Transforming the Financing of Early Care and Education (2018) / Chapter Skim
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Appendix C: Determining a Reasonable Share of Costs for Families to Pay
Appendix C: Determining a Reasonable Share of Costs for Families to Pay
Pages 285-294
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From page 285... ...
It describes the advantages and disadvantages of the four main approaches that the committee found in this literature: no-fee payments, share of income determined by families' current average ECE expenditures, share of family income after protecting for other necessities, and share of income that minimizes impact on family utilization decisions. CRITERIA FOR DETERMINING A REASONABLE SHARE FOR FAMILIES TO PAY The committee identified several important criteria to use to assess different approaches to determining a reasonable share of total ECE costs for families, or in other words, in defining what is affordable for families. These criteria reflect the committee's view that children's access to highquality early care and education should not be constrained by a family's income, and the committee therefore agreed that an affordability standard should simultaneously promote access and equity.
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From page 286... ...
APPROACHES TO SPECIFYING AN AFFORDABLE SHARE OF COSTS FOR FAMILIES There is no universally accepted definition of affordability for ECE services or agreement on how it should be measured. Definitions for affordability of housing, health care, and higher education face similar challenges (see, e.g., Harkness and Newman, 2005)
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From page 287... ...
. Many complexities arise in defining an affordable share for families to pay, in terms of defining both family income and payments. The federal standard for family payments in the Child Care and Development Block Grant (CCDBG)
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From page 288... ...
. Current federal childcare subsidy policy also uses this cost burden approach, indicating that family payments for CCDBG recipients should not exceed 7 percent of income.4 Until recently, federal policy had specified 10 percent of income as a measure of affordable copays, and states may choose to exempt families below the federal poverty 4 The data underlying this standard, and the policies to which it applies, include payments for school-age children as well as children from birth to 5 years.
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From page 289... ...
One advantage of using current ECE expenditures as the basis for a share-of-family-income affordability standard is its grounding in the economic theory of "revealed preferences." Asking families in a survey what is affordable is not likely to result in reliable numbers, whereas using data on actual expenditures reveals what families spend when taking into account their preferences for different goods and services. Current federal guidelines for ECE subsidy copays are based on national survey data indicating the share of income that is paid out of pocket by families (about 7%, on average)
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From page 290... ...
proposed setting aside income equivalent to twice the federal poverty level, which has been shown by a number of analyses to be the amount required for a basic standard of living with assistance. However, determination of a basic-needs budget typically includes ECE costs, so in developing this approach one would want to adjust to avoid double counting.
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From page 291... ...
The National Center for Children in Poverty estimates a basic-needs budget (including ECE costs) ranging from 175 percent to 327 percent of the federal poverty level, depending on location and family structure.7 However, this approach to an affordability standard could be modified to allow for differences in costs of living in different locations.
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From page 292... ...
could be used to determine how changes in the amount families pay would affect their utilization decisions. The economic demand modeling approach to setting an affordability standard would directly address the objective of making high-quality early care and education "affordable" by determining what families would pay for high-quality ECE services while continuing to use the same or greater level of those services.
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From page 293... ...
Whether family payments would vary by these factors would need to be determined, although federal and state policies do reflect some differences across families, such as differences in copay by family size. Similarly, if price responsiveness varies by state, that would open the question of whether family payments or the affordability standard ought to vary across states.
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From page 294... ...
In addition, the share of income families spend on early care and education varies with their resources, needs, and preferences. Declaring that a specific share of income is "affordable" does not imply or assume that every family will be willing to spend that percentage of their income on early care and education. Some will want to spend more; others will want to spend less.
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