Child care services are supplied by providers operating in varied settings: in center care, a child is cared for in a nonresidential setting and in family child care, a child is cared for in the home of a provider. Child care centers provide care outside of the home, but family child care is provided to a small number of unrelated children—typically fewer than six—in a provider’s home. Some child care centers and family child care homes also offer school-aged care for children before and after school. (See table 1.) Generally, children in center-based care and family child care have not yet started school and after-school care is offered to children in kindergarten through age 12. Research on child care quality identified two broad sets of attributes that pertain to quality in all child care settings: structural attributes of the child care environment and children’s daily interactions with their caregivers. Structural attributes of child care include characteristics such as child-to- staff ratios, the number of children per caregiver in a classroom; group size, the number of children assigned to a team of caregivers in a classroom; caregiver formal education; caregivers’ specialized training; caregiver wages; staff turnover; the amount of floor space per child; and health and safety features, such as frequent staff and child hand washing. Child-caregiver interactions refers to actual experiences that occur in child care settings, and include such attributes as caregiver sensitivity and responsiveness, caregiver participation in children’s play and learning activities, and language stimulation by caregivers. State and local governments are responsible for the oversight of child care providers that operate in their state. Each state establishes its own child care standards, determining the areas and types of providers that the standards will cover and the specific criteria that will be used to determine provider compliance. Most child care providers are required to meet a state’s standards to obtain a license to operate legally in a state. State child care standards primarily focus on the structural attributes of care. States can turn to organizations such as the National Association for the Education of Young Children (NAEYC) and the Maternal and Child Health Bureau (MCHB) in HHS’s Public Health Service that have developed standards based on research and professional practice. NAEYC, the nation’s largest association of early child professionals, was formed to improve professional practice in early childhood care and education and increase public understanding of high quality early childhood programs. NAEYC also accredits, through a voluntary system, early childhood centers and schools. In 1998, we reported that state licensing standards varied in the extent to which the standards reflected those of NAEYC and MCHB. For example, we found that only two states had standards for caregiver education and training that matched NAEYC standards. Typically, state standards tended to require significantly fewer years of education than the standards set by NAEYC. Thus, to achieve accreditation by a national accrediting body, child care providers may have to meet higher standards than those they would meet to obtain and keep a state operating license. Title I of the Personal Responsibility and Work Opportunity Reconciliation Act of 1996 (PRWORA) overhauled the nation’s welfare system by replacing the legal entitlement to cash assistance under the previous welfare program with the Temporary Assistance for Needy Families (TANF) block grant. Title VI of PRWORA amended the Child Care and Development Block Grant Act of 1990 (CCDBG) and combined CCDBG funds with the funding of three other federal child care programs. HHS named the combined set of funds the CCDF. Each state receives an annual CCDF allocation composed of funds from three separate funding streams: discretionary, mandatory and matching. Assessing the portion of CCDF funds states spend on quality improvement is complicated to some extent by the distinct set of rules covering each stream that determine the time period allowed for obligating and spending the funds. (See table 2.) Each state receives a share of the total amount of money in the discretionary funding stream, which is determined each year by the congressional appropriations process. A state’s share of discretionary funds is based on a formula stipulated in the statute. A state must obligate discretionary funds within 2 fiscal years after a grant award and spend the funds by the end of the following fiscal year. A state’s share of mandatory funds is based on the amount of funds the state received from a set of federal child care programs in a base year. Mandatory funds are available until they are spent. However, to receive federal matching funds, a state must obligate all mandatory funds by the end of the fiscal year in which they were awarded; maintain program spending of state funds at a specified level, referred to as a state’s maintenance of effort (MOE); and spend additional state funds above that level. States may spend more of their own funds on child care than the amount actually accounted for under CCDF’s MOE and matching requirements. Federal and state matching funds must be committed by the end of the fiscal year in which they are received and spent by the end of the following fiscal year. Finally, funds transferred from the TANF block grant represent an additional source of funds for the CCDF. PRWORA allowed states the flexibility to transfer up to 30 percent of TANF funds to the CCDF. Transferred TANF funds are treated as part of the discretionary funding stream and are subject to CCDF rules. States must spend at least 4 percent of their CCDF funds—of discretionary, mandatory and matching, but not of state MOE funds—for a given fiscal year on activities intended to improve the quality and availability of child care. Specifically, the law requires that states use at least 4 percent of these funds for activities to provide comprehensive consumer education to parents and the public, activities that increase parental choice, and activities designed to improve the quality and availability of child care. As stated earlier, HHS, through its regulations, has provided illustrative examples of activities designed to improve the quality of child care. In addition, the regulations permit other expenditures that are consistent with the intent of the regulation. This provision of PRWORA is known as the 4 percent set-aside. Congress also has earmarked money in CCDF’s discretionary fund for resource and referral services and school-age care, infant and toddler care and quality-related activities. Any funds expended for the activity beyond the designated earmarks can be used to meet the 4 percent set-aside requirement. Earmarked funds must be tracked and reported separately from 4 percent set-aside expenditures. For fiscal year 2001, Congress provided $19,100,000 for the resource and referral services and school-age care earmark, $100,000,000 for the infant and toddler earmark, and $172,600,000 for the quality-related activities earmark. These earmark amounts were continued for fiscal year 2002. HHS guidance for expenditure of the quality-related activities earmark includes activities similar to those approved for the 4 percent set-aside, but covers additional suggestions such as specific health activities, special needs child care and activities that support cultural diversity. To encompass the broad range of quality improvement initiatives that states are undertaking, including those allowed by the 4 percent set-aside provision and HHS’s regulations as well as strategies suggested in child care quality research and practice, we developed a framework for describing the initiatives and analyzing states’ expenditures on them. To assess evidence on the effectiveness of states’ initiatives that has been developed in the research community, we developed criteria for data and research quality that reflect GAO’s methodological standards and those of the broader policy research community. The CCDF 4 percent set-aside provision and HHS regulations specify several types of activities for which quality improvement funds may be expended but also allow states the discretion to include other activities. HHS also requires states to report total expenditures of 4 percent set-aside funds annually but does not require separate reporting for the quality improvement initiatives the states undertake. Thus, to examine states’ quality improvement expenditures, we developed a framework to guide data collection and analysis. Beginning with examples of the allowable activities included in the 4 percent set-aside provision and HHS regulations, we specified nine categories to characterize states’ initiatives. The categories are based on several sources. (See table 3.) Most categories—caregiver compensation, meeting state standards, safety equipment or improvement, caregiver education and training and resource and referral—are based on examples in the law and regulations. Because our analytic framework includes the full range of states’ quality improvement initiatives, including those funded by sources other than CCDF, we identified additional categories based on child care quality literature. On-site training and enhanced inspections were included as categories based on the Department of Defense’s child development program, which has been widely recognized as a model of high quality care. Incentives for achieving accreditation or exceeding standards is a category based on several studies of child care quality improvement strategies that look beyond the scope of activities cited in the law. The final category for other quality-related activities included initiatives that may be unique to a state and those that may foster the availability of high quality care, such as strategies that provide consumer education or increase parental choice. Because activities to provide comprehensive consumer education to parents and the public and increase parental choice were not included among the activities noted by the law or HHS regulations as designed to improve child care quality, we did not include these activities in our framework. However, states were free to report these or other quality-related activities when they construed them as such. Prior to and since CCDF’s creation, a large body of research on child care that included an analysis of its effects on children’s development has been accumulating. In 1990, the National Research Council assessed this research, focusing on the costs, effects and feasibility of child care policies and programs. As part of this assessment, the council concluded that child care quality is linked to children’s development.