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
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)
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.
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.
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.
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.
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.
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.