Date of Hearing: July 10, 2019

ASSEMBLY COMMITTEE ON EDUCATION

Patrick O'Donnell, Chair

SBPCA Bill Id:SB 174

Author:(Leyva) – As Amended Ver:June 13, 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.]

SENATE VOTE: 38-0

SUBJECT: Early childhood education: reimbursement rates

SUMMARY: Requires, subject to an appropriation, that specified providers of subsidized childcare be reimbursed based upon an updated regional market rate (RMR) as of January 1, 2021; establishes the “Quality Counts California Pilot Reimbursement Program,” to provide higher reimbursement rates to alternative payment program (APP) providers for meeting certain quality standards; and makes the enactment of this bill contingent upon the enactment of AB 125 of this Session. Specifically, this bill:

1. Makes the following changes, provided an annual appropriation is made for these purposes:
   1. Deletes language requiring the 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,
   2. Requires, as of January 1, 2021, the RMR to be at least the 85th percentile of the 2018 RMR survey.
2. Changes from March 1 of each year to December 1 of each year the following:
   1. The date by which the Department of Finance is required to provide the California Department of Education (CDE) with the state median income amount for a four-person household in California using specified methodology; and,
   2. The goal completion date of the RMR survey for which CDE contracts to have conducted and completed once every two years.
3. Requires the CDE to update the RMR survey methodology to include age ranges and hours of service ranges, as specified.
4. Requires the CDE to create a “Quality Counts California Pilot Reimbursement Program,” upon an appropriation in the annual Budget Act, and expresses the intent of the Legislature to allow childcare providers subject to RMRs to receive higher reimbursement rates and to meet higher quality standards for child development, as specified.
5. Sets forth 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 APP childcare systems, as specified, representing the broad geographic diversity of the state, to participate in the pilot program; and,
   3. Requires each APP childcare system selected by the CDE to participate in the pilot program to allow licensed childcare providers serving at least a majority of children receiving subsidized childcare, as specified, to participate.
6. Stipulates that the provisions of this bill shall become operative only if Assembly Bill 125 of this Session is enacted and becomes effective on or before January 1, 2020.
   
7. 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. (Education Code (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. Requires the Superintendent of Public Instruction (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)
4. 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)
5. 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 Standard Reimbursement Rate (SRR) for contracted providers, and provides for adjustments to the SRR based upon specified reimbursement factors. (EC 8265 and 8266.1)
6. Establishes 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, two separate unaligned systems for reimbursing child care providers limit access, fail to maximize program quality and force many child care providers out of business. While some providers receive a rate based on factors such as geographical location and regional cost of child care, other providers that meet higher standards receive a flat rate regardless of location and cost of doing business. To address the problems created by the current rate system, resource expenditures should be streamlined and spent in a way that: Compensates teachers and programs for the cost of providing care, are responsive to the economic diversity of California, recognizes the costs of meeting varying quality standards, and incentivizes high standards and participation in research-based quality improvement efforts. SB 174 and AB 125 will equalize the rates so that California can achieve a more equitable system to support children and families, while at the same time keeping more provider doors open and improving access to child care.”

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

1. 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.
2. Alternative Payment Programs (APP) provide voucher-based childcare subsidies to low-income parents to access childcare 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.
3. California State Preschool Program (CSPP) provides center-based preschool for three- and four-year-old children from income eligible families, or who are otherwise eligible.
4. 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, childcare, 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 the 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.

Lower reimbursements for higher quality. Voucher programs funded under the RMR, including the Alternative Payment Program providers, are required to meet Title 22 standards, while direct contracted programs, including general childcare centers, 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.

The BRC issued a final report in April 2019. The report notes that the BRC concurs with the recommendations of the Reimbursement Rates Working Group convened by First 5 California, “to implement comprehensive rate reform through a multi-step process. The recommendations are moving towards a heavier emphasis on the true cost of providing quality childcare, preschool, and early learning experiences and address equity issues by refining the RMR survey and future rate-setting methodologies.” The BRC final report included the following recommendations:

1. In the long-term, the reimbursement rates for Title 5 and Title 22 programs should include competitive compensation that increases with quality improvement.
2. In the near term, the reimbursement rates for Family, Friend, and Neighbor (FFN), or license-exempt care, should meet or exceed the state minimum wage.
3. Prioritize analysis of the costs, and as necessary, provide additional incentives to increase access for targeted children and families, including children with disabilities, infants and toddlers, children in childcare deserts including rural areas, those requiring care during nontraditional hours and children entering care through the crisis fund.

Arguments in support. First 5 LA states, “Currently, California has a complex, bifurcated reimbursement system that inadequately compensates early learning providers for the true cost of care. Moreover, some programs that are required to meet higher quality standards are reimbursed at lower rates than programs held to less stringent requirements. This has led to a system in which quality improvement efforts are dis-incentivized and providers are not compensated in a manner that reflects the true cost of care—both of which negatively impact program quality for children. SB 174 would incentivize quality improvement efforts by providing early learning programs with financial incentivizes to engage in activities such as continuing education, professional development, and implementing higher quality standards as a means of improving child outcomes. We believe that SB 174 will help to ensure that the state’s early learning workforce is properly compensated and supported for the invaluable role it plays in the growth and development of our youngest Californians.”

Related legislation. AB 125 (McCarty) of this Session revises the state’s system and rates for reimbursing subsidized childcare and development programs to create a more uniform reimbursement system reflecting regional costs of care; and is contingent upon the enactment of SB 174 (Leyva) of this Session.

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

Alameda County Board of Supervisors
Alameda; County of
California Alternative Payment Program Association
California Association For The Education of Young Children
California Child Care Coordinators Association
California Children and Families Commission
California Coalition For Early Learning
California Family Resource Association
California Federation of Teachers
California State Council of Service Employees
California State PTA
Child Care Alliance of Los Angeles
Child Care Resource Center
Child360
Children and Families Commission of Los Angeles County
City And County of San Francisco
Common Sense Kids Action
Community Child Care Council of Sonoma County
Early Edge California
Everychild California
Fight Crime: Invest In Kids
First 5 Association of California
First 5 California
First 5 Del Norte
First 5 Kern
First 5 La
First 5 Lake County
First 5 Monterey County
First 5 Sacramento
First 5 San Benito
First 5 San Bernardino
First 5 Santa Clara County
First 5 Solano Children and Families Commission
Fraser Communications
Los Angeles County Office of Education
Los Angeles Unified School District
Mission: Readiness
Oakland Unified School District
Readynation
Riverside County Public K-12 School District Superintendents

Riverside County Superintendent Of Schools
San Bernardino County District Advocates For Better Schools (Sandabs)
San Francisco Child Care Planning And Advisory Council
San Francisco Human Services Agency
Santa Clara County Office Of Education
United Domestic Workers Of America-AFSCME Local 3930/AFL-CIO
Valley Industry and Commerce Association

Numerous individuals

Opposition

None on file

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

Date of Hearing: June 18, 2019

ASSEMBLY COMMITTEE ON HUMAN SERVICES

Eloise Gómez Reyes, Chair

SBPCA Bill Id:SB 174

Author:(Leyva) – As Amended Ver:June 13, 2019

SENATE VOTE: 38-0

SUBJECT: Early childhood education: reimbursement rates

SUMMARY: 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. Specifically, this bill:

1. Makes the following changes, provided an annual appropriation, as specified, is made for these purposes:
   1. 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,
   2. Requires, as of January 1, 2021, the RMR to be at least the 85th percentile of the 2018 RMR survey, as specified.
2. Changes from March 1 of each year to December 1 of each year the following:
   1. The date by which the Department of Finance is required to provide the California Department of Education (CDE) with the state median income (SMI) amount for a four-person household in California using specified methodology; and,
   2. The goal completion date of the RMR survey for which CDE contracts to have conducted and completed.
3. Requires CDE to update the RMR survey methodology to include age ranges and hours of service ranges, as specified, 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.
4. 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, as specified.
5. Sets forth 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 APP child care systems, as specified, representing the broad geographic diversity of the state, 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.
6. Stipulates that the provisions of this bill shall become operative only if Assembly Bill 125 of the 2019-20 Regular Session is enacted and becomes effective on or before January 1, 2020.
   
7. 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 the RMR. This rate is based on a biannual 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 FY.)

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: Voucher-based subsidized child care (CalWORKs and APP) is reimbursed using the RMR, which, while regionally responsive, is currently based on outdated regional market rate survey data. This bill seeks to calculate the RMR based on more current data and to create a pilot project that invests in providers of voucher-based care, and in the achievement of quality standards in that care, across the state.

According to the author, “Currently, two separate unaligned systems for reimbursing child care providers limit access, fail to maximize program quality and force many child care providers out of business. While some providers receive a rate based on factors such as geographical location and regional cost of child care, other providers that meet higher standards receive a flat rate regardless of location and cost of doing business. To address the problems created by the current rate system, resource expenditures should be streamlined and spent in a way that: Compensates teachers and programs for the cost of providing care, are responsive to the economic diversity of California, recognize the costs of meeting varying quality standards and incentivize high standards and participation in research-based quality improvement efforts. By equalizing the rates, California can achieve a more equitable system to support children and families, while at the same time keeping more provider doors open and improving access to child care.”

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

RELATED AND PRIOR LEGISLATION:

AB 125 (McCarty) of 2019 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,” contingent upon an appropriation, to provide higher reimbursement rates to APP providers for meeting certain quality standards. AB 125 is currently awaiting hearing in the Senate Education Committee.

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

Child Care Resource Center (Sponsor)
First 5 California (Sponsor)
UDW/AFSCME Local 3930 (Sponsor)
6 Private Citizens
California Alternative Payment Program Association
California Child Care Coordinators Association
California Coalition for Early Learning
California Federation of Teachers
City and County of San Francisco
EveryChild California
First 5 LA
Fraser Communications
Los Angeles County Office of Education
San Francisco Human Services Agency
Valley Industry and Commerce Association

Opposition

None on file

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

 THIRD READING  

Bill No: SB 174

Author: Leyva (D)

Amended: 5/17/19

Vote: 21

SENATE EDUCATION COMMITTEE: 7-0, 4/24/19

AYES: Leyva, Wilk, Chang, Durazo, Glazer, McGuire, Pan

SENATE APPROPRIATIONS COMMITTEE: 6-0, 5/16/19

AYES: Portantino, Bates, Bradford, Hill, Jones, Wieckowski

SUBJECT: Early childhood education: reimbursement rates

SOURCE: Child Care Resource Center

EveryChild California

First 5 California

DIGEST:

This bill modifies the state’s system and rates for reimbursing subsidized child care and development programs by creating 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. This bill also makes its provisions subject to an appropriation.

ANALYSIS:

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 § 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)
4. 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)
5. Requires persons employed as teachers, supervisors or program directors in state subsidized childcare and development programs to hold a permit issued by the Commission on Teacher Credentialing (CTC) as specified. (EC § 8360 and 8360.1)
6. Requires persons employed as teachers in a child development program to possess a permit issued by the CTC 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)
7. 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)
8. 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)
9. Requires the Superintendent 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 standard reimbursement rate. (EC § 8265)
10. Requires the Superintendent 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 Standard Reimbursement Rate (SRR) for contracted providers, and provides for adjustments to the SRR per specified reimbursement factors. (EC § 8265, 8266.1)
11. Provides for the establishment of regional market rate (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. (EC § 8222, 8357, 8447)

This bill:

Standard Reimbursement Rate System Plan for Contracting Agencies

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.
   3. Any additional adjustment factors specified in current law.
2. 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.
3. Specifies, the reimbursement system plan provide for adjusting reimbursement on a case-by-case basis, in order to maintain service levels for agencies rather than for those agencies currently at a rate less than the standard reimbursement rate as prescribed in current law.

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, and annually thereafter 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.
   2. 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.
   3. The program year and hours of service reimbursement factor outlined in this bill, if applicable.
   4. Additional adjustment factors for special circumstances or services, as provided under existing law.
2. Prohibits that a contracting agency’s rate target from being less than that agency’s 2018 rate, by age range as specified.
3. 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.
4. 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 for schoolage children who are 6 years of age and older.
5. 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.
   2. 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 this bill.
   3. Funding allocation for cost-of-living adjustments, if applicable.

Regional Market Rate ceiling and license-exempt rate adjustment for CalWORKs/ Alternative Payment Providers

1. Increases the regional market rate ceiling used to determine reimbursement for the cost of childcare for recipients of CalWORKs programs from the 75th percentile of the 2016 regional market rate survey to 85th percentile of the 2018 rate for that region commencing after January 1, 2021.
2. Modifies, as of January 1, 2021, the computation for reimbursement to license-exempt providers by requiring that reimbursement to license-exempt childcare providers not exceed 70 percent of the commensurate daily, hourly, weekly and monthly rate, for full-time and part-time care established according to the regional market rate ceilings, in lieu of 70 percent of the family childcare rate.

RMR Survey Methodology

1. Strikes provisions specifying that the department contract to conduct and complete a regional market survey that is consistent with federal regulations, instead, requires that the survey be conducted pursuant to current state law.
2. Requires that the department conduct and complete a regional market rate survey no more frequently than once every two years, with a goal of completion by March 1.
3. Requires the department to update the regional market rate survey methodology to include:
   1. Age ranges and hours of service ranges specified in this bill.
   2. Direction for the survey to mitigate the impact of contractors located in deep-poverty census tracts on the market profile or county rate.

Quality Counts California Pilot Reimbursement Program

1. Requires, upon an appropriation in the annual Budget Act, the department to create a Quality Counts California Pilot Reimbursement Program and states Legislature’s intent that the pilot program allows childcare providers subject to regional market rate (RMR) receive higher reimbursement rates that are consistent with the standard reimbursement rate (SRR) and to meet higher quality standards for child development, as specified.
2. Requires that the department select up to five alternative payment program childcare systems, to participate in the pilot program and that these systems be representative of the broad geographic diversity of the state.
3. Requires that each alternative payment program childcare system selected by the department to participate in the pilot program allow licensed childcare providers serving at least a majority of children receiving subsidized childcare services to participate.
4. Makes other technical and non-substantive changes.

Sunset and Operative Provisions

1. Creates sunset and operative provisions to clarify dates for new adjustment factors to avoid duplication of the specified adjustment factors.
2. Makes the bill’s provisions are subject to an appropriation in the annual Budget Act or any other statute.

Comments

1. Need for the bill. California currently has a mixed delivery system that provides childcare, preschool, and early learning services for the state’s youngest learners. Specifically, it has two different and unaligned systems for reimbursing early learning services. Child care providers meeting Title 22 standards are reimbursed using a Regional Market Rate 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 Standard Reimbursement Rate.

According to the author, “This bifurcated rate system and inadequate reimbursement rates complicate efforts to fund and deliver high-quality early care and education (ECE) programs that meet the developmental needs of all children while addressing the health, safety, and wellbeing of the children being served. This current structure and overall lack of funding limit California’s ability to increase teacher compensation, adequately resource ECE programs, and incentivize quality improvement efforts, ultimately limiting access and forcing many childcare providers out of business.” This bill seeks to establish a single regionalized reimbursement rate system for childcare, preschool, and early learning services that would recognize the true cost of providing care including the costs associated with meeting quality standards.

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 child care 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 providers 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 and proposes to establish a daily reimbursement rate that varies by county, composed of 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. See committee analysis for details.
2. 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.

Related/Prior Legislation

AB 125 (McCarty, 2019) is identical to this bill. AB 125 is pending hearing in the Assembly Committee on Education.

FISCAL EFFECT: Appropriation: No Fiscal Com.: Yes Local: No

According to the Senate Appropriations Committee, “while the bill’s provisions would be contingent upon an appropriation, this bill could result in the following General Fund cost pressures:

• Approximately $768 million at full implementation to increase the regional market rate (RMR) ceiling used to determine reimbursement for the cost of childcare from the current ceiling (75^th percentile of the 2016 RMR survey) to the 85^th percentile of the 2018 RMR.
• $22.3 million to increase the ceiling for license exempt hourly care to the 85^th percentile of the 2018 survey.
• Approximately $1.6 million in administrative costs and the equivalent of six positions to CDE over a two-year period.”

SUPPORT: (Verified 5/20/19)

Child Care Resource Center (co-source)

EveryChild California (co-source)

First 5 California (co-source)

California Alternative Payment Program Association

California Children and Families Commission

California Family Resource Association

California Federation of Teachers

California State Council of Service Employees

Child Care Alliance of Los Angeles

Child360

Children and Families Commission Of Los Angeles County

Common Sense Kids Action

Community Child Care Council Of Sonoma County

Early Edge California

First 5 Lake County

First 5 Sacramento

First 5 San Benito

First 5 San Bernardino

First 5 Santa Clara County

First 5 Solano Children And Families Commission

Los Angeles County Office of Education

Los Angeles Unified School District

Oakland Unified School District

United Domestic Workers of America-AFSCME Local 3930/AFL-CIO

OPPOSITION: (Verified 5/20/19)

None received

Prepared by: Olgalilia Ramirez / ED. /

5/20/19 18:19:36

**** END ****

SENATE COMMITTEE ON APPROPRIATIONS

Senator Anthony Portantino, Chair

2019 - 2020 Regular Session

SB 174 (Leyva) - Early childhood education: reimbursement rates

Bill Summary:

This bill requires the California Department of Education (CDE) to implement a reimbursement system plan that establishes reasonable standards and assigned reimbursement rates that would vary with additional factors, as specified, including a quality adjustment factor to address the cost of staffing ratios. This bill also establishes the “Quality Counts California Pilot Reimbursement Program” to provide higher reimbursement rates to alternative payment program (APP) providers for meeting certain quality standards.

*********** ANALYSIS ADDENDUM – SUSPENSE FILE ***********

The following information is revised to reflect amendments

adopted by the committee on May 16, 2019

Fiscal Impact:

While the bill’s provisions would be contingent upon an appropriation, this bill could result in the following General Fund cost pressures:

• Approximately $768 million at full implementation to increase the regional market rate (RMR) ceiling used to determine reimbursement for the cost of childcare from the current ceiling (75^th percentile of the 2016 RMR survey) to the 85^th percentile of the 2018 RMR.
• $22.3 million to increase the ceiling for license exempt hourly care to the 85^th percentile of the 2018 survey.
• Approximately $1.6 million in administrative costs and the equivalent of six positions to CDE over a two-year period.

Author Amendments: Create sunset and operative provisions to clarify dates for new adjustment factors to avoid the doubling of factors and other clarifying changes.

Committee Amendments:

Provide that the bill’s provisions are subject to an appropriation.

-- END --

SENATE COMMITTEE ON APPROPRIATIONS

Senator Anthony Portantino, Chair

2019 - 2020 Regular Session

SB 174 (Leyva) - Early childhood education: reimbursement rates

Bill Summary:

This bill requires the California Department of Education (CDE) to implement a reimbursement system plan that establishes reasonable standards and assigned reimbursement rates that would vary with additional factors, as specified, including a quality adjustment factor to address the cost of staffing ratios. This bill also establishes the “Quality Counts California Pilot Reimbursement Program” to provide higher reimbursement rates to alternative payment program (APP) providers for meeting certain quality standards.

Fiscal Impact:

The CDE estimates the following General Fund costs:

• Approximately $768 million at full implementation to increase the regional market rate (RMR) ceiling used to determine reimbursement for the cost of childcare from the current ceiling (75^th percentile of the 2016 RMR survey) to the 85^th percentile of the 2018 RMR.
• $22.3 million to increase the ceiling for license exempt hourly care to the 85^th percentile of the 2018 survey.
• Approximately $1.6 million in administrative costs and the equivalent of six positions 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 requires the CDE to implement a reimbursement system plan that establishes reasonable standards and assigned reimbursement rates that would vary with additional factors, as specified, including a quality adjustment factor to address the cost of staffing ratios.

This bill establishes a deadline of November 10 for the reimbursement system plan to 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 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 CDE to establish a reimbursement rate target for each contracting agency that meets quality standards as specified, based on all of the certain elements, including the regional market rate ceilings for the contracting agency’s county, as applicable.

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

This bill requires the reimbursement system plan to include a formula for annually adjusting reimbursement rates for each contracting agency, as specified.

This bill increases the regional market rate ceiling used to determine reimbursement for the cost of childcare for recipients of CalWORKs programs from the 75^th percentile of the 2016 regional market rate survey to 85^th percentile of the 2018 rate for that region.

This bill modifies the computation for reimbursement to license-exempt providers by requiring that reimbursement to license-exempt childcare providers not exceed 70 percent of the commensurate daily, hourly, weekly and monthly rate, for full-time and part-time care established according to the regional market rate ceilings, in lieu of 70 percent of the family childcare rate.

This bill requires CDE to conduct and complete a regional market rate survey no more frequently than once every two years, with a goal of completion by March 1, and update the regional market rate survey methodology, as specified.

This bill requires CDE to create a Quality Counts California Pilot Reimbursement Program and states legislative intent that the pilot program allows childcare providers subject to RMR receive higher reimbursement rates that are consistent with the standard reimbursement rate (SRR) and to meet higher quality standards for child development, as specified.

This bill requires that CDE select up to five alternative payment program childcare systems, to participate in the pilot program and that these systems be representative of the broad geographic diversity of the state, and that each alternative payment program childcare system selected by the department to participate in the pilot program allow licensed childcare providers serving at least a majority of children receiving subsidized childcare services to participate.

Related Legislation:

AB 125 (McCarty, 2019) is similar to this bill and is pending in the Assembly Appropriations Committee.

AB 2125 (Ridley-Thomas, 2014) similar to this bill, 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 failed passage in the Senate Appropriations Committee.

-- END --

SENATE COMMITTEE ON EDUCATION

Senator Connie Leyva, Chair

2019 - 2020 Regular

Bill No: SB 174 Hearing Date: April 24, 2019

Subject: Early childhood education: reimbursement rates.

SUMMARY

This bill modifies the state’s system and rates for reimbursing subsidized child care and development programs by creating 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.

BACKGROUND

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 § 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 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 standard reimbursement rate. (EC § 8265)
7. Requires the Superintendent 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 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 child care and states Legislative intent that child care 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 for Contracting Agencies

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 2017 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.

Regional Market Rate ceiling and license-exempt rate adjustment for CalWORKs/ Alternative Payment Providers

1. Increases the regional market rate ceiling used to determine reimbursement for the cost of childcare for recipients of CalWORKs programs from the 75^th percentile of the 2016 regional market rate survey to 85^th percentile of the 2018 rate for that region.
2. Modifies the computation for reimbursement to license-exempt providers by requiring that reimbursement to license-exempt childcare providers not exceed 70 percent of the commensurate daily, hourly, weekly and monthly rate, for full-time and part-time care established according to the regional market rate ceilings, in lieu of 70 percent of the family childcare rate.

RMR Survey Methodology.

1. Strikes provisions specifying that the department contract to conduct and complete a regional market survey that is consistent with federal regulations, instead, requires that the survey be conducted pursuant to current state law.
2. Requires that the department conduct and complete a regional market rate survey no more frequently than once every two years, with a goal of completion by March 1.
3. Requires the department to update the regional market rate survey methodology to include:
   1. Age ranges and hours of service ranges specified in this bill.
   2. Direction for the survey to mitigate the impact of contractors located in

deep-poverty census tracts on the market profile or county rate.

Quality Counts California Pilot Reimbursement Program.

1. Requires the department to create a Quality Counts California Pilot Reimbursement Program and states Legislature’s intent that the pilot program allows childcare providers subject to regional market rate (RMR) receive higher reimbursement rates that are consistent with the standard reimbursement rate (SRR) and to meet higher quality standards for child development, as specified.
2. Requires that the department select up to five alternative payment program childcare systems, to participate in the pilot program and that these systems be representative of the broad geographic diversity of the state.
3. Requires that each alternative payment program childcare system selected by the department to participate in the pilot program allow licensed childcare providers serving at least a majority of children receiving subsidized childcare services to participate.
4. Makes other technical and non-substantive changes.

STAFF COMMENTS

1. Need for the bill. California currently has a mixed delivery system that provides childcare, preschool, and early learning services for the state’s youngest learners. Specifically, it has two different and unaligned systems for reimbursing early learning services. Child care providers meeting Title 22 standards are reimbursed using a Regional Market Rate 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 Standard Reimbursement Rate.

According to the author, “This bifurcated rate system and inadequate reimbursement rates complicate efforts to fund and deliver high-quality early care and education (ECE) programs that meet the developmental needs of all children while addressing the health, safety, and wellbeing of the children being served. This current structure and overall lack of funding limit California’s ability to increase teacher compensation, adequately resource ECE programs, and incentivize quality improvement efforts, ultimately limiting access and forcing many childcare providers out of business.” This bill seeks to establish a single regionalized reimbursement rate system for childcare, preschool, and early learning services that would recognize the true cost of providing care including the costs associated with meeting quality standards.

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 child care 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 providers 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 and proposes to establish a daily reimbursement rate that varies by county, composed of 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 child care, 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 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. This bill 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 the state, as it relates to this bill, should do all of the following; 1) provide funding enhancements; 2) establish and adhere to consistent measures of quality; 3) communicate with parents and providers about quality; and 4) develop a sustainable and scalable statewide system.

This bill requires the Superintendent to also include as a variable in the assigned reimbursement rates quality adjustment factors to address the cost of staffing ratio and additionally include as a component of a contracting agencies target rate, the quality adjustment factor for the age of the child served by the program. This bill additionally proposes a pilot program that would provide higher reimbursement rates to alternative payment program providers that choose to participate for meeting certain quality standards.

• 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 and prior legislation.

AB 125 (McCarty, 2019) is identical to this bill. AB 125 is pending hearing in the Assembly Committee on Education.

AB 2125 (Ridley-Thomas, 2014) similar to this bill, 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 placed on suspense in the Senate Appropriations Committee.

SUPPORT

California Alternative Payment Program Association

California Children and Families Commission

California Family Resource Association

California Federation of Teachers

California State Council of Service Employees

Child Care Alliance of Los Angeles

Child Care Resource Center

Child360

Children and Families Commission of Los Angeles County

Common Sense Kids Action

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

First 5 Solano Children And Families Commission

Los Angeles County Office of Education

Oakland Unified School District

United Domestic Workers of America-AFSCME Local 3930/AFL-CIO

OPPOSITION

None received

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