive  federal matching funds—and thus its full CCDF allocation—a state must  maintain its program spending at a specified level, referred to as a state’s  maintenance of effort (MOE), and spend additional state funds above that  level. Further, states may be spending more of their own funds on child  care than the amount actually accounted for under CCDF’s MOE and match  requirements. States must also spend at least 4 percent of their total CCDF  expenditures for a given fiscal year on activities intended to improve the  quality and availability of child care. These activities can include but are  not limited to improving consumer education about child care, providing  grants or loans to providers to assist them in meeting applicable child care  standards, giving financial assistance to child care resource and referral  agencies, improving monitoring and enforcement of child care standards,  improving provider compensation, and providing training and technical  assistance to providers. In addition to the 4 percent states must spend  improving the quality and availability of child care, the Congress  specifically earmarked money in CCDF’s discretionary fund in fiscal years  1998 and 1999 for certain activities and age groups: $19 million for school- age care and resource and referral services, and $223 million for quality- related activities.
States may provide child care assistance to families whose income is as  high as 85 percent of the SMI, thus including families at both the lowest and  more moderate income levels. States may also establish a maximum  income eligibility below this level. Looking across all states, 85 percent of  SMI for a family of four in calendar year 1998—the most recent year for  which data are available—ranged from a low of $36,753 per year to a high  of $64,203 per year. In addition to establishing the maximum income level  at which a family is eligible for a child care subsidy, the states also  determine which groups of low-income families within that income  eligibility limit will have priority over others in receiving subsidies, such as  a family with a special needs child.
Families who receive child care subsidies under CCDF must be offered the  choice of using a voucher, which is a certificate assuring a provider that the  state will pay a portion of the child care fee, or using a provider who has a  contract with the state to provide care to subsidized families. Vouchers can  be used to pay any type of provider, including those providers who may  also have a contract with the state. Information about a state’s use of  vouchers and contracts, the income level of families to whom the state will  provide assistance, and its priorities for funding those families is contained  in a state’s CCDF plan, which must be submitted and approved by HHS  every 2 years.
TANF, which is currently authorized through fiscal year 2002, ended the  individual entitlement to welfare benefits afforded under the Aid to  Families with Dependent Children (AFDC) established by the Social  Security Act in 1935. In its place, PRWORA created TANF block grants,  which provide an entitlement to eligible states of $16.5 billion annually.  Federal funding under the TANF grant is fixed, and states are required to  maintain a significant portion of their own historic financial commitment to  their welfare programs, discussed earlier as a state’s MOE, as a condition of  receiving their TANF grant. These two sources of funds—federal funds  and state funds for MOE—represent the bulk of resources available to  states as they design, finance, and implement their low-income assistance  programs under TANF.
TANF includes provisions to ensure that cash assistance to eligible families  is temporary and that those receiving TANF assistance either work or  prepare to work. To support state efforts in helping welfare families make  this transition to work, PRWORA allowed states wide discretion over how  to design their TANF programs. Instead of prescribing in detail how  programs are to be structured, the new law authorizes states to use their  block grants in any manner reasonably calculated to accomplish the  purposes of TANF. For example, states are allowed to set their own criteria  for defining who will be eligible and what assistance and services will be  available. These services can include cash assistance, work-related  activities such as job search assistance, substance abuse counseling,  transportation assistance, and child care. In addition, states can choose to  use their TANF money to help a broader population of low-income families  through programs that, for example, provide refundable tax credits or job  retention and advancement services. To ensure the temporary nature of  TANF assistance and provide an impetus for moving recipients toward self- reliance, the law established a 5-year lifetime limit on assistance to families  and required that states ensure that specified levels of recipients  participate in work activities. States can incur financial penalties if these  levels are not met. These levels started at 25 percent of a state’s welfare  caseload for fiscal year 1997 and will increase to 50 percent in fiscal year  2002.
In addition to giving states more flexibility to design their welfare  programs, TANF also shifted much of the fiscal responsibility to the states.  In doing so, the importance of state fiscal planning was underscored as  states faced greater choices about how to allocate TANF dollars among the  competing needs and priorities of various low-income programs that help  families find and keep jobs and prevent them from returning to welfare.  Under AFDC, the federal government and the states shared any increased  welfare costs because welfare benefits were a matched, open-ended  entitlement to the states. But under TANF, states receive a fixed amount of  funds regardless of any changes in state spending or the number of people  the program serves. Because of a combination of declining welfare  caseloads, higher federal grant levels than would have been provided under  AFDC, and MOE requirements that states maintain a specified level of  welfare spending at 75 to 80 percent of their historical spending on welfare,  states currently have more total budgetary resources available for their  welfare programs than they would have had under AFDC. These  additional resources presented states with numerous decisions to make  about the families they would serve, the mix of support services they would  offer and the extent to which these services would be funded, and the  amount of TANF funds they would reserve for use in later years,  particularly in the event of an economic downturn when welfare costs  could rise.
In addition, PRWORA allows states the flexibility to use TANF funds  directly from the block grant to pay for child care or transfer it to other  block grants.  States may transfer up to 30 percent of their TANF funds to  CCDF or 10 percent to the Social Services Block Grant (SSBG), which can  also be used by states to fund child care and other social services,  depending on their child care needs and priorities.
section_title: Federal and State Expenditures for Child Care Increased, but Unspent TANF and CCDF Funds Remain
paragraphs: Between fiscal years 1997 and 1999, states’ reported expenditures for child  care from CCDF, TANF, and their own funds increased annually. For  example, CCDF expenditures almost doubled in this time period—growing  from $2.5 billion to $4.5 billion—while funds spent from the TANF block  grant for child care grew from $14 million to almost $600 million in these 3  years. However, while states spent increased amounts from these sources  and their own funds, they still had unspent TANF and CCDF balances at the  end of fiscal year 1999.
subsections: section_title: States’ Child Care Spending Grew to Over $16 Billion Using CCDF, TANF, and State Funds
paragraphs: Nationwide, states spent increasingly larger amounts of their CCDF, TANF,  and state money on child care between fiscal years 1997 and 1999—a total  of more than $16 billion, as shown in table 1.
CCDF expenditures made up almost two-thirds of the total amount spent  on child care from these sources. These expenditures included funds that  states transferred from TANF into CCDF, which more than tripled in 3  years—increasing from $483 million in fiscal year 1997 to around $1.7  billion in fiscal year 1999. (See app. I, tables 3 through 5, for more detailed  information on TANF transfers for fiscal years 1997 through 1999 in current  dollars.) The CCDF expenditure figures also include federal matching  dollars for which states must spend a specified amount of state funds in  order to receive their maximum CCDF matching allocation. Forty-seven  states received the maximum fiscal year 1997 CCDF federal match while 49  received the maximum fiscal year 1998 match. By the end of fiscal year  1999, almost two-thirds of the states had already spent the required amount  of state funds to receive their full fiscal year 1999 federal match even  though they had until the end of fiscal year 2000 to do so. As with TANF  transfers, states reported spending increasingly more federal TANF dollars  on child care directly from the TANF block grant for fiscal years 1997  through 1999. These expenditures grew more than 40-fold, from $14 million  in fiscal year 1997 to around $583 million in fiscal year 1999.
section_title: Child Care Spending in Selected States Also Increased
paragraphs: Spending on child care programs for low-income families increased  substantially in the seven states we reviewed in more depth. As table 2  shows, total spending on child care programs in state fiscal year 1994–95  ranged from $58 million in Wisconsin to $661 million in California. By state  fiscal year 1999–2000, spending on these programs had grown, ranging  from $77 million in Oregon to around $1.8 billion in California. Thus, the  percentage increase for these seven states during this period ranged from  20 to 186 percent in constant 1997 dollars.
In state fiscal year 1999–2000, five of the seven states relied on significant  amounts of federal funds—between 54 and 70 percent—to finance their  growing child care programs. Only Connecticut and Texas reported  spending more of their own funds than federal funds on these programs for  that year.
The amount of money states ultimately choose to spend on child care is a  result of their budget processes—which decide the extent to which the  competing needs of different programs and priorities statewide will be  supported—and the requirements imposed by the block grant. As part of  these decisions, the states we reviewed made choices about how to spend  TANF, CCDF, and other funds to provide many different support services to  low-income families. However, while CCDF funds have to be spent on child  care, TANF funds can be spent on a range of support services, including  child care, assuming these services meet the goals of PRWORA. In  addition, these states attempted to strike a balance between spending  TANF funds on the current needs of their low-income families and  reserving portions of these funds for future spending.
For example, both Maryland and Wisconsin plan to use a significant  amount of their TANF funds to expand their child care programs in  addition to funding other parts of their welfare programs for low-income  families. Maryland budget officials are projecting that the state will have  $160 million in federal TANF carryover balances to use in fiscal year 2001 in  addition to their annual TANF block grant. Using these funds, the state will  finance more than 5,700 new child care spaces. Similarly, Wisconsin budget  officials assumed that almost $350 million in TANF carryover balances in  the fiscal year 1999–2000 budget would be available in addition to its $317  million annual TANF block grant. According to state budget officials, these  resources will help pay for a number of new expansions to their child care  programs, including increasing the income eligibility of families who can  receive child care subsidies from 165 to 185 percent of the poverty level  and reducing copayment amounts for families.
California, Connecticut, Michigan, Oregon, and Texas, also increased their  child care spending between state fiscal years 1994–95 and 1999–2000 to  meet the increased need for child care as more families made the transition  from welfare to work, but these states were not planning to use TANF  funds for large expansions of their child care programs. For example,  Texas increased its child care funding for state fiscal year 2000–1 to a level  where it was able to serve about half the children on its waiting list at a  given point in time with child care subsidies, but it also chose to leave  about $107 million in TANF funds in reserve. Connecticut had about $41  million in unspent TANF funds at the end of state fiscal years 1998–99 and  1999–2000 but chose to use these funds to replace state funds already  allocated for other programs. Budget officials in Oregon told us that they  adjusted their budget twice in the last 2 years because the number of  applicants for child care subsidies was lower than expected. Some of the  state funds from these adjustments were reinvested into the program to  reduce the child care copayment amount; the rest—about $40 million—was  used for other state priorities. Finally, counties in California have received  more than $685 million in TANF funds from the state as a reward for  reducing welfare caseloads. These funds must be used for TANF-allowable  purposes, including child care, although the counties have wide discretion  over how to spend this money. However, at the time of our study, about 1  percent of it had been spent.
section_title: States Retain Unspent CCDF and TANF Balances
paragraphs: While states are spending more federal and state funds on child care,  portions of their CCDF and TANF funds remain unspent. CCDF funds, for  example, must be spent within certain timeframes prescribed by the  regulations. Our end-of-year analysis shows that, on average, states spent  about 70 percent of their CCDF funds and retained approximately 30  percent in unspent funds for each of the three fiscal years, 1997 through  1999. It appears that most states have met or will meet the prescribed  timeframes for spending these remaining monies. The amount of unspent  CCDF funds varies by state and fiscal year, however, and appendix II,  tables 9 through 11, provides detailed information by state for fiscal years  1997 through 1999, in current dollars.
Along with unspent CCDF funds in a given fiscal year, states also reported  about $8 billion dollars in unspent TANF funds at the end of fiscal year  1999. This represented about 41 percent of the total TANF funds available  to the states for expenditure in fiscal year 1999 and included both fiscal  year 1999 and prior year funds. States also reported that $5 billion of  unspent TANF funds have been obligated, although the lack of uniformity  in the way states report the status of these funds makes it difficult to  determine exactly how much has been obligated. As with CCDF funds, the  amount of unspent TANF funds varied by state. Appendix I, tables 6  through 8, provides information on TANF balances by state for fiscal years  1997 through 1999, in current dollars.
section_title: Center Care and Vouchers Most Frequently Used
paragraphs: To parents who receive child care subsidies under CCDF, states must  provide flexibility and choice in selecting child care providers. Parents  receiving subsidized child care through CCDF most often selected child  care centers to provide care to their children. The subsidies parents receive  are most often paid for through vouchers—a payment mechanism many  think provides the most flexibility to parents—rather than contracts,  although this can vary by state. Data on the type of care used by children  whose parents receive TANF and the payment mechanisms states used to  pay for their care are not available.
subsections: section_title: Center Care Most Often Used by Parents Who Receive Child Care Subsidies
paragraphs: Center care is the predominant type of child care used by children  subsidized with CCDF funds as indicated by fiscal year 1998 data reported  by states to HHS. Nationwide, 55 percent of children whose care is paid for  by CCDF are in centers, 30 percent are in family child care homes, 11  percent are in the child’s own home, and 4 percent are in group homes.  The use of center care varied by state, however. HHS data show that the  use of center care by CCDF subsidized children ranged from 19 percent in  Michigan to 94 percent in the District of Columbia. Three of the seven  states we visited—California, Texas, and Wisconsin—reported that  between 60 and 80 percent of the children subsidized with CCDF funds  used center care. On the other hand, Connecticut, Maryland, Michigan, and  Oregon reported much lower use of center care by CCDF-subsidized  children, ranging from 19 to 37 percent.
While CCDF data can tell us what care parents choose, they cannot provide  information on why parents make their choices. Many factors influence the  choice of care selected by parents. Some factors can affect the choice of a  particular provider over another, while others affect the choice of one  provider type over another. For example, data show that younger  children—those under 3 years of age—tend to be cared for in family child  care homes or by relatives; older children are more often cared for in  centers. For families subsidized with CCDF funds, the age of the child may  be a factor that explains their greater use of center care. CCDF data show  that over 70 percent of the CCDF-subsidized children are 3 to 12 years old,  37 percent are 3 to under 6 years old, and 35 percent are 6 to 12 years old.
Lacking accessible and reliable transportation between home, work, and  the child care provider can limit a family’s child care options and affect the  type of care a family chooses. Over the years, states have reported to us  that TANF families lack reliable private transportation to get their children  to child care providers and themselves to work. Moreover, some  communities lack public transportation to get TANF participants where  they need to go, especially in rural areas. Even when public transportation  is available, families’ child care options can be limited due to the difficulty  and time it takes to navigate trips with children to a particular provider and  then to work.
An inadequate supply of providers is another barrier to obtaining care and a  factor in selecting child care. In our previous work, we found that the  supply of infant care, care for special needs children, and care during  nonstandard hours has been much more limited than the overall supply.  Low-income neighborhoods tend to have less overall child care supply as  well as less supply for these particular care groups than do higher-income  neighborhoods.
The price of care can affect a low-income parent’s choice of a particular  provider. In general, child care is less affordable to poor families than  nonpoor because it can consume a much larger percentage of their budget.  Forty percent of families with incomes at or below 200 percent of poverty  paid for child care and spent, on average, 16 percent of their annual  earnings; however, 27 percent of these families paid more than 20 percent  of their annual earnings for care. Nonpoor families—those with earnings  above 200 percent of poverty—paid, on average, 6 percent of their annual  earnings for child care with only 1 percent paying more than 20 percent of  earnings for care. For families who receive a subsidy, affordability may  not be an issue if the full cost of the care selected is within the subsidy  amount. However, affordability can be affected by the amount of the  copayment, which most states require subsidized parents to pay, again  affecting parents’ choice of a provider. For example, a recent HHS study  shows that state variation in the amount charged to subsidized parents for  copayments can represent 4 to 17 percent of their monthly income.
section_title: Vouchers Are the Predominant Payment Mechanism
paragraphs: CCDF regulations require that a parent eligible for a CCDF child care  subsidy be offered the choice of receiving a voucher to pay a provider or  enrolling the child with a provider that has a contract with or grant from  the state to serve eligible children. A voucher is a certificate that  documents that the state will pay a specified amount of the cost of care for  an eligible child. The primary advantage of a voucher is that its portability  provides maximum parental choice—it can be used to pay any available  provider of the parent’s choosing, including a relative. A contract, which is  an agreement the state usually has with centers, allows the state to target  funds to underserved areas, such as poorer parts of a city, or to specific  populations, such as migrant farm children, and thus help stabilize the  supply of care in these areas. Contracts can also help improve the quality of  the child care by stipulating that certain requirements must be met, such as  providing staff training or health screenings to the children in care.
Vouchers are the most common method used by states to pay for child care  subsidized with CCDF funds. Fiscal year 1998 data reported by the states to  HHS, which are the most current data available, show that, nationwide,  parents of 84 percent of the children receiving CCDF subsidies used a  voucher to pay for child care while 10 percent used a provider that had a  contract with or grant from the state. For the remaining CCDF-subsidized  children, the states paid cash directly to the parent. However, the extent to  which one type of payment mechanism is used over another varies among  the states. For example, 21 states reported to HHS that they use contracts  or grants; the percent of CCDF-subsidized children served by this payment  method ranged from less than 1 percent in Vermont and Colorado to almost  73 percent in Florida. Six of the seven states we reviewed use vouchers as  the primary method to pay for child care. California uses vouchers to a  lesser extent than the other states we visited: 58 percent of California’s  children subsidized with CCDF funds were with contracted providers, 34  percent used vouchers, and 8 percent were subsidized through cash  payments to parents. National data on the type of care used by children  subsidized with TANF funds are not available because TANF regulations do  not require states to collect and report this information to HHS.
section_title: States Assist TANF and Former TANF Families With Child Care, but Other Eligible Families Are Not Always Served
paragraphs: Officials in the seven states we reviewed reported that they currently have  adequate funding to meet the child care needs of families on TANF and  those who have recently left. In five of these states, other eligible families  who applied for child care subsidies were also served. However, some  officials raised concerns that their states’ current funding levels are not  sufficient to provide subsidies to all eligible low-income families who may  need them, such as those on waiting lists, or to fully support important  child care initiatives. State officials noted that one reason that the funding  levels for these and other program goals are not higher is states’  uncertainty about the continued level of federal funding.
subsections: section_title: State Funding Sufficient for Child Care Subsidies to Highest-Priority Families— Those on TANF
paragraphs: According to CCDF plans for fiscal years 2000 through 2001, more than half  the states list TANF and TANF-transitional families either first or second on  their priority list of families who are eligible for receiving child care  subsidies. Likewise, four of the states we reviewed—California, Texas,  Connecticut, and Maryland—also give priority for child care subsidies to  those on welfare and those transitioning from welfare to work. The three  remaining states—Michigan, Oregon, and Wisconsin—reported that they  primarily rely on income, not welfare status, as a means of giving priority to  certain families over others, with families earning the lowest incomes  receiving child care subsidies first.
Child care officials in the seven states we examined in more depth reported  that their states have allocated adequate funding to meet the child care  needs of families on TANF and those in the process of transitioning from  welfare to work. However, some of these officials expressed uncertainty  about their ability to continue to do this because, with the reauthorization  of TANF and CCDF scheduled for the next fiscal year, the future level of  federal funding for these block grants is unknown. Michigan and Wisconsin  program officials expressed concern that any funding reductions may make  it necessary for them to provide child care subsidies to TANF families first,  over non-TANF families. But, among the seven states we examined, no  state reported that it was currently unable to fund the child care needs of  these families who requested services.
section_title: States Provided Child Care Subsidies to Non-TANF Families, but Not All Eligible Families Were Served
paragraphs: Nationwide, 22 states placed non-TANF families third or lower in priority  order for receiving child care subsidies according to CCDF plans approved  by HHS for fiscal years 2000 through 2001. According to the CCDF plans of  the states that we reviewed, California, Maryland, and Texas placed low- income families third or fourth after TANF and transitioning TANF families,  while Connecticut placed these families fifth after other groups such as  teen parents and children with special needs. As stated above, Michigan,  Oregon, and Wisconsin did not establish priorities based on welfare status,  but rather on income.
Notwithstanding these priorities, program officials in Connecticut,  Maryland, Michigan, Oregon, and Wisconsin reported that their states’  funding allocations have been adequate to serve all eligible families who  have applied. Further, data for state fiscal year 1999–2000 show that in four  of these states non-TANF children represent the largest percentage of  children in their subsidy program. A similar finding is reported in a recent  HHS study that examined child care for low-income families in 25  communities nationwide. It found that, while states’ funding policies favor  TANF families over non-TANF families for receiving child care subsidies,  children of non-TANF families represented the largest percentage of  children receiving child care subsidies in most of the states that were  examined. However, because many states do not track former TANF  families for an extended period after leaving TANF, it is not known how  many of these current non-TANF families are former TANF families who  began receiving their subsidies when they were on welfare.
While child care program officials in most of the states we reviewed  reported serving all eligible low-income families who applied, California,  Connecticut, Texas, and Oregon expressed concern that their funding of  child care was not sufficient to provide child care subsidies for all eligible  families. These program officials noted that their states’ eligibility ceilings  were established at levels below the maximum federal level of 85 percent  of SMI, yet even at these lower ceiling levels, they do not serve all eligible  families. For example, both Connecticut and California set maximum  eligibility for receiving child care subsidies at 75 percent of SMI, but  because their states did not allocate sufficient funding to serve families up  to these eligibility levels, their child care program serves families mostly at  or below 50 percent of SMI. In both California and Texas, this has resulted  in waiting lists for child care subsidies. Nationwide, most states have not  established income eligibility levels at the maximum level allowed under  CCDF—85 percent of SMI. According to states’ CCDF plans for fiscal year  2000 through 2001, eight states established eligibility at this level. Of the  remaining 42 states and the District of Columbia, half set eligibility  between 58 and 84 percent of SMI while the other half set it below 58  percent.
A gap between the number of children eligible for child care subsidies  under states’ income eligibility criteria and those who actually receive them  appears to exist nationwide. A 1998 HHS study shows that about one-fifth  of all states are serving less than 10 percent of the children eligible for  CCDF subsidies as defined by state income eligibility ceilings; three-fifths  are serving between 10 and 25 percent; and one-fifth are serving 25 percent  or more. While not all families who are eligible for child care subsidies  want or need them, there are many reasons why families who are eligible  and want child care subsidies do not apply for them. For example, they may  already know that waiting lists for subsidies exist in their community; they  may think they are not eligible; or the amount of the subsidy or the family  copayment required to be paid by subsidized families may not make it  worthwhile for a family to apply for them.
section_title: Program Officials Concerned About Funding for Other Child Care Initiatives
paragraphs: Although all seven states increased the amount of CCDF funds spent on  quality initiatives between fiscal years 1997 through 1999, child care  program officials in four states were concerned about funding levels for  activities to improve the quality of child care. CCDF expenditures for  quality reported to HHS by these seven states show that expenditures grew  from around $22 million in fiscal year 1997 to about $98 million in fiscal  year 1999, totaling over $180 million for this period. The states spent this  money on a range of activities to improve child care quality, most  commonly to support child care resource and referral agencies, for training  and technical assistance to providers, and on efforts to improve provider  compliance with state child care regulations by state licensing agencies.
Child care program officials in California, Connecticut, Oregon, and Texas  reported that their states did not sufficiently fund some child care  initiatives that could improve both child care supply and quality in their  states. For example, child care program officials in California, Connecticut,  and Oregon mentioned the need for more funding to provide higher wages  to providers—either through paying higher payment rates or other  compensation initiatives—in order to curtail the large numbers of  providers leaving the field, typically referred to as turnover. High turnover  could affect the adequacy of child care supply. It also disrupts the  continuity of care for children, which is important to their development,  especially for infants, and interferes with parents’ job stability, particularly  welfare parents who are new to the workforce. Child care program officials  in Texas, Connecticut, and Oregon also discussed the need for funding to  build capacity for care that is more difficult to find, such as care for infants  and during nonstandard work hours, which is particularly important to  welfare families transitioning to work.
section_title: Agency and Other Comments
paragraphs: We received technical comments from program officials in the  Administration for Children and Families’ Child Care Bureau and Office of  Family Assistance in the course of completing our work. We incorporated  these comments where appropriate.
We also received written comments from six of the seven states discussed  in the report—California, Connecticut, Maryland, Michigan, Texas, and  Wisconsin.
In general, state comments focused on the differences in the expenditure  data in the draft report compared with their own current expenditure  figures. Because our analysis provides a snapshot of expenditures at  several different points in time, the data we present vary from current year  data or data that subsequently may have been reconciled or corrected. We  expressed expenditure data in constant dollars in the report body to  capture real growth in spending over time, but also provided these data in  current year dollars in an appendix so that states would recognize the  expenditures they reported to HHS.
Two states, California and Connecticut, expressed concern with the way  we characterized their budget decisions for using TANF funds. California  officials believed that our discussion of the fiscal incentive payments that  certain counties received for reducing TANF caseloads implied that these  funds were for the purpose of increasing the counties’ child care  expenditures. We clearly state why counties were given these funds and  that the counties have discretion about how the funds will be spent. Thus,  the California counties that received these funds could decide to spend  them on child care or any other activities consistent with TANF’s goals and  allowable under the law.
Officials in Connecticut raised concerns about two issues. They thought  that our statement that Connecticut was not planning to use TANF funds  for a large expansion of child care implied that Connecticut had not  increased its child care funding. We think the report clearly states just the  opposite. Table 2 shows that Connecticut has significantly increased its  child care expenditures in the time periods on which we gathered data. The  report also states that Connecticut was one of only two states that we  reviewed that spent more of their own funds than federal funds on these  increases. Officials also wanted to make sure that we understood that they  do not have unspent TANF funds. We agree, and believe that the report  clearly states, that the $41 million Connecticut had in unspent TANF funds  at one point in time was spent to reimburse the state for previous state  expenditures on TANF-related purposes. Our reason for discussing this in  the report was to illustrate the competing choices states face in spending  TANF funds and that they do not always choose to spend them on child  care.
As agreed to with your staff, unless you publicly release its contents earlier,  we will make no further distribution of this report until 30 days after its  issue date. At that time, we will send copies of this report to the Honorable  William Thomas, Chairman, and the Honorable Charles Rangel, Ranking  Minority Member, House Committee on Ways and Means; the Honorable  Benjamin Cardin, Ranking Minority Member, Subcommittee on Human  Resources, House Committee on Ways and Means; the Honorable Charles  Grassley, Chairman, and the Honorable Max Baucus, Ranking Member,  Senate Committee on Finance; and the Honorable Dr. David Satcher, Acting  Secretary of HHS; and the Honorable Diann Dawson, Acting Assistant  Secretary for Children and Families, HHS. We will also make copies  available to others on request.
If you or your staff have any questions about this report, please contact me  at (202) 512-7215, or Karen A. Whiten at (202) 512-7291. Other GAO  contacts and staff acknowledgments are listed in appendix III.
section_title: GAO Contact and Staff Acknowledgments
subsections: section_title: GAO Contact
section_title: Staff Acknowledgments
paragraphs: Key contributors to this report include Janet Mascia, Martha Elbaum,  Susan Higgins, and Bill Keller.
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