Issue Notes
Vol. 2, No. 6                                                                                                         April 1998

Financial Resources for Child Care

by April Kaplan


In recent years the need for child care has increased. It is estimated that 65 percent of those in the labor force currently require access to child care. With welfare reform the demand will continue to rise, as mothers who previously had stayed at home and cared for their children now must seek employment or job training in compliance with their state Temporary Assistance for Needy Families (TANF) plans. For information on state TANF plans refer to the National Governors’ Association matrix of state plans at or contact Rebecca Brown at 202-624-5300. Access to individual state plans can be accessed at WIN’s web site as

Many families needing child care also require assistance to pay for that care. In addition, the child care system must respond to increased demands as more parents enter the workforce, such as:

With the enactment of the Personal Responsibility and Work Opportunity Reconciliation Act of 1996, states have greater flexibility in addressing child care needs than under prior law. States can design their child care programs according to client need using several sources of funding. The 1996 welfare reform legislation included a block grant of $2.97 billion for child care. However, additional money will be needed to care for the 10.5 million children under the age of 13 in low-income families whose parents work full- or part-time. There are several other funding streams states can take advantage of and should look to for enhancing and developing their child care systems. This paper reviews these sources of funding and discusses the ways in which those funds can be used.

Policy Issues

The federal government allocated approximately $13.8 billion in fiscal year 1997 for child care funds. The majority of funding came from Head Start, Child Care and Development Funds, Child and Dependent Care Tax Credit, Child and Adult Care Food Program, and Title XX Social Services

Block Grant. Each program has different areas to which funding can be appropriated. (Information on obtaining publications is referenced below or at the end of this paper under "Publications.")

The Child and Adult Care Food Program (CACFP) provides food subsidies to child care providers to feed children while in day care. Those that may receive funds from CACFP include day care centers, family and group day care homes, Head Start programs, and day care services for children with disabilities.

The Child and Dependent Care Tax Credit allows parents to get tax credits for child care expenses. Families who do not owe taxes can not claim the credit and families whose credit is larger than their tax liability may only claim a portion of the credit. For further information on eligibility and benefits, refer to "Another Tax Benefit for Families! The Child and Dependent Care Credit" from the Center on Budget and Policy Priorities and "How to Use the Federal Child Care Tax Credit" from The Child Care Action Campaign.

The Child Care and Development Fund (CCDF) incorporates the former Child Care and Development Block Grant. This fund combines four existing child care programs into a single stream of funding. CCDF provides subsidized child care to eligible families and requires that a minimum of 4 percent of funds be allocated to improve the quality and availability of healthy and safe child care. For more information on the Child Care and Development Fund see "Child Care and Welfare Reform" by the Center for Law and Social Policy (CLASP) or contact the National Child Care Information Center (NCCIC).

Head Start is a matching grant program where grantees must contribute 20 percent of the total cost of the program. Traditionally the funding has been provided directly to local agencies operating Head Start programs to provide services for economically disadvantaged preschool children on a part-day and part-year basis. More recently Head Start grants have been given to programs that provide full-day and year-round services. For more information on Head Start programs and funding for Head Start, contact the Head Start Bureau at ACYF/Head Start Bureau, P.O. Box 1182, Washington, D.C. 20013 or see

Title XX Social Service Block Grant is a capped entitlement to states based on the population of the state. These funds may be used for a wide range of social services, including child care.

To get information on eligible populations for the federal child care programs described above, funds available for program, and more about each program, refer to the U.S. General Accounting Office (GAO) report "Federal Child Care Funding." For information on tax issues related to child care, see the Urban Institute’s "Systematic Thinking about Subsidies for Child Care, Parts One-Three."

Title II of the Job Training Partnership Act funds a range of employment and training services, including an assessment of an unemployed individual’s needs and abilities, classroom training, on-the-job training, job-search assistance, work experience, counseling, basic skills training and support services. A portion of those funds is given to a governor’s office, and a state may use those funds for child care or after-school care. For more information on using JTPA funds for child care, contact the Women’s Division at the U.S. Department of Labor, 202-219-6619 or see

Federal funding can also be given to post-secondary students preparing for child care careers through Pell grants, federal student financial aid, scholarships and lifetime learning tax credits. Information on Federal Student Aid Information Centers can be accessed at 800-433-3243 or information on financial aid and tax credits available to assist child care workers with their education, refer to Child Care Bulletin Special Issue "White House Conference on Child Care," September/October 1997, Issue 17 at NCCIC’s web site.

TANF funding can be spent directly for child care. When using TANF dollars, states are obligated to implement time limits on those individuals receiving child care assistance. For information on time limits refer to "Limits on Limits: State and Federal Policies on Welfare Time Limits," by Mark Greenberg, Steve Savner and Rebecca Swartz of CLASP,   For information on using TANF funds directly for child care, contact Mark Greenberg at CLASP.

States may transfer up to 10 percent of TANF block grant funds into the Social Service Block Grant Program. These funds can only be used for children and families with incomes below 200 percent of the poverty level. States may also transfer up to 30 percent of their TANF funds to the state’s Child Care and Development Fund. The transferred funds are not restricted by TANF requirements but are subject to regulations of the former Child Care and Development Block Grant Program. Child care assistance also is consider to be an allowable activity under the $3 billion Welfare-to-Work Program. This funding was designated in the Balanced Budget Act of 1997 to be used for hard-to-place recipients and long-term welfare recipients.

The CLASP paper "Spend or Transfer, Federal or State? Considerations in Using TANF and TANF-Related Dollars for Child Care" has information on using many of the funding streams described above for child care. For examples of states that have used TANF funds for child care and have increased state funding for child care see the National Conference of State Legislatures’ "Critical Choices: Selected State Child Care Policies," 303-830-2200.

The American Public Welfare Association (APWA) conducted a survey of how states are designing their child care policies. Their survey revealed that 20 states are expending more than required to draw down federal matching funds. For information on states that have invested extra money in child care, refer to the APWA survey of states, "The Child Care Challenge: States Leading the Way."

In conjunction with the federal Child and Dependent Care Credit, some states have a state child care tax provision, which can provide between $25 and $1,400 in tax benefits. These benefits can be in the form of tax credits or tax deductions. For more information on state linkages to the federal Child and Dependent Care Credit, targeting assistance to low-income families, and establishing expense limits, contact the National Women’s Law Center at 202-588-5180.

Several federal proposals could result in additional child care funding if approved by Congress and enacted into law. The President’s Child Care Initiative includes $20 billion over five years for child care. The proposal would double the number of children receiving child care subsidies, increase tax credits, provide a new tax credit for businesses that offer child care services for employees, provide and improve after-school care, promote early learning and healthy child development, support enforcement of state child health and safety standards, provide scholarships to child care providers, and facilitate background checks. For more information on this initiative, refer to or the Child Care Bulletin, November/December 1997, from NCCIC.

The Caring for Children Act is a pending congressional child care plan. It would expand three federal programs and start four new programs. The act would include tax cuts involving businesses, and revise existing regulations. For more information, see of other pending child care legislation can be found in the APWA "W-Memo," Volume 10, Number 2. The Children’s Defense Fund also has information on child care legislation being considered by Congress (see The Healthy Child Care Campaign of the American Academy of Pediatrics will allocate $50,000 to support 10 regional new or continuing initiatives that are collaborative in nature. For more information on the Campaign’s proposals, contact 888-227-5409.

Combinations of public and private funding also can result in new investments related to child care. The Center for Policy Alternatives has developed several options in financing child care by using pubic and private sector funds, including loans, grants, bonds, community development corporations, investments and partnerships. The strategies address the use of the Community Reinvestment Act (see the use of micro-enterprise initiatives (see learn more, contact the Center or see further innovative financing options and successful funding strategies, refer to "Financing Child Care in the United States and Illustrative Catalog of Current Strategies," by the Ewing Marion Kauffman Foundation and the Pew Charitable Trusts.

Research Findings

Numerous child care studies have focused on the importance of early childhood development and the related issues of quality standards and provider training. Some research has addressed the link between child care costs and the ability of low income women to participate in the workforce. Other studies have examined the scope of the demand for child care and the needs of specific populations.

Much of the impetus on child care research and improvements is based on the Carnegie Corporation’s Starting Points Initiative, which was followed by research on the relationship between the quality of caregivers and early childhood brain development and the importance of addressing the needs of children at the youngest ages. Much of the research on child development and early childhood care can be found in the Carnegie Corporation’s "Starting Points: Meeting the Needs of Our Youngest Children." Starting Points information can be accessed by phone at 212-371-3200 or information can be found through the National Governors’ Association and The I Am Your Child Campaign. WIN also has a forthcoming Issue Note on funding for child development.

The Child Care Bureau of the Administration for Children and Families, U.S. Department of Health and Human Services, has supported the Child Care Research Partnership. The first Partnership report focused on the distribution of regulated child care in Illinois and Maryland. To access "A Study of Regulated Child Care Supply in Illinois and Maryland," contact the National Center for Children in Poverty at 212-304-7100. Contact NCCIC to learn more about the upcoming research activities of the Partnership.

Research has shown that when comparing day care costs to a family’s income, it is clear that child care subsidies for low-income and working mothers are a necessity to transitioning people from welfare to work. Studies have documented how subsidies have been used for relative care, center-based care and family-based care. "Research in Brief: Child Care Usage Among Low-income and AFDC Families," by the Institute for Women’s Policy Research, outlines where subsidies have proven to be most effectively used and discusses the policy implications of child care subsidies. For more information, contact the Institute for Women’s Policy Research at 202-785-5100.

A study from the Families and Work Institute done in Florida showed that children learn more and are better behaved when teachers have more training and are caring for fewer children. For more information, contact the Institute at 212-465-8637 or see

According to the Center for Research on Women, studies have found that children in self care, especially those who spend substantial hours on their own, face great risks. These children, compared to their supervised peers, are likely to have lower grades, poorer social adjustment and relationships, increased fears, and greater susceptibility to peer pressure, and greater likelihood of using alcohol and illegal drugs. Further research indicates that children engaged with caring adults tend to have better work habits, better peer relations and better emotional adjustments.

Child Care Bureau statistics indicate that 5 million school-age children are latch-key kids, 70% of public schools did not offer extended learning programs in 1993-94, and children in supervised settings demonstrate improved academic achievement. See the Child Care Bureau’s "Frequently Asked Questions" on school-aged care ( For more information on after-school care, contact the National Institute on Out of School Time at the Center for Research on Women, Wellesley College. Information can also be found at the U.S. Department of Education’s web site,

A recent GAO study examined child care supply and the implications of welfare reform on child care in Baltimore, Chicago, and Benton and Linn Counties in Oregon. GAO estimated that by the end of fiscal year 1997, the demand for infant care could exceed the known supply by about 20,000 spaces, and by fiscal year 2002 (when federal time limits are reached) this number could be as high as 24,000. The study specifically looked at the need for infant and school-aged care, accessibility of child care, and nonstandard-hour care. See GAO’s study "Welfare Reform and Child Care Supply," GAO/HEHS-97-75, at or contact 202-512-6000.

Innovative Practices

Infant and Toddler Care: The Child Care Bureau’s Child Care Bulletin, November/December 1997, Issue 18, addresses states’ work in expanding services for infants and toddlers. Included is a summary of the Michigan Family Independence Agency’s initiative to recruit child care providers, make training more accessible and create additional spaces for infants. Also discussed are Oregon’s local partnership strategy, North Dakota’s statewide Infant/Toddler Enrichment Program and South Dakota’s Infant/Toddler Training Initiative. For more information, contact NCCIC.

Collaborative Efforts: With the help of a federal Head Start grant, Connecticut has developed a collaboration that addresses child care, early childhood education and welfare. The objective of the partnership is to improve services, promote connections among services and achieve accessible, family-centered, quality care. The collaboration includes individuals from private organizations, the corporate sector, parents and representatives from the executive and legislative branches. For more information, contact the Office of the Governor, Dennis King, Director of Urban Affairs or Grace-Ann Caruso Whitney, Project Director, 210 Capitol Ave., Room 102, Hartford, CT 06106. Ohio has used low-income child care funds to extend Head Start program hours, and Colorado developed pilots in counties to pool child care and preschool funds for full-day, full-year services for children ages 0-6. Massachusetts has a comprehensive program for children and families through a collaboration among schools, Head Start and private child care/preschool programs. For more information, contact Alice Barton, 617-388-3300. Other states that have expanded child care through collaborative efforts with head start include Georgia, Illinois and Nebraska. To obtain more information on state collaborative initiatives, contact Scott Groginsky, National Conference of State Legislatures, 303-830-2200. For information on the Head Start-Child Care Partnership, refer to the Head Start Bulletin "Enhancing Head Start Communication," Issue No. 62, or see

Training Programs: North Carolina has developed Teacher Education and Compensation Helps (T.E.A.C.H), which is a scholarship program available to child care providers. For more information, contact the N.C. Department of Health and Human Services. Other states that have offered training to child care providers include Arkansas, Connecticut, Virginia, Illinois, Indiana, Minnesota and Oklahoma. Information on each of these states can be found in the APWA W-Memo, November-December 1997. For more information and analysis of specific programs with contact information, call the Center for the Child Care Work Force at 202-737-7700 or the Child Care Law Center. The Harvard Family Research Project also has published several books focusing on child care training from a family support perspective. Information on their models can be found in the "Families Matter" series at

Teen Parent Programs: Oklahoma’s Baby Steps Day Care and Parenting Center for Teen Parents provides day care for children of teen mothers within walking distance of their schools. Transportation is also available. Each parent is required to attend the center for classes, for which they receive school credit. For more information on Baby Steps, contact Debra Parkinson at 405-360-2717. The Child Care Bureau also has developed "State and Local Child Care Initiatives for Adolescent Parents," which gives examples of state-sponsored teen parent child care initiatives and local and community-based initiatives.

Public/Private Partnerships: The Finance Project, National Governors’ Association and Families and Work Institute received a federal contract to identify and track existing practices for promoting public-private partnerships at both the state and community levels; develop a series of written technical assistance materials to guide the formation and implementation of successful public-private partnerships; conduct a national conference on public-private partnerships for state administrators; and provide periodic updates to state and child care grantees about information collected and produced under the contract. For more information on state specific public/private partnerships or to be part of the database, contact Sharon Deich, The Finance Project at 202-628-4200.

For a brief description of state public/private partnerships in increasing child care availability, community engagement in child care issues, quality improvement, recruitment and professional development, incentives and tax credits for employees, and technical assistance refer to or contact NCCIC.

Lending Programs for Child Care Facilities and Program Development: The Center for Policy Alternatives has identified many model programs that have increased training, opened new day care centers, helped states meet federal requirements, and expanded and developed existing centers (see Among these are Arkansas, with the Child Care Facilities Guarantee Loan Fund and Arkansas Better Chance Grant Program, and Maryland, with the Child Care Special Loan Fund, the Day Care Facilities Loan Guarantee Fund, and the Child Care Facilities Direct Loan Fund. Other states with loan programs featured on the Center’s web page include Virginia and Tennessee. For further innovations in child care financing, refer to the Center’s "Financing the Future: Innovations in the Child Care Financing Roundtable Report."

The Child Care Facility Development Program in Illinois constructed or substantially renovated a total of seven child care facilities in needy neighborhoods in Illinois. A partnership between the Illinois Facilities Fund (a statewide, non-profit community development financial institution that provides capital improvement planning and financing to non-profits) and the Illinois Department of Children and Family Services created this program as an organized response to the need for additional child care facilities in low-income neighborhoods in Illinois. The Child Care Facility Development Program utilized these organizations’ expertise in finance, government, architecture, construction and child care to finance, build and support the management of seven child care facilities. The facilities are still operational. For more information, contact WIN or see

After-School Programs: The Corporation for National Service’s "To Learn and Grow Initiative" provides training and technical assistance and a how-to manual in after-school care. For more information, contact To Learn and Grow, Corporation for National Service, 202-606-5000. The Child Care Bureau’s Child Care Bulletin, May/June 1997, Issue 15, describes other after-school initiatives (contact NCCIC). More information on school-aged care can be obtained from the National School-Aged Care Alliance, 317-283-3817, School-Age Notes, 615-242-8464, and the Search Institute, 612-376-8955.

Foundation and Employer Involvement: In the past year, 38 foundations and corporations invested $11.8 million in initiatives to improve the quality of child care. Last October, Aetna, AT&T and Xerox, along with the Ford Foundation and Carnegie Corporation, announced their commitment to improve child care and encourage other corporations and foundations to do so as well. To find out more about foundations’ and corporations’ investments in child care, see "Philanthropy News Digest" by the Foundation Center at In collaboration with the federal government, the Charles Stewart Mott Foundation has committed $55 million to the expansion of the 21st Century Community Learning Center Program. This program is an after-school and summer program that links local public agencies, private industries and non-profits in a partnership to extend learning programs, ensure program availability and integrate learning into after-school programs. For more information on Mott Foundation funding, contact 810-238-5651 or see

The Child Care Action Campaign has published reports on creative strategies for public and private financing of child care, the demand for child care, child developmental needs, and the impact of child care on families’ productivity. "A Giant Set for Child Care," outlines routes to child care support in a company, how to bring local employers to the table, and describes many local child care and business partnerships.

Sources of Information on Child Care Initiatives: APWA has developed a matrix of state child care efforts and state expenditures under the 1996 welfare legislation that includes federal funds, transferred funds and new legislation. To obtain copies of this document, contact John Sciamanna at APWA. APWA’s "W-Memo," November-December 1997, Volume 9, Number 6, states the organization’s formal comment on child care regulations and describes state initiatives to increase child care supply.

The Child Care Bureau’s "Child Care and Development Block Grant Report of State Plans" outlines promising and innovative efforts to improve child care, including increasing access to scholarships and training, promoting consumer education, supporting resource and referral services, enforcing state quality and safety standards, and promoting health linkages and coordinated services. The report, which also lists state administrators of the Child Care and Development Fund, can be accessed at

Initiatives on child care subsidies under the new welfare reform law in California, Connecticut, Louisiana, Maryland, Oregon, Texas and Wisconsin can be found in GAO’s report, "Welfare Reform States’ Efforts to Expand Child Care Programs." In addition, last September the Progressive Policy Institute published "Welfare-To-Work A Survey of the Ten Big States," which looked at California, Florida, Georgia, Illinois, Michigan, New York, Ohio, Pennsylvania, Texas and Washington’s efforts to address the need for child care. For further information on state initiatives, refer to WIN’s "Resources for Welfare Decisions," Vol. 1, No. 3, "Child Care and Welfare Reform," or see

For More Information . . .


American Public Welfare Association, 202-682-0100, John Sciamanna.

Center for Law and Social Policy, 202-328-5140, Mark Greenberg or Steve Savner. For child care audioconference information, see

Center for Policy Alternatives, 202-387-6030 or 800-935-0699,

Child Care Bureau, Administration for Children and Families, HHS, 202-690-6782,

Child Care Law Center, 415-495-5498,

Children’s Defense Fund, 202-628-8787,

Child Welfare League of America, 202-638-2952, Bruce Hirschfield.

General Accounting Office, 202-512-7235, Mark Nadel or Gale Harris.

National Child Care Information Center, 800-616-2242, Anne Goldstein or Danielle Ewing.

National Child Care Resource and Referral Agencies, 202-393-5501. Contact Yasmina Vinci, Executive Director.

National Conference of State Legislatures, 303-863-8803, Scott Groginsky, Children and Families Program.

National Governors’ Association, 202-624-5300, Helene Stebbins, Center for Best Practices.

School-Age Child Care Project, Center for Research on Women, 617-283-2547,

Urban Institute, 202-857-8709,


Center for Policy Alternatives, 202-387-6030,

Child Care Action Campaign, 212-239-0138

Child Care Inc., 212-929-7604

The Finance Project, 202-628-4200,


American Public Welfare Association selected resources. Contact 202-682-0100;

"The Child Care Challenge: States Leading the Way," July 1997.

"State Efforts to Increase Availability and Quality of Child Care," W-Memo, November-December 1997.

Center on Budget and Policy Priorities, "Another Tax Benefit for Family! The Child and Dependent Care Credit," March 1998,

Center for Law and Social Policy selected resources. Contact 202-328-5140;

"Spend or Transfer, Federal or State? Considerations in Using TANF and TANF-Related Dollars for Child Care," by Mark H. Greenberg, January 1998.

"The Child Care Protection Under TANF," by Mark H. Greenberg, January 1998.

Center for Policy Alternatives, "Financing the Future: Innovations in Child Care Financing Round Table Report," by Richard Ferlauto, Tracey Barbour Arvin and Alice Shabecoff, August 1996.

Child Care Bureau, Administration for Children and Families, HHS, selected resources. Contact 202-690-6782.

"Child Care Bulletin," bi-monthly publication (contact NCCIC).

"Child Care and Development Block Grant Report of State Plans,"

"Child Care: Coming Together for Children and Families, The Annual Meeting of State Child Care Administrators Binder," July 14-15, 1997 (contact NCCIC).

"Child Care Final FY-1998 State Allocation," Dec. 4, 1997,

"State and Local Child Care Initiatives for Adolescent Parents," Spring 1997.

Children’s Defense Fund, "Federal and State Government: Partners in Child Care," Oct. 24, 1997,

National Women’s Law Center, "Improving State Child Care Tax Provisions," Presented at the Annual Meeting of State Child Care Administrators, July 14-15, 1997, 202-588-5180.

Progressive Policy Institute, "Welfare-To-Work and Child Care a Survey of the Ten Big States," Margy Waller, Sept. 26, 1997, 202-547-0001 or see

The Ewing Marion Kauffman Foundation and The Pew Charitable Trusts, "Financing Child Care In the United States," Anne Mitchell, Louise Stoney and Harriet Dichter, 1997, 816-932-1000 or see

U.S. General Accounting Office selected resources. Contact 202-512-6000;

"Federal Child Care Funding," GAO/HEHS-98-70R, Jan. 23, 1998.

"Welfare Reform: States Efforts to Expand Child Care Programs," GAO/HEHS-98-27, January 1998.

"Welfare Reform: Implications of Increased Work Participation for Child Care," GAO/HEHS-97-75, May 1997.

Urban Institute selected resources. Contact 202-857-8687;

"The New Child Care Block Grant: State Funding Choices and Their Implications," Sharon K. Long and Sandra J. Clark, October 1997.

"Systematic Thinking About Subsidies for Child Care," by C. Eugene Steuerle,"Part One: Avoiding the Rush to Judgement," Jan. 26, 1998; "Part Two: Principles and Standards," Feb. 2, 1998; "Part Three: Application of Principles," Feb. 9, 1998.

The author wishes to thank all of the organizations that provided information for this Issue Note.

The Welfare Information Network is supported by grants from the Annie E. Casey Foundation, the Charles Stewart Mott Foundation, the Edna McConnell Clark Foundation, the Ford Foundation, and the Foundation for Child Development.

Looking for innovative practices in welfare reform?
WIN has added a "best practices" section on its web site
to help you find promising program examples collected
by WIN and other organizations.

Welfare Information Network ~ Barry L. Van Lare, Executive Director                            Web Site: