State child-care program still reeling from claims of lax oversight

The number of low-income Michigan families receiving child-care subsidies dropped by nearly two-thirds after a 2008 state audit found lax oversight in the state-run program. (Bridge photo by Nancy Derringer)

A state program that helps low-income families afford child care is still trying to rebuild after a 2008 audit revealed lax oversight and potentially widespread fraud.

The Child Development and Care program, which a decade ago was helping 60,000 Michigan families, now only helps about 22,000, even though federal funding is available to help thousands more families afford childcare so struggling parents can go to work.

Eight years ago, the block-grant program to support low-income workers in paying for child care was starting to taper off, perhaps as a result of job loss and rising unemployment throughout the decade of the 2000s.

But then the program was hit by a sort of neutron bomb: a report by the office of the state Auditor General that left the program intact, but took major casualties in the form of families receiving services.

The audit, broken into two parts, was damning. One part found that the state Department of Human Services, which was overseeing the CDC program at the time, failed to exercise proper oversight, paying as much as $231 million in “potential improper and, in some cases, potentially fraudulent CDC Program payments.”

The DHS, the report claimed, was lax in tracking the hours children were in care, payments the state made to providers, and even whether some parents qualified for the subsidy in the first place. The audit found instances in which some parents were providing “reciprocal care” for one another, effectively creating “work” via providing care for children, who would then be cared for in turn by another.

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The second part of the audit sparked even more alarm. Auditors discovered approximately 1,900 “unsuitable” daycare providers authorized to receive payment. Some were “substantiated” child abusers or had been found in the past to be neglectful. Others were sex offenders, on parole, or convicted of other crimes. DHS procedures had failed to flag these individuals.

The audit said it turned up no evidence of children being harmed by any of these providers, but the prospect of infants and toddlers being cared for by sex offenders and felons – at public expense, no less – received unwelcome public attention.

“The legislature had to do something,” said Bob Schneider, director of state affairs for the Citizens Research Council of Michigan, a nonpartisan public policy research group.

Schneider has studied the CDC child-care subsidy program, which in Michigan serves fewer children than it has the capacity to fund, mostly due to low reimbursement to providers and a strict threshold of eligibility. He said that as DHS improved its oversight, of both finances and providers, “a massive decline in the caseload” began to take shape.

Eliminating opportunities for gaming or abusing the system reduced the numbers of residents taking part in the program. But another factor was also at work.

“2008 happened,” said Lisa Brewer-Walraven, director of the CDC program, which was subsequently moved to the Office of Great Start in the state Department of Education. “You need to have a job, or be going to school, to qualify for this program.” And in 2008, she said, the financial crisis was wreaking havoc on the economy nationwide.

Shock waves were rolling through local and regional economies, especially in Michigan, where the unemployment rate, already at 8.2 percent when the audit was released, climbed to 10.1 by the end of the year and marched ever higher into 2009, peaking at 14.9 in June 2009. (It’s been below 5 percent since the beginning of 2016.)

The trend was reflected in the numbers of low-income children in care. In just two years, 88,812 left the program, more than 82,000 of them children who had been in unlicensed care, likely to be with friends, family or neighbors, not traditional child-care centers.

Brewer-Walraven points out other factors for the caseload drop. In 2007, the legislature instituted a 48-month limit on cash assistance to needy families, a welfare reform that took full effect in 2011, and some of those individuals also received the child-care subsidy.

“When they received the termination letter for their cash assistance, they (wrongly) assumed the other program was being cut off, too,” said Brewer-Walraven, and either pulled their children out of care or failed to apply for continuing benefits.

Pat Sorenson, of the Michigan League for Public Policy, an advocacy group for lower-income state residents, points to the unlicensed-care drop off, and said the new oversight, which included training requirements providers must fulfill to be reimbursed, may have simply pushed some providers into the “why-bother” camp.

The program has instituted a five-star rating system, with higher reimbursements for caregivers with higher ratings, designed to encourage providers to strive for excellence, Sorenson said. But that, too, may be more than small, unlicensed caregivers are willing to do.

“The way it was done made it difficult for some, mostly relatives, to comply,” Sorenson said. “You might have a grandma who is going to take care of a baby for a year, and the idea of going through training, to which they might not have transportation, for a payoff of maybe $1.35 an hour? It either wasn’t worth it... If you make it difficult enough to get the subsidy, people will drop out.”

Further adjustments in the program, designed to make it work better for parents who most need it, may be turning those numbers around, Brewer-Walraven said. Eligibility will soon be expanded to allow families earning 125 percent of the federal poverty rate (from 121 percent). And once in the program, families can stay until their incomes reach 250 percent of federal poverty. There has also been small increase in provider reimbursement.

“Sometimes,” said Brewer-Walraven, “these policy changes take a while to see the impact.”