March 11, 1998
To: Community and Neighbourhood Services Committee
From: Commissioner of Community and Neighbourhood Services
Subject: Pressures Facing Child Care Programs Serving Subsidized Clients
Purpose:
As requested during the March 6, 1998 meeting of the Children's Action Committee and during the meetings of the Budget Committee with the Community and Neighbourhood Services Department, this report summarizes the pressures being faced by child care programs serving subsidized clients and the priority areas in need of support. The report also explains recent changes in the traditional cost sharing formula for child care, and highlights the role now played by user fees collected from subsidized clients.
Funding Sources, Financial Implications and Impact Statement:
As a result of the 1997 change to Ontario Regulation 262 which contains the cost sharing formula for child care services, there are now two optional formulae for calculating the provincial subsidy level for child care services. Under the traditional formula, the Province subsidizes 80 per cent of approved gross costs net of user revenue. This means that user revenue is shared 80:20 by the Province and the municipality. Under the new formula, which can be used by municipalities who maintain their 1997 service levels in 1998, the Province subsidizes 80 per cent of the approved gross costs. The municipality retains all of the user revenue generated from subsidized clients.
Appendix I shows the comparative funding shares of the 1998 Children's Services gross budget of $240,487.8 which would be paid by the Province under each of these funding scenarios. Under the traditional formula the Province benefits from 80 per cent of the user revenue generated and contributes only $178.6 million . Under the new formula, the Province does not benefit directly from any of the user revenue generated but must pay the full 80 per cent of the approved costs, $190.8 million. The benefit to the City can be clearly seen by comparing the required municipal contribution under each scenario. Under the new formula, the City contributes $37.6 million or $12.1 million less as compared to its $49.7 million obligation under the traditional formula.
The role played by user fees collected from subsidized clients in reducing the level of municipal contribution required is clearly apparent from this pie chart comparison. User fees comprise almost 30 per cent of the local 20 per cent contribution required under the 80:20 cost sharing formula for child care services now mandated by the revised Day Nurseries Act.
Recommendations:
It is recommended that this report be received for information.
Council Reference/Background/History:
At the March 2 and 9, 1998 meetings of the Budget Committee during the discussion of the Children's Services 1998 budget request, the Department was asked to identify the financial and service pressures being faced by the subsidized child care system and to discuss priority areas in need of immediate attention. The Department was also asked to explain how child care services are cost shared with particular attention to the historic role played by user fees. There was further discussion of financial and service pressures on services for children at the March 6, 1998 meeting of the Children's Action Committee. A motion recommending a 2,000 space subsidy expansion, and adequate child care services for families participating in the Ontario Works program was referred to the Department for comment and to this Standing Committee for consideration.
Also relevant to the present discussion of child care service pressures and the role played by user fees in helping to finance the subsidized child care system are decisions taken by the former Metro Council in 1997. With the 1997 change in Regulation 262, the former Metro Toronto received unanticipated financial relief totalling approximately $14 million as a result of the user revenue it was allowed to retain. As part of the 1997 Metro budget process, approximately half of this relief was applied immediately to child care and used to fund some child care expansion in the Ontario Works program, to establish a child care capital reserve fund of $1 million and to eliminate the arbitrary minimum user fee of $1.00 per day per child. The balance was used to address budget pressures on the mill rate. However, in recognition of emerging pressures that could threaten the stability of child care services, $7.43 million was reserved within the existing Corporate Contingency Account for possible child care use later in the year as the service pressures became clearer.
At the September 24 and 25, 1997 meeting of Metro Council, a strategy for utilizing the $7.4 million reserved in Corporate Contingency for child care purposes was proposed and approved. After insuring that the local contribution towards the costs of child care was sufficient to lever the fullest level of provincial subsidy possible, one time adjustments in the rates to operators and providers of subsidized child care were approved to provide assistance with program expenses and costs associated with property operations.
The financial relief realized in 1997 as a result of the change to Ontario Regulation 262 was spent fiscally but was not rolled into the base budget of Children's Services. Revenue forecasts for the 1998 Children's Services budget include a projection of $15.1 million from user fees of subsidized clients. This money is treated as part of the 20 per cent local contribution required under the 80:20 cost sharing formula for child care services. This $15.5 million has the effect of reducing the required net City contribution by $12.1 million. This represents the difference between now being able to retain the full user revenue generated and being able to retain only 20 per cent of the user revenue generated as was the case before the regulation was amended.
Comments and/or Discussion and/or Justification:
Child care services within the City face a number of pressures that may threaten the stability of the programs serving subsidized clients. Some of these pressures are historic in origin (e.g. per diem rates which have been frozen at 1993 levels) and others are new this year (e.g. impact of property tax reform). Most are pressures over which operators have little to no control; many are directly related to provincial decisions (e.g. pay equity obligations; anticipated educational funding reform; elimination of provincial child care capital program). There are already substantial unmet service demands as evidenced by a subsidized waiting list of over 17,000; and service pressures for more child care continue to build as a direct result of the roll out of the Ontario Works initiative and the anticipated impact of provincial prevention initiatives (e.g. Speech and Language initiative; Healthy Babies initiative).
These various service pressures are discussed briefly below:
(1) Rates to Providers of Subsidized Care Do Not Equal Actual Costs
The actual cost of providing care to subsidized clients has not been recognized in per diem rates paid to child care operators by the municipality since 1993. The City currently pays rates which assume that a centre is enrolled to capacity whether or not the program is able to achieve this level of enrolment. The rates are reflective of the lower of the 1993 costs or the current actual expenditures. This year's budget request by Children's Services does not contain any provision to adjust these rates and to address this pressure.
The rates paid to providers who care for children in their own homes under the supervision of the licensed home child care agencies have also not been adjusted since 1991.
(2) Major Capital/Minor Capital
The Province of Ontario discontinued its child care capital program in 1995. This has severely restricted the growth capability of the City's child care system. In 1997, as a preliminary first step in addressing this situation, the former Metro Toronto established a modest Child Care Capital Reserve Fund with which it successfully levered matching contributions from the federal government and the former cities of Toronto and North York. This was used to support nine child care capital projects critical to the protection of current service levels. The department has been asked to review long range development needs and to propose a new capital funding strategy. This work is in process and a report will be provided later this year.
There is also an ongoing need for minor capital within the child care service system. Historically, minor capital requests from child care operators have been funded one hundred per cent by the Province at fiscal year end from any unspent allocations within the Area Office. For example, in 1997 the Province provided approximately $2.3 million in minor capital support. It is reasonable to expect that at least $1 million in ongoing minor capital support will be needed to address health and safety issues that are identified as part of regular program monitoring. As a result of downloading, the future of the provincial minor capital support is tenuous at best. Staff are seeking clarification as part of the transfer negotiations with the Province on the future of this program. Currently, there is no provision for minor capital cost sharing contained within the 1998 Children's Services budget request.
(3) Pay Equity
As a result of the 1997 decision by the Ontario Court of Justice that the repeal of the proxy method of achieving pay equity in public sector programs (Bill 175, Savings and Restructuring Act, 1996) was unconstitutional, the original Pay Equity Act, and the proxy method it contains, remains in force. Based on the child care programs currently provided under purchase of service agreement with the City, it is estimated that their current pay equity liability for 1998 is approximately $7.3 million. This is estimated to rise by $1.5 million to $8.8 million in 1999 and to $10.4 million by the year 2000. In theory, it could take until the year 2018 for these child care programs to achieve full equity. By this time, the mature annual cost of pay equity will have risen to approximately $40. million.
This estimate does not include any retroactive liability child care programs may have back to 1994, the year by which they were to have made their first contribution towards closing the pay equity gap. The legislation requires employers to pay out an amount equal to one per cent of the previous year's payroll until pay equity is finally achieved. The one per cent is cumulative and therefore, increases each year.
Some non-profit child care programs have already received and will be receiving additional provincial funding assistance towards their retroactive pay equity liabilities. A pay equity grant of three per cent of the 1993 payroll was made available in 1994 to non-profit programs who had posted pay equity plans. Commercial child care programs were not eligible for this grant.
In December 1997, the Provincial Government announced that it would be assisting these same non-profit programs to meet their remaining retroactive pay equity obligations. However, this money is capped and will not address future pay equity adjustments that will be required.
The 1998 Children's Services budget request does not contain any provision to assist child care operators providing subsidized child care service with either their retroactive or ongoing pay equity costs. While the municipality does not have a legislated obligation to fund these costs, under the terms of the City's service contract with these operators, they are expected to adhere to all relevant provincial standards and statutes. Child care operators will seek recognition of their pay equity costs through the per diem rates approved for payment on behalf of the subsidized clients they serve. If such per diem adjustments were made, the City would expect provincial cost sharing of these added costs.
(4) Property Tax Reform
Changes to property tax assessment created under the Fair Municipal Finance Act, Parts 1 and 2 will have impact on child care centres and programs throughout the city. The Business Occupancy Tax has been eliminated and a new single realty tax applied. This new realty tax is expected to equate to 140 per cent of the previous realty tax. As a result, many child care programs located in commercial space will see significant increases in their occupancy costs. In addition, the legislation outlines tax obligations for properties which have not previously been assessed property tax (e.g. non-profit child care programs located in schools, community centres, etc.).
While the final regulations outlining property tax classifications have not yet been released, an initial review of the potential impact on child care programs throughout the City suggests additional costs in the amount of approximately $4 million. This estimate does not take into consideration the impact of the new assessed values.
The 1998 Children's Services budget request does not contain any provision to assist child care operators whose costs are negatively impacted by property tax reform. These operators may seek relief through an adjustment to their approved per diem rates or alternatively through a direct rebate.
The 1998 Children's Services budget request does, however, contain $5 million to address an expected outcome of education reform, namely increased occupancy costs for up to 300 child care centres located in school facilities. It is anticipated that the new provincial funding formula for education will result in Boards of Education charging these child care programs market rates. This impact on child care occupancy costs is not dissimilar to the impact of property tax reform. However, provision has been made in the Children's Services budget for one but not the other.
(5) Unmet Service Demand
While the City currently administers 24,216 fee subsidies, this level of subsidized service clearly does not meet even the existing demand. The subsidy waiting list numbers more than 17,000; and the demand for subsidized child care continues to grow. As outlined in another report, also on the March 26, 1998 Community and Neighbourhood Services agenda, the roll out of the Ontario Works program and the downloading of the FBA caseload will significantly increase the demand for subsidized care. In its mature state, as many as 19,000 families currently reliant on social assistance with children aged 4 - 10 years may require child care to support their transition from assistance and to sustain their long term employability.
Additional service demand is also being generated as a result of provincial prevention initiatives such as the Speech and Language and Healthy Babies initiatives. Participants and graduates of these programs are prime candidates for child care programs. Many of these clients also require subsidy assistance. If even five per cent of the 35,000 children born annually were assessed to be at risk and require the ongoing developmental support a child care program can provide, this would constitute an added service pressure of 1,750 young children.
Some, but not all of this service demand could be met if additional fee subsidies were available. Licensed home child care agencies have some expansion capability; and there are currently approximately 1,800 licensed vacancies in the existing child care centres that might be filled if there were more subsidies. However, even with this level of licensed vacancies, spaces for the youngest age children are in very short supply. Capital money for renovations would be needed to convert existing space in existing vacant programs and make it suitable to serve younger aged children. Major capital would be needed to develop new service capabilities in communities which have traditionally been significantly under-resourced with respect to licensed programs.
Conclusions:
As requested by the Budget Committee and discussed by the Children's Action Committee, this report outlines the variety of pressures facing child care services within the city. It also explains the ways in which child care services are and have been cost shared and highlights the important role currently played by user fees generated by subsidized clients in the overall funding of the service system. This report is submitted for information and to provide context for the consideration of the 1998 Children's Services budget request.
Contact Name:
Marna Ramsden-Urbanski
General Manager of Children=s Services
Telephone: 392-8128
E-Mail: ramsden@csis.csis.csd.metrotor.on.ca
General Manager of Children=s Services
Commissioner of
Community and Neighbourhood Services
