Combating fraud came to dominate the Legislature’s debate about child care in Minnesota

At the start of this year’s legislative session, the debate over child care policy was focused primarily on making it cheaper and easier to find amid high prices and a lack of options across Minnesota.

But by the time lawmakers adjourned this month, attention had shifted almost entirely to something else: fraud.

A state audit in March found that fraud in the Child Care Assistance Program (CCAP), a prominent subsidy for low-income families, was tough to root out and likely more pervasive than what prosecutors have been able to prove. The politically explosive report from the Office of the Legislative Auditor could not substantiate some allegations made in an attention-grabbing Fox 9 story from 2018 — namely a link between fraudulent CCAP money and terrorists in Somalia — but it nevertheless mobilized Republicans and some DFLers to call for sweeping reform.

Now, Republicans are cheering the two-year state budget approved last weekend, which has a long list of anti-fraud measures and a freeze on most new CCAP spending. A CCAP expansion was a top child care priority for some advocacy groups and DFLers headed into the 2019 session.

“It really is important to make sure that the dollars go where they’re supposed to,” said Sen. Jim Abeler, a Republican from Anoka who chairs the Human Services Reform Finance and Policy Committee. “And so the effect of this bill is going to be much more program integrity.”

Split visions for child care progress

The initial budget plans of Gov. Tim Walz and House DFLers reserved upwards of $40 million in new spending over the next two years for CCAP and more than $100 million in the following biennium.

Budget documents prepared by Walz’s administration say maximum CCAP rates currently cover just 16.3 percent of prices charged by family child care providers and 23 percent of larger child care centers. The rest of the cost is often passed to families. “This practice makes child care less accessible to low-income families even with child care subsidies,” the budget proposal says.

DFL lawmakers have also argued CCAP expansion would help rightsize the vexing economics of child care businesses. Due to high overhead costs, long hours and low staff-to-child ratios the job requires, many of those businesses in Minnesota run slim profits, while the cost of enrollment at child care centers, which are mostly in cities, can be among the highest in the nation.

“The Child Care Assistance Program is a great program that has really allowed children, infants and babies to be in a safe and nurturing environment while their parents are looking for work, attending school or some type of job training,” said Rep. Rena Moran, a St. Paul DFLer who chairs the Health and Human Services Policy Division. Moran and Abeler were negotiators on the conference committee for the omnibus health and human services finance bill.

Politicians in both parties agree Minnesota’s child care woes constitute a crisis in all parts of the state. There has been a nearly 20 percent drop since 2014 in the number of family child care businesses, which are smaller facilities more prevalent in rural Minnesota. Research shows a lack of child care is also straining Minnesota’s already tight labor market, particularly in rural Minnesota.

Republicans had their own plans to ease the child care crunch. One of the first bills they introduced in 2019 had a slate of policies meant to make starting and running a business easier. Many child care providers have complained of overly strict regulations, which have contributed to closing businesses.

A fraud report makes waves

Fraud had been a hot topic and even a 2018 campaign issue after the Fox 9 report, in which a DHS employee speculated fraud in CCAP could reach $100 million per year. But it did not appear to be a focus for lawmakers in the initial weeks of the legislative session.

The OLA report also found internal strife at the Department of Human Services over CCAP investigations and detailed how tough it is to prosecute child care providers when it happens.

The audit says prosecutors must show a business was intentionally breaking the law, not accidently making accounting or clerical mistakes, to get a fraud conviction. That often means exhaustive work comparing surveillance video to billing and attendance records.

Fraud in CCAP quickly became a top issue at the Capitol, where Republicans and DFLers introduced dozens of new measures aimed at stopping fraud. Democrats still called for new CCAP spending, saying they could fight fraud and help low-income families. But Republicans called for a freeze on the program, and their budget plan would have cut hundreds of millions of dollars from CCAP over the next four years to make it happen.

The final deal

When lawmakers on the Health and Human Services conference committee emerged from backroom talks last week — after days of practically around-the-clock work — the resulting 649-page (double-sided) budget had no increases for maximum CCAP rates or money to reduce the Basic Sliding Fee Waiting List.

Lawmakers did approve about $659,000 to help with federal compliance problems. Paired with $7.5 million in existing federal cash from a block grant, the money will keep the state within regulations for 2019, according to DHS. Minnesota will face penalties by October of 2020, however, if they don’t update reimbursement rates and pay for some some training requirements.

Aside from the money questions, the Legislature agreed to pass a long list of anti-fraud measures. Many were aimed at making it easier for state and county officials to report and crack down on financial abuse outside of criminal proceedings. Others put new regulations on child care providers, such as stricter record-keeping rules.

Lawmakers also toughened background checks for child care providers and some penalties for businesses that get barred from using public assistance. A first time violation of program rules now merits a three year suspension from CCAP and a second violation now draws a permanent ban.

Many of the new rules in the Human Services omnibus bill came from Democrats and Gov. Tim Walz’s administration, or were supported by both parties. Republicans didn’t get all of the anti-fraud measures they had proposed, but Abeler, the GOP Senator, said Republicans succeeded in convincing Walz and others that serious action to fight fraud, including a pause on new spending, was needed.

“Our goal was freeze, restructure, integrity,” Abeler said. “And so we wound up with the end game.”

Besides the anti-fraud measures, lawmakers approved a slate of policy aimed at easing some regulations and paperwork. Much of it was proposed by Democrats, too, but aligned with the GOP’s long push to cut oversight that could discourage people from starting a businesses or staying in one.

For example, lawmakers approved a plain-language handbook for people who want to become a child care provider and passed a measure to allow child care centers to let kids use reusable water bottles instead of disposable cups. They also allowed the relative of a family child care business owner to watch the owner’s child without training or other requirements.

Separately, the Legislature also voted for $750,000 in construction grants for new child care providers, a priority of Walz and the Senate. The House had not proposed any money for the idea. Lawmakers also extended 4,000 voluntary preschool slots in low-income school districts that DFLers fought to keep from expiring after this year and increased cash assistance $100 a month for people in the Minnesota Family Investment Program or Diversionary Work Program.

Disappointment and celebration

Moran, the St. Paul DFLer, said she was relieved GOP cuts to CCAP did not become reality and noted Republicans were not alone in caring about fraud. She said it’s important to “ensure that those precious dollars that we are allocating for children are being used the right way.”

At the same time, she said she was disappointed DFLers were not able to expand CCAP. “It has a really effective, valuable role to play in the lives of everyday citizens who are from our lowest-income families,” Moran said. “So I think that we did injustice by not investing in these families. We can have program integrity and also invest in the future.”

The budget deal was also a let down for ISAIAH, an interfaith advocacy group that has pushed to expand the social safety net in Minnesota.  

ISAIAH connected MinnPost with Evette McCarthy, who runs the Sunshine Tree Child Development child care center in Minneapolis. She said an increase in reimbursement rates could mean staying open since 95 percent of the families enrolled at her center, which has a 36-slot capacity, are using CCAP to help pay for her services.

McCarthy said her business is struggling to keep up with a rising minimum wage and competes for workers with other low-wage industries — including fast food. She said profits and wages could rise if CCAP were expanded. McCarthy has been in the business more than 30 years, and her mother was the first African-American to be a licensed child care provider in Minneapolis, according to a 2012 city proclamation.

“It’s really tight without getting an increase from CCAP to help support my business,” McCarthy said. She added later: “The children are our future and we need to put our money where our mouth is and ensure that they have a quality education.”

Abeler said affordability challenges will remain. But he insisted the new budget represents a “huge, huge improvement” for stopping fraud and said they fought “through the night” last week to stop any new spending on CCAP or its Basic Sliding fee program. Less fraud would mean more cash for the program, he added.

“It’s not responsible to give a program that has proven integrity problems, proven fraud problems, proven ‘giving money to the wrong people’ problems, proven ‘money going out the back door to who knows where’ problems, any more money,” Abeler said.