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Journal Issue: Financing Child Care Volume 6 Number 2 Summer/Fall 1996

Financing Child Care: Analysis and Recommendations
Deanna S. Gomby Nora Krantzler Mary B. Larner Carol S. Stevenson Donna L. Terman Richard E. Behrman


Young children need the daily nurturance and guidance of an adult in order to thrive. Mothers have traditionally provided these basics, but other arrangements have become necessary as women have flooded into the paid labor force. In 1975, some 39% of women with children under the age of six were in the labor force; by 1994, more than 60% were employed.1 Child care is a necessity for most of these families. More than half of all infants under one year of age, and more than 12 million children under the age of five years regularly spend at least some time in the care of someone other than their parents. (See the article by Hofferth in this journal issue.)

Child care services include part-day or full-day care in centers, schools, and caregivers' homes; care by relatives, neighbors, or friends; and care by au pairs, nannies, or sitters in the children's own homes. Although these services are known by many names (for example, day care, child care, preschool, Head Start, prekindergarten, early childhood education, and early childhood care and education), all are referred to as "child care" services in this Analysis because they all share the essential element of providing care for children.

The nature of that care can powerfully affect children and their families for good or ill. As we reported in the Winter 1995 issue of The Future of Children, child care can prepare children cognitively and socially for school, and the best of child care programs can set children on paths that lead to long-term benefits, including greater productivity as adults. If the quality of child care is low, children learn more slowly, and they are less able to get along with other children. (See Helburn and Howes in this journal issue.) And, for parents who must work, child care services that are stable and of high quality make it easier to find and keep jobs. (See Hofferth in this journal issue.)

Because of these benefits, especially the benefits for children, we believe that the nation should invest the funds needed to ensure that all children have access to child care and child-rearing experiences that will promote their development. To some extent, such investment has begun. Parents; local, state, and federal governments; and the private sector together spend about $40 billion each year to purchase or subsidize the cost of child care services for children of all ages. Still, as the articles in this journal issue suggest, significant problems in the child care system remain. The fitful evolution of public funding for child care has resulted in an unwieldy collection of agencies administering a jumble of tax-based subsidies, which primarily benefit the rich, and direct subsidies, which primarily benefit the poor. Spot scarcities of care, costs to some parents that rival the percentage of the family budget paid for food and housing, uneven quality, and a poorly paid child care work force with high rates of turnover are some of the unfortunate products of today's funding approach.

These flaws largely result from the low level of today's financing of child care services. For example, while in 1993 families that paid for child care spent about $64 per week for each child under age five,2,3 child care experts suggest that it would cost about double that amount per child to support a child care system of the caliber needed to yield the touted developmental benefits.4 These estimates are examined more carefully later, but we assume that true reform, providing a universal system of support for child care and child rearing for all families with children under the age of five (which is the age group that this Analysis primarily focuses on), will require a national investment on the order of $120 billion annually, or about $6,000 per child per year. This amount is only a little more than the $5,583 that the nation now spends annually for each child in the part-day, part-year K-12 public education system (see article by Zigler and Finn-Stevenson in this journal issue), but it is obviously a considerable increase over current child care expenditures. We believe that such a national investment is warranted because high-quality child care services can lead to significant benefits for children, parents, business, and society generally, especially if those services are designed to promote child development.

But how should the financing of child care be reformed? Four main approaches for reform have been suggested: (1) consolidating existing federal child care subsidies into a single block grant, (2) financing and delivering child care services through the public education system, (3) initiating a paid parental leave system, and (4) supporting child rearing by providing child allowances to families. A number of mechanisms also have been proposed to raise the dollars needed for change.

We conclude that each of these proposals and mechanisms has substantial strengths and weaknesses: Each will remedy different problems in the current child care system, and each will face opposition from different quarters. Even taking weaknesses into account, we believe that each could yield significant advantages to children and families, depending upon the details of the eventual plan. Rather than recommending any one approach, therefore, we suggest several principles that should be used to guide financing reform, no matter which specific approach is eventually selected.

This Analysis begins with a brief description of current funding for child care services and continues with a review of the problems in the child care system. Main proposals for reform of child care financing are described. The Analysis next estimates costs for these plans and examines some of the ways that necessary additional dollars could be raised. Principles to guide any financing reform are suggested, and the Analysis concludes with a discussion of the prospects for change.