HD39 - The Role of State and Local Governments, Including School Divisions, in Competing with Private For-Profit Day Care Centers and Programs
Executive Summary: AUTHORITY FOR STUDY The joint subcommittee was created pursuant to House Joint Resolution No. 306, agreed to by the 1987 Session of the General Assembly. The resolution directed the joint subcommittee to study the role of state and local governments, including school divisions, in competing with private for-profit day care centers and programs. Increasing government involvement in providing day care for the children of the Commonwealth was seen to be unfair competition by for-profit entities who desired some conditions or terms to equalize business conditions between themselves and non-profit or government-subsidized groups. BACKGROUND Child care is now "big business" in the United States. This care constitutes the fourth largest expenditure for families with children, after food, housing, and taxes. It is a $20 billion industry annually. This business reflects the radical changes in our work force and work ethic in that many women work for the same reason that men do, i.e., career and financial stability. In 1940, 8.6 percent of America's women with children under age 18 were in the labor forces, 40 percent in 1970, and 63 percent in 1986. This figure continues to grow and 1980 estimates show that approximately 600,000 children in Virginia lived in homes where the mother worked and two out of five were aged two and under. The number of families maintained by women grew almost 90 percent between 1970 and 1985 and these families live at a poverty rate which is three times that of all families and five times the rate for married-couple families. Child care has become a concern not only for parents but for business as well. The executive search firm Heidrich & Struggles recently did a study of corporate women officers who ranked quality time with their children as the primary personal sacrifice they made because of their careers. Fathers were almost as likely to say that their job interferes with family life, and corporations are finding that workers are becoming more willing to sacrifice productivity and careers for family. Child care has been shown to be as strong an influence on a worker's performance as other more predictable factors such as job security, hours worked and relationship with one's supervisor. No child care at all is also an increasingly difficult problem to address with an estimated half-million preschool children at home alone during at least part of the day and 7 million "latchkey" children from 6 to 12 years old who fend for themselves after school until their parents arrive home. Some facts about child care in general have emerged: • There is no national comprehensive policy on child care. Responsibility for child care policy has been shifted to the states. • Many federal minimum standards for child care have been eliminated. • The guiding federal principle in federal child care policy during the 1980's has been decentralization, privatization and deregulation. • There is a general absence of any type of consumer or supply survey to determine not only the numbers for supply and demand, but also the quality of the program. • Title XX was turned into a social services block grant which eliminated most spending and reporting requirements. "Demand subsidies," which is financial assistance provided directly to the purchaser or consumer of services, has been increased in recent years as opposed to "supply" subsidies, which are subsidies given to service producers or providers. Demand subsidies include the Dependent Care Tax Credit which has expanded greatly in recent years. This generally provides a tax credit to families where both parents work or where one parent works and the other is a student, and is based on income. 4.6 million families claimed this credit in 1981 for a total of $1 billion; in 1985-86 it totaled $3 billion. Unfortunately, it was not seen to benefit lower-income families. This has since been expanded and does provide a more varied way of spending funds on child care. • Federal grants, such as the social services block grant (SSBG), have been reduced so the states have less to spend on child care. The SSBG (Title XX) is the major source of money to provide day care to economically disadvantaged families where federal dollars are matched with 15 percent state funds and 10 percent local funds. In 1980-81 annual expenditures for day care through Title XX in Virginia exceeded $8 million annually. This has declined steadily to less than $3 million by 1983/84. The 1985 Virginia General Assembly appropriated $3 million for the biennium to institute the Child Day Care Fee System for low-income working parents. Spending has been increasing but only to $4.5 million by 1985/86. Localities routinely run out of funds for mandated programs and therefore must cut other programs, and rates paid for child care are reflective of what funds a locality has to spend for services, not necessarily the current prevailing rate. It has been estimated that $12 million is needed just to return the state to 1981 levels. • Recent tax provisions, which relate to employer-sponsored or supported child care, have been passed to stimulate employers to provide or pay for child care for their employees. These plans are few at present, but growing, and the concept is gaining in popularity when employers see the many benefits to their employees. States are also recognizing the benefits arising from a good child care policy and how it accrues in drawing industry into the state. In 1987, Governor Gerald Baliles formed the Governor's Corporate Advisory Commission on Employer's Initiatives for Child Day Care to examine methods to stimulate corporate interest and participation in this area. Their recommendations are being formulated at the time of this document. A salary reduction plan or "cafeteria" plan is another tax related subsidy where taxable income is lowered and the difference in "pretax" dollars is set aside for spending on child care, medical costs, retirements, etc. • Voucher programs, discussed in greater detail at a later place in this document, are alternative methods of shifting money from direct public delivery (publicly operated programs) to direct purchase o£ service contracts. • Demand subsidies, along with other factors such as deregulation, has probably helped increase the supply of services, but it has not been proven that it was a clear increase or possibly just market shift. Many states have had to retain both demand and supply subsidies because they recognize that private providers do not enter the low income and/or minority communities and it is recognized that these communities have to be served as well. The decline in direct funding has led to fewer low-income children being served within the system while options and subsidies have increased for the middle class. • Quality assessment of various programs in general shows no consistency with regard to type of program. Good quality programs, as well as bad, can be found everywhere. Unfortunately, there has been no strict research which compares profit to nonprofit. • Many other states have begun their own push to deal with the child care issue. An example of this is the Day Care Partnership Initiative formed in Massachusetts in 1985 to create a model system of affordable, quality care through partnerships with businesses, schools, public housing authorities and local governments. In its second year, the Partnership instituted the nation's first publicly sponsored loan fund for the development of employer-sponsored child care facilities. The pilot program will receive an initial $750,000 from the Massachusetts Industrial Finance Agency to offer below-market loans for start-up funds for child care facilities. As a part of this, New England Telephone established a matching grant to help nonprofit centers pay for capital improvement and equipment. Fourteen new employer-sponsored child care projects have been established with the assistance of the Executive Office of Economic Affairs. And, during the first year of the Partnership, state funding for child care was increased 22 percent with an additional 20 percent scheduled the next year. |
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