Even though the child care subsidy budget (Wisconsin Shares) was reduced by more than $100 million in the last budget, from $402.5 million in State Fiscal Year (SFY) 2010-11 to $301.6 million in SFY 2011-12, it looks like there will be underspending this year.

Anticipated Underspending in SFY 2012
As the first year of the biennial budget is coming to an end, WCCF estimates that the Wisconsin Shares child care budget is likely to show $13 million in underspending by the end of SFY 2012 (July 2011- June 2012).  The child care budget for subsidy payments was set at $275 million (not counting state and local administration and contracts), and our estimate is that $262 million will be spent.

Our analysis is that several factors have likely contributed to lower spending:

•    Child care payments frozen at 2006 levels: while costs in the child care market increase, the payment system has frozen payments for 6 years.  The shift in policy has kept expenses low, making no adjustments reflecting the increases in child care cost, which was the practice for over a decade prior to 2006.
•    A policy change that saved money by paying licensed family child care centers based on attendance, not enrollment.
•    A drop in children served: over 1,000 per month fewer: about 2 percent. The recession has likely reduced demand for child care, as parents lost jobs or had hours cut back.
•    A drop in the cost per child: about 1 percent. Probably driven by more stringent policies.
•    A drop in child care programs participating in Wisconsin Shares, especially family child care programs.
•    Fraud and overpayment enforcement: DCF reports significant monthly savings, including as much as $100,000 per month due to automatic changes when child care authorizations are underused.

Aggressive belt-tightening has been the rule, driven by fraud concerns and worries about the rise in the child care budget.   Those efforts have led to lower spending, but also are contributing to financial pressures on the child care programs serving children of low-income working families, at the same time these programs are urged to increase their quality through YoungStar.

Likely Underspending in SFY 2013 As Well
If these trends continue, underspending is likely to occur in the next fiscal year as well, possibly at a higher level. A big reason for this is that as of July 1, 2012, the policy to reduce child care payments for child care providers who are rated at a two-star level in YoungStar’s 5-star quality rating system will be implemented;  child care programs with two-star ratings will have their payments reduced by 5 percent.

The budget for the 2nd year of the biennium was calculated with the assumption that 40 percent of child care programs participating in Wisconsin Shares would be rated at a 2-star level in the first year of YoungStar operation. But the actual ratings in the first year showed twice as many 2-star programs as anticipated: 79 percent of programs.  That percentage has now dropped to 72 percent as of June 2012, as child care programs earn higher ratings. But the overall impact is likely to be a much higher reduction in payments than the budget anticipated. The Fiscal Bureau summary estimated $5.5 million in savings from tiered reimbursement in SFY 2012-13; with the much larger numbers of 2-star programs, that figure could rise to closer to $9 million in savings. The savings from tiered reimbursement combined with the trends we’ve already seen in SFY 2012 could result in expenditures significantly below budgeted levels.

While trends and predictions can change, it seems reasonable to expect child care underspending in both years of the 2011-13 biennial budget.

WCCF believes that the additional savings (above the $100 million already saved) should be reinvested in efforts to improve Wisconsin’s child care system. Below are some of the policy options worth considering in response to the lower child care spending.

1. Shift funding to improve incentives and assistance for child care programs to help them move up the 5-star rating scale under YoungStar
The Milwaukee Journal Sentinel emphasized the need for mentoring, scholarships, and financial incentives to help child care programs improve (Wisconsin kids benefit from early education). The Wisconsin Policy Research Institute policy paper recommended that a significant investment in helping child care programs improve would have a significant economic payoff (The Economic Power of Early Childhood Education in Wisconsin). The child care funding saved could be shifted to reinstate the original tiered reimbursement schedule for YoungStar, and increase assistance to programs working to improve, including scholarships for credit-based education, salary supplements to qualified teachers, technical assistance/consultation, and micro grants to help programs improve their star ratings.

2. Shift funding to raise the base payment for Wisconsin Shares
The base payment rates for child care have been frozen at 2006 levels, based on market surveys at that time.  It may be time to move the base rate up to a level more in line with market prices.

3. Pay licensed family child care based on children enrolled, not only for days attended
Based on a mandate from the state budget, the Department of Children and Families had to adjust one or more policies to save money.  The Department chose to change a long-standing policy and start paying licensed family child care programs based on days attended.  The policy was not applied to group child care centers.  The previous policy could be reinstated in order to treat licensed family child care programs the same as licensed group child care centers, and to stabilize finances for family child care.

Dave Edie

READERS:  What do you think the priorities should be to use the unspent funds?