This article originally appeared in Reason magazine on August 28, 2024. The original post can be viewed at Reason.com.
Projections show the Idaho Child Care Program — known as the ICCP — has a nearly $16 million budget deficit due to bureaucrats over-expanding eligibility and overpaying for benefits. As conservatives rightly respond with cuts, more durable solutions require covering gaps in accountability and reconsidering the structure of childcare entitlements altogether.
In a letter to the budget committee, the director of the Idaho Department of Health and Welfare (IDHW), Alex Adams, warned the ICCP will grossly exceed its budget without a course correction. He notes, “the combination of increased local market rates, paying at a higher percentile of local market rates, reduced copayments for families, and increased eligibility has created a forecasted budget deficit.”
IDHW projects the deficit will be $15.5 million in the current fiscal year and rise to $22.2 million next year. Respectively, this is roughly 29% and 39% more spending on benefits than originally anticipated. This deficit is in spite of an $10.3 million increase in benefits spending the program already received this year.
When overages occur, it is very rare for bureaucrats to reduce the size of programs to stay within the confines of their appropriations. It appears the IDHW originally planned to squeeze legislators — and taxpayers by extension — for the additional funding.
As the newly-installed IDHW director, Adams is resisting the status quo by reducing the size of the ICCP to stay on-budget. This includes ensuring benefits go to the truly needy, pausing new enrollment, and covering a more reasonable share of the market.
The ICCP was originally designed to provide child care support for low-income, working families with children younger than 13. These federally-funded subsidies may reduce the costs of childcare for those eligible.
Child care prices continue to rise faster than inflation, burdening families across America. Adams’ letter notes these costs rose by 25% in the Gem State over just three years.
Yet, the program itself may be partially to blame for these rising costs. Federal requirements mandate adjusting ICCP benefits be tied to the market price of child care. There are perverse incentives inherent in this model. When providers know government payments are based on surveys of their prices, then they are incentivized to raise prices to garner more funds — regardless of the real operating costs or value.
Increased costs are far from the only driver of the program’s funding deficit. The program’s benefits became increasingly generous in recent years, covering people with higher incomes and more expensive child care providers while reducing beneficiaries’ copayments.
Federal rules allow the IDHW to decide the benefit value relative to the market rates, requiring only that states cover the median market rate, at a minimum — meaning at least half of all child care programs in the state can be fully covered by ICCP
The IDHW went well above this minimum requirement by funding between the 75th and 85th percentile — reaching the federal maximum. This means that all but the most expensive child care programs in the state were covered.
In addition to this expansive coverage, the department reduced what little financial accountability existed in the program. Beneficiaries are required to share part of the costs of child care through copays, but the department reduced all rates by half.
Not only that, but now more people can qualify for the ICCP. In 2023, the IDHW changed an administrative rule, raising the income eligibility threshold from 130% to 175% of the federal poverty level — about $54,600 for a family of four, and $10,000 more than the statewide median. This expanded the pool of eligible households and corresponded with a sharp increase in enrollment.
The combined effect of these policy changes increases costs, reduces accountability, and encourages dependency. Though it is true that child care costs are rising, the true cause of the program’s budget woes are actually due to overpromising on welfare without accountability, then expecting the taxpayer to make-up the difference.
Decisions to slash copays and over-expand the market coverage were made without any legislative oversight through state plans, which are direct agreements between the federal government and the IDHW.
State plans allow agencies to circumvent the Legislature. This is not illegal, per se, since they are compliant with higher levels of the law like statutes and administrative rules — which can both be vague and afford agencies too much discretion. Though this inherent leniency is also what allowed the director to make the necessary cuts, the Legislature must provide more specific language to prevent these problems in the first place.
Director Adams is right to cut the program down to size, rather than asking for additional funding to continue the excess. This is not a durable solution, however, to a chronic problem within the bureaucracy.
The lawmakers should consider policies that require agencies to get legislative approval for any state plan that would impact eligibility, benefit amounts, and program spending. This would provide additional transparency by removing a loophole around rulemaking and legislative routes for policy change.
Financial impact of policy changes like state plans or rules should also be reviewed independent of the agency. In his letter, Adams notes how the rule only passed in the Senate after the department stated — incorrectly — that their budget could accommodate expanding eligibility to 175% federal poverty level.
Moving forward, both the legislative budget committee and the Division of Financial Management should report the fiscal impacts of changes like these. This allows for lawmakers to more comprehensively understand the consequences of these proposals prior to their approval.
In the way of child care costs, Idaho should consider alternatives to expanding welfare. Options that deregulate the industry and eliminate perverse incentives could drive costs down. Relaxing regulations that should be up to market — read parental — discretion can make a bigger difference.
The IDHW recently started in the right direction on this by increasing the allowable ratio of staff to children. This increases the number of child care seats available without requiring additional investments in infrastructure or compromising safety.
The driver of the ICCP’s $16 million budget deficit was not simply due to the rising cost of child care but the agency overpromising generous welfare benefits at the expense of the taxpayer. Director Adams is doing the right thing by cutting the program to save costs, but the Idaho Legislature must go further to rein-in a rogue bureaucracy. Not only would taxpayers be grateful, but they just might find that less intervention and a freer market reduces the need for the program overall.
