Behind the Numbers: Protecting Policy Gains

2 million plus

Number of children who receive child care subsidized by state and federal government

An oft-touted success of the 1996 welfare reform was the authorization of the Child Care Development Block Grant (CCDBG), federal funding to states to assist low-income working families with their child care expenses. Indeed, federal funding for child care more than doubled in the first five years after welfare reform. Through the CCDBG, the federal government signaled its commitment to supporting parents' work efforts and children's well-being.

Many states followed suit, supplementing federal CCDBG dollars with a combination of state general revenue dollars and additional funds diverted from their Temporary Assistance to Needy Families programs. All told, more than $12 billion dollars was spent by state and federal governments to subsidize the child care costs of low-income families in 2009.[i]

But state child care assistance programs are currently in crisis. At the federal level, CCDBG funding remained flat through most of the last decade, despite serious unmet demand. The much-welcomed $2 billion CCDBG supplement provided to states as part of the 2009 stimulus package prevented steep declines in state child care spending during the Great Recession.

However, stimulus funds are quickly drying up,[ii] many states remain in serious fiscal crisis and child care caseloads are falling. In Illinois alone, the average monthly number of children served by CCDBG funds in 2009 was 68,000, down from 82,200 in 2006 and 103,000 during the strong economy of 2001.[iii]

Should we see further declines in child care spending next year— and severe cuts have been proposed in many state legislatures and at the federal level—thousands more low-income families will lose benefits, with potentially significant consequences in terms of employment and child and family well-being. A brief look at the evidence suggests that cutting this funding is shortsighted for at least three reasons:

Child care spending encourages employment.

One primary goal of subsidizing families' child care costs is to promote parental employment. Child care is expensive. Families in poverty spend approximately 29 percent of their incomes on child care (compared to about 15 percent for families at 100 to 199 percent of poverty).[iv] Subsidies alleviate some of this financial burden and they encourage employment. Studies demonstrate statistically significant associations between subsidy use and employment, increased work hours, fewer employment disruptions and job retention.[v] Yet with fewer than one in six eligible families receiving CCDBG subsidies, the employment benefits of child care policy remain largely unrealized.[vi]

Child care spending is economic stimulus.

Reducing government spending on child care assistance may undermine our already sluggish economy. A recent economic impact analysis by Illinois Action for Children found that child care and early education spending acts as an economic engine by increasing the workforce participation of parents receiving subsidies, directly contributing to job creation in the child care and early education sector, and indirectly fueling growth in other industries as new workers (parents and providers) purchase services with their new earnings.[vii]

Funding declines could exacerbate ongoing program challenges.

Current funding levels for the child care subsidy system do not cover the vast majority of eligible participants, and additional cuts would undoubtedly spur further caseload declines. Moreover, spell lengths are short (often just a few months) and there is considerable cycling off and on the subsidy system over time. This instability—even when parents remain eligible for benefits—suggests that the current system is not realizing its full potential. Further research is needed to understand the factors that explain subsidy instability, but short eligibility periods and cumbersome application procedures are likely contributors, as are fluctuating and unstable employment circumstances that make it difficult for recipients to successfully comply with program requirements.

To increase stability, there is growing interest in revising eligibility criteria to reduce the transaction costs of application and recertification and to relax the overly tight link between work schedules and child care schedules. Such measures would be a welcome step toward increasing subsidy duration and reducing instability for current recipients; however, unless funding were to increase, these changes might have the unintended consequence of further limiting program access to new entrants. Expanded child care funding, then, is a critical piece of improving the operation and implementation of child care assistance programs

Welfare reform brought well-deserved attention to the child care challenges of low income working families. Stagnant CCDBG funding levels and declines in coverage over the past several years threaten the program's success, yet the numbers are on its side. Child care subsidies have effectively expanded child care opportunities, supported low-income families in their employment efforts and stimulated the economy. A sustained government investment in child care is sound public policy.

Julia R. Henly is an associate professor at SSA.

[i] Hannah Matthews (March, 2011). Child Care Assistance in 2009: Spending Update. Center for Law and Social Policy. http://www.clasp.org/admin/site/publications/files/childcareassistance2009.pdf

[ii] In addition to the $2 billion for child care, stimulus funds made available through the 2009 American Reinvestment and Recovery Act (ARRA) authorized funding for a range of early care and education programs and activities. For overview, see http://www.ncsl.org/documents/cyf/ARRAopportunitiesforECE.pdf

[iii] http://www.clasp.org/admin/site/publications_states/files/ccmap09il.pdf

[iv] U.S. Census Bureau, Survey of Income and Program Participation (SIPP) 2005 Data, "Who's Minding the Kids? Child Care Arrangements: Spring 2005." http://www.census.gov/population/www/socdemo/childcare.html.

[v] See for example, Shaefer, S., Kreader, L., Collins, A. (2006). Parent Employment and the Use of Child Care Subsidies. Child Care and Early Education, Research Connections. http://www.childcareresearch.org:80/SendPdf?resourceId=8725; Press, J. E., Fagan, J. and Laughlin, L. (2006), Taking Pressure Off Families: Child-Care Subsidies Lessen Mothers' Work-Hour Problems. Journal of Marriage and Family, 68: 155–171. doi: 10.1111/j.1741-3737.2006.00240.x; Goerge, R. Harris, A., Bilaver, L.M., Franzetta, K., Reidy, M. (2009). Employment outcomes for low-income families receiving child care subsidies in Illinois, Maryland, and Texas. Final report to U.S. Department of Health and Human Services Administration for Children and Families, Office of Planning, Research, and Evaluation. Grant number 90YE0070; Danziger, S.K., Ananat, E.O., & Browning, K.G. (2004). Childcare subsidies and the transition from welfare to work. Family Relations, 53(2), 219-228; Meyers, M.K., Peck, L.R., Davis, E.E., Collins, A., Kreader, J.L., Georges, A., Weber, R., Schexnayder, D.T., Schroeder, D.G., & Olson, J.A. (2002). The dynamics of child care subsidy use: A collaborative study of five states. New York: National Center for Children in Poverty; Lee, B.J., Goerge, R., Reidy, M., Kreader, J.L., Georges, A., Wagmiller, Jr., R.L. et al. (2004). Child care subsidy use and employment outcomes of TANF mothers during the early years of welfare reform: A three-state study. Chicago: University of Chicago, Chapin Hall Center for Children; Berger, M.C. & Black, D.A. (1992). Child care subsidies, quality of care, and the labor supply of low-income, single mothers. The Review of Economics and Statistics, 74(4), 635-642.

[vi] The proportion of eligible families receiving subsidized child care varies greatly by state due to state-specific eligibility criteria and variations across state child care markets, demographics and implementation approaches. The estimation strategies employed across studies also vary, further contributing to different coverage estimates. Nevertheless, I know of no study that puts the estimate over 17 percent of eligible families.

[vii] Illinois Action for Children (March, 2010). Child Care and Early Education in the Cook County Economy: A Report on the Economic Impact of Early Care and Education. http://www.actforchildren.org/site/DocServer/MD_P_ResearchPublications_PDF_s_EconImp2010.pdf?docID=242