Marked by fraud concerns in 2019, Minnesota’s Child Care Assistance Program may get additional funding in 2020

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In 2019, the Legislature passed a slate of laws to reduce fraud in Minnesota’s largest child care subsidy. Now, state lawmakers are considering whether to give new money to the program and raise tuition reimbursement rates for low-income families to meet federal standards.

State Sen. Jim Abeler, R-Anoka, said changes to the Child Care Assistance Program have opened the door for possible new funding, signaling a different strategy for a Republican-led Senate that tried to abolish the program last year. Yet finding money in a legislative session with several competing priorities will be the largest obstacle to spending on CCAP, not fraud concerns, said Abeler, who chairs the Senate’s Human Services Reform Finance and Policy Committee.

“I’m very convinced that they have moved into the controlling fraud mode because of the pressure put on by the Senate,” Abeler said of the Department of Human Services and legislative Democrats. Because the GOP got their attention, “now we can move on to decide what’s going to happen,” he added.

As a lack of affordable child care has increasingly become a concern around Minnesota, new spending for the CCAP program is one way legislators from both parties are mulling how the government can help families enroll kids in early learning. The issue has quickly become a focus in St. Paul, as lawmakers debate the best way to handle a $1.3 billion projected surplus.

Leaders in the Minnesota House, which has a DFL majority, have proposed a $500 million one-time injection of spending on their child care programs, including $190 million for CCAP. “If we choose to dedicate some of the surplus that is one-time, non-recurring money to provide quality early childhood education experiences, this year’s 3-year-old that we provide it to carries that benefit with them the rest of their life,” House Speaker Melissa Hortman, DFL-Brooklyn Park, told reporters last week.

Meanwhile, Sen. Carla Nelson, a Rochester Republican who chairs the Senate’s E-12 Finance and Policy Committee, told MinnPost she will offer a $22 million-per-year plan to end a waitlist for early learning scholarships at highly-rated child care programs.

Problems in CCAP — and potential solutions

During last year’s legislative session, CCAP became one of the most controversial subjects. The program served roughly 30,700 children per month in the 2019 fiscal year, at an annual cost of $250 million. Nearly all of that funding is split between the federal and state government, though county governments cover a small portion.

There’s also a waitlist for the “Basic Sliding Fee” program within CCAP that Walz wanted to clear. In November, 1,774 families were on it.

Yet a series of revelations and reports detailing fraud in the program — and the difficulty of stopping it — led Senate Republicans to propose a budget that froze CCAP altogether.

In the end, no major changes were made to CCAP funding in 2019. But the Legislature also passed a range of anti-fraud legislation aimed at making it easier to disqualify providers suspected of siphoning off taxpayer money and harder for rule-breakers to game the system. 

For instance, one law lowers the burden of proof for child care providers to be disqualified from CCAP. A first disqualification now lasts for three years, not one, and a second offense results in a permanent ban from CCAP, not a two-year suspension.

DHS also has greater power to withhold payment or revoke a provider’s license for failing to keep legible, accurate and timely attendance records. Those records have been used to fraudulently bill DHS. 

Agency leaders testified about early results before a House committee Thursday morning and provided some details of recent fraud prevention efforts to MinnPost last week.

For instance, since July, DHS says it has identified about $600,000 in potential overpayments for attendance record violations. The agency has not closed any provider registrations based solely on record-keeping issues, though a county government did. And in an unrelated instance, a county “assessed an attendance record keeping overpayment,” said a DHS spokeswoman in an email.

Since July, DHS and county governments have disqualified four child care providers. Another two are facing disqualification but have either appealed the decision or still have the option to challenge it. One family child care business successfully appealed its disqualification.

The state has 12 open cases of suspected fraud that have been referred for criminal investigation, according to DHS. In November, Abdi Ali Mohamud also was convicted of theft by swindle in a high-profile case tied to CCAP fraud at his child care center in St. Cloud.

Even after the legislative changes, Abeler, the Republican senator, told MinnPost in October he was hesitant to endorse new spending on CCAP until he was comfortable the agency was adequately taking on fraud. 

Abeler now says he’s eager to hear from DHS, but he doesn’t plan to try to freeze the program again. He even plans to hold hearings on bringing Minnesota into minimum compliance with federal CCAP requirements to facilitate discussion. “At least they’re going in the right direction,” Abeler said of DHS.

Will the Legislature fix compliance problems?

Abeler’s stance — and the House DFL bill — has heartened child care providers and others calling for new money for CCAP. 

Clare Sanford, government relations chair for the Minnesota Child Care Association, which represents child care centers, said Minnesota would be wise to bump up reimbursement rates for providers to meet federal standards because it would help businesses offer higher salaries and attract sorely needed workers to the field.

The federal government recommends states set reimbursement rates at the 75th percentile of a regular market-rate survey for tuition costs, which means roughly three in four child care providers would have their full tuition costs covered by the CCAP payments. For now, Minnesota is only required to meet the 25th percentile. Currently, the state’s reimbursement rates are set based on the 25th percentile of an outdated 2011 market-rate survey.

If Minnesota can’t hit its target, and make other improvements to CCAP, the state likely would face a penalty after October 2020 worth 4 percent of a child care block grant the federal government offers to help with program costs. The feds also have power to withhold the entire grant or take other actions to penalize Minnesota.

In his 2019 budget plan, Walz proposed spending $61.8 million in state money over four years — and using another $59.8 million from the federal child care block grant — to bring Minnesota into minimum compliance with reimbursement standards.

The House plan this year would clear the Basic Sliding Fee waiting list and jolt reimbursement rates above federal requirements, at least for now. A one-time spike in money will also make it hard for lawmakers to let reimbursement rates slide back to levels among the worst in the nation, Sanford said. “If we make these improvements for a year we’ve got to figure out a way to keep them going,” she said.

That pressure has led Abeler and others to be wary of one-time spending. The Republican said it was “impractical” for the child care industry to hire staff or expand programs without a promise the money will continue to flow. Abeler also noted the GOP has other priorities it wants to pay for, such as a cut to Social Security taxes.

Rep. Dave Pinto, a St. Paul DFLer who chairs the House’s Early Childhood Finance and Policy Division, said he’d support ongoing CCAP funding but a short-term burst of money would help get staff at child care businesses “above poverty wages.”

Room for common ground?

Outside CCAP spending, the House DFL child care plan would continue 4,000 preschool slots at public schools, pay for $22.5 million in grants to help child care programs with training, startup and infrastructure costs, as well as fund studies on Minnesota’s child care business rating program, known as Parent Aware, and the readiness of young children for kindergarten. 

It also would pay $190 million for early learning scholarships for low-income families of children ages 3 and younger. For years, Republicans have championed those scholarships for 4-year-olds as an alternative to DFL plans to create a universal preschool system.

While Nelson said she prefers to target 4-year-olds with scholarships to prep them for kindergarten, the GOPer also said Pinto’s proposal showed DFLers were backing away from universal preschool. Republicans feared such a system would tank private child care businesses.

“The fact that the conversation is now focusing on targeting early learning scholarships is a real plus because funds are limited and we should be targeting those funds to those who would not otherwise have that high quality learning,” Nelson said.

Abeler said he believes meeting CCAP requirements is a possibility this year. “The Rolling Stones had it right,” Abeler said. “You don’t always get what you want, but if you try you’ll get what you need.”

Correction: Four child care providers have been disqualified by DHS and county governments since July, not two.