To better help low-income families meet their child care needs, the Congress combined four programs with different target populations into one program—the Child Care and Development Block Grant (CCDBG)—with a single set of eligibility criteria and requirements. This program, now referred to as the Child Care and Development Fund (CCDF), provides federal funds to states for child care subsidies for families who are working or preparing for work and who have incomes of up to 85 percent of a state’s median income (SMI). Unlike the previous programs, which segmented working low-income families into different service categories on the basis of welfare status, the CCDF allows states greater flexibility to create integrated programs that serve all families in similar economic circumstances. Such programs are important to ensure that families who have never been on welfare are not penalized for their work efforts and that families can move easily from welfare to self-sufficiency. activities, creating a greater need for child care assistance. The act requires that a significant percentage of states’ CCDF funds are used to provide child care assistance to current or potential TANF recipients. In response to welfare reform, the seven states we reviewed are expanding funding for child care programs. As table 1 shows, the increase in combined federal and state CCDF funding in the seven states between state fiscal years 1996 and 1997 ranged from 2 percent in Maryland to 62 percent in Louisiana. On average, funding in these states increased from about $1.1 billion in fiscal year 1996 to about $1.4 billion in fiscal year 1997. According to child care officials, these additional funds have allowed six of the seven states to expand the number of children served under their child care subsidy programs by an average of about 17 percent between fiscal years 1996 and 1997. The CCDF allows states to operate their child care programs exclusively with federal funds, thereby reducing or eliminating the need for state funds to be used for child care. Nevertheless, the seven states we reviewed intend to spend at least enough state funds to qualify for the maximum amount of federal CCDF funds available for child care. State funding in three of the states will exceed the amount required to maximize their federal CCDF allocation. than were previously available under AFDC. As a result, some states are using TANF funds to fund child care subsidies. For example, while Wisconsin expanded its child care funding by 38 percent between state fiscal years 1996 and 1997, the increase came from federal, not state, funding sources. Even though the seven states we reviewed are expanding their programs, they are still unable to provide child care subsidies to all families meeting federal eligibility criteria who might benefit from such assistance. In fact, a recent Urban Institute study estimated that only about 48 percent of the potential child care needs of low-income families would be met if states maximized federal dollars available under welfare reform. Because they cannot serve all eligible families, states have devised strategies to target subsidies to subsets of the eligible population. subsidized child care programs too expensive for higher-income eligible families. Comparing the systems in Wisconsin and Oregon can help illustrate how states can use these different criteria to target child care subsidies toward specific populations. Wisconsin has established a relatively low income eligibility criterion (53 percent of SMI—$21,996 in fiscal year 1997), coupled with relatively low copayments (6 to 16 percent of gross income). Thus, although it has restricted the population of eligible families to those with very low incomes, it has designed the copayment structure to make subsidized child care affordable to all eligible families who apply. In contrast, Oregon has a relatively high income eligibility criterion (85 percent of SMI—$33,012) and a relatively high family copayment level (31 percent of monthly income up to $2,042). While families with higher incomes are eligible for child care subsidies in Oregon, the copayment structure discourages them from participating and, in effect, targets aid to lower income families. Welfare status is also an important consideration in establishing access to child care subsidies in many states. Five of the states we reviewed distinguish between welfare families (including those transitioning off of welfare) and nonwelfare families in determining who will be served. Connecticut and Louisiana consider child care as an entitlement to working families receiving TANF, and Texas guarantees child care subsidies to former TANF families who are transitioning to work. In California, child care programs are administered separately for welfare and nonwelfare clients, and in Maryland, TANF families and families transitioning off of TANF are given first priority in obtaining subsidies when all eligible families cannot be served. California, Connecticut, and Texas said they have insufficient resources to serve all nonwelfare families who meet individual state eligibility requirements. In California and Texas, this results in waiting lists for subsidies, while in Connecticut, the nonwelfare child care program was closed to new applicants at the time of our study. expected to increase over the next few years, some data suggest that the increase could be significant. Connecticut has estimated that an additional 5,000 TANF-related families will need child care assistance during its next 2 fiscal years, and Maryland estimates the number of families needing child care will more than double from 1997 to 1999. In Oregon, which began in 1992 to require more welfare parents to participate in welfare-to-work activities and has emphasized child care assistance as a way to help welfare and other low-income families support themselves through work, the number of children served by the state’s Employment-Related Day Care program increased by 137 percent from July 1992 to February 1997.In fact, almost 61 percent of projected child care expenditures in Oregon for 1997-99 are designated for that program. States’ ability to meet the anticipated increased demand for child care will depend on future levels of state child care funding as well as on changes in demand for child care subsidies resulting from welfare reform’s work participation requirements. The Personal Responsibility Act’s requirement that states place increasingly higher percentages of their caseloads in work activities, combined with the capping of federal child care funds through the CCDF, could strain the states’ capacity to sufficiently expand child care programs in future years. On the other hand, if states’ welfare caseloads continue to decline, then demand among welfare families could decline or increase at a slower rate. Consequently, TANF funds previously devoted to cash assistance could be redirected to the states’ child care subsidy programs. However, states may face pressures to spend these additional resources for other TANF-related services. Welfare and child care program officials in six of the seven states report that with the additional funds available under the CCDF, the supply of child care appears so far to have kept pace with increases in demand. One indication of this is that these states had granted few exemptions from work requirements because of unavailability of child care, and most did not expect to grant such exemptions on a large scale in the near future. enhance or expand their services. Other states have created incentives for employers to provide child care assistance. These approaches include loan and grant programs, corporate tax incentives, policies to require or encourage developers to set aside space for child care centers in business sites, and information referral and technical assistance to increase private sector involvement. Overall, according to their CCDF plans, 38 of the 51 states plan to make grants or loans available for establishing or expanding child care facilities. However, some kinds of child care are and will continue to be in short supply. In a previous report we estimated that, in the four sites we examined, the demand for infant care and after-school care would grow substantially over time in response to the new welfare reform legislation and would greatly exceed the supply of those types of care, if the supply did not increase. The gap between projected demand and supply was estimated to be even greater in low-income areas. On the basis of our analysis, given the current supply, the four sites would also have trouble meeting increased demand for nonstandard-hour care. Furthermore, child care centers and other formal arrangements are only part of the picture. It is expected that informal care—child care arrangements that are not subject to state licensing or regulatory requirements—will meet some of the increased demand for child care and, in some cases, may account for most of the child care used. For example, in Connecticut, state officials estimated that 80 percent of welfare families used informal child care arrangements. Similarly, Oregon officials estimated that nearly half of their welfare-to-work program clients had used informal care. We previously reported that families with annual incomes below $15,000, low-income mothers who are single and employed, and parents whose jobs require them to work nonstandard hours tend to rely heavily on informal care. At the same time that states are expanding their programs and attempting to increase supply, they appear to be maintaining child care standards and enforcement practices. In fact, some of the seven states we reviewed are making incremental changes that tend to strengthen existing standards. For example, Texas planned to phase in a requirement that will reduce the ratio of children to staff members. Similarly, a survey done by the American Public Welfare Association of all the states reported that quality standards have generally been maintained and, in many cases, enhanced.In addition, recognizing that enforcement is important to ensure that standards are maintained and children receive adequate care, none of the seven states plans to reduce the size of its staff responsible for inspecting or regulating child care providers. However, the long-term effects of welfare reform on states’ efforts to regulate child care providers and ensure that children receive quality child care are as yet unknown. As we previously reported, fiscal pressures could ultimately lead states to devote fewer state resources to monitoring and regulating child care providers in the future. As noted earlier, informal care arrangements are widely used by welfare and other low-income families. Much of this care is exempt from state standards or is minimally regulated. To address concerns about the safety and quality of informal child care, some states have imposed additional requirements on informal providers who receive subsidies. California and Oregon conduct background checks on the criminal histories of subsidized providers, including those who are otherwise exempt from regulatory or licensing requirements. Nonetheless, some child care advocates and researchers continue to be concerned that efforts to expand the supply of state-subsidized child care could focus on informal care, placing more children in unregulated settings. At this point, it is too early to assess the types of child care that states and parents will rely on as more parents participate in work or work-related activities. deciding who will be served through the programs. Since none of the states in our study has sufficient resources to serve all families who meet the federal eligibility criteria, these states are targeting subsidies to certain groups of eligible families, while attempting to balance the needs of welfare and nonwelfare families. In addition, although the seven states have many initiatives under way to expand their supply of child care providers, the outcomes of their efforts are not yet known. Moreover, it is too soon to know what kinds of child care states and parents will rely on as more parents are expected to support themselves through work. States’ efforts to increase the number of children receiving child care services while at the same time ensuring safe care for children will deserve attention as welfare reform evolves. Mr. Chairman, this concludes my formal remarks. I will be happy to answer any questions you or other Members of the Subcommittee may have. The first copy of each GAO report and testimony is free. 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Summary: GAO discussed how child care programs are changing at the state level through the revisions in the Personal Responsibility and Work Opportunity Reconciliation Act of 1996, focusing on: (1) how much federal and state funds states are spending on child care subsidy programs and how they are allocating these resources; (2) how states are trying to increase the supply of child care to meet the projected demand under welfare reform; and (3) the extent to which states are changing standards for child care providers in response to the anticipated increased demand under welfare reform. GAO noted that: (1) its findings provide an early indication that the seven states it reviewed are using additional federal dollars and their own funds to expand their child care programs to serve increasing numbers of welfare recipients required to work and at least some of the working poor; (2) in addition, states are making efforts to further increase the supply of child care by funding initiatives to support and encourage the entrance of new child care providers into the market; (3) at the same time, the states that are expanding their programs and attempting to increase supply appear to be maintaining child care standards and enforcement practices; and (4) however, it is too early to know how effective these efforts will be in meeting the child care needs of low-income families.