Welfare Reform: States' Efforts to Expand Child Care Programs (Letter
Report, 01/13/98, GAO/HEHS-98-27).

Pursuant to a congressional request, GAO reviewed states' implementation
of child care subsidy programs, focusing on: (1) how much federal and
state funding is being spent on child care subsidy programs and how they
are allocating these resources among welfare families, families making
the transition from welfare to work, and working poor families; (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
welfare reform.

GAO noted that: (1) the seven states it reviewed have used federal and
state funding to increase overall expenditures on their fiscal year (FY)
1997 child care subsidy programs, with increases ranging from about 2
percent to 62 percent over FY 1996 expenditures; (2) six of the seven
states also reported an increase in the number of children served under
these programs, although detailed data on the extent of this expansion
are not available; (3) all seven states expected to meet the FY 1997
child care needs of families required to work under welfare reform and
those of families transitioning off welfare; (4) states vary, however,
in the extent to which they will provide subsidies to nonwelfare,
working poor families, and all seven states are unable to fund child
care for all families meeting the federal eligibility criteria who might
benefit from such assistance; (5) to allocate their limited resources,
states are controlling access to their child care programs through
various state-defined criteria or by the manner in which they distribute
subsidies to families; (6) the seven states' ability to meet child care
needs beyond FY 1997 is unknown and will depend partially on future
state funding levels for child care as well as changes in demand for
child care subsidies resulting from welfare reform's work participation
requirements; (7) to meet the future demand for child care among welfare
families required to work and to address existing difficulties with
finding certain types of child care, states have initiated various
efforts to expand the supply of providers; (8) the seven states report
that the supply of child care providers will generally be sufficient to
meet the needs of welfare parents required to work; (9) however, in the
future, additional providers may be needed as states comply with
increasing numbers of welfare families become employed; (10) the seven
states do not know whether their efforts to expand the supply of
providers will be sufficient to meet the increased demand expected to
result from welfare reform; (11) as state child care subsidy programs
expand, some states are making incremental changes to strengthen their
standards for child care providers; (12) some child care advocates and
officials remain concerned that efforts to expand the supply of
providers will result in larger numbers of children in care of unknown
quality; and (13) the effect of welfare reform on states' efforts to
protect children in child care still needs to be assessed.

--------------------------- Indexing Terms -----------------------------

 REPORTNUM:  HEHS-98-27
     TITLE:  Welfare Reform: States' Efforts to Expand Child Care 
             Programs
      DATE:  01/13/98
   SUBJECT:  Child care programs
             Welfare recipients
             Public assistance programs
             Block grants
             State-administered programs
             Subsidies
             Standards evaluation
             Disadvantaged persons
             Eligibility criteria
             Funds management
IDENTIFIER:  Child Care and Development Block Grant
             Job Opportunities and Basic Skills Training Program
             HHS Temporary Assistance for Needy Families Program
             Aid to Families with Dependent Children Program
             Head Start Program
             Texas
             California
             Connecticut
             Louisiana
             Maryland
             Oregon
             Wisconsin
             
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Cover
================================================================ COVER


Report to the Ranking Minority Member, Subcommittee on Children and
Families, Committee on Labor and Human Resources, U.S.  Senate

January 1998

WELFARE REFORM - STATES' EFFORTS
TO EXPAND CHILD CARE PROGRAMS

GAO/HEHS-98-27

Welfare Reform and Child Care

(106907)


Abbreviations
=============================================================== ABBREV

  AFDC - Aid to Families With Dependent Children
  APWA - American Public Welfare Association
  CCDBG - Child Care and Development Block Grant
  CCDF - Child Care and Development Fund
  CCR&R - child care resource and referral agency
  HHS - Department of Health and Human Services
  JOBS - Job Opportunities and Basic Skills Training program
  NICHD - National Institute of Child Health and Human Development
  SMI - state median income
  TANF - Temporary Assistance for Needy Families

Letter
=============================================================== LETTER


B-276385

January 13, 1998

The Honorable Christopher J.  Dodd
Ranking Minority Member
Subcommittee on Children and Families
Committee on Labor and Human Resources
United States Senate

Dear Senator Dodd: 

Under welfare reform legislation passed in 1996, many more welfare
families, including those with very young children, will be expected
to seek and keep jobs than ever before.  The Personal Responsibility
and Work Opportunity Reconciliation Act of 1996 (P.L.  104-193) made
sweeping changes to national welfare policy by ending the Aid to
Families With Dependent Children (AFDC) program, under which $19.9
billion in payments were made in calendar year 1996 to a monthly
caseload of about 4.6 million families with about 8.7 million
children.  In its place, the act created Temporary Assistance for
Needy Families (TANF) block grants, which provide federal funds to
states to help needy families.  To avoid financial penalties, states
must place 25 percent of adults receiving TANF benefits in work and
work-related activities in fiscal year 1997.  This required
participation rate rises to 50 percent in fiscal year 2002,
representing a much more stringent work requirement than existed
under previous law. 

Recognizing the important role that child care plays in helping
families support themselves through work, the Congress revised
existing child care subsidy programs to provide states greater
flexibility in developing programs that support low-income parents'
work efforts.  The new law 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.\1 Although named CCDBG in the legislation, this program
is now called the Child Care and Development Fund (CCDF).  This block
grant will make up to about $20 billion in federal funds available to
the states for child care programs between fiscal years 1997 and
2002.  These changes are expected to increase opportunities for
states to support low-income parents' efforts to work by operating
child care programs for all eligible families--including both welfare
and nonwelfare families--through one integrated system rather than
through several separate programs. 

The act's sweeping changes raise many questions about how states will
implement subsidy programs to help an increasing number of low-income
families meet their child care needs.  To provide information on
states' programs, you asked us to determine (1) how much federal and
state funds states are spending on child care subsidy programs and
how they are allocating these resources among welfare families,
families making the transition from welfare to work, and working poor
families; (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 welfare reform. 

To respond to this request, we focused on the efforts of seven
states--California, Connecticut, Louisiana, Maryland, Oregon, Texas,
and Wisconsin--to modify their child care subsidy programs under the
new welfare reform law.  These states represent a range of
socioeconomic characteristics, geographic locations, and experiences
with state welfare reform initiatives.  In addition, we reviewed
information about the child care subsidy programs of all 50 states
and the District of Columbia contained in the new CCDF plans they
submitted to the Department of Health and Human Services (HHS).\2 We
performed our work between December 1996 and October 1997 in
accordance with generally accepted government auditing standards. 
See appendix I for further discussion of our methodology. 


--------------------
\1 Three of the four child care programs--(1) AFDC/Job Opportunities
and Basic Skills Training program (JOBS) child care, which provided
child care assistance to welfare families involved in work or
approved education or job training activities; (2) Transitional Child
Care, which provided 1 year of child care assistance to families
leaving AFDC because of employment; and (3) At-Risk Child Care, which
assisted low-income working families who were deemed to be at risk of
becoming dependent on welfare without child care assistance--were
repealed.  The new law modified the fourth existing child care
program, the CCDBG, which previously had assisted families with
incomes at or below 75 percent of the state median income who were
working or in approved education and training. 

\2 For convenience, we count the District of Columbia as one of "51
states" in sections of this report that discuss information from the
District and the 50 states' CCDF plans. 


   RESULTS IN BRIEF
------------------------------------------------------------ Letter :1

The seven states we reviewed have used federal and state funding to
increase overall expenditures on their fiscal year 1997 child care
subsidy programs, with increases ranging from about 2 percent to 62
percent over fiscal year 1996 expenditures.  Six of the seven states
also reported an increase in the number of children served under
these programs, although detailed data on the extent of this
expansion are not available.  All seven states expected to meet the
fiscal year 1997 child care needs of families required to work under
welfare reform and those of families transitioning off welfare.  The
states vary, however, in the extent to which they will provide
subsidies to nonwelfare, working poor families, and all seven states
are unable to fund child care for all families meeting the federal
eligibility criteria who might benefit from such assistance.  To
allocate their limited resources, states are controlling access to
their child care programs through various state-defined criteria or
by the manner in which they distribute subsidies to families.  The
seven states' ability to meet child care needs beyond fiscal year
1997 is unknown and will depend partially on future state funding
levels for child care as well as changes in demand for child care
subsidies resulting from welfare reform's work participation
requirements. 

To meet the future demand for child care among welfare families
required to work and to address existing difficulties with finding
certain types of child care, states have initiated various efforts to
expand the supply of providers.  These efforts include new provider
recruitment; fiscal incentives for providers and businesses to
establish or expand child care facilities; and initiatives to
increase the use of early childhood development and education
programs, such as Head Start and prekindergarten programs, as
partners in child care delivery.  For now, the seven states report
that the supply of child care providers will generally be sufficient
to meet the needs of welfare parents required to work.  However, in
the future, additional providers may be needed as states comply with
the work participation requirements of federal welfare reform and
increasing numbers of welfare families become employed.  The seven
states do not know whether their efforts to expand the supply of
providers will be sufficient to meet the increased demand expected to
result from welfare reform. 

As state child care subsidy programs expand, some states are making
incremental changes to strengthen their standards for child care
providers.  For example, Texas plans to increase the minimum number
of staff required at licensed child care centers between 1997 and
1999.  Also, some states are conducting criminal background checks on
providers generally exempt from regulation and licensing to better
ensure the health and safety of children in this informal type of
care.  Nonetheless, some child care advocates and officials remain
concerned that efforts to expand the supply of providers will result
in larger numbers of children in care of unknown quality.  The effect
of welfare reform on states' efforts to protect children in child
care still needs to be assessed. 


   BACKGROUND
------------------------------------------------------------ Letter :2

The cost of child care often creates an employment barrier for
low-income parents attempting to support their families through work. 
To help low-income families meet their child care needs, the Congress
authorized four child care subsidy programs between 1988 and the
passage of the new welfare reform legislation.  Under three of these
programs--AFDC/JOBS Child Care, Transitional Child Care, and At-Risk
Child Care--states were entitled to receive federal matching funds
based on their own expenditures.  States could receive matching
federal funds through an open-ended entitlement for AFDC/JOBS and
Transitional Child Care expenditures but were limited in the amount
of matching federal funds for expenditures on At-Risk Child Care. 
For the fourth program--the CCDBG--states received capped federal
allocations without state spending requirements.  Under the previous
child care programs, federal and state program guidelines determined
that AFDC clients were entitled to child care assistance if they met
the necessary work, education, or training requirements or left AFDC
because of employment, while non-AFDC clients received child care
subsidies if funds were available.  Funding from federal and state
governments for these four child care programs totaled about $3.1
billion in fiscal year 1995, the most recent year for which data were
available. 

Our previous work has suggested that child care subsidies can be an
important factor in poor mothers' decisions to find and keep jobs.\3
Yet we found that the multiple and conflicting requirements of the
four previous programs discouraged states from creating systems that
gave continuous help with child care needs as families' welfare
status changed.  In addition, in part because of state budget
constraints, states often emphasized meeting the needs of welfare
families, who were entitled to subsidies, rather than those of
nonwelfare families who, although not entitled to aid, were often at
risk of losing their jobs and going on welfare because of lack of
assistance with child care costs. 

The new 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, which is
an increase from 75 percent under previous law.  This consolidated
program with one set of eligibility criteria primarily based on
income affords greater opportunities for a state to operate an
integrated child care system.  Such a system, often called a seamless
system, could enable all potentially eligible families--welfare
clients whose welfare status may change over time as well as families
who do not receive welfare benefits--to access program services under
the same procedures, criteria, and requirements.  Such programs could
enhance parents' abilities to achieve and maintain self-sufficiency
and promote continuity of care for their children.\4

The CCDF provided states with about $3 billion in federal funds in
fiscal year 1997--$605.7 million more than was available in 1996
under previous law.  In the future, the amount of federal CCDF funds
available could rise from about $3.1 billion in fiscal year 1998 to
about $3.7 billion in fiscal year 2002.  Each state's yearly federal
allocation consists of separate discretionary, mandatory, and
matching funds.\5 A state does not have to obligate or spend any
state funds to receive CCDF discretionary and mandatory funds. 
However, to receive matching funds--and, thus, its full CCDF
allocation--a state must maintain its expenditure of state funds for
child care programs at specified previous levels and spend additional
state funds above those levels.\6 As figure 1 shows, states are
entitled to receive a total of about $2.2 billion in federal
discretionary and mandatory funds without spending any of their own
funds.  An additional $723 million in federal matching funds is
available for states that continue child care investments from their
funds.  If states obligated or spent the state funds necessary to
receive their full allocation, the various CCDF funding streams would
make a total of about $4.4 billion in federal and state funds
available for state child care programs in fiscal year 1997. 

   Figure 1:  CCDF Funds Available
   for Fiscal Year 1997

   (See figure in printed
   edition.)

Note:  In millions.  Percentages do not add to 100 because of
rounding.  Total = $4,355 million. 

Source:  Administration for Children and Families, HHS. 

The CCDF provision that states may provide child care assistance to
families whose income is as high as 85 percent of the state median
income (SMI) allows states to assist families at both the lowest and
more moderate income levels.  Nationwide, for fiscal year 1997, 85
percent of SMI for a family of four ranged from a low of $31,033 in
Arkansas (1.93 times the federal poverty level) to a high of $52,791
in Connecticut (3.29 times the federal poverty level).\7 At the same
time, the CCDF requires states to use at least 70 percent of their
mandatory and matching funds to provide child care to welfare
recipients, those in work activities and transitioning from welfare,
and those at risk of going on welfare.  It also requires that a
substantial portion of discretionary funds and of the remaining 30
percent of mandatory and matching funds be used to assist nonwelfare,
low-income working families.\8

Other provisions of the new welfare law that require states to place
increasing numbers of welfare families in work activities may provide
incentives for states to focus child care resources on welfare
families.  Families now receive assistance through the new TANF block
grants, which have a federally mandated 5-year lifetime limit on
assistance and require that families be working if they have been
receiving TANF benefits for 2 years or longer.\9 In addition, states
risk losing some of their TANF allocations unless they place
specified percentages of welfare families in work activities.  The
new law also required that 25 percent of a state's entire adult TANF
caseload participate in work and work-related activities in fiscal
year 1997, and the required rate increases by 5 percentage points
annually to 50 percent in fiscal year 2002.\10

Along with these requirements, the welfare law provides states the
flexibility to transfer up to 30 percent of their TANF block grant
allocations to the CCDF, or use TANF funds directly for child care
programs.\11 In addition, states may spend more state funds for child
care than the amount required in order to draw down the federal
funds.  The new welfare reform law requires states to spend at least
4 percent of their CCDF expenditures on activities to improve the
quality and availability of child care and to limit their
administrative costs to 5 percent of their funds. 


--------------------
\3 Child Care:  Child Care Subsidies Increase Likelihood That
Low-Income Mothers Will Work (GAO/HEHS-95-20, Dec.  30, 1994). 

\4 Child Care:  Working Poor and Welfare Recipients Face Service Gaps
(GAO/HEHS-94-87, May 13, 1994). 

\5 A state's discretionary fund is allotted according to formulas
specified in the CCDBG Act while its mandatory allocation is based on
the federal share of its expenditures for AFDC/JOBS Child Care,
Transitional Child Care, and At-Risk Child Care for fiscal year 1994
or 1995 or the average of fiscal years 1992-94.  The matching fund is
distributed on the basis of the former At-Risk Child Care formula. 
The Congress appropriated $13.9 billion in mandatory and matching
funds for fiscal years 1997 to 2002.  During the same period, an
additional $6 billion in discretionary funds is authorized to be
appropriated in annual increments of $1 billion. 

\6 To access federal matching funds, a state must (1) obligate its
entire amount of mandatory funds by the end of the fiscal year; (2)
maintain state child care expenditures at its 1994 or 1995 level
(whichever was higher) for its AFDC/JOBS Child Care, Transitional
Child Care, and At-Risk Child Care programs; and (3) spend additional
state funds. 

\7 As of Mar.  1997, the federal poverty level for a family of four
was $16,050 in the 48 contiguous states and the District of Columbia,
$20,070 in Alaska, and $18,460 in Hawaii. 

\8 Although the CCDF will require states to report to HHS on this
issue in the future, the data are not yet available to show whether
welfare or other low-income families are being served.  HHS is not
providing guidance to the states on how to distribute these funds,
nor does it intend to regulate beyond the statutory requirements on
this issue. 

\9 According to HHS officials, many states have time limits of
between 2 and 5 years, and some states have implemented work
requirements to begin earlier than the federal 2-year limit. 

\10 A separate and much higher minimum work participation rate is
specified for two-parent families:  75 percent in fiscal year 1997,
rising to 90 percent in fiscal year 1999.  States' minimum work
participation rates are lowered if their welfare caseloads decrease. 
Specifically, each state's minimum participation rates are reduced by
an amount equal to the number of percentage points by which the
state's welfare caseloads have declined since fiscal year 1995. 

\11 TANF funds that are transferred become part of the CCDF, and all
CCDF rules apply to the use of those funds.  TANF funds used directly
for child care and not transferred to the CCDF are subject to TANF
time limits and work participation requirements.  Further, TANF funds
used directly for child care are not subject to CCDF requirements,
including health and safety standards for providers. 


   STATES ARE EXPANDING CHILD CARE
   SUBSIDY PROGRAMS FOR LOW-INCOME
   FAMILIES
------------------------------------------------------------ Letter :3

All seven states we reviewed are expanding their child care subsidy
programs to assist low-income families with their child care needs. 
Between fiscal years 1996 and 1997, each of the seven states
increased its overall expenditures on child care subsidy programs,
with most of them also increasing the number of children served under
these programs.  However, because of limited resources, only some of
the seven states planned to serve all families meeting state
eligibility requirements, while none of them planned to make child
care subsidies available to all families meeting federal eligibility
guidelines who might benefit from such assistance.  To manage their
finite child care resources, these seven states have limited access
to their programs through various means, including family copayments
or limited income eligibility criteria.  In the near term, because of
additional federal funds for child care and declining welfare
caseloads, states expect to meet their welfare-related child care
needs.  However, they are uncertain about meeting future child care
needs because of the unknown impact of increasing work participation
requirements under welfare reform, the capping of federal funds, and
unknown future levels of state funding. 


      STATES ARE EXPANDING CHILD
      CARE SUBSIDY PROGRAMS TO
      MEET CURRENT NEEDS
---------------------------------------------------------- Letter :3.1

In response to welfare reform, the seven states are expanding their
funding for child care programs.  As table 1 shows, combined federal
and state child care funding in the seven states will increase by
about 24 percent, from about $1.1 billion in fiscal year 1996 to
about $1.4 billion in fiscal year 1997. 



                                Table 1
                
                    Combined Federal and State Funds
                 Available for Child Care Subsidies and
                  Associated Costs, State Fiscal Years
                             1996 and 1997

                                                Total federal
                                                  and state
                                                 funding for
                                                states' fiscal
                                                    years
                                                --------------
                                                            FY  Percen
                                                          1997    tage
                                                    FY  (proje  increa
State                                             1996   cted)      se
----------------------------------------------  ------  ------  ------
California                                      $677.6  $855.5      26
Connecticut                                       71.3   101.2      42
Louisiana\a                                       37.2    60.5      62
Maryland                                          54.2  55.1\b       2
Oregon                                            76.0  85.0\c      12
Texas                                            166.0   180.3       9
Wisconsin                                         63.0  87.0\d      38
======================================================================
Total                                           $1,145  $1,424      24
                                                    .3      .6
----------------------------------------------------------------------
Note:  Dollars in millions.  State and federal fiscal years differ. 
Six of the seven states' fiscal years run from July 1 through June
30.  Texas' fiscal year is September 1 through August 31.  The
federal fiscal year is October 1 through September 30. 

\a Louisiana data are for the federal fiscal year. 

\b Maryland's fiscal year 1997 funding is actual. 

\c Includes $17.2 million in TANF funds used for child care. 

\d Includes $13 million in TANF funds used for child care. 

Source:  GAO analysis of data from state child care administrators. 

CCDF provisions allow states to operate their child care programs
exclusively with federal funds, thereby reducing or eliminating the
state funds used for child care and reducing their child care
programs.  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.  Similarly, a July 1997
survey of states by the American Public Welfare Association (APWA)
indicated that 47 of the 48 states that responded were planning to
spend sufficient state funds to draw down all available federal
funds.\12 Table 2 shows the amount of state funds that the seven
states plan to use for child care in their states' fiscal year 1997. 



                          Table 2
          
           Estimated Expenditures of State Funds
             for Child Care Subsidies for State
                      Fiscal Year 1997

                                                 Estimated
                                               expenditure
                                                  of state
                                                  funds in
                                                  state FY
                                 Expenditure          1997
                                    of state     exceeding
                                       funds   expenditure
                                 required to   required to
                     Estimated    obtain all    obtain all
                   expenditure     available     available
                      of state  federal CCDF  federal CCDF
                      funds in      funds in      funds in
                      state FY    federal FY    federal FY
State                     1997          1997          1997
----------------  ------------  ------------  ------------
California              $542.9        $189.1        $353.8
Connecticut               59.8          27.3          32.5
Louisiana                 10.0          10.0             0
Maryland                28.5\a          37.0           0\a
Oregon                    38.1          16.7          21.4
Texas                 67.7\a,b          67.7           0\a
Wisconsin               22.8\a          25.8           0\a
----------------------------------------------------------
Note:  Dollars in millions. 

\a Because state and federal fiscal years sometimes differ, some
states will not spend enough state money during state fiscal year
1997 to receive the full federal allocation during this year. 
However, they expect to spend sufficient state funds to do so by the
end of the next federal fiscal year. 

\b Figure reflects expenditures or obligations of state funds. 

Source:  GAO analysis of data from state child care administrators
and HHS. 

States are expanding their child care programs through various
combinations of federal and state funds.  Texas and Louisiana will
increase state funding for child care during federal fiscal year 1997
to obtain their full allocation of federal CCDF funds.  California,
Connecticut, and Oregon have also increased their state funding and
will exceed the amount required to maximize their federal CCDF
allocation.\13 Nationwide data from the APWA survey show that 20 of
48 responding states have appropriated or plan to appropriate state
funds beyond the levels necessary to obtain their full federal CCDF
allocations.\14

Some states are using the flexibility provided under welfare reform
to fund child care programs.  For those states that have experienced
welfare caseload declines in recent years, more funds are available
per family in fiscal year 1997 from TANF than were available from
AFDC, Emergency Assistance, and JOBS before welfare reform because
federal TANF allocations are based on previous federal expenditures
in the state for these programs.  While Wisconsin will expand its
child care funding by 38 percent between state fiscal years 1996 and
1997, the increase will come from federal, not state, funding
sources.  Because of significant declines in TANF caseloads over the
last few years, Wisconsin will use $13 million directly from its TANF
block grant for child care.  Similarly, Oregon, another state that
has recently experienced substantial welfare caseload declines, plans
to use $17.2 million directly from its TANF block grant for child
care during state fiscal year 1997.  Other states, including Texas,
Connecticut, and California, also expect to use some TANF funds for
child care programs in the future.\15 Similarly, 12 of 48 states
responding to the APWA survey indicated they would transfer TANF
funds to the CCDF; 2 said they would spend money for child care
directly from the TANF block grant; and 1 plans to transfer some TANF
funds to the CCDF and use some TANF funds directly on child care
programs.\16

According to child care officials, additional child care funds from
these various federal and state sources have allowed most of the
seven states to expand the number of children served under their
child care subsidy programs.  Detailed data on the number of children
served in fiscal years 1996 and 1997 that are comparable across all
seven states are not available.  However, some data indicate that six
of the seven states reviewed increased the number of children served
under these programs by an average of about 17 percent between fiscal
years 1996 and 1997.  Only Maryland experienced a decrease in the
number of children served under its child care programs during this
period.  According to a Maryland child care official, the decreased
number of children resulted from an unexpected decline in AFDC
caseloads combined with cost containment measures that froze non-AFDC
child care in an effort to reduce a projected deficit.  Although the
state had some additional funds available for child care, they were
not sufficient to both cover the increased costs of child care and
provide benefits to additional families. 


--------------------
\12 John Sciamanna and Elena Lahr-Vivaz, The Child Care Challenge: 
States Leading the Way (Washington, D.C.:  Government Affairs
Department, APWA, July 1997), p.  1. 

\13 According to Connecticut officials, state funds represent about
95 percent of the increase in Connecticut's total child care
expenditure between state fiscal years 1996 and 1997. 

\14 Sciamanna and Lahr-Vivaz, p.  2. 

\15 California expects to expend about $114 million of TANF funds on
child care in state fiscal year 1997-98. 

\16 Sciamanna and Lahr-Vivaz, p.  2. 


      STATES USE VARIOUS MEANS TO
      ALLOCATE LIMITED CHILD CARE
      RESOURCES
---------------------------------------------------------- Letter :3.2

Even though the seven states are expanding their programs, they are
still unable to provide child care subsidies for all families meeting
federal eligibility criteria who might benefit from such assistance. 
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.\17 To allocate resources, states have controlled access to
their child care subsidy programs through state-defined criteria or
by the manner in which they distribute child care subsidies to
families.  Key factors that states are using to allocate their
program resources include the following: 

  -- setting maximum family income for eligibility,

  -- requiring family copayments,

  -- providing guarantees, or entitlements, to specific groups,

  -- establishing priorities for specific groups,

  -- committing state resources to specific groups,

  -- establishing provider reimbursement rates, and

  -- instituting time-limited benefits. 

For additional information on how the seven states' programs use
these key factors to control access to child care subsidies, see
appendix III.  In addition, states may close programs to new
applicants or maintain long waiting lists when their resources do not
meet the demand for child care services. 


--------------------
\17 Sharon Long and Sandra Clark, The New Child Care Block Grant: 
State Funding Choices and Their Implications (Washington, D.C.:  The
Urban Institute, July 1997).  The researchers made the following
assumptions:  (1) income eligibility was based on the number of
families with incomes less than 150 percent of the federal poverty
level in the 1996 Current Population Survey, a figure that
encompasses most, but not all, eligible families; (2) an
approximation of the number of children in paid child care
arrangements was based on the number of children in low-income
working families using nonrelative care in the 1992-93 Survey of
Income and Program Participation; and (3) families in the current
AFDC caseload who have earnings are all working the number of hours
required under welfare reform law.  However, according to the
researchers, since some of the families in the current AFDC caseload
with earnings will likely need to increase their hours worked, the
study underestimates the increased need for child care under welfare
reform. 


         INCOME ELIGIBILITY
         CRITERIA AND COPAYMENTS
         ARE KEY FACTORS USED TO
         LIMIT PROGRAM ACCESS
-------------------------------------------------------- Letter :3.2.1

Income eligibility criteria and family copayments for child care are
important means of limiting program access.  Although the CCDF allows
states to extend eligibility for subsidized child care to families
earning up to 85 percent of SMI, not all states extend their
eligibility to this level.  Of the seven states, only Oregon has
established income eligibility limits that allow subsidies for
families with incomes this high.  Louisiana will increase its
eligibility to this level in fiscal year 1998. 

Income eligibility criteria can be misleading, however, since
eligibility does not guarantee access to services.  States with a
relatively high income ceiling may not actually provide services to
many families at the high end of the eligible income range.  Because
states use other factors in combination with their income eligibility
criteria to allocate resources, even though families apply and have
incomes below the state established ceiling, they may not obtain
child care subsidies. 

For example, states also use family copayments for child care
services to control access to child care subsidies and manage child
care funds.  Copayments from subsidized families can help states
offset some of the costs of child care subsidies and thereby increase
the number of families that states can afford to serve.  In addition,
some child care officials believe that copayment requirements,
particularly for welfare families who also face work participation
requirements, reinforce the concepts of self-sufficiency and
responsibility for managing household budgets.  According to some
child care experts, however, if the family share of the cost of child
care is too high a percentage of household income, a family may not
be able to afford subsidized child care even if it is eligible under
state eligibility rules.  In some instances, the required copayment
may ultimately become so large that families seek child care outside
the state subsidized system. 

Wisconsin and Oregon both rely primarily on income as a means of
determining eligibility for child care subsidies.  Wisconsin has
established relatively low entry-income eligibility criteria, coupled
with copayments designed to make subsidized child care accessible to
all eligible families.  Wisconsin lowered its entry-income
eligibility level, which was 75 percent of SMI before welfare reform,
to about 53 percent of SMI for a family of three under the CCDF.\18
In addition, Wisconsin's copayments range from 6 to 16 percent of a
family's gross income in an effort to make the program more
affordable for all eligible families.  With these new program
requirements, Wisconsin expects to serve all income-eligible families
with no waiting lists, in accordance with its welfare-to-work
philosophy, which bases aid on parents' demonstrated efforts toward
self-support. 

In Oregon, where welfare reform efforts are also focused on
self-sufficiency for all low-income families, eligibility for child
care subsidies has been extended to three-person families with income
up to 85 percent of SMI.  This relatively high entry-income
eligibility is offset, however, by a relatively high family copayment
level that discourages higher-income families from remaining in the
subsidized child care program.  Here, the family copayment
requirements rise as incomes rise and can ultimately reach over 30
percent of family income.  Given current budget constraints, Oregon
officials said that the copayment serves to effectively target child
care subsidies to the state's poorest families, who pay
proportionately lower copayments. 

Wisconsin and Oregon's child care programs, which are primarily based
on income eligibility, are integrated, seamless programs that enable
all potentially eligible families to access program services under
the same procedures, criteria, and requirements.  The CCDF gives
states the opportunity to create and operate such seamless child care
programs to accommodate their work-based welfare reform efforts. 
Unlike the previous four federal child care funding programs, which
segmented working low-income families into different service
categories on the basis of welfare status, the CCDF provides
flexibility that allows states to eliminate such artificial
distinctions and create integrated programs that serve all families
in similar economic circumstances.\19 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. 

In addition to the seven states we reviewed, other states also appear
to be moving toward the creation of seamless programs.  A study of
child care in the 10 states with the largest welfare populations
found that 3 of these states--Illinois, Michigan, and
Washington--plan to develop child care programs with eligibility
primarily based on income.\20 In these three states, all families
with income under state-established income ceilings will be eligible
for subsidized child care, regardless of their welfare status. 


--------------------
\18 Some states, including Wisconsin, have more generous income
eligibility levels for families who are already in their child care
program.  Wisconsin families may remain in the state's subsidized
system until their income exceeds about 65 percent of SMI. 

\19 We previously reported on problems with such service gaps and
artificial distinctions in GAO/HEHS-94-87, May 15, 1994. 

\20 See Margy Waller, Welfare-To-Work and Child Care:  A Survey of
the Ten Big States (Washington, D.C.:  The Progressive Policy
Institute, July 1997). 


         SOME STATES WILL GIVE
         PRIORITY TO WELFARE AND
         FORMER WELFARE FAMILIES
-------------------------------------------------------- Letter :3.2.2

Some of the seven states we reviewed will continue to provide
subsidies that target different groups of low-income families. 
Although all seven states expect their child care resources to be
sufficient to meet welfare-related child care needs in fiscal year
1997, they vary in the extent to which they can provide subsidies to
the nonwelfare working poor.  For the near term, Louisiana, Maryland,
Oregon, and Wisconsin report that they have sufficient funds to serve
all families who seek services and meet state eligibility
requirements, and, to date, they have not had to decide how to
allocate funds among the different low-income groups.  However,
according to Louisiana state officials, many nonwelfare, working poor
families are not aware that the state's child care waiting lists have
been eliminated and that they are eligible for subsidies under this
program.  Therefore, many eligible Louisiana families may not yet
have applied for child care subsidies, and the demand could exceed
the state's resources in the near future. 

The remaining states--California, Connecticut, and Texas--said they
have insufficient resources and are not currently serving all
nonwelfare families who meet individual state eligibility
requirements.  California allocates funds specifically for
welfare-related child care and although revising its separate
programs into one child care system as of January 1998, still expects
to operate distinct components for its welfare and nonwelfare
populations.  Because California's resources are limited, it has over
200,000 families--mostly the nonwelfare working poor--on its waiting
list for child care subsidies, and families may wait up to 2
years.\21 Texas operates one child care program funded by multiple
funding streams that are essentially invisible to clients and child
care providers.  However, Texas targets portions of its funds to
current and former welfare recipients and provides greater access to
care for some groups, such as JOBS participants.  Texas' waiting list
for subsidized child care contained about 37,000 children as of June
1997. 

Although it plans to create a seamless child care program in the
future, Connecticut currently operates three separate subsidy
programs for welfare-related child care and serves its nonwelfare
population through a fourth program that pays higher subsidy rates. 
However, because of limited resources, Connecticut's nonwelfare child
care program has been closed to applicants since 1993, except for two
periods when about 5,000 new applicants were processed, although not
all were approved.\22


--------------------
\21 This count may overstate the need because families who already
receive TANF child care may also be on these waiting lists for care
received through a program component targeted to nonwelfare families. 
Also, children may be double-counted if families have registered them
for care in more than one location.  California officials noted that
the state intends to fully fund the child care necessary for welfare
recipients to participate in welfare-to-work activities and to
transition to work. 

\22 Connecticut's program for nonwelfare families has remained open
for teen parents completing high school and for families who
exhausted their 12 months of transitional child care. 


         REIMBURSEMENT RATES AND
         TIME LIMITS ARE ALSO USED
-------------------------------------------------------- Letter :3.2.3

States also manage child care funds by limiting reimbursement rates
for providers.  The AFDC/JOBS Child Care, Transitional Child Care,
and At-Risk Child Care programs required states to conduct biennial
market surveys to establish reimbursement rates for providers.\23

However, although states conducted these surveys as required, some
reimbursed providers on the basis of relatively old surveys.  Lower
reimbursement rates allow states to provide subsidies to more
families than they could serve if current market rates were used. 
However, according to some researchers, reimbursement policies can
make a difference in parents' child care options, particularly in how
easily parents can obtain care and in how willing providers are to
accept children who receive subsidies.\24

At the time of our review, of the seven states reviewed, only
Wisconsin and California were using the most current market rate
surveys--those conducted in 1996--to establish reimbursement rates
for their providers.  Although the remaining five states were basing
provider rates on market surveys conducted in 1991 or 1992, three had
already updated or intended to update these surveys, while one
indicated that it might revise its rate-setting methodology in the
future.  HHS is proposing that states also conduct biennial market
surveys for the new CCDF and that they base rates for any 2-year
period on surveys conducted not earlier than the previous 2-year
period. 

Finally, at least one of the seven states is considering instituting
time limits so more families have the opportunity to benefit from
child care subsidies.  Although some states have time limits for
specific types of care, none of the seven states categorically limits
the number of years a family can receive child care subsidies.  In
fact, some states have removed previous limits on the length of time
that families transitioning from welfare can receive subsidies.  In
these states, if a subsidized family never exceeds the state's
maximum income eligibility criteria, it may continue to receive
subsidies for years--until its youngest child becomes too old for
program benefits, providing continuity of care for this family. 
However, with limited resources available, other families may be
excluded from such benefits. 


--------------------
\23 Although the requirement for a state survey did not apply to the
former CCDBG, some states used these same surveys for setting rates
for CCDBG programs. 

\24 See Helen Blank, "Child Care in the Context of `Welfare Reform,'"
Child Care in the Context of Welfare "Reform" (New York City:  Cross
National Studies Research Program, Columbia University School of
Social Work, 1997). 


      STATES' ABILITY TO MEET
      FUTURE CHILD CARE NEEDS IS
      UNKNOWN
---------------------------------------------------------- Letter :3.3

The seven states reported that increased federal funds for child care
and declining welfare caseloads were helping them expand their child
care subsidy programs this fiscal year.  Also, some states with
declining welfare caseloads have additional TANF funds this year that
they can use for child care subsidies.  As a result, states reported
that they could meet the immediate child care needs of welfare
families and those of at least some other low-income families. 

The states' ability to fund child care programs adequately in the
long term, however, remains unknown.  It will depend on the impact of
various factors on the demand for child care--such as the size of
TANF caseloads and work participation rates--as well as on future
levels of federal and state child care funding.  Although TANF
caseloads have generally been falling, this trend may not continue. 
Also, TANF's requirement that states place increasingly higher
percentages of their caseloads in work activities, combined with the
capping of federal child care funds, could strain the states'
capacity to expand child care programs in future years.  Moreover, in
the longer term, states may face additional pressures to provide
child care assistance to support working families who are no longer
eligible for time-limited federal cash assistance under TANF.  As
demand for child care subsidies increases, states will have to make
difficult decisions about the levels and allocations of scarce
resources.  These pressures could be mitigated by any funds that
become available from further possible reductions in TANF caseloads
or from healthy state economies that increase the seven states'
revenues. 

Most of the seven states had not established funding levels for child
care subsidy programs beyond 1997 at the time of our review, so their
ability to meet future child care needs has not been determined.\25
The effect of welfare reform's work participation rates on demand for
subsidized child care will not fully materialize for several years. 
The challenges states will face in meeting the required work
participation rates will vary on the basis of previous welfare
caseload reduction and current work participation levels among their
welfare caseloads.  For example, Oregon and Wisconsin have already
experienced significant caseload reductions and, as a result, will
face lower participation requirements, as allowed under TANF
rules.\26 Moreover, these states already have a higher proportion of
their welfare caseloads in welfare-to-work activities than do the
other states reviewed.  The other states, such as California, have
experienced smaller percentage reductions in their caseloads and have
placed proportionately fewer participants in welfare-to-work
activities. 


--------------------
\25 In fall 1997, Wisconsin approved a state budget that will provide
$177 million for child care in 1998-99, a tripling of the funds
available at the beginning of fiscal year 1996-97. 

\26 In any given year, the participation rate that a state must meet
is reduced by the number of percentage points its caseload has fallen
between that year and fiscal year 1995. 


   STATES ARE INITIATING EFFORTS
   TO ENSURE ADEQUATE SUPPLY OF
   PROVIDERS
------------------------------------------------------------ Letter :4

The seven states we reviewed expect demand for child care subsidies
to increase under welfare reform as more families become subject to
work requirements and as states attempt to provide assistance to
other nonwelfare working poor families.  These states also recognize
that certain types of child care arrangements on which working
welfare families are likely to rely, such as those involving infants
or nonstandard hours, are already scarce in some areas. 
Consequently, they have initiated a variety of efforts to expand
their supply of providers.  In addition, the states expect that
informal child care arrangements will remain an important child care
option for many low-income working families.  Although the provider
supply appears to be adequate to meet families' immediate needs, the
states do not know whether it will be adequate to meet low-income
families' long-term child care needs. 


      DEMAND FOR CHILD CARE
      SUBSIDIES IS EXPECTED TO
      INCREASE UNDER WELFARE
      REFORM
---------------------------------------------------------- Letter :4.1

As we previously reported, more welfare participants are likely to
need child care assistance as states try to meet the new work
participation requirements under welfare reform.\27 The child care
administrators in the seven states we reviewed also expect this to
occur.  Although most of the states have not formally estimated how
much the demand for child care is expected to increase over the next
few years, some data suggest that the increase could be significant. 
For example, in the seven states, several of which had initiated
their own welfare reform efforts before federal welfare reform, the
number of children served by the federally funded Transitional Child
Care program for families leaving welfare because of employment grew
from 21,112 to 27,673--about 31 percent-- between fiscal years 1993
and 1995.  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 from 9,005 to 21,322--137 percent--from July 1992 to
February 1997.\28 Connecticut has estimated that an additional 5,000
TANF-related families will need child care assistance during its next
two fiscal years, and Maryland estimates the number of families
needing child care will more than double from 1997 to 1999.  Oregon,
Texas, and Wisconsin sometimes offer child care assistance in lieu of
immediate cash benefits to families who apply for welfare. 


--------------------
\27 Welfare Reform:  Implications of Increased Work Participation for
Child Care (GAO/HEHS-97-75, May 29, 1997), pp.  1, 4, 5. 

\28 Oregon's Employment-Related Day Care program served both families
who left AFDC for employment and nonwelfare low-income working
families. 


      SOME TYPES OF CHILD CARE ARE
      IN SHORTER SUPPLY
---------------------------------------------------------- Letter :4.2

Although six of the seven states expect that the general supply of
child care will be adequate to meet short-term needs, all the states
reported that certain types of child care already can be difficult to
find.  These types include child care for infants, sick children, and
children with special needs, as well as child care during nonstandard
hours or in rural areas.  According to some child care
administrators, child care providers are less inclined to offer these
types of care for various reasons.  For example, providing infant
care can involve more staff-intensive or less profitable
arrangements.  We previously reported that shortages of such types of
child care can make it difficult to meet the child care needs of
working welfare families.\29

Some child care administrators are concerned that the work
participation requirements of federal welfare reform could
particularly exacerbate existing problems in finding infant care. 
Under federal welfare reform legislation, states may opt to exempt
single welfare parents with infants under 1 year old from work
participation requirements.  Four of the seven states we
reviewed--Connecticut, Louisiana, Maryland, and Texas--have chosen to
grant such an exemption.  In contrast, Oregon and Wisconsin have
chosen to exempt welfare parents from work requirements only until a
child is 3 months old.  In California, individual counties decide the
child's age up to which parents are exempted from work requirements,
which can range from 3 to 12 months.  Consequently, the demand for
infant child care in these last three states may be greater than in
the four other states. 

Requiring welfare families to work could also increase the demand for
child care during nonstandard work hours.  According to some child
care experts and researchers, many welfare parents, because of their
low job skills and experience, are likely to find jobs in the service
industry, working at hotels, restaurants, hospitals, and discount
department stores where nonstandard hours and shift work are
common.\30 However, child care arrangements corresponding to these
work hours are generally more difficult to find in more regulated
settings, such as child care centers, which generally operate on a
standard business schedule and only during weekdays.\31


--------------------
\29 See Welfare to Work:  Child Care Assistance Limited; Welfare
Reform May Expand Needs (GAO/HEHS-95-220, Sept.  21, 1995), pp.  4-6,
and GAO/HEHS-97-75, May 29, 1997, pp.  8-10. 

\30 Department of Labor, Women's Bureau, Care Around the Clock: 
Developing Child Care Resources Before 9 and After 5 (Washington,
D.C.:  Department of Labor, 1995); Institute for Women's Policy
Research, Welfare to Work:  The Job Opportunities of AFDC Recipients
(Washington, D.C.:  Mar.  1995); C.  Lee, S.  Ohlandt, and A.  Witte,
Parents Receiving Subsidized Child Care:  Where Do They Work? 
(Tallahassee, Fla.:  Florida Children's Forum, 1996). 

\31 We previously reported on difficulties associated with care
during nonstandard hours in GAO/HEHS-95-220, Sept.  21, 1995, and
GAO/HEHS-97-75, May 29, 1997. 


      STATES ARE ADDRESSING
      SHORTAGES AND PREPARING FOR
      INCREASED DEMAND THROUGH
      VARIOUS INITIATIVES
---------------------------------------------------------- Letter :4.3

Recognizing the challenges of the increasing child care demand among
welfare families required to work and the difficulties in finding
certain types of care, the seven states are pursuing diverse
activities to expand the supply of child care.  The states are
funding these activities in part through the CCDF, which requires
them to spend at least 4 percent of their total allocations on
activities to improve the availability and quality of child care.\32
Planned activities include efforts to recruit new providers, fiscal
incentives to establish or expand child care facilities, and
collaboration with early childhood development and education
programs.  Most of the seven states are also planning to fund
activities that involve or expand child care resource and referral
agencies (CCR&R), organizations that assist states in developing
strategies to increase child care capacity and help families find
child care.  In some of the states, particularly California and
Oregon, local planning organizations are also involved in activities
to expand child care in cooperation with the state.  According to
documents that the 50 states and the District of Columbia submitted
to HHS detailing their plans for implementing programs under the
CCDF, 48 states plan to fund activities involving CCR&Rs. 

All seven states are funding efforts to support and encourage the
entrance of new child care providers into the market.  Specifically,
the seven states plan to fund activities involving training and
technical assistance for existing or potential child care providers. 
In some states, such as California, Oregon, Texas, and Wisconsin,
these programs involve such forms of assistance as offering formal
accreditation and scholarships and helping develop mentor
relationships for child care providers in an attempt to make the
field more attractive to potential entrants.  California funds
separately support training programs targeting providers of care for
school-aged children, care for infants and toddlers, and family child
care.  In Oregon, counties are funneling state grants at the local
level to child care providers for start-up and ongoing program
operations and to CCR&Rs for activities that increase and stabilize
the supply of child care.  These grants emphasize infant and toddler
care, school-aged child care, nonstandard hours care, and extended
day care linked with Head Start or other preschool programs.  Some
states, such as California, Texas, and Wisconsin, are also
experimenting with programs to train TANF recipients to become child
care providers.  These programs aim to help welfare recipients meet
their work participation requirements while simultaneously increasing
the supply of child care providers.  According to the CCDF plans of
the 51 states, California, Connecticut, Maryland, and Wisconsin,
along with 15 other states, plan to offer funds to help child care
providers increase staff compensation.  In addition, all 51 states
plan to fund efforts involving training and technical assistance for
existing or potential child care providers. 

Some states are working to engage the private sector in expanding or
improving the provider supply.  Six of the seven states we reviewed
plan to make grants or loans available to providers or businesses to
establish or expand child care facilities.  For example, Connecticut
has recently established a Child Care Facilities Loan Fund that
provides grants or loans to help providers meet state and local
standards.  The fund offers three loan programs:  tax-exempt bonds
for constructing, renovating, or expanding nonprofit child care
facilities; loan guarantees for capital and noncapital loans; and a
small revolving loan program for noncapital loans.  Connecticut also
offers tax credits for businesses to establish child care facilities
on or near their work sites.  Maryland funds a grant program to help
registered family child care providers comply with regulations and to
enhance or expand their child care services.  The National Conference
of State Legislatures reported a variety of similar approaches that
state lawmakers have used to create incentives for employers to
provide child care assistance and make the work environment
responsive to family needs.  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.\33 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.\34

Finally, some of the seven states are also attempting to expand child
care opportunities through increased collaboration between the child
care community and existing early childhood development and education
programs, such as Head Start and preschool programs.\35 The economic
circumstances of welfare families and families with children eligible
for Head Start or some state-subsidized preschool programs are often
similar.\36 Consequently, many welfare families who are required to
participate in work activities could place their children in such
programs to help meet their child care needs.  However, most Head
Start and preschool programs are not currently structured to meet the
needs of working families.  For example, Head Start programs are
generally open to children between the ages of 3 and 5 and are
half-day, school-year programs, while working welfare families may
have younger children and generally need full-day, year-round
programs.  Similarly, preschool programs are generally open only
during the school year and are restricted to children of certain
ages. 

Some of the seven states' collaborative initiatives involve expanding
local Head Start or other preschool programs so that they offer
services on the full-day, full-year basis that working welfare
parents need.  At the time of our review, several of the seven states
had already received Head Start collaboration grants from HHS to
explore such initiatives, and Head Start received additional funds
for this purpose in fiscal year 1997.\37 However, according to some
child care experts, differences between child care and Head Start
program requirements and philosophies can make such collaboration
difficult. 


--------------------
\32 States support some of these initiatives, including those
involving facility construction, with state funds that are not used
as a match for CCDF funds. 

\33 Shelley L.  Smith, Mary Fairchild, and Scott Groginsky, Early
Childhood Care and Education:  An Investment that Works (Denver,
Colo., and Washington, D.C.:  National Conference of State
Legislatures, Jan.  1997). 

\34 For a detailed discussion of several states' approaches to
helping finance child care facilities, see Anne Mitchell, Louise
Stoney, and Harriet Dichter, Financing Child Care in the United
States:  An Illustrative Catalog of Current Strategies (Kansas City,
Mo.:  Ewing Marion Kauffman Foundation, and Philadelphia, Pa.:  The
Pew Charitable Trusts, 1997), pp.  97-111. 

\35 Head Start is a national, federally funded program that provides
comprehensive developmental and social services for low-income
preschool children and their families.  HHS awards Head Start grants
to local public or private nonprofit agencies to operate local Head
Start programs, which involve education, parental involvement, and
health and social services.  For more information on Head Start, see
Head Start:  Research Provides Little Information on Impact of
Current Program (GAO/HEHS-97-59, Apr.  15, 1997). 

\36 The Head Start Statistical Fact Sheet issued by HHS's Head Start
Bureau reports that 61.9 percent of Head Start families had annual
incomes of less than $9,000 and 77.7 percent had incomes of less than
$12,000 during the 1995-96 operating period.  According to an
estimate by the Congressional Research Service, the median maximum
gross income for the states in July 1996 over which a family would
not be eligible for AFDC benefits was $14,364 for a family of three
and $16,032 for a family of four. 

\37 The Head Start Statistical Fact Sheet reports that, in the
1995-96 operating period, 61 percent of Head Start programs already
provided some child care services directly or through arrangement
with other child care providers. 


      INFORMAL PROVIDERS WILL
      CONTINUE TO BE IMPORTANT IN
      MEETING CHILD CARE NEEDS
---------------------------------------------------------- Letter :4.4

Child care administrators and researchers expect that informal
providers will meet some of the increased demand for child care. 
States differ in their definition of and requirements for informal
providers, many of whom are relatives.  In addition, neighbors and
family friends who provide care in their own or the child's home are
considered informal providers, who are usually subject to fewer
registration, certification, or regulatory requirements than other
more formal child care providers, such as child care centers.\38

In some states, informal care arrangements are widely used by welfare
families.  For example, in Connecticut, state officials estimated
that about 80 percent of welfare families using child care services
used such informal arrangements.  Similarly, state officials in
Oregon estimated that nearly half of their JOBS program clients used
informal care.\39

Regardless of income level or subsidy status, families choose
informal child care arrangements over more formal providers for
various reasons.  Researchers report that some families prefer
informal child care providers because they offer more flexible
arrangements than formal providers--particularly, care during
nonstandard work hours or on weekends.\40 In other instances,
informal providers may be geographically close to parents, solving
transportation problems associated with getting children to and from
their providers.  In addition, some families prefer informal
providers because they are trusted and well known, are willing to
care for infants, or charge lower fees than formal providers.  Some
researchers believe that many welfare families who are required to
work will be more likely to choose informal child care arrangements,
since they are likely to find work during nonstandard work hours,
experience transportation difficulties, need infant care, or earn
less than other parents and be unable to afford more formal
arrangements.\41 Nevertheless, as discussed in the next section, some
child care officials and advocates are concerned about the relative
lack of standards for informal child care providers, despite the
benefits they offer some families. 


--------------------
\38 Not all states subject informal providers to registration
requirements.  As a result, some states maintain few data on the
frequency of, or individuals involved in, these arrangements. 

\39 What we refer to as "informal care" in these two states is
noninstitutional child care arrangements that are not subject to
state licensing or regulatory requirements.  In Connecticut, such
informal care refers to child care provided in a child's own home or
in a relative's home.  In Oregon, such informal care refers to
arrangements involving providers who (1) care for children from one
family only, (2) care for three or fewer children from more than one
family, (3) are relatives of the children cared for, (4) care for
children fewer than 70 days in a calendar year, (5) give care in the
home of a child, or (6) are under age 18. 

\40 Ellen E.  Kisker and Christine M.  Ross, "Arranging Child Care,"
The Future of Children, Vol.  7, No.  1 (Los Altos, Calif.:  Center
for the Future of Children, The David and Lucile Packard Foundation,
spring 1997), and Arthur C.  Emlen and Paul E.  Koren, Patterns of
Flexibility (Portland, Ore.:  Portland State University, for the
Oregon Child Care Research Partnership, Mar.  7, 1997, and Apr.  8,
1997). 

\41 Kisker and Ross, "Arranging Child Care," The Future of Children;
Emlen and Koren, Patterns of Flexibility; and Deborah A.  Phillips,
ed., Child Care for Low Income Families:  Summary of Two Workshops
(Washington, D.C.:  National Academy Press, 1995). 


      STATES' SUCCESS IN EXPANDING
      PROVIDER SUPPLY IS UNKNOWN
---------------------------------------------------------- Letter :4.5

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.  They noted that they have 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.  According to welfare and child care program staff in some
states, instances of parents with problems finding child care
arrangements have involved children with special needs, infants, or
families living in remote locations.  In these cases, some welfare
and child care program staff report that they have generally made
alternative arrangements for parents to meet work requirements,
rather than granting exemptions.  In addition, most of the seven
states are emphasizing the use of CCR&Rs to help families find
suitable child care arrangements.  Therefore, for the near term, the
supply of providers appears adequate to meet demands resulting from
welfare reform. 

In the longer term, however, as the full effects of work
participation requirements materialize and states' welfare reform
programs evolve, the adequacy of the child care supply is uncertain. 
Questions remain about how much child care will actually be needed
and how the child care market will respond over time to increased
demand.  Moreover, it is not yet known how effective the efforts of
these and other states will be in increasing the supply overall and
for those types of care often in short supply. 


   MOST STATES ARE MAINTAINING OR
   INCREASING STANDARDS FOR CHILD
   CARE PROVIDERS
------------------------------------------------------------ Letter :5

Under the new welfare reform law and CCDF regulations, states retain
primary responsibility for the regulation and oversight of child care
providers.\42 As under the former CCDBG, states must still establish
minimum child care standards for CCDF-subsidized care in the areas of
physical premise safety, control of infectious disease, and provider
health and safety training.\43 Some advocates and researchers are
concerned that states may lower standards for providers to ease their
entry into the expanding child care market.  They are also concerned
that welfare families, with their lower incomes and inexperience with
child care choices, may be more likely--or feel pressured by state
policies--to choose informal child care arrangements that are subject
to fewer regulatory requirements than are other types of providers. 
Furthermore, advocates note that informal care arrangements may offer
fewer developmental opportunities for children.\44

Some of the seven states are making incremental changes to their
standards for child care providers as they expand their child care
subsidy programs.  Most of these changes will tend to maintain or
strengthen existing standards.  According to some child care
officials, pressure from the public regarding abuse or neglect in
child care settings is encouraging states to strengthen, rather than
weaken, standards for child care providers.  For example, to
encourage and reward efforts to improve quality, Wisconsin has
initiated a statewide requirement that maximum reimbursement rates
for child care providers be set 10-percent higher for child care
programs accredited as meeting high-quality standards.  Similarly,
APWA reported that its survey of all states showed that quality
standards have generally been maintained and, in many cases,
enhanced. 

Some of the seven states may be making changes in staffing ratios at
child care facilities and in the size of their state regulatory
staff.  For example, Texas officials reported that between 1997 and
1999 they will phase in a new requirement that will increase the
number of staff per child served at licensed child care centers.  As
of September 1997, the ratio of staff to infants changed from one
staff person for five infants up to 6 months old to one staff person
for four infants.  In September 1999, Texas plans to increase the
minimum staff required for children aged 13 to 17 months from one
staff person for six children to one staff person for five children. 

To be effective, standards for child care providers must be enforced. 
Enforcement is important to ensure that standards are maintained and
children receive adequate care.  Recognizing this, none of the seven
states plans to reduce the size of its staff responsible for
inspecting or regulating child care providers.  In fact, in the last
year, Wisconsin has increased the number of regulatory and inspection
staff from 46.5 to 60.  Nevertheless, some child welfare advocates
remain concerned about the adequacy of state enforcement of standards
for child care providers.  We previously reported, for example, that
20 states did not conduct at least one unannounced visit to each
child care center every year.\45 Appendix II provides additional
information on state regulatory staffing. 

Generally, not all child care providers in a state are equally
regulated.  Parents can choose from three types of child care
settings:  in-home care, where a child is cared for in the child's
home; family care, where the child is cared for in the home of a
provider; and center care, where a child is cared for in a
nonresidential setting.  Additionally, care can be provided in family
child care or in-home settings by someone related to the child other
than the parents, which is called relative care.  Most states
regulate only a small portion of their providers and may exempt a
significant number of providers from their standards.  Also, in-home
care and care provided by relatives are almost always exempt,
although a relative provider must be at least 18 years old to receive
CCDF-funded subsidies.  Other types of child care that states may
exempt are those sponsored by religious organizations, in government
entities like schools, or operating for part of the day.  Further,
for those providers that are regulated, different standards apply to
different types of providers.  Centers generally must meet more
rigorous standards than other types of providers, in that states
license and conduct regular inspections of the facilities.  Standards
for family providers vary among the states, but family providers
generally receive fewer inspections than child care centers. 

To address concerns about informal child care providers who generally
are regulated only minimally, some states impose additional
requirements on those that receive subsidies.  For example, to better
ensure the safety of children in informal care arrangements,
California and Oregon conduct background checks on the criminal
histories of subsidized providers, some of whom are otherwise exempt
from regulatory or licensing requirements.  In one state, such checks
on informal providers have revealed that about 10 percent of the
applicants were known criminals.  In these instances, after due
process, the state refuses to reimburse the provider if his or her
appeal is denied and works with the parents to find other, more
appropriate care for their children.  Additionally, to help monitor
providers who care for children receiving subsidies more closely and
prevent fraud, Maryland, Oregon, and Wisconsin reimburse most of
these providers directly instead of issuing reimbursements to parents
and expecting the parents to reimburse the provider.\46

One of the seven reviewed states, Wisconsin, recently created a new
category of child care provider that is subject to less stringent
training requirements than its other categories of providers are. 
Wisconsin imposes training requirements on all licensed and certified
providers.  Until recently, certified day care providers, who
received subsidies and cared for three or fewer unrelated children
under the age of 7 primarily in the providers' homes, were required
to complete 15 hours of training before receiving permanent
certification.  To help meet the expected demand for child care from
welfare clients who are expected to work, Wisconsin now has an
additional category of day care providers who are "provisionally
certified." These providers are subject to the same inspection
requirements as are regularly certified day care providers but are
not required to complete any training.  Provisionally certified
providers are reimbursed at two-thirds the rate of regularly
certified day care providers.  According to Wisconsin officials,
however, standards for these provisionally certified providers are
still among the highest in the nation for small family day care
settings that are exempt from state licensing.  Further,
provisionally certified providers who complete 15 hours of training
receive a 50-percent increase in reimbursement rates, an incentive
that many providers are exercising. 

The effect of welfare reform on states' efforts to regulate and
ensure that children receive quality child care is 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.\47 Some child care advocates and
researchers are also concerned that decisions to expand the supply of
state-subsidized child care could create more providers that are
exempt from state licensing or regulatory requirements, leaving no
protection in place for children in these settings.\48 Further
concerns are that some low-income families may choose informal child
care arrangements over more regulated providers because these
arrangements are less costly. 

It is not yet known what types of child care providers will be used
by families affected by welfare reform.  As the supply of child care
providers grows to meet the new demand, some of the growth may be in
that part of the market that states already exempt from standards. 
Increasing numbers of children may be placed with child care
providers about which states have little information.  As we noted in
1994 as welfare reform was being considered, assessing state efforts
to protect children in child care in the face of expanding child care
services is critical.\49


--------------------
\42 For providers who are regulated, all states set minimum health
standards (for example, immunization requirements) and minimum safety
standards (for example, building and fire code requirements).  Many
states regulate other programmatic aspects of care, such as the ratio
of staff to children, provider qualifications, and organization of
the facility.  Specific requirements, however, vary from state to
state.  See Child Care:  States Face Difficulties Enforcing Standards
and Promoting Quality (GAO/HRD-93-13, Nov.  20, 1992). 

\43 Under the Personal Responsibility and Work Opportunity
Reconciliation Act of 1996, states are permitted to exempt certain
relatives--grandparents, great grandparents, aunts, uncles, and
siblings who live in a separate residence from the child in
care--from health and safety requirements. 

\44 See Helen Blank, "Child Care in the Context of Welfare `Reform,'"
Child Care in the Context of Welfare "Reform," and Helen Blank,
Helping Parents Work and Children Succeed:  A Guide to Child Care and
the 1996 Welfare Act.  Also, the National Institute of Child Health
and Human Development (NICHD) recently reported on the importance of
quality child care, defined as care involving a high degree of
positive interaction between caregivers and children, on young
children's cognitive development and use of language in Mother-Child
Interaction and Cognitive Outcomes Associated with Early Child Care: 
Results of the NICHD Study, a poster symposium presented at the
Biennial Meeting of the Society for Research in Child Development,
Washington, D.C., April 1997. 

\45 Child Care:  States Face Difficulties Enforcing Standards and
Promoting Quality (GAO/HRD-93-13, Nov.  20, 1992). 

\46 In its July 23, 1997, proposed regulations for the CCDF, HHS
strongly discourages, but does not prohibit, cash payments to parents
for child care. 

\47 See Child Care Quality:  States' Difficulties Enforcing Standards
Confront Welfare Reform Plans (GAO/T-HEHS-94-99, Feb.  11, 1994). 

\48 Blank, Helping Parents Work and Children Succeed, p.  23. 

\49 GAO/T-HEHS-94-99, Feb.  11, 1994. 


   CONCLUSIONS
------------------------------------------------------------ Letter :6

Child care subsidy programs are critical to the success of states'
overall welfare reform efforts.  The infusion of additional federal
funds for child care has provided states with an opportunity to
better meet the child care needs of low-income families.  Our
findings from seven states provide an early indication that these
states are using additional federal dollars and their own funds to
expand their child care programs to serve both increasing numbers of
welfare recipients required to work and at least some of the working
poor.  In addition, states are making efforts to further increase the
supply of child 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. 

It is too early to know, however, how effective states' programs will
be in meeting the child care needs of low-income families.  Even as
states began to expand their programs, they already faced tough
choices about balancing the needs of welfare and nonwelfare families
in ways that best support families' work efforts.  In addition,
although states have many initiatives under way to expand the supply
of child care providers, the outcomes of their efforts are not yet
known.  It is also too early to assess the types of child care that
states and parents will rely on as more and 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. 

States' initial efforts under welfare reform have been assisted by
declining welfare caseloads, which have provided some states with
additional funds to invest in child care.  Much remains unknown,
however, about the impact of economic conditions, TANF caseload size,
work participation requirements, and the capping of federal child
care funds on child care demand and states' ability to fund programs
over the long term.  An economic downturn could cause welfare
caseloads to rise at the same time that states are required to place
increasing percentages of their caseloads in work activities.  These
pressures could force states to use more funds for welfare benefits
and, thus, make it difficult for them to maintain current levels of
child care spending as welfare reform progresses. 


   COMMENTS FROM HHS AND THE
   STATES AND OUR EVALUATION
------------------------------------------------------------ Letter :7

We obtained comments on a draft of this report from HHS and child
care officials in the seven states we reviewed.  HHS officials said
that the report's findings reflect some of the child care issues that
they have heard across the country, such as states facing difficult
choices in balancing the child care needs of welfare and nonwelfare
families to best support these families' work efforts; concerns about
the ability of and opportunity for all families to select safe,
high-quality child care; the gap between the supply and demand for
infant and school-aged child care and child care during nonstandard
work hours; and the impact of economic conditions, work participation
requirements under federal welfare reform, and capped federal child
care funds on state efforts to expand the supply of safe,
high-quality child care.  HHS officials also noted that this report
and earlier GAO reports are important in identifying the critical
role child care plays in the lives of working families.  HHS' written
comments appear in appendix IV. 

State officials generally agreed with our report and some provided
information on recent developments in their child care programs,
which we noted in the report as appropriate.  We emphasize that our
findings present an early look at states' child care programs and
that states will continue to modify them as their welfare reform
efforts progress. 

HHS and the states also provided technical comments, which we
incorporated in the report as appropriate. 


---------------------------------------------------------- Letter :7.1

As agreed with your office, unless you publicly announce its contents
earlier, we plan no further distribution of this report until 30 days
after its issue date.  At that time, we will send copies of this
report to the Secretary of Health and Human Services, the Chairmen
and Ranking Minority Members of the House Committees on Ways and
Means and Education and the Workforce, and the Chairmen and Ranking
Minority Members of the Senate Committees on Finance and Labor and
Human Resources.  We will also make copies available to others upon
request. 

If you have any questions concerning this report or need additional
information, please call me on (202) 512-7215.  Major contributors to
this report are listed in appendix V. 

Sincerely yours,

Mark V.  Nadel
Associate Director, Income Security Issues


SCOPE AND METHODOLOGY
=========================================================== Appendix I

To meet our objectives, we focused our work on the efforts of seven
states--California, Connecticut, Louisiana, Maryland, Oregon, Texas,
and Wisconsin--to modify their child care subsidy programs under the
new welfare reform law.  We chose these states because they represent
a diverse range of socioeconomic characteristics, geographic
locations, and experiences with state welfare reform initiatives. 
According to U.S.  Bureau of the Census and Department of Health and
Human Services (HHS) estimates, the states ranged in population from
about 3.2 million (Oregon) to about 31.9 million (California) in
1996; in median income for three-person families, from about $33,377
(Louisiana) to about $52,170 (Connecticut) in fiscal year 1997; and
in overall poverty rates, from 8.5 percent (Wisconsin) to 19.7
percent (Louisiana) in 1995.  Some states, such as Wisconsin, have
had reform initiatives in place for several years that include
elements similar to those in federal welfare reform legislation, such
as time limits for welfare benefits and work participation
requirements; others, such as Louisiana, have been operating more
traditional cash assistance programs with welfare-to-work components
and were beginning more extensive reform efforts in fiscal year 1997. 

We obtained information from the seven states through a combination
of site visits, personal interviews, telephone conversations, and
written correspondence involving officials from state and county
child care, budget, regulatory, and welfare offices.  We also
reviewed program data and documents.  In addition, we interviewed and
obtained data from representatives of child care and resource and
referral agencies (CCR&R) and child advocacy organizations.  We did
not independently verify the data we obtained from these various
sources. 

To obtain nationwide data on state child care subsidy programs under
welfare reform, we reviewed the Child Care and Development Fund
(CCDF) plans submitted to HHS by all 50 states and the District of
Columbia.  We also reviewed work conducted by a variety of
researchers, experts, and other organizations related to federal and
state welfare programs and child care subsidy programs. 


BACKGROUND INFORMATION ON SEVEN
STATES
========================================================== Appendix II

                                                                             Estimated
                                                                               federal     Estimated
                                                                          payments and       maximum       Maximum                          Number of
                                                               Estimated   allocations       federal  monthly AFDC       Maximum   Number  inspectors
                  State median     Estimated       Monthly    population     to states    allocation         grant       monthly       of         and
                        income    percentage       average      under 13     for child      for CCDF       (three-    child care  license  regulatory
                       (three-            of     number of  years of age         care,   child care,        person   payment for        d   staff for
                        person    population          AFDC    in poverty    federal FY    federal FY   family with      children  provide  child care
                   family), FY   in poverty,  families, FY    as of 7/1/      1996 (in      1997 (in   one parent)  under age 2,      rs,  facilities
                        1997\a        1995\b        1996\c          96\d  thousands)\e  thousands)\f        1/96\g        2/96\h   1997\i    , 1997\j
----------------  ------------  ------------  ------------  ------------  ------------  ------------  ------------  ------------  -------  ----------
California             $40,954          16.7       895,960     1,116,343      $214,804      $309,577          $607        $1,068   64,972       424.0
Connecticut             52,170           9.7        58,117        57,261        27,681        34,522           636         325\k    6,567        25.0
Louisiana               33,377          19.7        70,581       171,190        48,483        53,260           190         238\l   11,826        18.6
Maryland                48,679          10.1        74,106        95,922        41,896        50,172           373           662   14,369       100.0
Oregon                  37,323          11.2        33,444        64,072        32,345        37,571           460           450   13,442        14.5
Texas                   35,759          17.4       254,953       689,857       168,281       209,799           188           482   21,381       250.0
Wisconsin               41,145           8.5        60,058        80,123        38,725        53,294           517           600  4,806\m        60.0
-----------------------------------------------------------------------------------------------------------------------------------------------------
\a Source:  GAO analysis of HHS, Administration for Children and
Families, "Notice of Estimated State Median Income for FY 1997,"
Federal Register, Vol.  61, No.  54 (Mar.  19, 1996). 

\b Source:  U.S.  Bureau of the Census, Poverty 1995, Table B,
"Percent of Persons in Poverty, by State:  1993, 1994, and 1995"
(Washington.  D.C.:  U.S.  Bureau of the Census, 1996). 

\c Source:  Administration for Children and Families, HHS. 

\d Source:  GAO analysis of data from U.S.  Bureau of the Census,
"ST-96-19 Estimates of the Population of U.S.  and States by Single
Year of Age and Sex" (Washington, D.C.:  U.S.  Bureau of the Census,
July 1, 1996), and Poverty 1995, Table B. 

\e Source:  GAO analysis of data from the Administration for Children
and Families, HHS, presented in tables 10-13, 10-15, and 10-22 of the
1996 Green Book:  Background Material and Data on Programs Within the
Jurisdiction of the Committee on Ways and Means (Washington, D.C.: 
Committee on Ways and Means, U.S.  House of Representatives, Nov.  4,
1996).  Includes payments for AFDC, Transitional Child Care, and
At-Risk Child Care and allocations for Child Care and Development
Block Grant (CCDBG) funds based on estimated preliminary data. 

\f Source:  GAO analysis of data from "Estimated FY 1997 State
Allocations for the Child Care and Development Fund," Administration
for Children and Families, HHS.  To receive all federal CCDF funds
allocated, states must maintain their own spending at the greater of
fiscal year 1994 or 1995 spending levels and provide a state match
for a portion of the federal funds. 

\g Source:  Data from the Congressional Research Service presented in
table 8-12 of the 1996 Green Book. 

\h Source:  Data from the Administration for Children and Families,
HHS, presented in tables 10-14 and 10-16 of the 1996 Green Book. 
Some states pay additional funds for a special needs child.  Excludes
CCDBG programs. 

\i Source:  GAO analysis of "State Profiles," prepared by the
National Child Care Information Center at the Annual Meeting of State
Child Care Administrators, July 14-15, 1997, Washington, D.C.  Based
on data from the 1997 Child Day Care Center Licensing Study and the
1996 Family Child Care Licensing Study, Children's Foundation, and
state officials.  Includes licensed child care centers and family
child care providers. 

\j Source:  State child care administrators. 

\k Applies only to families receiving TANF assistance.  Payments to
transitional and nonwelfare families are subject to market-based
limits.  Also, higher limit ($435) applies to children with special
needs. 

\l No statewide limit for At-Risk Child Care. 

\m Plus an additional 4,000 "certified" family child care homes. 


KEY ELEMENTS OF SEVEN STATES'
CHILD CARE SUBSIDY PROGRAMS
AFFECTING COVERAGE OF LOW-INCOME
FAMILIES AS OF JULY 1, 1997
========================================================= Appendix III

                  State                       Maximum
                  guarantee or                annual
                  entitlement   State         income level  Maximum annual  Minimum and
                  of child      priority for  at initial    income level    maximum monthly                                             Year of
                  care          providing     application   at              copayment rate for                                          market rate
                  subsidies to  child care    for 3-        redeterminatio  3-person family,                        Maximum monthly     survey upon
                  specific      subsidies to  person        n for 3-        expressed in $, %                       reimbursement rate  which state
                  groups of     eligible      family, as %  person family,  of family income,   Time limit for      to providers        bases current
                  low-income    low-income    of SMI\a and  as % of SMI\b   or % of cost of     family to receive   (center-based       reimbursement
                  families      families      in $          and in $        care                subsidies           care)               rate
----------------  ------------  ------------  ------------  --------------  ------------------  ------------------  ------------------  -------------
California        State         For           75% of SMI;   75% of SMI;     No copayment is     Former TANF         Maximum regional    1996
                  intends to    California    $30,036       $30,036         required if income  families may not    (county) rates are
                  provide       Department                                  is below state      receive             set at 1.5
                  sufficient    of Education                                poverty level (50%  transitional child  standard
                  funding for   programs,                                   of SMI); for        care benefits       deviations above
                  child care    priority is                                 others, from $2/    longer than 2       mean market rates;
                  assistance    given to (1)                                day if income is    years after losing  for Los Angeles:
                  to TANF       child                                       50% of SMI to       eligibility for     $490 for child 6
                  families who  protective                                  $20.80/day if       TANF.\d             years old or
                  are working   services and                                income equal to or                      older, $602 for
                  or            (2) families                                greater than 100%                       child 2-5 years
                  transitionin  with lowest                                 of SMI.                                 old, $797.50 for
                  g to work.\c  incomes (by                                                                         child under 2
                                special                                                                             years old.
                                needs, then
                                time on
                                waiting
                                list); for
                                California
                                Department
                                of Social
                                Services
                                programs
                                (TANF),
                                priority is
                                given to
                                TANF
                                recipients
                                or
                                transitional
                                families.

Connecticut       None, but     Priority is   75% of SMI;   75% of SMI;     No copayment is     None                For Hartford: $420  1991
                  state treats  given to (1)  $39,168       $39,168         required for TANF                       ($105/week) for
                  TANF child    working TANF                                recipients; for                         school-aged and
                  care funding  and                                         others, 2% to 10%                       pre-school
                  as an         transitional                                of income.                              children; $580
                  entitlement.  families;                                                                           ($145/week) for
                                (2) teen                                                                            infants/toddlers.
                                parents
                                completing
                                high school;
                                (3) pregnant
                                women in
                                substance
                                abuse
                                programs;
                                (4) special
                                needs
                                children or
                                families
                                with incomes
                                less than
                                25% of SMI;
                                (5) children
                                in
                                protective
                                services or
                                foster care
                                and families
                                with
                                multiple
                                children in
                                child care;
                                and (6)
                                other
                                eligible
                                families.

Louisiana         Guaranteed    Priority is   75% of SMI;   75% of SMI;     No copayment is     1 year for          $216.50 for child   1991
                  to TANF       given to      $26,100\e     $26,100\e       required if income  transitional        under 2 years old;
                  families in   children                                    is below poverty;   families; none for  $238.50 for child
                  work          with special                                10% to 100% of the  others.             2 years old or
                  activities    needs and                                   cost of care if                         older.
                  if funds      families                                    income is above
                  available.    whose                                       poverty.
                                eligibility
                                for
                                transitional
                                child care
                                has expired
                                before other
                                eligible
                                low-income
                                groups.

Maryland          None          Priority is   38% of SMI;   46% of SMI;     No copayment is     None                For Baltimore:      1991, but all
                                given to (1)  $18,409       $22,436         required for TANF                       $369 for regular    rates
                                TANF                                        recipients; for                         child; $411 for     increased 5%
                                families,                                   others from $3 to                       special needs       in January
                                (2)                                         $291, depending on                      child; $704 for     1997; new
                                transitional                                income, region of                       infant.             rates planned
                                families,                                   state, and age of                                           that will be
                                and (3)                                     child.                                                      based on 1997
                                families at                                                                                             survey.
                                risk of
                                welfare
                                dependency.
                                Within each
                                group,
                                children
                                with
                                disabilities
                                receive
                                priority.

Oregon            State         Copayment     85% of SMI;   85% of SMI;     No copayment is     None                For Portland: $350  1992,
                  intends to    structure     $33,012       $33,012         required for TANF                       for school-aged     increased by
                  provide       effectively                                 recipients and for                      child; $350 for     5% in 1994 to
                  sufficient    gives                                       high-risk very low                      pre-school; $480    reflect
                  funding for   priority to                                 income populations                      for toddler; $495   market
                  child care    poorest of                                  (see priority);                         for infant; $495    changes.\g
                  assistance    working low-                                for others, from                        for special
                  to TANF       income                                      $25 to $632 (31%                        needs.\f
                  families who  families;                                   of income up to
                  are working   additional                                  $2,042) and 100%
                  or making a   priority                                    of cost of care
                  transition    given to                                    (if income is
                  to work and   teen                                        greater than
                  to other      parents,                                    $2,042).
                  families who  migrant and
                  are           seasonal
                  eligible.     farm
                                workers, and
                                children at
                                risk because
                                of prenatal
                                substance
                                abuse.

Texas             State         No            75% of SMI;   75% of SMI;     No copayment is     2 years for         Local area market   1991, but
                  guarantees    priorities,   $27,484       $27,484         required for TANF   parents in post-    rates set at        rates
                  child care    but groups                                  recipients; for     secondary           levels to purchase  increased in
                  to former     are                                         others, 9% of       education; 1 year   75% of area slots.  early 1997
                  TANF          "targeted"                                  gross income for    for transitional                        because of
                  families      by separate                                 families with one   families; none for                      federal
                  transitionin  funding                                     subsidized child    others.                                 minimum wage
                  g to work.    allocations:                                and 11% of gross                                            increase.
                                (1)                                         income for
                                entitlement                                 families with two
                                for                                         or more subsidized
                                transitional                                children.
                                families
                                fully funded
                                by state;
                                (2)
                                legislature
                                appropriates
                                separate
                                funds for
                                TANF; (3)
                                child care
                                funds
                                remaining
                                allocated to
                                "at-risk"
                                groups, such
                                as teens,
                                child
                                protective
                                services,
                                and general
                                low-income
                                families.

Wisconsin         None          No            53% of SMI;   65% of SMI;     6%-16% of gross     None                County-specific     1996
                                priorities    $21,996       $26,660         income                                  market rates set
                                are assigned                                                                        at levels to
                                since all                                                                           purchase 75% of
                                eligible                                                                            county slots.
                                low-income
                                families are
                                being
                                served.
-----------------------------------------------------------------------------------------------------------------------------------------------------
\a SMI = state median income. 

\b States periodically redetermine a family's eligibility for
subsidies once it starts receiving those subsidies.  In some states,
such as Maryland and Wisconsin, the income eligibility criteria for
families at redetermination are less restrictive than at initial
application. 

\c TANF = Temporary Assistance for Needy Families. 

\d Effective January 1998; families remain eligible for transitional
child care until their income exceeds 75% of the state median income. 

\e Louisiana increased its maximum income eligibility criteria to 85
percent of SMI for a family of three in October 1997. 

\f Oregon increased its monthly reimbursement rates in October 1997. 

\g Oregon approved a 6% increase for 1997-98. 

Source:  GAO analysis of data from state child care administrators
and state CCDF plans submitted to HHS. 




(See figure in printed edition.)Appendix IV
COMMENTS FROM THE DEPARTMENT OF
HEALTH AND HUMAN SERVICES
========================================================= Appendix III



(See figure in printed edition.)



(See figure in printed edition.)


GAO CONTACTS AND STAFF
ACKNOWLEDGMENTS
=========================================================== Appendix V

GAO CONTACTS

Gale C.  Harris, Assistant Director, (202) 512-7235
Lois L.  Shoemaker, Evaluator-in-Charge, (404) 679-1806

ACKNOWLEDGMENTS

In addition to the persons named above, David G.  Artadi coauthored
the report and contributed significantly to all data-gathering and
analysis efforts. 

RELATED GAO PRODUCTS

Welfare Reform:  Three States' Approaches Show Promise of Increasing
Work Participation (GAO/HEHS-97-80, May 30, 1997). 

Welfare Reform:  Implications of Increased Work Participation for
Child Care (GAO/HEHS-97-75, May 29, 1997). 

Head Start:  Research Provides Little Information on Impact of
Current Programs (GAO/HEHS-97-59, Apr.  15, 1997). 

Early Childhood Programs:  Multiple Programs and Overlapping Target
Groups (GAO/HEHS-95-4FS, Oct.  31, 1995). 

Welfare to Work:  Child Care Assistance Limited; Welfare Reform May
Expand Needs (GAO/HEHS-95-220, Sept.  21, 1995). 

Early Childhood Programs:  Many Poor Children and Strained Resources
Challenge Head Start (GAO/HEHS-94-169BR, May 17, 1995). 

Early Childhood Centers:  Services to Prepare Children for School
Often Limited (GAO/HEHS-95-21, Mar.  21, 1995). 

Child Care:  Child Care Subsidies Increase Likelihood That Low-Income
Mothers Will Work (GAO/HEHS-95-20, Dec.  30, 1994). 

Child Care:  Promoting Quality in Family Child Care (GAO/HEHS-95-93,
Dec.  9, 1994). 

Child Care:  Working Poor and Welfare Recipients Face Service Gaps
(GAO/HEHS-94-87, May 13, 1994). 

Infants and Toddlers:  Dramatic Increases in Numbers Living in
Poverty (GAO/HEHS-94-74, Apr.  7, 1994). 

Child Care Quality:  States' Difficulties Enforcing Standards
Confront Welfare Reform Plans (GAO/T-HEHS-94-99, Feb.  11, 1994). 

Poor Preschool-aged Children:  Numbers Increase but Most Not in
Preschool (GAO/HRD-93-111BR, July 21, 1993). 

Child Care:  States Face Difficulties Enforcing Standards and
Promoting Quality (GAO/HRD-93-13, Nov.  20, 1992). 


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