(1)Existing law, the Early Education Act, among other things, requires the Superintendent of Public Instruction to administer all California state preschool programs, including, but not limited to, part-day and full-day age and developmentally appropriate programs for 3- and 4-year-old children. Existing law, the Child Care and Development Services Act, administered by the State Department of Social Services, establishes a system of child care and development services for children up to 13 years of age. Existing law requires the department, in collaboration with the State Department of Education, to implement a reimbursement system plan that establishes reasonable standards and assigned reimbursement rates, as specified. Existing law requires the state and Child Care Providers United - California to establish a Joint Labor Management Committee to develop recommendations for a single reimbursement rate structure that has specified characteristics, and requires the Joint Labor Management Committee to present those recommendations to the Department of Finance no later than November 15, 2022. Existing law also requires the department, in consultation with the State Department of Education, to convene a working group to assess the existing quality standards for childcare and development and preschool programs and the methodology for establishing reimbursement rates for those programs, and requires the working group to provide recommendations relating to specified topics to a specified Joint Labor Management Committee, the Department of Finance, and the Joint Legislative Budget Committee no later than August 15, 2022.

This bill would require the State Department of Social Services, in collaboration with the State Department of Education, to develop an alternative methodology for calculating subsidy payment rates for child care and development services and California state preschool program services that build upon and align with the recommendations of the working group and Joint Labor Management Committee, and that uses a cost estimation model, as specified. The bill would require the department to develop an interim transition plan, if necessary, to implement the alternative methodology, as specified, and to seek preapproval from the United States Department of Health and Human Services to amend the states current Child Care and Development Fund State Plan to change its current methodology for determining childcare and development and preschool subsidy payment rates to the alternative methodology. The bill would require the State Department of Social Services and the State Department of Education to implement the alternative methodology upon notice by the State Department of Social Services notice, in writing, to the Legislature that it has adopted the alternative methodology. the alternative methodology has been adopted, as specified.

(2)Existing law requires the State Department of Social Services, in consultation with the State Department of Education, to establish a fee schedule for families using preschool and child care and development services and requires families who utilize those services to be assessed a family fee that is based on income, certified family need for full-time or part-time care services, and enrollment. Existing law prohibits those family fees from exceeding 10% of the familys monthly income and prohibits family fees from being collected for the 202223 fiscal year.

The bill would require the State Department of Social Services, in consultation with the State Department of Education, to develop an equitable sliding scale for the payment of family fees, and would suspend the collection of family fees until the new equitable sliding scale is implemented.

(3)The Early Education Act requires the Superintendent of Public Instruction to adopt rules, regulations, and guidelines to facilitate the funding and reimbursement required by the act. Existing law requires, for the 202223 fiscal year only, contracting agencies operating a California state preschool to be reimbursed 100% of the contract maximum reimbursable amount or net reimbursable program costs, whichever is less, if they meet specified criteria.

This bill would delete the requirement that the above-described reimbursement rate apply only during the 202223 fiscal year, thereby extending that reimbursement rate for contracting agencies operating a California state preschool indefinitely. The bill would also delete the requirement of meeting specified criteria in order to obtain that reimbursement rate.

Existing law requires reimbursement for full-day and part-day California state preschool family childcare home education network providers for the 202223 fiscal year to be based on the maximum certified hours of care for all families, including families certified for a variable schedule, regardless of attendance.

This bill would delete the requirement that the above-described reimbursement provision apply during the 202223 fiscal year, thereby extending that reimbursement provision for full-day and part-day California state preschool family childcare home education network providers indefinitely.

(4)Existing law requires the State Department of Social Services to contract with local contracting agencies for alternative payment programs for childcare services to be provided throughout the state. Existing law requires the alternative payment program to reimburse childcare providers based upon specified criteria, including the actual days and hours of attendance for those families with variable schedules. Existing law also requires the department to administer general childcare and development programs, as specified.

This bill would instead require the alternative payment program to reimburse childcare providers based on the maximum certified hours of care, as specified. The bill would require contracting agencies operating those general childcare and development programs to be reimbursed the lesser of 100% of the contract maximum reimbursable amount or net reimbursable program costs.

(1)Existing law, the Early Education Act, among other things, requires the Superintendent of Public Instruction to administer all California state preschool programs, including, but not limited to, part-day and full-day age and developmentally appropriate programs for 3- and 4-year-old children. Existing law, the Child Care and Development Services Act, administered by the State Department of Social Services, establishes a system of child care and development services for children up to 13 years of age. Existing law requires the department, in collaboration with the State Department of Education, to implement a reimbursement system plan that establishes reasonable standards and assigned reimbursement rates, as specified. Existing law requires the state and Child Care Providers United - California to establish a Joint Labor Management Committee to develop recommendations for a single reimbursement rate structure that has specified characteristics, and requires the Joint Labor Management Committee to present those recommendations to the Department of Finance no later than November 15, 2022. Existing law also requires the department, in consultation with the State Department of Education, to convene a working group to assess the existing quality standards for childcare and development and preschool programs and the methodology for establishing reimbursement rates for those programs, and requires the working group to provide recommendations relating to specified topics to a specified Joint Labor Management Committee, the Department of Finance, and the Joint Legislative Budget Committee no later than August 15, 2022.

This bill would require the State Department of Social Services, in collaboration with the State Department of Education, to develop an alternative methodology for calculating subsidy payment rates for child care and development services and California state preschool program services that build upon and align with the recommendations of the working group and Joint Labor Management Committee, and that uses a cost estimation model, as specified. The bill would require the department to develop a transition methodology an interim transition plan, if necessary, to implement the alternative methodology, and to seek preapproval from the United States Department of Health and Human Services to amend the states current Child Care and Development Fund State Plan to change its current methodology for determining childcare and development and preschool reimbursement subsidy payment rates to the alternative methodology. The bill would require the State Department of Social Services and the State Department of Education to implement the alternative methodology upon notice by the State Department of Social Services to the Legislature that it has adopted the alternative methodology.

(2)Existing law requires the State Department of Social Services, in consultation with the State Department of Education, to establish a fee schedule for families using preschool and child care and development services and requires families who utilize those services to be assessed a family fee that is based on income, certified family need for full-time or part-time care services, and enrollment. Existing law prohibits those family fees from exceeding 10% of the familys monthly income and prohibits family fees from being collected for the 202223 fiscal year.

The bill would require the State Department of Social Services, in consultation with the State Department of Education, to develop an equitable sliding scale for the payment of family fees, and would suspend the collection of family fees until the new equitable sliding scale is implemented.

Existing law requires the State Department of Social Services to administer the federal Child Care and Development Fund, and requires the department to develop an expenditure plan that sets forth the final priorities for childcare, as required by federal law. Existing law also requires the department, in consultation with the State Department of Education, to convene a working group to assess the existing quality standards for childcare and development and preschool programs and the methodology for establishing reimbursement rates for those programs, and requires the working group to provide recommendations relating to specified topics to a specified Joint Labor Management Committee, the Department of Finance, and the Joint Legislative Budget Committee no later than August 15, 2022.

This bill would require the department to apply to the United States Department of Health and Human Services to amend the states current Child Care and Development Fund State Plan to change its current methodology for determining childcare development and preschool reimbursement rates to an alternative methodology that is consistent with the recommendations of the above-mentioned working group.

SENATE COMMITTEE ON

Senator Anthony Portantino, Chair

2023 - 2024 Regular Session

AB 596 (Reyes) - Early learning and care: rate reform

Bill Summary:

AB 596 would require the California Department of Social Services (CDSS), in collaboration with the California Department of Education (CDE), to develop and implement an alternative methodology for calculating subsidy payment rates for child care services and state preschool program services; require CDSS, in consultation with CDE, to develop an equitable sliding scale for the payment of family fees and prohibit family fees from being collected until the new equitable sliding scale is implemented; and increase reimbursements to state preschool and child care providers, as specified.

Fiscal Impact:

• The CDE estimates unknown costs for rate increases from transitioning to the alternative rate methodology. The CDE estimates that waiving family fees would cost approximately $30.8 million annually ($16.3 million in Proposition 98 and $14.5 million of non-Proposition 98 funding), and that funding would be necessary to cover the cost of waived family fees. CDE estimates costs of $1,821,000 in 2024-25, $1,816,000 in 2025-26, and $316,000 in 2026-27 and ongoing thereafter for state administration (General Fund). Staff notes these estimates are based on the current version of AB 596, which does not account for the recent changes to law (see below).
• Unknown, likely significant ongoing General Fund costs for CDSS-administered programs, related to rate increases and waiving family fees; and unknown ongoing General Fund costs for CDSS for state administration.

Background:

The CDE administers state preschool programs which provide age and developmentally appropriate programs designed to facilitate the transition to kindergarten for three- and four-year-old children in educational development, health services, social services, nutritional services, parent education and parent participation, evaluation, and staff development. The CDSS administers numerous child care and development programs, including, but not limited to, CalWORKs child care, alternative payment programs that provide vouchers for eligible families, and center-based direct-contract child care programs.

AB 116 (Committee on Budget, Chapter 41, Statutes of 2023), among other provisions, included the following:

• Enacts permanent family fee reform beginning October 1, 2023. Under the new family fee structure, families below 75 percent of state median income will pay no fee for subsidized child care, and families at or above 75 percent state median income will pay fees capped at one percent of monthly income.
• Removes the statutory cost-of-living adjustment for child care and state preschool programs, and states legislative intent to adjust reimbursement rates for all programs subject to a ratified agreement and future legislation.
• Requires the CDSS, in collaboration with the CDE, to develop and conduct an alternative methodology to inform the setting of reimbursement rates for subsidized child care. Requires the alternative methodology to build on the recommendations of the Rate and Quality workgroup convened in 2022 and the recommendations of the Joint Labor Management Committee of the state and Child Care Providers United. States the intent of the Legislature to utilize an alternative methodology to inform the setting of reimbursement rates for subsidized child care. States that reimbursement rates are subject to agreement and codification by the Legislature.
• Provides that all child care providers shall be reimbursed at 100 percent of the contract maximum reimbursable amount or net reimbursable program costs, whichever is less, through September 30, 2023.

Proposed Law:

Specific provisions of the bill would:

• Require CDSS/CDE to develop and implement an alternative methodology for calculating subsidy payment rates for child care services and state preschool program services, as specified.
• Require CDSS/CDE to develop an interim transition plan, if necessary, to implement the alternative methodology by increasing the various rates from their current level to the alternative methodology level over time as funds are appropriated for these purposes in the annual Budget Act. Require CDSS/CDE to fully implement the alternative methodology commencing in 2027-28.
• Require any funding provided in the Budget Act of 2023 to increase reimbursement rates to be distributed using the interim transition plan, if it has been developed, until the alternative methodology is adopted.
• Require funding and subsidy payments for child care providers to be based on enrollment of certified children with the contract rates set using the alternative methodology.
• Require CDSS/CDE to review and update this new alternative methodology every three years.
• Require CDSS/CDE to seek preapproval from the U.S. Department of Health and Human Services to amend the state’s current Child Care and Development Fund State Plan to change its current methodology for determining child care and preschool payment rates to an alternative methodology, as provided; and require the application for preapproval be submitted no sooner than 30 days after notification in writing to the Joint Legislative Budget Committee, or not sooner than whatever lesser time the chairperson of the joint committee, or their designee, determines is appropriate.
• Require the CDSS/CDE to develop an equitable sliding scale for the payment of family fees and prohibit family fees from being collected until the new equitable sliding scale is established and implemented.
• Require child care program contracting agencies to be reimbursed 100 percent of the contract maximum reimbursable amount or net reimbursable program costs, whichever is less.
• Require alternative payment program providers, including license-exempt providers, to be reimbursed based on the maximum certified hours of care, regardless of attendance, as specified.

Related Legislation: SB 380 (Limon, 2023) is similar to this bill. The bill is currently in the Assembly Appropriations Committee.

Staff Comments: The author may want to consider amendments to address the overlap/conflict with provisions in AB 116.

-- END --

SENATE COMMITTEE ON EDUCATION

Senator Josh Newman, Chair

2023 - 2024 Regular

Bill No: Hearing Date: July 5, 2023

Subject: .

SUMMARY

This bill 1) increases reimbursements to state preschools, general child care, and alternative payment providers; 2) requires the California Department of Social Services (DSS), in collaboration with the California Department of Education (CDE), to develop, and requires DSS and CDE to implement an alternative methodology for calculating subsidy payment rates for child care services and state preschool program services; 3) requires DSS, in consultation with CDE, to develop an equitable sliding scale for the payment of family fees; and, 4) prohibits family fees from being collected until the new equitable sliding scale is established and implemented.

BACKGROUND

Existing law:

Reimbursement rates

1. Requires DSS and CDE to implement a reimbursement system plan that establishes reasonable standards and assigned reimbursement rates, which vary with the length of the program year and the hours of service. (Education Code (EC) § 8242 and Welfare and Institutions Code (WIC) § 10280)
   
2. Requires the reimbursement rates for full-day state preschool to be adjusted by the following reimbursement factors:
   
   1. Prior to January 1, 2022, providers serving children between 4 to 6.5 hours per day, the reimbursement factor is 75 percent of the Standard Reimbursement Rate (SRR; see # 4 below).
      
   2. Prior to January 1, 2022, providers serving children between 6.5 to 10.5 hours per day, the reimbursement factor is 100 percent of the SRR.
      
   3. For providers serving children for 10.5 hours or more per day, the reimbursement factor is 118 percent of the SRR. (EC § 8245)
3. Requires the reimbursement rates for state preschool contracting agencies, for the 2022–23 fiscal year only, to be reimbursed 100 percent of the contract maximum reimbursable amount or net reimbursable program costs, whichever is less. (EC § 8245.5)
4. Establishes, beginning July 1, 2021, the SRR to be $12,888 and requires, beginning with the 2022-23 fiscal year, that the SRR be increased by the cost-of-living adjustment granted by the Legislature. (WIC § 10280(b))
   
5. Requires the cost of child care services for recipients of the California Work Opportunity and Responsibility to Kids Program (CalWORKs) be governed by regional market rates and defines “regional market rate” as care costing no more than 1.5 market standard deviations above the mean cost of care for that region. (WIC § 10374.5(a))
   
6. Establishes, beginning January 1, 2022, the Regional Market Rate (RMR) ceilings at the greater of: the 75th percentile of the 2018 RMR survey for that region; or, the RMR ceiling that existed in that region on December 31, 2021. (WIC § 10374.5(b)(2))
   
7. Requires, beginning January 1, 2022, contractors who, as of December 31, 2021, received the SRR to be reimbursed at the greater of the following: the 75th percentile of the 2018 RMR survey; or, the contract per-child reimbursement amount as of December 31, 2021. (WIC § 10280(c)(1))
   
8. Requires the Governor and the Child Care Providers Union to establish a Joint Labor Management Committee (JLMC) to develop recommendations for a single reimbursement rate structure that addresses quality standards for equity and accessibility while supporting positive learning and developmental outcomes for children. (WIC § 10280.2(a))
   
9. Requires DSS, in consultation with CDE, to convene a working group separate from the JLMC to assess the methodology for establishing reimbursement rates and the existing quality standards for child care and development and preschool programs, as specified. (WIC § 10280.2(b))

Family fees

1. Requires parent fees paid for the state preschool program to be used to pay reasonable and necessary costs for providing additional services and further specifies how parent fees for all state subsidized early childhood services and state preschool can be used and assessed by the Superintendent of Public Instruction (SPI) in conjunction with DSS, as specified. (EC § 8242 and § 8252 et seq.)
   
2. Requires DSS, in consultation with CDE, to establish a fee schedule for families using preschool and child care and development services, and requires families to be assessed a single flat monthly fee for all state-subsidized services based on income, certified family need for full-time or part-time care, and enrollment (families fees shall not be based on actual attendance). (WIC § 10290)
   
3. Requires DSS to design the new family fee schedule based on the most recent census data available on state median family income in the past 12 months, adjusted for family size, and prohibits the revised fees from exceeding 10 percent of the family’s monthly income. (WIC § 10290)
   
4. Prohibits family fees from being collected for the 2021-22 and 2022-23 fiscal years, and, further, requires, during the 2022-23 fiscal year, contractors to reimburse subsidized child care providers for the full amount of the certificate or voucher without deducting family fees. (WIC § 10290)

ANALYSIS

This bill:

Reimbursement rate

1. Extends a portion of covid-era relief by requiring:
   
   1. State preschool program contracting agencies to be reimbursed 100 percent of the contract maximum reimbursable amount or net reimbursable program costs, whichever is less.
      
   2. State preschool family child care home education network providers to be reimbursed based on the maximum certified hours of care for all families, regardless of attendance.
      
   3. Alternative payment program providers, including license-exempt providers, to be reimbursed based on the maximum certified hours of care, regardless of attendance.
      
   4. Contracting agencies operating a general child care and development program (general child care) be reimbursed 100 percent of the contract maximum reimbursable amount or net reimbursable program costs, whichever is less.
      

New alternative methodology

1. Requires DSS, in collaboration with CDE, to develop, and requires DSS and CDE to implement an alternative methodology for calculating subsidy payment rates for child care services and state preschool program services, in accordance with both of the following:
   
   1. Require the alternative methodology to build on the recommendations of the working group and be aligned with the recommendations of the JLMC (see comment # 6 on page # 7).
      
   2. Require the alternative methodology to use a cost estimation model that includes all of the following:
      
      1. Program models will meet the current statutory and regulatory requirements for each program.
         
      2. Staff salaries and benefits.
         
      3. Training and professional development.
         
      4. Curricula and supplies.
         
      5. Group size and ratios.
         
      6. Enrollment levels.
         
      7. Facilities and other costs.
         
      8. Family engagement.
         
2. Requires DSS to develop an interim transition plan, if necessary, for DSS and CDE to implement the alternative methodology by increasing the various rates from their current level to the alternative methodology level over time as funds are appropriated for these purposes in the annual Budget Act.
   
3. Requires DSS and CDE to fully implement the alternative methodology beginning in the 2027–28 fiscal year, no sooner than 30 days after notification in writing to the chairperson of the Joint Legislative Budget Committee, or not sooner than whatever lesser time the chairperson of the joint committee, or their designee, determines is appropriate. This bill requires CDE to implement the alternative methodology (for state preschool programs) once it has notified the Legislature in writing that it has adopted the alternative methodology.
   
4. Sunsets the current reimbursement system once the alternative methodology has been adopted by DSS and CDE.
   
5. Requires any funding provided in the Budget Act of 2023 to increase reimbursement rates to be distributed using the interim transition plan, if it has been developed, until the alternative methodology is adopted.
   
6. Requires funding and subsidy payments to be based on enrollment of certified children with the contract rates set using the alternative methodology.
   
7. Requires DSS, in collaboration with CDE, to review and update the alternative methodology every three years.
   
8. Requires DSS, in collaboration with CDE, to seek preapproval from the United States Department of Health and Human Services to amend the state’s current Child Care and Development Fund State Plan to change its current methodology for determining child care and development and preschool subsidy payment rates to an alternative methodology.
   
9. Requires the application for preapproval to be submitted no sooner than 30 days after notification in writing to the chairperson of the Joint Legislative Budget Committee, or not sooner than whatever lesser time the chairperson of the joint committee, or their designee, determines is appropriate.
   

Family fees

1. Requires DSS, in consultation with CDE, to develop an equitable sliding scale for the payment of family fees.
   
2. Prohibits family fees from being collected until the new equitable sliding scale is established and implemented.
   

General

1. States legislative intent that this bill implement the recommendations of the workgroup to create a new reimbursement rate structure for child care and development and preschool programs.

STAFF COMMENTS

1. Need for the bill. According to the author, “AB 596 will help child care providers and families by transitioning providers to a single subsidy payment rate structure for early learning and child care programs, suspending family fees until an equitable sliding scale for family fees is established, and ensuring providers are paid based on enrollment rather than attendance. California has been subsidizing the true cost of childcare by paying the early learning and childcare workforce low wages and expecting families to pay high family fees for subsidized childcare programs. We need to make child care more affordable to families and ensure that child care providers receive a dignified wage that allows them to keep their doors open. With prices skyrocketing, families cannot afford another bill, and we must suspend family fees until an equitable sliding scale for family fees can be established. AB 596 supports a new way to pay child care providers based on the real cost of care and provides relief to families.”
   
2. Increases rates now. This bill extends a portion of covid-era relief by requiring that a) state preschool program contracting agencies be reimbursed 100 percent of the contract maximum reimbursable amount or net reimbursable program costs, whichever is less; b) state preschool family child care home education network providers be reimbursed based on the maximum certified hours of care for all families, regardless of attendance; c) alternative payment program providers, including license-exempt providers, to be reimbursed based on the maximum certified hours of care, regardless of attendance; and, d) contracting agencies operating a general child care and development program (general child care) be reimbursed 100 percent of the contract maximum reimbursable amount or net reimbursable program costs, whichever is less.
   
   Covid-era hold harmless policies and additional financial relief expired June 30, 2023. Beginning July 1, 2023, rates will once again based on attendance rather than enrollment or contract maximums. However, AB 116 (Committee on Budget, 2023) provide additional temporary relief, through September 30, 2023, by requiring that contracting agencies operating a state preschool program, migrant child care program, general child care program, family child care home education network programs, or child care services for children with special needs program be reimbursed at 100 percent of the contract maximum reimbursable amount or net reimbursable program costs, whichever is less. AB 116 passed the Legislature and is awaiting the Governor’s action.
   
3. Establishes new way to calculate rates. Providers of early learning and care are reimbursed either based on the RMR or SRR: alternative payment programs are reimbursed using the RMR while child care programs and preschool programs that contract directly with DSS or CDE are reimbursed using the SRR.
   
   The RMR varies based on the county in which the child is served. The RMR Survey measures a sample of prices charged by licensed child care providers and paid by parents within a given child care market region. The RMR survey is administered every two to three years, and provides “rate ceilings” based on provider setting and the age of the child for all 58 California counties. The rate ceiling is the highest payment a provider can receive from the state for the care of a child. Beginning in 2022, the RMR was set to the 75th percentile of the 2018 RMR survey for that region; or, the RMR ceiling that existed in that region on December 31, 2021.
   
   The SRR is set in statute (currently $12,888 plus a cost-of-living adjustment) and has typically been adjusted for factors such as the age of the child or disability status, but not on geographic cost factors.
   
   Neither the RMR nor the SRR fully account for the actual cost of providing care to children. This bill requires the development and implementation of an alternative methodology for calculating subsidy payment rates. This bill requires funding and reimbursements to be based on enrollment (not attendance) of certified children with the contract rates set using the alternative methodology.
   
   Committee staff notes that the requirement to develop and implement an alternative methodology for calculating reimbursement rates is included in AB 116 (Committee on Budget, 2023), which was passed by the Legislature and is awaiting the Governor’s action. The author may wish to consider removing this provision should AB 116 become law.
   
4. Family Fees. The federal Child Care and Development Fund (CCDF) is an aggregate of several funding sources that is distributed in block grants by the federal government to the states. States receiving CCDF funds must prepare and submit to the federal government a plan detailing how these funds will be allocated and expended. States are also required to establish a sliding fee scale for families that receive child care services supported by federal funds. As such, some parents pay a fee to help cover the costs of needed care. These family fees are assessed based on income and family size, but cannot be based on the cost of care or amount of subsidy payment that a family receives. Current law permits, at the state’s discretion, family fees to be waived for families who meet certain criteria, including families that have an income at or below the federal poverty level (currently $24,860 for a family of three).
   
   Prior to 2021, families with children enrolled in subsidized child care or state preschool were required to pay a fee to the providers. Existing law prohibits family fees from being collected for the 2021-22 and 2022-23 fiscal years, due to the pandemic. AB 116 (Committee on Budget, 2023) prohibits a family fee from being charged or assessed to a family with an adjusted monthly family income before 75 percent of the state median family income. AB 116 passed the Legislature and is awaiting the Governor’s action.
   
   Although family fees are being waived for 2022–23, state preschool contractors are still required to calculate and assess the applicable family fee at initial certification and recertification as usual. According to CDE, this requirement is to ensure that contractors report the correct family fee amount(s) that are being waived and that families are aware of the updated fee that will be applicable July 1, 2023. Under the 2023 schedule these fees can range from $0-$700 per month depending on the above criteria.
   
   This bill requires the development of an equitable sliding scale for the payment of family fees and prohibits the collection of family fees until a new sliding scale is implemented.
   
5. Temporary relief in the Budget expiring. In response to the COVID-19 pandemic, the 2020-2021 and 2021-22 Budget Acts made numerous investments in child care and state preschool by utilizing state and federal funds to provide: temporary emergency vouchers; cleaning supplies and personal protective equipment; temporary supplemental rates to providers; one-time funding for infrastructure grants for the building of new facilities or renovation, repair, or expansion of existing facilities; a suspension of family fee contributions for subsidized child care; and increased reimbursement flexibility for providers accepting vouchers. The 2022-23 Budget Act through AB 210 (Committee on Budget), Chapter 62, Statutes of 2022 also continued some of the investments made during the height of the pandemic, including, but not limited to: providing child care providers with additional stipends; increasing subsidized child care program access to 145,000 slots; and continuing the hold harmless policies for both contract and voucher based care providers; and family fee waivers for state subsidized child care programs and state preschool programs through June 30, 2023. Beginning on July 1, 2023 these provisions will cease and all providers will go back to pre-pandemic reimbursement policies.
   
6. Rate and Quality Workgroup, and Joint Labor Management Committee. Existing law requires the Governor and the Child Care Providers Union to establish a JLMC to develop recommendations for a single reimbursement rate structure that addresses quality standards for equity and accessibility while supporting positive learning and developmental outcomes for children.
   
   Existing law requires DSS, in consultation with CDE, to convene a working group separate from the JLMC, to assess the methodology for establishing reimbursement rates and the existing quality standards for child care and development and preschool programs, as specified.
   
   In 2022, DSS, in consultation with CDE, convened a working group to assess the methodology for establishing reimbursement rates and existing quality standards for subsidized child care and preschool programs. The Rate and Quality Workgroup recommendations relating to specified topics were provided to the JLMC, the Department of Finance, and the Joint Legislative Budget Committee in August 2022. https://cdss.ca.gov/Portals/9/CalWORKs/CCT/CCDD/Rate%20and%20Quality%20Stakeholder%20Workgroup%20Report_August%202022_FINAL%20ADA%20(2).pdf?ver=2022-08-24-081240-333
   
   The Rate and Quality JLMC Joint Presentation for a Single Rate Structure Alternative Methodology proposal summary dated November 14, 2022, in part, states “This document summarizes the parties’ agreed upon approach to a single rate structure (inclusive of the agreed upon alternative methodology) and offers metrics for assisting with determining base rate setting. The single rate structure includes: a) an alternative methodology that considers a cost estimation model; b) base rates; c) incentives/enhancement rate setting metrics; and, d) evaluation of the rate structure. … The alternative methodology will include a cost model. The single rate structure will be used to establish a base rate for different program settings.” Additionally, the proposal’s base rate metrics will include current state and federal requirements, equity, cost estimation and process metrics. https://cdss.ca.gov/Portals/9/CalWORKs/CCT/CCDD/2022.11.14%20Single%20Rate%20Proposal.pdf
   
   The Governor’s 2023 Budget proposal acknowledged the above workgroup activities and noted “the state will rely on the presented approach as it continues to develop a single rate structure… [and] will continue to work with CCPU to negotiate a successor agreement to the current agreement expiring June 30, 2023.” AB 116 (Committee on Budget, 2023) include legislative intent that any adjustments in the 2023–24 fiscal year and the 2024–25 fiscal years related to reimbursement will be subject to a ratified agreement, and subject to future legislation providing for appropriations related to the budget bill. AB 116 passed the Legislature and is awaiting the Governor’s action.
   
7. Fiscal impact. According to the Assembly Appropriations Committee, CDE estimates the following:
   
8. Unknown costs for rate increases from transitioning to the alternative rate methodology. CDE indicates these costs are difficult to calculate and will depend on the amount of funding the Legislature provides for the alternative methodology and how DSS allocates the intermediate rate increase under the transition methodology this bill requires DSS to adopt.
9. Total costs of approximately $30.8 million annually ($16.3 million in Proposition 98 and $14.5 million of non-Proposition 98 funding) for waiving family fees. CDE indicates funding will be necessary to cover the cost of waived family fees.
10. General Fund (GF) costs of $1.821 million in FY 2024-25, $1.816 million in FY 2025-26 for state administration. This includes an estimated $1.5 million for an external contractor to support the workgroup needed to develop the new equitable sliding fee scale.
11. Ongoing GF costs of $316,000 annually, beginning in FY 2026-27, for staff to support the ongoing workload, once the workgroup is complete and the equitable scale for the payment of family fees is developed and implemented.
12. Potentially significant GF costs of an unknown amount for CDSS-administered programs related to rate increases, waiving family fees, and state administration
13. Related legislation
    
    SB 380 (Limón, 2023) is nearly identical to this bill, and is scheduled to be heard by the Assembly Education Committee on July 12, 2023.
    

SUPPORT

Child Care Resource Center (Co-Sponsor)
Children Now (Co-Sponsor)
EveryChild California (Co-Sponsor)
Parent Voices California (Co-Sponsor)
Alameda County Office of Education
Allies for Every Child
American Association of University Women - California
American Federation of State, County, and Municipal Employees 
California African American Chamber of Commerce
California Alternative Payment Program Association
California Association for The Education of Young Children 
California Family Child Care Network
California Family Resource Association
California Work & Family Coalition
Catalyst California
Child Abuse Prevention Center
Child Action, Inc.
Child Care Law Center
Children's Institute
City and County of San Francisco
City and County of San Francisco Department of Early Childhood
County of San Diego
County of Santa Clara
Early Edge California
EdVoice
Equal Rights Advocates
Everychild Foundation
First 5 LA
Head Start California
Hoover Intergenerational Care
Kidango
LA Best Babies Network
Los Angeles County Office of Education
Mission Child Care Consortium Inc.
National Council of Jewish Women-California
Public Counsel
Regional Economic Association Leaders Coalition
Riverside County Public K-12 School District Superintendents
Riverside County Superintendent of Schools
San Bernardino County District Advocates for Better Schools 
Santa Clara County Office of Education
Santa Clara County School Boards Association
Silicon Valley Community Foundation
Small Business Majority
The Education Trust - West
The San Diego Foundation
Unite-LA
United Ways of California

OPPOSITION

None received

-- END --

SENATE COMMITTEE ON HUMAN SERVICES

Senator Alvarado-Gil, Chair

2023 - 2024 Regular

Subject: Early learning and care: rate reform

SUMMARY

This bill requires the California Department of Social Services (CDSS), in collaboration with the California Department of Education (CDE), to develop and implement an alternative reimbursement rate setting methodology with specified characteristics for child care and development programs and the California State Preschool Program (CSPP) by the 2027–28 fiscal year (FY). This bill requires CDSS, in collaboration with CDE, to develop and implement a transition process to increase various rates from current levels to their respective alternative methodology levels, as funds are appropriated for these purposes in the Budget Act of 2023. This bill requires CDSS, in collaboration with CDE, to update the alternative methodology every three years and seek federal approval to amend the state’s current Child Care and Development Fund State Plan to allow use of the alternative methodology. This bill requires reimbursement for child care and CSPP providers to be based on program enrollment rather than attendance records. This bill requires CDSS, in collaboration with CDE, to develop an equitable sliding scale for child care and CSPP family fees, and requires family fees not be collected until the new fee scale is established.

ABSTRACT

Existing law:

1. Establishes the Early Education Act, and requires that state preschool programs provide an inclusive and cost-effective program that provides high-quality learning experiences, coordinated services, and referrals for families to access health, and social-emotional support services through full- and part-day programs. (EDC 8200 et seq.)
2. Declares the intent of the Legislature that all families should have equitable access to a high-quality preschool program and that subsidized preschool services should be provided to all persons meeting the eligibility criteria, to the extent funding is made available, as specified. (EDC 8202 (a))
3. Establishes the Early Childhood Development Act of 2020, and transfers responsibility of specified child care and development programs (child care), responsibilities, services, and systems from CDE to CDSS effective July 1, 2021. (WIC 10200 et seq.)
4. Establishes the Child Care and Development Services Act to provide child care services as part of a comprehensive, coordinated, 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. (WIC 10207 et seq.)
5. Declares the intent of the Legislature that all families have access to child care and development services and that subsidized child care services be provided to persons meeting eligibility criteria, to the extend funding is made available, as specified. (WIC 10207.5)
6. Requires CDSS to develop the State Plan required pursuant to the federal Child Care and Development Fund. (WIC 10211.5)
7. Requires, in federal law, states to establish a sliding fee scale that provides for cost-sharing for families receiving Child Care and Development Fund (CCDF) funds, and defines a sliding fee scale as a system of cost sharing or co-payments based on family size and income. Further, specifies that cost-sharing should not act as a barrier to families receiving CCDF assistance. (45 CFR 98.45(k))
8. Requires CDSS, in consultation with CDE, to establish a fee schedule for families using child care and preschool services, and provides that it is the intent of the Legislature that the new fee schedule be simple and easy to implement. (WIC 10290(a))
9. Requires that a new family fee schedule retains a single flat monthly fee per family that differentiates between fees for full- or part-time care, and that families be assessed a single fee for all state subsidized care services, including CSPP, that is based on income, a certified family need for care services, and enrollment, and not on actual attendance. Further provides that no recalculation of a family fee occur if attendance varies from enrollment unless a change in need for care is assessed. (WIC 10290(c))
10. Prohibits family fees from being collected for FY 2021–22 and FY 2022–23 and between July 1, 2023, and September 30, 2023, and requires, during FY 2022–23 and between July 1, 2023, and September 2023, contractors to reimburse subsidized child care providers for the full amount of the certificate or voucher without deducting family fees. (EDC 8252(g-i); WIC 10290(h-k))
11. Establishes eligibility criteria for state subsidized child care and development services based on family and child circumstance, including, but not limited to, income, homelessness, or if a child is or has been abused, neglected or exploited, as specified. (WIC 10271 et seq)
12. Requires CDSS, in collaboration with CDE, to implement a reimbursement system plan that establishes reasonable standards and assigned reimbursement rates, which vary with the length of the program year and the hours of service. (WIC 10280)
13. Requires the state and Child Care Providers United - California (CCPU), consistent with the agreement dated June 25, 2021, to establish a Joint Labor Management Committee (JLMC) to develop recommendations for a single reimbursement rate structure that addresses quality standards for equity and accessibility while supporting positive learning and developmental outcomes for children. Further, requires the JLMC to develop recommendations and present the recommendations to the Department of Finance (DOF) no later than November 15, 2022 in order to inform the Governor's proposed budget for the 2023–24 FY. (WIC 10280.2(a))
14. Requires CDSS, in consultation with CDE, to convene a working group (Rate and Quality Workgroup) separate from the JLMC to assess the methodology for establishing reimbursement rates and the existing quality standards for childcare and development and preschool programs, as specified. Further, requires the workgroup to, no later than August 15, 2022, provide recommendations, including, but not limited to, recommendations on how CDSS should define childcare workforce competencies and how these competencies would align with rate reform, to the JLMC, DOF, and the Joint Legislative Budget Committee. (WIC 10280.2(b))
15. Commencing July 1, 2022, authorizes CDSS and CDE to issue temporary rate increases to contractors that exceed the established reimbursement rates. (WIC 10280(c)(2); EDC 8242(c)(2))
16. Required reimbursement for full- and part-day child care and CSPP to be based on the maximum certified hours of care rather than attendance for FY 2020–21, FY 2021–22 and FY 2022–23. (Section 3 of Chapter 110, Statutes of 2020; Section 263 of Chapter 116, Statutes of 2021; EDC 8245.5(b))

This bill:

1. Declares the intent of the Legislature that this act implement the recommendations of the Rate and Quality Workgroup to create a new reimbursement rate structure for child care and CSPP.
2. Strikes authority for CDE and CDSS to issue temporary and one-time rate increases to contractors which exceed current reimbursement rates, except as already appropriated.
3. Requires CDSS, in collaboration with CDE, to:
   
   1. Develop an alternative methodology for calculating reimbursement rates for child care services and CSPP.
   2. Develop and implement a transition process to increase various rates from current levels to their respective alternative methodology levels, as funds are appropriated for these purposes in the annual Budget Act.
   3. Fully implement the alternative methodology commencing in the 2027–28 FY, no sooner than 30 days after notification in writing to the Joint Legislative Budget Committee.
4. Requires that the alternative reimbursement rate methodology:
   1. Build on the recommendations of the Rate and Quality Workgroup and align with the recommendations of the JLMC.
   2. Use a cost estimation model that includes all of the following:
      1. Program models that meet the current statutory and regulatory requirements for each program.
      2. Staff salaries and benefits.
      3. Training and professional development.
      4. Curricula and supplies.
      5. Group size and ratios.
      6. Enrollment levels.
      7. Facilities and other costs.
      8. Family engagement.
5. Requires CDSS, in collaboration with CDE, to review and update the new alternative methodology every three years, and to seek preapproval from the U.S. Department of Health and Human Services (HHS) to amend the state’s CCDF State Plan to change its current methodology for determining child care and CSPP reimbursement rates to an alternative methodology, as provided.
   
6. Requires any funding provided in the Budget Act of 2023 to increase the reimbursement rates be distributed using the transition process until the new alternative methodology is implemented.
7. Requires funding and reimbursements for child care providers to be based on enrollment of certified children with the contract rates set using the alternative methodology, and requires contracting agencies operating a general childcare and development program or CSPP to be reimbursed 100 percent of the contract maximum reimbursable amount or net reimbursable program costs, whichever is less.
8. Requires CDSS, in collaboration with CDE, to develop an equitable sliding scale for the payment of family fees, and requires family fees not be collected until the new fee scale is established.

FISCAL IMPACT

According to the Assembly Appropriations Committee, CDE estimates the following:

1. Unknown costs for rate increases from transitioning to the alternative rate methodology. CDE indicates these costs are difficult to calculate and will depend on the amount of funding the Legislature provides for the alternative methodology and how CDSS allocates the intermediate rate increase under the transition methodology this bill requires CDSS to adopt.
2. Total costs of approximately $30.8 million annually ($16.3 million in Proposition 98 and $14.5 million of non-Proposition 98 funding) for waiving family fees. CDE indicates funding will be necessary to cover the cost of waived family fees.
   
3. General Fund (GF) costs of $1.821 million in FY 2024–25, $1.816 million in FY 2025–26 for state administration. This includes an estimated $1.5 million for an external contractor to support the workgroup needed to develop the new equitable sliding fee scale.
   
4. Ongoing GF costs of $316,000 annually, beginning in FY 2026–27, for staff to support the ongoing workload, once the workgroup is complete and the equitable scale for the payment of family fees is developed and implemented.
   
5. Potentially significant GF costs of an unknown amount for CDSS-administered programs related to rate increases, waiving family fees, and state administration.

BACKGROUND AND DISCUSSION

Purpose of the Bill:

According to the author, “AB 596 will help child care providers and families by transitioning providers to a single subsidy payment rate structure for early learning and child care programs, suspending family fees until an equitable sliding scale for family fees is established, and ensuring providers are paid based on enrollment rather than attendance. California has been subsidizing the true cost of childcare by paying the early learning and childcare workforce low wages and expecting families to pay high family fees for subsidized child care programs. We need to make child care more affordable to families and ensure that child care providers receive a dignified wage that allows them to keep their doors open. With prices skyrocketing, families cannot afford another bill, and we must suspend family fees until an equitable sliding scale for family fees can be established. AB 596 supports a new way to pay child care providers based on the real cost of care and provides relief to families.”

Early Childhood Educator Workforce

According to the UC Berkeley Center for the Study of Child Care Employment (CSCCE), 98% of Family Child Care (FCC) and center-based providers are women and 71% of FCC providers and 66% of center-based providers are people of color.^[1]

In a 2020 report, CSCCE found that child care is one of the lowest paid occupations, and ranked in the second percentile in 2019 with a median hourly wage of $11.65. Preschool teachers ranked in the 13^th percentile with a median hourly wage of $14.67. Furthermore, CSCCE found racial wage disparities, where Black early educators are paid on average $0.78 less per hour than their White peers.^[2] Early educators in California experience a poverty rate of 17%.^[3]

Reimbursement for Subsidized Care

Child care providers in California are paid through either vouchers or direct care contracts with the state. Providers that care for children in a voucher-based program are reimbursed using the Regional Market Rate (RMR), which is based on a survey of licensed childcare providers, as well as the prices charged by providers that are paid by parents within a given market region. The RMR survey is administered every two to three years and reflects the prices that providers charge families for care, though it is worth noting that providers often base tuition on what families in their communities can afford, rather than on the actual cost of providing care. AB 131 (Committee on Budget, Chapter 116, Statutes of 2021) increased the RMR, beginning January 1, 2022, to the 75th percentile of the 2018 RMR survey, or the new Standard Reimbursement Rate (SRR) as of December 31, 2021, whichever is higher.

For providers that contract directly with the state to serve a specified number of eligible children, rates are determined through the SRR, which is a flat rate set annually in the state budget. The SRR is adjusted by length of care and age of child, and providers receive a higher SRR for serving students with limited English proficiency and students with disabilities. It should be noted that, unlike the RMR, the SRR does not vary based on the geographic location in which the child is served and therefore does not account for geographic cost factors; however, the SRR receives a statutorily required annual cost-of-living adjustment (COLA).

Although the RMR survey must be administered every two to three years pursuant to federal requirements, increasing to the new rate is not automatic; the Legislature must propose to increase the RMR. In addition, the survey is based on the data from the prior year, resulting in rates that struggle to keep pace with the cost of providing care and operating a business, especially as costs have risen during the COVID-19 pandemic.

Rate and Quality Workgroup Final Report

AB 131 (Committee on Budget, Chapter 116, Statutes of 2021) established the Rate and Quality Workgroup (RQWG) to be convened by CDSS with diverse stakeholder representation to assess the methodology for establishing reimbursement rates and the existing quality standards for child care and development and preschool programs. AB 131 required the workgroup to submit recommendations to the Legislature no later than August 15, 2022. The workgroup met over a dozen times between January and August 2022, and included the perspectives of early learning and care providers, Alternative Payment Program agencies, child care experts, families, and representatives of CDSS and CDE. In a summary of its findings, the report states:

“Despite the strengths and quality currently present in California’s early learning and care programs, and the critical and nurturing role that the predominately women of color workforce plays in educating and caring for California’s young ones, the current reimbursement rate-setting methodology establishes rates that are not sufficient to cover the true cost of providing early learning and care services in accordance with current state licensing and program quality requirements. […] In addition, a history of opaque policy choices and changes have resulted in an exceptionally complex and unaligned set of base rates and adjustment factors that are virtually unnavigable by programs, educators, and families. The result is inequitable access to early learning and care opportunities that meet child and family needs, and exceptionally low compensation for program owners and educators.”

As a result of its work, the RQWG identified four core recommendations:

1. Ensure equity is foundational to all change – work toward equity as an outcome and implement equity as a process.
   
2. Replace the current methodology of using a market price survey to set rates with an alternative methodology, which uses cost estimates/models to set base rates to compensate early learning and care programs. The cost of care for meeting current state requirements will become the basis of the reimbursement rate, including wage scales that set a living wage floor.
   
3. Create a single rate structure that specifies base rates and that is designed to address historical inequities. This structure should specify separate base rates for Family, Friend, and Neighbor care and Home-Based and Center-Cased early learning and care and should differentiate base rates for meeting different sets of state standards.
   
4. Continuously evaluate the rate-setting methodology to address equity and adjust for changing conditions and rising costs.

The RQWG made rate reform recommendations similar to those made by previous reports, including:

1. The Master Plan on Early Learning and Care (Master Plan), developed by the California Health and Human Services Agency in consultation with stakeholders, recommended in its December 2020 report that, among other things, California adopt a tiered reimbursement rate with appropriate adjustments in order to support equity, simplicity, and quality. The Master Plan also recommended designing a sliding scale for family fee contributions, which could increase equity in both access and outcomes for families.
   
2. Assembly Blue Ribbon Commission on Early Childhood Education Final Report, initiated by California Assembly Speaker Anthony Rendon in consultation with stakeholders, recommended in its April 2019 report that California implement comprehensive rate reform through a multi-step process, and, in the long-term, that reimbursement rates for Title 5 and Title 22 programs include competitive compensation that increases with quality improvement, among other recommendations.
   
3. First 5 California Reimbursement Rate Workgroup White Paper, developed by a group of early care and education experts, recommended in its November 2018 report that California implement comprehensive rate reform by, among other things, incentivizing quality, using the RMR to reimburse all counties at a rate that considers regional economic costs, and conducting ongoing reviews of rate changes to understand their impacts on the childcare system and make adjustments as needed.

In its conclusion, the RQWG writes, “A funding structure that supports programs and educators’ abilities to provide the quality early learning and care they are working to provide now (without adequate resources) is integral to realizing the positive impacts of early learning and care for children, families, and the broader California economy and society. The time has come for California to create the systems and policies that allow these positive impacts to finally be realized in more equitable ways.”

Providers operate on thin profit margins, which makes it difficult for business owners to run a business, pay employees, and, in some cases, pay themselves. Some stakeholders have also cited low reimbursement rates as a main deterrent to recruiting providers into the early education workforce. The provider deficit also impacts child care and CSPP capacity, as programs cannot exceed adult-to-child ratios in adherence to health and safety regulations.

According to the sponsors of this bill, rate increases have not kept up with inflation and the costs to provide quality care to children. A 2022 survey of large family child care owners completed by Child Care Resource Center (CCRC) found that “while the COVID-19 related funding helped to prevent some child care closures, the funding will not provide longer-term stability to these programs”. The CCRC survey also said “the one-time nature of this funding has placed programs on unstable footing, unsure about the sustainability of their businesses, and needing to pay back debt and loans taken over the past two years.”

Alternative Methodology Implementation

CDSS submitted a letter on March 28, 2023 seeking federal pre-approval from the Administration for Children and Families (ACF) for California to use a cost-based alternative to the RMR. The ACF responded on May 15, 2023 seeking additional information from CDSS prior to granting pre-approval. According to CDSS, the methodology submitted for pre-approval includes the following steps and timeline:

1. Data collection (July through October 2023)
   
2. Cost modeling informed by collected data (November 2023 through February 2024)
   
3. Rate setting (February through June 2024)

In addition, the current CCDF State Plan is effective through September 30, 2024, and the development of the next State Plan is set to begin during the spring of 2024.

According to CDSS the department has contracted with national experts, Prenatal to Five Fiscal Strategies (P5), who also worked with the RQWG in 2022. P5 assisted with gaining ACF approval of the use of an alternative methodology and cost estimation model in the District of Columbia, New Mexico, and Virginia.

Hold Harmless Reimbursement Policies

The 2020, 2021, and 2022 Budget Acts included state funds and federal COVID-19 funds to apply a “hold harmless” policy for child care and CSPP providers who had to reduce services or close their homes or facilities to children due to COVID-19. These temporary COVID-19 reimbursement flexibilities were provided to voucher and direct contract child care providers and CSPP providers. Prior to the pandemic, voucher-based providers were reimbursed either based on the maximum certified hours of care for families with consistent vouchers or actual attendance for families with variable schedules. During the COVID-19 public health emergency, all voucher-based providers received funding based on the maximum certified hours of care for enrolled children, rather than actual attendance. For example, if an enrolled child with a variable schedule is certified to receive a maximum of 10 hours of care, but only received 5 hours of care, the provider would still receive full payment based on maximum certified hours of care during COVID-19 pandemic.

Providers that directly contract with the state received 100 percent of their contract maximum reimbursable amount or actual net reimbursable program costs, whichever is less. For example, if a provider’s contract provided funding to serve up to 15 children, but the provider only served 10 children, the provider would still receive funding associated with serving 15 children. Prior to the pandemic, direct contract providers were generally reimbursed based on the attendance of eligible children. Beginning on July 1st, 2023 these provisions will cease and all providers will go back to pre-pandemic reimbursement policies.

Other hold harmless provisions are related to provider rates. For FY 2021–22, the Budget Act included provisions to have one rate model for direct contract child care and CSPP providers. This meant that child care providers who received a rate under the SRR would instead receive the RMR. However, for some providers, the RMR was lower than what they would receive if they remained on the SRR. The state continues to hold those providers harmless by allowing these providers to stay on the SRR if it was higher than the RMR. Additionally, when the state moved to the 2018 RMR survey in 2021–22, voucher-based providers were allowed to keep their old RMR rate if the new rate under the 2018 RMR survey was lower.

Family Fees

Prior to 2021, families enrolled in subsidized child care and CSPP were required to pay a fee to the providers. Under state law and federal mandates, CDSS must establish a family fee schedule for families receiving child care services based on the most recent census data available on state median family income in the past 12 months, adjusted for family size, subject to the approval of the Department of Finance. The family fee schedule differentiates between full-time fees and part-time fees and families are assessed a flat monthly fee. Assessment of the monthly fee is based on the following factors: hours of certified need, as documented on the application for services; the family’s adjusted monthly income; and family size. Family fees cannot exceed the full-time monthly fee on the family fee schedule for the family size and income provided, however under the 2023 schedule these fees can range from $0-$700 per month, depending on the above criteria.

Beginning in April 2020, family fees have been waived in California for all families receiving subsidized childcare through the following actions:

1. On April 4, 2020, Governor Newsom signed Executive Order N-45-20, which suspended family fees for a period of 60 days.
   
2. SB 820 (Committee on Budget and Fiscal Review, Chapter 110, Statutes of 2020) later waived family fees for all subsidized children in July and August 2020, and included a waiver of family fees beginning September 1, 2020, through June 30, 2021.
   
3. AB 131 (Committee on Budget, Chapter 116, Statutes of 2021) waived family fees for the 2021–22 FY.
   
4. AB 210 (Committee on Budget, Chapter 62, Statutes of 2022) extended the pause on collection of family fees for the 2022–23 FY.
   
5. AB 110 (Committee on Budget, Chapter 4, Statutes of 2023) extended the pause on collection of family fees beginning July 1, 2023 through September 30, 2023.
   

According to Child Care Law Center, using CDSS data from February 11, 2022, families have saved an average of $250 per month during the pandemic waiver of family fees. Furthermore, according to testimony during the March 21, 2023 Assembly Budget Subcommittee No. 2 on Education Finance hearing, of almost 7,000 families surveyed statewide, 55.9% reported they would drop out of subsidized care if family fees are reinstated.

Federal law (45 CFR 98.45(k)) requires states to establish a sliding fee scale for families that receive CCDF child care services. The pandemic waiver of family fees is permissible under the Coronavirus Response and Relief Supplemental Appropriations (CRRSA) Act. The Act allowed lead agencies (CDSS in California) to use CRRSA funds to waive and cover the cost of family fees for all eligible families without separate federal approval through the liquidation deadline of September 30, 2023. AB 110 (Committee on Budget, Chapter 4, Statutes of 2023) extended the waiver of family fees through September 30, 2023 for all families receiving child care subsidies and CSPP, and appropriated federal funds to reimburse subsidized child care and CSPP providers for the amount of waived family fees during this period.

According to CDSS, ACF stated they will not consider approval of an extended waiver of family fees for all families. Without federal approval, the state may not be able to pause collection of family fees while awaiting CDSS and CDE to develop and implement a new equitable sliding scale. The author may want to consider whether the pause in collection of family fees will result in families owing retroactive payment of fees during the pause in collection.

Related/Prior Legislation:

SB 380 (Limón) is identical to this bill and currently in Assembly Human Services.

AB 110 (Committee on Budget, Chapter 4, Statutes of 2023) extended the waiver of family fees through September 30, 2023 for all families receiving child care subsidies and CSPP, and appropriated funds to reimburse subsidized child care and CSPP providers for the amount of waived family fees during this period.

AB 92 (Reyes, 2021) would have made changes to the amount of family fees collected for preschool and child care services and prohibited providers from absorbing any reduction in pay due to waivers or reductions in family fees. AB 92 was vetoed by Governor Newsom.

AB 131 (Committee on Budget, Chapter 116, Statutes of 2021) as part of the 2021–22 Budget package, transferred child care program and authority from CDE to CDSS; made changes to CSPP, direct contract child care, and voucher-based child care program reimbursement rates; established the Rate and Quality Workgroup to be convened by CDSS; ratified the CCPU agreement, including the establishment of a JLMC to provide recommendations on a single reimbursement rate system; among other things.

SB 246 (Leyva, 2021) would have required CDSS to establish a single reimbursement rate for child care and preschool programs, including variation for regional costs and quality adjustment factors. SB 246 was referred to the Assembly Appropriations Committee but was not set for hearing. Parts of this bill were included in AB 131 (Committee on Budget, Chapter 116, Statutes of 2021).

AB 1649 (Quirk-Silva, 2022) would have required the Alternative Payment Program (APP) to reimburse child care providers based upon the maximum certified hours of care instead of the actual days and hours of attendance. AB 1649 was held on the Assembly Appropriations Committee suspense file.

COMMENTS

Double Referral: This bill has been double-referred. Should this bill pass out of this Committee, it will be referred to the Senate Committee on Education.

This bill seeks to achieve the following for child care programs and CSPP: increase reimbursement rates to providers by implementing an alternative reimbursement rate setting methodology based on a cost estimation model for child care programs and CSPP by the 2027–28 FY to reflect the true cost of providing care; stabilize reimbursement to providers by requiring reimbursement to be based on program enrollment rather than attendance records; and reduce the burden of fees on families enrolled in subsidized programs by developing and implementing a new, equitable sliding scale for child care and CSPP family fees, and waiving collection of fees until the new fee scale is established. In addition, as lead agency, CDSS is still utilizing CDE’s fiscal and child level data systems (PARIS and CPARIS) as a result of the transition of child care programs, which may complicate a quicker data collection and analysis timeline.

PRIOR VOTES

POSITIONS

Support:

California Child Care Resource and Referral Network (Co-Sponsor)

Child Care Resource Center (Co-Sponsor)

Children Now (Co-Sponsor)

EveryChild California (Co-Sponsor)

Parent Voices (Co-Sponsor)

Afscme

Alameda County Office of Education

American Association of University Women - California

California African American Chamber of Commerce

California Alliance of Child and Family Services

California Alternative Payment Program Association

California Catholic Conference

California Family Resource Association

California Legislative Women's Caucus

California Work & Family Coalition

Caring Across Generations

Catalyst California

Child Abuse Prevention Center

Child Care Law Center

Children's Bureau of Southern California

City and County of San Francisco

County of Santa Clara

Early Care and Education Consortium

Early Edge California

Edvoice

Everychild California

Everychild Foundation

First 5 Orange County

Friends Committee on Legislation of California

Grace Institute - End Child Poverty in Ca

Head Start California

Kidango

LA Best Babies Network

Los Angeles County Office of Education

National Council of Jewish Women-california

Office of The Riverside County Superintendent of Schools

Parent Voices California

Public Counsel

Regional Economic Association Leaders (R.E.A.L.) Coalition

Riverside County Public K-12 School District Superintendents

San Diego; County of

Santa Clara County School Boards Association

Silicon Valley Community Foundation

The Education Trust - West

Unite-la, INC.

Oppose:

None received

-- END --

1. https://cscce.berkeley.edu/publications/fact-sheet/profiles-of-the-california-early-care-and-education-workforce-2020/ ↑

2. https://cscce.berkeley.edu/workforce-index-2020/the-early-educator-workforce/early-educator-pay-economic-insecurity-across-the-states/ ↑

3. https://cscce.berkeley.edu/workforce-index-2020/introduction-policy-recommendations/key-findings/ ↑

ASSEMBLY THIRD READING

ATR Bill Id:AB 596

Author:(Reyes)

As Amended Ver:May 1, 2023

Majority vote

SUMMARY

This bill requires the Department of Social Services (CDSS), in consultation with the California Department of Education (CDE), to develop and implement an alternative methodology for calculating subsidy payment rates for childcare and the state preschool program (CPSS) services, requires CDSS, in consultation with CDE, to develop an equitable sliding scale for the payment of family fees, and prohibits family fees from being collected until the new sliding scale is implemented.

Major Provisions

1. Requires CDSS, in collaboration with CDE, to develop and implement an alternative methodology for calculating subsidy payment rates for child care services and CPSS services, and requires the alternative methodology to build on the recommendations of the workgroup and be aligned to the recommendations of the Joint Labor Management Committee (JLMC).
2. Requires CDSS, in collaboration with CDE, to develop an interim transition plan, if necessary, to implement the alternative methodology by increasing the various rates to the alternative methodology level over time as funds are appropriated in the annual Budget Act.
3. Requires, commencing in fiscal year (FY) 2027-28, CDSS to fully implement the alternative methodology no sooner than 30 days after notification in writing to the chairperson of the Joint Legislative Budget Committee, or not sooner than whatever lesser time the chairperson of the joint committee, or their designee, determines is appropriate.
4. Requires any funding provided in the Budget Act of 2023 to increase reimbursement rates to be distributed using the interim transition plan, if it has been developed, until the alternative methodology is adopted.
5. Requires funding and subsidy payments for child care providers to be based on enrollment of certified children with the contract rates set using the alternative methodology.
6. Requires CDSS, in collaboration with CDE, to review and update this new alternative methodology every three years and to seek preapproval from the U.S. Department of Health and Human Services to change its current methodology for determining child care and preschool payment rates to an alternative methodology, as provided.
7. Requires CDSS, in consultation with CDE, to develop an equitable sliding scale for the payment of family fees and prohibits family fees from being collected until the new equitable sliding scale is implemented.
8. Requires a contracting agency operating a CSPP to be reimbursed based upon enrollment, rather than attendance, by specifying that reimbursement is to be based upon 100% of the contract's maximum reimbursable amount, or net reimbursable program costs, whichever is less, and requires that family childcare home education networks (FCCHENs) operating CSPPs be reimbursed based upon the maximum certified hours of care for all families certified for a variable schedule, regardless of a child's attendance.
9. Requires childcare providers operating programs overseen by CDSS, including license-exempt providers, be reimbursed based on a family's certified hours of need, as determined by the maximum certified hours of care, including those on a variable schedule, regardless of a child's attendance.

COMMENTS

State-subsidized childcare. Subsidized childcare in California seeks to support healthy child development and support children of parents who may be: working; in training; seeking employment; incapacitated; or, in need of respite. Subsidized childcare is available to families through a number of programs.

A February 2023 report from the Legislative Analyst's Office (LAO) states that, in Budget Year 2022-23, California is providing funding to serve approximately 713,000 children through the following childcare slot allocations: 127,800 slots for all three stages of CalWORKs; 161,300 slots allocated for APPs; 211,000 total slots for full- and part-time CSPP; and, 78,500 slots for CCTR.

Paying for subsidized childcare. Childcare providers in California are paid through either vouchers or direct care contracts with the state. Providers that care for children in a voucher-based program (described in the table below) are reimbursed using the RMR which is based on a survey of licensed childcare providers, as well as the prices charged by providers that are paid by parents within a given market region. The RMR survey is administered every two to three years and reflects the prices that providers charge families for care, though it is worth noting that oftentimes providers base tuition on what families in their communities can afford, rather than on the actual cost of care. AB 131 (Committee on Budget), Chapter 116, Statutes of 2021, increased the RMR, beginning January 1, 2022, to the 75th percentile of the 2018 RMR survey, or the new SRR as of December 31, 2021, whichever is higher.

For providers that contract directly with the state to serve a specified number of eligible children (described in the table below), rates are determined through the SRR, which is a flat rate set annually in the state budget. The SRR is adjusted by length of care and age of child, and providers receive a higher SRR for serving students with limited English proficiency and students with disabilities. It should be noted that, unlike the RMR, the SRR does not vary based on the geographic location in which the child is served and therefore does not account for geographic cost factors; however, the SRR receives a statutorily required annual cost-of-living adjustment. The February 2023 LAO report states that the SRR is currently $54.93 for childcare and $55.27 for state preschool.

Actual costs of care. A key component of the childcare reimbursement rate conversation is that oftentimes the reimbursement rates paid to providers do not cover the true cost of care. Recent increases in inflation have resulted in higher costs to providers when purchasing the supplies necessary to maintain quality care, such as milk, baby formula, and baby wipes. A March 2023 brief from the Child Care Resource Center demonstrates that the cost of providing care for a preschooler in a full-time childcare center exceeds the current reimbursement rate and the 2018 rate when adjusted for inflation. For example, in San Bernardino County, the 75th percentile of the 2018 RMR survey equates to a rate of $983.03; when adjusted for inflation in 2023, this reimbursement rate should be $1,092. The brief notes that the monthly cost of care in the region is approximately $1,908.17, which results in a funding gap of $925.14 for providers in San Bernardino County. In Los Angeles County, this gap is $987.33, in Alameda County this gap is $717.05, and in Butte County, this gap is $537.30.

Childcare reimbursement rates have also lagged when compared to increases in the minimum wage. A March 2023 report from the California Budget & Policy Center notes that, while minimum wage has increased 55% from 2016-17 to 2022-23.

Recent changes in childcare. California's childcare system has undergone a number of changes in recent years. In 2019, Governor Newsom signed AB 378 (Limón), Chapter 385, Statutes of 2019, which gave approximately 40,000 childcare providers the right to join a union and collectively bargain with the State of California. In 2021, AB 131 (Committee on Budget), Chapter 116, Statutes of 2021ratified the bargaining contract agreed to between CCPU and the State of California, and codified portions of the agreements related to rate increases, provider stipends, licensing initiatives, and mental health supports. AB 131 also required the State of California and CCPU to create a JLMC for purposes of providing recommendations on a single reimbursement rate system in coordination with a larger working group convened by CDSS (discussed below). The agreement was effective beginning July 26, 2021, and remains in effect until June 30, 2023. As such, CCPU is currently in bargaining negotiations with the state for a new contract that would take effect upon ratification in the state budget.

Additionally, AB 131 transferred administration of certain childcare programs from CDE to CDSS, including, among others: CCTR; Migrant Child Care and Development Program; APPs; CalWORKS stages 2 and 3; Resource and Referral agencies; Local Child Care and Development Planning Councils; and, Head Start and Early Head Start.

Rate and Quality Workgroup Final Report. In addition to the previously discussed changes, and in addition to the aforementioned JLMC, AB 131 established a rate and quality workgroup (RQWG) to be convened by CDSS with diverse stakeholder representation to assess the methodology for establishing reimbursement rates and the existing quality standards for child care and development and preschool programs. AB 131 required the workgroup to submit recommendations to the Legislature no later than August 15, 2022. The workgroup met over a dozen times between January and August 2022 and included the perspectives of early learning and care providers, APPs, childcare experts, families, and representatives of CDSS and CDE.

As a result of its work, the RQWG identified four core recommendations:

1. Ensure equity is foundational to all change – work toward equity as an outcome and implement equity as a process.
2. Replace the current methodology of using a market price survey to set rates with an alternative methodology, which uses cost estimates/models to set base rates to compensate early learning and care programs. The cost of care for meeting current state requirements will become the basis of the reimbursement rate, including wage scales that set a living wage floor.
3. Create a single rate structure that specifies base rates and that is designed to address historical inequities. This structure should specify separate base rates for Family, Friend, and Neighbor care and Home-Based and Center-Cased early learning and care and should differentiate base rates for meeting different sets of state standards.
4. Continuously evaluate the rate-setting methodology to address equity and adjust for changing conditions and rising costs.

Equity Implications: The provisions of this bill seek to address a number of equity issues within the childcare space:

1. Equity for women, such as the women who comprise a large portion of the childcare workforce, as well as the women who rely on childcare as a key support that enables them to enter the workforce;
2. Equity for individuals of color, such as the Black, Indigenous, and Latina women of color who comprise a large portion of the childcare workforce, as well as the users of subsidized childcare, many of whom are families of color;
3. Equity for individuals who are low-income, such as the providers who rely on social safety net services and for whom retirement and health care benefits are costly to obtain, but also the parents who meet income eligibility requirements to qualify for subsidized childcare programs, such as CalWORKs; and,
4. Equity based on geography by eliminating the bifurcated reimbursement system that takes regional costs into account for some providers, but not others.

In its conclusion, the RQWG report states, "Through its recommendations and assessments, the [workgroup] seeks to dismantle a racist, sexist, and classist methodology for setting reimbursement rates for early learning and care programs…By incorporating and implementing the recommendations of this report, California will be well positioned to lead the nation in providing quality, easily accessible early learning and care opportunities for the diverse range of children and families who call California home and for compensating and valuing the educators who serve them."

According to the Author

"[This bill] will help childcare providers and families by transitioning providers to a single reimbursement rate structure for early learning and childcare programs, suspending family fees until an equitable sliding scale for family fees is established, and ensuring providers are paid based on enrollment rather than attendance. California has been subsidizing the true cost of childcare by paying the early learning and childcare workforce low wages and expecting families to pay high family fees for subsidized childcare programs. We need to make childcare more affordable for families and ensure that childcare providers receive a dignified wage that allows them to keep their doors open. With prices skyrocketing, families cannot afford another bill, and we must suspend family fees until an equitable sliding scale for family fees can be established. [This bill] supports a new way to pay childcare providers based on the real cost of care and provides relief to families."

Arguments in Support

The California Child Care Resource and Referral Network writes in support, " AB 596 will help childcare providers and families by transitioning providers to a single cost-based reimbursement rate, suspending family fees until an equitable sliding scale for family fees is established, and funding providers using an enrollment-based contract earning mechanism. This bill is a key opportunity to prioritize and support California's youngest children and their families.

Child care resource and referral agencies are an integral part of helping families find the child care they want and need for their children. R&R specialists are on the front line of hearing the difficulties families have in finding appropriate care. This is often exacerbated by a lack of providers willing to accept child care subsidy as payment, which does not cover the cost of care."

Arguments in Opposition

No opposition on file:

FISCAL COMMENTS

According to the Assembly Appropriations Committee on May 17, 2023:

1. CDE estimates the following:
2. Unknown costs for rate increases from transitioning to the alternative rate methodology. CDE indicates these costs are difficult to calculate and will depend on the amount of funding the Legislature provides for the alternative methodology and how CDSS allocates the intermediate rate increase under the transition methodology this bill requires CDSS to adopt.
3. Total costs of approximately $30.8 million annually ($16.3 million in Proposition 98 and $14.5 million of non-Proposition 98 funding) for waiving family fees. CDE indicates funding will be necessary to cover the cost of waived family fees.
4. General Fund (GF) costs of $1.821 million in FY 2024-25, $1.816 million in FY 2025-26 for state administration. This includes an estimated $1.5 million for an external contractor to support the workgroup needed to develop the new equitable sliding fee scale.
5. Ongoing GF costs of $316,000 annually, beginning in FY 2026-27, for staff to support the ongoing workload, once the workgroup is complete and the equitable scale for the payment of family fees is developed and implemented.
6. Potentially significant GF costs of an unknown amount for CDSS-administered programs related to rate increases, waiving family fees, and state administration.

VOTES

ASM HUMAN SERVICES: 8-0-0

YES: Jackson, Sanchez, Alanis, Arambula, Bonta, Bryan, Calderon, Garcia

ASM EDUCATION: 7-0-0

YES: Muratsuchi, Megan Dahle, Juan Carrillo, Hoover, Lee, McCarty, Quirk-Silva

ASM APPROPRIATIONS: 15-0-1

YES: Holden, Megan Dahle, Bryan, Calderon, Wendy Carrillo, Dixon, Mike Fong, Hart, Lowenthal, Mathis, Papan, Pellerin, Sanchez, Weber, Ortega

ABS, ABST OR NV: Robert Rivas

UPDATED

VERSION: May 1, 2023

CONSULTANT: Alexandria Smith / HUM. S. / (916) 319-2089 FN: 0000598

Date of Hearing: May 17, 2023

ASSEMBLY COMMITTEE ON APPROPRIATIONS

Chris Holden, Chair

ABPCA Bill Id:AB 596

Author:(Reyes) – As Amended Ver:May 1, 2023

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

SUMMARY:

This bill requires the Department of Social Services (CDSS), in consultation with the California Department of Education (CDE), to develop and implement an alternative methodology for calculating subsidy payment rates for childcare and the state preschool program (CPSS) services, requires CDSS, in consultation with CDE, to develop an equitable sliding scale for the payment of family fees, and prohibits family fees from being collected until the new sliding scale is implemented. This bill also increases reimbursements to state preschool and alternative payment providers, as specified.

Among its provisions, this bill:

1. Requires CDSS, in collaboration with CDE, to develop and implement an alternative methodology for calculating subsidy payment rates for child care services and CPSS services, and requires the alternative methodology to build on the recommendations of the workgroup and be aligned to the recommendations of the Joint Labor Management Committee (JLMC), as specified.
2. Requires CDSS, in collaboration with CDE, to develop an interim transition plan, if necessary, to implement the alternative methodology by increasing the various rates to the alternative methodology level over time as funds are appropriated in the annual Budget Act. Requires CDSS to fully implement the alternative methodology commencing in fiscal year (FY) 2027-28.
3. Requires any funding provided in the Budget Act of 2023 to increase reimbursement rates to be distributed using the interim transition plan, if it has been developed, until the alternative methodology is adopted.
4. Requires funding and subsidy payments for child care providers to be based on enrollment of certified children with the contract rates set using the alternative methodology.
5. Requires CDSS, in collaboration with CDE, to review and update this new alternative methodology every three years and to seek preapproval from the U.S. Department of Health and Human Services to change its current methodology for determining child care and preschool payment rates to an alternative methodology, as provided.
6. Requires CDSS, in consultation with CDE, to develop an equitable sliding scale for the payment of family fees and prohibits family fees from being collected until the new equitable sliding scale is implemented.
7. Requires a contracting agency operating a CSPP to be reimbursed based upon enrollment, rather than attendance, as specified.
8. Requires childcare providers operating programs overseen by CDSS, including license-exempt providers, be reimbursed based on a family’s certified hours of need, as determined by the maximum certified hours of care, including those on a variable schedule, regardless of a child’s attendance.

FISCAL EFFECT:

1. CDE estimates the following:
2. Unknown costs for rate increases from transitioning to the alternative rate methodology. CDE indicates these costs are difficult to calculate and will depend on the amount of funding the Legislature provides for the alternative methodology and how CDSS allocates the intermediate rate increase under the transition methodology this bill requires CDSS to adopt.
3. Total costs of approximately $30.8 million annually ($16.3 million in Proposition 98 and $14.5 million of non-Proposition 98 funding) for waiving family fees. CDE indicates funding will be necessary to cover the cost of waived family fees.
4. General Fund (GF) costs of $1.821 million in FY 2024-25, $1.816 million in FY 2025-26 for state administration. This includes an estimated $1.5 million for an external contractor to support the workgroup needed to develop the new equitable sliding fee scale.
5. Ongoing GF costs of $316,000 annually, beginning in FY 2026-27, for staff to support the ongoing workload, once the workgroup is complete and the equitable scale for the payment of family fees is developed and implemented.
6. Potentially significant GF costs of an unknown amount for CDSS-administered programs related to rate increases, waiving family fees, and state administration.

COMMENTS:

1. Purpose. The author seeks to reimburse childcare providers for the true cost of care while also ensuring families have access to quality childcare. According to the author:

[This bill] will help childcare providers and families by transitioning providers to a single reimbursement rate structure for early learning and childcare programs, suspending family fees until an equitable sliding scale for family fees is established, and ensuring providers are paid based on enrollment rather than attendance. California has been subsidizing the true cost of childcare by paying the early learning and childcare workforce low wages and expecting families to pay high family fees for subsidized childcare programs. We need to make child care more affordable to families and ensure that child care providers receive a dignified wage that allows them to keep their doors open.

1. Background. CDE administers state preschool programs which provide age- and developmentally appropriate programs designed to facilitate the transition to kindergarten for three- and four-year-old children. CDSS administers numerous child care and development programs, including, but not limited to, CalWORKs child care, alternative payment programs that provide vouchers for eligible families, and center-based direct-contract child care programs.

California uses two methodologies for determining reimbursement rates for early learning and care services–the Regional Market Rate (RMR) and the Standard Reimbursement Rate (SRR). The RMR is based on regional cost surveys for Title 22 providers, including voucher-based programs, and the SRR is based in statute for Title 5 providers for most direct contract programs. The SRR does not account for geographic costs and neither rate structure accounts for the actual cost of providing care to children.

Existing law requires CDSS, in consultation with CDE, to establish a fee schedule for families using preschool and child care and development services and requires families who use those services to be assessed a family fee based on income, certified family need for full-time or part-time care services, and enrollment. Current law waives family fees for FY 2022–23. The waiver is set to expire in June 2023.

In 2021 the Legislature passed AB 131 (Committee on Budget) Chapter 16, Statutes of 2021, to study rate reform for childcare workers. AB 131 required the State and Child Care Providers United to establish a JLMC to develop recommendations for a single subsidy payment rate structure by November 2022. AB 131 also required CDSS, in consultation with CDE, to convene a working group to assess the methodology for establishing reimbursement rates and the existing quality standards for child care and development and preschool programs. The workgroup released its recommendations in August 2022.

The workgroup recommended implementing a single rate structure for publicly-funded childcare in California, as well as increasing affordability by making adjustments to family fee requirements and to the method in which subsidized contractors earn their contract.

This bill transitions providers to a single subsidy payment rate structure, suspends family fees until an equitable sliding scale for family fees is established, and funds providers based on enrollment.

1. Related Legislation. SB 380 (Limon) is substantially similar to this bill. SB 380 is pending in the Senate Appropriations Committee.

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

Date of Hearing: April 26, 2023

ASSEMBLY COMMITTEE ON EDUCATION

Al Muratsuchi, Chair

ABPCA Bill Id:AB 596 (

Author:Reyes) – As Amended Ver:April 17, 2023

[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 learning and care: rate reform

SUMMARY: Requires the Department of Social Services (DSS), in collaboration with the California Department of Education (CDE), to develop an alternative methodology for calculating subsidy payment rates for childcare and development services using a cost estimation model; requires the DSS to seek approval from the federal government to implement an alternative methodology; requires that any funding provided in the Budget Act of 2023 to increase reimbursement rates be distributed using an interim transition plan until the alternative methodology is adopted; ensures providers of childcare services are reimbursed based upon enrollment or authorized hours of care, rather than enrollment; and prohibits the collection of family fees until an equitable sliding scale is implemented. Specifically, this bill:

1. Expresses the intent of the Legislature that this bill implements the recommendations of the Rate and Quality Workgroup (workgroup), established by the Budget Act of 2021, to create a new subsidy payment rate structure for childcare and development and preschool programs.
2. Requires the DSS, in collaboration with the CDE, to develop an alternative methodology for calculating subsidy payment rates for childcare and development services, including CSPP, and requires the alternative methodology to build on the recommendations of the workgroup and be aligned to the recommendations of the Joint Labor Management Committee (JLMC).
3. Requires the alternative methodology to use a cost estimation model that includes all of the following:
4. Current statutory and regulatory requirements for each program;
5. Staff salaries and benefits;
6. Training and professional development;
7. Curricula and supplies;
8. Group size and ratios;
9. Enrollment levels;
10. Facilities and other costs; and
11. Family engagement.
12. Requires DSS to develop an interim transition plan to implement the alternative methodology by increasing the various rates from their current level to the alternative methodology level over time as funds are appropriated for these purposes in the annual Budget Act, and requires the DSS to fully implement the alternative methodology by the 2027-28 fiscal year, and review and update the alternative methodology every three years.
13. Requires that any funding provided in the Budget Act of 2023 to increase reimbursement rates be distributed using the interim transition plan until the alternative methodology is adopted.
14. Requires the DSS to seek approval from the United States Department of Health and Human Services to amend the state’s current Child Care and Development Fund (CCDF) State Plan to change its current methodology for determining childcare and development and preschool subsidy payment rates to an alternative methodology.
15. Requires the DSS, in consultation with the CDE, to develop an equitable sliding scale for the payment of family fees, and prohibits the collection of family fees for childcare and development programs, including CSPP, until the new sliding scale is implemented.
16. Requires a contracting agency operating a CSPP to be reimbursed based upon enrollment, rather than attendance, by specifying that reimbursement is to be based upon 100% of the contract’s maximum reimbursable amount, or net reimbursable program costs, whichever is less, and requires that family childcare home education networks (FCCHENs) operating CSPPs be reimbursed based upon the maximum certified hours of care for all families certified for a variable schedule, regardless of a child’s attendance.
17. Requires that childcare providers operating programs overseen by the DSS, including license-exempt providers, be reimbursed based on a family’s certified hours of need, as determined by the maximum certified hours of care, including those on a variable schedule, regardless of a child’s attendance.

EXISTING LAW:

1. Establishes the “Child Care and Development Services Act” to provide childcare and development services as part of a comprehensive, coordinated, 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. (Welfare and Institutions Code (WIC) 10207 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 (R&R) programs, and AP arrangements. (WIC 10213.5)
3. Establishes the Early Education Act to provide an inclusive and cost-effective preschool program that provides high-quality learning experiences, coordinated services, and referrals for families to access health and social-emotional support services through full and part-day programs. (Education Code (EC) 8201)
4. Defines “income eligible” for purposes of establishing initial income eligibility for the CSPP as meaning that a family’s adjusted monthly income is at or below 100% of the State Median Income (SMI), adjusted for family size, and for other childcare programs at 85% of the SMI. (EC 8213, WIC 10271.5)
5. Identifies adjustment factors by which reimbursement rates to certain CSPP and childcare providers may be adjusted, as specified. (EC 8244, WIC 10281.5)
6. Establishes the Standard Reimbursement Rate (SRR) beginning July 1, 2021 at $12,888, or $12,968 for full-day CSPP and $5,621 for part-day CSPP, and requires, beginning with the 2022-23 fiscal years, that the SRR be increased by a cost of living adjustment (COLA), as specified. Requires that beginning January 1, 2022, contractors receiving the SRR be reimbursed for the greater of the 75^th percentile of the 2018 Regional Market Rate (RMR) survey or the contracted per child reimbursement rate as of December 31, 2021, as increased by the COLA. (EC 8242)
7. Establishes, beginning January 1, 2022, the Regional Market Rate (RMR) ceilings at the greater of the 75th percentile of the 2018 RMR survey for that region or the RMR ceiling that existed in that region on December 31, 2021. (WIC 10374.5)
8. Requires the Governor and the Child Care Providers Union (CCPU), consistent with the agreement dated June 25, 2021, to establish a JLMC to develop recommendations for a single reimbursement rate structure that addresses quality standards for equity and accessibility while supporting positive learning and developmental outcomes for children. Further, requires the JLMC to develop recommendations and present the recommendations to the Department of Finance (DOF) no later than November 15, 2022 in order to inform the Governor’s proposed budget for the 2023-24 fiscal year. (WIC 10280.2)
9. Requires the DSS, in consultation with the CDE, to convene a working group separate from the JLMC to assess the methodology for establishing reimbursement rates and the existing quality standards for childcare and development and preschool programs, as specified. Further, requires the workgroup to, no later than August 15, 2022, provide recommendations, including, but not limited to, recommendations on how the DSS should define childcare workforce competencies and how these competencies would align with rate reform, to the JLMC, DOF, and the Joint Legislative Budget Committee. (WIC 10280.2)

FISCAL EFFECT: Unknown

COMMENTS:

Addressing the need to revise the childcare reimbursement system. This bill would build upon the recommendations made by these stakeholder workgroups and would implement an alternative methodology for reimbursing childcare providers. In adopting an alternative methodology, this bill seeks to reimburse childcare providers for the true cost of care while also ensuring families in California have access to quality childcare. Specifically, this bill requires the DSS, in consultation with the CDE, to develop an alternative methodology for calculating subsidy payment rates for childcare and CSPP services. The Committee may wish to consider whether there is a need to define the role of the Legislature in establishing an alternative methodology, such as requiring approval by the Joint Legislative Budget Committee.

This bill would also require a new, equitable sliding scale for collecting family fees to be developed, and would prohibit family fees from being collected until the sliding scale is implemented in order to prevent families who rely on subsidized childcare from shouldering the costs of care. The Committee may wish to consider whether there is a need to define “equitable sliding scale” and to place a timeframe on the waiving of family fees.

Need for the bill. According to the author, “AB 596 will help childcare providers and families by transitioning providers to a single reimbursement rate structure for early learning and childcare programs, suspending family fees until an equitable sliding scale for family fees is established, and ensuring providers are paid based on enrollment rather than attendance. California has been subsidizing the true cost of childcare by paying the early learning and childcare workforce low wages and expecting families to pay high family fees for subsidized childcare programs. We need to make child care more affordable to families and ensure that child care providers receive a dignified wage that allows them to keep their doors open. With prices skyrocketing, families cannot afford another bill, and we must suspend family fees until an equitable sliding scale for family fees can be established. AB 596 supports a new way to pay child care providers based on the real cost of care and provides relief to families.”

California has a complex system of early childhood programs. California’s subsidized early care and education (ECE) is made up of a complex array of programs serving children from birth through 13 years, funded through a mix of federal and state dollars, and administered through a mixed delivery system by local educational agencies (LEAs) and community-based providers. The major ECE programs include, but are not limited to, the following:

Source: Legislative Analyst Office (LAO), 2023

According to the LAO, since 2021-22, the state has added 146,600 childcare slots, which has more than doubled the number of slots statewide. California had approximately 560,000 licensed center spaces for all children from birth to 6 years, and 268,000 licensed family childcare home spaces for all children from birth to 12 in 2021. California still lacks the licensed capacity to meet the need for childcare and preschool services.

Reimbursement for childcare is complex. Subsidized childcare providers in California are reimbursed based upon either the Regional Market Rate (RMR) or the Standard Reimbursement Rate (SRR):

1. RMR. Voucher-based programs, including CalWORKs and the APP, are required to follow Title 22 health and safety regulations and are reimbursed based upon the RMR. In California the RMR survey collects data about the prices that early learning and care programs charge for nonsubsidized care, in addition to other information. This information is then used by the Legislature to determine the reimbursement ceilings for each county, determine ceilings across different early learning and care settings (e.g., centers, family child care homes), and used to determine ceilings based on other characteristics of the services provided (e.g., part-day, full-day, age group). Federal regulations require the use of the most recent survey in determining reimbursement ceilings, but states have flexibility in how they use the survey results. Specifically, states can set reimbursement ceilings at a certain percentile of the survey. As of June 2022, the reimbursement ceilings in California were based on the 2018 RMR survey, inclusive of a hold harmless provision.
2. SRR. Until January 1, 2022, California used the SRR for most direct contract programs that follow Title 5 education quality standards in addition to Title 22. These include the CSPP and CCTR. The SRR is specified in the annual Budget Act. The SRR was structured as a base rate with adjustment factors for length of service (hours enrolled per day) and specific populations (e.g., infants, children with severe disabilities, limited and non-English speaking). These adjustment factors were applied to the SRR on a per child basis. The SSR is a single statewide rate with no regional variation (e.g., $51.87 per day for CSPP just prior to the January 1, 2022, changes). The SRR was lower for some programs than the rate they would have received through the RMR, even though the SRR-reimbursed programs were required to meet additional educational program quality requirements in addition to licensing standards.

In 2021-22, the state shifted direct contract providers to the RMR to the extent the relevant RMR was higher than the SRR. The current weighted statewide average is $62.03 per child per day for full-day CSPP and $38.84 for part-day CSPP.

Childcare reimbursements failing to support quality childcare. The U.S. Department of the Treasury (DOT) notes that the following factors contribute to the market failure of early learning and care:

• Quality early learning and care services benefit society by supporting overall positive child development outcomes and supporting families’ abilities to work;
• Most families are unable to pay for the cost of quality early learning and care for their children;
• Early learning and care programs do not receive sufficient revenue, either by private fees collected from families or by the public subsidy system, to meet the true cost of providing quality care, having the impact of limiting the extent to which families can access care and learning opportunities for their children; and
• Early learning and care educators are underpaid. In part, this is because early learning and care educators are disproportionately women of color who are undervalued and underpaid in the labor market broadly.

The DOT goes on to describe how the federal and state governments contribute to the market failure in the reimbursement rate system:

• The current institutionalized structure for rate setting, using a RMR survey, sets rates based on prices charged to families, which programs often deflate based on families’ abilities to pay. This regionalized rate-setting structure institutionalizes low rates in low-income areas;
• Government subsidies and current levels of public investment fail to provide sufficient funding to cover the cost of providing quality early learning and care;
• Government has not invested sufficient funds to ensure families can afford child care;
• Early learning and care programs make ends meet by limiting the compensation and benefits provided to their staff or themselves;
• There is a shortage of licensed child care programs and early learning and care opportunities for the children and families that need them; and
• The impacts of these failures are disproportionately felt by low-income women of color, from the family fees they pay to utilize early learning and care services for their children to the low wages they receive when providing these services themselves.

Impacts of inadequate reimbursement rates on childcare workers. According to estimates by the Center for the Study of Childcare Employment at the University of California, Berkeley, there are approximately 116,800 members of the early learning and care workforce in California. The members of this workforce experience considerable inequities when examined by race, setting type, and job position.

Early educators must meet different requirements depending on the type of program/setting they work in. Research suggests that fewer women of color and fewer women who immigrated to the United States have access to higher education opportunities that lead to the educational qualifications required for higher paying roles. (Park, 2015) Barriers include cost, time and location of coursework, low rates of admission to public universities, and cultural and linguistic barriers.

In 2019, the median hourly wage in California was $13.41 for childcare workers and $16.83 per hour for preschool teachers, compared to $41.86 per hour for kindergarten teachers. Black and Latina early educators are more likely to earn lower wages than their White colleagues, and in California, 39% of White center-based staff earned less than $15 an hour, compared to 57% of African American staff and 59% of Latina staff. (McLean, 2021) Many segments of the early learning and care workforce in California do not receive health and retirement benefits, payment for personal or sick leave, or paid time off for planning, or professional development. The poverty rate for childcare workers in California is 17%, compared to 8.7% for California workers in general, and 2.5% for K-8 teachers. (Gould, 2020)

Actual costs of care. A key component of the childcare reimbursement rate conversation is that oftentimes the reimbursement rates paid to providers do not cover the true cost of care. Recent increases in inflation have resulted in higher costs to providers when purchasing the supplies necessary to maintain quality care, such as milk, baby formula, and baby wipes. A March 2023 brief from the Child Care Resource Center demonstrates that the cost of providing care for a preschooler in a full-time childcare center exceeds the current reimbursement rate and the 2018 rate when adjusted for inflation. For example, in San Bernardino County, the 75th percentile of the 2018 RMR survey equates to a rate of $983.03; when adjusted for inflation in 2023, this reimbursement rate should be $1,092. The brief notes that the monthly cost of care in the region is approximately $1,908.17, which results in a funding gap of $925.14 for providers in San Bernardino County. In Los Angeles County, this gap is $987.33, in Alameda County this gap is $717.05, and in Butte County, this gap is $537.30.

Childcare reimbursement rates have also lagged when compared to increases in the minimum wage. A March 2023 report from the California Budget & Policy Center notes that, while minimum wage has increased 55% from 2016-17 to 2022-23:

The rate ceilings for childcare providers across all 58 counties generally have not kept pace with the rising minimum wage after the most recent increase to payment rates enacted in 2021-22. In the state’s most populous county – Los Angeles – payment rates for licensed childcare centers for preschool-aged children increased by less than half as much as the statewide minimum wage. Providers in some counties, such as Riverside County, saw miniscule rate increases of less than 5%. And in 27 counties, due to weaknesses in the rate-setting methodology, licensed centers have not received a single rate increase for care for preschool-age children since 2016-17. Policymakers have not consistently updated the SRR each year so that contract providers can keep pace with rising staff costs and the increasing price of food and supplies. From 2016-17 to 2022-23, the SRR increased by 36.6%, falling short of the 55% increase in the state minimum wage.

Family fees and mixed income programs. The Childcare Development Fund (CCDF) – a federal funding stream that helps states cover the cost of certain childcare programs – requires states to establish a sliding fee scale for families that receive childcare services supported by federal funds. As such, some parents pay a fee to help cover the costs of needed care. These family fees are assessed based on income and family size, but cannot be based on the cost of care or the amount of subsidy payment that a family receives. Current law permits, at the state’s discretion, family fees to be waived for families who meet certain criteria, including families that have an income at or below the federal poverty level (FPL); the 2023 FPL for a family of three is $24,860. Beginning in April 2020, family fees have been waived in California for all families receiving subsidized childcare through the following actions:

1. On April 4, 2020, Governor Newsom signed Executive Order N-45-20, which suspended family fees for a period of 60 days.
2. SB 820 (Committee on Budget and Fiscal Review), Chapter 110, Statutes of 2020, later waived family fees for all subsidized children in July and August 2020, and included a waiver of family fees beginning September 1, 2020, through June 30, 2021.
3. AB 131 (Committee on Budget), Chapter 116, Statutes of 2021, waived family fees for the 2021-22 Budget Year.
4. AB 210 (Committee on Budget), Chapter 62, Statutes of 2022, extended the pause on collection of family fees for the 2022-23 fiscal year.

According to the DSS, approximately $88 million in family fees will be waived in the 2022-23 fiscal year. Currently, family fees are scheduled to resume on July 1, 2023; however, the provisions of this bill would prohibit the collection of family fees until the new, equitable sliding scale, as established by the provisions of this bill, is created and implemented. This bill does not define “equitable sliding scale.” The Committee may wish to consider whether there is a need to clarify this provision. For example, is the intent to extend the provision of family fees to those families not qualifying for subsidized childcare to allow for mixed income classrooms?

Mixed income programs benefit all children. Research suggests that all children can benefit from universal or mixed income programs, but they tend to benefit children from lower-income households the most. Some of the key research findings include the following:

• A study with 3,396 4-year-old children in 486 primarily publicly-funded preschool classrooms found that concentrated poverty in preschool classrooms was associated with lower language and reading skills in kindergarten in part through children's exposure to less cognitively-skilled peers. (Coley, 2019)
• In a study that compared test scores of thousands of 4-year-olds in more than 30 states, children from low-income families in states where preschool programs also welcomed children from other economic backgrounds showed far better reading test score gains when they enrolled in public preschool than children in states with programs targeted only to disadvantaged children. (Cascio, 2021)
• In a sample of over 700 PreK classrooms, researchers found that increasing aggregate classroom income between $22,500 and $62,500 was related to improvements in children’s math scores. Results suggest that economically integrated pre-K programs may be more beneficial to preschoolers from low-income households’ achievement than classrooms targeting economically disadvantaged children. (Miller, 2017)
• In a study conducted in the Boston Public Schools prekindergarten programs, there was a positive effect of mixed income classrooms-- where lower-income kids had greater gains in vocabulary and executive function skills when they had a higher percentage of peers with higher incomes in their classroom. (Weiland, 2014)
• In a study with 3,000 children in public preschool programs across 11 states researchers found small associations between mean classroom socioeconomic status and children’s gains in math and language skills during the preschool year. Authors concluded that concentrated poverty in preschools may inhibit children's skill development. (Reid, 2013)

Improving California’s subsidized childcare system. In recent years, a number of working groups have examined subsidized childcare in California and made recommendations to reform and improve the system as it relates to equity, eligibility, and provider reimbursement rates.

First 5 California Reimbursement Rate Workgroup. This group, which released its report in November 2018, recommended that California implement comprehensive rate reform by, among other things, incentivizing quality, using the RMR to reimburse all counties at a rate that considers regional economic costs, and conduct ongoing reviews of rate changes to understand their impacts on the childcare system and make adjustments as needed.

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. The final report, issued on April 1, 2019 included recommendations related to reimbursement rates and family fees:

• The BRC concurs with the multi-step recommendations of the Rates Working Group, convened by First 5 California, to implement comprehensive rate reform through a multi-step process. Their 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.
• In the long-term, the reimbursement rates for Title 5 and 22 programs should include competitive compensation that increases with quality improvement.
• In the near term, the reimbursement rates for Family, Friend and Neighbor (FFN) should make the compensation floor the state minimum wage.
• Family payments for families at the lowest income level should be reduced to zero, and if a family contribution is required for a program, it should progressively rise as a share of family income.

Master Plan for Early Learning and Care (Master Plan). The Budget Act of 2020 appropriated $5 million for a long-term strategic plan to provide a roadmap to comprehensive, quality, and affordable childcare and preschool for children from birth through age twelve, including a fiscal framework that provides for ongoing funding to significantly expand early learning and care in the state, including options to generate needed revenues and examine alternative funding streams. The final report was released in December 2020, and recommends the adoption of a tiered reimbursement rate with appropriate adjustments:

Adopting a new reimbursement rate structure provides an anchor to transform the early learning and care system around the key values of equity and quality. The current structure has multiple independent rates. It lacks cohesion. Moving to a tiered reimbursement rate would facilitate connections that are currently lacking and help clarify and encourage workforce development, a key factor in improving quality. California’s subsidy reimbursement structure shares some features in common with other states but differs most notably on reimbursing for higher quality.

The Master Plan goes on to say that adopting a rate structure that includes all state-subsidized

programs and funding would support:

• Equity: A unified approach would allow for a similar reimbursement given the program and child contexts—and the associated cost differential—regardless of the funding stream;
• Simplicity: A unified reimbursement structure would be less costly for the state to administer and for providers to manage; and
• Quality: Reimbursement rates would vary with key quality cost drivers such as the staff-child ratio and teacher qualifications, and would incentivize providers to adopt and maintain higher quality.

UPK Mixed Delivery Quality and Access Workgroup. In September 2022, AB 185 (Committee on Budget), Chapter 571, Statutes of 2022, established the Universal Pre-K Mixed Delivery Quality and Access Workgroup in order to provide recommendations on best practices for increasing access to high-quality universal preschool programs for three- and four-year old children offered through a mixed-delivery model. The legislation required the workgroup to include key stakeholders, including: representatives from COEs; community-based organizations; TK programs; R&Rs; APPs; CCTR programs serving preschool-age children; and, private, center-based preschool providers, among others, as specified in current law.

The provisions of AB 185 required the workgroup to be established no later than December 1, 2022, and required the SPI, in consultation with the Director of the DSS, to provide a report to the Legislature and DOF no later than January 15, 2023. The Governor’s Budget of 2023 proposes to extend the deadline for the delivery of the workgroup’s report.

CCPU’s JLMC reimbursement rate system recommendations. AB 131, Chapter 116, Statutes of 2021, required that California establish a JLMC comprising representatives of the State and of the Child Care Providers United Union (CCPU) to develop recommendations for a single reimbursement rate structure that addresses quality standards for equity and accessibility while supporting positive learning and developmental outcomes for children.

Rate and Quality Workgroup (RQWG). Similarly, the RQWG, established by AB 131, Chapter 116, Statutes of 2021, and administered by CDSS, was formed. Members of the RQWG include representatives from CCPU, state-funded center-based contractors, childcare and development experts, family representatives, Head Start programs, Alternative Payment Programs (APP), and the administration. The RQWG was tasked with making recommendations to:

• Work toward equity as an outcome and implement equity as a process;
• Replace the current methodology for setting rates with an alternative methodology that would, among other things, set a living wage floor;
• Create a single rate structure to address historical inequities; and,
• Continuously reevaluate the rate-setting methodology to address equity and adjust for changing conditions and rising costs.

Among the final recommendations of the RQWG are the following:

• Use an alternative methodology instead of the current market rate survey to set base rates to compensate early learning and care providers for the cost of meeting current state requirements. The price of early learning and care in a broken market should no longer be the basis for setting reimbursement rates;
• Create a single rate structure that specifies base rates and is designed to address historical inequities; and
• Continuously evaluate the rate-setting methodology to address equity and adjust for changing conditions and rising costs.

What is an alternative methodology? The 2014 reauthorization of the Child Care and Development Block Grant (CCDBG) Act redefined federal requirements, and now states have two options for how they set rates:

• A statistically valid and reliable survey of the market rates for childcare services in the state that reflects variations in the cost by geographic area, type of provider, and age of child; or
• An alternative methodology, such as a cost estimation model.

An alternative methodology for rate setting may be a cost study or a cost estimation model. A cost study involves collecting data from providers about their current costs of operating a program that meets licensing standards as well as other quality standards, reflecting point-in-time data about provider costs.

A cost estimation model involves building a tool that is informed by provider data and that can run multiple scenarios to estimate the impact of several variables on cost, such as program characteristics (e.g., size and ages of children served), child populations served, program quality, and location in the state.

Any alternative methodology used in lieu of a market rate survey must be approved in advance by the federal Administration for Children and Families as part of the State’s Childcare Development Fund (CCDF) plan. Since, CCDF plans are submitted for approval every three years, the process of establishing rates using an alternative methodology can take multiple years. In California, the DSS now has overall responsibility for the CCDF.

Urgent need for reimbursement rate increases. The RQWG, recognizing the urgency of the crisis in California’s childcare system, further recommends that the state not wait for an alternative methodology approval from the federal government before raising current reimbursement rates. They recommend that the state invest more funding for reimbursement rates immediately as providers are struggling to maintain programs with current funding based upon 2018 market rates.

Recommended Committee Amendments. Staff recommend that the bill be amended as follows:

1. Require that the DSS collaborate with the CDE in all aspects of developing, reviewing, and updating the alternative methodology and interim plan for childcare reimbursement rates.
2. Require the DSS, in collaboration with the CDE, to submit recommendations on the alternative methodology, for approval by the Joint Legislative Budget Committee, prior to seeking federal approval, and prior to implementing the alternative methodology.
3. Clarify that General Child Care Program providers are included in the requirement to be reimbursed at 100% of the contract maximum reimbursable amount or net reimbursable program costs, whichever is less.

Arguments in support. EveryChild California, a co-sponsor of the bill, writes “California needs a rate system that covers the full cost of care. The new rate system must include the full cost of care, eliminating the need to charge families fees for those making below 75% of the State Median Income. Today, there are childcare, preschool, and Head Start centers with empty classrooms, not for the lack of families in need of care, but rather the centers cannot find staff willing to work for the low wages offered because of the current low reimbursement rate. In certain regions of California, providers are so short staffed, they must close for a day when a teacher calls in sick, leaving families scrambling to find care and/or forcing parents to stay home from work.

Providers cannot wait another year to receive a rate increase without harming California’s ECE system, children, and families across the state. Children who were born during the pandemic are going to need additional support for their social and emotional development. A well-funded mixed-delivery system, which includes both community-based providers and LEAs is essential.

The ECE system has a unique place in our economy because it is necessary for all parents/guardians to work. Regardless of your tax bracket, parents and guardians need someone to care for and educate their children to work. Continuing to underfund the reimbursement rates means more providers will permanently close their doors, leaving families scrambling to find care and education programs for their children and limiting parents' and guardians' participation in the labor market.”

Related legislation. SB 380 (Limon) of the 2023-24 Session is substantially similar to this bill.

AB 210 (Committee on Budget), Chapter 62, Statutes of 2022, extended provisions of the 2021 Budget Act enacted during the COVID-19 pandemic to waive family fees for childcare and create hold harmless policies for the 2022-23 fiscal year, including CSPP.

AB 92 (Reyes) of the 2021-22 Session would have made changes to the amount of family fees collected for preschool and childcare and development services and would have prohibited providers from absorbing any reduction in pay due to waivers in family fees. AB 92 was vetoed by Governor Newsom with the following message:

The author's advocacy for California's working families is commendable. Like the author, expanding access to high quality early learning and care programs for babies and toddlers is a priority of my Administration. That's why the 2022 Budget Act included significant investments in preschool and childcare including family fee waivers for the 2022-23 fiscal year, an income threshold increase for the State preschool program from 85% to 100% of state median income, and funding to allow providers to stay open even if enrollment is down due to COVID-19.

While the intent of this bill is consistent with our previous budget actions, it creates costs in the tens of millions of dollars not currently accounted for in the state's fiscal plan. With our state facing lower-than-expected revenues over the first few months of this fiscal year, it is important to remain disciplined when it comes to spending, particularly spending that is ongoing. We must prioritize existing obligations and priorities, including education, health care, public safety and safety-net programs.

AB 131 (Committee on Budget), Chapter 116, Statutes of 2021, among other things, established a Rate Reform workgroup to be convened by the DSS for recommendations on rate methodology and existing program standards, including licensing standards, quality and environmental standards, and workforce competencies. Further, required the workgroup to submit recommendations to the Legislature no later than August 15, 2022 in order to inform the Joint Labor Management Committee recommendations on a single reimbursement rate system.

SB 246 (Leyva) of the 2021-22 Session would have required the DSS to establish a single reimbursement rate for early learning and care programs, including variation for regional costs and quality adjustment factors. This bill was held in the Assembly Education Committee.

SB 174 (Leyva) of the 2019-20 Session would have required that specified providers of subsidized childcare be reimbursed based upon an updated RMR as of January 1, 2021; would have established the “Quality Counts California Pilot Reimbursement Program,” to provide higher reimbursement rates to APP providers for meeting certain quality standards. This bill was held in the Assembly Appropriations Committee.

AB 125 (McCarty) of the 2019-20 Session would have revised 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 would have established the “Quality County California Pilot Reimbursement Program” as a pilot program to provide higher reimbursement rates to APPs for meeting certain quality standards. This bill was held in the Senate Appropriations Committee.

SB 820 (Committee on Budget and Fiscal Review), Chapter 110, Statutes of 2020, among other things, waived, from September 1, 2020, to June 30, 2021, family fees for specified subsidized early learning and care programs for families who are not receiving in-person services or who are sheltering-in-place due to COVID-19.

AB 86 (Committee on Budget and Fiscal Review), Chapter 48, Statutes of 2019, among other things, simplified family fees for families receiving state-subsidized child care by creating a process for the CDE to adopt a new fee schedule that will provide more predictable fees through a cost-neutral change to the current fee structure and required CDE to report family fees collects for preschool programs to the DOF.

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. This bill was held in the Senate Appropriations Committee.

REGISTERED SUPPORT / OPPOSITION:

Support

American Federation of State, County and Municipal Employees

Buena Park School District

California African American Chamber of Commerce

California Alternative Payment Program Association

California Association for The Education of Young Children

California Catholic Conference

California Child Care Resource and Referral Network

California Children's Academy

California Family Child Care Network

California Family Resource Association

California Legislative Women's Caucus

California Work and Family Coalition

Cambridge Community Center

Caring Across Generations

Catalyst California

Catalyst Family

Child Abuse Prevention Center

Child Care Alliance of Los Angeles

Child Care Law Center

Child Care Providers United

Child Care Resource Center

Children Now

Children's Council of San Francisco

Children's Paradise

City of Colton

Community Child Care Council of Sonoma County

Connections for Children

Courage California

Drew Child Development Corporation

Early Care and Education Consortium

Early Edge California

Educational Enrichment Systems

Edvoice

Equal Rights Advocates

Everychild California

Everychild Foundation

First 5 Riverside County

Friends Committee on Legislation of California

Grace Institute - End Child Poverty in Ca

Head Start California

Healthy Solutions Rising STAR Preschool

Indivisible CA Statestrong

Isla Vista Youth Projects

John Burton Advocates for Youth

Kai Ming Head Start

Kidango

Kindercare Learning Companies

Long Beach Day Nursery

Los Angeles County Office of Education

Low Income Investment Fund

Marin Child Care Council

Mount Saint Mary's University

National Council of Jewish Women-California

New Life Discovery Schools

Options for Learning

Para Los Ninos

Parent Voices California

Pathways LA

Peninsula Family Service

S & B Inc., Dba Happy Kids Preschool and Child Care Centers

San Bernardino County District Advocates for Better Schools

San Mateo County Family Child Care Organization

Silicon Valley Community Foundation

Small Business Majority

Tehama County Department of Education

The Children's Collective

The Education Trust - West

YMCA of San Diego County, Childcare Resource Service

YMCA of The East Bay

Numerous individuals

Opposition

None on file

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

Date of Hearing: March 28, 2023

ASSEMBLY COMMITTEE ON HUMAN SERVICES

Corey A. Jackson, Chair

ABPCA Bill Id:AB 596 (

Author:Reyes) – As Amended Ver:March 21, 2023

SUBJECT: Early learning and care: rate reform

SUMMARY: Requires the California Department of Social Services (CDSS), in consultation with the California Department of Education (CDE), to develop and implement an alternative methodology for calculating subsidy payment rates for childcare and California State Preschool Program (CSPP) services, requires an equitable sliding scale for the payment of family fees be developed, and prohibits family fees from being collected until the sliding scale is implemented. Specifically, this bill:

1. States Legislative intent that the provisions of this bill implement the recommendations of the Rate and Quality Workgroup (RQWG) to create a new subsidy payment rate structure for childcare and development and preschool programs.
2. Makes inoperative, beginning on the date that CDE notifies the Legislature that CDE has adopted the alternative methodology established by the provisions of this bill, provisions of current law that require CDE, in collaboration with CDSS, to implement a reimbursement system that establishes reasonable standards and assigned reimbursement rates as specified below in 5). Further, repeals those provisions of existing law on January 1 of the following year following the date on which CDE notifies the Legislature that an alternative methodology has been adopted.
3. Requires CDE, in collaboration with CDSS, to implement the alternative methodology for calculating reimbursement rates for CSPP to be developed by the provisions of this bill, and, further, makes this requirement operative on the date that CDE notifies the Legislature that the department has adopted the alternative methodology, as specified.
4. Prohibits family fees for full-day preschool services from being collected until the new equitable sliding scale is established and implemented, as required by the provisions of this bill.
5. Requires CDSS, in collaboration with CDE, to develop an alternative methodology for calculating subsidy payments for certain childcare services and CSPP, and, further, requires the alternative methodology to:
   1. Build upon the recommendations of the RQWG and be aligned with the Joint Labor Management Committee (JLMC), as defined in current law; and,
   2. Use a cost estimation model that includes all of the following:
      1. Program models that meet the current statutory and regulatory requirements for each program;
      2. Staff salaries and benefits;
      3. Training and professional development;
      4. Curricula and supplies;
      5. Group size and ratios;
      6. Enrollment levels;
      7. Facilities and other costs; and,
      8. Family engagement.
6. Instructs CDSS to develop a transition methodology to implement the alternative methodology by increasing the various rates from their current level to the alternative methodology level over time and as funds are appropriated in the annual Budget Act.
7. Requires, beginning in fiscal year 2027-28, CDSS to fully implement the alternative methodology.
8. Requires any funding provided in the Budget Act of 2023 to increase reimbursement rates be distributed using the transition methodology established by the provisions of this bill and until the alternative methodology is adopted.
9. Requires funding and subsidy payments to be based on enrollment of certified children with the contract rates set using the alternative methodology.
10. Requires CDSS to review and update the alternative methodology every three years, and, further, requires CDSS to seek preapproval from the United States Department of Health and Human Services to amend the state’s current Child Care and Development Fund (CCDF) State Plan to change its current methodology for determining childcare and development and CSPP subsidy payment rates to an alternative methodology as specified above in 5).
11. Makes inoperative certain provisions of existing law related to the current reimbursement system and family fees, as specified, as well of provisions of this bill related to the requirement that CDSS on the date that CDSS notifies the Legislature that CDSS has adopted the alternative methodology, and repeals those provisions as of January 1 of the following year.
12. Makes operative, beginning on the date that CDSS notifies the Legislature that the department has adopted an alternative methodology, certain provisions of this bill that require CDSS, in consultation with CDE, to implement an alternative methodology for calculating subsidy payments rates as specified in 5).
13. Requires CDSS, in consultation with CDE, to develop an equitable sliding scale for the payment of family fees, and, further, prohibits family fees from being collected until the new equitable sliding scale is implemented.
14. Makes Legislative findings and declarations related to the assessment and revision of reimbursement rates for childcare and development and preschool programs, as specified.

EXISTING LAW:

1. Transfers responsibility for specified childcare programs, other than the CSPP, from CDE to CDSS effective July 1, 2021. (Welfare and Institutions Code Section [WIC] 10203 et seq.)
2. Establishes the “Child Care and Development Services Act” to provide childcare and development services as part of a comprehensive, coordinated, 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. (WIC 10207 et seq.)
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. (WIC 10207.5)
4. 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. (WIC 10213.5(j))
5. Designates CDSS as the single state agency responsible for the promotion, development, and provision of care of children in the absence of their parents during the workday or while engaged in other activities which require assistance of a third party or parties, and, further, requires CDSS to administer the federal CCDF as defined in current federal law. (WIC 10211, 45 Code of Federal Regulations 98.2)
6. 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. (WIC 10271)
7. Requires CDSS, in consultation with CDE, to establish a fee schedule for families using preschool and child care and development services, and, further states Legislative intent that the new fee schedule be simple and easy to implement. (Education Code Section [EDC] 10290(a))
8. Requires the Superintendent of Public Instruction to use the fee schedule developed in conjunction with CDSS, as specified, for families using full-day preschool (EDC 8252(a))
9. Prohibits family fees from being collected for the 2021-22 and 2022-23 fiscal years, and, further, requires, during the 2022-23 fiscal year, contractors to reimburse subsidized childcare providers for the full amount of the certificate or voucher without deducting family fees. (EDC 10290(h)(i)(j))
10. Requires CDSS, in consultation with CDE, to implement a reimbursement system plan that establishes reasonable standards and assigned reimbursement rates, which vary with the length of program year and the hours of services. (WIC 10280(a))
11. Establishes, beginning July 1, 2021, the Standard Reimbursement Rate (SRR) to be $12,888 and, further, requires, beginning with the 2022-23 fiscal year, that the SRR be increased by the cost-of-living adjustment granted by the Legislature as enumerated in EDC 42238.15. (WIC 10280(b))
12. Requires the cost of child care services for recipients of the California Work Opportunity and Responsibility to Kids Program (CalWORKs) be governed by regional market rates, and, further, defines “regional market rate” as care costing no more than 1.5 market standard deviations above the mean cost of care for that region. (WIC 10374.5(a))
13. Establishes, beginning January 1, 2022, the Regional Market Rate (RMR) ceilings at the greater of: the 75th percentile of the 2018 RMR survey for that region; or, the RMR ceiling that existed in that region on December 31, 2021. (WIC 10374.5(b)(2))
14. States Legislative intent to reimburse childcare providers at the 85th percentile of the most recent RMR survey. (WIC 10374.5(a))
15. Requires, beginning January 1, 2022, contractors who, as of December 31, 2021, received the SRR to be reimbursed at the greater of the following: the 75th percentile of the 2018 RMR survey; or, the contract per-child reimbursement amount as of December 31, 2021. (WIC 10280(c)(1))
16. Requires the Governor and the Child Care Providers Union (CCPU), consistent with the agreement dated June 25, 2021, to establish a JLMC to develop recommendations for a single reimbursement rate structure that addresses quality standards for equity and accessibility while supporting positive learning and developmental outcomes for children. Further, requires the JLMC to develop recommendations and present the recommendations to the Department of Finance (DOF) no later than November 15, 2022 in order to inform the Governor’s proposed budget for the 2023-24 fiscal year. (WIC 10280.2(a))
17. Requires CDSS, in consultation with CDE, to convene a working group separate from the JLMC, to assess the methodology for establishing reimbursement rates and the existing quality standards for childcare and development and preschool programs, as specified. Further, requires the workgroup to, no later than August 15, 2022, provide recommendations, including, but not limited to, recommendations on how CDSS should define childcare workforce competencies and how these competencies would align with rate reform, to the JLMC, DOF, and the Joint Legislative Budget Committee. (WIC 10280.2(b))

FISCAL EFFECT: Unknown, this bill has not been analyzed by a fiscal committee.

COMMENTS:

Background: State-subsidized childcare. Subsidized childcare in California seeks to support healthy child development and support children of parents who may be: working; in training; seeking employment; incapacitated; or, in need of respite. Subsidized childcare is available to families through a number of programs, including, among others:

• CalWORKs, which provides childcare in three “stages” to families receiving CalWORKs benefits, but also to families who are transitioning from or are no longer receiving CalWORKs aid;
• Alternative Payment Programs (APPs), which provide vouchers to families who may then obtain childcare in a center, family childcare home, or from a license-exempt provider;
• CSPP, which provides culturally, developmentally, and linguistically appropriate curriculum to eligible three- and four-year olds; and,
• General Child Care (CCTR), which includes contracted centers and family childcare homes.

A February 2023 report from the Legislative Analyst’s Office (LAO) states that, in Budget Year 2022-23, California is providing funding to serve approximately 713,000 children through the following childcare slot allocations: 127,800 slots for all three stages of CalWORKs; 161,300 slots allocated for APPs; 211,000 total slots for full- and part-time CSPP; and, 78,500 slots for CCTR.

Childcare users and providers. While eligibility criteria varies based on program type, subsidized childcare in California serves primarily low-income families. To qualify for CalWORKs and therefore subsidized childcare, families must meet certain income criteria, and grant amounts are adjusted based on family size, income level, and region. Families are also eligible for subsidized care if the family has an income that is less than 85% of the state median income. For a family of three, this equates to $82,102, and for a family of four, this equates to $95,289, according to the February 2023 LAO report. In October 2022, CDSS released its Child Care Transition Quarterly Report, which found that, in fiscal year 2021-22, 315,566 children were served in a subsidized childcare program. Excluding children served through CalWORKs Stage 1 and the Emergency Bridge Program for Foster Children, the following were the demographics of families receiving subsidized childcare: 54.1% Hispanic, 20.6% White, 19.9% Black, and 3.5% Asian. Sixteen percent of children served were Dual Language Learners, and of those, 71.6% spoke Spanish, 6.2% spoke Armenian, 5.4% spoke Cantonese, and 12.5% spoke another language.

As it relates to providers, a February 2022 research brief entitled “‘The Forgotten Ones’ – The Economic Well-Being of Early Educators during COVID-19” found that: “Virtually all early educators are women, the vast majority are women of color, and a substantial number were born outside the United States. Compared to working adults in California, members of the [Early Care and Education] workforce tend to earn lower wages, and their economic well-being suffers as a result.” The brief also found that, while the majority of family childcare providers own their home, only 39.9% of center-based teachers are homeowners, compared to 54.7% of working California adults statewide. Around one-third of family childcare providers and center-based teachers require at least one form of public assistance, such as Medi-Cal, and approximately 17.5% of family childcare providers under age 40 rely on food assistance. One-third of family childcare providers and center-based teachers reported that they lack the quality or kinds of food they need; this number increases to 39% for center-based teachers who are women of color, and 42% for educators who are immigrants. Data from the UC Berkeley Center for the Study of Child Care Employment also found that the income of childcare workers range from $16,200 to $30,000, only about one-fifth of providers have retirement savings, and at least 16% have no health insurance.

Research demonstrates that California’s subsidized childcare system consists primarily of low-income women of color providing care to children and families who are predominately low-income individuals of color.

Paying for subsidized childcare. Childcare providers in California are paid through either vouchers or direct care contracts with the state. Providers that care for children in a voucher-based program (described in the table below) are reimbursed using the RMR which is based on a survey of licensed childcare providers, as well as the prices charged by providers that are paid by parents within a given market region. The RMR survey is administered every two to three years and reflects the prices that providers charge families for care, though it is worth noting that oftentimes providers base tuition on what families in their communities can afford, rather than on the actual cost of care. AB 131 (Committee on Budget), Chapter 116, Statutes of 2021, increased the RMR, beginning January 1, 2022, to the 75th percentile of the 2018 RMR survey, or the new SRR as of December 31, 2021, whichever is higher.

For providers that contract directly with the state to serve a specified number of eligible children (described in the table below), rates are determined through the SRR, which is a flat rate set annually in the state budget. The SRR is adjusted by length of care and age of child, and providers receive a higher SRR for serving students with limited English proficiency and students with disabilities. It should be noted that, unlike the RMR, the SRR does not vary based on the geographic location in which the child is served and therefore does not account for geographic cost factors; however, the SRR receives a statutorily required annual cost-of-living adjustment. The February 2023 LAO report states that the SRR is currently $54.93 for childcare and $55.27 for state preschool.

The primary differences between RMR- and SRR-funded programs are, among others, as follows:

Family fees. The CCDF – a federal funding stream that helps states cover the cost of certain childcare programs – requires states to establish a sliding fee scale for families that receive childcare services supported by federal funds. As such, some parents pay a fee to help cover the costs of needed care. These family fees are assessed based on income and family size, but cannot be based on the cost of care or amount of subsidy payment that a family receives. Current law permits, at the state’s discretion, family fees to be waived for families who meet certain criteria, including families that have an income at or below the federal poverty level (FPL); currently the FPL for a family of three is $24,860, according to the United States Department of Health and Human Services. Beginning in April 2020, family fees have been waived in California for all families receiving subsidized childcare through the following actions:

1. On April 4, 2020, Governor Newsom signed Executive Order N-45-20, which suspended family fees for a period of 60 days.
2. SB 820 (Committee on Budget and Fiscal Review), Chapter 110, Statutes of 2020, later waived family fees for all subsidized children in July and August 2020, and included a waiver of family fees beginning September 1, 2020, through June 30, 2021.
3. AB 131 (Committee on Budget), Chapter 116, Statutes of 2021, waived family fees for the 2021-22 Budget Year.
4. AB 210 (Committee on Budget), Chapter 62, Statutes of 2022, extended the pause on collection of family fees for the 2022-23 fiscal year.

An October 2022 CalMatters article states, according to CDSS, approximately $88 million in family fees will be waived in the 2022-23 fiscal year. Currently, family fees are scheduled to resume on July 1, 2023; however, the provisions of this bill would prohibit the collection of family fees until the new, equitable sliding scale, as established by the provisions of this bill, is created and implemented.

Actual costs of care. A key component of the childcare reimbursement rate conversation is that oftentimes the reimbursement rates paid to providers do not cover the true cost of care. Recent increases in inflation have resulted in higher costs to providers when purchasing the supplies necessary to maintain quality care, such as milk, baby formula, and baby wipes. A March 2023 brief from the Child Care Resource Center demonstrates that the cost of providing care for a preschooler in a full-time childcare center exceeds the current reimbursement rate and the 2018 rate when adjusted for inflation. For example, in San Bernardino County, the 75th percentile of the 2018 RMR survey equates to a rate of $983.03; when adjusted for inflation in 2023, this reimbursement rate should be $1,092. The brief notes that the monthly cost of care in the region is approximately $1,908.17, which results in a funding gap of $925.14 for providers in San Bernardino County. In Los Angeles County, this gap is $987.33, in Alameda County this gap is $717.05, and in Butte County, this gap is $537.30.

Childcare reimbursement rates have also lagged when compared to increases in the minimum wage. A March 2023 report from the California Budget & Policy Center notes that, while minimum wage has increased 55% from 2016-17 to 2022-23,

“…The rate ceilings for childcare providers across all 58 counties generally have not kept pace with the rising minimum wage after the most recent increase to payment rates enacted in 2021-22. In the state’s most populous county – Los Angeles – payment rates for licensed centers care for preschool-age children increased by less than half as much as the statewide minimum wage. Providers in some counties, such as Riverside County, saw miniscule rate increases of less than 5%. And in 27 counties, due to weaknesses in the rate-setting methodology, licensed centers have not received a single rate increase for care for preschool-age children since 2016-17. Policymakers have not consistently updated the SRR each year so that contract providers can keep pace with rising staff costs and the increasing price of food and supplies. From 2016-17 to 2022-23, the SRR increased by 36.6%, falling short of the 55% increase in the state minimum wage.”

Recent changes in childcare. California’s childcare system has undergone a number of changes in recent years. In 2019, Governor Newsom signed AB 378 (Limon), Chapter 385, Statutes of 2019, which gave approximately 40,000 childcare providers the right to join a union and collectively bargain with the State of California. In 2021, AB 131 ratified the bargaining contract agreed to between CCPU and the State of California, and codified portions of the agreements related to rate increases, provider stipends, licensing initiatives, and mental health supports. AB 131 also required the State of California and CCPU to create a JLMC for purposes of providing recommendations on a single reimbursement rate system in coordination with a larger working group convened by CDSS (discussed below). The agreement was effective beginning July 26, 2021, and remains in effect until June 30, 2023. As such, CCPU is currently in bargaining negotiations with the state for a new contract that would take effect upon ratification in the state budget.

Additionally, AB 131 transferred administration of certain childcare programs from CDE to CDSS, including, among others: CCTR; Migrant Child Care and Development Program; APPs; CalWORKS stages 2 and 3; Resource and Referral agencies; Local Child Care and Development Planning Councils; and, Head Start and Early Head Start.

Rate and Quality Workgroup Final Report. In addition to the previously discussed changes, and in addition to the aforementioned JLMC, AB 131 established a rate and quality workgroup (RQWG) to be convened by CDSS with diverse stakeholder representation to assess the methodology for establishing reimbursement rates and the existing quality standards for child care and development and preschool programs. AB 131 required the workgroup to submit recommendations to the Legislature no later than August 15, 2022. The workgroup met over a dozen times between January and August 2022 and included the perspectives of early learning and care providers, APPs, childcare experts, families, and representatives of CDSS and CDE.

In a summary of its findings, the report states:

“Despite the strengths and quality currently present in California’s early learning and care programs, and the critical and nurturing role that the predominately women of color workforce plays in educating and caring for California’s young ones, the current reimbursement rate-setting methodology establishes rates that are not sufficient to cover the true cost of providing early learning and care services in accordance with current state licensing and program quality requirements. The historic [SRR] approach failed to account for or differentiate for the cost of meeting the various program quality standards required of different early learning and care programs. The current approach of using a [RMR] survey of prices that programs are charging families institutionalizes race- and income-based inequities by establishing low rates in low-income areas where programs are offsetting their prices so that families can afford to pay. In addition, a history of opaque policy choices and changes have resulted in an exceptionally complex and unaligned set of base rates and adjustment factors that are virtually unnavigable by programs, educators, and families. The result is inequitable access to early learning and care opportunities that meet child and family needs, and exceptionally low compensation for program owners and educators.”

As a result of its work, the RQWG identified four core recommendations:

1. Ensure equity is foundational to all change – work toward equity as an outcome and implement equity as a process.
2. Replace the current methodology of using a market price survey to set rates with an alternative methodology, which uses cost estimates/models to set base rates to compensate early learning and care programs. The cost of care for meeting current state requirements will become the basis of the reimbursement rate, including wage scales that set a living wage floor.
3. Create a single rate structure that specifies base rates and that is designed to address historical inequities. This structure should specify separate base rates for Family, Friend, and Neighbor care and Home-Based and Center-Cased early learning and care and should differentiate base rates for meeting different sets of state standards.
4. Continuously evaluate the rate-setting methodology to address equity and adjust for changing conditions and rising costs.

The RQWG made rate reform recommendations similar to those made by previous reports, including:

• The Master Plan on Early Learning and Care which was developed by the California Health and Human Services Agency, in consultation with stakeholders, and recommended in its December 2020 report that, among other things, California adopt a tiered reimbursement rate with appropriate adjustments in order to support equity, simplicity, and quality. The Master Plan also recommended designing a sliding scale for family contributions, which could increase equity in both access and outcomes for families.
• Assembly Blue Ribbon Commission on Early Childhood Education which was initiated by California Assembly Speaker Anthony Rendon in consultation with stakeholders, and recommended in its April 2019 report that California implement comprehensive rate reform through a multi-step process, and, in the long-term, that reimbursement rates for Title 5 and Title 22 programs include competitive compensation that increases with quality improvement, among other recommendations.
• First 5 California Reimbursement Rate Workgroup which released its report in November 2018 and recommended that California implement comprehensive rate reform by, among other things, incentivizing quality, using the RMR to reimburse all counties at a rate that considers regional economic costs, and conduct ongoing reviews of rate changes to understand their impacts on the childcare system and make adjustments as needed.

In its conclusion, the RQWG writes, “A funding structure that supports programs and educators’ abilities to provide the quality early learning and care they are working to provide now (without adequate resources) is integral to realizing the positive impacts of early learning and care for children, families, and the broader California economy and society. The time has come for California to create the systems and policies that allow these positive impacts to finally be realized in more equitable ways.”

Author’s Statement: According to the author, “[This bill] will help childcare providers and families by transitioning providers to a single reimbursement rate structure for early learning and childcare programs, suspending family fees until an equitable sliding scale for family fees is established, and ensuring providers are paid based on enrollment rather than attendance. California has been subsidizing the true cost of childcare by paying the early learning and childcare workforce low wages and expecting families to pay high family fees for subsidized childcare programs. We need to make childcare more affordable for families and ensure that childcare providers receive a dignified wage that allows them to keep their doors open. With prices skyrocketing, families cannot afford another bill, and we must suspend family fees until an equitable sliding scale for family fees can be established. [This bill] supports a new way to pay childcare providers based on the real cost of care and provides relief to families.”

Need for this bill: The provisions of this bill would build upon the recommendations made by the RQWG and would implement an alternative methodology for reimbursing childcare providers. In adopting an alternative methodology, this bill seeks to reimburse childcare providers for the true cost of care while also ensuring families in California have access to quality childcare. Specifically, this bill requires CDSS, in consultation with CDE, to develop an alternative methodology for calculating subsidy payment rates for childcare and CSPP services. This bill would also require a new, equitable sliding scale for collecting family fees be developed, and would prohibit family fees from being collected until the sliding scale is implemented in order to prevent families who rely on subsidized childcare from shouldering the costs of care. In combining the creation and implementation of an alternative rate-setting methodology and the prohibition on collecting family fees, this bill seeks to ensure that childcare providers and low-income families are not responsible for absorbing the difference in rates paid to childcare providers and the true costs of care.

Equity Implications: The provisions of this bill seek to address a number of equity issues within the childcare space:

• Equity for women, such as the women who comprise a large portion of the childcare workforce, as well as the women who rely on childcare as a key support that enables them to enter the workforce;
• Equity for individuals of color, such as the Black, Indigenous, and Latina women of color who comprise a large portion of the childcare workforce, as well as the users of subsidized childcare, many of whom are families of color;
• Equity for individuals who are low-income, such as the providers who rely on social safety net services and for whom retirement and health care benefits are costly to obtain, but also the parents who meet income eligibility requirements to qualify for subsidized childcare programs, such as CalWORKs; and,
• Equity based on geography by eliminating the bifurcated reimbursement system that takes regional costs into account for some providers, but not others.

In its conclusion, the RQWG report states, “Through its recommendations and assessments, the [workgroup] seeks to dismantle a racist, sexist, and classist methodology for setting reimbursement rates for early learning and care programs…By incorporating and implementing the recommendations of this report, California will be well positioned to lead the nation in providing quality, easily accessible early learning and care opportunities for the diverse range of children and families who call California home and for compensating and valuing the educators who serve them.”

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

RELATED AND PRIOR LEGISLATION:

SB 380 (Limon) of 2023, is identical to this bill and would: require CDSS, in consultation with CDE, to develop and implement an alternative methodology for calculating subsidy payment rates for childcare and CSPP services, require an equitable sliding scale for the payment of family fees be developed, and prohibit family fees from being collected until the sliding scale is implemented. SB 380 is currently awaiting referral in the Senate Rules Committee.

AB 210 (Committee on Budget), Chapter 62, Statutes of 2022, extended 2021-22 Budget Act actions taken during the COVID-19 pandemic to waive family fees for childcare and create hold harmless policies for the 2022-23 fiscal year, including preschool.

AB 92 (Reyes) of 2022, would have made changes to the amount of family fees collected for preschool and childcare and development services and would have prohibited providers from absorbing any reduction in pay due to waivers in family fees. AB 92 was vetoed by Governor Newsom.

AB 131 (Committee on Budget), Chapter 116, Statutes of 2021, among other things, established a Rate Reform workgroup to be convened by CDSS for recommendations on rate methodology and existing program standards, including licensing standards, quality and environmental standards, and workforce competencies. Further, required the workgroup to submit recommendations to the Legislature no later than August 15, 2022 in order to inform the Joint Labor Management Committee recommendations on a single reimbursement rate system.

SB 246 (Leyva) of 2021, would have required CDSS to establish a single reimbursement rate for early learning and care programs, including variation for regional costs and quality adjustment factors. SB 246 was held in the Assembly Education Committee.

SB 174 (Leyva) of 2019, would have required that specified providers of subsidized childcare be reimbursed based upon an updated RMR as of January 1, 2021; would have established the “Quality Counts California Pilot Reimbursement Program,” to provide higher reimbursement rates to APP providers for meeting certain quality standards; and, would have made the enactment of the bill contingent upon the enactment of related legislation, as specified. SB 174 was held in the Assembly Appropriations Committee.

AB 125 (McCarty) of 2019, would have revised 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 would have established the “Quality County California Pilot Reimbursement Program” as a pilot program to provide higher reimbursement rates to APPs for meeting certain quality standards. AB 125 was held on the Senate Appropriations Committee suspense file.

SB 820 (Committee on Budget and Fiscal Review), Chapter 110, Statutes of 2020, amongst other things, waived, from September 1, 2020, to June 30, 2021, family fees for specified subsidized early learning and care programs for families who are not receiving in-person services or who are sheltering-in-place due to COVID-19.

AB 86 (Committee on Budget and Fiscal Review), Chapter 48, Statutes of 2019, amongst other things, simplified family fees for families receiving state-subsidized child care by creating a process for the CDE to adopt a new fee schedule that will provide more predictable fees through a cost-neutral change to the current fee structure and required CDE to report family fees collects for preschool programs to the Department of Finance.

REGISTERED SUPPORT / OPPOSITION:

Support

California Child Care Resource and Referral Network (Co-Sponsor)

Children Now (Co-Sponsor)

Parent Voices California (Co-Sponsor)

AFSCME, AFL-CIO

CA African American Chamber of Commerce

California Alternative Payment Program Association

California Association for The Education of Young Children (CAAEYC)

California Children's Academy

California Family Child Care Network

California Work & Family Coalition

Cambridge Community Center

Caring Across Generations

Child Care Alliance of Los Angeles

Child Care Law Center

Children's Council of San Francisco

Children's Paradise, INC.

City of Colton

Connections for Children

Courage California

Drew Child Development Corporation

Early Care and Education Consortium

Early Edge California

Educational Enrichment Systems, INC

Equal Rights Advocates

EveryChild California

Friends Committee on Legislation of California

Grace Institute - End Child Poverty in Ca

Indivisible CA Statestrong

Isla Vista Youth Projects

Kidango

Kindercare Learning Companies

Low Income Investment Fund

Marin Child Care Council

Mount Saint Mary's University

New Life Discovery Schools

Options for Learning

Para Los Ninos

Pathways LA

S & B Inc., dba Happy Kids Preschool and Child Care Centers

The Children's Collective, INC.

YMCA of San Diego County, Childcare Resource Service

YMCA of The East Bay

Opposition

None on file

Analysis Prepared by: Alexandria Smith / HUM. S. / (916) 319-2089