1. Use existing Federal programs for direct support rather than creating new bureaucracies;

2. Target the bulk of the direct support to truly low-income families of preschool children;

3. Provide the bulk of the direct support to parents rather than to providers, maximizing parental choice;

4. Allow states to continue to regulate the health and safety of children; and 5. Provide tax incentives and other support to businesses, government and providers to encourage them to develop and support quality, affordable child care.

SPECIFIC RECOMMENDATIONS

More specifically, we recommend that any Federal child care legislation:

1. Increase the Dependent Care Tax Credit for low- and moderate-income families (as is done in the Packwood-Moynihan and Heinz bills (S. 412 and S. 187)).

2. Make the credit refundable and allow for "forward funding" or "negative withholding" (as is done in those bills, Senator Wilson's KIDS bill (Š. 55), Senator Gore's bill (S. 364), and President Bush's proposal (S. 601)).

3. Phase out the credit for those households with adjusted gross incomes above a certain level (as is done in the KIDS bill).

These changes to the Dependent Care Tax Credit would target resources to lower income parents and help offset the lost revenue which would result from increasing the credit.

4. Provide additional incentives to businesses to provide child care assistance to their employees-emphasizing assistance that does not discriminate against the proprietary child care industry (some incentives are included in the KIDS bill, Senator Hatch's bill (S. 692), and Senator Coats' bill (S. 392)).

These incentives could include a tax credit for the costs of establishing an on- or near-site child care facility and a liability insurance risk pool.

5. Make grants to states for child care through the Social Services Block Grant or the Dependent Care Planning and Development Program (as is done in the Packwood-Moynihan bill, the KIDS bill, Senator Heinz's bill, Senator Bond's bill (S. 569), Senator Hatch's bill, and Senator Kassebaum's bill (S. 512)).

These funds could be used to address quality issues such as improving monitoring of compliance, encouraging licensing of family home providers, providing grants and low interest loans to improve quality, providing training to caregivers, and training enforcement personnel. The funds could also be used to enhance availability of resource and referral programs, before- and after-school programs, sick children programs, programs linking child care with the elderly, and other such programs.

WHY THE TAX CREDIT/BLOCK GRANT APPROACH IS PREFERABLE

There are two principal theories on the appropriate role of the Federal Government in providing quality, affordable child care. One theory holds that the government is in the best position to determine child care needs. This theory is exemplified by the proposed Act for Better Child Care, the so-called ABC bill-which would give taxpayers' money to Federal and state bureaucrats who would then decide how the child care should be provided.

The other theory regarding the Federal Government's role in providing child care is based on the assumption that parents are in the best position to choose what's best for their children. Several bills pending before this committee reflect this theory and are based on the belief that the most efficient way to ensure parental choice is by giving child care assistance directly to the parents. This can be accomplished most effectively by use of the Federal tax code and existing block grant programs.

ADVANTAGES OF THE TAX CODE

Utilizing the tax code offers three principal advantages as a means of Federal support for child care costs. First, it ensures that parents, not bureaucrats, choose what child care services their children use. Second, the program wastes virtually no money on administrative costs. Third, the assistance can be targeted to those who need it the most.

WHY THE EMPHASIS SHOULD BE ON AFFORDABILITY

The child care debate has focused on three factors: availability, affordability, and quality or more appropriately: lack of availability, lack of affordability, and lack of quality. But what some of the demographers, social scientists, advocates-and yes, politicians-seem to forget is that, to a large degree, these factors are interdepend

ent. Let's take child/staff ratios as an example. That is, the ratio of children to an individual caregiver. Ratios are, to a certain extent, a measure of "quality." If you decrease child/staff ratios you increase costs. These increased costs, in turn, lead to decreased availability. It's as simple as that.

The next question you have to ask yourself is: "Knowing these factors are interdependent, which is my biggest concern. Gentlemen, from my experience as a mother, a child care center director, and a manager, I am convinced that your greatest concern should be with affordability. Why affordability? Why not quality? Why not availability? Because, despite the anecdotal evidence and the horror stories, in most cases, quality child care will be made available to working parents who can afford it. I am not saying that quality is not a problem in some areas. It is. I am not saying that quality child care is readily available everywhere. It is not. But I am saying that affordability, by and large, is a much more pressing concern.

Let's take a look at the two misconceptions involving availability and quality.

AVAILABILITY

First, availability. We are told over and over by the media and advocacy groups that there is a "crisis" in the availability of child care in the United States today. While there are definitely pockets of shortages, there is no evidence that there is an acute nationwide shortage of available child care. In fact, there is much evidence to the contrary:

In January 1988, the Secretary of Labor's Task Force on Child Care concluded that "there does not seem to be a general shortage of child care."

• The preliminary results of a survey conducted by the National Child Care Association indicates that vacancy rates of for-profit, center-based child care providers average from 14 to 30%. And although we don't particularly like to advertise it, Kinder-Care's vacancy rates are not inconsistent with these figures.

You probably also have heard it said that when it comes to child care, the market has failed. While it is true that supply has not yet caught up with demand in every case, overall the market has responded extremely well.

• Between 1977 and 1985, the number of licensed child care centers increased over 70%.

During that same period, the number of preschool children in child care centers and other preschool programs increased 241%.

Center-based care is growing nearly five times as fast as the employment of mothers of preschoolers.

• Child Care Information Exchange, a trade publication, has reported that across the U.S. there are currently two licensed child care slots for each child in a child care center.

QUALITY

Now, let's take a look at quality. Again, we are told over and over that we need Federal standards to ensure the safety and health of our children in child care. This, despite the fact that all 50 states already have standards which reflect the economic realities of their state. Let's look again at child/staff ratios. Are they as low as parents would like? No, I suspect most parents would prefer a 1:1 ratio. But with the possible exception of two states these ratios more than adequately safeguard the health and safety of the children cared for in licensed child care. And the trend is clearly toward stricter standards. Just to give you an idea, I counted the states which had revised their child care standards in just the last three years. I came up with 19 states.

Federal standards would increase child care costs, displacing children currently enrolled in licensed child care to cheaper, unlicensed care, and force the closure of many licensed facilities. The perceived "shortage" of child care is most severe in states where excessive regulation has caused child care costs to skyrocket. For example, the infant/staff ratio in Virginia is 4:1; we provide lots of infant care in Virginia. On the other hand, the infant/staff ratio in Maryland is 3:1; we do not provide any infant care in Maryland. Why? Because working parents simply cannot afford to pay the increased costs that this smaller ratio demands.

• A April/May 1988 Child Care Review magazine study estimated that, under the ABC bill, child care costs would increase an average of $351 per child, 786,000 children would be displaced from licensed child care, and 20.3% of all licensed centers would close.

In conclusion, I submit to you that for-profit, non-profit, church-affiliated, and family care providers, along with Head Start, relatives, and friends-with some help from the states-can best address the issue of availability. Likewise, the states, par

ents, and providers are in the best position to ensure quality. Therefore, the Federal Government should concentrate on the issue of affordability.

Thank you.

Enclosure.

PREPARED STATEMENT OF SENATOR CHRISTOPHER J. DODD

Mr. Chairman and members of the Committee, thank you for giving me the opportunity to testify on one of the most critical issues facing the 101st Congress and the American people-child care. As the chief Senate sponsor of the Act for Better Child Care Services, I deeply appreciate all of the support and advise which you and the nine Finance Committee cosponsors of the ABC bill have given me in developing that legislation.

The child care debate. Its a debate about priorities; a question of our goals and responsibilities to the American people. We all recognize the productive and meaningful role of parents who stay home with their children. That's what the family leave legislation which Senator Packwood and I and others have sponsored is all about. But many of us also agree that our first responsibility-the first place for new Federal child care dollars-is with needy parents who simply must work and cannot afford to stay at home under normal circumstances.

Let's be honest with the American people. A tax credit is not national child care legislation. To really make a difference to see that new Federal dollars first help families which need child care for their economic survival-we need comprehensive legislation which deals with all three facets of the child care crisis-cost, availability, and quality. We believe the ABC bill does just this. It creates not a Federal child care system but a national partnership built on existing programs and fueled by the power of parental choice; ABC is not a Federal solution but a set of national guidelines and incentives; its not a complete answer but a sound beginning.

Mr. Chairman, in a detailed Harris poll released last week, fewer than half of the parents of young children surveyed are satisfied with those three pillars of child care-cost, availability, and quality. Only 8 percent thought our country's system of child care was working "very well". The Harris poll also exploded the myth that many American families, especially poor ones, rely exclusively on in-home relative care with minimal out-of-pocket expense. Instead, the average parent uses two or three support services during working hours, usually a mix of parental and out-ofhome care. More than two out of three people surveyed disagree with the view that most parents can find relatives or friends to care for their children while they are at work.

On cost, the numbers are alarming. Even when parents with no child care expenses are averaged in, the mean annual amount paid by parents is $2,280. What's worse, the lower a family's annual income, the more money that family is likely to pay for child care services. The categories of families most likely to be poor and most dependent on their child care arrangements-blacks, hispanics, single mothers, and those in big cities-not only pay well above the national average but more than those earning $35-$50,000 per year. I have two conclusions. First, the cost and supply problems are so bad that there is virtually no relationship between what people pay for child care and their ability to pay. Poor parents must pay ridiculously high portions of their income simply to find some form of care for their kids. Second, this parental scramble for care means little chance to exercise choice in the marketplace, further diminishing the very low incentives society gives day care providers to offer quality services.

This brings me to the third issue-quality. Well, like motherhood and apple pie, quality child care is something everyone believes in. But like motherhood-and like apple pie there is some disagreement about what goes into it. Some believe the most important factors are parental choice and involvement. I count myself in this camp.

But to provide real parental choice-real involvement-I believe we must do more than throw families a few hundred dollars in tax credits each year and let them fend for themselves. This is not like buying a toaster. Parents are very, very confused. They are frustrated by a system in which demand has little relationship to quality or supply. Parental choice means more than giving families a few extra dollars each month; it means helping to increase the supply and variety of local child care services for parents to choose from. Parental choice means minimum health and safety standards to help parents measure and improve program quality. Parental choice means better resource and referral networks to educate families about their child care options. parental choice means parents working in the trenches, helping to set child care policies at the national, state, local, and program levels. ABC would help to ensure all these forms of parental choice and involvement. The tax credit approach alone would not.

ABC establishes minimum national health and safety standards for publicly funded child care programs. Public opinion polls consistently show-including the recent Harris survey-that the American public overwhelmingly supports these