By Andrea Hetling
Public child-care subsidies are designed to reduce the financial burdens of child care for households that meet certain income thresholds in order to improve employment and/or educational opportunities for parents and other legal guardians. In New Jersey, child-care subsidy payments are made directly to child-care providers, including licensed child-care centers, registered family providers, and approved homes.
Over the last two decades, two mechanisms have been used by the State to pay child-care subsidies to all types of providers:
- An attendance-based system, where providers are paid based on the number of days a child attended (as well as excused absences) within a given pay period.
- An enrollment-based system, where providers are paid based on the number of children enrolled at the facility as of a specific date.
In 2012, New Jersey adopted an attendance-based payment system following an audit by the New Jersey Office of the State Comptroller, which indicated that this system would reduce the number of erroneous overpayments to providers. However, in 2020, in response to the COVID-19 pandemic, New Jersey switched to an enrollment-based subsidy policy, for public health purposes and to ensure a consistent stream of income to providers at a time when attendance fluctuated significantly due to (federal and State) COVID mitigation protocols. This shift in subsidy payment mechanisms was supported by temporary federal government COVID relief funds, which are set to expire on December 31, 2023.
Against this backdrop, the Rutgers University New Jersey State Policy Lab research team was asked to analyze the relative costs and other implications of these two payment mechanisms. This request was operationalized using two key questions:
- How would total State spending vary, depending on whether the system of subsidy payments is enrollment-based or attendance-based?
- How does the subsidy payment system choice impact key stakeholders, including parents (and other guardians), child-care providers, and county Child Care Resource and Referral agency staff?
To address these questions, the Rutgers project team designed a study that combined findings from both a quantitative financial analysis of each payment system using state administrative data and a qualitative approach that provided insights based on key stakeholders’ experiences gathered through focus groups and interviews.
Analyses, using the administrative data, indicate that the enrollment-based system is more expensive in terms of the expenditure of federal and State funds. When comparing the enrollment-based system to the attendance-based subsidy one, the difference is about 5 percent. Qualitative findings reveal, however, that because of the attendance-reporting requirements and the greater amount of reconciliation payments, the attendance-based system is more costly to providers and burdensome for parents. Findings further suggest that the attendance-reporting procedure used in the attendance-based payment mechanism left parents that receive a subsidy feeling stigmatized.
Overall, the stakeholders in the study struggled with the appropriate balance among greater accountability, lower costs, and reduced compliance burdens to both families and providers. An important implication from this study is that no one size fits all—there is unlikely one best solution that would maximize enrollments and high-quality child care while minimizing both pecuniary and non-pecuniary costs across the spectrum of providers, as well as to the State and participating families.
Ultimately, deciding between the two child-care subsidy payment options may depend on identifying and balancing several criteria to evaluate the impact of the policy, particularly related to program costs and demand. For questions related to program costs, critical evaluation criteria should, at a minimum, attempt to account for several factors, including the need to serve the largest number of eligible children, the resulting financial cost to the State budget, the (fixed and variable) operating cost of providers, as well as the extent of burdens experienced by families.