Financing Child Care in the United States - Ewing Marion Kauffman ...

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INTRODUCTION PAYING FOR CHILD CARE According to the most recent available national data (1993), among families who paid for child care, a family with a preschool–age child spent on average $79 per week or $4,108 per year. A median–income family spent about 11 percent of its income on child care, while a family earning $15,000 spent 24 percent of its income on child care. 2 What families report spending on child care does not represent its full price, because some families receive partial subsidies or scholarships. In 1998, the average annual price charged for full–time child care for a 4–year–old ranged from $4,000 to $6,000. In 49 of the 50 states, the average tuition price for child care for a 4–year–old was more than the annual tuition and fees at a public college, in some cases twice as much. 3 Further, the actual cost of producing child care was higher than the price charged to parents or other purchasers, because in–kind donations and other contributions also helped to meet the actual cost. 4 Taking the child care industry as a whole, families pay the largest share—roughly 60 percent—of total annual estimated expenditures for child care in the United States. Government (federal, state and local) pays much of the balance, through directly subsidizing all or part of child care tuition fees or through tax credits. The private sector (business and philanthropy) contributes less than 1 percent, as figure 1 illustrates. 5 MAJOR REVENUE SOURCES FOR HIGHER EDUCATION In contrast, consider the financing of higher education. It is common knowledge that sending a child to college is expensive, that financial aid in various forms is available and that families are expected to contribute to a child’s education. In 1998, tuition and fees at a four–year public college or university averaged $3,243 per year. But the tuition and fees charged to families represented only a modest portion of the actual cost of that college education, which was about $18,000 per year for a four–year public college or university. 6 Families paid about 23 percent of the cost of a public college education — or about 35 percent of the cost, taking public and private colleges together. The balance of costs were paid by government or the private sector, as illustrated by figure 2. 7 fig. 01 MAJOR REVENUE SOURCES FOR CHILD CARE AND EARLY EDUCATION (1995) fig. 02 MAJOR REVENUE SOURCES FOR HIGHER EDUCATION* (All Institutions, 1996) Family 60% Government (federal, state, and local grants, contracts and appropriations) 45% Tuition and Fees (on behalf of students) 35% All Other Sources (private gifts, grants, contracts and endowments) 20% Government (federal, state, local) 39% Business and Philanthropy 1% 3
DIFFERENT EXPECTATIONS The expectations for family investment in these two areas, paying for child care and paying for college, are clearly different and do not take into consideration the changing earning patterns of families in relationship to the age of their children. Families are usually better off financially by the time their children enter college than they are when their children are young and in need of child care. The price charged to families for child care is close to the expended cost of producing child care, while the price charged to families for higher education is about a quarter of the actual cost, reflecting much greater investment in higher education by government and the private sector. Families are expected to contribute much less for college than for child care. In those few states that permit a median–income family to apply for child care subsidy, a family would be required to pay at least 15–18 percent of its income for child care. The U.S. Department of Education, in determining eligibility for federal financial aid, would expect the same family to pay 5–7 percent of its income for college costs. 8 Figure 3 compares family contributions to child care and to college. PORTABLE AND DIRECT AID The central issue in financing child care is often described as a tug–of–war among three competing factors: quality of services for children, affordability for parents and compensation for child care professionals. In other fields, such as housing, higher education, transportation and health care, family, private and government funding is more deeply invested and more equitably distributed. Further, in many of these fields, funds are provided directly to a program (direct program aid) and portably to the consumer (portable financial or individual aid). Perversely, in child care, financial support is capped at levels determined by what average families are willing to pay and portable financial assistance substitutes for, rather than supplements, any direct support to a program. 9 Figure 4 shows that, compared with higher education or the public transportation industry, child care centers depend heavily on tuition and other portable forms of aid. fig. 03 FAMILY CONTRIBUTIONS TO CHILD CARE VERSUS COLLEGE (Median Income Family, 1998) fig. 04 PERCENTAGE OF REVENUE GENERATED FROM USER FEES* (In Child Care Centers, Higher Education and Public Transportation) Percent of Total Income Spent on Child Care 15%–18% Child Care Centers** (1994) 87% Public Transportation*** (1998) 41% Percent of Total Income Spent on College 5%–7% Higher Education**** (1996) 35% 0 100% * User fees are tuition paid by families and public subsidy payments in child care centers, tuition and fees paid on behalf of students in higher education, and fares in transportation. User fees are portable. ** For child care centers: Cost, Quality and Child Outcomes Study Team (1995). Cost, Quality & Child Outcomes in Child Care Centers Denver: University of Colorado. From Table 5.1, page 44. *** For transporation: National Transit Database (1998). “Recovery Ratio (fare revenues per total operating expenses) 1991-98” in National Transit Summaries and Trends. Washington DC: Federal Transit Administration.Website: http://www.fta.dot.gov/ntl/database.html **** For higher education: Barbett, S. and R. A. Korb (1999). Current Funds Revenues and Expenditures of Degree-Granting Institutions: Fiscal Year 1996. Washington, DC: US Department of Education, Office of Educational Research and Improvement, National Center for Education Statistics. Tables 1 and 2, pages 2-3. Note: on the advice of higher education experts, expenditures for auxiliary services, hospitals and independent operations have been excluded because these are not directly related to the production of education. 4
Page 1 and 2: FINANCING CHILD CARE IN THE UNITED
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Page 5 and 6: ABOUT THE GRANTEE PHILADELPHIA CITI
Page 7 and 8: :02 ALLOCATING PUBLIC REVENUES 54 O
Page 9 and 10: HOW TO USE THIS CATALOG This catalo
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Page 15 and 16: 03 LONG-TERM THINKING Successful st
Page 17: LEVERAGING Matching and leveraging
Page 20 and 21: TAXES Income taxes are the major so
Page 22 and 23: EMPLOYER INCOME TAXES Twenty-five s
Page 24 and 25: LOCAL PROPERTY TAXES CHILDREN’S S
Page 26 and 27: GENERATING PUBLIC REVENUE LOCAL PRO
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SOCIAL AND HUMAN SERVICES A number
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EDUCATION Education is a powerful r
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SOCIAL AND HUMAN SERVICES RHODE ISL
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ALLOCATING PUBLIC REVENUES SOCIAL A
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HEALTH EARLY CHILDHOOD EDUCATION LI
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EDUCATION STATE INVESTMENTS IN PREK
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ALLOCATING PUBLIC REVENUES CRIME PR
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LOCAL GOVERNMENT BEACONS (NEW YORK,
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ALLOCATING PUBLIC REVENUES LOCAL GO
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EMPLOYERS Employers increasingly re
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EMPLOYERS AT&T FAMILY CARE DEVELOPM
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FINANCING CHILD CARE IN THE PRIVATE
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PHILANTHROPY ALLEGHENY COUNTY EARLY
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When businesses in the private sect
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PUBLIC-PRIVATE PARTNERSHIPS EMPLOYE
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PUBLIC-PRIVATE PARTNERSHIPS EMPLOYE
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PUBLIC-PRIVATE PARTNERSHIPS COMMUNI
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CAPITAL INVESTMENT PARTNERSHIPS CHI
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PUBLIC-PRIVATE PARTNERSHIPS CAPITAL
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LOOKING TO THE FUTURE TAX POLICY Th
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LOOKING TO THE FUTURE THE HOME MORT
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LOOKING TO THE FUTURE HIGHER EDUCAT
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APPENDIX 174
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WHAT YOU OWN Property taxes on real
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INDEX 178
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Child Care Scholarship Fund of the
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lotteries and gaming, 14 Neighborho
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Area, Kansas and Missouri), 133—1
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income tax provisions for child car
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