Wow, Stazmatic- I could have written your post! Very similar situation here!
Newbee, I think you are doing the absolute right thing by starting off with your DD being 'accountable.' She has to grow up now. That was the best thing my parents did for me (they thought they were being hard asses and "showing me," but whatever, it was the right thing to do) when I had my DD17 when I was 17. I lived there while her dad (my now ex-h) was away at college, I paid for everything for DD & myself, worked, went to college, etc. My mom watched her when I was at school. That was it. If I wanted to go out with ex-h or a friend, I had to find a sitter. If I needed clothing & DD needed diapers, oh well! I didn't pay rent, but I did buy all of my/DD's food. DD was never 'the family baby,' she was mine & that was that.
It wasn't easy, but in all honesty it wasn't that hard. I wasn't a partier and I didn't go out much. (I joke that the ONLY thing I did wrong in high school was get pregnant.

) Her dad & I got married a couple years later & gave it a whirl for about 10 years all together. It didn't work, but that's ok.
Looking at how my parents handled it & how others handled it, I think nothing good can come from coddling her & 'raising' the baby for her. A friend of mine is doing just that with her DD & grandson & from my perspective, it's a mess. I love her DD, but she's a pretty crummy parent and I am glad she's not on her own with the baby. BUT, I also think she would have risen to the occasion if her mom had insisted she do so.
I don't know much about public aid, but I do know that when I was 17 & pregnant, my parents insurance didn't cover my pregnancy. The hospital had an 'uninsured' plan that was really inexpensive. I remember my mom telling the nurse,
"Uh uh, no way- no medication for her. It's not in the plan!" 
I would absolutely declare the father & have him pony up some cash for his kid. That's life, don't let him get off that easy. Start him off being responsible so you're not fighting a losing battle when the baby is a teenager still.
:huggy: