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Changes would keep child care subsidies


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POSTED: Tuesday, December 08, 2009

The state Department of Human Services (DHS) is working to ensure that child care subsidies for needy families continue. Unless DHS takes immediate action, there will be no subsidies from March through June. We are acting now to avert this crisis.

DHS is proposing to restructure its subsidy program starting Jan. 1 to avoid depleting funds appropriated for this important assistance.

To be clear, DHS is not tightening eligibility for subsidies nor cutting the budget. In fact, the state increased the budget by $8.5 million over last year, bringing the total to nearly $66 million.

The problem is, the $66 million is being used faster than expected due to a sharp increase in applications and higher rates charged by child care providers.

DHS believes the fairest solution is giving the neediest families the largest subsidies and the highest-income families the smallest. That way, no one loses benefits entirely.

Specifically, DHS proposes to use a more incremental sliding scale of payments that has 10 steps instead of just three. Parents with the lowest incomes would continue getting 100 percent subsidies, while other parents would receive gradually decreasing subsidies from 90 percent to 10 percent as their incomes rise.

As a result, two-thirds of families would have at least half their child care costs paid by the state, and nearly 40 percent would receive an 80 percent subsidy or higher. Federal aid is available to lessen the impact, such as a once-annual payment of $3,100 to a family of three that can be used for child care, rent and other needs.

Here are a few more facts:

» Nearly 7,800 families with children from birth through age 13 receive subsidies.

» DHS pays subsidies up to $1,395 per child per month (for licensed center-based infant/toddler care). However, most families (56 percent) choose the least expensive form of care, which is provided by relatives.

» Hawaii's program is among the most generous in the nation. Forty states have stricter eligibility than Hawaii, and we are one of only eight states that pay child care providers at 75 percent or more of the market rate.

» Households at or below 85 percent of Hawaii's median income (200 percent of the federal poverty level) are eligible, meaning a family of three can earn up to $47,124 annually and a family of four can earn up to $56,100.

» Only 17 percent of subsidized families have incomes low enough incomes to qualify for welfare.

There is another compelling reason to modify subsidies — the current system has an unintended “;cliff effect.”;

When families exceed income eligibility by even $1, they lose their entire subsidy. About 1,600 families — 20 percent of our caseload — are on this edge, with a perverse incentive to minimize their earnings and avoid “;going over the brink.”;

This is obviously counter-productive to one of the very reasons we provide subsidies: helping families achieve self-sufficiency.

Under the current system with just three income steps, the smallest subsidy a family can receive is 80 percent of a child care provider's rate. That's a lot of money to lose if a family earns just a dollar more in wages.

Under a 10-step sliding scale, with subsidies from 100 percent to 10 percent as a family's income rises, the “;cliff effect”; is eliminated and parents are encouraged to advance in their careers.

DHS is taking decisive action to maintain the child care subsidy program. By doing so, we will continue helping families gain financial independence, and continue giving keiki the best chance for success in school and later in life.

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Lillian Koller is the state Human Services director.