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Shift in Subsidized Day-Care System in Pa. Poses Challenges

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Before Pennsylvania instituted a new system for allocating subsidized day-care slots a few years ago, the Lighthouse Family School in Philadelphia had been serving some 150 children, mostly from low-income Latino families.

Under the new system, though, enrollment at the Lighthouse dropped to 54, and five of its eight classrooms remained empty.

Yet, at the same time, there was a lengthy waiting list for day care throughout the city, and ample numbers of the parents on the list were requesting that their children be enrolled at the Lighthouse, center officials said.

"From day one, there were very serious and far-reaching problems in terms of families being able to access service as well as providers being threatened with extinction,'' recalled Patricia Schogel, the director of community services at the Lighthouse.

"The community we serve is not one that can afford private fees,'' Ms. Schogel said. "Private providers don't open up in areas like this.''

If centers like hers fail, she added, "there's nothing down the street for [parents] to go to.''

The problems at the Lighthouse illustrate some of the effects of Pennsylvania's effort to phase out long-term contracts for designated day-care providers to serve families who qualify for state and federal aid.

The state policy has achieved one of its major aims: expanding the pool of providers available to offer subsidized care.

But the jury--particularly in Philadelphia--is still out on whether the switch will, in the long run, serve more children more efficiently while expanding parents' options.

The plan, hastened in part by federal child-care legislation stressing the need to offer parents the widest choice of day-care arrangements, has been piloted in Philadelphia and 11 other counties for two and a half years. It will be implemented statewide in July.

Instead of contracting with specific centers to offer subsidized care, the plan is designed to link parents to the provider of their choice through centralized management agencies in each county.

In the process, however, the state has had to grapple with the question of how to draw in new providers without eroding the business of those that have historically served poor areas.

Those opposed to disbanding contracts worry that when centers in poor areas lose subsidized children, they cannot fill the gap with paying clients. If those centers fold, however, the area may go unserved.

The new plan "has increased the numbers of providers in the system,'' said Joan Benso, the executive director of the Pennsylvania Association of Child Care Agencies. "But I don't know that that means increased parent choice.''

Bureaucratic Obstacles

The plan has come under the most criticism in Philadelphia, where opponents say many parents have had to surmount bureaucratic obstacles and long stints on a countywide waiting list while day-care slots in poor areas went unfilled.

Administrative glitches, provider resistance, and lawsuits from groups on both sides of the debate eventually led the state to shift gears. Officials are dividing management of the system into five regions and phasing out contracts more gradually.

State officials say the problems that befell Philadelphia reflect the city's size and diversity and will be eased by the revisions under way there, along with new funds from the federal child-care block grant. They also contend that the plan has worked well in the other counties.

"We consider it very successful because it did meet a lot of the goals,'' said Kate Holod, the director of day-care services for the state public-welfare department.

The state effort has led to greater parental choice, a larger pool of providers, more flexibility to set reimbursement rates, a more systematic way to provide consumer information, and better coordination of funds, Ms. Holod contended.

Nevertheless, child-care experts say, Pennsylvania's experiences shed light on the complex set of factors that must be weighed in expanding parents' child-care choices.

At least two states--Texas and Hawaii--have already eliminated contracts, and Maryland has done so everywhere but in Baltimore, where they are being phased out. Several states are exploring similar moves.

'Locked Into Contracts'

The Pennsylvania welfare department launched its "local management agency demonstration program'' in July 1989 as an alternative to its longstanding system of contracting with specific centers for subsidized child care.

Instead of applying to those centers for child-care slots, parents seeking subsidized care under the new system were directed to local management agencies established in each of the 12 pilot counties. The L.M.A.'s were charged with establishing parents' eligibility, providing or directing them to resource and referral services, linking them to the provider of their choice, and reimbursing providers for services.

The plan was aimed at expanding the number and choice of providers available to low-income families, using funds more efficiently, and centralizing and coordinating resources to meet local needs.

Christopher H. Wolf, a day-care program specialist for the department, argued that the old system did little to help parents who did not live near centers that were under contract. The old system also lacked a "reasonable mechanism'' to ensure that rates for purchasing subsidized care kept pace with the market for nonsubsidized care, he said.

Because rebidding contracts could disrupt service for large numbers of children, Mr. Wolf added, the state "got locked into the old contracts,'' with no way "to ensure that contractors did not have the inalienable right to ad infinitum contracts.''

While the state began eyeing ways to open up the system before the federal child-care block grant was enacted in 1990, state officials cite the legislation as part of their rationale in moving to extend the pilot statewide.

The block grant requires that most of the subsidized services be provided in a way that gives parents the option of using vouchers or certificates to select the provider they prefer. The law mandates that such a system be in place by October.

'Dying on the Vine'

An evaluation of the Pennsylvania pilot completed last fall by the Keystone University Research Corporation showed that opening the system to all licensed and registered providers spurred increases of 72.9 percent in the number of centers and 21 percent in the number of home-based providers agreeing to offer subsidized care.

The study also showed, however, that the number of children enrolled fell by 4.4 percent, while the average number of days enrolled went down by 3.7 percent.

The L.M.A. approach also proved more costly than the previous system, with an average 8.8 percent increase in spending on services and administration.

Most parents surveyed for the study applauded having more choices, and parents and providers generally rated L.M.A.'s as good. The majority of parents saw no difference in the quality of service between the new and old systems, with "waiting-list management'' being cited as the biggest trouble spot under the new.

The study supported statewide expansion, but advised giving L.M.A.'s more flexibility, adding new funds to the system, encouraging more provider participation in implementing L.M.A.'s, and improving accountability and recordkeeping.

The data--as well as interviews with providers, advocacy groups, and officials--also highlight critical hurdles Philadelphia and some of the other counties have faced.

In Philadelphia, where the system serves some 4,000 children, maintaining a single countywide waiting list bogged down placement. That spelled long waits for parents and uncertainty for providers, such as the Lighthouse center, that depend on a stable base of subsidized children.

Established centers that had historically served that population "were dying on the vine, while the new centers were never committed to taking 90 percent subsidized children,'' said Mary Graham, the director of the Children's Village, a center whose enrollment fell from 150 to 100 in two years under the plan.

Philadelphia's problems were compounded, critics say, by a combination of inefficient management by the Families in Need of Day Care--the L.M.A. operated by the Urban League of Philadelphia--and kinks in its computer system.

The system "never worked well enough to figure out how many kids [were served] or how much money was being used,'' Ms. Graham said.

Among other glitches, the L.M.A. had to stop placing any new children between April and September 1991, after realizing that it had overspent its budget.

Under the new system, centers that had been used to receiving regular payments to fill a specific number of slots were left in limbo about how many children they would get, when they would be paid, and how much.

"It took away our ability to control our enrollment or budgeting process,'' Ms. Graham said.

Providers also say some parents had to contend with lost records, long waiting lists, a lack of help in breaching language barriers, and a cumbersome application process.

Improvements Cited

But state and local child-care officials say they are making changes in Philadelphia that will address most of the problems.

To ease placements and better respond to local needs, the system will be managed by five regional L.M.A.'s, instead of one, starting in July. Except for a small number of contracts with providers identified as serving unique needs, the state's goal is to phase out contracts within three years. But the L.M.A.'s will be allowed to use up to half their funds next year for contracts with centers that can show that their clientele would face "undue hardship'' otherwise.

Officials also cite such improvements as a mail-in application process, better recordkeeping, and more timely payments to providers.

But perhaps the biggest boost, noted Ms. Holod of the public-welfare department, is the $30 million in new federal aid the state received in January, bringing its budget from all child-care funding streams to about $110 million. Philadelphia will gain about $4.5 million.

Many of the complaints against the new system were inevitable when limited funds were being stretched across more providers, said Martha Johnson, the acting director of æéîä, the city's L.M.A. "If you didn't add any more money, but just increased the pool of providers, someone is going to lose,'' she said.

Ms. Johnson added that the pilot raised "issues you'd expect to see in a demonstration project,'' many of which, such as waiting lists and language barriers, also existed under the old system.

State officials also argue that the new plan cost more and served fewer eligible children partly because more families sought services and partly because of unanticipated shifts in the child-care market. In some cases, centers adversely affected under the plan may have faced closure anyway due to poor management or lagging demand, the officials suggest, and in other cases, parents simply chose other centers once the system was opened up.

"Is the goal to save providers or provide parent choice and a viable system?'' Mr. Wolf of the public-welfare department said.

The state took several interim steps to help Philadelphia providers who serve large numbers of subsidized children. Officials tried "fast tracking'' children off the waiting list and granting the centers control over 70 percent of funding.

The state faced considerable resistance, however. It dropped the so-called "70-30'' plan after new providers filed a lawsuit charging it impeded them from entering the system. The pilot also has sparked other lawsuits, including one charging that eliminating contracts violates the civil rights of populations served by those centers.

A 'National Model'?

While the L.M.A. system in Philadelphia caused the biggest stir, child-care personnel in other pilot counties raise similar concerns.

Having a single entity manage the subsidized child-care system is not new for suburban Montgomery County, noted Connie Whitson, the executive director of the county's office of child day care. But centralizing eligibility and eliminating contracts "is not just a Philadelphia concern,'' she said. "In the lowest-income community, we do not have a private sector to turn to that has served when no one else would.''

Letty Thall, the executive director of the Delaware Valley Child Care Council, noted that several centers in her area have gone out of business or had to cut back under the pilot. But Ms. Thall also conceded that broader economic factors may have played a role in their demise.

While backing greater parental choice and better management of resources, Ms. Thall and others argue that the state is going much further than required by law, and that it should retain some contracts to preserve care in poor areas.

The new child-care block grant requires only that parents be offered a choice of contracts or vouchers, noted Ms. Benso of the Pennsylvania Association of Child Care Agencies. Besides, she and others pointed out, that requirement does not apply to the Social Service Block Grant, which is the state's main source of child-care subsidies, or to child-care aid under the federal welfare-reform law.

"We're very concerned that people will hold this up as a national model,'' Ms. Benso said.

The state should "let each L.M.A., who know their community, make these decisions on when it's best to contract and when to have purchase of service agreements,'' Ms. Thall urged.

Balancing Needs

Officials in other states that have moved away from contracts say that adding new funds to the system or raising reimbursement rates has helped to ease the transition. But others are still struggling to balance parents' and providers' needs.

While vouchers increase parents' choices and flexibility, centers under contract may be best equipped to serve poor areas, leverage other funds, and offer comprehensive services for poor families, said Sherrie Lookner, a senior program associate with the Children's Defense Fund.

"When you get the best of both is when you get a really sound infrastructure for strong child care,'' she said.

But Mr. Wolf of the Pennsylvania welfare agency said one of its goals was to have a unified system for the different child-care funding sources.

"This is the single best system we can come up with,'' he said, adding that keeping the contracts for a transitional period should give the original providers time to adjust.

But a "transitional solution,'' Ms. Whitson of Montgomery County said, may not resolve the issue.

"Our need for the contracts isn't going to change,'' she said. "In five years, those programs will still be in a low-income community that does not attract a private provider.''

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