Child Care: Funding and Spending under Federal Block Grants
Released: 2002-03-19T00:00:00

Introduction

The welfare reform law of 1996 ( P.L. 104-193 ) provided an increase in federal child carefunding for low-income families, with the expectation that newly implemented work requirementsfor welfare recipients (many being single mothers) would create a greater demand for child careservices. This additional funding was accompanied by the creation of a unified and expanded ChildCare and Development Block Grant (CCDBG) program, with the aim of serving low-incomefamilies, regardless of welfare status. The expanded program is financed through two fundingstreams: one discretionary (authorized by the CCDBG Act), and one mandatory (appropriated underSection 418 of the Social Security Act). These two funding streams are commonly referred to incombination as the Child Care and Development Fund (CCDF).

Since passage of the welfare law, states have spent increasing amounts of both federal and state money on child care. (As will be discussed later, a portion of federal mandatory funding to statesis contingent on states spending some of their own state funds on child care.) Although the CCDFis considered the primary source of federal funding for child care subsidies for low-income workingand welfare families, two other federal block grants are contributing significantly to the child carefunding picture: the Temporary Assistance for Needy Families (TANF) block grant, and the SocialServices Block Grant (SSBG).

States use all three of these sources to help finance child care assistance for families, but only the CCDF is dedicated solely for this purpose. The CCDF supports child care subsidies andactivities, and nothing else, whereas TANF and SSBG provide a wide range of assistance, includingchild care.

This report focuses on the financing structure of the CCDF, actual expenditures made from it, and the role of TANF and the SSBG in child care funding and spending. Authorization for thediscretionary portion of the CCDF and appropriations for both the CCDF mandatory funds, as wellas the TANF block grant, are due to expire at the end of FY2002. Therefore, Congress is expectedto confront child care financing issues this year as part of both the child care and welfarereauthorizations. Debates over the level of funding necessary for child care are already percolating,and although the 1996 law consolidated several components of federal child care funding, thefinancing structure remains complicated, potentially leading to calls for simplification. MultipleCCDF funding streams (with different state funding and spending rules) fall under differentcongressional committee jurisdictions, and comprise only a portion of a complex child care financingpicture.

Seeing the full picture also requires focusing on the degree to which TANF funds contribute to child care expenditures. Recent TANF expenditure data show that states are spending increasingamounts of TANF funds for child care services within the TANF program ($2.2 billion in FY2000);however, the extent to which this will continue during an economic downturn is an unansweredquestion for TANF and child care state administrators alike. States also have the authority to transferup to 30% of their annual TANF block grant to the CCDF and/or the SSBG (at a maximum of 10%)for use under those programs' rules, and as this report will discuss, many states have done so.

Before examining these three sources of child care funding in greater detail, the next section provides an overview of how changes made as part of the 1996 welfare law affected child careprograms and funding. The report concludes with an analysis of trends in child care expenditures,both nationally and by state, and the implications of the recent spending trends for reauthorization.

Overview of Child Care Changes in 1996

The current structure of federal child care programs and funding is more easily understood bytracing its evolution from the system that existed prior to 1996, when the welfare law simultaneouslyrepealed, created, and consolidated child care programs described below.

Welfare (AFDC) Child Care Programs. Before 1996, four separate federal programs specifically supported child care for low-income families. Three were associated with the cash welfare system. Families on welfare (then Aid to Families withDependent Children (AFDC)) were entitled to free child care. Families who had left the AFDC rollswith employment were entitled to 12 months of "transitional" subsidized child care. The thirdAFDC-related child care program targeted families who, without a child care subsidy, would be "atrisk" of qualifying for AFDC. These three programs operated under three separate sets of rules, andtargeted three separate populations. Critics argued that mothers navigating their way through thewelfare system faced unnecessary complexity that could be alleviated with a more unified child careprogram.

All three of the AFDC-related child care programs were funded with mandatory money, and fell under the same congressional committee jurisdiction (Ways and Means Committee in the House,and the Finance Committee in the Senate). AFDC Child Care and Transitional Child Care were bothopen-ended federal entitlements (i.e., there was no limit on program funding), with the federal shareof payments to states based on the state's Medicaid matching rate. The AFDC At-risk program, onthe other hand, was not open-ended, but was instead authorized as a "capped entitlement" to thestates at an annual level of $300 million.

CCDBG. The fourth pre-1996 child care program for low-income families was the Child Care and Development Block Grant (CCDBG). Establishedin 1990, it supported child care for low-income families not connected to the AFDC welfare system. The block grant subsidized child care for children under age 13 whose working family income didnot exceed 75% of state median income (SMI), adjusted for family size. In addition, it providedfunds for activities to improve the overall quality and supply of child care for families in general. Unlike the AFDC-related programs, the CCDBG was funded with discretionary funds appropriatedas part of the annual appropriations process. Authorizing legislation fell under the jurisdiction ofthe Education and Labor Committee in the House (later renamed the Committee on Education andthe Workforce) and the Labor and Human Resources Committee in the Senate (later renamed theCommittee on Health, Education, Labor and Pensions).

How the 1996 Welfare Law Expanded Child Care Funds. The 1996 welfare reform law ( P.L. 104-193 ) repealed AFDC and its threeassociated child care programs. Like cash welfare, child care was no longer to be an individualentitlement to welfare families. Instead of preserving three separate programs, the new law createda consolidated block of mandatory funding under Section 418 of the Social Security Act. Like theearlier three programs, this new block of funding was designed to be largely targeted toward familieson, leaving, or at risk of receiving welfare (now Temporary Assistance for Needy Families (TANF)). (1) However, unlike the three AFDC-related child care programs, each of which was administered underits own set of rules, the 1996 law instructed that the new mandatory funding be transferred to eachstate's lead agency managing the CCDBG, and be administered according to CCDBG rules. The lawappropriated $13.9 billion for this new child care block grant over 6 years (up $4 billion fromspending estimated by CBO under old law). Committee jurisdiction for the mandatory fundsremained with the House Ways and Means and Senate Finance Committees.

In addition to creating the new block of mandatory child care funding, the 1996 welfare law reauthorized and amended the CCDBG. The 1996 law authorized discretionary funding levels at $1billion annually (the authorized "such sums as necessary" for FY1995 had led to an appropriationof $935 million), and modified the program rules, including an expansion of program eligibility(from 75% of SMI to 85% of SMI). The discretionary funding and the CCDBG program rulesremained under the same committees' jurisdiction as before.

This combination of new mandatory funding and expanded CCDBG discretionary funding is commonly referred to as the Child Care and Development Fund (CCDF) and makes up the largestsource of federal program funding ($4.8 billion in FY2002) appropriated solely for child caresubsidies and child care activities for low-income families. (2) (States are required to spend no lessthan 4% of their combined mandatory and discretionary CCDF allotments on activities to improvethe quality and availability of child care.) A more detailed explanation of the CCDF, its fundingstreams, rules, and appropriations, is provided below.

The Child Care and Development Fund (CCDF)

"CCDF" v. "CCDBG": What's in a name?

The "Child Care and Development Fund" (or "CCDF") is a term that emerged from the aforementioned consolidation and expansion of child care programs that took place in 1996. Thisterm does not appear anywhere in statute, but rather was coined by the Department of Health andHuman Services (HHS) to refer to the combination of mandatory and discretionary funding providedto states for their use in administering child care programs governed by the rules and regulations ofthe CCDBG. Readers should note that while the "CCDF" is in essence a funding term, it is notunusual for it to be used interchangeably with "CCDBG." Nevertheless, from a financingperspective, there are technical distinctions between these two acronyms, which are noted in thefollowing discussion of the multiple funding streams that comprise the CCDF.

CCDF Funding Streams

Mandatory Funding. The mandatory funding component of the CCDF is sometimes referred to as "entitlement" funding. This refers to anentitlement to states , not individuals. Although the individual entitlement to child care waseliminated in 1996, states remain entitled to a portion of federal funds for child care. From specifiedannual block-granted amounts appropriated in Section 418 of the Social Security Act (forFY1997-FY2002) as part of the 1996 law, each state receives a fixed amount. That fixed amountis guaranteed , and equal to the funding received by each respective state under the three earlierAFDC-child care related programs in FY1994, FY1995, or the average of FY1992-FY1994,whichever is greatest. In other words, states are entitled to receive this portion of federal fundingwithout having to "match" those dollars with any child care spending from their own state funds.

In order for a state to be eligible for its share of the remaining funds (also known as "matching funds" ), that state must first meet a "maintenance-of-effort (MOE) requirement." Meeting theMOE requires that a state expend at least the same amount of state funds for child care as it didunder its AFDC-related child care programs in FY1995 or FY1994 (whichever was higher). Oncea state's child care spending has reached that MOE level in the given year, it may begin to access itsshare of the year's remaining federal mandatory funds. States' matching fund allotments aredetermined after setting aside the "guaranteed" mandatory portion described above, and are basedupon each state's relative share of children under age 13. Every dollar of state child careexpenditures above the MOE amount is matched at the state's Medicaid matching rate, to the extentprovided for by the state's allotment of federal matching funds. (3)

Discretionary Funding. The discretionary portion of the CCDF is authorized by the Child Care and Development Block Grant Act (as amended in1996). Actual funding amounts are determined in the annual appropriations process. This portionhas sometimes been singled out as "the CCDBG funding" when referring to funding trends overtime, because prior to 1996, the discretionary child care funding was the sole source of CCDBGfunding. However, since 1996, the distinction between discretionary and mandatory funds has notbeen so relevant from the programmatic angle (since all CCDF money is directed to CCDBGprograms), but rather from the standpoint of differences in rules regarding the time limits that stateshave for obligating and expending the different funding streams (discussed below) and statematching requirements on those funds.

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Discretionary funds are allocated among states according to the formula contained in theoriginal CCDBG Act of 1990 and retained in the amended act of 1996. That formula is based oneach state's share of children under age 5, its share of children receiving free or reduced-pricelunches, and its per capita income. Half of 1% of the appropriated funds is reserved for paymentsto the territories, and between 1% and 2% is reserved for Indian tribes and tribal organizations. (CCDF allotments for FY2002 categorized by funding type (i.e., mandatory, matching, anddiscretionary) are found in Appendix A .) Discretionary funds do not require a state match. TheCCDBG Act currently authorizes funding through FY2002 at $1 billion annually; however, actualappropriations have surpassed that level (up to $2.1 billion in FY2002).

Funding made available for both the discretionary and mandatory portions of the CCDF for each of FY1997 through FY2002 are shown in Table 1 . The second and third columns of thetabledistinguish between advance and same year appropriations, with the fourth column showing the totaldiscretionary funding amount available for the given fiscal year. Readers should note that the totalamount shown as appropriated does not reflect all funds ultimately made available forCCDFexpenditures. As mentioned earlier in this report, states may transfer a portion of their TANFallotments to the CCDF for expenditure under that program, and have chosen to do so in varyingdegrees.

Table 1. CCDF Appropriations (Mandatory and Discretionary) FY1997-FY2002 ($ in millions)

Source : Table prepared by the Congressional Research Service (CRS) using annual Health and Human Services (HHS),Administration for Children and Families budget justifications.

a What appears in the table to be limited discretionary CCDF funding in FY1997, and consequently, in total funding,actually reflects a shift to advance appropriating of funds for the following fiscal year. The FY1997 appropriationlaw provided $956 million for CCDBG, with only $19 million available immediately during FY1997, and theremainder available on October 1, 1997 (the first day of FY1998). In earlier years the funds appropriated forCCDBG became available for obligation only in the last month of the given fiscal year, and therefore most of theappropriation for a given year ($935 million in FY1996) was actually obligated in the following fiscal year.

Time Limits on States for Obligating and Spending CCDF Funds. Specific and different rules govern time limits for obligating and spendingCCDF money, depending on the funding stream (Figure 2) . First, what does it mean for a stateto"obligate" funds? Essentially, obligated CCDF funds reflect money that states have committed tospend from their CCDF grant awards. (4) CCDFregulations impose some restrictions on statedefinitions of "obligations," but generally leave discretion to the states in defining what constitutesan obligation. Examples of obligations may involve states "subgranting" funds to programs thatoperate independent of state agencies (i.e., state-supervised county-run programs or privatecontractors) or making transactions that require future payment for services. When the state actuallymakes a payment for the service, an expenditure is recorded.

CCDF Discretionary Funds. States have 2 years in which to obligate discretionary funds appropriated in a given fiscal year. States have an additionalyear to actually spend the money (in other words, a total of 3 fiscal years from the time ofappropriation). For example, CCDF discretionary funding appropriated for FY2001 is available forobligation through the end of FY2002. States then have until the end of FY2003 to actually makepayments on those obligations. (They can, however, make expenditures at any point within the3-year period.) If a state fails to make expenditures for all its obligations within the 3-year limit,HHS will take back that portion of the grant award that is not spent.

CCDF Mandatory Funds. The deadlines for states to obligate and expend mandatory funds differ from those for discretionary funds. (Different rulesapply to Indian tribes.)

Mandatory "guaranteed" CCDF funds must be obligated by the end of thefiscal year in which they are awarded, only if the state intends to qualify for matching funds. If astate does not intend to qualify for matching funds, there is no deadline for obligating funds. Regardless, there is no deadline for states to expend these funds. As explained earlier, in order fora state to qualify for federal matching funds, it must first meet a maintenance-of-effort (MOE)requirement.

MOE state funds must be obligated and expended within the fiscal year ofthe grant award if the state is to become eligible to receive its share of federal matching funds forthat year.

Matching funds (both the federal and state share) must be obligated withinthe fiscal year of the grant award. A state then has an additional year to make expenditures. In theevent a state fails to expend its share of matching CCDF funds by the end of the second fiscal year,HHS will take back the unmatched portion of the federal grant award.

Figure 2 provides a pictorial representation of the varying time frames that states have for obligating and expending funds from the various CCDF funding streams. States' flexibility toobligate and spend funds across years is of particular relevance when analyzing CCDF expendituresover time, and will be addressed in more detail later in this report. However, before analyzing thoseexpenditures, both nationally and by state, the following sections describe the role that two otherfederal block grants (TANF and SSBG) play as additional funding sources for child care.

Source: Figure prepared by the Congressional ResearchService (CRS).

Additional Funding Sources: TANF and SSBG

As noted earlier, child care for low-income families is also supported by funds from TANF andthe SSBG. Although states are not required to use these funds for child care, expenditure dataindicate that these block grants are indeed supplementing funds appropriated directly through theCCDF.

TANF. The welfare reform law provides fixed block grants ($16.5 billion annually through FY2002) for state-designed programs of time-limitedand work-conditioned aid to families with children. (5) Since its implementation, increasing amountsof TANF funding have been used for supporting child care, both through transfers to the CCDF, andby funding child care within the TANF system itself. As mentioned earlier, states are permitted totransfer a combined total of 30% of their annual TANF allotments to the CCDF and the SSBG (witha maximum limit of 10% to the SSBG). Once transferred, the funds must be administered accordingto the rules of the program that receives them. TANF rules apply to funds that remain within theTANF program. (6)

Over the course of FY1997-FY2000, states transferred a total of $6 billion from TANF to the CCDF, representing over 9% of their TANF allotments awarded over the 4-year period. The $2.4billion of that total that was transferred in FY2000 represents 14% of states' FY2000 TANFallotment. In other words, the amount transferred from TANF to CCDF in FY2000 ($2.4 billion)exceeds the amount that was appropriated directly in discretionary CCDF funds for FY2002 ($2.1billion), or any single fiscal year so far. For a state-by-state table showing cumulative amounts ofTANF funds transferred to the CCDF in FY1997-FY2000, and transfers made from FY2000allotments in FY2000, see Appendix B of this report.

Transferring funds to the CCDF is not the only channel through which states may use TANF funding to support child care services for low-income families. TANF funding can be used directlyto pay for a variety of services that support work, and child care is a prime example. In FY2000,states reported spending a total of $2.2 billion of federal TANF and related state funds on child care. (7) Note that this is in addition to the aforementioned TANF funds transferred to the CCDF forexpenditure under that program. (An analysis of trends in expenditures from both these fundingsources begins on page 13.)

SSBG. The SSBG is a flexible source of federal funds that states may use to support a variety of social services, including child care. (8) States areentitled to a specified allotment of funds, based on population size, and there is no state matchrequired for receipt of these federal funds. States have complete discretion over how these funds aredistributed and to whom. Restrictions are placed only on any funds states opt to transfer from theirTANF allotment to the SSBG. States have the authority (through FY2002) to transfer up to 10% oftheir TANF allotment to the SSBG. Any of these transferred funds must be used only forexpenditures to assist children and families whose income is less than 200% of the federal povertyguidelines.

Over FY1997-FY2000, states have cumulatively transferred $3.9 billion (or 6% of their TANF awards for the period) to the SSBG. However, unlike TANF transfers to CCDF, a transfer to theSSBG is not necessarily subsequently spent on child care. Nor are the funds that are directlyappropriated for the SSBG required to be used for child care. States use (at their own discretion)only a portion of all SSBG funds to support child care services. The most recent HHS analysis ofstate-reported SSBG expenditures reveals that in FY1999, 43 states spent a total of $397 million forchild day care services, accounting for 13% of all FY1999 SSBG expenditures. (9) This represents agreater percentage of all SSBG expenditures than that made in FY1998, when 46 states applied justover 9% ($279 million) of all SSBG expenditures toward child day care services.

As shown in Table 2 , funding appropriated directly to the SSBG has been decreasing since 1997, with additional transfers from TANF hovering around $1 billion. (The amount transferred inFY2001 is not yet available.) Appropriations for FY2002 were $1.700 billion, a decrease of $25million from the prior year. The extent to which FY2000 and FY2001 SSBG funding, in additionto any funds transferred from TANF, has and will be used for child care expenditures is not yetknown.

Table 2. SSBG Appropriations and TANF Transfers ($ in billions)

Source: Table prepared by the Congressional ResearchService (CRS).

Analysis of Child Care Expenditures

This report has thus far focused on sources of child care funding, emphasizing the amounts made available each year through federal block grants, and the rules that apply to states forobligating and spending those funds. The next sections focus on the data that show what amounts states have actually spent from year to year. Following is an analysis of trends in actual child careexpenditures using data available from the CCDF, TANF, and their predecessor programs. (Thelimited information available regarding the SSBG's role in funding child care expenditures hasalready been discussed in the preceding section.)

In this report, expenditures for a given fiscal year reflect expenditures made within that given fiscal year, regardless of the year in which the funding was provided. However, for FY2000, abreakdown of spending by year of funding source is also provided. (Recall that as described earlier,states are afforded different time frames for spending money from different funding streams.) Withmultiple funding sources available, expenditure data help in answering the questions of how muchstates are spending on child care for low-income families, via which programs, and in what timeframe.

Overview of Child Care Spending Trends

The following sections look at components of child care spending by program (CCDF and TANF), and more specifically, by funding stream within a given specified program. However, beforedoing so, it is useful to focus on the "big picture."

What is the "Big Picture"? Child care expenditures made through the CCDF and TANF programs have been growing steadily since thepassage of the 1996 welfare law, and build on levels that were already increasing prior to that time. The most recent available data indicate that in FY2000, combined child care expenditures made fromthese two programs totaled over $9 billion - more than double the level of expenditures made forchild care via these same two programs in FY1997.

Expenditures from the CCDF (made from funds provided either directly through the CCDF or from TANF transfers to the CCDF) represent the largest portion of that child care spending, reachingover $7 billion in FY2000. Supplementing this were over $2 billion in additional child carespending within the TANF system. Figure 3 displays the growth in spending for child care,showingcombined expenditures from CCDF and TANF (both federal and state shares) for FY1997-FY2000. For FY1992-FY1996, the figure reflects expenditures made for AFDC-related child care programs(both federal and state shares) and the CCDBG. The chart does not indicate which programs andfunding streams comprise what portion of each year's spending. A discussion of those breakdownsfollows, starting with an analysis of CCDF expenditures.

Source: Figure prepared by the Congressional ResearchService (CRS) based on data provided by the Department ofHealth and Human Services (HHS).

Note: For a breakdown of these expenditures by funding source, see Appendix C .

Trends in CCDF Spending

As described earlier, CCDF funding comes in both mandatory and discretionary amounts. One portion of mandatory money is "guaranteed"; another portion of the mandatory money is onlyavailable to states if they first meet an MOE requirement (with state funds) and then provideadditional state matching funds. No match applies to the discretionary fund. Therefore, expendituredata for CCDF can be broken down into those same categories: mandatory and discretionary,distinguishing between federal and state contributions.

Table 3 shows the breakdown of CCDF (and predecessor program) expenditures forFY1992-FY2000, by funding source. For FY1992-FY1996, the amounts shown as federal CCDFmandatory "guaranteed" spending actually reflect federal expenditures for AFDC-related child carespending. Why? Because the "guaranteed" funding amounts for the CCDF are based on AFDCchild care spending during this period. Likewise, the MOE requirements established for the CCDFare based on the state spending from the AFDC era, and are therefore included in the MOE column. The CCDF federal matching money essentially represents "new" mandatory funding, which statescan only access by spending the required share of their own state funds.

Expenditures made from federal funds are shown in the first three columns of expenditures, and those made from state funds are in the fourth and fifth columns. The final column shows totalexpenditures made from the CCDF and its predecessor programs in each year. The trend in totalCCDF spending mirrors that of "the big picture." That is, total CCDF expenditures have grown eachyear.

Table 3. Total CCDF Expenditures by Funding Source FY1992-FY2000 ($ in millions)

Source : Table prepared by the Congressional Research Service (CRS) based on data provided by the Department ofHealth and Human Services (HHS).

Notes : Child care expenditures in the territories areexcluded. Totals may not add due to rounding.

a Discretionary fund expenditures include spending from TANF transfers to CCDF.

b Expendituresmade in FY1992-FY1996 from the federal share of AFDC-related child care matching funds are includedin the same column as the mandatory CCDF expenditures because these expenditures were the basis fordetermining mandatory "guaranteed" funding levels for the CCDF. Similarly, the FY1992-FY1996 expendituresmade from the state share of AFDC-related child care matching funds appear in the same column showing CCDFMOE expenditures (for FY1997-FY2000) because they formed the basis of determining the MOE requirementlevel.

CCDF Spending in FY2000. As Table 3 shows,in FY2000, a total of $7.2 billion was spent from the CCDF. Over $3 billion of the $7.2 billion totalreflect expenditures made from federal CCDF discretionary funds. Approximately $2.2 billion inCCDF expenditures were made from "guaranteed" mandatory funding and the federal share ofmatching funds. Why do the federal expenditures made from the CCDF in FY2000 (discretionary+ mandatory + federal share of matching = $5.3 billion) significantly exceed the FY2000 CCDFfunding level (see Table 1 ) of $3.5 billion? First, the expenditure numbers shown in Table 3 reflectspending by states in FY2000 , and, as explained in the discussion of time limits for obligation andexpenditure of funds, states may make expenditures from not just the current year's funding, but alsofrom funds provided in earlier years. (10) Moreover,when states transfer funds from TANF to theCCDF, those transfers ultimately show up as CCDF expenditures (included in the discretionarycolumn).

Table 4 provides a breakdown of CCDF expenditures made in FY2000, showing the source ofthose expenditures both by type (i.e., discretionary, mandatory, matching) and the year the fundingwas actually appropriated. For example, the first column of expenditures shows that a cumulativetotal of almost $3.1 billion in expenditures from CCDF discretionary funds were made in FY2000. Of that amount, over $1.2 billion can be attributed to discretionary funding appropriated in FY1998and FY1999, and $1.8 billion was expended from funds appropriated in FY2000. States were ableto spend more in discretionary funds than were actually appropriated in FY2000, in part becauseexpenditures from transferred TANF funds are included as discretionary.

Table 4. CCDF Expenditures Made in FY2000 by Funding Type and Year of Funding Source ($ in millions)

Source: Table prepared by the Congressional Research Service (CRS) based on data provided by the Department ofHealth and Human Services (HHS).

a Included in the discretionary totals are any expenditures made from funds transferred from TANF to CCDF in the givenyear.

b States mustmake expenditures for meeting the MOE requirement within the given year, and therefore FY1998 andFY1999 MOE expenditures were made in each of those respective years, and applied to the MOE requirement forthose years.

c Federal andstate shares of CCDF matching funds must be expended by states by the end of the fiscal year followingthe year of appropriation. Therefore, FY1998 matching funds had to have been expended by the end of FY1999,and could not be a source of FY2000 expenditures.

TANF Child Care Spending

TANF contributes to the big picture of child care spending in two ways: expenditures made from funds transferred to CCDF (discussed above) and expenditures made directly within the TANFsystem. Of the expenditures made directly within TANF, some are made from federal funds, whileothers are made from state funds associated with the TANF maintenance-of-effort (MOE)requirement. TANF, like the CCDF, has its own MOE requirement, which states must meet if theyare to be eligible for their full TANF allotment. The TANF MOE requires states to expend onTANF-eligible families an amount equal to their "historic" spending level (generally inFY1994-1995) on TANF predecessor programs: AFDC, Emergency Assistance, Job Opportunitiesand Basic Skills, and AFDC-related child care . Why is this important to the calculation of TANF'scontribution to child care spending?

Role of the TANF MOE in Calculating Child Care Spending. Within the rules for applying state child care expenditures toward TANFand CCDF MOE levels, states may "double count" many expenditures toward both programs'requirements. In other words, as long as a child care expenditure is for a TANF-eligible family, itmay be applied toward both the TANF's MOE level and the CCDF MOE. States are notrequiredto explain in either their TANF or CCDF expenditure report whether any, all, or none of their MOEspending overlaps. As a result, if MOE expenditures from the CCDF and TANF expenditure formswere to be added together, the resulting total might overstate the level of MOE child care spendingactually made by the states. Therefore, for this analysis of TANF child care expenditures, onlyTANF MOE spending that exceeds the level of CCDF MOE expenditures made by a state will becounted (recognizing that this method results in the most conservative estimate). A step-by-step lookat the process of reaching "unduplicated" TANF MOE expenditure amounts is provided later in thereport, where TANF expenditures are analyzed on a state-by-state basis.

Trends in TANF Child Care Spending. TANF expenditure data reveal that states as a group are spending increasing amounts of TANF funds onchild care services. Table 5 shows that the combined total of federal TANF funding and the"excess" (or "unduplicated") child care expenditures made from state funds has grown from over$133 million in FY1997 to almost $2.2 billion in FY2000.

Table 5. TANF Child Care Spending FY1997-FY2000 ($ in millions)

Source: Table prepared by the Congressional Research Service (CRS) based on data provided by the Department ofHealth and Human Services (HHS).

Note : Child care expenditures in the territories are excluded.

State-by-State CCDF and TANF Spending

CCDF Trends. Earlier tables provide the spending picture from a national perspective, but do not reveal trends in individual state spending. Table 6 shows total CCDF (and predecessor program) spending made by each state over the sameFY1992-FY2000 period shown for the nation as a whole in Table 3. The final column of Table 6 reveals the percentage change that occurred in total CCDF expenditures made by each state betweenFY1996 (the last year before the unified CCDF was implemented) and FY2000.

TANF Trends. As expressed in the discussion of funding sources, states are not required to spend any given amount of their TANF funds on childcare. States have the flexibility to spend their TANF funding on a variety of services, in addition tocash assistance, and therefore it is useful to look not only at national trends regarding the use ofTANF funding for child care, but also at state-by-state trends. Table 7 provides the samebreakdownof TANF child care expenditures by year and type (federal or state) as that shown in Table 5 , butona state-by-state basis. Table 7 shows that all but 13 states have reported spending some level ofTANF funds for child care over the 4 year period.

Source : Table prepared by the Congressional ResearchService (CRS) based on data provided by the Health and Human Service (HHS).

Note : Included in these amounts are any expenditures made from funds transferred from TANF.

Source : Table prepared by the Congressional Research Service (CRS) based on data provided by the Department of Health and Human Services (HHS).

Note : These amounts do NOT include expenditures made from funds transferred from TANF to the Child Care and Development Fund (CCDF).

A Closer Look at FY2000. Table 8 provides adetailed breakdown of CCDF and TANF child care expenditures made by each state, showingspending amounts by funding source. The final column of the table reflects the calculation of"excess" child care TANF MOE expenditures, which are explained in more detail below.

Calculating "Excess" TANF MOE Child Care Expenditures. Table 9 includes the expenditure data used to make the"excess" TANF MOE expenditure calculations for FY2000. The "excess"expenditure amount isdefined here as any amount that remains after the total reported CCDF MOE expenditures aresubtracted from the TANF child care MOE reported amount. If the subtraction yields a negativeamount, or zero, then there is no excess amount to report as a state-funded TANF expenditure. Ifthe reported TANF MOE child care spending amount is greater than the amount reported toward theCCDF MOE, then the positive difference is counted in Table 9 as the excess amount.

For example, as shown in the first column of numbers in Table 9 , Alabama was required tomake $6.896 million in child care expenditures from state funds to meet its annual CCDF MOErequirement. According to Alabama's reporting form for FY2000 CCDF expenditures, they spentprecisely that amount in FY2000. The third column shows the level of child care expendituresreported on the TANF expenditure form toward the TANF MOE: $4.409 million. Because theTANF MOE expenditures do not exceed the CCDF MOE expenditures, and all $4.409 million couldalready potentially be accounted for as part of the $6.896 million reported as CCDF MOE spending,no expenditures are counted toward state TANF child care spending. (In other words $4.4 millionminus $6.8 million yields a negative number.)

In other cases (Arkansas, for example), Table 9 shows that the reported TANF MOE child careexpenditures ($5.278 billion) exceed those reported toward the CCDF MOE ($1.887 billion). Therefore, the excess (rounded to $3.4 billion in this case) is the amount that appears in Table 8 under TANF child care MOE.

Table 9 also reveals the extent to which states reported expenditures above the required MOElevel. According to FY2000 expenditure reports, 12 states reported CCDF expenditures above thelevel required for meeting the CCDF MOE.

Source: Table prepared by the Congressional Research Service (CRS) based on data provided by Health and Human Services (HHS).

Source : Table prepared by the Congressional ResearchService (CRS) based on data provided by the Department ofHealth and Human Services (HHS).

Filling In the Big Picture

Figure 4 "fills in" the big picture with a more detailed breakdown of the overall spending trends presented in Figure 3 . The supporting table of data can be found in AppendixC.

Source: Figure prepared by the Congressional Research Service (CRS) based on data provided bythe Department of Health and Human Services (HHS).

Funding Issues in Reauthorization

Congress is expected to address child care financing issues as part of reauthorizing child care and welfare legislation. The issue of how much funding to make available for child care will likelybe at the forefront, but is complicated by the fact that child care is supported by multiple fundingsources. As policymakers consider funding levels for child care, the following questions might beasked with respect to each potential funding source:

Are funds from this source specifically dedicated for child care?

How are funds from this source allocated to states? (What is the distributionformula?)

Are states required to match funds from this source with their own statefunds?

Can funds from this source be transferred to otherprograms?

How long do states have to obligate and spend funds from this source?

The answers to these questions highlight the varying implications of providing child care funding through different sources. For instance, funds provided through CCDF are the only fundsdedicated solely for child care, but nevertheless, expenditure data (through FY2000) reveal thatTANF has also played a significant role in funding child care, both through transfers to CCDF anddirectly within TANF. Therefore, should CCDF funding levels be set with the presumption thatstates will continue to use the same amount of TANF funds for child care? A lesser or greateramount? Likewise, what are the implications of the CCDF funding decision on setting the overallTANF funding level? Will an economic downturn prompt states to make different decisions as tohow they allocate their TANF funds? Greater child care expenditures have been fueled by reducedcash welfare caseloads through FY2000; will these spending trends continue if cash welfarecaseloads level off or rise? To what extent are CCDF funds used to serve welfare (TANF) families?

Even with respect to the funds targeted specifically for child care (i.e., the CCDF) the implications for states differ depending on whether funds are provided via the mandatory ordiscretionary stream. As described earlier, the mandatory and discretionary portions of the CCDFare currently allocated among states according to different formulas, based on different factors. Consequently, the same amount of funding will translate into different allocation amounts for states,depending on the funding stream from which the money is allocated. Furthermore, mandatory fundsbring with them state matching requirements (for the non-"guaranteed" portion). Of course, whetherstates actually spend state funds in order to access the available federal mandatory funds depends oneach state's individual decision to participate in the matching program. For example, Michigan hasnot always opted to access its full matching grant, but has instead applied state child careexpenditures toward meeting its TANF MOE requirement.

Discretionary and mandatory CCDF funds also carry with them different time limits for states to obligate and spend the money. Policymakers will be faced with deciding: What portion of CCDFfunding should be delivered via discretionary money versus mandatory money? Should the formulasfor allocating those funds remain as they are? Should states' historical spending levels from theearly 1990s continue to serve as the basis for the fixed amount of "guaranteed" mandatory funding? Should matching requirements remain the same? How long should states have for obligating andspending the funds?

Decisions regarding states' authority to transfer funds between block grants (i.e., TANF funds to CCDF and SSBG) are also expected as part of the reauthorization process. In addition to theallowable level of transfer, some critics of the status quo argue that states should be allowed totransfer TANF funds remaining from prior years, rather than only current year funds. Of course, justas an economic downturn could prove to affect states' decisions to use TANF funds directly for childcare, so too could it affect their decisions to transfer funds.

Appendix A. FY2002 CCDF Allotments, by FundingType ($ in millions)

Source : Table prepared by the Congressional Research Service (CRS).

Appendix B. Transfers from TANF to CCDF, cumulatively (FY1997-FY2000) and for FY2000, by state (with percentages of cumulative grants and FY2000TANF grant)

Source : Table prepared by the Congressional Research Service (CRS) based on data provided byHHS.

Appendix C. Total CCDF and TANF Child Care Expendituresby Funding Source: FY1992-FY2000 ($ in million)

Source: Table prepared by the Congressional Research Service (CRS) based on data provided by the Department of Health and HumanServices (HHS).

Note : Child care expenditures in the territories are excluded.

a Discretionary fund expenditures include spending from TANF transfers to CCDF.

b Expenditures made in FY1992-FY1996 from the federal share of AFDC-related child carematching funds are included in the samecolumn as the mandatory CCDF expenditures because these expenditures were the basis for determining mandatory"guaranteed"funding levels for the CCDF. Similarly, the FY1992-FY1996 expenditures made from the state share ofAFDC-related child carematching funds appear in the same column showing CCDF MOE expenditures (for FY1997-FY2000) because theyformed the basisof determining the MOE requirement level.