Existing law, the Child Care and Development Services Act, establishes a system of child care and development services for children up to 13 years of age, and requires the Superintendent of Public Instruction to implement a plan establishing assigned reimbursement rates, per unit of average daily enrollment, to be paid by the state to provider agencies for the provision of those services.

This bill would provide that it is the intent of the Legislature to enact legislation that would establish a single regionalized state reimbursement rate system for childcare, preschool, and early learning services that would achieve specified objectives.

SENATE COMMITTEE ON APPROPRIATIONS

Senator Anthony Portantino, Chair

2019 - 2020 Regular Session

AB 125 (McCarty) - Early childhood education: reimbursement rates

Bill Summary:

This bill modifies the state’s system and rates for reimbursing subsidized childcare and development programs by creating a more uniform reimbursement system reflecting regional costs of care adjusted for certain factors. This bill would be contingent upon the enactment of Senate Bill 174 (Leyva) of the 2019-20 Regular Session.

Fiscal Impact:

While a precise estimate of this bill is unknown as it would largely depend on several variables, including the percentile and year of the regional market rate (RMR) survey that is used, the General Fund costs to increase the RMR ceiling used to determine reimbursement for the cost of childcare from the current ceiling could be in the high hundreds of millions to over a billion at full implementation. There would be additional General Fund costs in the low tens of millions to increase the ceiling for license exempt hourly care to the 85^th percentile of the 2018 survey.

Further, the CDE is likely to incur additional administrative costs in the low millions of dollars in General Fund over a two-year period.

Background:

Existing law establishes the Child Care and Development Services Act to provide child care and development services as part of a coordinated, comprehensive, and cost-effective system serving children from birth to 13-years-old and their parents including a full range of supervision, health, and support services through full- and part-time programs. The law defines “child care and development services” to mean services designed to meet a wide variety of children’s and families’ needs while parents and guardians are working, in training, seeking employment, incapacitated, or in need of respite and states that these services may include direct care supervision, instructional activities, resource and referral programs, and alternative payment arrangements.

Existing law requires the Superintendent to develop standards for the implementation of quality programs and outlines indicator of quality to include, among other things, a physical environment that is age appropriate and meets applicable licensing standards, program activities and services that are age appropriate and meet the developmental needs of each child and program activities and services that meet the needs of children with exceptional needs and their families and other support services.

The state’s childcare and development services are delivered to eligible families through two categories of providers—Title 22 and Title 5 providers. Title 22 (Alternative Payment Programs/Voucher) providers include licensed centers, licensed family childcare homes, and license-exempt care. The licensed programs must adhere to the requirements of Title 22 of the California Code of Regulations and are reimbursed at the levels that are based on RMR. The California Department of Education contracts directly with several hundred agencies for licensed child care, through centers, Family Child Care Home Education Networks, and preschool. In addition to Title 22 licensing requirements, these providers must also adhere to the requirements of Title 5 of the California Code of Regulations and are reimbursed with the Standard Reimbursement Rate (SRR). Title 5 providers have the highest education, training, and health and safety standards. Yet, in some counties, providers with the lowest standards (license-exempt) are paid at a higher reimbursement rate than the Title 5 providers.

California has established two methodologies for determining the reimbursement rates for child care and development services:

• The Regional Market Rate (RMR). Title 22 providers are reimbursed at the RMR. The RMR is determined by the RMR survey and varies depending on the geographical location of the provider. The RMR is based on a survey of licensed centers and family childcare homes measuring childcare rates of similar socio-economic conditions. Rate ceilings are established for each county according to estimates of the 75th percentile of rates for the various types of childcare settings. The county rate ceilings are differentiated by the age of the child (infant, preschool, school age), full-day or part-day care, and frequency of care (days per week). Families may choose a childcare provider that charges a rate above the RMR, but the provider would only be reimbursed at the RMR. Current law requires the RMR survey to be updated every two years. The RMR is currently set to the 75th percentile of the 2016 RMR, thereby providing a lower rate than if based on the most recent survey. This formula is an attempt to ensure that low-income families can receive similar levels of childcare service as higher-income families in the same region.
• Standard Reimbursement Rate (SRR). Title 5 providers (General Child Care, Migrant Child Care and State Preschool) are reimbursed at the SRR, which is a specific rate established in statute. Childcare and development providers that contract directly with the California Department of Education (CDE) must meet Title 5 requirements in addition to those of Title 22. Title 5 programs contract with, and receive payments directly from, CDE. These programs receive the same reimbursement rate (depending on the needs of the child) no matter where in the state the program is located. As of July 2018, the SRR for preschool is $48.28 per child per day of enrollment and for childcare is $47.98 per child day of enrollment.

Proposed Law:

This bill modifies the provisions that require the Superintendent to implement a plan to establish standards and assign reimbursement rates for subsidized childcare and development programs by, in addition to current law requirements, including in the assignment of reimbursement rates the following variables: regional reimbursement ceiling, as prescribed; quality adjustment factors to address the cost of staffing ratios, specified in current law; and any additional adjustment factors specified in current law.

This bill prescribes a deadline of November 10 to the requirement in current law that the reimbursement system plan be submitted to the Joint Legislative Budget Committee and requires that the plan additionally include methodology, county rate targets as required under the provisions of this bill, and the total statewide funding amount necessary to reach annual rate targets for all agencies.

This bill not withstands current law relative to adjustment factors applied for age of the child and those with special circumstances and requires, by July 1, 2020, the department establish a reimbursement rate target for each contracting agency that meets quality standards based on specified elements, including the regional market rate ceilings for the contracting agency’s county, as applicable, and the quality adjustment factor for the age range of the children proposed to be served by the contracting agency, as a multiplier specified in the bill.

This bill prohibits that a contracting agency’s rate target from being less than that agency’s 2018 rate, by age range, and decreases the reimbursement factor from 55 percent to 50 percent of the standard reimbursement rate for childcare and development providers serving children for less than four hours per day.

This bill requires the department, in order to meet the costs of providing quality standards, as specified beyond those calculated in the regional market rate survey to establish quality adjustment factors by age ranges, as follows:

• 1. 1.23 for infants who are 0 to 18 months of age.
  2. 1.23 for toddlers who are 18 to 36 months of age.
  3. 1.23 for preschoolers who are 36 months to six years of age.
  4. 1.03 school age children who are 6 years of age and older.

This bill requires the reimbursement system plan to include a formula for annually adjusting reimbursement rates for each contracting agency, based on: the annual Budget Act funding allocation for standard reimbursement rate increases as specified; an equitable distribution of standard reimbursement rate increases to agencies, by county, as an equal percentage of the county outstanding rate target, for purposes of meeting the targets identified for a contracting agency; and funding allocation for cost-of-living adjustments, if applicable.

This bill provides that it would be contingent upon the enactment of Senate Bill 174 of the 2019-20 Regular Session.

Related Legislation:

SB 174 (Leyva) is similar to this bill and is pending in the Assembly Appropriations Committee.

Staff Comments:

California has established two methodologies for determining the reimbursement rates for childcare and development services: the regional market rate (RMR) which is determined by the RMR survey and varies depending on the geographical location of the provider. The RMR is based on a survey of licensed centers and family childcare homes measuring childcare rates of similar socio-economic conditions. Rate ceilings are established for each county according to estimates of the 75th percentile of rates for the various types of childcare settings, and is currently set to the 75th percentile of the 2016 RMR, thereby providing a lower rate than if based on the most recent survey. This formula is an attempt to ensure that low-income families can receive similar levels of childcare service as higher-income families in the same region.

Title 5 providers (General Child Care, Migrant Child Care and State Preschool) are reimbursed at the standard reimbursement rate (SRR), which is a specific rate established in statute. Childcare and development providers that contract directly with the CDE must meet Title 5 requirements in addition to those of Title 22. Title 5 programs contract with, and receive payments directly from, CDE. These programs receive the same reimbursement rate (depending on the needs of the child) no matter where in the state the program is located.

This bill seeks to streamline the two systems by establishing a daily reimbursement rate that varies by county, which is composed of the assigned RMR ceiling for that county multiplied by quality-based factors generated to address the cost of staffing ratios depending on the age of the children served. This bill also establishes a new adjustment factor for the age range of children who are served by childcare programs that meet designated quality standards for purposes of incorporating costs of meeting those standards into the reimbursement rate target for each contracting agency.

-- END --

SENATE COMMITTEE ON EDUCATION

Senator Connie Leyva, Chair

2019 - 2020 Regular

Bill No: Hearing Date: July 10, 2019

Subject:

SUMMARY

This bill modifies the state’s system and rates for reimbursing subsidized childcare and development programs by creating a more uniform reimbursement system reflecting regional costs of care adjusted for certain factors and subjects the provisions of this bill to the contingent enactment of Senate Bill 174 of the 2019-20 Regular Session.

BACKGROUND

Existing law:

1. Establishes the Child Care and Development Services Act to provide childcare and development services as part of a coordinated, comprehensive, and cost-effective system serving children from birth to 13-years-old and their parents including a full range of supervision, health, and support services through full- and part-time programs. (Education Code § 8200 et seq.)
2. Defines “child care and development services” to mean services designed to meet a wide variety of children’s and families’ needs while parents and guardians are working, in training, seeking employment, incapacitated, or in need of respite and states that these services may include direct care supervision, instructional activities, resource and referral programs, and alternative payment arrangements. (EDC 8208 (j))
3. Requires the Superintendent to develop standards for the implementation of

quality programs and outlines indicator of quality to include, among other things, a physical environment that is age appropriate and meets applicable licensing standards, program activities and services that are age appropriate and meet the developmental needs of each child and program activities and services that meet the needs of children with exceptional needs and their families and other support services. (EC § 8203)

1. Requires general childcare and development programs, migrant childcare and development programs, campus childcare and development programs, state preschool programs, childcare and development services for children with special needs, infant care and development services programs and any other of these programs operated through family childcare homes to employ a program director and specifies the administrative and programmatic responsibilities of the director. (EC § 8244)
2. Requires persons employed as teachers, supervisors or program directors in state subsidized childcare and development programs are required to hold a permit issued by the Commission on Teacher Credentialing as specified. (EC § 8360 and 8360.1)
3. Requires persons employed as teachers in a child development program to possess a permit issued by the Commission on Teacher Credentialing authorizing service in the care, development, and instruction of children in a childcare and development program and further prescribes criteria to be eligible to serve in an instructional capacity in a program. (EC§ 8360)
4. Authorizes the Superintendent to adopt rules and regulations that provide clear guidelines for the selection of child development contracting agencies and to specify adequate standards of agency performance. (EC § 8261)
5. Requires the Superintendent to establish rules and regulations for the staffing of all center-based childcare and development programs under contract with the department, as provided. (EC § 8264.7)
6. Requires the Superintendent to implement a plan that establishes reasonable standards and assigned reimbursement rates for childcare and development services, to vary by length of program year and hours of service, and establishes amounts for, and provides for an annual cost-of-living adjustment to, the standard reimbursement rate. (EC § 8265)
7. Requires the Superintendent to implement a plan that establishes reasonable standards and assigned reimbursement rates for childcare and development services, to vary by length of program year and hours of service, and establishes amounts for, and provides for an annual cost-of-living adjustment to, the Standard Reimbursement Rate (SRR) for contracted providers, and provides for adjustments to the SRR per specified reimbursement factors. (EC § 8265, 8266.1)

8) Provides for the establishment of regional market rate (RMR) ceilings for

voucher-based childcare and states Legislative intent that childcare providers be reimbursed at the 85th percentile of the most recent regional market rate survey. (EC § 8222, 8357, 8447)

ANALYSIS

This bill:

Standard Reimbursement Rate System Plan

1. Modifies provisions that require the Superintendent to implement a plan to establish standards and assign reimbursement rates for subsidized childcare and development programs by, in addition to current law requirements, including in the assignment of reimbursement rates the following variables:
   1. Regional reimbursement ceiling, as prescribed.
   2. Quality adjustment factors to address the cost of staffing ratios, specified

in current law.

• 1. Any additional adjustment factors specified in current law.

1. Prescribes a deadline of November 10 to the requirement in current law that the reimbursement system plan be submitted to the Joint Legislative Budget Committee and requires that the plan additionally include methodology, county rate targets as required under the provisions of this bill, and the total statewide funding amount necessary to reach annual rate targets for all agencies.

Standard Reimbursement Rate target for contracting agencies.

1. Notwithstands current law relative to adjustment factors applied for age of the child and those with special circumstances and requires, by July 1, 2020, the department establish a reimbursement rate target for each contracting agency that meets quality standards as specified, based on all of the following elements:
   1. The regional market rate ceilings for the contracting agency’s county, as

applicable.

• 1. The quality adjustment factor for the age range of the children proposed to

be served by the contracting agency, as a multiplier specified in the bill.

• 1. The program year and hours of service reimbursement factor outlined

in the bill, if applicable.

• 1. Additional adjustment factors for special circumstances or services, as

provided under existing law.

1. Prohibits that a contracting agency’s rate target from being less than that agency’s 2018 rate, by age range.
2. Decreases the reimbursement factor from 55 percent to 50 percent of the standard reimbursement rate for childcare and development providers serving children for less than four hours per day.
3. Requires the department, in order to meet the costs of providing quality standards, as specified beyond those calculated in the regional market rate survey to establish quality adjustment factors by age ranges, as follows:
   1. 1.23 for infants who are 0 to 18 months of age.
   2. 1.23 for toddlers who are 18 to 36 months of age.
   3. 1.23 for preschoolers who are 36 months to six years of age.
   4. 1.03 schoolage children who are 6 years of age and older.
4. Requires the reimbursement system plan to include a formula for annually adjusting reimbursement rates for each contracting agency, based on all of the following:
   1. The annual Budget Act funding allocation for standard reimbursement rate

increases as specified.

• 1. An equitable distribution of standard reimbursement rate increases to

agencies, by county, as an equal percentage of the county outstanding rate target, for purposes of meeting the targets identified for a contracting agency, as specified in the bill.

• 1. Funding allocation for cost-of-living adjustments, if applicable.

Miscellaneous provisions

1. Creates sunset and operative provisions to clarify dates for new adjustment factors to avoid duplication of the specified adjustment factors.
2. Subjects the provisions of this bill to the contingent enactment of Senate Bill 174 of the 2019-20 Regular Session.

STAFF COMMENTS

1. Need for the bill. According to the author, “Currently, the state has two different reimbursement rate systems for early education providers, the SRR and the RMR. These rate systems are not aligned and have resulted in inequities in funding across the state. This proposal would create one reimbursement rate system based on the cost of providing care in different settings, recognizing regional cost differences and providing incentives for increased quality. The estimated cost of this proposal is between $550 million to $750 million and would be funded over eight years.

In the last four budget years, the state has increased slots for California State Preschool Program, General Child Care, and Alternative Payment Program. In order to make these slots viable, the state has to pay providers and teachers better. Childcare providers and early learning teachers are consistently and woefully underpaid. AB 125 will establish a single regionalized reimbursement rate system for subsidized childcare and preschool, which will ensure teachers and providers are paid better for the services provided.”

1. State-subsidized childcare. The state’s childcare and development services are delivered to eligible families through two categories of providers Title 22 and Title 5 providers. Title 22 (Alternative Payment Programs/Voucher) providers include licensed centers, licensed family childcare homes, and license-exempt care. The licensed programs must adhere to the requirements of Title 22 of the California Code of Regulations and are reimbursed at the levels that are based on RMR. Title 5 (direct service contracts) The California Department of Education contracts directly with several hundred agencies for licensed child care, through centers, Family Child Care Home Education Networks, and preschool. In addition to Title 22 licensing requirements, these providers must also adhere to the requirements of Title 5 of the California Code of Regulations and are reimbursed with the Standard Reimbursement Rate (SRR). Title 5 providers have the highest education, training, and health and safety standards. Yet, in some counties, providers with the lowest standards (license-exempt) are paid at a higher reimbursement rate than the Title 5 providers.
2. Provider Reimbursement Rates. California has established two methodologies for determining the reimbursement rates for childcare and development services:
   1. The Regional Market Rate (RMR). Title 22 providers are reimbursed at the RMR. The RMR is determined by the RMR survey and varies depending on the geographical location of the provider. The RMR is based on a survey of licensed centers and family childcare homes measuring childcare rates of similar socio-economic conditions. Rate ceilings are established for each county according to estimates of the 75th percentile of rates for the various types of childcare settings. The county rate ceilings are differentiated by the age of the child (infant, preschool, school age), full-day or part-day care, and frequency of care (days per week). Families may choose a childcare provider that charges a rate above the RMR, but the provider would only be reimbursed at the RMR. Current law requires the RMR survey to be updated every two years. The RMR is currently set to the 75th percentile of the 2016 RMR, thereby providing a lower rate than if based on the most recent survey. This formula is an attempt to ensure that low-income families can receive similar levels of childcare service as higher-income families in the same region.
   2. Standard Reimbursement Rate (SRR). Title 5 providers (General Child Care, Migrant Child Care and State Preschool) are reimbursed at the SRR, which is a specific rate established in statute. Childcare and development providers that contract directly with the California Department of Education (CDE) must meet Title 5 requirements in addition to those of Title 22. Title 5 programs contract with, and receive payments directly from, CDE. These programs receive the same reimbursement rate (depending on the needs of the child) no matter where in the state the program is located. As of July 2018, the SRR for preschool is $48.28 per child per day of enrollment and for childcare is $47.98 per child day of enrollment.

In addition to issues that arise with a bifurcated rates system, concerns have been raised over the years that provider reimbursement rates do not keep pace with the actual cost-of-living and reimbursements are insufficient to cover the cost of care and services particularly in counties where the cost-of-living is well beyond the state median.

This bill seeks to streamline the two systems by establishing a daily reimbursement rate that varies by county, which is composed of the assigned RMR ceiling for that county multiplied by quality-based factors generated to address the cost of staffing ratios depending on the age of the children served.

1. Related reports and recommendations. Two recent reports have cited the need for a streamlined reimbursement rate system that would be better aligned with the true cost of care and offer a simplified process for the administration of subsidized childcare services. These include the following:
   1. The First 5 California Rate Reform Stakeholder group whitepaper. Developing a Single-Rate System Reimbursement Structure for California (November 2018) – In this report the First 5 California workgroup authored a set of guiding principles and recommendations for development of a single, regionalized reimbursement rate system for childcare, preschool and early learning services. The report raised some concerns that state’s unaligned two-system approach for reimbursing subsidize care limits access, fails to maximize program quality and is forcing many childcare providers out of business in California. To that end, the report made several recommendations all of which are related to provisions of this bill. Those recommendations include:
      1. Regionalized the Standard Reimbursement Rate (SRR). To regionalize the SRR the state should do all of the following; 1) hold all providers harmless; 2) revise the regional market rate (RMR) survey methodology to aligned age groups across program standards; 3) create a new county SRR that reimburses all programs at the current RMR ceiling of their county, incentivize quality by providing additional adjustment factors for meeting higher quality standards and incentivize full-day programs; 4) Set annual targets and close gaps between each county’s current SRR and RMR through consistent rate increases across the state and; 5) evaluate changes to the system.

This bill requires the Superintendent to include the regional reimbursement ceiling in the assignment of reimbursement rates for subsidized childcare and additionally includes as a component of a contracting agencies target rate, the regional market rate ceiling for that agency’s county.

• • 1. Revise the Regional Market Rate (RMR)-Setting Methodology. To review the RMR setting methodology the state should do all of the following; 1) Set common age ranges and times of care; 2) incorporate a cost analysis to inform future rate-setting methodologies; 3) Refine the RMR survey and future rate-setting methodologies to address equity issues and maximize access for children in poverty and; 4) ensure that future rate surveys or alternative rate-setting process prioritize simplicity and use of real-time data.

This bill subjects the provisions of this bill to the contingent enactment of Senate Bill 174 (Leyva, 2019) which requires the department to update the regional market rate survey methodology to include age and service hours ranges that align with the SRR standards and account for the impact of contractors located in poverty areas. SB 174 also increases the regional market rate ceiling used to determine reimbursement for the cost of childcare for recipients of CalWORKs/Alternative Payment Programs.

• • 1. Incentivize and Compensate for Quality. To incentivize and compensate for quality, as it relates to this bill, the state should provide funding enhancements as well as establish and adhere to consistent measures of quality. See comment 5) of this analysis.
  1. Blue Ribbon Commission. California Assembly Blue Ribbon Commission on Early Childhood Education Report (March 2019). The Assembly Blue Ribbon Commission held a hearing on March 11, 2019 on its draft report regarding development of an early learning system that meets the needs of children, families, and providers. The commission asserts that the current funding for the system is outdated and the need for access to childcare continues to grow. The report provides numerous recommendations for topics within early childhood education, some of which are related rate reform and quality improvement. Within its recommendations for rate reform, the report notes that the commission concurs with the multi-step recommendations of the First 5 working group outlined in a) above.

1. Quality adjustment factor. Current law authorizes an adjustment increase in the Standard Reimbursement Rate, recognizing that there are higher costs to serve certain populations, including children with exceptional needs, severely disabled infants, toddlers, limited-English-speaking and children at risk of neglect, abuse, or exploitation. Further current law establishes standards for the implementation of quality programs and outlines indicators of quality that, among other things, range from various staffing requirements, and the condition of the physical environment to implementation of program activities that are age appropriate and meet the developmental needs of each child. This bill establishes a new adjustment factor for the age range of children who are served by childcare programs that meet designated quality standards for purposes of incorporating costs of meeting those standards into the reimbursement rate target for each contracting agency.
2. Related legislation.

SB 174 ( Leyva, 2019) Updates, contingent upon appropriation, calculations of the regional market rate (RMR) for providers of subsidized child care, establishes the “Quality Counts California Pilot Reimbursement Program,” contingent upon an appropriation, to provide higher reimbursement rates to alternative payment program (APP) providers for meeting certain quality standards, and subjects the provisions of this bill to the contingent enactment of Assembly Bill 125 of the 2019-20 Regular Session.

SUPPORT

California Alternative Payment Program Association

California Association for the Education of Young Children

California Coalition for Early Learning

California Family Resource Association (Sponsor)

California Federation of Teachers (Sponsor)

California Child Care Resource and Referral Network

California County Superintendents Educational Services Association

Child 360

Child Care Alliance of Los Angeles

Child Care Law Center

Child Care Resource Center

Children Now

Children’s Institute

City and County of San Francisco

CocoKids

Common Sense Kids Action

Early Edge California

Everychild California (Sponsor)

Fight Crime: Invest In Kids

First 5 Association of California

First 5 California (Sponsor)

First 5 LA

Head Start California

Kidango

League of Women Voters of California

Los Angeles Area Chamber of Commerce

Los Angeles County Office of Education

Los Angeles Unified School District

Mission:Readiness

MomsRising

Office of the Riverside County Superintendent of Schools

Readynation

Riverside County Public K-12 School District Superintendents

San Bernardino County District Advocates for Better Schools

San Francisco Human Services Agency

Santa Clara County Office of Education

SEIU California

Silicon Valley Community Foundation

The Child Abuse Prevention Center

UDW/AFSCME Local 3930

United Ways of California

OPPOSITION

None received

-- END --

ASSEMBLY THIRD READING

ATR Bill Id:AB 125

Author:(McCarty, et al.)

As Amended Ver:May 17, 2019

Majority vote

SUMMARY:

Revises the state's system and rates for reimbursing subsidized child care and development programs to create a more uniform reimbursement system reflecting regional costs of care, and establishes the "Quality Counts California Pilot Reimbursement Program" as a pilot program, contingent upon an appropriation, to provide higher reimbursement rates to alternative payment program (APP) providers for meeting certain quality standards.

Major Provisions

1. Requires the California Department of Education (CDE) to, by July 1, 2020, and each year thereafter, establish a reimbursement rate target for each contracting agency that meets quality standards, based on the following elements, as specified: the regional market rate ceilings for the agency's county; the quality adjustment factor proposed by provisions of this bill for the age range of children proposed to be served by the contracting agency, as a multiplier; the program year and hours of service reimbursement factor, if applicable; and, additional adjustment factors for special circumstances or services.
2. Requires CDE to establish the following quality adjustment factors by age range: 1.23 for infants who are 0 to 18 months old; 1.23 for toddlers who are 18 to 36 months old; 1.23 for preschoolers who are 36 months to 6 years old; and, 1.03 for schoolage children who are 6 years of age or older.
3. Requires the reimbursement system plan to include a formula for annually adjusting reimbursement rates for each agency, based on the following: the annual Budget Act funding allocated for standard reimbursement rate (SRR) increases, as specified; an equitable distribution of SRR increases to agencies, by county, as an equal percentage of the county outstanding rate target, for purposes of meeting the targets identified by provisions of this bill; and, funding allocated for cost-of-living adjustments, if applicable.
4. Deletes language requiring the regional market rate (RMR) to be at least at the 75th percentile of the 2016 RMR survey and, instead, requires the RMR to be at least the 75th percentile of the 2018 RMR survey until January 1, 2021, and the 85th percentile of the 2018 RMR survey thereafter.
5. Requires CDE to update the RMR survey methodology to include age ranges and hours of service ranges and to include direction for the survey to mitigate the impact of contractors located in deep-poverty census tracts on the market profile or county rate.
6. Requires CDE to create a "Quality Counts California Pilot Reimbursement Program," upon an appropriation in the annual Budget Act, intended to allow child care providers subject to RMRs to receive higher reimbursement rates and to meet higher quality standards for child development and sets forth requirements regarding this pilot program, including requiring CDE to select up to five APP child care systems to participate, as specified.

COMMENTS:

Reimbursement rates for subsidized child care: Two different sets of rate schedules apply to providers of subsidized child care. For programs utilizing vouchers, providers are reimbursed using a "regional market rate" (RMR). This rate is based on a biannual RMR survey of the cost of child care in various geographical regions across the state. Providers of contracted care – child care and development programs and California State Preschool Programs that contract directly with CDE, as opposed to voucher-based care – are reimbursed according to a uniform statewide rate system based on the standard reimbursement rate (SRR).

According to the Author:

"Currently, the state has two different reimbursement rate systems for early education providers: the Standard Reimbursement Rate (SRR) and the Regional Market Rate (RMR). These rate systems are not aligned and have resulted in inequities in funding across the state. The proposal would create one reimbursement rate system based on the cost of providing care in different settings, recognizing regional cost differences and providing incentives for increased quality. Recent amendments ensure that there are no budget year implications for the bill. In the last four budget years, the state has increased slots for California State Preschool Program (CSPP), General Child Care, and Alternative Payment Program. In order to make these slots viable, the state has to pay providers and teachers better. Child care providers and early learning teachers are consistently and woefully underpaid. [This bill] will establish a single regionalized reimbursement rate system for subsidized child care and preschool, which will ensure teachers and providers are paid better for the services provided."

Arguments in Support:

First 5 California, a co-sponsor of this bill, states that "…To address the problems of a bifurcated rate system, resource expenditure should be streamlined and expended in a way that: 1) compensates teachers and programs for the cost of providing care, 2) is responsive to the economic diversity of California, 3) recognizes the costs of meeting varying quality standards, regulations and contracting burdens, and, 4) incentivizes quality and participation in research-based quality improvement efforts as a means to improve child outcomes. [This bill] would establish a single regionalized state reimbursement rate system for child care, preschool, and early learning services that would achieve these four goals. Through these reforms, California can achieve a more equitable system to support children and families and maximize public benefit."

Arguments in Opposition:

None on file

FISCAL COMMENTS:

According to the Assembly Appropriations Committee, this bill may result in estimated costs of up to $750 million (General Fund [GF]) over eight years; this includes $80 million (GF) for a proposed cost-of-living adjustment and $63 million (GF) ongoing to implement the 2018 regional market rate (RMR) survey beginning January 1, 2020. (This proposal is also being considered in the Legislative budget process.)

VOTES:

ASM HUMAN SERVICES: 7-0-1

YES: Reyes, Mathis, Berman, Friedman, Gipson, Maienschein, Mark Stone

ABS, ABST OR NV: Choi

ASM EDUCATION: 7-0-0

YES: O'Donnell, Kiley, Kalra, McCarty, Smith, Voepel, Weber

ASM APPROPRIATIONS: 18-0-0

YES: Gonzalez, Bigelow, Bloom, Bonta, Brough, Calderon, Carrillo, Chau, Diep, Eggman, Fong, Gabriel, Eduardo Garcia, Maienschein, Obernolte, Petrie-Norris, Quirk, Robert Rivas

UPDATED:

VERSION: May 17, 2019

CONSULTANT: Daphne Hunt / HUM. S. / (916) 319-2089 FN: 0000962

Date of Hearing: May 8, 2019

ASSEMBLY COMMITTEE ON APPROPRIATIONS

Lorena Gonzalez, Chair

ABPCA Bill Id:AB 125

Author:(McCarty) – As Amended Ver:April 1, 2019

Urgency: No State Mandated Local Program: No Reimbursable: No

SUMMARY:

This bill establishes a single regionalized state reimbursement rate system for subsidized child care and development programs and establishes the “Quality Counts California Pilot Reimbursement Program” as a pilot program to provide higher reimbursement rates to alternative payment program providers (APP) for meeting certain quality standards.

FISCAL EFFECT:

Estimated costs of up to $750 million (GF) over eight years. This includes $80 million (GF) for a proposed cost-of-living adjustment (COLA) and $63 million (GF) ongoing to implement the 2018 regional market rate (RMR) survey beginning January 1, 2020.

(This proposal is also being considered in the Legislative budget process.)

COMMENTS:

1. Purpose. This bill seeks to create a more-equitable reimbursement structure across child care and development programs that is responsive to regional costs of care and reflective of other factors. According to the author:

Currently, the state has two different reimbursement rate systems for early education providers, the [standard reimbursement rate] SRR and the [regional market rate] RMR. These rate systems are not aligned and have resulted in inequities in funding across the state. This proposal would create one reimbursement rate system based on the cost of providing care in different settings, recognizing regional cost differences and providing incentives for increased quality. The estimated cost of this proposal is between $550 million to $750 million and would be funded over eight years.

In the last four budget years, the state has increased slots for California State Preschool Program, General Child Care, and Alternative Payment Program. In order to make these slots viable, the state has to pay providers and teachers better. Childcare providers and early learning teachers are consistently and woefully underpaid. AB 125 will establish a single regionalized reimbursement rate system for subsidized childcare and preschool, which will ensure teachers and providers are paid better for the services provided.

1. Reimbursement Rates. California has two different and unaligned systems for funding the state’s early learning services. Child care providers meeting Title 22 standards are reimbursed using a RMR that accounts for geographic economic cost factors, while directly state-contracted early learning centers that meet Title 5 standards, in addition to Title 22 standards, are reimbursed at a flat SRR. Observers suggest this unaligned, two-system approach limits access, fails to maximize program quality and is forcing many child care providers out of business in California. This bill would establish a single regionalized state reimbursement rate system for child care and is in line with recommendations of the Assembly Blue Ribbon Commission on Early Childhood Education.
2. Related legislation.

SB 174 (Leyva), of this legislative session, is identical to this bill. It is pending in the Senate Appropriations Committee.

AB 167 (B. Rubio), of this legislative session, creates the California Partnership for Infants and Toddlers to provide an additional $4,000 per child to those providers agreeing to provide full-day, full-year care and to meet the federal Head Start performance standards. The bill also expresses legislative intent to provide an additional 20,000 subsidized childcare slots for infants and toddlers.

AB 194 (Reyes), of this legislative session, requires $1 billion, upon appropriation, be made available to immediately improve access to alternative payment programs and general child care and development programs for the state’s eligible children and families in need.

AB 324 (Aguiar-Curry), of this legislative session, expands access to, and adopts revised standards related to, stipends designed to facilitate the professional development and retention of providers of high-quality subsidized child care.

1. Prior Legislation. AB 2125 (Ridley-Thomas), of the 2013-14 Legislative Session, would have required the SPI to review the plan that establishes standards and assigns reimbursement rates for child care and development programs and to submit recommendations for a single reimbursement system that reflects the actual current cost of child care based on the most recent regional market rate survey. It was held on the Senate Appropriations Committee’s Suspense File.

Analysis Prepared by: Jennifer Swenson / APPR. / (916) 319-2081

Date of Hearing: April 24, 2019

ASSEMBLY COMMITTEE ON EDUCATION

Patrick O'Donnell, Chair

ABPCA Bill Id:AB 125 (

Author:McCarty) – As Amended Ver:April 1, 2019

[Note: This bill was double referred to the Assembly Human Services Committee and was heard by that Committee as it relates to issues under its jurisdiction.]

SUBJECT: Early childhood education: reimbursement rates

SUMMARY: Revises the state’s system and rates for reimbursing subsidized child care and development programs to create a more uniform reimbursement system reflecting regional costs of care, and establishes the “Quality Counts California Pilot Reimbursement Program” as a pilot program to provide higher reimbursement rates to alternative payment program providers (APP) for meeting certain quality standards. Specifically, this bill:

1. Revises and recasts the requirement placed on the Superintendent of Public Instruction (SPI) to implement a reimbursement system plan establishing standards and reimbursement rates for subsidized child care and development programs by, in addition to current-law requirements:
   1. Specifying that the assigned reimbursement rates must vary with the regional reimbursement ceiling, as specified.
   2. Requiring the assigned reimbursement rates to vary with a quality adjustment factor to address the cost of staffing ratios, as specified.
   3. Stating that the assigned reimbursement rates must vary with an additional adjustment factors, as specified.
2. Requires the reimbursement system plan, including the methodology, standards, county rate targets established by the SPI, and the total statewide funding amount necessary to reach annual rate targets for all agencies, to be submitted to the Joint Legislative Budget Committee by November 10 of each year.

1. Requires the California Department of Education (CDE) to, by July 1, 2020, establish a reimbursement rate target for each contracting agency that meets quality standards, as specified, and any related regulations, based on the following elements:
   1. The regional market rate (RMR) ceilings for the agency’s county, as specified, if applicable.
   2. The quality adjustment factor, proposed by provisions of this bill, for the age range of children proposed to be served by the contracting agency, as a multiplier.
   3. The program year and hours-of-service reimbursement factor, as specified, if applicable.
   4. Additional adjustment factors for special circumstances or services, as specified in current law.
2. Prohibits a contracting agency’s rate target from being less than that agency’s 2017 rate, by age range.
3. Requires CDE, in order to meet the costs of providing quality standards, as specified, and any related regulations beyond those calculated in the regional market rate survey, to establish quality adjustment factors by age range, requiring the adjustment factors to be:
   1. 1.23 for infants who are zero to 18 months old.
   2. 1.23 for toddlers who are 18 to 36 months old.
   3. 1.23 for preschoolers who are 36 months to 6 years old.
   4. 1.03 for schoolage children who are 6 years of age or older.
4. Requires the reimbursement system plan to include a formula for annually adjusting reimbursement rates for each agency, based on the following:
   1. The annual Budget Act funding allocated for standard reimbursement rate (SRR) increases.
   2. An equitable distribution of SRR increases to agencies, by county, as an equal percentage of the county outstanding rate target, for purposes of meeting the targets identified by provisions of this bill.
   3. Funding allocated for cost-of-living adjustments, if applicable.
5. Reduces the reimbursement rate for child care and development providers serving children for less than four hours per day from 55% of the SRR to 50% of the SRR.
6. Requires the Regional Market Rate (RMR) to be at least the 85th percentile of the 2018 regional market rate survey for that region.
7. Prohibits the license-exempt provider rate from exceeding 70% of the commensurate rate, such as hourly, daily, weekly, and monthly, for both full-time and part-time care, as specified.
8. Requires CDE to contract to conduct a RMR survey once every two years with a goal of completion by March 1^st. Also requires the CDE to update the RMR survey methodology to include age ranges and hours-of-service ranges, pursuant to provisions of this bill, and to include direction for the survey to mitigate the impact of contractors located in deep-poverty census tracts on the market profile or county rate.
9. Requires the CDE to create a “Quality Counts California Pilot Reimbursement Program,” and states Legislative intent that this pilot program allow childcare providers subject to RMRs to receive higher reimbursement rates and to meet higher quality standards for child development, as specified.
10. Sets for the following requirements regarding the Quality Counts California Pilot Reimbursement Program:
    1. Requires the CDE to establish and measure quality standards, as specified, that must be met by childcare providers participating in the pilot program.
    2. Requires the CDE to select up to five alternative payment program (APP) childcare systems, representing the broad geographic diversity of the state and to participate in the pilot program.
    3. Requires each APP child care system selected by the CDE to participate in the pilot program to allow licensed child care providers serving at least a majority of children receiving subsidized child care, as specified, to participate.
11. Makes technical and conforming changes.

EXISTING LAW:

1. Establishes the “Child Care and Development Services Act” to provide childcare and development services as part of a coordinated, comprehensive, and cost-effective system serving children from birth to 13 years old and their parents, including a full range of supervision, health, and support services through full- and part-time programs. (EC 8200 et seq.)
2. Defines “childcare and development services” to mean services designed to meet a wide variety of children’s and families’ needs while parents and guardians are working, in training, seeking employment, incapacitated, or in need of respite and states that these services may include direct care supervision, instructional activities, resource and referral programs, and alternative payment arrangements. (EC 8208)
3. States the intent of the Legislature that all families have access to childcare and development services, through resource and referral where appropriate, and regardless of demographic background or special needs, and that families are provided the opportunity to attain financial stability through employment, while maximizing growth and development of their children and enhancing their parenting skills through participation in childcare and development programs. (EC 8202)
4. Requires the SPI to administer general childcare and development programs to include, among other things as specified, age- and developmentally-appropriate activities, supervision, parenting education and involvement, and nutrition. Further allows such programs to be designed to meet child-related needs identified by parents or guardians, as specified. (EC 8240 and 8241)
5. Requires families to meet certain criteria in order to be eligible for federal and state subsidized child development services, including that a family must be either a current aid recipient, income eligible, homeless, or one whose children are recipients of protective services or have been identified as being, or at risk of being, abused, or neglected, as specified. (EC 8263)
6. Requires the SPI to implement a plan that establishes reasonable standards and assigned reimbursement rates for childcare and development services, to vary by length of program year and hours of service, and establishes amounts for, and provides for an annual cost-of-living adjustment to, the SRR for contracted providers, and provides for adjustments to the SRR based upon specified reimbursement factors. (EC 8265 and 8266.1)
7. Provides for the establishment of Regional Market Rate (RMR) ceilings for voucher-based childcare, and states Legislative intent that childcare providers be reimbursed at the 85th percentile of the most recent RMR survey. (EC 8222, 8357, 8447)

FISCAL EFFECT: Unknown

COMMENTS: Need for the bill. According to the author, “Currently, the state has two different reimbursement rate systems for early education providers, the SRR and the RMR. These rate systems are not aligned and have resulted in inequities in funding across the state. This proposal would create one reimbursement rate system based on the cost of providing care in different settings, recognizing regional cost differences and providing incentives for increased quality. The estimated cost of this proposal is between $550 million to $750 million and would be funded over eight years.

In the last four budget years, the state has increased slots for California State Preschool Program, General Child Care, and Alternative Payment Program. In order to make these slots viable, the state has to pay providers and teachers better. Childcare providers and early learning teachers are consistently and woefully underpaid. AB 125 will establish a single regionalized reimbursement rate system for subsidized childcare and preschool, which will ensure teachers and providers are paid better for the services provided.”

Background. The main state and/or federally funded early care and education programs serving children and families in California include, but are not limited to, the following:

• General Child Care and Development Programs include center-based or family childcare home care, provide part or full-time care for children from 0-5 years and out-of-school care for school age children up to age 13 from income eligible families who have a need for care.
• Alternative Payment Programs (APP) provide voucher-based child care subsidies to low-income parents to access child care through a wide range of providers. Includes vouchers offered through California’s state welfare program, California Work Opportunity and Responsibility to Kids (CalWORKs), those for working families, as well as programs specifically for migrant children.
• California State Preschool Program (CSPP) provides center-based preschool for three and four year old children from income eligible families.
• Head Start and Early Head Start are federally-funded preschool and child development programs serving children from families with incomes below the federal poverty level, and offer education, child care, extensive family engagement, and wraparound services.

In the 2018-19 fiscal year, there are 182,347 subsidized childcare slots offered across the various programs, and 168,478 preschool slots through the CSPP.

Reimbursement rates: Two different sets of rate schedules apply to providers of subsidized childcare. For programs utilizing vouchers, which allow families to access child care through their choice of a licensed day care center, a licensed family child care home, or license-exempt child care (typically, care provided by a family, friend, or neighbor who has passed a background check), providers are reimbursed using the RMR. This rate is based on a biannual RMR survey of the cost of childcare in various geographical regions across the state. RMR rate ceilings are currently established at the 75th percentile of the 2016 RMR survey for a county, unless that ceiling is lower than the ceiling existing on December 31, 2017. RMR ceilings for license-exempt providers are set at the 70th percentile of a county’s established RMR ceiling for family child care homes. These rates vary significantly from one county to another, reflecting differences in the cost of care. This table illustrates differences in the full-time daily rate for children from birth to 24 months:

Providers of contracted care – childcare and development programs and CSPPs that contract directly with CDE, as opposed to voucher-based care – are reimbursed according to a uniform statewide rate system based on the SRR. The fiscal year 2018-19 SRR for General Child Care is $47.98 per child per day of enrollment or $11,995 per year based on 250 days of operation. However, acknowledging the higher costs associated with providing care to certain populations, state law provides for “adjustment factors” to be multiplied by child days of enrollment to arrive at an adjusted SRR. For example, the adjustment factor for infants (birth to 18 months) is currently 2.07, meaning that the per-child-per-day SRR is $47.98 times 2.07 – or, $99.32. The adjustment factor will be 2.44 for the 2019-20 fiscal year.

Differing standards. Voucher programs funded under the RMR are required to meet Title 22 standards, while direct contracted programs must meet both Title 22 as well as Title 5 requirements. The additional requirements under Title 5 include lower adult-to-child ratios, increased staff education and training, and child assessments, all of which contribute to higher costs. The current reimbursement system funds these programs with higher standards at a lower rate with no consideration for regional cost differences. The per child SRR rate, regardless of county or provider costs, is still about two dollars less than the lowest county RMR in the state.

Assembly Blue Ribbon Commission on Early Childhood Education: The Assembly Blue Ribbon Commission on Early Childhood Education (BRC) was established with the intent to “plan an early learning system that works for/meets the needs of children, families, and providers.” The BRC, consisting of members appointed from the Assembly and stakeholders, began its work in early 2017, holding quarterly hearings and establishing subcommittees. Quarterly hearings and subcommittee meetings continued during 2018, and work was done to develop BRC recommendations. On March 11, 2019, draft recommendations were released. One set of recommendations was related to reimbursement rates, concluding that:

The BRC concurs with the multi-step Recommendations of the Reimbursement Rates Working Group convened by First 5 to establish a framework in which all subsidized programs shall be reimbursed on the same regionalized pay scale which tiers up for quality. Recommendations include implementation of comprehensive rate reform through a multistep process:

1. First, bridge the SRR and the RMR together. Then reform the RMR survey methodology to create a tiered reimbursement system that can incentivize and reimburse for quality and quality improvement efforts across different program types and incentivize full day programs. Throughout this multistep process, all programs should be held harmless.
2. Address equity issues by refining the RMR survey and future rate-setting methodologies. The use of socio-demographic characteristics to set rates through market profiles exacerbates inequality and institutionalizes low reimbursement rates for providers that serve children and families in low-income counties.
3. Move towards a heavier emphasis on the true cost of providing quality child care, preschool, and early learning experiences.

Arguments in support. First 5 California states that “California has two different and unaligned systems for funding the state’s early learning services. Child care providers meeting Title 22 standards are reimbursed using a RMR that accounts for geographic economic cost factors, while directly state-contracted early learning centers that meet Title 5 standards, in addition to Title 22 standards, are reimbursed at a flat SRR. This unaligned, two-system approach limits access, fails to maximize program quality, and is forcing many child care providers out of business in California.

To address the problems of a bifurcated rate system, resource expenditure should be streamlined and expended in a way that: 1) compensates teachers and programs for the cost of providing care, 2) is responsive to the economic diversity of California, 3) recognizes the costs of meeting varying quality standards, regulations, and contracting burdens, and 4) incentivizes quality and participation in research-based quality improvement efforts as a means to improve child outcomes.

AB 125 would establish a single regionalized state reimbursement rate system for child care, preschool, and early learning services that would achieve these four goals. Through these reforms, California can achieve a more equitable system to support children and families and maximize public benefit.”

Prior and related legislation. SB 174 (Leyva) of 2019 is currently identical to this bill. SB 174 is pending in the Senate Education Committee.

AB 2125 (Ridley-Thomas) of the 2013-14 Session would have required the SPI to review the plan that establishes standards and assigns reimbursement rates for child care and development programs, and to submit recommendations for a single reimbursement system that reflects the actual current cost of child care based on the most recent regional market rate survey. AB 2125 was held in the Senate Appropriations Committee.

REGISTERED SUPPORT / OPPOSITION:

Support

California Alternative Payment Program Association
California Children And Families Commission
California Coalition For Early Learning
California Family Resource Association
California Federation of Teachers
Cambridge Community Center
Child Care Alliance of Los Angeles
Child Care Resource Center
Child360
Children And Families Commission of Los Angeles County
Children Now
Community Child Care Council of Sonoma County
Early Edge California
EveryChild California
First 5 California
First 5 Lake County
First 5 Sacramento
First 5 San Benito
First 5 San Bernardino
First 5 Santa Clara County
Fraser Communications
League of Women Voters Of California
Los Angeles County Office of Education
Oakland Unified School District
Office of The Riverside County Superintendent Of Schools
Riverside County Public K-12 School District Superintendents
United Domestic Workers Of America-AFSCME Local 3930/AFL-CIO

Opposition

None on file

Analysis Prepared by: Debbie Look / ED. / (916) 319-2087

Date of Hearing: April 9, 2019

ASSEMBLY COMMITTEE ON HUMAN SERVICES

Eloise Gómez Reyes, Chair

ABPCA Bill Id:AB 125 (

Author:McCarty) – As Amended Ver:April 1, 2019

SUBJECT: Early childhood education: reimbursement rates

SUMMARY: Revises the state’s system and rates for reimbursing subsidized child care and development programs to create a more uniform reimbursement system reflecting regional costs of care, and establishes the “Quality Counts California Pilot Reimbursement Program” as a pilot program to provide higher reimbursement rates to alternative payment program (APP) providers for meeting certain quality standards. Specifically, this bill:

1. Revises and recasts the requirement placed on the Superintendent to implement a plan establishing standards and reimbursement rates for subsidized child care and development programs by, in addition to current-law requirements:
   1. Specifying that the assigned reimbursement rates must vary with the regional reimbursement ceiling, as specified;
   2. Requiring the assigned reimbursement rates to vary with a quality adjustment factor to address the cost of staffing ratios, as specified;
   3. Stating that the assigned reimbursement rates must vary with an additional adjustment factors, as specified; and,
   4. Adding a deadline of November 10 to the requirement in current law that the reimbursement system plan be submitted to the Joint Legislative Budget Committee and requiring the plan to additionally contain methodology, county rate targets as required pursuant to the provisions of this bill, and the total statewide funding amount necessary to reach annual rate targets for all agencies.
2. Requires the California Department of Education (CDE) to, by July 1, 2020, establish a reimbursement rate target for each contracting agency that meets quality standards, as specified, and any related regulations, based on the following elements:
   1. The regional market rate ceilings for the agency’s county, as specified, if applicable;
   2. The quality adjustment factor, proposed by provisions of this bill, for the age range of children proposed to be served by the contracting agency, as a multiplier;
   3. The program year and hours of service reimbursement factor, as specified, if applicable; and,
   4. Additional adjustment factors for special circumstances or services, as specified in current law.
3. Prohibits a contracting agency’s rate target from being less than that agency’s 2017 rate, by age range.
4. Requires CDE, in order to meet the costs of providing quality standards, as specified, and any related regulations beyond those calculated in the regional market rate survey, to establish quality adjustment factors by age range, requiring the adjustment factors to be:
   1. 1.23 for infants who are 0 to 18 months old;
   2. 1.23 for toddlers who are 18 to 36 months old;
   3. 1.23 for preschoolers who are 36 months to 6 years old; and,
   4. 1.03 for schoolage children who are 6 years of age or older.
5. Requires the reimbursement system plan to include a formula for annually adjusting reimbursement rates for each agency, based on the following:
   1. The annual Budget Act funding allocated for standard reimbursement rate (SRR) increases, as specified;
   2. An equitable distribution of SRR increases to agencies, by county, as an equal percentage of the county outstanding rate target, for purposes of meeting the targets identified by provisions of this bill; and,
   3. Funding allocated for cost-of-living adjustments, if applicable.
6. Reduces the reimbursement rate for child care and development providers serving children for less than four hours per day from 55% of the SRR to 50% of the SRR.
7. Deletes language requiring the regional market rate (RMR) to be at least at the 75th percentile of the 2016 regional market rate survey and, instead, requires the RMR to be at least the 85th percentile of the 2018 regional market rate survey.
8. Deletes language prohibiting the reimbursement rate for license-exempt child care providers from exceeding 70% of the family child care home rate and, instead, prohibits the license-exempt provider rate from exceeding 70% of the commensurate rate, such as hourly, daily, weekly, and monthly, for both full-time and part-time care, as specified.
9. Requires CDE to update the RMR survey methodology to include age ranges and hours of service ranges, pursuant to provisions of this bill, and to include direction for the survey to mitigate the impact of contractors located in deep-poverty census tracts on the market profile or county rate.
10. Requires CDE to create a “Quality Counts California Pilot Reimbursement Program”, and states Legislative intent that this pilot program allow child care providers subject to RMRs to receive higher reimbursement rates and to meet higher quality standards for child development, as specified.
11. Sets for the following requirements regarding the Quality Counts California Pilot Reimbursement Program:
    1. Requires CDE to establish and measure quality standards, as specified, that must be met by child care providers participating in the pilot program;
    2. Requires CDE to select up to five alternative payment program (APP) child care systems, representing the broad geographic diversity of the state and as specified, to participate in the pilot program; and,
    3. Requires each APP child care system selected by CDE to participate in the pilot program to allow licensed child care providers serving at least a majority of children receiving subsidized child care, as specified, to participate.
12. Makes technical and conforming changes.

EXISTING LAW:

1. Establishes the “Child Care and Development Services Act” to provide child care and development services as part of a coordinated, comprehensive, and cost-effective system serving children from birth to 13 years old and their parents including a full range of supervision, health, and support services through full- and part-time programs. (Education Code [EDC] Section 8200 et seq.)
2. Defines “child care and development services” to mean services designed to meet a wide variety of children’s and families’ needs while parents and guardians are working, in training, seeking employment, incapacitated, or in need of respite and states that these services may include direct care supervision, instructional activities, resource and referral programs, and alternative payment arrangements. (EDC 8208 (j))
3. States the intent of the Legislature that all families have access to child care and development services, through resource and referral where appropriate, and regardless of demographic background or special needs, and that families are provided the opportunity to attain financial stability through employment, while maximizing growth and development of their children, and enhancing their parenting skills through participation in child care and development programs. (EDC 8202)
4. Requires the Superintendent of Public Instruction to administer general child care and development programs to include, among other things as specified, age- and developmentally-appropriate activities, supervision, parenting education and involvement, and nutrition. Further allows such programs to be designed to meet child-related needs identified by parents or guardians, as specified. (EDC 8240 and 8241)
5. Requires families to meet certain criteria in order to be eligible for federal and state subsidized child development services, including that a family must be either a current aid recipient, income eligible, homeless, or one whose children are recipients of protective services or have been identified as being, or at risk of being, abused, or neglected, as specified. (EDC 8263)
6. Requires the Superintendent of Public Instruction to implement a plan that establishes reasonable standards and assigned reimbursement rates for child care and development services, to vary by length of program year and hours of service, and establishes amounts for, and provides for an annual cost-of-living adjustment to, the SRR for contracted providers, and providers for adjustments to the SRR per specified reimbursement factors. (EDC 8265, 8266.1)
7. Provides for the establishment of RMR ceilings for voucher-based child care and states Legislative intent that child care providers be reimbursed at the 85th percentile of the most recent regional market rate survey. (EDC 8222, 8357, 8447)

FISCAL EFFECT: Unknown

COMMENTS:

Subsidized child care and development: Paying for child care can place significant financial stress on many families, particularly those with lower incomes. The average cost in California of child care in a family child care home for an infant in 2014 was $8,462 ($705 per month). The average annual cost for an infant in child care centers in 2014 was $13,327 ($1,111 per month). The state’s subsidized child care system offers services to families with parents or guardians who are working, in training, seeking employment, experiencing homelessness, incapacitated, or in need of respite. Generally, families are eligible for subsidized child care if they meet income-related and other requirements, such as having a need related to work, training, or education, and having children who are under 13 years old (or under 22 years old if they have exceptional needs). Parents are currently income-eligible if they earn incomes less than 70% of the most recent state median income (SMI) when first applying – up to $54,027 per year for a family of 3, and less than 85% of the most recent SMI – up to $65,604 per year for a family of 3 – when renewing eligibility. Beginning on July 1 of this year, as a result of the adoption of AB 2626 (Mullin), Chapter 945, Statutes of 2018, all families – whether applying for or renewing their eligibility for subsidized child care – can have incomes less than 85% of the SMI in order to qualify.

Subsidized child care can be obtained through three main types of providers, depending on which program is being used. These types of providers include licensed child care centers, licensed family child care homes, and license-exempt providers (for example, family members, neighbors, or friends).

The three main subsidized child care programs are:

• California Work Opportunity and Responsibility to Kids (CalWORKs) child care, for parents who receive or have received CalWORKs. CalWORKs child care can be provided in either centers, family child care homes, or license-exempt settings and is paid for using vouchers;
• Alternative Payment Programs (APPs), which offers families vouchers that allow them to choose their own child care in either centers, family child care homes, or license-exempt settings; and,
• General Child Care, which is provided through contracted centers and family child care home networks that are administered through private or public agencies and offer child care, education, and development services.

For eligible three-and four-year-olds, the state also offers California state preschool programs (CSPPs), which provide services that include developmentally appropriate curriculum, parent education, meals and snacks, and referral to social and health services for families. CSPP operates on either a part-day or full-day basis and can be offered in a number of different settings, including child care centers, family child care network homes, school districts, or county offices of education. Teachers in CSPPs must have a Child Development Teacher Permit, including 24 units in early childhood education and/or child development and 16 general education units.

In Fiscal Year 2018-19, there are approximately 210,000 subsidized child care slots offered across the various programs (including 137,000 CalWORKs, 45,000 Alternative Payment, and 28,000 General Child Care slots) as well as over 170,000 CSPP (103,000 part-day and 67,000 full-day) and 90,000 Transitional Kindergarten slots. The state’s current capacity to provide adequate affordable child care services is far below what is required to meet families’ needs across California. A January 2019 analysis by the California Budget and Policy Center stated that, “In 2017, just 1 in 9 children eligible for subsidized child care and development programs in California were enrolled in a program that could accommodate families for more than a couple hours per day and throughout the entire year.”

Reimbursement rates: Two different sets of rate schedules apply to providers of subsidized child care. For programs utilizing vouchers, which allow families to access child care through their choice of a licensed day care center, a licensed family child care home, or license-exempt child care (typically, care provided by a family, friend, or neighbor who has passed a background check), providers are reimbursed using a “regional market rate” (RMR). This rate is based on a biannual regional market rate (RMR) survey of the cost of child care in various geographical regions across the state. RMR rate ceilings are currently established at the 75th percentile of the 2016 RMR survey for a county (unless that ceiling is lower than the ceiling existing on December 31, 2017). RMR ceilings for license-exempt providers are set at the 70th percentile of a county’s established RMR ceiling for family child care homes. For example, the current maximum reimbursement in San Bernardino County for a child 0 to 24 months old in a child care center setting is $77 per day. The maximum reimbursement for the same age range in a family child care home in San Bernardino County is $48 per day, and for license-exempt providers, it is $33 per day.

Providers of contracted care – child care and development programs and CSPPs that contract directly with CDE, as opposed to voucher-based care – are reimbursed according to a uniform statewide rate system based on the standard reimbursement rate (SRR). The fiscal year (FY) 2018-19 SRR for General Child Care is $47.98 per child per day of enrollment or $11,995 per year based on 250 days of operation. However, acknowledging the higher costs associated with providing care to certain populations, state law (Education Code Section 8265.5) provides for “adjustment factors” to be multiplied by child days of enrollment to arrive at an adjusted SRR. For example, the adjustment factor for infants (0 to 18 months) is currently 2.07, meaning that the per-child-per-day SRR is $47.98 times 2.07 – or, $99.32. (Note that this adjustment factor is prorated per recent changes adopted in the AB 1808 [Committee on Budget], Chapter 32, Statutes of 2018; the adjustment factor will be 2.44 for the 2019-20 fiscal year.)

Assembly Blue Ribbon Commission on Early Childhood Education: The Assembly Blue Ribbon Commission on Early Childhood Education (BRC) was established with the intent to “plan an early learning system that works for/meets the needs of children, families, and providers.” The BRC, consisting of members appointed from the Assembly and the community, began its work in early 2017, holding quarterly hearings and establishing subcommittees. Quarterly hearings and subcommittee meetings continued during 2018, and work was done to develop BRC recommendations. On March 11, 2019, draft recommendations were released. One set of recommendations was related to reimbursement rates, with the report stating that, “The BRC concurs with the multi-step Recommendations of the Reimbursement Rates Working Group convened by First 5 to establish a framework in which all subsidized programs shall be reimbursed on the same regionalized pay scale which tiers up for quality. Recommendations include implementation of comprehensive rate reform through a multistep process: 1) First, bridge the standard reimbursement rate (SRR) and the regional market rate (RMR) together. Then reform the RMR survey methodology to create a tiered reimbursement system that can incentivize and reimburse for quality and quality improvement efforts across different program types and incentivize full day programs. Throughout this multistep process, all programs should be held harmless; 2) Address equity issues by refining the RMR survey and future rate-setting methodologies. The use of socio-demographic characteristics to set rates through market profiles exacerbates inequality and institutionalizes low reimbursement rates for providers that serve children and families in low-income counties; and, 3) Move towards a heavier emphasis on the true cost of providing quality child care, preschool, and early learning experiences.”

Need for this bill: The state’s subsidized child care and development system provides a range of programs to meet the needs of various families. This is a strength of the system, offering parents choice among care options in order to best meet their particular needs. However, providers across this range of programs are paid according to two different methodologies, which results in disparate rates being paid to them. All child care programs must meet licensing requirements established in Title 22 of the California Code of Regulations and overseen by CDSS, while subsidized child care centers must also meet requirements established in Title 5 of the California Code of Regulations and overseen by CDE. These contracted centers are paid according to the statewide SRR, while voucher-based care (CalWORKs and APP) is reimbursed using the more regionally-responsive RMR. This bill seeks to create a more equitable reimbursement structure across child care and development programs that is responsive to regional costs of care and reflective of other factors, such as varying staff ratios by age group of children being cared for.

The Child Care Resource Center, a sponsor of this bill, states that “California currently has a mixed delivery system that provides child care, preschool and early learning services for the state’s youngest learners. California is strengthened by its ability to provide parents with a choice when it comes to selecting the early learning experiences that are most appropriate for their children and family’s unique needs. However, California has two different and unaligned systems for funding the state’s early learning services: child care providers meeting Title 22 standards are reimbursed using a Regional Market Rate (RMR) that accounts for geographic economic cost factors, while directly state-contracted early learning centers that meet both Title 5 and Title 22 standards are reimbursed at a flat Standard Reimbursement Rate (SRR). This unaligned, two-system approach limits access, fails to maximize program quality and forces many child care providers out of business in California.

To address the problems of a bifurcated rate system, resource expenditure should be streamlined and expended in a way that: 1) compensates teachers and programs for the cost of providing care, 2) is responsive to the economic diversity of California, 3) recognizes the costs of meeting varying quality standards, regulations and contracting burdens, and, 4) incentivizes quality and participation in research-based quality improvement efforts as a means to improve child outcomes. [This bill] would establish a single regionalized state reimbursement rate system for the state’s mixed delivery system that achieves these four goals. Through these reforms, California can achieve a more equitable system to support children and families and maximize public benefit.”

According to the author, “Currently, the state has two different reimbursement rate systems for early education providers, the Standard Reimbursement Rate (SRR) and the Regional Market Rate (RMR). These rate systems are not aligned and have resulted in inequities in funding across the state. The proposal would create one reimbursement rate system based on the cost of providing care in different settings, recognizing regional cost differences and providing incentives for increased quality. The estimated cost of this proposal is between $550 million to $750 million and would be funded over eight years.

“In the last four budget years, the state has increased slots for California State Preschool Program (CSPP), General Child Care, and Alternative Payment Program. In order to make these slots viable, the state has to pay providers and teachers better. Child care providers and early learning teachers are consistently and woefully underpaid. [This bill] will establish a single regionalized reimbursement rate system for subsidized child care and preschool, which will ensure teachers and providers are paid better for the services provided.”

Double referral: This bill will be referred to the Assembly Education Committee should it pass out of this committee.

RELATED AND PRIOR LEGISLATION:

SB 174 (Leyva) of 2019 is currently identical to this bill. SB 174 is set to be heard in the Senate Education Committee on April 24, 2019.

AB 2125 (Ridley-Thomas) of 2014 would have required the Superintendent of Public Instruction to review the plan that establishes standards and assigns reimbursement rates for child care and development programs, and to submit recommendations for a single reimbursement system that reflects the actual current cost of child care based on the most recent regional market rate survey. AB 2125 was held on the Senate Appropriations Committee’s suspense file.

REGISTERED SUPPORT / OPPOSITION:

Support

First 5 California (Sponsor)

California Federation of Teachers (Sponsor)
Child Care Resource Center (Sponsor)

California Alternative Payment Program Association
California Coalition for Early Learning
California Family Resource Association
Child Care Alliance of Los Angeles
Children Now
Community Child Care Council of Sonoma County
EveryChild California
First 5 LA
First 5 Lake County
First 5 Sacramento
First 5 San Benito
First 5 San Bernardino
First 5 Santa Clara County
Fraser Communications
UDW/AFSCME Local 3930
United Domestic Workers Of America-AFSCME Local 3930/AFL-CIO

Opposition

None on file

Analysis Prepared by: Daphne Hunt / HUM. S. / (916) 319-2089