Child Care Assistance Under Welfare Reform

The nonpartisan Urban Institute publishes studies, reports, and books on timely topics worthy of public consideration. The views expressed are those of the authors and should not be attributed to the Urban Institute, its trustees, or its funders.

Contents

Changes in Child Care Assistance under PRWORA

Opportunities to Improve the Administration of Child Care Assistance

State Choices in Program Design

Collaboration between Child Care and Early Childhood Education

Conclusions

Notes

Tables

About the Authors

Introduction

The Personal Responsibility and Work Opportunity Reconciliation Act of 1996 (PRWORA) fundamentally changed federal child care assistance programs for low- income families. The legislation eliminated federal child care entitlements and consolidated the major sources of federal child care subsidies for low- income children into a single block grant to states— the Child Care and Development Fund (CCDF). That block grant program gives states greater flexibility in designing their child care assistance programs, providing an opportunity to streamline the complex child care system that was in place before PRWORA and to design a system of assistance that better meets the states' child care needs and objectives.

This report describes the child care assistance system in place just before PRWORA and provides some early indications of how states will use the increased freedom of the CCDF to develop new systems of assistance. This information is particularly useful in light of recent proposals by the President and Congress to expand federal child care assistance further. The report begins with an overview of changes in the federal child care programs under PRWORA and the implications of those changes for child care funding in the states. It then outlines the opportunities for states to improve the administration of child care assistance, the choices that states now have in program design that affect program eligibility and program costs, and the interaction and possibilities for collaboration between child care and early childhood education assistance programs. The final section of the report is the authors' conclusions.

This report is part of a multi-year Urban Institute project designed to analyze the devolution of responsibility for social programs from the federal government to the states. That project— Assessing the New Federalism— aims to provide timely, nonpartisan information to inform public debate and to help state and local decisionmakers carry out their new responsibilities more effectively. As part of that project, case studies were conducted in 13 states, home to half of the nation's population, in late 1996 and early 1997. The 13 states are Alabama, California, Colorado, Florida, Massachusetts, Michigan, Minnesota, Mississippi, New Jersey, New York, Texas, Washington, and Wisconsin. Those case studies covered income support and social services, including child care assistance, and health programs. This report draws on the child care assistance component of the case studies.

Changes in Child Care Assistance under PRWORA

The Child Care and Development Fund

PRWORA consolidated the four key federal child care assistance programs for low- income families into a single block grant to states— the CCDF.¹ Three of the four programs consolidated into the CCDF block grant existed under Title IV- A of the Social Security Act. The Aid to Families with Dependent Children (AFDC) Child Care Program provided child care entitlements to families who were receiving AFDC and were working or in an education or training program. The Transitional Child Care (TCC) program provided assistance to families who were making the transition from AFDC to work. The third program, AtRisk Child Care, entitled states to receive funds up to a capped amount to serve working families who were "at risk" of coming onto AFDC if they did not receive assistance with child care. Together, these three programs would have provided about $1.4 billion in federal funding for FY 1997 under prior law, according to projections by the Congressional Budget Office (table 1). All three of the Title IV- A child care programs required state matching funds to draw down federal dollars.²

The fourth child care program incorporated into the CCDF— the Child Care and Development Block Grant (CCDBG)— provided federal child care funds for states for assistance to low- income families, as well as for activities to improve the overall quality and supply of child care for all families.³ The tabulations in this report assume that CCDBG funding in FY 1997 would have been $0.935 billion, the amount provided in each of the previous two years.

Based on Congressional Budget Office estimates, total funding under the Title IV- A and CCDBG programs in FY 1997 would have been $2.34 billion. The CCDF provided up to $2.97 billion in federal funding in FY 1997, an increase of $600 million (27 percent) over the prior programs.⁴ Thus, although PRWORA eliminated the entitlement to child care assistance for welfare families, the legislation provided a substantial increase in federal funding for child care in its first year.

Components of Child Care Funding under the CCDF

The CCDF funds are divided into three components: mandatory funds, matching funds, and discretionary funds.⁵ Each state is entitled to receive a share of the mandatory funds ($ 1.20 billion in FY 1997) with no matching requirements. State allocations of these funds are based on the higher of the state's FY 1994, FY 1995, or average FY 1992– 94 federal Title IV- A child care funding. The matching funds ($ 0.77 billion for FY 1997) are available to states that maintain state spending equal to their prior Title IV- A child care match.⁶ Child care expenditures above that level will be matched by federal dollars, up to the state's allocated share of these funds.

The legislation also authorizes $1 billion each year in discretionary funds, which are subject to annual appropriation. These funds are distributed to states according to a set formula and do not require state matching funds. At the end of each fiscal year, all unused federal funds under CCDF are redistributed to qualifying states.

In addition to the direct changes to child care assistance programs under PRWORA, the new law allows states to transfer up to 30 percent of their AFDCreplacement block grant (the State Family Assistance Grant) from cash assistance to child care. The State Family Assistance Grant equals the sum of the state's recent federal funding for AFDC, Job Opportunities and Basic Skills (JOBS), and Emergency Assistance (a total of about $16.4 billion for FY 1997), and funds the new Temporary Assistance for Needy Families (TANF) program (the successor to AFDC).⁷ This provision allows the addition of up to $4.9 billion in funding for child care assistance to the roughly $3.0 billion provided by the CCDF. With many states experiencing declines in TANF caseloads in FY 1997 and 1998, the states have had leftover FY 1997 TANF funds that could be used to fund, among other services, child care assistance.

Preliminary evidence from the 13 states included in this study and from a survey of all the states by the American Public Welfare Association (APWA) suggests that many states are investing more than the required funds needed to pull down the full federal match under CCDF (table 2).⁸ According to the APWA study, in August 1997, all 50 states and the District of Columbia expected to draw down all the available federal child care funds under PRWORA. Among the 13 states covered in this report, seven states had invested or expected to invest more in child care assistance than the level required to draw down the available federal funds, and four states expected to transfer TANF funds to CCDF. During the first year of PRWORA, there has been a significant increase in both federal and state funds for child care in the 13 states. Estimates suggest that with all 13 states drawing down the maximum level of child care funding available under CCDF in FY 1997, the need for child care assistance could be met for at most about half of low- income children seeking child care assistance.⁹ Although still far from universal coverage, this represents a substantial improvement over the one- third of children who could have been covered if the programs in place before PRWORA had continued.

Related State Funding

In addition to the direct funding of child care assistance, 11 of the 13 study states (Alabama and Mississippi were the exceptions) allocated funds to state early childhood education programs, and five states (Florida, Massachusetts, Minnesota, Washington, and Wisconsin) allocated state funds to supplement the federal Head Start program. Head Start provides preschool children from low- income families with activities that foster mental, emotional, social, and physical growth. While the fundamental goals of early childhood education programs often differ from those of the child care programs, early childhood education programs can often help to meet the child care needs of participating families. The links between child care and early childhood education programs are described in more detail later in this report.

Opportunities to Improve the Administration of Child Care Assistance

A key aspect of recent federal law changes is the increased freedom that states have in structuring their child care assistance systems. Before PRWORA, child care programs were frequently criticized for the plethora of laws, rules, regulations, and accounting practices across the different funding streams. These often resulted in a complex system that was difficult to administer and difficult for families to access. Many states sought to develop a "seamless" system of child care that integrated the different funding streams to minimize these problems. Despite these efforts, many state administrators reported that the complexity of the pre- PRWORA child care system interfered with their ability to meet the needs of children and their families. Consistent with that view, the General Accounting Office reported that "the fragmented nature of the child care funding streams, with entitlements to some client categories, time limits on others, and activity limits on still others, produces unintended gaps in services, which limit the ability of low- income families to achieve self- sufficiency."¹⁰

A frequent first step in developing a seamless system is to consolidate the administration of all child care funding streams within a single state agency to facilitate the management of the system of assistance. Before PRWORA, nine of the 13 study states had consolidated child care administration within a single state agency (table 3), often the same agency that administered the state's welfare programs. In most of the nine states, the local administrative structure was also consolidated, but in three of those states (Colorado, Minnesota, and New York), program administration varied across the counties, with some counties having multiple agencies involved in program operations. In the remaining states, child care assistance tended to be divided along program funding lines, with welfare- related child care in one agency and non- welfare- related child care (e. g., child care under CCDBG) in another agency (often an education agency). In Mississippi and Washington, although child care administration was consolidated within a single agency, welfare- related child care was administered by one office and non- welfarerelated child care by another.

Other elements of seamlessness that often follow a consolidation of program administration include a single point of entry for families seeking assistance; standardized applications, policies, and procedures across different programs; and a single waiting list for low- income families needing assistance. These characteristics all serve to make the child care system more accessible for families. Before PRWORA, only six of the 13 study states had achieved that level of seamlessness (Alabama, Colorado, Florida, Michigan, Texas, and Wisconsin). For the remaining states, obtaining access to child care assistance could be a difficult and time- consuming process. All too often, families would have to apply for assistance with multiple agencies or providers, perhaps completing multiple applications and placing their names on multiple waiting lists. In many cases, staying on the waiting list required that a family contact each organization on a regular basis to confirm its continued need for assistance. For those families who were able to obtain child care assistance, a change in income or the age of a child might well mean that the family needed to apply to a new program and, in some cases, at a new agency. For example, in San Diego, a family that was seeking child care assistance before PRWORA could apply for assistance at one of three different local organizations, each maintaining its own waiting list.

A final characteristic common to seamless systems is the elimination of gaps in assistance as families move across funding streams (e. g., from child care under AFDC to Transitional Child Care assistance to At- Risk Child Care assistance to child care funded by CCDBG). Placing a priority on continuity of assistance ensures that child care assistance is seamless for welfare families as their circumstances change. However, it can also mean that working poor families are blocked out of assistance as the limited funds available for nonwelfare families are reserved for families moving off welfare. Thus, a system that is seamless for the welfare population may exclude families with no prior welfare history from assistance.

Seven of the 13 study states placed a priority on continuing to assist families as they moved off welfare. In the remaining states, discontinuities in child care assistance often occurred as families' AFDC participation, employment, and earnings situations changed. In particular, there were often gaps as families left welfare and moved to the TCC program, and after their TCC eligibility ended. In states without a priority for families exhausting their TCC eligibility, such families often would be placed on waiting lists with other low- income families.

When all the aspects of seamlessness are considered together, six states (Alabama, Colorado, Florida, Michigan, Texas, and Wisconsin) had established fully seamless child care systems before PRWORA. In those states, problems in the administrative structure for child care assistance have been minimized, and access to the system for families is relatively easy. For example, in Michigan a family would fill out a single application to apply for all programs and eligibility categories. Program processes, procedures, payments, and requirements remain the same for the family regardless of whether its eligibility status changes.

With the increased flexibility in program design under PRWORA, several of the states that had not achieved a seamless system before PRWORA are making significant strides in that direction. Most notably, four states (California, Massachusetts, New Jersey, and Washington) have moved to consolidate child care assistance within a single state agency. In California, before welfare reform, the administration of child care funding was split between the Department of Education and the Department of Social Services. Under PRWORA, the state is combining all child care and child development funds in a single state agency— the Department of Education. In Massachusetts, four state entities were involved in child care before PRWORA; under PRWORA there is a single child care agency. In both California and Massachusetts, where interactions between the child care agencies before PRWORA were often difficult, this consolidation represents a significant change in the state's administration of child care assistance. Program administrators in Massachusetts credited PRWORA with serving as a catalyst for change within their child care system.

For some states that had established substantially seamless systems before PRWORA, the greater flexibility in design under PRWORA provides the incentive to address the remaining gaps in the system. Florida has made its next goals to establish (1) a single point of entry for all child assistance programs (child care and early childhood education) and (2) unified waiting lists. Several other states reported that they expect to make changes in their child care systems but that their first priority under PRWORA has been to develop the design for TANF and get that program up and running. They expect to tackle additional changes in the child care system later.

State Choices in Program Design

States have traditionally had a fair amount of latitude in determining the specific features of their federally funded child care assistance programs. Under prior law, the federal government defined the broad program parameters, and states determined a number of specific program features such as income eligibility for nonwelfare families, reimbursement rates for child care providers, family copayments, payment mechanisms (e. g., contracted child care slots, vouchers), and licensing requirements. In addition, several states that had made significant changes in their welfare programs under federal waivers from program regulations before PRWORA also made changes in their child care programs to support those welfare reform efforts (e. g., extending transitional child care benefits).

PRWORA builds on those changes by allowing states even greater flexibility in designing their child care systems. However, state child care choices under PRWORA must be made in the context of the broader changes in welfare assistance under the new legislation. Changes under TANF include strong work participation requirements and time limits, which increase the number of families who enter the workforce and, consequently, the need for child care assistance.¹¹ The expectation among program administrators in many of the study states is that, over time, the federal changes in welfare policies under PRWORA will increase the demand for child care assistance among current and former welfare families, particularly among families with very young children. That expectation is playing an important role in states' design choices as they take advantage of the flexibility available under PRWORA to restructure their child care programs. The remainder of this section considers two important areas of state choice that affect the size and cost of their child care programs: who receives child care assistance and the payments made for that assistance.

Who Receives Child Care Assistance?

Receipt of child care assistance is typically a function of income eligibility criteria and, because funding levels have been such that not all incomeeligible families could be served, priority groups among the eligible families. Before PRWORA, families were guaranteed child care assistance while they were receiving AFDC and working or in an education and training program, and for up to 12 months after they left AFDC because their earnings increased. NonAFDC low- income families could obtain child care assistance through the AtRisk Child Care Program and the CCDBG programs, subject to a state's program eligibility requirements and available funds. Under the At- Risk program, states set their own maximum income eligibility limits. Eligibility for assistance under the CCDBG was limited by federal statute to families with incomes not exceeding 75 percent of the state median income (SMI).

Under the CCDBG, six states (California, Massachusetts, Michigan, Minnesota, Mississippi, and Wisconsin) set their eligibility criteria at the maximum allowed under federal law, 75 percent of SMI (table 4). The eligibility limits set by the remaining study states ranged from 46 percent of SMI (Alabama) to 67 percent of SMI (Texas). These rates translated into income eligibility limits of between 123 percent of the federal poverty level (FPL) in Alabama and 278 percent in Massachusetts. Under the At- Risk Child Care Program, the maximum income eligibility limits ranged from 130 percent of FPL in Alabama to 291 percent in California, with five states setting rates above that of the CCDBG program (Alabama, California, Michigan, Mississippi, and New Jersey).¹²

It should be noted that these income eligibility limits do not imply that all families falling below the income screen would have received child care assistance. In only two of the study states— Colorado and Michigan— were federal and state child care funds before PRWORA sufficient to ensure that all eligible families requesting assistance were receiving child care. Colorado was able to serve all eligible families by setting low maximum income eligibility criteria. In contrast, Michigan set its income eligibility standard at the federal maximum level, but turned to relatively high family copayments to reduce demand among higher- income eligible families.

In the remaining states, funding priorities were used to determine who among the eligible families would be served first. By law, states were required to give priority for child care services to children with special needs and children in protective services. In six states, funding priority after that was given to families whose eligibility for the TCC program was ending. For the remainder of the eligible population, some states established priority groups to ensure that they served the poorest families first (e. g., Washington and Wisconsin), and others provided assistance on a first- come, first- served basis (e. g., Massachusetts and Michigan).

When the demand for child care assistance exceeded the available federal and state child care funds, the group most likely to be left without assistance across the states was low- income working families with no connection to the welfare system. One state official in Massachusetts noted that even with the addition of state funds for child care, the state was able to serve few nonwelfare low- income families beyond those moving off the TCC program. Families who could not be served with the available funds were placed on waiting lists, with little likelihood of receiving assistance. Typically, nonwelfare low- income families were not afforded the same level of child care support as welfare and former welfare families, raising concerns about the equity of the child care system for nonwelfare families and the perverse incentives of the welfare system. Respondents in several states noted that the best way to obtain child care assistance in their state before PRWORA was for the family to go on welfare.

PRWORA fundamentally changed program eligibility for child care assistance by eliminating the entitlement for families receiving welfare or transitioning off welfare. As a result, states have greater flexibility in allocating child care funds across both the welfare and nonwelfare populations. However, that flexibility is limited by two factors. First, PRWORA prohibits states from sanctioning a single parent with a child under the age of six who does not meet the work requirements because no child care is available.¹³ Because federal funding is contingent upon the states' ability to meet work participation rates among welfare recipients, states are unlikely to limit child care assistance for TANF families.¹⁴

Second, PRWORA stipulates that states must use at least 70 percent of the mandatory and matching CCDF funds to assist families who are currently receiving public assistance, attempting to transition off public assistance, or at risk of becoming dependent on public assistance. This requirement represents an increase over prior spending on the Title IV- A child care programs, which were targeted to the same populations (i. e., the former AFDC, TCC, and AtRisk Child Care programs).

Because of these two provisions of PRWORA, states have a strong incentive to provide child care assistance to welfare families under CCDF, tempering any state efforts to develop systems that provide assistance without regard to welfare status. The entitlement for assistance that existed before PRWORA has been replaced by strong financial incentives for the states to make serving the welfare population their first priority.

As was true before PRWORA, a key design element of state child care programs under CCDF is the state's maximum income eligibility criteria. PRWORA raises the maximum eligibility level for CCDF to 85 percent of the state's median income, up from the 75 percent limit of CCDBG. So far, only two states (Florida and Mississippi) have taken advantage of that change to raise their eligibility level to 85 percent of SMI. The remaining states have set their limits between 49 percent of SMI (Alabama) and the earlier CCDBG maximum of 75 percent of SMI (California, Minnesota, and Texas). These rates translate into maximum income eligibility limits for CCDF child care assistance from 130 percent of FPL in Alabama to 257 percent in Minnesota. Five states have set limits that are higher than their previous At- Risk or CCDBG programs (Colorado, Minnesota, Mississippi, Texas, and Washington), and three states have set lower limits (Michigan, New Jersey, and Wisconsin).¹⁵

In many states, the higher levels of funding under PRWORA will not be adequate to serve all the families that satisfy the state's maximum income eligibility criteria.¹⁶ Thus, as was true under the child care assistance system before PRWORA, states have developed target groups for child care assistance among the eligible families. In almost every case, the state has preserved the basic structure of programs in place before PRWORA. In particular, all 13 study states had established welfare recipients as the first priority group under the new program, and most have established families transitioning off welfare as the second priority group. At least three states (California, New Jersey, and Texas) are continuing the extended periods of transitional child care assistance they had in place before PRWORA, and two states (Florida and New York) are expanding their transitional benefits. After serving welfare and welfare- related families, at least three states (California, Florida, and New Jersey) provide assistance first to those families with the lowest incomes. In New York, where counties set their own priorities within the state income eligibility limits, some counties are electing to serve the poorest families first as well.

Many policymakers and advocates across the study states share concerns that the capped federal funding, the higher work participation requirements under TANF, and the requirements on CCDF funds for TANF recipients will increase the share of child care funds dedicated to welfare families, crowding out access for working poor families. In Minnesota, for example, state officials acknowledge that working poor families who would have been served before PRWORA are now losing out to welfare families. And both Florida and Washington have provided additional child care funding targeted specifically to the nonwelfare low- income population to avoid such crowding out.

One state, Wisconsin, has undertaken a more radical change in its child care system, establishing a universal child care program that makes assistance available to all eligible families. To accomplish its goal of supporting families without regard to their welfare status, Wisconsin made two key changes in its child care program. First, it increased state funding for child care significantly. Second, it reduced the pool of eligible families that needed assistance by lowering the maximum income level for eligibility.¹⁷ No study state is considering guaranteeing child care assistance to all families who would be eligible under the federal maximum allowable levels.

Who Pays for Child Care?

There are two sources of payments for assistance under child care programs: the payment made by the child care program and, if required, the payment made by the child's family. In determining the appropriate level of payment to providers and the appropriate copayments for families, states face difficult choices. Higher reimbursement rates allow parents to choose from a wider array of providers, but fewer children will be served with a given level of funding than would be possible with lower maximum reimbursement rates. Lower reimbursement rates allow a state to stretch the available funds over a greater number of children, but they may make it difficult for families to find acceptable providers who will accept the low rate.¹⁸ Parental copayments help to offset the costs of child care for the program, while also ensuring that the family bears part of the responsibility for paying for care. If the copayment is too high, though, families may be unable to afford to pay their share of child care costs, which could lead them to leave the labor force or turn to less satisfactory child care arrangements (e. g., informal care or self-care).

Under the Title IV- A child care programs in place before PRWORA, states were required to establish reimbursement rates based on actual prices for care in the child care market. Reimbursement rates were to be established at the 75th percentile of market rates (prices) for child care to provide low- income families with access to a broad array of providers.¹⁹ However, states had the option of establishing a statewide limit on total payments that was below the price implied by the 75th percentile. The maximum reimbursement for child care services was then set as the actual cost of care (based on the provider's usual charges to the public) up to the 75th percentile or the statewide limit, whichever was lower. For example, both Colorado and Massachusetts set their statewide limit on reimbursements at less than the 75th percentile in an effort to serve a greater number of children with the available funds.

Unlike the Title IV- A programs, the CCDBG did not require states to establish market rate ceilings. However, many states used the same standards for both the Title IV- A and CCDBG programs. One exception was California, which established maximum reimbursement rates for CCDBG- funded child care above the 75th percentile level.

Despite requirements of the Title IV- A programs, the actual payment rates in many states lagged behind the market rates because the data used in adjusting payments tended to be updated very slowly. For example, in 1995 Alabama and Texas were basing their reimbursement rates on market rate surveys that were conducted in 1991. For states using older market rate surveys, their maximum reimbursement rates lag behind current market rates.²⁰

Under PRWORA, states are no longer required to reimburse providers up to the 75th percentile of market rates. However, most of the case study states continue to base their maximum reimbursement rates for CCDF child care on the 75th percentile of local market rates. One exception is California, which has continued the higher reimbursement rate that it used under the CCDBG for its CCDF child care.

Focusing on the maximum reimbursement rates for preschool children shows how reimbursement rates have changed under PRWORA. Although the maximum reimbursement rates vary across children of different ages, the general patterns of rate changes are similar across the age groups. As shown in table 5, the maximum reimbursement rates for full- time subsidized care for a preschool child before PRWORA ranged from $59 per week (Alabama) to $147 per week (Massachusetts) for center- based care and from $50 per week (Mississippi) to $110 per week (New Jersey) for care in a family child care home (a private home where one or more adults care for at least one unrelated child on a regular basis). Under PRWORA, the maximum reimbursement rates for preschool children in centers stayed the same or increased in most of the study states.²¹

In an effort to stretch child care dollars further, as well as to ensure family responsibility for child care, many states are stressing increased cost- sharing with parents. Before PRWORA, copayments were not permitted for AFDC recipients receiving child care assistance, were required under TCC, and could be applied, at state option, under the At- Risk and CCDBG programs. Under PRWORA, most states have increased parent copayments, with the amounts increasing as income increases. At least two states (Florida and Wisconsin) have initiated family copayments for all families receiving subsidies, including families on public assistance.

Collaboration between Child Care and Early Childhood Education

In addition to funding child care assistance programs, five of the 13 study states supplement the federal Head Start program with state funds, and 11 states invest state funds in their own early childhood education programs (table 6). The size and the scope of the early childhood education programs vary widely across the states, although most are prekindergarten programs targeted to lowincome three- and four- year- olds.

Child care and early childhood education can be viewed as separate functions within the broader system of early childhood programs. Child care focuses on parents' need for someone to care for their children while they are at work, in school, or in training, and much of child care assistance is focused on supporting a parent's transition from welfare to work. Early childhood education has typically focused on comprehensive child development services, without regard to the parents' work, school, or training schedules. Often the early childhood education program is provided for only part of the day, requiring the parent to organize work hours and child care hours around the program's hours.

Early childhood education programs, with their emphasis on developmentally appropriate care, also tend to be significantly more expensive than child care, covering fewer children with a given level of funding. For example, before PRWORA the Head Start program in California was funded at $26 per child for a half day, while center- based child care for a preschool child was funded at a maximum of about $23 per child for a full day of care.

The restricted hours of many early childhood education programs, combined with their higher costs per child relative to child care, have limited the role such programs play in serving families moving from welfare to work. However, because substantial shares of the families in early childhood education programs are welfare recipients, the changes in welfare under PRWORA create an increased need for collaboration and cooperation between the child care and early childhood education communities. Traditionally, such collaboration has been difficult to achieve. Differences in the philosophy behind the programs, separate administrative structures and funding streams, and differences in program requirements have all made collaboration complicated.

In most states, the child care and early childhood education programs are administered by different state agencies (e. g., the welfare agency vs. the education agency).²² In addition, early childhood education programs tend to have a great deal of local autonomy. The federally funded Head Start program provides funding to local grantees, bypassing state involvement completely. State- funded early childhood education programs, when they exist, often pass funds to local programs, generally based upon local school districts.²³ With early childhood education programs administered by local Head Start grantees and local school districts, there is not a unified voice for early childhood education in most states, complicating any collaboration with state child care programs. The challenge for both child care and early childhood education is to find ways to ensure the availability of child care services that support both families' efforts to be self- sufficient and the school- readiness of the children.

Efforts at building linkages between the child care and early childhood education programs have been initiated at the federal level (e. g., the federal Head

Start Bureau's Head Start State Collaboration Grants), as well as within individual states and communities, during the 1990s. Many states have been successful at beginning the dialogue between the child care and early childhood education communities. For example, efforts to develop full- day early childhood education programs have existed within most of the states for a number of years.

Notwithstanding these efforts, few states have been successful at developing fully collaborative efforts between their child care and early childhood education programs.²⁴ In particular, few states have managed to develop programs that merge child care and early childhood education resources within a program that includes elements of both programs. New Jersey has perhaps covered the most ground in building an integrated system with "GoodStarts," a program that provides a full- day preschool program in a limited number of sites. That program, which is funded from both child care and early childhood education funding streams, has been successful at bringing Head Start, child care, and early childhood education programs together to serve children in 10 urban school districts.

Because of the local focus of the Head Start program and many state early childhood education programs, collaborations have tended to be most successful as local initiatives. However, building those collaborations can be a difficult and time- consuming process. In New York City, a community organization has made several efforts to integrate Head Start and child care programs in its facilities. The goal of those efforts has been to eliminate duplication in the systems and leverage the available child care and early childhood education funds to create a program that meets the child care needs of the working family while remaining true to the child development goals of the Head Start programs. As the New York City respondent noted, collaboration is being built "one site at a time."

Efforts at collaboration between child care and early childhood education will expand as states work to meet the needs of low- income children and their families more effectively. The pressure for increased collaboration arises in response to three factors: (1) the increased flexibility in child care funding under PRWORA, (2) the significant shares of early childhood education children in families on welfare, and (3) the fact that neither child care nor early childhood education programs are able to serve all eligible families in most states. However, it is likely that the philosophical and programmatic barriers that stymied successful collaboration before PRWORA will continue to slow states' efforts to establish such collaborative programs. One proposal to facilitate more state- level collaboration that is being voiced more frequently across the states is to provide federal Head Start funding to each state to allocate across its local communities. Providing a role for the state in the process would promote greater coordination with other state early childhood education and child care programs, the proponents believe. However, some Head Start supporters are concerned that a block grant would dilute the national standards for Head Start and result in decreased investment in early childhood education.

Conclusions

The Personal Responsibility and Work Opportunity Reconciliation Act of 1996 (PRWORA) made fundamental changes in federal child care assistance programs for low- income families. Under the new Child Care and Development Fund (CCDF) block grant, states have much greater flexibility in administering their child care programs and in determining who is eligible for child care assistance and what payments are made for that assistance. In addition, PRWORA substantially increased federal and state funding for child care in its first year of operation, with many states increasing their child care investment beyond that required to draw down the federal funds available under the CCDF.

Despite the increased investment in child care under PRWORA, there is a great deal of uncertainty among state officials about the long- run adequacy of federal and state funding levels. The increasing work requirements and time limits under Temporary Assistance for Needy Families (TANF), the caps on federal funding, and an unknown economic future have made states hesitant about expanding coverage under their child care programs in the short run. In addition, the PRWORA requirement that a significant share of CCDF funds be allocated to welfare and welfare- related families means that states have less opportunity for innovative new child care programs than might have been expected under the block grant. The child care entitlements for welfare families in place before PRWORA have been replaced by a preference for assistance under PRWORA. As a result of these factors, most of the study states have made relatively narrow changes in their child care programs. The exception is Wisconsin, which has established a universal child care program that serves all eligible families seeking assistance. The state was able to undertake this major program change by investing substantial levels of new state funds and setting the eligibility criteria well below the federal maximum allowable income eligibility level.

With falling welfare caseloads and increased funds available under PRWORA, all of the study states have had more than adequate funds to serve their welfare populations. However, as was true before PRWORA, only a few of the states have been able to serve all of the nonwelfare low- income families seeking child care assistance. The challenge remains in each of the states to provide enough child care assistance to meet the demands of welfare reform while continuing to serve nonwelfare working poor families. In an effort to ensure that the child care demands of welfare reform do not completely crowd out child care support for the working poor, several states have invested additional state dollars in child care that is targeted to that population. However, no state is considering guaranteeing child care assistance to all families who would be eligible under the federal maximum allowable income levels.

In contrast to the limited changes in program design, the study states have made more significant changes in the administration of child care assistance. Four of the seven states that had not established a fully seamless system of child care assistance before PRWORA have moved to consolidate child care assistance programs within a single state agency, an important first step to an integrated system. Even in states that had achieved substantially seamless systems before PRWORA, additional administrative refinements are being contemplated. For example, Florida intends to build a system of early childhood programs that bridges the administration of child care and early childhood education programs. Although less explicit as a goal in the other states, efforts at better coordination between child care and early childhood education programs are under way in all of the states. While the traditional philosophical and programmatic barriers that have slowed collaboration efforts in the past still exist, the increased pressures on both systems under PRWORA are likely to generate more progress in the future.

Overall, the study states' initial responses to the opportunities to redesign child care assistance under PRWORA have been relatively limited. However, as states continue to reevaluate their child care systems, develop their TANF programs, and gain greater experience with child care needs under TANF, they are likely to take greater advantage of the flexibility of PRWORA to restructure their child care systems.

Notes

Tables

Table 1. Federal Funding for Child Care Assistance Programs for Low-Income Families under Prior Law and PRWORA (FY 1997 funding, in billions)

a. Federal Budgetary Implications of the Personal Responsibility and Work Opportunity Reconciliation Act of 1996. Congressional Budget Office, December 1996.
b. The CCDBG was authorized through FY 1995 and continued to operate under a continuing resolution in FY 1996. The estimated funding level for FY 1997 equals the amount appropriated for the CCDBG in each of previous two fiscal years.
c. "Child Care Program Instruction." Child Care Bureau, Administration for Children and Families, Department of Health and Human Services, ACYF-PI-CC-96-17, October 30, 1996.

Table 2. States' Expected Funding for Child Care under PRWORA in FY 1997

Table 3. Seamlessness of the Child Care Assistance Systems in the Statesbefore PRWORA

Table 4. Monthly Income Eligibility Limits (for Family of Three), by State

Table 5. Maximum Weekly Reimbursement Rates for Full-Time Subsidized Child Care for Preschool Children under Title IV-A Child Care and PRWORA

Table 6. State Supplemental Funding for Head Start and Major State-Funded Early Childhood Education Programs

About the Authors

Sharon K. Long is a senior research associate in the Health Policy Center of the Urban Institute. Her research has covered a wide range of issues related to poverty, welfare policy, employment and training programs, child care, health care, and long-term care.

Gretchen G. Kirby is a senior research analyst with Child Trends, Inc., whose work focuses on child care issues as well as the methods of collection, use, and reporting of social indicators of family and child well- being at the federal and state levels.

Robin Kurka was a research assistant in the Income and Benefits Policy Center of the Urban Institute. Her research interests included child care and welfare issues.

Shelley Waters is a research associate at the Urban Institute's Population Studies Center. She specializes in child welfare and related children's, youth, and family issues.

This report is part of The Urban Institute's Assessing the New Federalism project, a multi- year effort to monitor and assess the devolution of social programs from the federal to the state and local levels. Alan Weil is the project director and Anna Kondratas is the deputy director. The project analyzes changes in income support, social services, and health programs. In collaboration with Child Trends, Inc., the project studies child and family well- being.

The project has received funding from the Annie E. Casey Foundation, the W. K. Kellogg Foundation, the Henry J. Kaiser Family Foundation, the Ford Foundation, the John D. and Catherine T. MacArthur Foundation, the Charles Stewart Mott Foundation, the Commonwealth Fund, the Stuart Foundation, the Robert Wood Johnson Foundation, the Weingart Foundation, the McKnight Foundation, the Fund for New Jersey, and the Rockefeller Foundation. Additional funding is provided by the Joyce Foundation and the Lynde and Harry Bradley Foundation through a subcontract with the University of Wisconsin at Madison.

The authors would like to thank the many state and local officials and others who participated in the interviews and provided the information contained in this report. We also acknowledge the Urban Institute and Child Trends staff who conducted the site visits and prepared the background papers that served as the source for the state- specific information. We are particularly grateful for the many contributions of Sandra Clark.

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