The Legislative Auditor’s report on Minnesota’s largest child care subsidy program may not have substantiated explosive allegations made last year about terrorist connections and fraud nearing $100 million a year. But the many problems the report did note in the Child Care Assistance Program (CCAP) has gripped the attention of state lawmakers.

Since the report’s release, legislators have held hearings, convened press conferences, and introduced dozens of new proposals to shore up CCAP. Now that focus on fraud is affecting another vexing debate over child care in St. Paul: how to ease high prices for parents and alleviate the shortage of providers around the state.

Since 2014, after all, there has been a nearly 20 percent drop in family child care businesses, which are small operations more commonly found in rural Minnesota, according to a February report from the Department of Human Services. That has left parents in some parts of the state starving for service and businesses in need of workers. The Northland Foundation estimated parents in northeastern Minnesota who don’t work because they lack child care lose out on $8.1 million in annual total wages.

While larger child care centers found more often in cities have increased some in the last five years, prices for parents using those businesses are among the highest in the nation.

In response to those problems, the DFL’s biggest priority has been to expand CCAP. Gov. Tim Walz’s initial budget plan offered $44 million in new spending for the subsidy in the next two years, largely to increase maximum reimbursement rates for low-income families and buy down a waiting list for parents to use the Basic Sliding Fee program within CCAP.

About 30,000 children are currently served by CCAP each month, yet the top subsidy rates only cover the full price for child care at roughly 16 percent of in-home businesses and 23 percent of child care centers. In 2006, that proportion was closer to 65 percent for in-home child care and 55 percent for center-based child care.The DHS report says CCAP is mostly often used at centers, not in-home family businesses.

Rep. Dave Pinto, a DFLer from St. Paul who chairs the House Early Childhood Finance and Policy committee, said the push for CCAP expansion stems from the economics of the industry, which he said “don’t quite work.”

Republicans were not keen on the idea of expanding CCAP before the audit, and the report has heightened their opposition. The top Republican on Pinto’s committee, Rep. Mary Franson, R-Alexandria, said not “one more penny should be put into the child care assistance program.”

“I believe that the taxpayers would have a hard time swallowing any more money going into that program when the correct controls have not been put in place to stop the bleeding,” she added.

CCAP cost $254 million last year, with most of the funding coming from the state and federal government. While the legislative auditor’s report says fraud is likely more than the $5 to $6 million established by prosecutors in recent years, it also couldn’t land on a “reliable estimate” of the total amount of fraud in the program.

Cut old regulations, but implement some new ones?

Instead of expanding CCAP, many in the GOP have pushed for sweeping new legal changes to prevent fraud and punish those who misuse CCAP money. House Republicans on Monday presented a 59-part anti-fraud package that includes provisions such as requiring child care centers that receive more than $250,000 in CCAP money per year to retain a $100,000 surety bond the state can access if they’re convicted of fraud.

Walz and some fellow DFLers have also proposed some new oversight measures to crack down on fraud, although Republicans have blasted Democrats for not going far enough and accused them of not taking fraud seriously.

Another major GOP priority has been cutting regulations and oversight aimed at making life easier for businesses and workers, especially in family child care settings. While low pay, tough hours and an aging workforce are contributing to the drop in family child care providers, the February DHS report says burdensome paperwork, training requirements and regulations are also causing some to reconsider the business.

Bills include reducing repetitive training, cutting some rules — like a minimum water temperature for in-home child care facilities — and expanding the “Fix-it Ticket” warning program that is used for when businesses break minor rules that don’t put children in immediate danger.

Sen. Karin Housley, a Republican from St. Mary’s Point who chairs the Senate’s Family Care and Aging Committee, said that efforts to cut regulations are driven by input from providers. She’s not hearing from businesses “that we need more CCAP dollars.”

“They’re saying, ‘You know what, government get out of the way; we’re trying to run our businesses here,’” Housley said.

Some have criticized Republicans, however, for working to beef up anti-fraud regulations while also claiming the mantle of deregulation.

Nasro Abshir, an activist for the interfaith political organization ISAIAH who owns a child care center in Minneapolis, said she supports many of the Republican-led bills to chop rules. Yet she also said the GOP should not give DHS “more power” and enact a swath of new anti-fraud regulations that will “end up just hurting centers in the long run.”

“It’s this weird contradiction that they have,” she said of Republicans. ISAIAH, which often aligns with DFLers, held a rally at the Capitol on Monday to support increased spending on CCAP. Many at the organization have sharply criticized the GOP for campaigning on the Fox 9 story that alleged possible connections between CCAP fraud and terrorism in what they say was an effort to fan anti-Somali and anti-immigrant sentiments.

Abshir said she opposed measures like the surety bond requirement and another that would make it easier for DHS to penalize child care providers and drop them from CCAP by lowering the state’s bar for proving fraud. The change would not affect the standard for criminal fraud charges.

With a lower bar in administrative cases, Abshir said poorer child care centers that aren’t fraudsters but aren’t up to snuff on bookkeeping might face state investigations that could put them out of business. (DHS also recommended the lower standard in a bill that Pinto, the DFLer, has sponsored.)

Housley said new anti-fraud rules and penalties are necessary because CCAP money must come with “strings attached” to ensure it is spent properly. But she insisted child care providers are looking for relief from regulation in other areas.

Room for common ground?

The discord at the Capitol has led to little agreement on child care policy, but there has been a sliver of common ground. Some of the Republican bills to prevent and investigate fraud overlap with measures supported by Walz, DHS and some DFLers.

In a revised budget plan released last week, Walz moved slightly closer to Republicans by scaling back a proposal for CCAP money in 2022-2023, the biennium after this current two-year budget cycle. He originally wanted $90.6 million in new spending during that time period to increase reimbursement rates, but is now asking for $51 million.

Kayla Castañeda, a spokeswoman for the governor, said Walz wants to substantially fund CCAP, but said trust in the program is a necessary prerequisite to an even larger push for cash.

Lawmakers from both parties support some other policies aimed at easing the child care shortage and high prices, including grant programs that pay for construction, renovations and other costs of child care providers. Capital costs are known to be a particularly tough barrier for people in the business.

But fraud concerns are shaping debate more than ever. “I think it’s critical that folks be able to know that funds that are dedicated to a program such as this are supporting the families and the kids that they should be,” Pinto said. “And I want to make sure that this doesn’t overshadow that critical point that a fundamental challenge with the Child Care Assistance Program is how underfunded it is compared to the need.”