Child care provisions in the federal welfare bill allow state policymakers flexibility in child care fund allocation. This report, prepared for the 75th Texas Legislature, reviews research on the importance of child care programs to low-income families. The report notes that the child care needs of many low-income Texas families have not been met in the last few years. Most subsidies have been directed toward families leaving the welfare rolls, leaving little assistance for poor and near-poor working families. The continued increase in mothers' participation in the labor force and Hispanic population growth will generate increasing demands for child care services. Affordable, reliable, flexible, and safe child care is critical to parents' productive employment. Child care investments benefit children by helping them prepare for school, thereby reducing their chances of future welfare dependence. Low-income families are more likely than more affluent families to rely on relative care and less likely to rely on center-based arrangements, with affordability one of the most important factors influencing parents' choice of child care arrangements. Working poor families are the least likely of all income groups to receive child care financial assistance. The report also notes that low-income Texan families receive child care and educational services through three independently operating systems: child care programs administered by the Texas Child Care Management System, Head Start administered by the federal Department of Health and Human Services, and the prekindergarten programs administered by the Texas Education Agency. The Texas Legislature has recently passed several bills mandating increased coordination among child care and prekindergarten programs. Contains 69 references. (Author/KB)