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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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Summary: 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.