law-income families greater freedom of choice in child care arrangements and, life a negative income tax, increases their income. This approach is an administratively efficient means of targeting resources to lower income families and complements the successful efforts this committee undertook last year when it included transitional child care in welfare reform. We are encouraged that the provision seems to have bipartisan support, including the President's. To help finance a child care package, we would support a phase out of the tax credit at upper income levels.

Another tax credit proposal that we have reviewed is President Bush's child tax credit giving very low-income families up to $1,000 per child under four. As a way of putting more income into the hands of very poor working people, it is a step in the right direction. But, we do not consider it a child care provision. The credit could be used for many other important pressing needs such as food, clothing and shelter. We believe it would be a mistake to construe this proposal as one that meets child care needs.

Tax credits are not a substitute for direct funding. A balanced approach to federal child care initiatives should also include grants. We support an increase in the head start program which clearly is one of the most effective federal programs in existence. We also support an increase in the social services block grant. However, we can not support an earmark of new funding for child care as proposed by S. 412. Counties rely upon the funding for a variety of competing social needs. A Title XX earmark would hamper local governments' ability to make the tough choices on meeting its community needs. While we believe that the block grant should be increased, we would urge you to not view it as the primary means of addressing child

care.

The "ABC" bill as passed by the Senate Labor and Human Resources Committee last month has improved greatly compared to last year's bill. Provisions were added recognizing the importance of local governments in coordinating and providing some of the child care. A higher percentage of funding is available to states to increase supply and improve the quality of care. However, we are concerned about the imposition of a number of new state mandates, including federal minimum standards. Our position opposing federal minimum standards is one that many of us at NACO agonize over. As elected officials, county commissioners are there to serve the public. For many of us, our primary motivation for holding office is to protect and represent the interests of those constituents who are disadvantaged. We are just as concerned about the health and safety of children as anyone else.

But we also face the hard reality of complying with unfunded or underfunded federal mandates. We make the tough choice of either increasing local revenues to comply with the mandate or reducing other services to pay for it. Many national goals are commendable, but they do create additional burdens at the state and local levels. Many of us are striving to meet environmental protection mandates including clean air, water and solid waste disposal. We work to comply with many of the transportation mandates. And, in human services, we struggle to meet the quality control requirements of the AFDC program.

So, mandates are not new. Nor is our experience that they are not funded fully. This past experience, combined with the reality that today's federal budget deficit limits funding available for new initiatives, causes us a great deal of concern when new federal standards are considered, regardless of the issue.

We also look at new federal initiatives in the context of the shift in financial responsibilities during the 1980's. State and local governments have taken more than their fair share of cuts to reduce the federal deficit. According to the Congressional Research Service, federal grants to state and local governments have decreased in real terms by 47 percent since 1980. When federal grants are singled out as a percent of total county budgets, the drop is even more dramatic. In 1980 federal grants were 9.1 percent of county budgets. In 1986, excluding general revenue sharing, counties only received 2.5 percent of their budgets from the federal government-a 73 percent drop.

We have responded to federal standards and decreased federal dollars by raising local revenues. The advisory commission on intergovernmental relations estimates that local governments have increased their own revenues by over 60 percent between 1981-1987. Excluding all other revenue sources, local governments raised nearly $464 billion in 1987.

We recognize the budget dilemmas you face. Given the limited flexibility in raising new revenues for social programs, we are realistic enough to believe that a full $2.5 billion appropriation for ABC would not be possible in the near future. Since that is the case, we are particularly concerned about implementing the many laudatory requirements with less than full funding. If we cannot meet the mandatory re

quirements, then the failure of the program will be laid at the steps of our county courthouses.

Yet, we do not want to dismiss the real concern for the health and safety of children in child care. As elected officials, we hear the same message you hear in the Senate: there is a lack of affordable, quality care. We want to work on addressing those concerns but would urge you to consider a system of federal incentives instead of sanctions to get to the goals we all share.

To improve the quality of care, we would propose a system of quality incentive grants that would be available to state and local governments, particularly to those which are most in need of improving their child care systems. A national advisory committee on model child care standards would develop regulatory and licensing standards for state and local governments to work toward. Based on their unique resources, demographics, and existing child care systems, each state would design an appropriate strategy to meet the model standards. Unlike a mandatory standards approach, those states most in need of improvements and child care resources would not face the loss of funding if they had not complied completely.

If the state can document adequate progress in improving the quality of care, it should continue to be encouraged with incentive funds to improve its systems.

Again, let me emphasize that I think we all agree on the goal of quality care. There is more than one way to get there. Frankly, given the fiscal realities of all levels of government, a system ultimately based on sanctions will create adversarial relationships and schemes to work around the requirements. A more straightforward approach of quality incentive grants combined with continued political pressures from families for quality care will get us to the same goal.

I'd like to turn for a moment to our experience with child care in my home county. Our involvement is directed by the office of child day care within the Wake County Department of Social Services. We offer care for children at risk of abuse, those in foster care, and children of working parents still on welfare. Until recently, funding was totally federal and state dollars. The county is now budgeting $56,000 of its own dollars to supplement the federal and state efforts for a total budget of over $1.3 million.

We are responding to significant increases in demand for child care services in all of the areas we currently serve. While we are serving 623 children, we have more than 700 children on various day care waiting lists. Federal help is needed not only to provide funding for these children on waiting lists, but also to provide incentives for improving the quality of child care in wake county and in North Carolina, especially since our licensing standards for child care in North Carolina are among the weakest in the nation.

Much has been said in recent years about the defense of our country and our democratic way of life. We in counties across this nation know that the real threats to democracy are not just external to be defended with military might, but are also internal. It is sound public policy for America to invest in its children and ensure that they get a good start in life.

The availability and quality of child care has become just as important to the functioning of our nation and its economy as bridges, highways, sewers and weapons systems.

An enormous amount of time and effort has been spent on developing federal responses to child care needs. There is no one ultimate approach. We are all motivated by a true desire to assist children and their families. NACO pledges its support in working with the committee to ensure that a bipartisan bill is enacted this year. Thank you again for this opportunity to testify. I would be happy to answer any questions you may have.

PREPARED STATEMENT OF SENATOR MALCOLM WALLOP

Mr. Chairman, These two days of hearings on child_care_continues the work begun last fall by the Finance Committee on this issue. Last September, the Committee held a one day hearing on child care tax credits at my request. That hearing was the first by the Committee since I became a member a decade ago. Child care issues at the federal level had been dormant since the early 1970s when an unsuccessful attempt was made to impose federal controls on day care centers. The resulting public outcry led to a decisive defeat of this misguided intrusion.

Historically, the development of child care resources has been the responsibility of the States and the private sector. Federal involvement came to life in 1976 when Congress approved the Dependent Care Tax Credit. This credit is a capped credit, very limited in its impact on child care services. Congressional interest in broader

child care legislation did not occur until several years ago when Senator Hatch introduced legislation to improve the quality and affordability of child care. Other proposals, such as the ABC bill, were to quick to follow.

At the hearing last September, much time was spent on the ABC bill. I noticed that the proponents have again appeared with the same arguments on behalf of federalizing child care. I do not want to dwell on this bill since it is a problem for another Committee. I would instead urge the Finance Committee to devote its time to exploring another, more appropriate approach to the child care dilemma—the tax credit solution. So, there is a definite choice between the ABC attempt to establish a national program of institutional child care administered and funded by the federal government versus a free choice alternative promoted by tax credits.

In the last Congress, I was the original sponsor of a tax credit proposal which expanded child care opportunities. It was an attractive concept, and many variations of it soon followed. Last week, I introduced a revamped version of my proposal, S. 761, with Senators Domenici and Durenberger as the major co-sponsors.

Our legislation embodies several important principles which correct deficiencies in current law and in the ABC bill. Senator Domenici testified yesterday regarding the details of our bill, so I will focus on its four principles. First, our bill is based on the idea that freedom of choice is essential to families in making child care decisions. This freedom, or opportunity, has two parts. The tax credit should be available to all working families-both those where one spouse works at home as an unpaid homemaker and those where both spouses have regular employment.

As other witnesses have indicated, the decision of a spouse to remain at home has financial consequences for the family. The average income for these families is obviously lower than the average income of families with two working spouses. Our tax credit treats both types of families equally by making both eligible for child care tax credits.

Such credits also promote freedom of choice by allowing the parent to choose the most appropriate child care for their children. As I've said, our bill allows one parent to provide child care at home. Another option is a neighbor or relative providing the care. Or, a family child care provider who accepts children in their home is another resource. And lastly, there is the institutional child care. This is in direct contrast with the ABC bill which favors institutional care.

Our second principle is that the credit is directed to low and moderate income families. The current credit is a "Yuppie" credit of sorts with most benefits going to two earner families with income in excess of $32,000 annually. Low income working families, with incomes just above the minimum wage, receive only 3% of the benefits from the current tax credit. The ABC bill will do little to further help these families since most of its funds will go to administrative expenses. Only 700,000 children will be helped by ABC, while our bill effects some five million children.

Our third principle is that we have expanded funding for the State Dependent Care Block Grant. Funds will be provided to the States to improve the accessibility and quality of child care.

Lastly, there are no federal standards or mandates in our bill. This Committee will not be the forum to discuss federal regulations for child care. It is the stage for debating the child care tax credit which minimizes federal intrusion in family affairs.

The cost of our proposal will be about the same as the Bush initiative, which was based on the bill I sponsored last year. The financing of the new credit will have to be decided in the upcoming budget debate. I believe we have put together a very useful child care credit, and I look forward to working with you on this legislation.

PREPARED STATEMENT OF MARK A. WALSH

Mr. Chairman and Members of the Committee: Thank you for the opportunity to appear before you today on behalf of the National Child Care Association (NCCA). My name is Mark Walsh, I own five child care centers in the Rochester, New York area and I currently serve as President of the New York Child Care Association. Recently, I was appointed to the Governor's Advisory Committee on Child Care by Governor Cuomo. As a member of the Board of Directors of the National Child Care Association, I am pleased to bring the concerns of this young, growing and viable industry to your attention.

The NCCA was formed as a federation of State Associations representing proprietary child care centers and preschools. Our membership is predominantly comprised of tax paying small business proprietors of single center operations.

It has been estimated that the proprietary sector of the child care industry supplies some 40% to 50% of all licensed child care delivered in the United States. As the only national association of proprietary child care providers, NCCA is uniquely capable of participating in the policy debate concerning pending federal legislation on child care. NCCA supports Federal efforts to expand the availability of much needed child care targeted towards low income families, and to improve the quality of child care programs overall.

As professional child care providers, we believe that Federal initiatives in the area of child care are long overdue and we welcome those efforts. However, we believe that the Federal role in child care must be carefully crafted to increase capacity rather than to decrease it, and to preserve, expand and draw from the current child care system rather than destroy it.

NCCA believes that the proper goal of Federal child care policy should be to encourage and promote parental rights and choices about child care. We, who are reminded daily of the value of good child care for today's working parents, strongly advocate providing assistance to low income families for their child care costs, and we vigorously support state licensing standards for pre-schools, kindergartens, child care centers, group day care homes and family day care homes-all paid, nonfamily, out-of-home, child care programs.

To acquaint you briefly with the industry I am representing, we are young and growing. In the best American tradition, we have responded, before government has, I might add, to the demands of our country's current life and work styles and to what parents request for their children. We have grown into a diverse industry because we have tried to meet parental, religious, ethnic, educational and programming demands. We will continue to develop and meet the public's needs, if equal market conditions are allowed to operate within our environment of free enterprise. I would like to cite for you a personal example of the private sector's ability to respond creatively to the needs of the marketplace. Last September, my child care firm began the operation of an on-site child care program at the campus of Rochester School for the Deaf. This program, designed to provide care for the children of staff members, the deaf community, and the community-at-large, is an excellent example of a joint private-public program designed to meet a group's needs. At the present time, approximately 30% of the children attending the program have a hearing impairment. All of our staff members have, or are being trained in sign language. Two of our staff members are deaf. In classic tradition, we saw a need and filled it with a program that had never been done before . . . and without any outside assistance.

In 1977, the U.S. Census Bureau identified 18,300 licensed child care centers in this country. In 1985, that figure had risen to 61,079 licensed centers-a 70% increase. This nation's child care industry currently adds $15.3 billion to gross revenue, and according to a recent article in the Wall Street Journal, an annual growth rate of 21% through 1995 is expected. At that time our industry will contribute an estimated $48 billion annually to our economy. Additionally, the Census Bureau identified 1,060,000 child care center employees in 1984. It is well over that figure today. In 1985, 25% of working women with preschool children used licensed child care centers, compared with just 16% in 1982.

While national chains continue to expand, I believe it is important to note that the for profit child care industry is still dominated by small tax paying proprietors. Of the estimated 30,000 for profit centers in the country, less than 8% are operated by the five national chains. Businesses are also beginning to see the value of responding to the child care needs of their employees. In 1978, 110 employers nationwide offered some kind of child care assistance. Last year that number reached 3,500. While this expansion and growth in child care services has not happened overnight, the fact to remember is that it is happening, and it has happened largely without government. Imagine what could be done to encourage and continue this growth with the implementation of a well directed and developed, sound government policy.

These are but a few of the growth statistics about child care. There is another side with which I am extremely familiar. . . and that is the human side, both in terms of owners and staff who strive continually to provide quality child care, and for the young families who have expressed confidence in this industry by placing their precious children in our care. Many of us have committed our futures and those of our families to this profession, not because of high profit margins (which do not exist), but because of a genuine concern for young children. We are an industry which cares deeply for America's children and their access to safe, licensed, quality child

care.

We face a Congressional session filled with child care legislation and we welcome an atmosphere of public attention to the nation's child care situation. We do, however, have to be realistic and practical in our evaluation of what our nation needs in terms of child care.

Let me briefly address two of the major bills which the NCCA and other national organizations in our Child Care Working Group strongly oppose-the ABC Bill, (S. 5; H.R. 30), sponsored by Senator Dodd in the Senate and Representative Kildee in the House, and the "Child Development and Education Act" (H.R. 3), sponsored by Representative Hawkins, Chairman of the House Committee on Education and Labor. Our members, teachers and the parents we serve strongly oppose both S. 5 as well as H.R. 3 and 30 because:

(1) The ultimate effects of these bills are to hurt poor families and their children and severely restrict the parental choice that they can exercise.

First, one of the principal reasons for this statement is that these bills are constitutionally flawed on Church/State grounds and will not be implemented while undergoing constitutional challenge by such groups as the ACLU. One of the principal reasons for this would be the excessive entanglement that would inevitably result between overseeing authorities and religiously sponsored child care programs;

Second, they will force many proprietary centers to close, and in the case of Title II, of Congressman Hawkins' bill, "School Based Child Care and Development", it will sound the economic death knell for the majority of for-and non-profit centers by irresponsibly monopolizing the care of 4 year olds, (as well as pre-and after-school care) in the public school system. The economics of these effects are not hard to understand. Most center providers would tell you that they need to serve a sufficient number of 4 year olds where the labor intensity is less, so that they can absorb or offset the financial strain of caring for infants and toddlers. Because quality infant and toddler care is so expensive to provide, rather than charge the actual costs, centers have tended to distribute that cost over the entire center. In other words, four year olds help considerably in balancing out the loss experienced by the care of infants and toddlers.

Moreover, by imposing minimal Federal standards on the States, both the ABC Bill and its clone for infants and toddlers in Title III of Mr. Hawkins' bill, will raise tuition costs for center care, and ultimately, also, cause many centers to close their doors. According to the only, and to this date unchallenged, fiscal, analysis of the economic impact of these minimal Federal standards, reported last year in Child Care Review, it is estimated that the cost of center child care nationwide will increase by nearly $1.2 billion, and ultimately 12,600 centers (20% of all licensed facilities) would close. 786,000 children, it is estimated, would be displaced.

These economic effects will be especially severe in the Sunbelt States where parents will absorb 79 percent of the total national tuition increase and where 84 percent of the total child displacement will occur. For example, in two of the States that lead the nation in available, licensed child care, Texas parents could expect an average increase of weekly tuition costs of $18.41 and parents in Florida, $16.21 per week. Even up North in Rhode Island, the weekly tuition raise would be $15.13. Those displaced from child care will have to find care somewhere else. All too often, the result of increased child care fees has been the placement of children in unlicensed, unregulated, unmonitored and often times, unsafe environments, with the regrettable results one reads about too often in newspaper abuse and injury headlines.

What is even worse, if the optimal I standards recommended by the accreditating arm of the National Association for the Educational of Young Children (NAEYC) were adopted, professor Richard Clifford of the University of North Carolina has estimated that it would cost parents $5,200 annually for center care, and the costs would be even higher for the same programs in the public schools.

Let me speak, for a moment, from personal experience. As a child care operator in New York State-one of the most regulated States in the Nation-I am very familiar with the cost and impact of regulations. It is now very common in my area for child care to cost over $5000 per year. And with inevitable minimum wage legislation (and it's "push-up" effect on wage structures), Section 89 compliance demands, real property cost escalations, and unjustified insurance cost increases, the cost of providing quality care will continue to spiral upward. I dare not imagine the impact on this Nation should these standards be forced overnight on all areas of our Country.

Moreover, the drafters of these bills have caught themselves in a catch-22 situation over these standards. On the one hand, they would lead us to believe that only those centers who choose to participate in the Federal ABC program will be bound by these minimal Federal standards. But they add another element, namely, unless