MARYLAND FAMILY NETWORK

Public Policy

Budget Issues

In a multitude of ways, government funding has a profound impact on programs and services critical to young children and families. Even the best-conceived public policies that aim to promote access, affordability, and quality in child care and early childhood education can be undermined by inadequate allocations of resources. Funding streams at the federal, state, and local levels all have a role to play.

Throughout its history, FOF/MCC has focused on budget issues affecting children. This history demonstrates that securing public funds for programs serving young children and families can pose immense challenges, even in favorable economic climates. In periods of economic decline, these challenges are amplified significantly.

In recent years, findings about the status of children in this country have resulted in a re-examination of national, state, and local investments in early care and education. Most noteworthy has been the research done on infant brain development and studies of cost, quality, and child outcomes in child care programs. The infant brain development research confirmed that the first years of life are critical to children’s brain development and long-term well-being. Studies have documented the inadequacy of our nation’s efforts to meet the needs of young children during the most critical years of development: 86% of early care and education programs were found to provide poor to mediocre services and 40% of programs serving infants and toddlers were categorized as poor quality.

What is implicit in these research findings is that early childhood programs are severely underfunded. Of the tens of billions of dollars spent each year nationally on early childhood education, approximately 60% is paid by families who purchase services. Almost all of the remainder is provided by government, primarily from federal sources, while only a tiny fraction comes from the private sector. Most parents cannot afford to pay what it costs to provide high quality services, and public and private funds have not filled the gaps. Without adequate sources of revenue, child care programs must operate with low budgets and with staff that are paid very low wages, often with limited or no benefits.

The enormous expense of establishing a child care facility has long hindered increasing the supply of child care. The cost of opening a child care center ranges from $300,000 - $700,000. Banks have been unwilling to make loans to child care providers because most child care centers cannot show the profitability required by the banking industry nor do they contain much valuable equipment or other collateral. Maryland has had a loan guarantee program for child care providers since 1985. In 1988, the General Assembly passed legislation establishing a low interest direct loan fund for child care providers who need over $15,000 to renovate, purchase, construct, or expand a child care facility. The original legislation allowed the State to provide only 20% of the necessary funds through the direct loan if the provider could raise 80% privately with the help of the loan guarantee fund. The 1989 General Assembly passed legislation increasing the amount the provider can borrow to 50%.

The 1990 General Assembly passed legislation amending the day care direct loan fund to allow $50,000 to be used for grants to family child care providers to help them meet state regulations. Governor Schaefer vetoed this legislation but directed the Department of Housing and Community Development to use $50,000 of unrestricted funds to develop a pilot family child care grant program. Based on the success of the pilot program, the 1991 General Assembly again passed legislation establishing a grant program, but placed the program in the Child Care Administration. The program was extended for three more years by the 1994 General Assembly, three additional years by the 1997 General Assembly, and permanently in 2000.

Numerous meetings have been held and research has been conducted to answer basic questions about how to finance and deliver high quality early childhood education programs. The higher education financing system has been viewed as a possible model to apply toward early care and education funding since the early 1990s. Both periods of education, pre-K and post-12, have traditionally been considered the financial responsibility of families, in contrast to the K-12 period which is completely publicly funded. However, according to early childhood policy and research specialist Teresa Vast (The Postsecondary Financial Aid System: Potential Strategies for Early Care and Education), total public resources for higher education are much greater than those for early childhood education—amounting to about $4,552 for every postsecondary student compared to $1,395 for every child under six in non-parental care.

In 1998, the Minnesota Early Care and Education Financing Partnership sponsored a two-day "thinking retreat" to bring together higher education experts with early childhood education leaders. Ten promising strategies from higher education were identified for potential adaptation to an early childhood education financing system:

• Use a sound and consistent method for determining families’ ability to pay.
• Set a tuition price to cover expenses.
• Calculate the need for aid based on prices and families’ ability to pay.
• Utilize a variety of sources and types of financial aid to address a range of financial circumstances. Package aid to meet demonstrated need.
• Establish a financial aid office to serve as the hub for obtaining and distributing student aid.
• Require institutions to adhere to quality criteria to participate in the system.
• Rely on multiple sources of revenue to meet operating expenses.
• Make information about choices and financial aid widely available.
• Build support for public and private investment.
• Cultivate and maintain resources through coordinated advocacy efforts.

These strategies, and ensuing recommendations for the early childhood field, were outlined in the 1998 Financial Aid Think Tank Report of the Minnesota Early Care and Education Financing Partnership.

In the 2000 session of the General Assembly, FOF/MCC advocated the introduction and passage of legislation to establish a commission to study child care financing. SB 869/HB 1284, passed overwhelmingly by the General Assembly, established the Judith P. Hoyer Blue Ribbon Commission on the Financing of Early Child Care and Education. The commission’s mission was to examine the costs and availability of funding for early child care and education and make specific recommendations.

The Blue Ribbon Commission was convened in late 2000 and issued its final report in November 2001. (The complete text of that report is available on FOF/MFN's web site here .) The report contains a number of vital recommendations for improving affordability, access, and quality of child care in Maryland, including: public funds to narrow the wage gap between providers and public school educators; state subsidies for provider health insurance; a cap on Child Care Subsidy Program co-payments; and an increase in state's Child and Dependent Care Tax Credit. Copies of the report were distributed to each member of the General Assembly as a part of the activities on FOF/MFN's 2002 Legislative Day in Annapolis.

In 2002, legislation was passed that allows family providers serving children in the POC program access to one-time grants of up to $2,500 to be used for program enhancements.

Since late 2002, State leaders have grappled with the gravest fiscal crisis to confront Maryland in more than a decade. Turbulent economic conditions (arguably dating back to the terrorist attacks of September 2001) have afflicted states throughout the nation. In Maryland, this has been further complicated by a mounting structural deficit and the legislative crossfire between two intensely controversial issues -- gambling and taxes.

Fears about cuts to a range of vital child care programs were realized in the FY 2004 budget, released in January 2003. The struggle to preserve these programs dominated the Session of the General Assembly. The cuts included $25 million to the Child Care Subsidy Program, $5 million for after-school programs, more than $4 million to various quality initiatives (including the Credential), and a $4 million cut to the Maryland Child Care Resource Network (MCCRN). This last cut represented 70 percent of MCCRN's budget, and would have reduced funding to a level at which the statewide network of resource centers would have been unsustainable.

Together with FOF/MCC Board members, Public Policy Committee volunteers, other FOF/MCC staff, and allies in other nonprofit organizations, the Public Policy Department undertook an intensive, highly targeted campaign to influence legislative leaders as well as Governor Ehrlich's Administration. A luncheon briefing for legislators in January and FOF/MFN's Legislative Day in February 2004 (dedicated to the memory of Terry Lansburgh) provided superb opportunities for outreach. Additionally, key budget hearings brought hundreds of FOF/MCC supporters to Annapolis.

These efforts achieved a notable success when the Governor included a partial restoration of funding for MCCRN in his supplemental budget, but the allocation was immediately challenged by legislative analysts. This was the first of several advances and setbacks that marked the final weeks of the 2004 Session. FOF/MCC redoubled its lobbying efforts and ultimately convinced budget leaders in both houses to preserve the $2 million supplemental appropriation for MCCRN.

Nevertheless, MCCRN still faced a painful budget shortfall. No funds for child care subsidies, after-school programs, or quality initiatives were restored. And other vital programs and policies championed by allies with FOF/MFN's support--including the network of Family Support Centers and the Maryland Children's Health Insurance Program--suffered deep losses of funding.

In keeping with the tortuous nature of the 2003 Session, even adjournment on Sine Die brought scant closure to the process. A combination of a tax legislation veto, continuing departmental deficits, and downwardly adjusted revenue predictions led the Ehrlich Administration to an unprecedented, across-the-board impoundment of FY 2004 budgeted funds in early summer. This was followed in mid-July by an extraordinary round of cuts presented to and approved by the Board of Public Works. Included were additional reductions to programs already slashed during the Session, such as the Maryland After School Opportunity Fund (an additional $1 million cut) and Family Support Centers (cut by an additional $290,000).

The 2004 Session of the General Assembly arrived with new fiscal anxieties and debate over the budget. Advocates were initially relieved to find that the Governor's FY 2005 budget proposal did not exacerbate the damage inflicted in FY 2004. While the programs of greatest concern to FOF/MCC did not see their allocations restored to pre-FY 2004 levels, they did not suffer further funding cuts.

Challenges arose, however, during budget deliberations in the General Assembly. The Department of Legislative Services (DLS), which advises the General Assembly on fiscal matters, recommended cuts to the Governor's proposed funding for the Child Care Credentialing Program and the Extended Elementary Education Program (EEEP)--a $20-million state pre-K program. In both cases, FOF/MCC intensively lobbied the Legislature's budget committees to reject the recommendations. The recommended cut to the Credentialing Program would have been particularly disastrous, and would likely have led to its demise. Ultimately, FOF/MCC was able to convince legislators to reject that cut. While the cut to EEEP was not completely abated, legislators chose to cut only $2.4 million, rather than the recommended $4.8 million.

As anticipated, budget issues during the 2005 Session of the Maryland General Assembly again proved tumultuous. The Governor’s proposed budget, released in early January, reflected Department of Human Resources (DHR) recommendations to reduce expenditures on child care subsidies. Even more alarming, the budget proposal slashed $2 million in funding for MCCRN, allocating only $1.8 million for a contract that stood at $5.8 million just three years earlier.

Subsequent meetings with State House staff carried assurances that the Governor would attempt to rectify the cut in a Supplemental Budget. In late February, the Governor issued a press release announcing his intention to restore funds for the Network—and to transfer the program to the Maryland State Department of Education (MSDE), a relocation that FOF/MCC had strongly advocated. The Supplemental Budget was finally released in late March, with $1 million in restored funds for the Network and a shift of the entire contract from DHR to MSDE. But legislators, apparently confused by the mechanics of the restoration and funding shift, initially rejected the appropriation. After vigorous lobbying, the $1 million supplemental appropriation was ultimately restored by Conference Committee on the last weekend of the Session. FOF/MCC and the Network worked with MSDE to address the remaining funding gap.

In addition to the struggle to preserve funding for the Network, FOF/MCC and its allies urged the General Assembly to enact emergency legislation preventing DHR from once again diverting child care subsidy funds to cover shortfalls in other areas of the department. Although the bills themselves failed in committee, the crowded hearings, passionate testimony, and press coverage that they generated produced two major results: the House and Senate agreed to budgetary language restricting the amount of child care subsidy funds that DHR was permitted to transfer in FY 2005; and they prohibited any diversion of child care subsidy funds whatsoever in FY 2006.

Beginning in the summer of 2005, Maryland's economy and State revenues enjoyed a modest upswing. In the 2006 Session, the Governor and the General Assembly approved, among other allocations, $750,000 to partially restore Network funding, $1.9 million to expand early childhood mental health initiatives, and an increase of $3.9 million for child care subsidies. The General Assembly also added budget language expressing its intent that in FY 2008, the Governor fully restore funding for the Network and the state’s Family Support Centers to no less than their FY 2003 levels ($5.8 million and $6.9 million, respectively).

Nevertheless, Maryland was still grappling with a structural deficit. In 2007, despite ominous projections from the incoming O’Malley Administration about the State’s finances, the FY 2008 budget proposal included a $4 million increase—up to $111 million—for the Child Care Subsidy Program. This good news was undercut when DLS recommended that the General Assembly slash the allocation by $5 million in order to contain costs.

FOF/MCC, with support from MSDE, quickly and forcefully mobilized the child care community to resist the recommended cut. In a system still recovering from repeated funding raids and the nearly three-year imposition of a wait list, FOF/MCC argued, even the full allocation was insufficient to meet the true need for child care subsidy. Furthermore, it was entirely inadequate to redress pent-up deficiencies in the program, particularly in regard to parent co-payments and provider reimbursement rates.

Ultimately, FOF/MCC and its allies persuaded both the House and Senate budget committees to reject the recommended cut. In the process, DLS seemed to undergo a change of heart—language drafted by the Department to mandate that at least $3 million be spent to increase reimbursement rates was added to the final budget.

Unfortunately, budget success did not extend to other key programs. Despite the strong endorsement of MSDE and the State Board of Education, the Governor’s budget did not fully restore funding for the Maryland Child Care Resource Network or for Family Support Centers to their 2003 levels. (These programs were level-funded, however, reflecting the partial restorations of previous fiscal years.) A State Board-recommended increase for the Maryland Infants and Toddlers Program was also rejected.

A handful of tax-related legislative proposals championed by FOF/MCC and its allies similarly failed, victims of growing apprehension over the impending budget crisis. Chief among these was a bill to expand the State’s refundable Earned Income Tax Credit (EITC), which offers tremendous economic benefits to low-income families with children. Its high cost made the bill arguably impossible to enact that session.

Still, the compelling hearings orchestrated by FOF/MCC helped the EITC become an important component of the comprehensive tax reform package that the Governor and legislative leaders hammered out during a grueling Special Session in the Fall of 2007. An intensive lobbying effort spearheaded by FOF/MCC led to an increase in the state’s refundable EIC from 20% to 25% of the federal credit – a measure that will more than offset the negative impact of some regressive tax increases on many low-income Maryland families.

Despite difficult deliberations of the preceding Fall, the deteriorating economy forced the General Assembly to make significant budget reductions during the regular 2008 Session. Fortunately, most critical early childhood programs emerged with level funding. In the case of the Maryland Infants and Toddlers Program, FOF/MCC and other advocates secured and defended a supplemental appropriation of $4.6 million, bringing the total allocation to $10.4 million.

The 2009 Session of the Maryland General Assembly opened with a bombshell: the Administration’s proposed FY 2010 budget included an unexpectedly massive proposed reduction of more than 50 percent for the Maryland Child Care Resource Network along with smaller cuts to Family Support Centers and other critical programs. In the wake of cuts already absorbed following action by the Board of Public the previous October ($250,000 each to the Network and Family Support Centers), the survival of the Network in anything resembling its existing form and capacity was very much in jeopardy.

After the devastating proposals of January, an enormous federal stimulus package (including a major boost in child care block grant funding) fueled high hopes that jobs and programs would be spared. FOF/MCC received some encouraging preliminary assurances, and funds for the Network were restored by $1.8 million to the revised FY 2009 appropriation level of approximately $4.2 million (although a discrepancy between that amount and the contractual figure remains to be resolved). Family Support Centers were restored by $325,000 to the revised FY 2009 level of approximately $5.1 million. Although this outcome was extremely difficult to achieve, advocates hope it has laid a solid foundation for preserving funds in the future.

Very late in budget deliberations, the complete elimination of $3 million that the State appropriates to augment federal Head Start funds was proposed—probably due to a misunderstanding that the State funds could be readily swapped for federal stimulus funds. After intense lobbying by FOF/MCC and Head Start allies, the budget Conference Committee reduced the cut to $1.2 million, restoring $1.8 million. A cut of this size will have painful consequences, but the restoration was a remarkable turnaround that keeps a place for Head Start in the State budget and can serve as a basis for future advocacy. Conference Committee action also reversed a cut to the Child Care Subsidy Program, ensuring that it will remain virtually level-funded in FY 2010. The prospect of mid-year cuts to early childhood programs by the Board of Public Works remains a possibility.

Position

FOF/MCC must vigorously defend programs and services for young children and their families in the face of deficits, spending cuts, and other budget challenges. FOF/MCC should participate in the research and exploration of innovative early childhood financing mechanisms to reduce the burden on parents and providers and increase the access to high quality programs. The use of higher education as a model for financing early care and education should be further studied and considered as solutions to the child care financing dilemma are explored. FOF/MCC should continue to advocate for the implementation of the recommendations of the Blue Ribbon Commission where possible. FOF/MCC should monitor the effectiveness, and encourage evaluation, of the child care loan guarantee program and the child care direct loan program. Additional funding should be supported, as appropriate. Working together with DBED staff, FOF/MCC should closely monitor the impact of DBED consolidation on the loan program utilization and satisfaction. The continuation of funding for the family child care grant program should be supported, and expansion of the program should be considered.