H.R. 1112, the Children's Development Commission (Kiddie Mac)

SPEAKERS       CONTENTS       INSERTS

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H.R. 1112—THE CHILDREN'S DEVELOPMENT COMMISSION ACT (KIDDIE MAC)

FRIDAY, OCTOBER 8, 1999
U.S. House of Representatives,
Subcommittee on Capital Markets, Securities, and Government Sponsored Enterprises,
Committee on Banking and Financial Services,
Washington, DC.

    The subcommittee met, pursuant to call, at 9:39 a.m., in the Public Hearing Chambers of the City Hall, Manhattan, New York, Hon. Richard H. Baker, [chairman of the subcommittee], presiding.

    Present: Chairman Baker; Representative Carolyn B. Maloney of New York.

    Chairman BAKER. Good morning.

    I'd like to call this hearing of the Capital Markets Subcommittee to order and welcome each of you here this morning.

    I'm Congressman Richard Baker from Louisiana, Chairman of the Subcommittee, and pleased to be in your wonderful city this morning. I had the occasion to take the water ferry in on what is a beautiful morning outside, and I certainly want to compliment the city on all of the wonderful projects I see, particularly the renovation of this beautiful building. And certainly express my appreciation to the administration for allowing us to use their facilities this morning.

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    I am here this morning at the request of Congresswoman Carolyn Maloney of New York, who has been very insistent on having a novel idea considered by the Congress relating to the provision of child care in our country, known as Kiddie Mac. The intention of this new idea is to provide Federal guarantees behind bank loans to individuals engaged in child care provision. The concept being that, with these guarantees, come obligations by the child care operator to meet certain minimal standards of safety and child care requirements.

    We believe that the model can be based on the successful SBA program, in essence, and help develop very badly needed child care facilities throughout our country. The purpose of this hearing this morning is to hear from individuals who have insight not only into child care, but into public finance as well and to listen to your recommendations as to how we can best proceed to ensure this growing need is to be best met.

    With that, I would recognize Mrs. Maloney at this time for any comments she might choose to make.

    Mrs. MALONEY. Thank you, Mr. Chairman.

    And I thank the administration, the Mayor, and particularly Speaker Vallone, for allowing us to come to City Hall for this important hearing. And I thank you, Mr. Chairman, for coming all the way from Baton Rouge, Louisiana, to the great City of New York to listen to some of the challenges facing providers and ways that we can work with the private sector to build more affordable, available, and quality day-care.

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    I would also like to thank our witnesses and other guests for joining us today. This has truly been a bipartisan, collaborative effort and child care is just too important not to be handled in a bipartisan, collaborative way.

    As we enter the new millennium, the American family has taken a new shape. Our children are now being reared not only by two working parents, but sometimes by a single working parent, a working grandmother, or working guardians. In my district alone, over half of all women with preschool-aged children are in the work force. For this new American family, child care is needed now more than ever. The large majority of Americans say that finding safe, affordable child care is one of their most important concerns.

    In spite of this momentum, America's child care industry is in crisis. We have been unable to finance the building and sustaining of a sufficient number of child care centers. Middle-income parents who can afford to pay for modest child care report that they spend more on yearly, quality child care tuition than on public college tuition. At the same time, women with infants and toddlers are the fastest growing segment of today's labor force. At least 50 percent of women who are employed when they became pregnant, return to the labor force by the time their children are three months old.

    And for lower-income families, the child care crisis is even more extreme. Indeed, according to a study conducted by State Comptroller Carl McCall, in New York City alone, up to 61,000 children may need child care as a consequence of welfare reform. Now this is just as a consequence of welfare reform, it's not just the numbers of people that are on the waiting list to get child care. Yet, under current trends, only 33,000 new spaces will be available.

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     And we are honored to have with us today the Deputy State Comptroller for the State of New York Kathleen Grimm, who I hope will share some of the insights on the impact that welfare reform is having on the need for child care in New York City. And one of the parts of Kiddie Mac is that it's flexible. Not only could it be loans for centers and churches and synagogues and business buildings or residential buildings, but also loans to family day-care network providers; possibly a welfare recipient who is upgrading their home to get a State certification to provide child care in the neighborhood for the welfare mothers who are going to work.

    As the American family enters the new millennium, we need a new strategy to finance child care. That is why in the last Congress, along with my great friend and colleague Mr. Baker, we introduced Kiddie Mac. Countless challenges face our child care providers and it's clear that no legislation could address all of them. However, Kiddie Mac is an attempt to address one of the most significant problems facing our Nation's child care providers: funding for the building of the facility, the first block that's needed in the building of providing child care.

    Research has proven over and over again that one of the most serious challenges facing child care providers is the difficulty of obtaining capital to construct new facilities or renovate existing ones. Too often, child care providers are forced to make do with inadequate facilities simply because they lack the resources to invest in capital improvements and make payroll without pricing their services out of range of most working families. Indeed, according to a landmark report, ''Financing Child Care in the United States'' by Louise Stoney and Anne Mitchell—and I quote from it: ''The central issue in financing child care is a tug-of-war among three competing factors: quality of service for children, affordability for parents, and compensation for child care professionals.''

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    Our program would reduce the costs associated with one part of the child care equation—funding for facilities—and, as a result, make the entire enterprise more affordable.

    Kiddie Mac is based on the simple premise that a real solution to our child care shortage will require the public and private sectors to work together. It is modeled after—and I named it after—really two very successful programs, Fannie Mae and Freddie Mac. Although Kiddie Mac will not function in the way that these programs do, as it will not create a new Government-sponsored enterprise. But I hope it will have the impact of making access to credit and really revolutionize the availability of child care.

    And I hope that, under Kiddie Mac, the Department of Housing and Urban Development will have the authority to issue loan guarantees for private lenders who lend to child care facilities. Private lenders will be able to apply for these guarantees and the commission, Kiddie Mac, will be responsible for screening the loans to ensure that they're sound. Kiddie Mac will reduce the risk to lenders who provide capital for child care providers and then let the market do the rest. An additional benefit from this process will be the standardization of the loan process for child care providers so that these providers could spend less time navigating the mortgage process and more time actually managing their facilities.

    Although the Federal Government has no program like Kiddie Mac, many States have implemented similar programs with great success. The State of Maryland, for example, operates its own day-care financing program specifically designed to help provide loans for child care providers. As the director of this program testified in one of our hearings last year, not only did the program make child care more affordable, but it do so at a very low cost to the taxpayer.

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    Kiddie Mac legislation contains other benefits for child care providers. For instance, it will offer special-purpose loans to providers who wish to renovate their facilities so that they comply with licensing standards. In addition, this legislation will establish a foundation to conduct research into early childhood development and conduct pilot programs and produce educational materials.

    And, finally, the commission would be charged with helping to assist providers with liability and fire insurance, since these costs can be extremely high and problematic for child care providers.

    Mr. Chairman, Kiddie Mac may not be the star that all of America's overburdened and underfunded child care providers hook their wagons to. No bill ever could be. But it is an important, very important, first step in the right direction that without question will make a tremendous difference for our Nation's children. I agree with those who say that if only we want to solve the child care crisis, we can't just look at lower-income neighborhoods, we need to talk about comprehensive plans that expand the availability of grants and encourage business to offer child care to their employees. But I believe that it's an important first step and, as Judy Mann, the Washington Post columnist said, it is ''a modest child care proposal'' that is a ''sure-fire winner.''

    Thank you, Mr. Chairman.

    Chairman BAKER. I thank you, Congresswoman Maloney. I certainly appreciate your remarks and compliment you on your hard work in this subject matter.

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    I think that we have the potential for making significant progress in the coming days of the remaining legislative session and, if not now, certainly early next year, to urge leadership to consider this matter, at least in a pilot project form, perhaps in New York or maybe even Louisiana. We'll just see how that works.

    Mrs. MALONEY. Or both. This is a team effort.

    Chairman BAKER. Our hearing will proceed this morning on the basis of two panels. I'd like to ask our participants in our first panel to come forward. We will recognize each of the panelists to make remarks and request that, as best can be done, they limit those remarks to five minutes. Certainly anyone else who is in attendance today who wishes to express ideas or opinions on the subject, we would welcome your written comments. That can be directed to the subcommittee in Washington.

    At this time, I'd ask Ms. Grimm and Mr. Smith, please come forward and we'll introduce you properly. I think both those mikes down there are working. I thank both of you for your participation this morning.

    I first would introduce Kathleen Grimm, who is the State Deputy Comptroller for New York. In that capacity, Ms. Grimm is responsible for monitoring and reporting on budgetary, fiscal, and economic conditions of the City of New York and has a distinguished professional career behind her. We welcome you here this morning and very much appreciate your testimony.

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STATEMENT OF HON. KATHLEEN GRIMM, STATE DEPUTY COMPTROLLER, CITY OF NEW YORK

    Ms. GRIMM. Thank you.

    Good morning, Chairman Baker and Congresswoman Maloney.

    My name is Kathleen Grimm. I am the State Deputy Comptroller for New York City and I am here on behalf of New York State Comptroller H. Carl McCall, who regrets that he's not able to be here himself this morning and he sends his greetings to you.

    I want to thank you for the opportunity to appear at this hearing on the challenges facing child care providers, an issue of great importance to us all. I'm going to address a subset of the issue, and that is whether New York City's subsidized child care system is adequate in light of welfare reform.

    As many of you know, the Office of the State Deputy Comptroller monitors New York City. We collect and analyze relevant data and issue Comptroller McCall's reports on the city's budget and economy and other public policy issues. And welfare reform is one of the areas, in particular its impact on child care services, that we watch very closely.

    In December of 1997, we issued a report titled ''Child Care Services in New York City.'' The report describes a system that, although already stressed, faces a large influx of children. Under Federal welfare reform, these children require child care services while their parents fulfill new work and training requirements. Most of these children are parented by single mothers.

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    Federal regulations require that child care be provided for children up to six years of age as a precondition of their parent's participation in work programs. Augmenting this provision, New York State has opted to provide child care to all such children through twelve years of age. Our report concluded that the demand for child care could nearly double as the result of welfare reform.

    To meet that increased demand, the city made a policy decision to offer vouchers to parents to pay for what is called ''informal care,'' which is defined as child care provided by families or neighbors. It has been widely reported that the city's Human Resource Administration strongly encourages parents transitioning from welfare to the work force to use informal care. Such sources of care are less expensive than formal group and family care centers. Moreover, informal care puts no stress on the city's already overtaxed group and family child care facilities.

    The city chose to institute this use of vouchers in lieu of expanding its current network of group and family centers. The voucher system addresses, but does not solve, a critical problem the city faces in delivering child care. The children of welfare recipients receive priority over those of low-income families for day-care slot openings. If the transitioning parents were to choose city-subsidized slots in the formal day-care system, the city would have to increase the size of its child care program to keep intact its provision of care to the children of lower income working parents. Absent such an increase, those children would be displaced from the city's child care delivery programs.

    The city's child care system faces challenging obstacles. At a time when the demand for subsidized child care is rapidly growing, the supply of slots in licensed, monitored child care facilities is not growing. At the close of Fiscal Year 1999, according to the city's latest Mayor's Management Report, the city's Administration for Children's Services was providing subsidized child care for about 72,000 children, about the same number as two years ago. The system continues to operate at full capacity with virtually every available slot filled. The waiting list, however, has nearly trebled, from 20,000 to 55,000.

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    Currently, the majority of the children receiving subsidized care, about 48,000, are enrolled in group child care centers. These facilities offer full-day, year-round care for children from six weeks to six years of age. Some of the centers also run after-school programs for school-age children up to age 13. Most centers are run by community-based organizations that are licensed, inspected, and staffed with certified early childhood teachers. The waiting list for openings in these group centers is 13,000.

    An additional 9,000 children are enrolled in family child care, which takes place in the homes of providers who are registered and inspected by the city. A single provider cares for up to six children, whose ages can range from six weeks to thirteen years. Larger operations, called group family care centers, care for up to fourteen children and have more than one provider. There are over 4,000 children waiting for family child care openings.

    Another 14,000 children obtain care through the voucher system which I discussed earlier. The city issues vouchers when there are no available child care centers near the home or workplace of an eligible family or when nearby centers do not have openings. The vouchers can be used either for placements of privately operated facilities or for the purchase of informal care that is provided by a relative, a friend, or a neighbor. There are about 38,000 children waiting for vouchers.

    Thus, in total, the wait list: 13,000 for group centers; 4,000 for family child care; and 38,000 for vouchers. 55,000 children await child care placement in the city. And this figure does not include thousands of children whose parents are too discouraged to apply for city-subsidized child care.

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    The Administration for Children's Services has contracts with more than 300 group and family child care providers at more than 400 sites that provide services. Most sites are owned and operated by not-for-profit providers. Others are leased by the city from private landlords and operated by not-for-profit providers. And a few centers are city-owned. Most of the centers are fully subsidized by the Administration for Children's Services. There are also some independent providers who allot a portion of their slots to the city.

    In addition to the activities of the Administration for Children's Services, the Human Resources Administration provides child care for clients who are moving from welfare to either work or training. The parents receive stipends that are commonly used to purchase, again, informal child care. While informal child care may be a suitable option for many families, it has drawbacks. It is unregulated and unmonitored.

    This is not an optimal solution, but what is to be done? With no growth in the number of group and family care slots in the city-subsidized system, with long and growing waiting lists for those slots, and with the city opting not to increase the number of slots, how will the demand for subsidized child care be met in New York?

    We think that the Children's Development Commission Act, known as Kiddie Mac, can turn this situation around. By creating the Children's Development Commission, Congress could provide a mechanism to stimulate the production of new child care slots nationwide and, of course, in New York City.

    And, to highlight some of the provisions that we think are very attractive, the guaranty insurance, sold through HUD would encourage, we believe, private lenders to grant market-rate construction financing to current and would-be providers to build, renovate, or expand facilities that can address both current and future needs. Kiddie Mac loans to qualifying providers would help defray startup costs, rent payments, and improvements that might be needed to meet licensing requirements. Reasonably priced liability and fire insurance would help child care facilities reduce operating costs, thus facilitating their ability to meet safety code requirements.

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    Given the need for adequate child care facilities, the creative use of available resources is essential. If parents cannot find dependable child care placements, the objectives of welfare reform will be undermined.

    Kiddie Mac is a creative approach. Serving as a catalyst for private-sector participation, it could play a very useful role in expanding the city's capacity to provide affordable, safe, and reliable child care to the families who require it. Comptroller McCall enthusiastically supports the concept and the legislation.

    Thank you very much.

    Chairman BAKER. Thank you very much. We certainly appreciate your time and your testimony.

    Our next witness this morning is Mr. Michael Smith who is President of the New York Bankers Association, an organization that represents institutions employing 200,000 folks throughout the State of New York. So we certainly appreciate your time and courtesy in being here this morning.

    Mr. Smith, good to see you again.

STATEMENT OF MICHAEL P. SMITH, PRESIDENT, NEW YORK BANKERS ASSOCIATION

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    Mr. SMITH. Thank you, Chairman Baker, welcome to New York. And Congresswoman Maloney, a great leader in New York.

    As you say, I am Michael P. Smith. I am President of the New York Bankers Association. And I am pleased today to testify regarding the Children's Development Commission Act, H.R. 1112, more commonly known as the Kiddie Mac legislation.

    The New York Bankers Association applauds your efforts to make affordable, quality child care a reality for this country. And as Congresswoman Maloney stated in her opening remarks, we do need a new strategy. Our association is honored to have this opportunity to comment on the Kiddie Mac proposal and to discuss the important goals of the legislation, along with making a pledge that we would like to work with you in the days ahead on this legislation and any other efforts.

    We represent community, independent banks, regional and money center commercial banks in New York State with assets exceeding $900 billion and more than 210,000 employees. The New York banking industry is committed to providing safe, effective, and efficient banking services for all consumers in New York. Indeed, our association has taken the lead over many years in working with the New York legislature and governmental leaders, including Comptroller McCall, to enact some of the most progressive pieces of legislation in the country for all consumers of banking services, including the elderly and lower income groups.

    In 1978, for example, New York became one of the first States to enact its own version of the Community Reinvestment Act designed to ensure that banking services are provided to all neighborhoods within a bank service area. When it became apparent that the regulations implementing CRA were in need of reform, New York became the first to propose revised rules in September of 1992, working on a bipartisan basis with both the State banking regulator and with the Comptroller of the Currency. The final Federal CRA regulations, which went into effect in 1997, relied heavily on concepts developed in New York, including the strategic plan approach. Among the banking services rewarded under the improved CRA regulations are efforts by individual banks to provide an expanded infrastructure in their neighborhoods, including support for quality child care. And that was an initiative that was made and came from the New York banking community.

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    The association is also proud of the significant role it played in working to enact the most comprehensive basic banking law in the Nation which, over the past five years, has helped many New Yorkers meet their special financial needs by offering to them low-cost convenient basic banking accounts.

    In addition to its efforts with respect to CRA and basic banking, our association has described the industry's commitment to the needs and concerns of its customers in testimony several times in recent years on senior citizen banking issues, most recently in May, before the House Banking Committee's Subcommittee on General Oversight, pertaining to the financial exploitation of the elderly. In that testimony, we identified many of the protective features of New York banking law designed to defend the financial and physical safety of senior citizens, including our ATM Safety Act and the so-called convenience account.

    This year, we appeared before the New York State Senate Committee on Banks and the New York State Senate Committee on Consumer Protection urging public education to dispel myths and customer concerns regarding the banks' preparedness for Y2K and appeared before a special senate task force on privacy, which is certainly a very hot topic both here in New York and in Washington.

    And I say that all just to give you a background that our association and our industry is here to work with the Government to address needs, public concerns, such as the issue of today's hearing. And we want to make that pledge to you again.

    We are here to voice our support for meaningful child care legislation and to offer our insight into ways in which we believe this laudable goal could be most effectively accomplished. Affordable, quality child care is an essential component of a strong, modern society, particularly at a time when more than 80 percent of the female population, ages 24 to 54, is projected to be participating in the workplace by the year 2005.

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    I might add that well over 60 percent of families have both spouses working, and that does not include single parents. And I can speak from personal experience here, because I am a single parent of five, due to the death of my wife six years ago, so I can relate directly to the need that this hearing is addressing. Furthermore, other socially beneficial programs such as welfare reform depend on the availability of affordable child care for mothers attempting to rejoin the work force and support their families.

    However, as noted by the bill's sponsors, the existence of affordable and quality child care remains scarce. The lack of affordable, quality child care has been appropriately attributed, at least in part, to the difficulty in obtaining financing for what are often high-risk investments. Child care facilities often fail to meet the strict credit risk standards needed to obtain appropriate financing, because such facilities are generally incapable of generating sufficient revenues to service their debt.

    This situation is particularly true in low-income neighborhoods where fee income generated by tuition payments, much of which are State-subsidized, cannot be relied upon to cover a large amount of debt service costs. Moreover, the costs associated with operating a day-care center often cannot be reduced to generate additional dollars for debt service, without sacrificing the standard of child care, which we all acknowledge is so important and, in some cases, jeopardizing compliance with licensing standards.

    Consequently, despite the acknowledged need for child care facilities in low-income areas, financing of such facilities often presents insurmountable challenges to banks whose obligation lies in maintaining their institution's safety and soundness.

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    H.R. 1112 attempts to rectify this problem by proposing the Kiddie Mac program which, modeled after the successful Fannie Mae, Freddie Mac, and Farmer Mac programs, would offer guarantee insurance to financial institutions to provide incentives for them to make loans to potential child care facility builders. After discussions with member banks across our State, it is our belief that Kiddie Mac would be most viable in those situations in which one additional factor, mitigating low and default risk, could render an otherwise non-qualifying child care facility creditworthy.

    Of course, in certain lower income, higher risk scenarios, the availability of guarantee insurance could not, alone, rehabilitate unsound loans. Loans to more traditional businesses can often be rehabilitated by the business doing two major things, the first being raising prices or otherwise generating additional fee income, and the second, cutting expenses. As stated earlier in this testimony, in the child care industry, these options are often not available.

    Therefore, we believe Kiddie Mac should be part and can be a part of a broader package of private and public sector proposals, some of which I will discuss in this testimony.

    In making these observations, our member banks in no way wish to discourage pursuit of affordable child care or this specific proposal. Rather, they view the Kiddie Mac as one viable component of broader legislation which, ideally, could include additional financial incentives such as tax credits to participating lending institutions as well as, perhaps, tax credits to the child care facility developers themselves. It is our experience that the private sector should be involved aggressively at the front end so that the programs are all user-friendly. And you are the experts and in control of how this legislation would proceed, whether it could proceed on an individual basis or as part of a package. And I know how difficult it is to construct those packages.

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    The Low Income Housing Tax Credit Program, Section 42 of the Internal Revenue Code of 1986, for example, provides a model for tax credit solutions for the financing of child care facilities. That program offers indirect subsidies for construction of new and rehabilitation of existing rental housing by providing investors with a dollar-for-dollar reduction in their Federal tax liability in exchange for providing funds for the development of qualified, affordable rental housing. This program, which creates approximately 90,000 new rental units per year, has been greatly successful and may offer a template for an additional mechanism, along with Kiddie Mac, to encourage the development of affordable child care facilities.

    Needless to say, an ongoing guaranteed ability to receive CRA credit for community development projects can also provide additional incentives for bank participation in such programs. Examples of successful bank participation can be found in several ongoing New York State programs which provide CRA credit. For example, the New York Business Development Corporation, a private company, financed in large part by over 150 State commercial and savings banks, provides a means of expansion access to capital for small to mid-size businesses, generally at below-market interest rates. Member banks who provide the money for such business loans not only gain the satisfaction of participating in the economic health and development of New York, but also generate interest income and the added incentive of CRA credit.

    Similarly, the State of New York Mortgage Agency, which creates affordable home-ownership opportunities for low- and moderate-income qualified home buyers by offering low down payment mortgage financing at below-market interest rates for family home buyers, also partners with a network of participating lenders in achieving their laudable objectives. And, perhaps most relevant to today's discussion, is the New York Banking Department's ''Adopt a Childcare'' program.

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    This program, strongly endorsed by the Acting Superintendent Elizabeth McCaul, enables participating banks to obtain increased CRA credit by making multi-year comprehensive commitments to qualifying day-care centers. Such commitments include provision by banks of grants for capital or operating funds, as well as the offering of technical assistance to build the capacity of child care operations.

    It's clearly not within our association's domain to suggest or promote actual subsidy or grants and aid programs, which could be made a component to this legislation. Obviously, however grants and aid, authorized by the United States Congress, as part of comprehensive child care legislation, could, under certain circumstances offer yet another venue for the type and promotion of quality care that this legislation intends.

    Last, and certainly by no means least, we wish to emphasize the role which private enterprises can play in helping children across our Nation, regardless of the outcome of Kiddie Mac or any other piece of legislation. I call to your attention General Colin Powell's endeavor, America's Promise, where members of our local business communities become involved in youth-related activities. For example, our association, along with the ABA, has endorsed this nationwide effort. Also, too, our association is involved throughout the State of New York, in supporting volunteer organizations and charities whose goal is child care and family assistance.

     The types of additional solutions which I have suggested today, along with the guarantee insurance contemplated by Kiddie Mac, could provide a realistic, long-term solution to this issue of great national concern. As I said at the outset, we pledge, as an industry and as the New York Bankers Association, to work with you and your subcommittee on this important legislation and the forging of a new strategy.

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    Thank you for this opportunity to testify.

    Chairman BAKER. Thank you very much.

    Ms. Grimm, I'm interested in the city's voucher program. Is there just a flat amount that's applicable per voucher or is it a graded system? How does that work and does the amount of the voucher aid generally pay for the bulk of the cost associated with the care?

    Ms. GRIMM. The city system is one that's based on an income cap and there's a sliding scale. And the amount of the voucher or whatever provision is made depends on the individual family situation.

    Chairman BAKER. Understood. Do you have any sense as to what market conditions are within the city for—let's just take a for instance—a six-year-old child who is kept during the business day for five days a week? If you can get it, how much would you have to pay for that type of care?

    Ms. GRIMM. I don't have those figures with me, but we'd be happy to supply them to you. Would you want both in terms of the city's system and the general market?

    Chairman BAKER. That would be very helpful.

    Ms. GRIMM. We'd be happy to do that.

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    Chairman BAKER. To try to make an assessment of what kind of financial obligation are we really trying to serve. I would suspect child care costs here would be significantly enhanced over what they might be back in Baton Rouge.

    Ms. GRIMM. I imagine you're correct.

    Chairman BAKER. And, in order to have a true understanding of what the market conditions are, that would be very helpful.

    Mr. Smith, I was very pleased at Mrs. Maloney's comment to me earlier in the day that she had, at least, indications that child care activities contemplated under Kiddie Mac may be made eligible for community reinvestment credit. If that were to be the case and we had an insurance program in effect where the FHA would guarantee some significant percentage of repayment of the loan, on the assumption the ultimate beneficiary of the loan met certain criteria, including business practice and managerial skills, to what extent would that enhance most banks in the State being able to consider making this type loans?

    Mr. SMITH. First of all, when it comes to programs like this in our experience in other areas, you don't want to set up any kind of a false expectation that something is a panacea. Because we are engaged in a process here of addressing a major issue. The program, the guarantee, plus the CRA-enhanced credits, can only be helpful, and we believe in many circumstances could be enough to get the banks actively involved in financing where otherwise the loan would not be bankable. And that could be a very, very important element in the process.

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    As I noted in the testimony, when it comes to certain other areas, especially large urban areas, where the dimensions of the problem become that much greater, we believe other elements should be brought in. We believe that the use of the tax code has shown, for example in the housing area, that if included, the program would even become more attractive. In other words, you keep on adding levels of attractiveness to this program to get people involved, to get people focused and to get other industries involved.

    For example, an industry that is not here today, but would be important in this discussion is the insurance industry, as it relates to the liability issues and fire issues and the granting of the insurance to the center. And I know that industry would be very cooperative, even though I'm not speaking for them. And so we believe that a lot of elements could come to the fore.

    But, certainly, the Kiddie Mac program with the CRA credit can only be viewed as very positive. And those are the kinds of things that we've been looking at in New York for some time. As I stated in the testimony, the State has its own CRA law. It has been extremely innovative and flexible on this point. So I guess the simple answer is yes, but with the understanding that, you know, you can't go out there and say this is the one thing that's going to put us over the goal-line.

    I would only add that, from experience again, that we would want the industry to be working directly on the details of the program, so that when it does come online, that they're committed to it and we can get it going right away.

    Chairman BAKER. As I understand the city program, there is a voucher available for what is, I believe, classified as ''informal care,'' which may be a family or friend who meets certain criteria. At least in my experience, individuals start out keeping a child or two, find out they have an ability to do this work well, and begin to grow their numbers of children and also, concurrently, some small revenue stream. It is not uncommon within the SBA lending program to find someone who has a good idea, a product that may have a market, but doesn't necessarily have the business skill to turn that into a bankable activity. Would you rate that problem, Mr. Smith, in the scope of things that banks worry about in making loans to child care advocates?

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    Certainly, you can demonstrate cash flow. If you're going to come to Kiddie Mac, we're going to require you to have certain elements in place to ensure safety and proper care. That may increase your cost. If we had a small business development center, which helps individuals fill out and prepare financial statements and loan applications on the business side of the Small Business Administration—if we had something at Kiddie Mac where the person not only got vouchers from the city for providing the care, but also got administrative, managerial assistance, would that be a big component in the bankable review of many of these loans?

    Mr. SMITH. Well, I don't want to speak as a credit officer or as a community development expert, even though I have dealt with these people for a long time. I think education is extremely important. This is being done today. Many of the banks are doing this today in the City of New York. I know, for example, Chase Manhattan Bank is working with applicants as part of their community development program today, whether it be in small business or housing-related loans, holding consumer education programs, working with the applicant. That's in the institution's interest. And it certainly would—I would think—be an important component of the legislation.

    Chairman BAKER. I have just one more comment before I turn to Mrs. Maloney.

    Comments from those in the field who do provide the work, who have had some experience with SBA and, to some extent, with banks often give us a different picture in that it is believed the bank doesn't understand what they do. And what I'm trying to resolve is the best way for that education to take place from both sides of the fence—to determine as to whether that role might best be filled by a governmental intermediary who says this is what the bank's going to be looking for if you go knock on their door and if you don't do it this way, you might not go knock. And I don't know who else could provide that service. It certainly is not a wise use of time for the bank to continue to review and review and review if the person just isn't getting it. And perhaps the Government's role in facilitating that could be a proper step.

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    Mrs. Maloney.

    Mrs. MALONEY. I want to thank both of you very much for your very, very valuable time. And Kathleen Grimm, the Deputy State Comptroller, your report is talked about widely in the New York delegation as we try to respond to it in ways, programmatically, to meet the challenge that Comptroller Carl McCall has put before us so vividly. And your numbers tell the great need that we have to respond to.

    I would like to ask Michael Smith a few questions. With the presence of a loan guarantee, Kiddie Mac loans would be far more attractive than traditional child care lending opportunities. And could you describe the impact that the Kiddie Mac standards for child care providers to meet? They would have to meet a certain standard before they could even get the loan banking, to go to the banks. What would that impact have on lending? And, specifically, how would these supplement the traditional due diligence lenders perform in assessing potential borrowers? And how would they positively affect the willingness of lenders to make financing available?

    Mr. SMITH. First of all, I can't comment specifically, because I am not a lender or a credit provider. And, you know, there are probably 20,000; 30,000 of them in the State of New York who could directly answer the question as to the standards themselves. And we'd certainly be more than happy to provide you and the subcommittee with their expert testimony as a follow-up to the hearing today.

    But I would say that, as I said in the written testimony, it's the view of the bankers with whom we have discussed the proposal with that the guarantee program could really help in situations where, for example, there might be one, maybe two credit standards that create a situation where credit cannot be extended. And that the guarantee really would come into play as an important element to get that financing over the top.

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    As to the other standards that are presented in the bill, any time that you create a situation where key elements are taken care of, it creates a situation where the extension of a loan is enhanced greatly. I think it's very important, as I said, that we work with you. And that when we looked at this proposal and looked at it as a concept, it certainly passed muster as far as the direction as a viable direction.

    I think that we would say that we'd want to sit down with you and the subcommittee in terms of specific standards. I know that there have been problems in the past, for example, with various SBA programs. And if there's flexibility built into the program and the administrator of the SBA or the Federal agency that will be governing the Kiddie Mac to make adjustments as you go along, along with working with the industry, that that would make the program that much more viable.

    But, in general, we feel that the direction set forth in the legislation is the proper one for a guarantee program.

    Mrs. MALONEY. All right. We certainly want to respond to your generous offer to work with us, as we move forward with this legislation.

    You mentioned the concept. When we named the legislation, we named it Kiddie Mac really to throw a concept out. For those of us who work in banking, when you say Kiddie Mac, you immediately grasp the concept of how we're trying to get the capital out to build the infrastructure. And it plays off Farmer Mac and Fannie Mae. But it's not a Government-sponsored enterprise. It's very, very different. And we just used the name, but it is very, very different. And could you briefly elaborate on some of the ways that Kiddie Mac is not a Government-sponsored enterprise and how it really fits into more of the traditional ways of banking?

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    Mr. SMITH. Well, the GSE topic in the banking industry has always been a very controversial one and the role that these GSEs play in competing, ultimately, with the banks in the private sector. So I think right out of the box, the Kiddie Mac program would be something that would meet the policy goals of the banking industry, because it offers so much flexibility.

    It doesn't set up a bureaucracy for administration of the program. It has a simplicity to it that I think the industry would respond to very quickly, because the industry is engaged in these types of programs in other areas, as I have mentioned. And, to the extent that it keeps that element, I think that the industry would work very well with the Kiddie Mac approach. With the understanding that, we believe, other components should be brought to the table in terms of Federal legislation and even State legislation in areas where there are really significant challenges, such as New York City and such as has been discussed today where you really have to bring a lot of fire-power to the table. Of which a guarantee program would be one element.

    Mrs. MALONEY. You've mentioned some of them in your testimony. Would you just like to recap some of them for us or any additional ideas of programs that would complement the loan guarantee and build on it to ensure that lenders, by making the loans an attractive option in all income areas? You mentioned tax credits similar to the housing tax credits. Could you just talk about some of the areas that you think that would complement the expansion of day-care options?

    Mr. SMITH. Right. When we first discussed this in Washington some time ago with you and the Chairman about the viability of Kiddie Mac, the first thing that came to mind, coming back to New York was the very excellent track record of various tax credit programs in the housing area. That they give flexibility to the investor. They attract investment dollars, whether they're through financial institutions or private investors, into a marketplace, with as little bureaucracy as possible, because it's a dollar for dollar tax credit. And that would be a very viable example of the kind of provision that would go well with the Kiddie Mac program.

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    Along with possible tax credits to the child care providers themselves, the services themselves, the businesses that are going to go out there and set up these centers and to give the small business person incentive.

    There is, at the State level here in New York—in fact, it's in the budget of the State of New York—an institute for entrepreneurship with some real major dollars behind it. It is aimed directly at small business and I believe child care providers clearly qualify as a small business. There is going to be training under the State University of New York. The banking industry has endorsed the program and is going to be working with the State education system and the private sector in terms of doing this.

    So it's education. It's Kiddie Mac. It's tax credits. And some of the big issues that you have to deal with down in Washington in terms of the overall budget are way beyond our expertise. And if you combine all of those things, I think you'll really begin to put together a pretty significant effort.

    You know, the one thing that comes out of this testimony and out of the hearing today and doing the research that this is an issue that is evolving. Just like housing was a major issue after World War II, and the development of our cities. Now child care, you know, you put the spotlight on it. And it's only going to get bigger and we are just beginning to deal with it.

    And I think, as such, maybe we should—as our testimony points out—take some of the public policies that have worked well in other areas, and the tax code is one. And Kiddie Mac, as you say, Congresswoman, is based on success in other programs in the Federal Government, and you might want to apply them here.

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    Mrs. MALONEY. And, lastly—because we have a lot of programs, a lot of other speakers—but, Ms. Grimm pointed out very dramatically that the demand for child care greatly exceeds the availability. And I was wondering if you could talk about why you think the market hasn't fully responded to this unmet need. Mr. Smith or Ms. Grimm.

    Mr. SMITH. Do you want to go first?

    Ms. GRIMM. No, go ahead.

    Mr. SMITH. Why the market hasn't responded? Well, the market, I guess, in terms of the Government side, it's related to the much bigger issue of welfare and Federal and State government programs. And their ability to respond to the needs in the child care area. And then I can talk about the private sector.

    Ms. GRIMM. Yes. On the Government side, it's a question of an allocation of resources, clearly. There is this tremendous—my remarks address a subset of the general problem. But it's a question of city resources. And, certainly, any kind of program that would be provided through the private sector, as Kiddie Mac would, hopefully, support, would be a great help.

    Mrs. MALONEY. Great. Thank you.

    Mr. SMITH. I think that the private sector is responding. You read about it every day. And there are many, many examples of private sector firms in their own situation as private corporations setting up their own child care. There have been stories recently on the Hewlett Packard approach. And that also we have banks in our membership that have developed some fairly creative and innovative ways. And these are directed at their own employees. And I think we're at the front end of this issue. Now that may seem hard, but when it takes on the dimensions that we're talking about, it's the demographics and the dimensions of the issue, I think that then you realize that we've got to start putting all these skills and these programs together.

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    So I think the industry certainly is aware of it. This hearing is bringing even more attention to it. And I think if we can get to that 2005 or 2004 with some programs on line, then I think we'll probably have achieved our goal.

    Mrs. MALONEY. Thank you so much. Your testimony really gave us a great deal to think about and really helped move the process forward. And I have been reaching out to many of my colleagues on the Democratic and Republican side with some of the ideas that you outlined and really getting a favorable response. So I deeply appreciate your thought and effort, your being here today. I am very appreciative. Thank you.

    Chairman BAKER. Thank you. Before you leave, Ms. Grimm, just one further question. If you were an applicant on one of those waiting lists—I believe you called it the ''formal care,'' where you have the certified child care instructor—how long would a parent expect to wait before having the likelihood of seeing a slot open up if you're at the bottom end of that list?

    Ms. GRIMM. I'm not sure what that timeframe is, but we can provide that to you and the subcommittee.

    Chairman BAKER. That'd be helpful as well. Thank you.

    Ms. GRIMM. OK.

    Chairman BAKER. And let me, again, thank you for your time and courtesy. I appreciate it.

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    Mr. SMITH. Thank you, Mr. Chairman.

    Ms. GRIMM. Thank you.

    Chairman BAKER. If we could ask the members of our second panel to please come forward now.

    Just to prepare each of you, we have a printed order for your remarks so you can be expecting your turn. We would have Kendall Christiansen, Chairperson, The Maple Street School would proceed first. Then Faith Wohl. Is that correct?

    Ms. WOHL. Yes, sir.

    Chairman BAKER. Thank you. Ms. Wohl, President of the Child Care Action Campaign; Ethel Klein with EDK Associates; and Elinor Guggenheimer, founder of the Child Care Action Campaign, who was gracious to appear with short notice this morning and we do appreciate that.

    Mr. Christiansen, please proceed with your remarks and we're glad to have you with us today.

STATEMENT OF KENDALL CHRISTIANSEN, CHAIRPERSON, THE MAPLE STREET SCHOOL, BROOKLYN, NY

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    Mr. CHRISTIANSEN. Thank you very much. I'm glad I arrived here just in time.

    Chairman BAKER. If you would, pull that mike over a little closer. That will help you. Thank you, sir.

    Mr. CHRISTIANSEN. Certainly. Welcome back to New York, Congressman and Congresswoman, welcome back to City Hall. It's a pleasure to see you here again.

    My name is Kendall Christiansen. I'm Chairperson of The Maple Street School, a non-profit, parent cooperative pre-school founded 23 years ago in Brooklyn's Lefferts Manor neighborhood. I'm pleased to describe the school's recent experience in developing and financing a major relocation and expansion project and to otherwise offer the benefit of my experience with respect to the Kiddie Mac proposal, which I believe would be very useful to spur the development of community-based day-care and pre-school facilities like ours.

    By way of introduction, I should also note that I previously ran a loan guarantee program while serving as special projects officer at The New York Community Trust. And so I have relevant experience in understanding the respective financing needs of non-profits and those of conventional and alternative lenders. Through that loan guarantee program, I arranged guarantees of up to $50,000 for nearly 30 non-profit-sponsored projects totaling well more than $1 million in financing.

    And one other note of relevance in this discussion, I am probably the only—one of the few people in this city, maybe the only one—who has experience in both financing a nursing home with a HUD guarantee and a pre-school facility. I'm President of the New York Congregational Nursing Center, which is a 90-year-old, non-profit nursing home based in Brooklyn and oversaw the development, financing, construction, and opening of a $23 million, 200-bed facility that opened two years ago.

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    As indicated in some of the background material for the hearing, the Kiddie Mac proposal is not unlike the Federal guarantees offered for the development and operation of facilities for the frail elderly. In our case, because the nursing center is a non-profit, HUD issued a guarantee of 95 percent of the nursing center's development cost, which enabled the State to sell tax-exempt bonds to finance its construction.

    Now, to describe The Maple Street School's project and how a loan guarantee would have been helpful in hastening the project's development. Although much about this project is unique and extraordinary, several key lessons can be learned from our experience.

    The Maple Street School's new home will be in a commercial space controlled by the MTA, which is our subway agency here, at the Prospect Park Station in Brooklyn. As such, the school will be the first child care-related tenant in a subway station complex in the city. In our case, the school and the station are literally next door to Prospect Park and several other cultural amenities like the Brooklyn Botanic Garden and the Prospect Park Zoo. Not only will our school be extraordinarily convenient for families in our neighborhood and along the subway line, but the site offers wonderful educational opportunities for our children literally outside our front door.

    This project, which is now under construction, took two years of very aggressive, hard work to develop, from our initial proposal to the MTA to the signing of the lease and closing on the project's financing. The project involves total renovation and expansion of approximately 2,800 square feet of abandoned commercial space into a school that can serve up to 40 children at a time with a full-day, year-round program. The total cost of the project grew over the two years to now be about $600,000, of which $500,000 is for construction-related costs.

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    What is unusual about our project's financing is this: unlike a conventional, commercial tenant, the MTA—or landlord, I should say—the MTA is not investing a single penny in the site's renovation and development. That means the school had to raise, in grants and loans, the $600,000 needed to begin demolition and construction. And, in fact, we did. Grant commitments to the project totaled $400,000 and the school's permanent debt will be approximately $200,000.

    Now this arrangement, which was tremendously complicated to work out, because it involves at least eight sources of grants and two sources of loans, works for this project, because our rent deal with the MTA is extraordinary. The school will pay, on average, over fifteen years, approximately $1.00 a square foot for rent, while commercial space nearby goes for $15.00 a square foot. However, the school's debt repayment costs will be approximately $8.00 to $10.00 per square foot, which is entirely affordable as an operating expense.

    However, finding a lender willing to deal with the school, under ordinary circumstances, would have been totally impossible. First, even a pre-school with a relatively stable 22-year history of middle-class parent ownership would have scared away most lenders. With an annual budget of perhaps $125,000, taking on a loan of $200,000 or more would have been seen as too risky.

    Second, most lenders would only consider a five-year loan term, while the school needed a loan that would parallel its fifteen-year lease term with the MTA.

    Third, the school needed some flexibility in loan terms that would support its expansion into the new space and bridge some of the grants committed to the project that would not arrive until well into the construction.

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    And, fourth, most lenders would have balked at such a loan for wholesale renovation of a space without either ownership of the space or a conventional landlord that would agree to secure the lender's investment should the school fail. In our special case, the MTA did agree to several extraordinary lease provisions designed to protect our investment in the space, but those provisions probably would not have been sufficient to satisfy a conventional lender.

    So, in our case, we were fortunate to find a sympathetic alternative lender, already committed to supporting the expansion of child care facilities and to find a supplemental lender with the same interest. Our primary lender is the Non-profit Facilities Fund, based in New York, which, together with Child Care, Inc., operates a technical assistance and financing program called ECCO—Expanding Child Care Opportunities. Our supplemental lender is the National Cooperative Bank, through its community development arm. Both were experienced lenders willing to work closely and flexibly with us to custom-design a loan package that enabled this project to go forward.

    Needless to say, given the uniqueness of our project, a loan guarantee would have been a welcome part of the package so as to enable this project to have proceeded on a faster timetable or to have rescued it at several critical points when the project ran into roadblocks. But, clearly, the same is true of my experience with development of the New York Congregational Nursing Center. In fact, we have a space in our old building now that would make for a perfect day-care facility that we are discussing how best to finance its renovation.

    Now my experience as manager of a loan guarantee program, through which I worked closely with more than a dozen lenders, reminds me that loan guarantees, by themselves, are not a simple solution. No respectable lender will make a loan just because a guarantee is offered. No respectable lender wants to make a loan that, more likely than not, will fail, because of the cost and hassle involved in foreclosure, especially when a non-profit is involved. I, in fact, looked closely at several loans for day-care facilities in the mid-1980's, and was not able to participate in any of them. In other words, a guarantee doesn't make a bad loan good; it simply helps make a plausible loan better.

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    The totality of my experience with projects such as these and the variety of financing tools available to them is that good projects are very, very difficult to develop. They take an enormous amount of effort, creativity, persistence, experience, and good will to be successful. In the case of The Maple Street School, I personally—and the school's other parents—was blessed with all of those attributes, including substantial personal experience and relationships to bring to the table. But in most cases, however, even supportive lenders are faced with substantial challenges in taking plausible projects through the development process to successful financing.

    In other words, there is, from my perspective, lots of good money out there chasing just a few good projects. But the availability of a guarantee might help push more borderline projects into the good category so as to make them viable to financing and pursuit.

    As much as I would like to comment on the particulars of the Kiddie Mac proposal, I will close my testimony with the hope that these comments have been helpful for your consideration, from the street level, as it were. I am glad to answer any questions you may have about The Maple Street School's project or any other aspect of my testimony. I also would be very glad to participate in further discussions about the Kiddie Mac proposal so as to make it as effective and viable as possible. Thank you very much.

    Chairman BAKER. Thank you, Mr. Christiansen, I really appreciate your remarks.

    The next participant is Faith Wohl, who is President of the Child Care Action Campaign since 1997. Previously, she was Director of the Office of Workplace Initiatives in the U.S. General Services Administration. So we certainly welcome you here this morning.

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STATEMENT OF FAITH WOHL, PRESIDENT, CHILD CARE ACTION CAMPAIGN

    Ms. WOHL. Thank you very much. And good morning to you, Mr. Chairman and, again, to you, Representative Maloney.

    My name is Faith Wohl. And, as you've said, I'm president of the Child Care Action Campaign, which is a national non-profit organization located here in New York City.

    The Child Care Action Campaign works to strengthen families, improve education, and advance the well-being of children through its advocacy for good quality, safe, and affordable child care. I'm pleased today to speak on behalf of H.R. 1112, the Children's Development Commission Act, which we at CCAC believe would help improve the quality and availability of child care in the United States.

    Good quality child care and early education are strongly linked to school achievement, as well as to the development of social skills that enable a child to grow into a happy and productive adult. Such child care has been used successfully to prepare at-risk children for successful school performance. Good quality child care also improves educational and social development for children from middle- and low-income families.

    On the other hand, poor quality child care and early education can actually harm children. Their intellectual and social development can be stunted. In extreme cases, children have been harmed physically. Some have even died. Saddest of all, care that is poor or mediocre in quality is far more common today than good quality child care. A 1995 landmark study, ''The Cost, Quality, and Child Outcome Study'' found that more than 80 percent of child care in centers today across the country is poor to mediocre.

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    The Carnegie Corporation's Starting Points Task Force, citing new scientific research on brain development in the first three years of life, found, and I quote, ''That an adverse environment can compromise a young child's brain function and overall development, placing him or her at greater risk of developing a variety of cognitive, behavioral, and physical difficulties. In some cases, these effects may be irreversible. But the opportunities are equally dramatic. A good start in life can do more to promote learning and prevent damage than we had ever imagined.''

    The quality of child care and early education affects parents as well. When working parents are confident about their child care choices, they are more productive on the job. But when care is inadequate, personal stress among parents mounts and their work performance can suffer. The Child Care Action Campaign has estimated that American businesses lose more than $3 billion annually in child care related absences. Poor quality child care arrangements are more likely to fall apart, and this causes parents to miss work or even to lose their jobs.

    While we know what constitutes good quality child care and early education and we know how to provide it and what its benefits are, we also know that, today, it costs far too much for parents to afford. While parents pay, on average—and this is a nationwide average—$4,100 per year for child care, per child, per family, good quality child care costs about $8,000 to provide. And in major cities like New York, the cost to parents, as you've heard, can easily exceed $10,000. And that's just for one child.

    As Representative Maloney said in her opening remarks, child care actually does cost more than higher education. In every State in the United States, the cost of child care tuition is higher than the cost of tuition at that State's publicly sponsored university. Even though that's almost unbelievable as we think about college costs, that is the case, according to the Children's Defense Fund, in every State in the United States. So, while some parents struggle to find any kind of care in their communities, those who do find good quality care most often discover that they can't afford it. And so they have to settle for what they can afford, which is often unlicensed and developmentally inappropriate care.

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    Overall, about $40 billion is spent annually on child care, most of it by parents, with the balance paid by government at all levels in the form of subsidies and less than 1 percent paid by the private sector. That 1 percent I might note really contrasts with the statement of our previous witness in saying that the private sector has made a large contribution to solving the child care problem. It's true that they have developed some good child care centers, but at present that represents one penny out of every dollar that's spent on child care.

    Though parents find child care fees high, child care providers try to keep them at a level that parents can afford and, therefore, earn salaries far below what their professional training should command. With salaries averaging less than $8.00 per hour with few benefits, it's no wonder that staff turnover in child care tops 30 percent a year among providers and can be much higher, particularly at the lower levels of child care workers, with the resulting damage to the attachments that children form to caring adults. So this huge staff turnover directly impairs the quality of care that children receive.

    One impact of chronically low wages is the inability of providers to secure the financing they need to start new child care facilities or improve or upgrade those they already have. The Children's Development Commission Act would offer security to lenders who want to help providers build new facilities or to upgrade existing ones in order to improve safety or to meet higher standards, even including facilities in which to train child care providers.

    The private sector has shown that they really don't want to take risks on child care providers. But this bill would help stimulate the private sector into meeting the growing demand for child care. Since the supply of good quality care is one of the Nation's most pressing needs, especially since the implementation of welfare reform, helping providers open or upgrade facilities would be a great help to parents nationwide. In addition, the Act's inclusion of books, curricular, and program materials in its definition of equipment is really welcome news since one of the hallmarks of poor quality child care is a lack of toys and other stimulating materials that encourage development in children.

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    The Child Care Action Campaign has long championed innovative child care financing programs and public/private partnerships, in particular, to improve the accessibility and quality of child care for all children. In concert with local advocates, we have undertaken programs, for example, in Indiana and Florida that successfully spurred such partnerships, with payoffs and direct improvement to child care. And we've also observed the excellent efforts of facilities funds that now provide low-cost capital in Illinois, Massachusetts, Maryland, and other States.

    While this bill would be a positive step for Congress to take to help improve child care and early education in this country, a few improvements in the bill itself would make it even better. If the legislation could include incentives for State governments to follow the Federal lead in establishing loan guarantees, that could increase the benefits. And funds to help providers assisted by these guaranteed loans to operate the centers they've built or improved would go a long way toward making child care more affordable and a long way toward improving its quality.

    So let me be clear on how I think we should view this bill. The Children's Development Commission Act is not the large and comprehensive bill we need to improve child care and make it more affordable for America's working families. $10 million in loan guarantees against an annual child care expenditure of $40 billion seems very small, especially when many child development and early education experts say that we actually need to spend $80 billion to $200 billion per year in order to provide good quality child care to all American children.

    American families really need a bigger and much more comprehensive approach to child care. They need a multifaceted approach that would help dedicated and professional child care providers earn a living wage and stay in the profession they love. They need a bill that would radically improve the quality of the early care and education that our children require if they are to compete in the global and demanding marketplace of tomorrow. And we need legislation that would help all low-income families with the subsidies they need to enter their children into good quality care, as well as one that would help working parents with the leaves and flexibility they now lack to spend time with their children and help them succeed.

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    So against these needs, this bill is a small step, but it's a step in the right direction. And it's certainly better than standing still in a do-nothing position. Action on this bill would be an important signal to America's working families that the Congress of the United States is aware of their need for good quality child care. A recent poll sponsored by CCAC demonstrated significant support by voters and especially families with young children for Federal action on child care. And I know my colleague, Dr. Klein, is going to talk in more detail about that.

    So we cannot fail to take a step forward when this possibility is presented, even if it is only a small step. And the Child Care Action Campaign hopes that you will be able to make the necessary improvements in this bill and move it rapidly toward passage. As Representative Maloney has said herself of her bill, it's going to do a lot with a little. We urge the House to do a lot for America's youngest children. Their future and our Nation's future could well depend on what we do today to assure more and better affordable quality care for every child who needs it.

    Thank you.

    Chairman BAKER. Thank you very much, Ms. Wohl. We do appreciate your testimony.

    Our next witness this morning is Dr. Ethel Klein, President of EDK Associates and formerly a Professor at Harvard and Columbia Universities. Welcome.

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STATEMENT OF DR. ETHEL KLEIN, PRESIDENT, EDK ASSOCIATES

    Ms. KLEIN. Thank you. It's a real pleasure and an honor to be here. Unfortunately, I've just developed a cold. So forgive me.

    OK, but let me get started. I was asked to sort of pull together where the public is on the issue of child care and I'd like to share that with you. A review of recent polling and focus groups trying to understand what Americans believe about the appropriate role of Government in caring for children finds that two out of three voters support using public funds to ensure access to high quality child care. And I do want to stress that what they want is that this money be used in a way that has good outcomes. And that they're skeptical. And when they think of good outcome, they are looking for innovative policies that pass the common sense test, which I think this bill does and so I commend you for that.

    People are angry with men and women who are having children and who are not taking responsibility for them. We need to know that there's an enormous anger out there. And research done by the Public Agenda Foundation and our research for Lifetime Television clearly captures that the public believes having children is a serious responsibility. Too many people are having children without wanting to make sacrifices for them. We hear people say, ''too many people are having trophy children.''

    Both men and women are mad at parents of all races and income groups. Participants in these focus groups, both ours and public agendas, indicated that parents aren't spending adequate time with their children. They worry that kids are being raised by television, the Internet, and strangers, rather than by parents. They feel this way about children of every age, from birth through the late teens.

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    So in that context, I want you to understand that, while people are angry at parents, the fact that Americans want parents to take responsibility for their children does not preclude support for child care. Quality child care can be understood as responsible primary caretaker behavior, but only when child care is seen as an expression of, not contradictory to, parental responsibility. In addition, child care must be viewed as supplement to and not a substitute for parents spending quality time with their children.

    People strongly agree that, if done well, child care is a positive experience. It's not a substitute for parenting, but it fulfills an important function. And they feel that way about children whose parents aren't working, their primary caretaker is at home. They do think there is some value that child care provides all children, whether they have a working parent, a working mother in this case, or not.

    The reality, however, is that most children spend a fair number of hours being cared for by someone other than a parent. The phrase ''Given that most young children are in child care'' helps transform the conversation from a normative discussion ''Should children be in child care?'' to a practical discussion ''How do we make child care a positive experience?'' Women who felt that mothers should stay at home felt that this was a reasonable argument, the argument that, look, the realities are they're not and what do we do for the children. This was a reasonable argument for why we as a society should make a social investment in child care.

    In a recent poll conducted for the Child Care Action Campaign, based on funding from Lucille and David Packard Foundation, 85 percent of voters agreed with the statement that most children are in some form of child care. Instead of debating the pros and cons of child care, we need to make sure that children are provided quality care. The statement seemed to give people permission to talk about the benefits of child care without weighing in on the debate about whether too many mothers are leaving the home and working.

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    The participants in the Lifetime focus group surprised us by what they deemed most positive about child care. They were interested in life readiness even more than school readiness. I'm not saying they didn't see the value of child care in terms of being ready to read and being well-educated, but what Americans are really concerned about is people's basic behavior. And so they liked phrases such as ''setting rules and clear limits'' and ''learning how to share and follow directions.'' The Child Care Action Campaign survey corroborated that finding from the Lifetime focus groups. 87 percent of all voters, 84 percent of men and 90 percent of women, agreed that when child care is done right, kids benefit greatly by learning how to share, follow directions, how to play, and do projects with other children.

    They clearly want children to be better behaved. When it came to learning, they much preferred the phrase ''their natural curiosity about the world is nurtured if they're encouraged to ask a lot of questions'' to the phrase ''learning their A,B,Cs.'' They're not looking for children to sort of become little robots who repeat things. What they are is looking for someone who cares enough about their kids and has enough patience to answer all those why, why, why, why questions. OK?

    Americans believe that quality child care needs to be affordable. They also believe that society should help pay for it through some form of public funding. The Lifetime Television focus group conversations pointed to an interesting dynamic around public funding for early care and education. Supporters of public funding are reticent to express their opinions publicly, because they believe they represent a minority opinion. They do not want to challenge men and women who say it's best for women to stay home and care for their kids, even though they believe that is an unrealistic expectation.

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    In reality, the CCAC poll shows approximately two-thirds of all voters support public financing of child care. 69 percent of all voters support publicly funded, quality after school programs. 70 percent of all voters support publicly funded, high-quality, voluntary pre-school programs taught by qualified teachers. 66 percent of all voters support a paid parental leave that allows parents of very young babies to stay home. And 65 percent support high-quality, low-cost care for infants and toddlers that parents would pay for, based on their income. In order for the costs to be low and the quality of care to be high, some of the costs of this would be subsidized by public and employer funds.

    To the extent that Kiddie Mac really reduces the cost to providing the service, it helps, particularly in the infant and toddler care, which is the most expensive. It helps them meet this goal.

    Finally, participants are excited by public discussion of this. Specifically, they are excited by Lifetime's commitment to child care. This is not a promo for Lifetime, it was the fact that they felt that they don't have very much power and the television station is seen as someone that has power or an entity that has power, so they felt empowered by Lifetime's efforts. Americans are looking for leadership on this issue. Participants in the Lifetime Television focus groups did not, themselves, feel powerful. When it came to expressing support for financing, they did not even feel entitled to voice their opinions.

    The Lifetime effort validated the idea that child care can be a good thing. This is a message almost entirely absent from our culture, where the most positive statement is that child care is a necessary evil. When they discussed Lifetime and they saw it as a powerful institution, they believed that Lifetime could bring them together and make them powerful. They liked the idea that the Caring for Kids Campaign could help women join together and experience their aggregated strengths.

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    Now I must tell you one of the reasons I really commend you on this, in addition to the bill itself, is that you're taking a public stand. With the exception of a handful of public officials, the public rarely hears or reads about their representative's position on child care.

    Recently, my firm EDK and the Berkeley Media Studies Group reviewed news coverage of the child care issue in the top 20 newspapers around the country. This analysis was funded by the Carnegie Foundation and commissioned by the Child Care Action Campaign and the Communications Consortium Media Center. There was significant growth in coverage of child care issues, a great deal more discussion of access and quality, but few of the speakers cited in these articles were public officials. I want to thank this subcommittee for putting the public's concern about child care on the record and encourage all of you to speak out for the need to pay greater attention to caring for all of America's children.

    Thank you.

    Chairman BAKER. Thank you very much. I do appreciate your kind remarks.

    Our next participant is Elinor Guggenheimer. And I must say, Ms. Guggenheimer, I've looked at biographical information to introduce folks on occasion and I don't recall ever having seen someone as being listed the founding president of so many organizations in my life. If I ever met a community activist, I think you must be it. Welcome.

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    [Laughter.]

STATEMENT OF ELINOR GUGGENHEIMER, FOUNDER, CHILD CARE ACTION CAMPAIGN

    Ms. GUGGENHEIMER. You probably never met anybody as old as I am, either.

    [Laughter.]

    I want to tell you that, for me, this is a unique pleasure, because I'm preaching to the choir and nothing is more satisfactory. On the other hand, if the choir just sits there and listens to people like me preaching and it doesn't go back and make Wagnerian sounds down in Washington, we will have all wasted our time. We're really counting on you.

    This is the start, perhaps, of a battle, again. It has a kind of deja vu feeling for me. I have been fighting the day-care battle, if you will, for a great many years. A starting period, World War II, at a time when we were stretched beyond our ability to finance a war, we were able to find the funds to finance child care all across the country. There was no question we needed women in the labor force. Actually, I think we won the war en materiel perhaps more than on anything else. But we enabled factories to work merely because we enabled women, families, to find care for their children.

    It was a lesson that we forgot immediately after the war, even though we were aware, despite one of the studies done in New York which we should be ashamed of, that women were all going to go back into the home within eight years of the end of the war. It was called the—I've forgotten the name of the Senator whose name appeared on it, but our Governor, Dewey, was very pleased with the report and indicated that this proved conclusively that day-care was a sort of a Russian, Soviet, Communist plot.

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    We've gone through some strange times in our country. One of the strangest recently has been, from my point of view, the tests that we've been using here in New York. We've been horrified. I think we have—I hope we've been horrified by the fact that our children, at an age when they should be reading are not reading; when they should be understanding, if you will, the multiplication tables are not. And then when Chase Bank goes to hire cashiers, they're going to interview about 90 people for every one job that they're going to have to fill if we don't do something about it at a very early age. Because you don't start an education in fifth grade, sixth grade, not even in first grade. And we have failed to recognize a lesson we should have known a very long time ago.

    Now Congresswoman Maloney has worked with me on many of the kinds of ways in which to approach this problem over the past and I have to admit to you that it seems strange to me to be down here again at my somewhat advanced age passing out colds to my colleagues when this should have been understood so many years ago. You simply don't start education in first grade. It can't be done. We've already lost the most valuable years.

    I happen to have six great-grandchildren and in each case I've sat down with the parents. They don't want to particularly listen to me, because the grandparents get in the way. And I've said to them, right from the word go, ''First day, start talking, start teaching, start opening up the world to them.'' It's much too late when you get three, four, or five years down the line.

    This bill is exciting for one reason, above anything else. Not because it's going to resolve the day-care problem in the country. But because you are going to open up a discussion again. You are going to bring a message. And I'm charging you with that responsibility, back to where I hope lessons are listened to. You are going to remind them that it takes more than a village. That it really takes some very well organized planning to provide the space, first and most important, and then all the other parts that have to go together to educate children so that they can go on and take advantage of the cheaper-than-day-care college programs that are available.

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    I think we're counting on you; grateful to you for bringing up something that is extremely important and opening the discussion for us again. But not grateful if it then goes back down and isn't brought out and made a major public issue again. Because we have already proven that we are failing, particularly in our city, if you look at the scores coming down on tests that have been put in by our Regents. We are failing in education. We're going to try to drive people out of welfare into jobs they can't fill. Every time we have people in our society who are incapable of filling the jobs that are available today in this highly technological world.

    I have a computer that crashed yesterday, so I can probably speak with some vehemence about the need of getting a very thorough grounding today in today's world. And I know you're all worried about Y2K. I'm worried about my computer today. But if we are not capable of educating our population today—and that is starting at the very earliest ages—I think you have a lot more to worry about than the year 2000.

    I don't want to add to a good deal of the information that you've received, because, in a sense, also my basic knowledge of the importance of child care probably predates your involvement, most of you. We fought very hard at the end of World War II to hold onto 91 day-care centers in New York City. The State Manpower Commission withdrew all its funding because they agreed—we were not eligible for Lanham Act funds, which were the national funds that were given out in those communities where they needed people to go into munitions factories. But we did—because we also needed to replace men going overseas with women workers—we did provide day-care through something called War Manpower Act here in New York State.

    At the conclusion of World War II, funds were withdrawn. Women, according to our then-brilliant Governor Dewey, were entirely going back into the home and no women were going to be working any more. He miscalculated by the 58 percent increase that took place within the next few years of women in the labor force. You're not going to turn back a clock. We have a society where two working parents are part of the way in which we live.

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    If we continue to fail not only to pass this first bill—and, please, it is a first bill, but an extremely important one—you fail to get this one through, we have nothing further to build on. If you fail to rally the public behind this, we will not be able to rally them down the line on all the other kinds of work we need to do in order to make sure that we have a population that can survive in this very complex world.

    So I'm deeply grateful to both of you. At breakfast, I mentioned to you that the bipartisan approach is one that is very endearing. We have been treated to nothing but media reports of the fact that Republicans and Democrats don't talk to each other or, when they do, it's in obscene language that isn't fit for—well, everything's fit for media today. And so thank you for working together. Take your message back and make it nationwide. And really get this through. If you fail us on this one or we fail you—and you can tell us what we need to do—I don't think we get another bite at the apple.

    I think this bill is far more important than what it will accomplish. And it isn't going to accomplish the whole job; not by so much that I think you're both aware of it. But it can at least begin to do something that is absolutely essential for the future. Thanks.

    Chairman BAKER. Thank you very much for your insight and your remarks.

    I can assure you all that virtually everyone on the House Banking Committee has heard the subject of Kiddie Mac on repeated occasions from Mrs. Maloney. She has been quite insistent on having this topic come before the subcommittee and I have assured her that we will continue to press forward as best we can.

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    People want to see a product that works. And that is our only caution, that in our effort to do what is right, that we don't make a mistake that is totally unintentional. No one in the Congress, despite reports of our budget surplus, finds it easy these days to get money for much of anything that's a new concept. So it has to be, in some form or fashion, demonstrated it is an achievable goal, a warranted public necessity, and that you've given it the adequate time to be thoroughly vetted before you put it in place.

    And that is why your participation here is important today. This is another step in trying to listen and understand what the real needs might be and how we can best achieve those goals.

    It's something that just came to me while I was listening to testimony, Mrs. Maloney.

    Mr. Christensen, you indicated that the matching up of the ability to pay with the short-term requirement for traditional commercial lending really is at the core of the problem. For example, a traditional five- to seven-year payback is the norm, expected by an enterprise looking at a traditional free enterprise activity. Because of the costs associated with remodeling and constructing, in some cases, of a facility, you do have an inordinate amount of fixed cost, up front, to go from a normal building use for office purposes to something that's suitable for child care.

    If you were to be made aware there was an ability to get a fifteen-year fixed interest rate loan for these purposes, would that be of significant help to you?

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    Mr. CHRISTENSEN. Thank you for the question. In our case, absolutely, because of our unique situation. But I think it also applies to other more conventional cases.

    In our case, the cost of debt service really becomes the proxy for rent. And with the fifteen-year lease term, it didn't make sense to pay sort of all of our rent in a five- to seven-year period and then have no rent to pay when we're fully operational and stable, you know, years eight through fifteen. So finding a way to sort of stretch those rent payments, the debt service, in this case, over a longer period of time really became key.

    I mentioned that we ended up, you know, borrowing, effectively, $200,000. If we were fully able to stretch that out over—and that's probably over, like, a ten or eleven year period with our particular lenders, more flexible than others. But if we were to stretch that out over the full fifteen years, we could probably have borrowed, you know, $300,000 or $400,000 and still made our project sort of work on a sort of operating expense basis. Fortunately, we don't have to borrow that much, because we found grants to cover it, but it was really that issue of, you know, sort of matching the term of the lease with the conventional term of lenders that was a critical issue for us to solve, absolutely.

    Chairman BAKER. I don't want to redirect the hearing to a whole new subject, but I think it really important to point out we are—Mrs. Maloney and I both—are engaged in a conference which we just left yesterday on what is called financial modernization, a restructuring of the way financial services will be delivered. A component of that debate relates to an institution called the Federal Home Loan Bank. Historically, it has been the avenue for the thrifts of the country to get access to Federal funds to make loans for home ownership.

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    As part of this conference, we are modernizing the Home Loan Bank. And what we will do is increase its ability to make fifteen-year fixed-rate loans through local banks who participate as members in New York. So you would go to local bank X, if it happens to be a member of the Home Loan Bank system, and apply for a fifteen-year loan. What is new about the provisions of this Act is we are expanding the purposes for which those bank advances may be used to include small business. Small business and rural development are the real focus.

    And it just dawned on me, as I was listening to the credit need, that this is legislation which is really at the door of final passage in the Congress. Mrs. Maloney has been a participant in that and very helpful on these provisions. It could be that, in the course of our consideration, I can make sure that child care is viewed as a component that qualifies. And, with Mrs. Maloney's possible ability to get this considered as a CRA complying activity, we would really have something that might help fuel the whole Kiddie Mac concept. And it's right at the point of being passed. This would not be a formative idea. I've only been working on that for ten years, so——

    [Laughter.]

    Mr. CHRISTENSEN. If I could just respond to that briefly. I, in fact, had the occasion about two weeks ago to sit next to Al Dellabobi, who is the President of the Federal Home Loan Bank Board of New York, at a luncheon. And I took the opportunity to sort of describe this project to him, as well as my nursing home project, which the Home Loan Bank Board also had been very helpful in a creative financing effort. As you may know, he also served a while back as head of the Urban Mass Transit Administration. So, he had a particular feel for anyone that could deal with the real estate units of the MTA.

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    But he expressed a lot of interest in this type of project and their growing interest in sort of community development lending activities through the Federal Home Loan Bank Board. One of the ideas he and I kicked a little bit was their ability to sort of buy the paper in the secondary market of the initial lenders, even alternative lenders like the ones that we're using, so as a way to make more capital available. So you may have worked the other side of him on this, but I at least had the occasion a couple of weeks ago to open up a dialogue with him about this. And, in fact, got a note from him last week expressing continuing interest in looking at it.

    Chairman BAKER. Well, if this legislation does pass as currently crafted, I think it would very clearly open that door. And it would also mean that, through—and without getting into a lot of discussion—under their community investment program, the CIP program, it would make funds available at a very low cost. That's a program that's already there. All we are doing is widening the applicability of what those funds may be used for. So when I get back, I'll take a very thorough look at that subject, because I think it might be very responsive to what I've heard here.

    Mrs. Maloney.

    Mrs. MALONEY. I want to thank the Chairman for his constructive leadership in being here today. And really all the panelists today and this panel and the earlier one. And you have truly helped move this legislation in the true sense of advancement. As the Chairman mentioned, we could look very positively at adding Kiddie Mac components or loans to child care in the definition of what the Home Loan Banks could provide. Also, with the Community Reinvestment Act, which we've been discussing.

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    And a lot of new ideas have come forward that we are working on moving forward. We're even working on a pilot project in our two districts. And I think all of this thinking and ideas have come together because of this particular hearing. And hearing from the street level your concerns helps us see, dramatically, what needs to be done in a broader sense on a Federal level. And all of your statements and your inspiration. Like I call Elinor, ''Elinor the Great,'' the mother of day-care and so many other things here in New York City. And we appreciate everything you've done for our great city and being here today.

    But I really thank all of you. And I'm very hopeful that we can really move forward in this Congress with a pilot program; with expanding the Federal Home Loan Bank, which would be fabulous, to cover child care; and with the Community Reinvestment Act. Also if we could get that type of approval, that would possibly mean billions, literally billions, for the construction of child care. And, finally, hopefully, the passage of this important bill that has moved us forward in so many ways.

    Thank you, Mr. Chairman. It has been a great partnership and I hope to join you at a bill signing. Or at least the opening of hundreds of day-care centers across this country and millions of family day-care network centers. And, again, I thank all the panelists for your very positive input. And we will probably see you at more hearings in Washington. Thank you for being here today.

    Chairman BAKER. Thank you, Mrs. Maloney.

    I do look forward to working with you. I would point out, as Ms. Guggenheimer has noted, this is a bipartisan effort and, among virtually all Members of Congress, there is a realization that all too often we have high school graduates who can't read the diploma they're handed. It is a condemnation of our system in a most prejudicial way. We are all desperate to seek solutions. There are people who wish to work who simply do not have the skills to fill out the job application form. And recognizing that, at all levels we should begin first with our—at the very earliest stages in childhood to build the concepts of personal responsibility and hard work.

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    I find it amusing sometimes to tell folks we're changing views in Washington. We think people should work, but then when you get paid, we think you should keep the money. Now we know that's a radical idea, but we see this really as a first step in redirecting individuals to lives of opportunity and achievement. And we do very much appreciate your participation and giving us your ideas. We'll return to Washington and go to work.

    Thank you. Our hearing is adjourned.

    [Whereupon, at 11:26 a.m., the hearing was adjourned.]