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. States Are Expanding Child Care Subsidy Programs to Meet Current Needs

In response to welfare reform, the seven states are expanding their funding for child care 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. States Use Various Means to Allocate Limited Child Care Resources

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. 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. 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. The states’ ability to fund child care programs adequately in the long term, however, remains unknown. States Are Initiating Efforts to Ensure Adequate Supply of Providers

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. 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. States Are Addressing Shortages and Preparing for Increased Demand Through Various Initiatives

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. States’ Success in Expanding Provider Supply Is Unknown

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. Therefore, for the near term, the supply of providers appears adequate to meet demands resulting from welfare reform. Some of the seven states are making incremental changes to their standards for child care providers as they expand their child care subsidy programs. To be effective, standards for child care providers must be enforced. 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. Priority is given to (1) TANF families, (2) transitional families, and (3) families at risk of welfare dependency.
Why GAO Did This Study

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.

What GAO Found

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.