Following an informational briefing Friday, Dec. 4 at the State Capitol regarding the Child Care Subsidy issue, Department of Human Services Director Lillian Koller released the following statement:
The state Department of Human Services (DHS) is working to ensure child care subsidies for needy families can continue. Unless DHS takes immediate action, there will be no child care subsidy funds available to assist needy families from March through June. We are acting now to avert this crisis.
In order to do this, DHS is proposing to restructure the child care subsidy program starting January 1 to avoid depleting the amount of funds that have been appropriated for this important form of assistance.
To be clear, DHS is not tightening eligibility for subsidies nor cutting the budget. In fact, the state increased the child care subsidy 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 anticipated because of a sharp increase in families applying for assistance and higher rates by child care providers.
Given this reality, DHS believes the fairest solution is to provide the neediest families with the largest subsidies and the highest-income families with the smallest. That way, no one loses their benefits entirely.
Specifically, DHS proposes to use a more incremental sliding scale of payments that has ten 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 of families would receive an 80 percent subsidy or higher.
To ease the transition for affected families, help is available from federally funded programs, such as the Salvation Army’s once-annual payment of $3,110 to a family of three (the typical family size receiving child care subsidies). Parents can use this money for child care, rent, transportation and other necessities.
Here are a few additional facts:
* Nearly 7,800 families statewide receive assistance, with subsidies available for children from birth through age 13.
* DHS pays subsidies as high as $1,395 per child per month (for licensed center-based infant/toddler care). However, the majority of families (56 percent) choose the least expensive form of child care, which is provided by relatives.
* Hawaii’s program is among the most generous in the nation. Forty states have more restrictive eligibility guidelines 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 Hawai‘i’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 families receiving subsidies have low-enough incomes to qualify for welfare.
Aside from fiscal concerns, there is another compelling reason to provide subsidies on a more incremental sliding scale. That’s because the current system has the unintended consequence of creating a very steep “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 at or near the income cap, meaning they have a perverse incentive to minimize their earnings and avoid “going over the brink.”
This is obviously counter-productive to one of the reasons we provide subsidies in the first place – helping parents with young children 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 the proposed ten-step sliding scale, with subsidies ranging 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.
To summarize, 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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