Idaho Child Care Program Faces $16 Million Deficit as Bureaucrats Overextend Benefits

As conservatives push for cuts, lasting reform will require closing accountability gaps and restructuring entitlements.

Projections show that the Idaho Child Care Program (ICCP) is facing a nearly $16 million budget deficit due to bureaucrats expanding eligibility and overpaying benefits. As conservatives respond with cuts, more durable solutions require covering gaps in accountability and restructuring child care entitlements altogether.

In a letter to the budget committee, Alex Adams, the director of the Idaho Department of Health and Welfare (IDHW), warned that the ICCP will grossly exceed its budget without a course correction. He noted that "the combination of increased local market rates, paying at a higher percentile of local market rates, reduced copayments for families, and increased eligibility has created a forecasted budget deficit."

IDHW projects a $15.5 million deficit in the current fiscal year, which is expected to rise to $22.2 million next year. This represents roughly 29 percent and 39 percent more spending on benefits than originally anticipated. This deficit is in spite of a $10.3 million increase in benefits spending the program already received this year.

When overages occur, it is rare for bureaucrats to reduce the size of programs to stay within the confines of their appropriations. It appears the IDHW originally planned to squeeze legislators—and by extension, taxpayers—for the additional funding.

As the newly installed IDHW director, Adams is resisting the status quo by reducing the size of the ICCP to stay on budget. This includes ensuring benefits go to the truly needy, pausing new enrollment, and covering a more reasonable share of the market. 

The ICCP was originally designed to provide child care support for low-income, working families with children under 13. These federally funded subsidies may help reduce the costs of child care for eligible families.

Child care prices continue to rise faster than inflation, burdening families across America. Adams' letter noted these costs rose by 25 percent in the Gem State over just three years. 

Yet, this program itself may be partially to blame for these rising costs. Federal requirements mandate that ICCP benefits be tied to the market price of child care. This model contains perverse incentives: When providers know that government payments are based on surveys of their prices, they are incentivized to raise prices to garner more funds—regardless of the real operating costs or value.

Increased costs are far from the only driver of the program's funding deficit. The program's benefits became increasingly generous in recent years, covering people with higher incomes and more expensive child care providers while reducing beneficiaries' copayments.

Federal rules allow the IDHW to determine the benefit value relative to the market rates, requiring only that states cover the median market rate, at a minimum—meaning at least half of all child care programs in the state can be fully covered by ICCP.

The IDHW went well above this minimum requirement by funding between the 75th and 85th percentile—the federal maximum. This means that all but the most expensive child care programs in the state were covered.

In addition to this expansive coverage, the department reduced what little financial accountability existed in the program. Beneficiaries are required to share part of the costs of child care through copays, but the department reduced all rates by half.

Not only that, but now more people can qualify for the ICCP. In 2023, the IDHW changed an administrative rule, raising the income eligibility threshold from 130 percent to 175 percent of the federal poverty level—about $54,600 for a family of four, which is $10,000 more than the statewide median. This expanded the pool of eligible households and corresponded with a sharp increase in enrollment.

The combined effect of these policy changes increases costs, reduces accountability, and encourages dependency. Though it is true that child care costs are rising, the real cause of the program's budget woes lie in overpromising on welfare without accountability, then expecting the taxpayer to make up the difference.

Decisions to slash copays and overexpand the market coverage were made without any legislative oversight through state plans, which are direct agreements between the federal government and the IDHW.

State plans allow agencies to circumvent the legislature since they are compliant with higher levels of the law like statutes and administrative rules—which can both be vague and afford agencies too much discretion. Though this inherent leniency is also what allowed the director to make the necessary cuts, the legislature must provide more specific language to prevent these problems in the first place.

Adams is right to cut the program's size rather than seek additional funding to sustain the excess. However, this is not a durable solution to a chronic problem within the bureaucracy.

Lawmakers should consider policies that require agencies to get legislative approval for any state plan that impacts eligibility, benefit amounts, or program spending. This would enhance transparency by removing a loophole around rulemaking and legislative routes for policy change.

Financial impacts of policy changes, such as state plans or rules, should also be reviewed independently of the agency. In his letter, Adams notes how the rule only passed in the Senate after the department stated—incorrectly—that their budget could accommodate expanding eligibility to 175 percent federal poverty level. 

Moving forward, both the legislative budget committee and the Division of Financial Management should report the fiscal impacts of proposed changes. This would allow lawmakers to more comprehensively understand the consequences of these proposals prior to their approval.

In the way of child care costs, Idaho should consider alternatives to expanding welfare. Options that deregulate the industry and eliminate perverse incentives could drive costs down. Relaxing regulations that should be up to market (read: parental) discretion can make a bigger difference.

The IDHW recently took a step in the right direction by increasing the allowable child-to-staff ratio. This change increases the number of child care seats available without requiring additional investments in infrastructure or compromising safety.

The driver of the ICCP's $16 million budget deficit wasn't just the rising cost of child care, but also the agency's overpromising of generous welfare benefits at the expense of taxpayers. Adams is doing the right thing by cutting the program to save costs, but the Idaho Legislature must go further to rein in a rogue bureaucracy. Not only would taxpayers be grateful, but they might also find that less intervention and a freer market reduce the need for the program overall.