Child Care Services in New York City
December 18, 1997

H. Carl McCall State Comptroller
State of New York

Office of the State Deputy Comptroller for New York City

Additional copies of this report
may be obtained from:
Office of the State Comptroller
Office of the State Deputy Comptroller
270 Broadway, 23^rd Floor
New York, NY 10007

Telephone: (212) 417-5442

Fax: (212) 417-2144

e-mail: js@osc.state.ny.us

Contents

I. Introduction and Summary

II. Eligibility

III. Program Settings

IV. The Voucher Program

V. The Demand for Services

VI. Potential Impact of Welfare Reform

I. Introduction and Summary

New York City's child care system, the nation's largest, is facing a major challenge. The system, which provides subsidized child care, largely for the children of lower-income working families, is currently operating at capacity and has long waiting lists for placements. Now, an already stressed system is facing a large influx of children from families who, under welfare reform, will be provided child care services while their parents fulfill new work and training requirements.

Over the past several years, the demand for child care has grown more rapidly than the supply of available slots, causing severe shortages for both low-income parents in the labor force and for those moving from welfare to work. In FY 1997, the City provided subsidized child care for 70,400 children. There is currently a waiting list of 20,000 eligible children for City-run child care programs, more than three times the number of children that were waiting in FY 1987. Thousands more are waiting for a limited number of vouchers that can be used to purchase child care from private providers.

It is estimated that the City will spend $375 million for the provision of child care services in FY 1998, with the Federal and State governments covering 69 percent of the cost.⁽¹⁾ The portion funded by City will total $116 million or 31 percent. According to the City, the cost of maintaining a child in a program under contract to the City averages $6,700, a range from $5,300 to $11,200.

Welfare reform could nearly double the demand for child care services. If the State enforces the two-year work requirement and the City does not displace the working poor who are currently receiving subsidized child care, an additional 61,000 children annually may have to be served by the end of FY 1999. The City has provided funding for an additional 27,500 children by FY 2001. Thus, the City may need to provide services to an additional 33,500 children. Demand could be even greater depending on the outcome of certain assumptions.

The annual cost of providing services to these children could range between $135 million and $225 million beginning in FY 2000 depending on the child care setting. The State will be receiving Federal funds that can be used for these purposes, but it remains to be seen whether they will be shared with localities or used to help balance the State's budget. The cost of such services could be further mitigated if the State keeps its promise to help localities provide preschool services to children between the ages of three and five.

Changes in the child care system are taking place in a climate of dramatic Federal and State program and budget reforms, as well as growing public debate. The most recent round at the Federal level builds upon prior efforts to expand welfare and child care program flexibility while increasing accountability at the State and local levels. Careful planning and creative use of available resources take on increasing importance in this climate. If the system is poorly designed or badly implemented, and parents cannot find a dependable child care placement, the objectives of welfare reform are undermined. Public investment in a well-designed, soundly financed system increases the likelihood that a mother moving from public assistance can find a job and remain employed.

This report highlights several important public policy questions that the City may need to address. Will the City further increase the size of its child care program or displace the children of lower-income working parents who are currently using most of the available slots? If the City elects to increase the size of the program to accommodate the expected increases, how quickly can the City add capacity to an already overextended system? Will the mix of opportunities created by the City result in a system that provides affordable, safe and reliable child care for all families? The need for public investment in a sound child care system in New York State was reinforced this year by two leading business organizations that noted the need for such concentrated attention. The White House Conference on Child Care also highlighted the need to devise and finance a workable child care system.

II. Eligibility

New York City provides subsidized child care to eligible children between the ages of six weeks and 13 years through the Agency for Child Development (ACD), a division of the Administration for Children's Services (ACS), and the Office of Employment Services (OES), a division of the Human Resources Administration.

The parent who wishes to obtain child care can apply at one of four ACD offices, either directly or by referral from a child welfare or other social service program. An interview is then held to determine whether the family is qualified in accordance with specific financial and social criteria. Financial eligibility requires that a family's gross income be no greater than two and one-half times the Federal poverty level, adjusted for family size (e.g., $39,917 for a family of four in 1996 and $51,432 for a family of six). Public assistance recipients and all those with income less than the poverty level (e.g., $15,967 for a family of four) are exempt from all fees. All others have to pay a fee, based on a graduated schedule that reaches $90 per week for those earning the maximum allowable income.

Eligibility rules require that a family be qualified under one of nine criteria. Top priority is given to families who are receiving protective or preventive child welfare services, and to public assistance recipients who are engaged in workfare or job training, or are actively seeking jobs. The other criteria, in priority order, are: non-public assistance recipients who are employed, in training, or seeking employment and whose incomes meet Federal child care guidelines; non-public assistance recipients whose incomes do not meet the Federal guidelines but have children with special needs; non-public assistance recipients who do not qualify under Federal guidelines but are in training; non-ACS social service referrals; parents who are ill or incapacitated, or who must be absent from the home; and parents who are seeking employment.

Parents who qualify for child care can either enter a program under contract to ACD or accept one of a limited number of vouchers that can be redeemed at a private child care facility or used as payment for informal care provided by a friend, neighbor or relative. Frequently, however, there are no available spaces so a child is placed on waiting lists for either group or family placements. It can take anywhere from a few weeks to several years to obtain a desired placement. However, child care, once obtained, continues for as long as the family remains eligible, with fees adjusted as income changes.

III. Program Settings

ACD contracts with 302 group and family child care providers at 427 sites to provide services. Most sites are owned and/or operated by not-for-profit providers; 140 are leased by the City from private landlords and operated by not-for-profit providers; and four centers are City-owned. Most of these providers are completely subsidized by ACD. In addition, there are some independent providers who will allot the City a portion of their openings. In total, there are more than 18,000 persons employed in both public and private settings. Parents may also use informal care provided by family or neighbors.

The various types of subsidized child care are discussed below and the associated costs are shown on Table 1:

• Group Child Care Centers offer full-day, year-round care for children from six weeks to six years of age. Some centers also run after-school programs for school-age children up to age 13. Most centers are run by community-based organizations which are licensed and inspected by the New York City Department of Health (DOH). By law, all centers must have certified early childhood teachers.

• Family Child Care takes place in operators' homes where a single provider cares for up to six children whose ages can range from six weeks to 13 years. Larger operations, called group family care centers, care for up to 14 children and have more than one provider. They are also registered and inspected by the DOH.

• Informal Child Care includes care by a relative, friend, or neighbor that takes place in either the care giver's home or in the child's home. Informal child care providers must enroll with ACD for payment purposes, but currently are not licensed or inspected and are not required to meet health or safety requirements.
• 
  
  

Table 1

Average Weekly Provider Fees

by Category of Child Care

Data Source: N.Y.C. Office of Management and Budget.

IV. The Voucher Program

Child care vouchers were first offered by the City in 1984 to make coverage available in neighborhoods with few, if any, child care centers. The number of vouchers issued ranged from 1,000 to 1,500 annually until 1992 when the Federal Child Care and Development Block Grant provided funds for additional vouchers. To receive this funding, however, the City and the State had to agree to allow parents unrestricted choice of any legal form of care. Since 1992, the number of vouchers has grown substantially, largely reflecting the growth in Federal funding, and reached 12,660 in FY 1997.

Vouchers can be issued to families to help subsidize child care when there are no available child care centers near the home or workplace of an eligible family or when nearby centers do not have openings. Vouchers are also issued to parents to find their own source of child care. The average weekly value of a voucher is $124, and varies according to the type of care and the age or special circumstances of the child. The City has made a policy decision to meet the growing demand for child care primarily by offering vouchers. City officials are working with private child care providers to expand the number of openings for use by the City.

Vouchers are issued by ACD and can be used either for placements at privately operated facilities or for the purchase of informal care. Some of the ACD vouchers are allotted to OES which go to parents engaged in work or work-related activities and are almost always used for informal care. Because eligibility is determined strictly by the parent's activity, parents can lose their vouchers when they change activities (e.g., complete a work or training assignment or leave public assistance). If these parents enroll in another program, they have to submit to the child care eligibility process once again.

V. The Demand for Services

The number of children receiving City-subsidized child care grew gradually from 42,400 in FY 1987 to 54,117 in FY 1996 (see Graph 1). In FY 1997, the caseload soared to 70,400 children. The area that showed the most dramatic growth was vouchers, growing from 3,900 in FY 1996 to more than 12,600 in FY 1997. This increase reflects the City's initial response to the child care requirements of Federal welfare reform.

In FY 1998, the City will provide subsidized child care for 67,000 children. Of this total, 47,400 will receive group child care, 9,100 will receive family child care, and 10,500 will receive vouchers for the purchase of child care services.⁽²⁾

Over the past few years, the demand for child care has grown more rapidly than the supply of available slots, causing severe shortages for both working families and for those moving from welfare to work. The City reports that in FY 1997 there were 16,630 children on the waiting list for group and family child care services, three times the number in FY 1987 (see Graph 2).⁽³⁾ Since the end of FY 1997, the waiting list has grown to over 20,000 children. If the City were to fully address this unmet demand at the average cost of $6,700 per child, it could cost more than $134 million annually.

VI. Potential Impact of Welfare Reform

In August 1996, the Federal government enacted welfare reform that eliminated the open-ended entitlement funding of the Aid to Families With Dependent Children (AFDC) program and replaced it with a block grant to the states. AFDC's replacement, the Transitional Assistance to Needy Families (TANF) program, includes a five-year lifetime limit on cash benefits. It also requires nearly all adult recipients to work within the first two years of receiving benefits and up to 50 percent of the adults to be engaged in approved work activities by Federal FY 2002.

Since the private sector has not been able to provide jobs to all welfare recipients subject to the work requirements, the City will rely on its existing Work Experience Program (WEP), which places welfare recipients in certain City agencies and not-for-profit organizations.

In FY 1999, the TANF two-year work requirement will take effect and, if enforced, we estimate that at least 50,000 additional adults will be required to work or be engaged in permissible work-related activities, such as vocational training. TANF requires that parents making the transition from welfare to work be provided with child care for their children less than six years of age. The State has decided to extend this benefit to children up through age twelve.

OES will remain responsible for providing child care opportunities to the children of parents on WEP assignments as welfare reform is implemented. To date, the vast majority of the WEP parents have used their vouchers to obtain informal child care from neighbors or family members. Although OES must offer each parent two formal child care opportunities, a recent report by the Public Advocate found that OES does not give parents sufficient information to make informed decisions and instead steers parents into the unregulated, unmonitored and decidedly less expensive informal care.⁽⁴⁾

Currently, the children of low-income working parents hold the vast majority of available child care placements. Unless additional placement opportunities are created, these children could be displaced since public assistance recipients are given priority for child care services. Should this occur, the chances are greater that the working poor will end up on public assistance themselves.⁽⁵⁾ We have previously expressed concern that the intensified competition for entry level jobs will depress wages for the already sizeable low-wage labor force.⁽⁶⁾

Apart from the social and economic implications, the potential financial costs to the City could be sizeable. The potential demand for child care could reach 61,000 children annually by FY 1999, but the City has provided funding for only 27,500 children by FY 2001. The unmet demand translates into an annual cost of between $135 million and $225 million beginning in FY 2000. Our analysis rests on a number of assumptions which, as discussed below, are subject to change.

As shown on Table 2, we estimate that the number of TANF cases will total 210,000 by June 30, 1999. From this amount, 50,000 cases were subtracted because they represent cases without adults (e.g., children with legal guardians not subject to work requirements) and cases where benefits are being withheld primarily for failing to meet work requirements.

Based on the most recent data available from the State, 61.8 percent of the remaining TANF cases receive benefits for two years or more.⁽⁷⁾ Thus, 99,000 cases would be subject to the two-year work requirement. Although unsubstantiated, the City contends that 49,000 cases already meet the two-year work requirement through participation in WEP or work-related activities. Even assuming the City is correct, another 50,000 cases may have to comply with the two-year work requirement by the end of FY 1999.

Table 2

Potential Impact of Welfare Reform on

the Demand for Child Care Services

Since we estimate that each case includes an average of 1.22 children, 61,000 children could require child care when Federal welfare reform is fully implemented by the end of FY 1999. Since the City has provided funding in its four-year financial plan for 27,500 additional children by FY 2001, the annual unmet demand could total 33,500 children.

It could cost the City $135 million beginning in FY 2000 if the additional demand is met through low-cost informal care (which is nearly two-thirds the cost of group and family care). However, under State law all TANF recipients must be afforded the option of choosing group or family care. If the demand is met in this manner, we estimate that the City could face additional annual costs of up to $225 million beginning in FY 2000. City officials have indicated that only one-third of these children may be placed in group or family care, with the balance in informal care. Under this scenario, the additional cost would be reduced to $165 million in FY 2000.

The City does not believe the additional demand will materialize because it believes that the historical percentage of the TANF caseload receiving benefits for two years or more will decline by 25 percent, reflecting the overall reduction in the TANF caseload. The City offered no data to support its contention and could not rule out the possibility that the historical percentage has grown because its efforts to curtail fraud and abuse have been concentrated in new applicants, resulting in a caseload consisting more heavily of those in need of services.

Should the increased demand materialize, the State may allocate additional funding to localities for children's services. However, there will be competing demands for these resources. For example, the City faces a $75 million liability in FY 1999 because it has not adjusted spending to reflect recent State cuts in funding for children's services. In addition, the City is projecting budget gaps that approach $3 billion by FY 2000.

Over the next four years, we estimate that the State could realize a TANF surplus of more than $500 million annually. Since the size of the TANF block grant is based on the State AFDC caseload in Federal FY 1995, a caseload which has declined significantly since then, the State is the beneficiary of a substantial windfall. In the current fiscal year, more than half of the surplus was used for budget-balancing purposes. While the State allocated $116 million to the City specifically for children's services, the City has not yet said whether it will use these resources to expand services or to balance its budget as permitted under State law. It remains to be seen how much of the surplus in future years will be retained by the State to balance its budget and how much will be shared with localities.⁽⁸⁾ The City would receive about $180 million annually if the surplus were allocated based on its contribution to the statewide reduction in the TANF caseload.⁽⁹⁾

Another possible source of funding could be the TANF grant itself, because the law permits each state to divert up to 30 percent of that grant from public assistance programs to child care. However, the State could face fiscal penalties for failure to meet work participation goals, and the public assistance caseload could rise in the event of an economic downturn. If public assistance costs should rise above the Federal grant, the financial liability would have to be assumed by the State and its localities.

The State intends to provide resources to localities to help them establish preschool programs for children between the ages of three and five over the next few years. The City's share of these resources would be based on enrollment, the City's wealth relative to other school districts in the State, and the special needs of its students. If the State follows through on its commitment, these resources would reduce the child care need and the cost for school age children.

The City also has realized significant savings from reductions in the public assistance caseload. Since FY 1994, it has realized annual savings of $200 million in the TANF program and another $230 million in the Home Relief program. A portion of these savings could be reallocated to help fund child care.

How child care is financed remains an active concern at the Federal level, as well. For example, the Federal government has introduced a $500 per-child tax credit for families, recognizing the need to support parents in the work force. The White House Conference on Child Care, which was held in October, focused considerable attention on the strengths and limitations of the nation's child care system. The conclusion of the conference was that demographic and economic changes in the nation have created new pressures on families at almost every income level with child care needs. To date, Federal policy and the partnerships needed in the public and private sectors have not resolved the issue. While the City and the State cannot and should not await the resolution of this issue at the national level, program strategies and budget decisions could be affected by those events.

1. This estimate includes the cost of leases and utilities, but excludes administrative and personal service costs.

2. The Federally-funded Head Start program provides early childhood education to an additional 18,600 children.

3. There are 14,500 children on a separate waiting list for vouchers, but many of these are also on family or group care waiting lists. In addition, a small number of children currently using vouchers remain on waiting lists for preferred openings in other programs.

4. The Public Advocate for the City of New York, Welfare and Child Care: What About the Children?, June 1997.

5. U.S. General Accounting Office, Report to the Congressional Caucus for Women's Issues, House of Representatives, Child Care: Child Care Subsidies Increase the Likelihood that Low-income Mothers Will Work, December 1994.

6. Office of the State Deputy Comptroller for New York City, The New York City Economy: Recent Trends and the Labor Market Implications of Welfare Reform, Technical Memorandum 2-97, November 18, 1996.

7. New York State Department of Social Services, Annual Report and Statistical Supplement, 1994.

8. Letter from State Comptroller H. Carl McCall to the Governor, September 9, 1996, contains a list of concerns and suggestions regarding the use of the TANF surplus.

9. The City is responsible for about two-thirds of the reduction in the statewide TANF caseload, but the non-Federal cost of the program is shared equally between the City and State.