September 19, 2002 | Backgrounder on Welfare and Welfare Spending
In recent years, welfare and child care policy have become linked. The 1996 Personal Responsibility and Work Opportunity Reconciliation Act (Public Law 104-193) replaced the failed Aid to Families with Dependent Children program with the new Temporary Assistance for Needy Families (TANF) program. TANF requires welfare recipients to work or prepare for work in order to receive public assistance. These working parents often need financial assistance to place their children in child care during the workday.
The positive effects of welfare reform have been dramatic. Welfare caseloads were cut in half. The employment of the most disadvantaged single mothers increased by 50 percent to 100 percent. As dependence decreased and employment grew, child poverty dropped substantially. After remaining unchanged for a quarter century, the poverty rate of single mothers dropped by a third and is now at the lowest point in U.S. history.
The expansion of child care assistance has been an important element of welfare reform. Since 1996, government child care spending has more than tripled. Most states now have child care assistance programs that aid families with incomes well above the poverty level.
Most of the increase in child care spending has been financed by savings generated by the decline of conventional welfare caseloads rather than by new congressional appropriations. As welfare caseloads fall, less money is spent on old-style monthly welfare checks; the unspent funds have been redirected into expanded child care assistance.
Despite the dramatic increase in child care funding over the past six years, activists and some Members of Congress are still lamenting an alleged "child care crisis." However, many of the arguments concerning welfare and child care are outdated or misleading. This paper debunks six persistent myths about child care in America.
The statistic most frequently quoted by those claiming a "child care crisis" comes from a U.S. Department of Health and Human Services (HHS) report issued by the Clinton Administration in December 2000. This report claimed that only 12 percent of children needing assistance received federal child care aid in 1999.2 This implies that the other 88 percent of families are impoverished and unable to afford the child care they desperately need. Then-HHS Secretary Donna Shalala said the report "confirms that working families still do not have adequate access to safe and affordable child care for their children."3
There were two huge errors in the Clinton Administration's report on child care. First, it vastly overestimated the number of families in need of government child care assistance.4 Second, it substantially understated the number of families already receiving support.
Because of these errors, the Clinton Administration's child care report greatly overstated the number of children in need of child care subsidies. The report concluded that nearly 15 million children needed assistance, while the real figure may be closer to 4 million.
In addition to overestimating the number of children in need of child care assistance, the Clinton Administration's report also substantially undercounted the number of children who currently receive assistance. The report counted only the children who were receiving aid from the federal Child Care and Development Fund (CCDF). Other government programs that provide child care assistance were not considered in the calculation.
While most child care assistance is funded through the CCDF, the care for approximately 500,000 children is subsidized through separate TANF child care programs or the Social Services Block Grant (SSBG).8 Additionally, more than 900,000 children per year are enrolled in Head Start programs, which are early education programs that serve a child care function by providing supervision to enrolled children for several hours per day. Children assisted by these programs were omitted from the count of those receiving aid.
Improved Estimates. Recognizing the problems with the Clinton Administration's child care report, HHS recently used more realistic standards in a new calculation of the percentage of needy children receiving subsidies. The new research calculated the number of families potentially in need of child care assistance who (1) had a family income at or below the poverty level for a family of three; (2) participated in work activities for at least 20 hours per week; and (3) had children under school age.
Under this standard, a full 59 percent of all children in potential need of assistance were found to be currently receiving aid.9 Moreover, the 59 percent figure did not include either children enrolled in pre-kindergarten or Head Start programs or children receiving informal care from friends and relatives. If these types of care were included in the tally, calculations would show that as much as 80 percent or 90 percent of needy children receive child care assistance or some type of informal care.10
Most government child care spending comes through two programs: the CCDF and TANF. Child care spending for these two programs (including their predecessors) rose from $2.2 billion during 1992 to approximately $11 billion in 2002--an increase of 409 percent. (See Charts 1 and 2 and Appendix.)11
Child care spending has increased particularly rapidly since the enactment of welfare reform in 1996. At that time, spending was $3.2 billion.12 Over the next six years, outlays more than tripled, rising (as noted) to $11 billion in 2002.
Moreover, total child care funding is not limited to the $11 billion annual child care investment by TANF and the CCDF. Several additional federal and state programs either subsidize child care directly or reduce the need for subsidized child care programs.
For example, the Head Start program spends over $6.5 billion per year to provide services for more than 900,000 children. In addition, 41 states spend $1.7 billion annually to provide over 725,000 children with pre-kindergarten programs, thereby reducing those families' demand for child care services.13 Some $1.9 billion is spent annually on the Child and Adult Care Food program; 97 percent of those aided by this program are children in Head Start or child care centers receiving subsidized meals.14 The 27 states with child care tax breaks also assist resident parents with child care expenses.15
Table 1 shows that these programs will provide an additional $16 billion for child care and related services in 2002. However, the dependent care tax credit and dependent care assistance affect mainly middle-income families, and pre-kindergarten programs serve children at all income levels. The rest of the programs shown in Table 1 are targeted mainly toward lower-income families. Altogether, some $20 billion of the spending shown in Table 1 is focused on poor and lower-income families.
Advocates of increased spending for child care often assume that any increase in government funding for child care must entail congressional authorization and appropriation of new child care funding. For example, during the debate over TANF reauthorization in the House of Representatives earlier this year, liberals universally argued that if Congress wanted more welfare recipients to work, it would have to authorize and appropriate additional child care spending.
On the surface, this argument appears plausible. Clearly, if more single mothers move off welfare and into the labor market, the government will need to spend more on child care. However, experience demonstrates that increased child care spending does not require new congressional appropriations. Instead, most increases in government child care spending have come and will continue to come from the fiscal savings generated by welfare reform itself.
For example, in 1996 when Congress passed welfare reform, the federal and state governments together spent $3.2 billion on child care. By 2002, child care spending had risen to $11 billion--an increase of $7.8 billion in annual spending.16 However, as Chart 3 shows, only $2.2 billion of this spending increase came from new funding that was authorized and appropriated by Congress.17 The remaining $5.6 billion came from savings in the TANF funding that had been redirected into child care subsidies.
Overall, in the six years since Congress passed welfare reform, child care spending has increased by $27.9 billion. Of that, some 75 percent ($21 billion) came from TANF savings. By contrast, only 25 percent ($6.9 billion) came from new congressional appropriations.18
How did welfare reform generate savings in the TANF program that could be used to pay for child care? The mechanism was simple: The reform required an increasing share of TANF recipients to obtain jobs or prepare for work. These "work" requirements led to a dramatic reduction in TANF caseloads as recipients left welfare and entered employment; since 1996, the TANF caseload has been cut in half. As the TANF caseloads fell, the amount states spent on monthly cash TANF payments decreased proportionately. States were permitted to retain unspent TANF funds and redirect them to other purposes, including child care subsidies. The result has been an increase of $21 billion in child care spending without any increased cost to the taxpayer.
Contrary to claims made by opponents of welfare reform, new federal appropriations for child care are not needed to intensify or expand reform. If the work requirements in TANF are strengthened, the TANF caseload will fall again. This will generate even larger funding surpluses, which can be converted into increased child care subsidies.
Members of Congress have consistently clung to a belief that states use strict eligibility standards to exclude poor working families from child care assistance. The numbers tell a different story. In 2001, eligibility standards for CCDF aid for a family of three ranged from a low of $18,048 in Alabama to a high of $47,586 in Connecticut. The average state set an upper eligibility standard at 196 percent of the federal poverty level, or $28,675 for a family of three,19 and 24 states granted eligibility to families with incomes at 200 percent of the federal poverty level or higher.20
In addition to generous income standards, the other child care eligibility requirements that are unrelated to income are designed to be inclusive. Parents need only be engaged in some work, education, or training activities and have a child under the age of 13 (19 for disabled children). The family does not need to be a TANF participant, and TANF recipients need not count child care assistance against the program's five-year federal time limit for receiving support.
Some critics of current child care policies acknowledge that states have liberal eligibility standards but assert that never-ending waiting lists freeze most eligible families out of child care assistance. In fact, however, two separate analyses that examined caseloads in 1999 and 2001 found that:
In addition, analysts have suggested that some shortages be remedied by simply shifting excess child care funds from other counties or by shifting excess TANF child care funds to eligible non-TANF families.24 Most states have ample TANF funds that are spent on non-essential services and could be used to provide more child care if needed.
Overall, generous eligibility standards and an ability to serve increasing numbers of eligible families have allowed the number of children served to increase from 2 million in 1996 to 3.6 million in 2002.25 (See Chart 4.)
When examining the number of eligible children receiving subsidies, it is important to note that millions of eligible families who know about child care programs choose not to enroll their children in them. Child care caseworkers interviewed by HHS suggest that families have sufficient knowledge of these programs, and surveys show that as many as 90 percent of TANF recipients report knowledge of their own child care eligibility.26 Enrollment of children in school or a Head Start program, or informal child care arrangements with immediate family, neighbors, or other parents, often lead families to turn down public child care assistance. Government programs should not be considered failures simply because parents choose to use other child care arrangements.
MYTH: Child care subsidies are too small to make child care affordable.
FACT: The typical subsidized family at the poverty level pays just $11 per week for their child's care.
This myth is yet another example of the use of an outdated statistic that does not reflect current realities. A 1999 HHS study that reported that families in poverty with preschool children spend 18 percent of their income on child care was based on data from 1993--when child care funding was one-fifth of its current level.27
A more recent study surveyed the co-payment policies and government rates for all 50 states to determine how much CCDF-enrolled families were paying for child care in 2001. The study found that the average three-person family with an income at the federal poverty level was paying a weekly co-payment of just $11 per child. To pay the child's $126 weekly bill to the child care facility, the local CCDF-funded program was funding the other $115.28 (See Chart 5.) On an annual basis, the CCDF pays $6,000 for the average enrolled child at the federal poverty level, while the family contributes just $567, or 4 percent of their gross income.29 Clearly, updated statistics tell a very different story than those from 1993.
At just $11 per week, it should come as no surprise that state and local child care offices report little difficulty in collecting these small co-payments and assert that their client families do not consider them a significant financial burden.30 Furthermore, because most states base co-payment rates more on family income than on child care facility costs, families are insulated from increasing prices or being forced to choose the least expensive care.
One of the goals of the 1996 welfare reform was to move single mothers off welfare and into employment. Since the enactment of reform, welfare caseloads have plummeted, employment of single mothers has soared, and the poverty rate of single mothers has dropped to the lowest point in national history.
Clearly, welfare reform and child care are linked. If low-skilled single mothers are moved into the labor force, child care assistance must be provided. But much of the public policy debate concerning child care is misleading. Government spending on child care has more than tripled since 1996. Most states now run broad child care subsidy programs that support families with incomes well above poverty.
If welfare reform is to continue and expand, additional funding for child care must be provided. However, as in the past, most of this funding should come from savings that reform has generated in the TANF program rather than from new congressional appropriations.
--Brian M. Riedl is Grover M. Hermann Fellow in Federal Budgetary Affairs in the Thomas A. Roe Institute for Economic Policy Studies at The Heritage Foundation.
Classifying TANF and CCDF Spending
Throughout this paper, child care spending increases since 1996 have been classified as coming from TANF savings or from federal CCDF spending increases. To calculate these expenditures, Table 3 reclassifies each program from Table 2 as follows:
2. Untitled statistical tables attached to press release from Department of Health and Human Services, December 6, 2000, at http://www.hhs.gov/news/press/2000pres/20001206.html.
3. Press release from Department of Health and Human Services, December 6, 2000, at http://www.hhs.gov/news/press/2000pres/20001206.html.
4. The report categorized a child as being in need of aid if the child met the federal eligibility standards for the Child Care and Development Fund. However, these eligibility standards were never intended to measure who is needy and who is not. They are simply the upper income boundary for use of federal CCDF funds. The federal standard tells states that any child care assistance granted to families wealthier than the specified levels must come from a separate program and be paid for with the state's own funds.
6. According to data provided by the Department of Health and Human Services as well as an Urban Institute memo, "How TRIM3 models eligibility for CCDF subsidies," at http://www.acf.dhhs.gov/programs/ccb/research/datasymp/2000/gianmem.doc.
8. "Analysis of Child Care Needs and Enrollment," working paper provided by the Department of Health and Human Services in July 2002. Even this 500,000 amount is a conservative estimate that excludes state TANF funding.
10. "Analysis of Child Care Needs and Enrollment" reports that poor families using non-parental care state that relatives and siblings are by far the most common caretakers of their young children. Using that information, it can be assumed that the vast majority of the final 41 percent of needy eligible families not enrolling in child care programs fall into this category.
14. The U.S. Department of Agriculture reports that 2.6 million children receive assistance from the Child and Adult Care Food program. See http://www.fns.usda.gov/cnd/care/cacfp/cacfphome.htm.
19. Calculated by The Heritage Foundation using Ewen, Blank, Hart, and Schulman, State Developments in Child Care, Education, and School-Age Care 2001, pp. 25-31. The 2001 federal poverty line for a family of three was $14,630.
20. Even those generous eligibility standards do not tell the whole story. Eleven states also have "extended eligibility" programs, whereby families can continue receiving assistance even after their incomes increase beyond the initial eligibility level. For example, a Massachusetts family of three can qualify for child care assistance if its income falls below $28,968 and, once in the system, may continue receiving assistance until its income reaches $49,248. Many of these extended eligibility programs, which were designed to maintain assistance to families completing the transition to self-sufficiency, effectively subsidize middle-class families at the expense of working-class taxpayers. See Ewen, Blank, Hart, and Schulman, State Developments in Child Care, Education, and School-Age Care 2001, pp. 25-31.
21. Based on a 1999 sample of 17 states from Abt Associates, National Study of Child Care for Low-Income Families: State and Community Substudy Interim Report, prepared for the Department of Health and Human Services, November 2000, pp. 44-46.
22. Ibid. The vast majority of sampled states enroll TANF leavers in transitional child care (TCC) programs to ensure continued assistance, but even states without formal TCC programs were able to provide at least temporary assistance to all eligible TANF leavers that applied. Although Indiana and Virginia reported some difficulty providing TCC to all eligible TANF leavers, they did not need to waitlist any eligible families until after their 12-month guarantee for TCC had ended.
25. This includes funding for TANF, CCDF, SSBG, and Head Start, expressed in 2002 dollars. Data based on enrollment estimates assumed in President Bush's 2003 budget request, as provided by the Department of Health and Human Services Child Care Bureau. SSBG and TANF totals between 1996 and 2001 are author estimates based on 2002 data and prior trends. Note that a fraction of Head Start recipients may also receive child care funding from another program.
27. "Access to Child Care for Low-Income Working Families," Department of Health and Human Services, 1999, at
28. Government subsidy amounts are calculated as the typical subsidy for a CCDF-funded 4-year-old child spending 45 hours per week in a licensed non-accredited child care facility priced at the maximum state reimbursement rate. Heritage Foundation calculations based on data from Ewen, Blank, Hart, and Schulman, State Developments in Child Care, Education, and School-Age Care 2001, pp. 35-48.