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Child Care and Welfare Reform: The Wisconsin Experience

John C. Weicher
Hudson Institute

I. The Process of Reform in Wisconsin

1993: State law abolishing current system by 1999
1994-1995: New program designed by State Department of Health & Human Services and Hudson Institute
1995, October: Governor sends program to legislature
1996, March: Legislature approves it - bipartisan support
1996, August: President endorses Wisconsin program
1997: State begins implementing program
NOTE: Wisconsin reform antedates federal legislation

II. The Program: "Wisconsin Works" (W-2)

* No assistance without working for it

Education & training count as work

* Four rungs on "Self-Sufficiency Ladder"

W-2 Transitions

education, training, counseling

Income: $628/month + Food Stamps

Community Service Jobs - public sector

30-hour work week

Job training to meet private sector requirements

Income: $673/month + Food Stamps

Trial Jobs - private sector

Employer receives wage subsidy

40-hour week

Income: at least minimum wage + Food Stamps & EITC

Unsubsidized Employment

Income: Market wage + EITC

* Time limits

24 month maximum per rung on lower 3 rungs

5 year maximum overall

III. Child Care in W-2

* Available to age 12, for working households as well as welfare recipients

* Regulation

State regulation of all providers

Licensing for providers serving 4+ children

Certification for other providers

* Reimbursement

Rates set locally, by type of care & training

Certified care reimbursement rate is 75% of licensed care rate, for trained providers, 50% for those without training

Expected statewide average cost: $4800/year for licensed, $3360 for certified

* Funding levels

$180 million under W-2 vs. $80 million in 1996

$79 million from Federal/state child care programs

$81 million from TANF

$20 million from state

* Participation

190,000 children eligible

56,000 projected

19,000 actual, currently

70% in licensed care

17,000 participants before W-2

IV. Child Care Policy Issues

* Child care is the only element of W-2 to be revised after passage

* Copayment: should it be income-conditioned, price-conditioned, or none at all?

* Effective marginal tax rates: does family's cost of child care rise with income, and if so, how fast?

* Quality: should family have incentives to purchase less costly care, or should high-quality care be provided for all children?

V. Resolving the issues: current policy

* Income eligibility limit set at 165% of poverty

Family already in program remains eligible as income rises to 200%

* Copayment primarily income-based

Rises by 10-15 cents per dollar of additional income

Varies by type of care (higher for licensed care)

Does not vary with cost of care, within type

Can be no more than 16% of gross income (with 2 children)

* "Cliff" at 200% of poverty

Family loses over $5,000 of child care subsidies (with 2 children)

Child care suddenly takes 40 percent of disposable income

Standard of living falls by 20%

Family's likely reaction:

cheaper child care?

no child care?

one parent stays home?

VI. Conclusion

Child care has been among the most politically controversial issues in Wisconsin's welfare reform debate. The current outcome represents a balance among competing views and interests. It is an improvement on the original legislation, which phased out the state subsidy so rapidly that families between the poverty line and the eligibility limit suffered a decline in disposable income when they received a raise in wages. However, in the new version families face a sharp increase in child care cost and a reduction in disposable income when they exceed the eligibility limit, at double the poverty line.

In the immediate future, this will probably not affect many families currently on welfare, but it may affect working families who become eligible for child care as a result of W-2.


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