Senate Budget and Fiscal Review Subcommittee No. 3 on Health and Human Services

Alright. Good morning, everyone. Happy Thursday. We are back with our second hearing on the May revise. Similar departments from yesterday.

So we'll do part A, which is the human services child welfare child support issues. We'll take public comment on that, and then we'll move into the part B of the health and then take public comment after that. Okay. So let's get the show started. And for those who knew about the soccer game, SoCal lost.

3-2. My goal almost went in. Hairline. And then later, the referee said I should have called the foul. I could have gotten a penalty.

But Senator Partentino did not call it. So he was a referee. Alright. Let's get into serious stuff. Let's start with issue number 1, Department of Child Support Services.

Good morning. Nan Chen, Chief financial officer for the department and with me is director Kristen Donherty. The many revides includes 2 technical adjustments for the department of child support services. The first is a $410,000 adjustment to account for a slight increase in estimated federal incentives. And the second is a net $01,300,000 adjustment between two of our funds, federal trust fund and our child support recovery fund.

This adjustment takes into account a slight increase in our estimated federal share of collections. Happy to take any questions.

Easy peasy. Anything to add?

Ginni Bella with the analyst office. We agree that these are technical adjustments, and we have no concerns.

Great. No questions on my end. We're gonna hold, issue 1 open. Move on to issue number 2. Department of Social Services.

Hi, Marne. She's My god. I heard you.

So we're just gonna stand the whole the whole journey of playback.

No. You don't. It's awkward, though. It's very awkward. Like, hovering. Fearless leader is not joining you today. You've got this. Yes. I know. I heard.

Okay to begin? Yes, please. Thank you. Good morning, Chair. I'm Claire Ramsey, 1 of the chief deputy directors at the Department of Social Services.

We appreciate the opportunity to share information related to the 26/27 May revision childcare proposals. Before we dive into those proposals, I will share very briefly that the May revision for the Department of Social Services overall includes more than $67,000,000,000 in local assistance funding for FY 26/27, including federal, state, county, and reimbursement sources. Turning to the child development programs. The revised budget for child care includes $6,800,000,000 which is $5,000,000,000 of general funds in 26/27.

Which reflects a net increase of $15,500,000 from the governor's budget.

The increase reflects the awarded Federal American Relief Act or ARRA, supplemental disaster relief funds. And higher than previously projected caseloads and cost per case in CalWORK stage 1 childcare. These increases are partially offset by the reversion of funds to support the implementation of paying providers respectively, Due to the updated guidance from the federal administration for children and families. And lower than previously projected case loads in CalWORK stage 2 and stage 3 childcare. Now turning to your questions.

Deputy director Jaime Meilim and I are going to move back and forth between the different items that were asked to speak. We'll alternate presenting each items. And we'll additionally, we'll incorporate our responses to each agenda question on our overview of remarks for the corresponding proposal so it doesn't get confusing. On caseload and slot reductions, I'll start and then turn it over to the deputy director.

The May revision provides updated assumptions on how reductions in federal childcare and development fund, or CCDF, and proposition 64 revenues will be absorbed.

The 104,100,000 combined funding decrease in 26/27 is slightly lower than what was initially estimated in governor's budget, which had been $108,700,000 due to a lower estimate of the proposition 64 revenue decrease. Currently, it is expected to be 18,100,000 instead of the 22,700,000 estimated at governor's budget. CDSS will continue to monitor and work with our, ACF partners as the CCDF grant awards get finalized.

The May revision continues to address the fund reduction in the current year on a 1 time basis by utilizing general childcare slots or CCTR slots awarded funds that will not be put into contract by the end of 25/26. However, in the budget year and ongoing, the May revision absorbs the fund reduction through point in time CCTR and alternative payment program or CAP program relinquishments to avoid any disenrollments of families and their children.

The distribution of relinquished funds between CCTR and CAP programs means that the number of slots awarded since 21/22 are now approximately a 123,000 instead of the 125,000 estimated in the governor's budget. This is due to the difference in the average monthly cost of slots between CCTR and CAP. The associated slot impact due to the fund reduction is a point in time estimate. And it's based on a combination of CCTR request for application and cap funds that have been voluntarily relinquished to date within each program.

And that the department can immediately use to absorb the funding reduction without disrupting childcare for any currently enrolled children.

To further address your questions on the topic, I'll now turn it over to Dr. Jaime Mileham.

Regards to your first question. As shared in the previous budget hearing, the department was still assessing how the funding reductions would ultimately be observed on an ongoing basis amongst the childcare and development programs, and anticipating providing an update estimates on the slot impact in May. Key considerations that we took into account as part of this assessment was to, most importantly, avoid any disruptions for children and families that are currently enrolled. How the fund reduction could be observed across each program including CAP and CCTR.

And also taking in account a point of time of relinquishments that occurred throughout the year, and funds that are expected to go unspent.

In response to the question what has changed since January and why CAP is impacted, this is a reflection of what relinquishments that the department has identified, and it's also a point of time. We propose using relinquishment funds in both CCTR and CAP to avoid disruptions for current enrolled children and families as these funds are no longer under contract and are not tied to a child in an active slot.

We recognize that through general cap contracts, we have been able to use more quickly than CCTR. And that because the average cost of cap is slower, then slots are reduced, if we, with the cap to observe these federal and proposition 4 as part of the fund reduction. As such, we want to stress that this portion of CCTR and cap slots to observe this fund, reduction is a point of time.

NCDSS is open to continuing the conversation on how we can continue to look at these reductions, to minimize disruptions for families. In terms of the next question, this is to please describe why APP agencies had voluntarily relinquished significant spaces. We first want to, provide some helpful context related to relinquishments. First, relinquishments are part of the normal occurrence, that happens all throughout the year. In our experience at department, contractors, and all agencies, we have to share same goal of reducing the unmet needs for childcare slots.

It is normal though for amount of funds to go unspent year after year due to number of factors. Like child's characteristics, type of care provided, enrollment patterns, family scheduled needs, and the time contractors that agencies need to complete readiness activities to before they can significantly increase enrollment levels. This means there will be instances where a contractor's rate of enrollment to growth is less than the growth rate at their contract amount.

As such, as part of the normal contracting process, the department works with the contractor who has under earned and therefore relinquishment funds. Sometimes this happens in a one time basis.

Sometimes when we have identified that a contractor has under earned for multiple years and we work with the contractor, to adjust permanently their contract amount. CDSS typically redirects relinquishment funds to another contractor within that same contract type within that same county. That's our normal process. However, this year to try to avoid this enrollment of any families, we took this point of time relinquishments as, you know, as not distributing.

And, so we have the ongoing funding available to observe prop 64 reductions as well as the federal reductions.

In cap, the reductions the relinquishments of funds were from Placer, Riverside, Kern, Orange, Solano, and LA County. And then in terms of your next questions about how voucher based childcare spaces are allocated across the state's network of alternative payment contractors and relinquishments in regards to point of reevaluating these allocations. The budget year of 2021 budget acts authorized significant increases in funding to support enrollment for cap contracts. The allocation methodology used a couple of pieces in regards to that methodology.

1 is census data, eligibility rules, county level out cost information, and identified where unmet need was the highest.

Counties with the highest percentage and underserved eligibility children received proportionally more funding to ensure equitable access statewide. We cons we recognize that this sometimes takes a little longer for searching communities to ramp up, as they have under resourced ramped up funds for their contracts. CCTR's thought expansion is also contingent of a request for applications. In this case, it targeted infant toddler care as 1 of their priorities, and then we also default to local planning council data.

And then in terms of your next question about please describe why some APP agencies have voluntarily relinquished significant number of spaces.

What's driving this? And is there a lack of, and these are relinquishments. Is there a lack of need? We think it would be helpful to first provide some contact related to relinquishments. First, relinquishments, as mentioned, are part of the normal process.

In our experience, the department contractors and agencies all share the same goal. Oh.

Oh I was like, I don't know if you're adding more than what you already shared.

No. I'm sorry. I went ahead and I went on the wrong 1.

I think we're on the D question.

Okay. Perfect. Thank you for that. In terms of the next question, what administrative or statutory changes would improve the timely uptake of these in conversations with the field contractors and the community and previous technical assistance, and things that we have already started to implement also, is we're assessing and adjusting CCTR, RFA awards to align with actual expansion. If the license capacity comes in lower, then we adjust.

Revert to unspent CCTR after an appropriate amount of time. If contractors have not made meaningful progress towards serving children, or if growth continues to fall under initial expectations. There's also this, strengthen the criteria the department uses to award and allocate funds to take into account prior success and expanding enrollment capacity while remaining within their fixed amount, relatively levels of need based on wait list, and the immediate availability of licensed capacity and facility space.

And then maximizing how relinquished funds can be reallocated to other contractors, including contractors in another, contract program. So for instance, CCTR to cap.

And then in respect, to your additional questions in the agenda related to the fund reduction, we would defer to Department of Finance in regards to that response. We can either defer to them or continue on the agenda, to discuss the cola.

Let's just go in order. So I'll go to Department of Finance.

Baran Casaneda, Department of Finance. So in regards to your question on what perspective pay reversion can be used to backfill, the lost federal funds. So the perspective pay reversion is 1 time funds in 25/26 and 26/27. It will not address the ongoing federal

fund reduction. But it would fix for a year? 2 years?

It would be a temporary patch. It wouldn't address the ongoing

Absolutely. But aren't we solving for just the first 2 years? You know, actually, I'm gonna hold my own questions till after. Is is that the whole answer to number 3? Yes.

Okay.

Moving on to childcare Cola. The May revision includes a cola of 2.01% for childcare providers. This Cola is lower than it would otherwise be, because it is 1 of the general fund solutions identified to solidify the structural balance of the budget. The total funding for the cola is $112,000,000 which includes cola costs for all CalWORK stages and the emergency childcare bridge program.

The 2.01% COLA funding for childcare programs is still proposed under the May revision to be issued as a cost of care plus payment increase.

This, would reflect an approximate increase of 13.7% on the cost of care plus payments when applied to that structure. The resource and referral programs and the local planning councils would also receive the 2.01% cola. I'll now pass it over to deputy director on the disaster funding.

Thank you. In terms of federal funds to support the childcare facilities impacted by disaster, the budget includes 2 childcare infrastructure grants. The first 1 as referenced in the initial governor proposal, prop 64 proposal is focused on licensed family childcare homes and centers that experience damage or service to interruption or service interruptions during the declared disaster of 2025 resulting in a reduced childcare vulnerability and impacting families who relied on them.

On the 1 minor update is that January budget proposed 11,500,000, while May revise now proposes 11,800,000 and proposition 64 funding. This is a total increase of 308,000 to align with the update proposed 64 revenue projection.

Second, CDSS was notified in February 2026 of an award amount of 28,000,000 to support licensed childcare facilities that were impacted by disaster in 2023 and 2024, as well as to support other deliverables. Of the 28,000,000 in the federal ARRA funds, 15,400,000 are gonna be utilized for minor innovation and repair grants. The remaining funds will support state operations of the minor innovation and repair grants and continue of searching quality services programs that families in the affected community can regain, stable, and rely on childcare.

Because each of these funding sources is tied specifically with a disaster in a particular year, there is an overlap in the grants. Specifically, the aura, grant will be available for those impacted by 2023 and 2024, and the grant funded by prop 64 will be available for those impacted in 2025.

The administration of these grants will be done by CDSS. Next, the proposed childcare infrastructure trailer Bill language ensures coordination use, all available, coordinated use of all available disaster related funding related to the newly awarded federal relief fund and the governor budget proposal 64 proposal. This alignment strengthens statewide disaster recovery efforts and maximizes funding impacts and helps stabilizes the childcare in the long run. Next one is the administrative support cost structure.

So the May revise includes a 65,100,000 general fund in 2026, 2027 to increase allowable in contract administration costs for alternative payment provider agencies by 1.5% of their total contract amount.

The proposal reflects a transition of the 70,000,000 included in the governor's budget, which had previously supported payments administrated outside of the contract structure. Maintaining separate in contract and out of contract funding streams for administrative cost has created administrative burden, reporting inconsistencies, fiscal oversight challenges for the alternative payment program contractors and CVSS. The per the proposal covers administrative and support costs to administrate and maintaining the MOU with the childcare provider United CCPU.

And the funds for administration would support costs associated with the MOU are currently being issued at a contract. I'll turn it back to chief deputy Ramsey to cover prospective pay.

The May revision proposes the reversion of funding that was associated with a prior federal requirement for states to pay providers prospectively. This includes $30,100,000 from, FY 25/26 for staffing and systems updates. And 43,800,000 in 26/27 for staffing for childcare and development agencies. On 05/12/2026, the Administration for Children and Families office of childcare published a CCDF final rule. This final rule takes effect on 07/13/2026.

The final rule rescinds the federal requirement to pay childcare providers prospectively and reverts to the option established in the 2016 final rule for states and territories to either pay providers prospectively or on a timely reimbursement basis. Under the new federal rule, we are expecting forthcoming federal guidance which may help the administration and the legislature to understand what additional conditions the Federal Government may require if a state chooses to implement perspective payment instead of reimbursement based payment.

And will help us determine, the, feasibility of moving toward perspective pay based on those requirements. We would note that, if perspective pay did move forward under the prior rule, beyond the cost that were already included in the budget, there was a 1 time implementation cost, for contractors and required a shifting of at least $1,000,000,000, into an earlier budget year to allow for those prospective payments to be made. And we're and I'll stop there on that but happy to answer questions.

Next, I'll move to the budget revision for the cost of care plus. While not technically part of the May revision, the agenda does include details on the recent budget revision to the 25 budget that provided $216,700,000 to ensure payments to providers of the cost of care plus rate funding for the first quarter of 26/27. The budget revision and allocation timing aligns with previous fund allocation and payment timelines.

These funds will ensure that the current payment process and timelines can be maintained as we transition between fiscal years. CDSS issues quarterly cost of care plus payments to contractors.

So that they can make their timely payments to individual providers. And we do pay those, to our contractors on a quarterly basis based on projected enrollment. This approach ensures, providers are not waiting for reimbursement, and allows excuse me. Contractors are not waiting for reimbursement and timely payments be made to providers directly. This schedule mirrors the initial apportionment schedule for in contract funds where providing funds upfront ensures contractors maintain sufficient cash flow to meet, payment obligations.

And now, I'll turn it over to deputy director, for the infrastructure grant. Thank you.

In terms of the close out of the prior infrastructure grant TBL, this proposal request that reappropriation of the 1,500,000 general fund for existing infrastructure grant program to allow the department to continue to contract with the low income investment fund to ensure the continuity and the timely closeout of these activities. Currently, we have 190 new constructions and major renovations, that are set to finish in the next couple years. We'll now turn it back to Chief deputy Ramsey to continue with the next question.

Excuse me. This last question related to the subcommittee 3 hearing on April 23, which asked about the unspent funds, related to general childcare. Based on our point in time, annual estimates which we provide to the legislature, which was provided in the most recent supplemental report from March 2026. CDSS estimates that.

Approximately $880,900,000 in general fund will go on $180,900,000 in general fund will go unspent in 25/26 across all childcare programs. The majority of these unspent funds are projected to come from cap and CCTR. Specifically 6 excuse me, February is projected to go unspent in cap, and 468,700,000 is projected to go unspent in the CCTR funds. Of the projected unspent CCTR funds, $217,800,000 are in contract while the remaining 250,900,000 reflect awarded funds that have not yet been put into contract.

Of those CCTR awarded funds not yet in contract, it is typical that contracts need time to complete the multiple readiness activities we've discussed in previous hearings, which can take multiple years.

While these CCTR funds are projected to go and spent in 25/26, in order to utilize them for an alternative payment excuse me. For an alternative purpose on an ongoing basis, the the department would need to go through the process of working with contractors on a non voluntary relinquishment of their prior awards. This would include reviewing individual contractors progress and notifying contractors what award amounts would be pulled. Actual unspent amounts will be based on final year end reports.

So the numbers I quoted were point in time from earlier in this year.

And our reports are typically final around March of the following fiscal years after our audit process is closed out. So that's about 9 months after the end of any fiscal year. And with that, I will pause that. This is the end of our presentation.

Thank you so much. We'll turn to LAO.

Good morning, Chair member. Dylan Knox with the Legislative Analyst Office. We have some comments on some of the largest of the proposals in the May revision. Starting with the shifting reductions from general childcare to the alternative payment program, we think this presents some trade offs. Our overall recommendation is that the legislature ask the administration to provide additional justification for applying a reduction to cap and to explain why this reproach would be better for families and providers over the long run.

Several aspects of the program make a reduction to cap less appealing. Starting with because the average cost per slot in cap is lower than in general childcare, this does result in a larger reduction in funded childcare slots. You can see on page 4 of your agenda based on the administration's estimates, the May revise reduces, funded slots by about 6,800, whereas the January budget, reduced it by about 4,200. Second, slots funded through cap typically reach families more quickly.

And then third, in recent years, the state has had a significant amount of unspent funding in general childcare, suggesting that a reduction to that program might have less of an impact on families.

Moving on, the proposed Cola reduction, we do think that is reasonable, but we still have concerns about applying that consistently across programs. We recommend that any rate increases for childcare and state preschool providers be applied consistently across all programs. The current proposal would have different rate increases for childcare providers, state preschool providers who work in school districts, and state preschool providers who work out of community based organizations. We do recommend adopting the removal of the prospective pay funding.

This would save, about $43,800,000 ongoing general fund and $30,100,000 in 2025/26.

Regarding the administrative cost shift for the alternative payment program, we do recommend rejecting that. We have concerns that replacing a fixed $70,000,000 cost with a 1.5% point increase to the administrative rate AP agencies receive would create general fund cost pressures in future years. In 26/27, this would result in a a $5,000,000 net reduction.

But in future years, anytime that either the number of slots were increased or provider rates were increased, that would result in a higher or a larger increase for the administrative agencies, the AP agencies regardless of whether or not administrative workload increases. So we do recommend rejecting that proposal.

Lastly, we recommend the legislature explore alignment of federal disaster relief grants and the childcare infrastructure grant program. It does seem like there are it would cover different years. The federal funds would cover 2023 and 2024, and the childcare infrastructure grant program would cover 2025. However, the legislature could still request additional details from the administration to ensure that the 2 programs are well aligned, complement each other and avoid duplication. That concludes my comments.

I'm happy to answer any questions at the appropriate time.

Thank you, LAO. Senator, do you have any questions before I dive in?

Oh, I'm sorry. I apologize. She's gonna dive in, I'm sure, but I do have questions. Delia's office, you're not supportive of the trend the way they change, the cap programs or the programs from the 1, part of the budget to the second part on the May revise because it includes more childcare slots.

Right? And it could be more expensive.

It would be we're talking about the same total cost reduction, the $70,000,000. That was a reduction.

It affects more slots?

It would affect more slots.

Okay. And your opinion on that is favorable or not favorable?

I think it represents some trade offs for the legislature to consider. If it's, you know, the administration has indicated that would be easier to get those slots or that reduction as of May revision to get it from cap. But as we mentioned, some of the trade offs would be that, you know, cap is typically faster to get slots to families. And that the there has been significant unspent funding in general childcare recently. So there are issues to consider.

Then you're confused. I'm so sorry. I think you might be confusing your question. You're talking about the 70,000,000.

No. I'm talking about the 4,200 slots that would are Sorry. What they're doing is they're shifting the money to a different program and then so it increases and affects more slots for childcare.

That's correct.

You're right.

Okay. Sorry, Madam Chair. So that is true? Yes. Okay.

It's not better for out years either. Correct?

The relationship between the cost per slot, so that would mean that would be the that would be the same across years. A similar size reduction in general childcare and in cap that will continue to affect more slots in cap than in general childcare in future years.

Okay. And on issue number 2, I know the committee notes that the education the super cola per se in corresponding with the new mandate for k-12. That's gonna be negatively impacting the dollars in out years. Correct? Or not?

Currently, I don't think the proposal for the super cola affects the childcare space. There is a proposed reduction in the Cola for the childcare down from 2.87% to 2.01%. So that would impact funds for childcare.

Why are we reducing that percentage point? I mean, the state of California promised all these parents childcare and now you're saying that they're not gonna get the increase to pay for it? Go ahead.

Yes. Just wanna make sure I'm understanding the question clearly. Related to the Cola, there is 1 of the budget solutions was to reduce the Cola by 30,000,000 doll excuse me, by 30% from 2.87% to 2.01%. And that was, as a budget, solution item. That was those separate from the proposal related to the slot. So just wanna make sure I've answered your question.

No. You have. And I guess the big overall issue looking from 10,000 foot is that I've said on this committee through several Chairs in the past, and this committee deals with the most vulnerable people in our state, the disabled, the elderly, which you guys are ripping apart in the next maybe not you guys, but the administration is ripping apart. It's an attack, a totally an attack on our seniors with what's going on in that piece of the hearing we're gonna hear later.

And so we deal with that.

And I know the Chair has a heart and a passion for it where we fund other things. And so I guess the frustration that I have is that why you guys always the first ones? Why is administration always making cuts to these programs first? Childcare, elderly care, shifting colas, like, moving shells, like, you know, it's like a shell game.

It's like, we're gonna go and shift money here under cap, and it's gonna take, we're gonna have more slots that are affected that are less dollar amount.

So it's the same amount of dollars, but there's more kids that are affected and families that are affected. So that's the frustration I think and I'm speaking for the Chair, but both of us have. So, the Cola is a decrease. It was promised to parents or providers. It was promised so that they could have a Cola increase.

And so we're taking that back or we are. The governor is. Correct?

I would just clarify. We will still be providing a Cola and it will equate.

It's not the Cola that was promised to them.

The Cola in governor's budget was 2.41% and yes. So there for it is a reduction from that percentage of Cola.

It is actually more dollar amount or higher dollar amount than what was proposed in governor's budget because we have applied the percentage to more programs. And so it was, approximately $80,000,000 in governor's budget and is now a $112,000,000 But I hear your concern about the reduction on the percentage.

And then going to item number 4, the childcare administrative support, cost structure. You went to a percentage versus a flat rate. What was the purpose of that? Because that to me shows that we're gonna use as that number increases, the percent is gonna increase and it's gonna cost more money in half years. No or yes?

So the proposal is to move in the 70,000,000 of what they are already doing for cost of care for dues deductions as well as CCPU and related structure into their administration dollars. So therefore, it makes the funding more permanent, which then allows them to count on these funds to be able to do hiring and support of these of functions. And versus having it out of contract where it does not get reported out to us.

And so therefore, and may not, and we may not be tracking what the money is utilized for this intent purpose.

But it does create out your general fund obligations for a higher increase. Aren't you going from 17.5% to 19.5%?

Yes, we are going from 17.5 to 19%.

And you don't think that's gonna have a negative impact on the budget moving forward?

Yes. So the budget itself is a budget proposal that we do have for this. We understand that there will be some trade offs. However, this current trade off right now is looking to see how do we stabilize our current contractors in the long run. What do you mean trade offs?

What do you mean trade offs?

What I mean trade offs of this is that as we're looking at this money being part of the 19%, we are looking at it from a stance that we would like to make sure that contractors are able to do these functions within the administrative support and cost.

Okay.

So, the funding for the administrative costs would increase, as workload increases. Correct? Or not?

Senator, I don't think it would increase as workload increase because the percentage is based

on but workload but the percentage. The more work you do, the more money you're gonna make.

I would say, I think the cost pressure that I've understood identified from the agenda is more that if rates increase or additional slots are added that enhanced administrative rate will be more expensive to pay for an out years or because the administrative rate is a higher percentage.

Okay. And if you go to item number 6, the $217,000,000 to allocate the care plus payments before the fiscal year begins, why are you doing that fiscal year begins? Why are you paying money from our previous year? That's what it looks like to me. It looks like you're to me, it looks like that, the legislative joint bank budget committee increased 2025/2026 childcare spending from by $217,000,000.

But you're not paying that until the next year. Is that correct or not?

So the way it operationalizes is that we issue this payment to contractors as an allocation. It mirrors the current type of allocation that they do receive for their current, of administration of the current funds. As it mirrors that, that means that then they are not paying providers prospectively, but they have the cash in hand to pay them after the time sheet is submitted, which is typical how we allocate funds.

Okay. LAO, I noted that use it notes that you state, that the state's proposing to no longer do prospective pay. And there needs to be allocated payments before the fiscal year begins. So we're using money from last year's budget before this fiscal year begins.

For the.

It actually saves money for next year because we're paying it in the previous year.

For the cost of care plus, payment shift at $217,000,000 Our understanding is that the May revise includes those, includes those additional funds that were in 2025/26, and those will cover the first quarter of cost of care plus payments in 2026/27. So this is new money that was not included in the governor's in the January budget. My understanding is the.

Administration has indicated they want to continue paying the first quarter in advance going forward. So there would be a 1 time cost of the $217,000,000 and then going forward the first quarter of cost of care plus payments of each year would be covered by the allocation from the previous year. The money allocated in the budget from the previous year. Our understanding is this action is not required by law.

So if the legislature chose to undo this change or to provide only 3 quarters of the year of funding for cost of care plus in the 26/27 budget, then that would cut that would yield $270,000,000 of savings.

You said new money. Where's that? Where'd that money come from? What new money?

It is additional authority in the twenty twenty five twenty six budget. Perhaps the administration would be better able to explain that.

Sure. Go ahead. Where's the new money?

I think we're gonna I think he's gonna Oh, here we go. Hi. You don't have if you don't have if okay.

I wouldn't even ask but I heard new money. Do you know about new money?

Good morning. Edgar Cabral with the Legislative Analyst Office. So this is something that was submitted in a the administration submitted a provisional letter to increase general fund spending for 25-26. That's something that we received in early May to provide this $217,000,000 payment to do this. And our understanding is that so we we've been making these monthly cost of care plus payments.

These are in addition to the main reimbursement rates that we give out to child care providers. These have been in place since I believe the 2023 MOU is when they were established. And, the the administration has indicated that in order to get them to providers in July, they need to make an appropriation. We need to appropriate early, essentially.

And we haven't so I would say this is where I think this is where we're getting into the technical detail, but we do think it's a difference than what the legislature has done before.

We have never in the past appropriated from the budget bill, funding for the next fiscal year, within this year. Now part of what happened is that when that 2023 MOU was established, there was a bunch of unspent funding from previous years that was used to fund a variety of activities and that gave the department the flexibility to use those funds to make those payments. But we do think from the state's schedule in terms of making an appropriation, this is different than it was before.

And so that's what part of why we raised it. We I think it was not our understanding that that was the expect gonna be the expectation moving forward.

So this this also, I think some of the questions that we have are just trying to understand why this is necessary to make those payments. And if we do, for example, have to make a an early payment to make sure that cost of care plus payments are made in July, why do we have to appropriate three months worth of payments upfront?

Because this does the net effect is this is a one time additional $217,000,000 cost in the budget window, which which under given the state's current fiscal situation, we think there's reason to to think about whether that is necessary and whether there are other options.

Thank you for that. I wanna know his I wanna know that too. That's why I'm asking these questions and he framed it much better than I did. Like I again, we have 25 minutes to go over all this stuff and then get prepared to come down here and get mostly non answers that we don't ever get when we're in this committee in the first place.

But, the bottom line is is it looks like you're taking money from this year and trying to prepay it for next year, but you have a budget deficit that you're trying to get.

It's like a shell game. It's like you're trying to rob Peter to pay Paul. So please answer the LAO's question as eloquently as he framed it.

I appreciate, the LAO, laying out kind of what the history of this has been. And that is what he laid out was correct. The couple of like clarifications I would add is the payment is not being made to the providers early. So this is completely a separate issue from the perspective pay. I realize it seems like the two issues are connected, but they actually are completely separate from each other.

This issue is really about us making sure our contractors who do provide the direct payment to our childcare providers have enough cash on hand to make sure that they are making timely payments. And we are required to make timely payments according to our childcare, providers united MOU agreement. And so we need to make sure that they have money as Edgar said to make payments in July. And to continue to make those timely payments monthly to our childcare providers, which is our obligation.

They can't do that unless they have the cash on hand and that is why we are, we submitted the, budget revision proposal.

And we do understand that it gets technical and are happy to work with LAO on those technical questions along with our partners at DAF.

Okay. Still, I'm not clear on why you're taking money and putting in it. Maybe the Chair will get a a different answer. But like I said, if we owe this money, I believe they should be paid on time. We owe this money in July, then it's next year's money.

It's not this year's money because this budget goes into effect and we're passing this budget in June for the 27-28 year.

Correct? 06/27.

Or 26-27 year. Sorry.

I think Department of Finance would like to add a little bit to that.

Sure. Go ahead.

Hi. Tamara Webber, Department of Finance. So I think there there's two questions here. So first of all, that first payment that needs to be made in July, the contractors that need to make the timely payments to the providers, they are actually paying them for services rendered in June 25-26.

Okay. So at least that first payment is for services rendered in 25-26. What happens is at the end of the month, they will submit their attendance sheet and then within twenty one days, the contractors have to pay them for that. So that first payment is for June. So just to clarify what is going on, it is money for 25-26 services. Now there's a separate question of, okay, well then why does it have to be a full quarter?

There we go. And so and this is something that we do plan to work more with LAO on and your staffers happy to do it. There's some technical things about how long it takes, you know, from when sign the three party agreement to the SCO to issue the money to contractors. The contractors themselves, it takes a certain amount of time to be able to issue those payments to the providers.

So we can talk about seeing like what we can do in that process and what is the kind of reasonable amount that needs to be front loaded.

But those are kind of the two factors that are going into it. And then I just want to add like the LAO laid out, this isn't some kind of the reason this is coming up this year is because in the past, we had this two year funding authority. So we're not trying to do a policy change. This is just in this case, this is the first year we're crossing that fiscal year is kind of presenting an issue.

But again, it gets very technical and we're happy to have more conversations.

Okay. So I get it. Government is slow. You're worried about the payments going out to the providers and you're looking at a full quarter funding just to make sure everybody's covered. See in layman's terms, I guess.

But, okay. And then the under the only other question that I have, I'll skip that one. There were no issues there. On the CCDF, I don't have any issues there. We're not there yet.

Oh, we're not there yet. Okay. Sorry. Okay. Thank you.

Thank you, Madam Chair.

No. Thank you for joining me today. Give my voice a break. Okay. Let's start with the most recent topic because that's fresh in mind.

I appreciate the look the clarity and the openness to be able to talk about what really is needed. I think we sympathize that the July payment is really important because we do know it's for the month before. It's always paid in the month before. So that's a 100% we get that. I've now I've heard more about it could also impede the following months to pay fully July.

So maybe we can look at that. But I think the whole full adding up to extra months, that's where you lose me a bit. So I appreciate there's an ongoing conversation so we can see what really is needed and not to go above that. Recognizing that there are a lot of cuts and this is potential savings. So I I'd like if a technical assistance from Department of Finance in LAO on scenarios of doing only July I'm sorry.

Only yeah. I guess only July and, with August after. Those two months and the payment the cost for the for that. Alright. So let's get back to the 4,200 to 6,800.

Department of finance, how much are we scoring in the January proposal for not funding the 4,200 slots? From the January proposal?

Tamara Weber, Department of Finance. So whether the adjustment we make is in CCTR or cap, It's the same amount of money. Okay. So it's, what we have to account for is actually lessen at governor's budget. So it's a total of 93,000,000 in the budget year.

So it's 93,000,000 if we remove 4,200 slots and it's 93,000,000 if we remove 6,800 slots. So why remove more slots if we're scoring the exact same amount of money? Have savings. The savings is exactly the same.

So let me start by saying that that it subsidized childcare is a shared priority for the administration. And

I would disagree that the administration has not showed that shared priority in the past couple years.

Well, so the proposed budget is maintaining $1,600,000,000 just for the expansion slots alone and that's general fund.

We have not moved. We have actually gone backwards. We are now at a 123,000 slots. January proposal was a 125,000 slots.

We are going backwards. You're the golden star that we're giving ourselves is the fact that we have not cut more. We have not progressed further. We have not shown any additional commitment in childcare. We have maintained the status quo and in fact, have gone actually further back.

I would ask that we lay out the facts and not give us any kudos for what we haven't done. So why would we, if we're scoring the exact same amount of dollars, remove more childcare slots? Department of finance justifies cutting services by scoring savings. I don't understand the justification here.

Well, we would say that the shift to cap is really to protect services. So the department has been continuously evaluating where, what enrollments are and where contractors are with earning their full contract. And I would just say, I don't think it's totally fair to say that we're moving backwards because enroll like actual enrollments have been steadily going up. We are seeing like uptake of slots. But this is a moment where we've had these, funding adjustments in federal funds in prop 64 Sure.

Not the funding amounts that we control. And we're looking at the budget and saying, well, where can we have the least amount of impact to families? And that is what is actually leading to the shift from CCTR to cap is that we're trying to make sure that we are maintaining service levels and supporting contractors who are doing, like, implementation activities and just doing a more kind of fine grained assessment of how to best kind of serve with the funding that we have.

But I think.

We-re gonna be judged by the numbers that we put on the board of how many slots are available. If we're just judged on that baseline, we are moving backwards. Outside of the context, outside of that, the amount of available slots, we went backwards. So we will judge ourselves based on that. While we're maintaining that, great, we're maintaining that.

But we are moving backwards. And to say, you know, I'm Deputy Director. You kept using the phrase, we don't wanna create disruptions. We don't wanna create disruptions. Do we have a current wait list in the state of California of people waiting for childcare?

We do have a current wait list. Each contractor maintains their own wait list.

Is that not a disruption to families that we don't get them off the wait list?

We we understand that there is great need in regards to families waiting on wait list.

There's no disruption of families currently in childcare right now. We are would be not kicking people off of their childcare slots. But we do have a disruption in families right now of waiting for childcare of a wait list. That is by definition of disruption of inability to go to work, inability to provide for their family. This is a disruption to families in California by not adding, childcare slots and removing kids from the wait list.

When we're not saving any additional money, what are we what what are we hanging our hat on as a justification to add 2,000 more removal slots? I recognize, I hear you on the relinquishments, the unused slots, but you've had a history of of shifting those elsewhere, which I applaud the department to do in doing that. I don't understand why we can't do that again now. If we're not scoring any additional dollars, this is not a cost. This is not a budget solution.

No. I hear what you're saying. Again, I think we were trying to think about if we did stay with the governor's budget proposal back in January, which were the CA 100% of them coming out of the CCTR slots. We had individuals or contractors that were in the pipeline of getting facilities ready. And so we're weighing in a sense the two.

Right? Whether we then say Yeah. Then say, okay. We're gonna have to then pull back those contracts.

Or do we look at relinquishments?

They were getting ready. But they can't get the contract yet until they're ready. Right? Yes. So they're not in contract yet.

Yes. But these are permanent, not ongoing. So once we do pull that contract, we don't do it at a one time. We do it at an ongoing.

Sure. Yeah. The examples you're giving of people that are preparing, are they in contract right now?

They are done. They're in they are awarded but not in contract.

Right. Because they're preparing. But we can come back next year once they're fully prepared to see if there's a possibility for them to move forward. No? Yes.

I wanna know if that's Yeah.

Of course. So because they are getting ready, if we pull these contracts for next year, that means that they would not be able to start services next year. Then so hypothetically, today we know that they are in the works. But July 1, they could now be able to open up. If we, if we do a 100% of CCTR, that means that we cannot issue them a contract now.

However, chief deputy, in the last question you gave, like 800,000,000 potential unspent already on CCTRE. Are we scoring those savings now from 25-26?

Wow. Sorry. Krishan Malhotra, Department of Finance. I'm gonna stop touching that. So as part of the governor's budget and mayor vision process, pasture savings are estimated and accounted for as we create and develop a balanced budget.

So the savings that are mentioned at the fiscal year is closed and they're assumed as projected savings in the overall calculation of the budget.

Okay. So we're already scoring the unspent dollars that you've mentioned already.

For '25, '26, and '26 So seven that we're anticipating.

Yeah. So

Not entirely given just the contract durations and the amount of time that contractors can go back and, you know, the department does audits and, you know, there may be changes that need to be made. But, generally, like the when the budget closes, we score the past year dollars as part of the overall calculation.

I'm wondering, there's gonna be probably a scenario that we switch and keep the 4,200. We're worried about these contracts not getting any funding. We're gonna have unspent dollars in the upcoming year that we can use to pay these contracts if we're so worried about it. I don't know if I said that correctly. LAO, I feel like you've

Yeah. I would just add, I think that that part of the the issue in the trade off is the is do you sort of do you wanna have the ongoing reduction sort of predictable? Right? I think in the in the case of keeping it in the CCTR program, right, I think the number was $250,000,000 that is not in contract now. And then several 100,000,000 that were in contract that came back unspent.

Right? So you can imagine that there's that there will be enough savings within even that program in and of itself to get to the 60 or 90,000,000 or whatever the reduction is. Right? I think the the question is how many of those do ramp up moving forward? And if those ramp up, would then there be an expectation that there'd be an appropriation made?

And so I think that's perhaps part of what's what's going on. On the AP side, on the CAP program, when you make the reduction, that's more Sure. That's more for sure. But I think the the question that we have about it, and I think the issue that we think is for you to consider is that, you know, the CAP program is is is the more flexible program that more effective at at quickly serving families.

So I think we have some questions just more about why AP agencies are relinquishing funds, or why there is a need to relinquish in in virtually every part of the state.

We have expectation that there are waiting list. And so what is it that is preventing cap programs from being able we wouldn't we expect in the short run time to ramp up program for agencies to ramp up and to be cautious about making sure that they don't over enroll. But we wouldn't expect in the long run that they would serve that they would be unable to serve them.

But making this reduction means you are reducing the amount that in the long run they would be able to serve. And I think the idea being that if a family, you know, can't find care in one place, they have a lot more options through the voucher program than under CCTR where it is.

We're funding very specific sites and those sites may have specific challenges that might make it more challenging for them to get get up and running.

And can I clarify one thing madam chair? We did have to take some of the reductions year because of the CCDF reduction and those all did come from unspent CCTR funds. So we were able to absorb all of that for the current year to CCD CCTR funds. It's just in the budget year and ongoing where we need to continue to take ongoing permanent reductions. That's where we did the split between CCTR and cap.

But I think I hope what you're hearing from the administration is like, we really recognize that there are significant trade offs and we hear you about not going backwards. And we we are telling you what is the point in time situation between cap and CCTR. But we're very happy to continue to work with you to figure out how to, absorb this reduction in a way that makes sense, within the broader landscape of childcare and supporting childcare in the state. Right. I hear that.

It's difficult though when this in this world of childcare, there are savings but there are cuts. That doesn't add up. If there are savings in this world, that should be shifted to where we don't cut. You can't have savings and need to cut to create budget solutions. The childcare funding so this is work for Maya.

I'm like, there is no commitment because there is savings in this space. And instead of reallocating to maintain the other spaces, we're also cutting. So we're taking money away from childcare to balance the general fund even though these dollars should stay in childcare spaces. We may not be moving forward because there's unspent. But at least we're not saying, hey, we're gonna take what you didn't spend and give it elsewhere.

Recognizing there's still a great need across the state of California. If either of you can expand, that was my other questions we're diving to is the relinquishment of these. You mentioned a couple, Placer, Solano, LA County. I mean, everywhere I go in LA County, everyone's begging me for more childcare slots.

So it's not that the need isn't there. What is happening? What we're seeing as to why some vendors are relinquishing their capped slots? Yeah. So there's many different business models that vendors or contractors have.

For instance, when we had, in the last when we looked at the allocation, we encouraged we went ahead and did an allocation across the entire contractors with the assumption that everyone would be able to take these increases based on the allocation formula. Now that we've had more time, we've started to look at expenditures year after year on these different contractors and discovered that there was unspent funds year after year on an average with some of these.

In conversations with them, we found that their business model may be that they are, supporting a certain group of families. I'll say for instance, they are supporting families who experienced domestic violence. And therefore, they are, serving families that are in that area to support them.

And and therefore, they cannot no longer they can the allocation is too much for the number of families that walk through their door. So therefore, instead of them holding on to these monies year after year, then perhaps they would like to relinquish a portion of that. Because I think that's the clarification. When we talk about relinquishments, we're not talking about a full relinquishment of a contract. Right?

We're talking about a portion meant to say, this is what we think for our community. Normal times, we would send we would then look at another alternative payment provider to be able to reallocate those funds that then would be able to serve all families that are on their wait list. Okay.

Outside of the providers that are picking a target and doing that, we've Is this news that we've learned about this is why they're having an excess? Or is this If it's news, this is If this is new information, are we gonna be reallocating differently?

Yes. So we've had a lot of learnings. Right? That is just one of other learnings that we have. And yes, when we are looking at redistribution or allocation of new funds, we are taking, several things into account, including having those type of thoughts.

And we've also been in contact like we did the first time with, the association who also shared with us. When you do look at allocation of slots, for example, there should be a baseline for certain agencies to take into account. So there's different things that we are taking into account.

But most importantly, now that we have some historical data as a new division of the expenditures, that is another piece that we're gonna take into account to say as we're allocating this certain vendor, does it make sense for us to give provide an increase in allocation when we've seen that the expenditure has necessarily not been fully utilized year after year? And perhaps instead of an x percentage of increase, it's either none or a lesser percentage.

So those factors are all new things that were taken into account.

I appreciate that because I don't want that we continue to send it out knowing that they're not gonna be filled and knowing that the permanent finance now has a slush fund to play with to backfill the general fund. I invoked your name so you can respond.

Thank you. I would just say, first of all, that what we have right now is the current mayor revision proposal. And Yeah. We're very happy to continue talking, get updates. And I think I think it's good to have this conversation to revisit and think about how are we, actually allocating funds as we're trying to grow.

In the beginning, we put a lot of money out there. We kind of predicted, hey, they're not gonna be able to ramp up that fast. We knew there'd be savings, but we wanted to show there's commitment. So that's why the money's in the budget. And whenever we, you know, together as three party, we put money in the budget.

We don't we don't want it to be savings. We want to provide those services. That's what we're doing. And I think having conversation now about how best to actually turn the money that's in the budget into services so that you don't end up with a lot of savings. I think that's that's something we're very happy to talk about and to work towards because that is what we want also.

I do believe we're gonna continue to see savings in the CCTRA CCTR section. I think the reallocation of saving of utilizing the 93,000,000 in cap is premature since we're gonna continue to see savings that I think we're not put as in a situation. I can't tell the future. But in a such a high situation where we have x amount of contracts that we need to make up funding for.

I keep hearing there's so many barriers and takes such a long time that I don't see that being the the driving force to switch from CCTR to to cap.

On the COLA, Department of Finance, we have historically matched the COLA with k through 12 for, I don't know, however long. This is a very unusual move to separate the two to have such a disparity. I've heard already that it was for a budget solution to go from 28.41 to 2.01. It can't be a budget solution here and then have k through 12 drastically jump to four point a super COLA 4.31.

It can't be a budget solution if you're only cutting one place and ballooning another area.

I'm not here to attack my colleagues in the CDE world. I think everyone should get it. But you created winners and losers in this space where you're pitting two vulnerable communities against each other. And no one's gonna pick one or the other. I think everybody should be an equal, which is why historically, we have matched the colas at the same time and matched them so that we didn't have different kind of groups fighting against each other.

All that, why now the huge disparity?

Krishan Mahocha, Department of Finance. And you said it already. It's a result of needing to achieve a balanced budget. It the mayor vision does include this budget solution. We just want to underline the point that the proposal is maintaining a 112,000,000 general fund for childcare providers, and they're getting a 13.75% increase, to their monthly cost of care plus rate.

So we're still providing an increase, and a higher increase than what we had at the governor's budget. So just wanna make that point.

You didn't answer my question. Why steer away from historically matching the colas so that we wouldn't have so we wouldn't pit two vulnerable communities against each other? If it is a budget solution, then there would be a cut on the other side as well. It can't be a budget budget solution where you have you found money to do super COLAs in another space.

Yeah. We can get back to you with some more information on that.

I need something to get back today before this hearing is over.

Thank you. Lourdes Morales with the Department of Finance. I think one of the key components here, and I think our LAO colleagues can sort of elaborate on this, is that the super COLA, as I understand it, is prop 98 funding. And so that is sort of a very different sort of consideration around the rules around the prop 98 sort of total allocation sort of how that's divided versus or non 98 general.

The available fund you could tap into with prop 98 that allows for super COLA. We don't have a prop 98 so we can allow an increase. All of the COLAs in our space are general fund. Thank you. I appreciate I appreciate that response.

Okay. In the 110,000,000 that we're adding into this COLA, it's because we forgot two, additional programs, right? That we didn't include in the January? So it's not like we're just throwing more money. We just forgot to add two other programs.

That's right. And I think we had mentioned it in testimony for, governor's budget. But yes, the CalWORKs childcare program and emergency bridge program hadn't been included in the governor's budget estimate. And so those two were included with the new two point o one percentage. Okay.

On the facilities of the additional funding that, so happy to hear that we're getting from the feds. How many facilities can we'll be able to do we have have we set like the warrant amount per facility or how many facility? Yeah.

We haven't set the award amount. However, the target individuals are individuals that reported out to licensing that they had impacts during these disaster, state disasters. So we're going by those specific numbers. And that was what was approved by ACF for us to do the distribution.

Okay. So we have a certain amount for those. And then to clarify, the 28,000,000, it can't help the LA fire victims. Right? Yeah.

It's a different year.

That's why we still need that 11.38 because those are specific to that area. Yeah. I mean to to that specific incident. Okay. Let's move on to the support cost structure.

The 70,000,000 I know Senator Grove dove into this a little bit. The Department of Finance or Department, what, what problem are we looking to solve with this reallocate with this restructuring of percentage to a fixed income? A fixed rate structure.

So in when when in the beginning with the bargaining and agreement with the childcare provider United, it was called out regarding that there was certain type of, additional duties that needed to be performed by these contractors. So that included due deductions, inquiry information, as to be able to process those monthly and timely for the the contractors.

What we did in a temporary basis as we were collecting more data and trying to understand it is we did a set aside for contractors to be able to do those duties by allowing for $70,000,000. As a result, we started to hear from contractors the difficulty regarding having those out of contracts because they feel temporary in nature when they're out of contract.

And so, by bringing them into, the admin, and increase the admin by the 1.5%, then it become a permanent in a sense, in regards to in their administration dollars now bringing them up to 19%, for example, for the alternative payment program.

So we were trying to make sure that we were solving that need in regards to making sure they had a ad and permanent admin amount to continue to do these functions that would not necessarily be temporary in nature, but continue to be ongoing.

Can you expand a little bit more? If this is built into the MOU, it seems pretty permanent. It's not temporary. It's part of the MOU. You can't rescind on that.

Can you expand a little bit more how they've it felt temporary?

Yeah. It felt temporary in terms that that anything that is at a contract has a different, responsibility in regards to reporting fiscally. So at a contract then, provides some flexibility for contractors to be able to utilize the dollars. However, they they do not then have to report out to us like the 17.5 regarding these dollars be how they're being utilized. And so, it sent a little bit of a mixed message because we have done other out of contract additional, admin, percentage for other, temporary pieces.

And so as you're looking at some of the temporary pieces we did with COVID, for example. Then it even though it is a, like you've mentioned part of the MOU, it still could be misinterpret as a, is a temporary piece.

And and I think I said it wrong because you're right. The 70,000,000 is outside of the MOU. Yeah. So I apologize I said it wrong though. Can the more if it needs to be in contract, can there be a dollar fixed amount versus a percentage?

I think we can look at different options and have more discussions because we are hearing directly from from you and others in regards to different ways of thinking of these funds.

So it's possible that it doesn't have to be a percentage. In in conversations, again, I don't wanna propose or have a conversation if it's not legal, if it's not reasonable or feasible.

Yeah. We can definitely have more conversations in regards to what are different options.

What are we concerned about is that if it's a percent, it's gonna grow dramatically. The more this we give as a state to down for childcare, the admin percentage is gonna grow more and more removing funding from actual childcare slots. That's the concern. If it's about giving them more permanent assurance that this funding is gonna come regardless and it help with the the reporting, then maybe it should be a fixed amount within a contract. It's the percentage part that just because it's gonna it's always gonna grow.

It's always gonna grow. Do you wanna add anything to that? No, you don't have to.

I think you've covered everything. Okay. Okay.

And on the same topic, the permanent finance. I'd like your perspective. Because if the see if I if this is a correct I'm not sure. If it's a percentage of it versus a fixed, it's gonna keep grow. Isn't that gonna increase the structure deficit?

Krishan Malhotra, Department of Finance. So if it was a percentage of the total contract and we were to increase either rates or add slots, it would be increasing the yeah. So it would have a an an like an increase in the out years depending on whether or not those rates are increased or if we add more slots or if other contract funding was to be changed.

And if we're gonna add the structured deficit, I would prefer to be on services not on admin. But either, I don't think any of us wants to add to the structured deficit here. I think we should be a little bit more if we could restructure it to not to not do that. On the abandoned perspective pay policy, Chief Deputy talked about those two reversions coming back. Of the nine positions that were approved, none of them were hired?

That's correct. We didn't move forward on hiring those positions knowing that there was a A potential. From the Federal Government regarding the policy.

And Senator.

And I think it was six positions.

Six positions. Six positions.

I didn't say six.

You said nine.

Six. Well, I wrote six. I don't know why I said nine. I apologize. Okay.

Okay. We're gonna hold that issue open. Move on to issue number three.

Issue number three. So in regards to the response regarding the childcare single rate structure age grouping and inclusion framework, TVL on this trailer, trailer build proposals. This proposal seeks to codify foundational policy elements at the single rate structure by defining age based rates, categories, and expanding acceptable documentation for the enhanced inclusion rate to include an individual family service plan, individual education plan, individual program plan, section five zero four plan, or incidental medical service plan.

The proposal would also establish the necessary statutory framework to support future implementations of the single rate structure, enabling the department to begin the preparatory activities to ensure alignment with the joint labor management committee recommendations. So age based rate categories are as follows.

Children under two years of age, the care of whom will be reimbursed as an infant rate. Children who are two age two years of age, the care of whom will be reimbursed at a toddler age toddler rate. Children who are three of age to six years of age inclusive, who are not yet enrolled in first grade, the care of whom will be reimbursed at this preschool rate.

Children five years of age and older who are enrolled in first grade or higher, the care of whom will be reimbursed at the school age rate. Now, I will turn it over to

Chief Deputy Ramsey to cover the safe the site safety and emergency procedure trailer bill language. The site safety and emergency procedure trailer bill language is related to the department's, current situation with being out of compliance with certain CCDF regulations related to licensing. As such, we are proposing this TBL to bring the licensing act into compliance on a number of issues. Specifically, this includes strengthening childcare safety through mandatory anaphylactic policies. Ensuring comprehensive pediatric first aid and CPR training for all staff and volunteers in licensed childcare facilities.

Ensuring all childcare facility licensees and staff complete training for recognition and reporting of child abuse and neglect, and establishing comprehensive emergency and disaster planning. These statutory changes are necessary to strengthen the safety and well-being of all children in care and to come into CCDF compliance. I'll turn it back to the Deputy Director.

Thank you. In terms of CalWORKs childcare, this trailer bill this proposed trailer bill, amends WIC code to include participation to CalWORKs program activities, and identified areas of need that will then be utilized at the same areas that need categories for stage two and three. The this facilitates a seamless transfers between CalWORK stages with minimal administrative burden on families and contractors. It requires the inclusion of additional data elements to be shared with the CalWORK stages two and three administrators.

And the last trailer bill language is to tell her oversight.

So this proposal includes cleanups, statutory language, governing fraud, and overpayment preventions in childcare and development programs and provides CDSS who has, taken over the administration as of 07/01/2021. These, of these contracts with clear authority to issue mandatory guidance to contractors. So it's a cleanup language that still referenced, our CD partners.

LAO?

Based on our initial review of the trailer bill language, we don't have any concerns at this time. But we will let the committee know if we have any other concerns as we continue to review.

Thank you. Just a real did you wanna add anything?

Chris Schallen, Department of Finance. Nothing on the trailer bill. We just wanna jump really quick back to the COLA. The cost of living adjustment for the childcare programs in the state preschool program, the 2.01% is the same across both programs.

Thank you for flagging out. Had a question on that. It's your fault. I forgot. LAO, you've mentioned because when I first read it, I thought it was the same across.

But you say it's still not the same across, the 2.01 COLA.

I think you might we were referring to the way that is applied as a cost of care plus to the cost of care plus rate.

So it's technically what's going on is this the state is not providing a COLA to reimbursement rates, but instead of calculating how much would the COLA be or or in this case, how much would a 2.01% COLA be to the base reimbursement rates and and then the state would only be increasing the cost of care plus rate.

But then the way the way that it's being implemented, then there's the Department of Social Services pot of money, then there's the non 98 preschool money, and then there's the 98 preschool. Those, for a variety of reasons, generated different amounts. So the exact cost of care plus increase and the exact cost of care plus rate that providers will receive will be slightly different in the three in in the three, programs.

So if you have a four year old in CCTR and a four year old in state preschool, technically, you might you will be getting a slightly different cost of care plus number. It's not The

COLA will be the same. That's the same, but because the Right. Cost of care. Okay.

And and the methodology to calculate the COLA is the same. So they're different programs, same methodology, different outcome.

So we we fix the COLA disparity from the January budget. Yes?

On the DSSI?

On the yes. But because the underlining is still different, that still creates the okay. A couple not a couple. A lot of states across The United States have defined infant in a different age group. I'm I'm wondering, did they have it wrong?

Like, do we have it wrong? Why the difference in how we define infant? And even I forgot what medical group also defines infant in a different age group. We have it all the way up to two.

Yeah. I can start? So, the definition you're right. So different states have the autonomy to define how they considered infants. We are looking from a health and safety age in regards to one adult and and number of children that they would be providing oversight.

There is a document that is and I think it's like caring for our children nationally recognized that also talks about these type of and I can definitely send you a link to that. That also talks about these, definitions that we also utilize as a guide when we are having these discussions regarding the definition of infants.

And I would just add, that our two year old definition is linked very directly to our licensing categories. So, for example, in small family childcare homes, you can only watch if you have all your children are defined as infants, you can only watch four.

Right.

So that's one adult with four babies. So if you had, say it lowered to 18, that would be then you could have four children 18 or younger plus like What was it? Seven or eight? Yeah. It it can like basically lead to a lot more younger children with only a single adult.

So it's it is the balancing act that that, Lupe had referenced related to health and safety for for the babies. Okay. Thank you. We're gonna open leave that issue open.

And move on to public comment.

Go ahead.

Thank you, Madam Chair and subcommittee Members. Clinical lab scientists provide results that inform 75%.

This is only, public comment on childcare issues.

Oh, okay.

Only childcare. The health, part b, we're gonna hear that next and then public comment will be after that.

Very good. Sorry about that. Thank you.

Okay.

Part A only issue.

I have a comment about your childcare discussion. I don't understand why you don't utilize audio visual representations of graphs and tables to better comprehend the topic. It's everything's verbal. Miss Grove asked for clarification. Seems very hard to follow without visual.

Child care only.

My suggestion.

Thank you for that.

You're welcome.

Good morning, Madam Chair and Members. My name is Donna Snaringer. I'm with the Child Care Resource Center in Los Angeles County. We provide subsidized child care services within the senator's district. I wanted to focus on the issue related to the shift to take unspent AP dollars and really underscore that, at least at our program, we're entirely full.

We have not enrolled a family since March 2025, and we currently have about 35,000 children on our waiting list, 6,500 of those in Senator Menjivar district alone. And, I think that the trade offs that are being discussed are not accurate. I agree with you. I think if there's unspent money, we should be talking about that first before we talk about permanent reduction of dollars. I also wanted to just say a couple sentences about the proposal related to our contracts and the support dollars we receive.

We haven't had a change in those dollars since 2010 at the end of the great recession. And we've had a lot of complex workloads added to us because of the childcare providers united contracts. We appreciate the direction the administration is heading, but hear your concerns as well and just really would like to be part of a conversation about

how we could come to a better solution. Thank you.

Good morning. Hello. My name is Anita Vicini, and I am a member of CCPU and have provided childcare in the city of Sonora for the past fifteen years. I am here today to urge the legislator to act now and ensure childcare providers receive the full 4.31% cost of living adjustment, matching the adjustment provided for other educators. The governor's proposal falls short.

It cuts back a COLA that was already not keeping pace with the rising cost of living or the actual cost of providing care. The bigger issue is that providers are still being paid based on an outdated formula from the 1980s that only covers a fraction of what it truly costs to care for children today. Every day, providers are balancing rising costs of food, supplies, rent, utilities, and staffing while working to keep care accessible for families.

In my own experience, the living the cost of living continues to rise, but the reimbursements rate the reimbursement rates we receive do not reflect that reality. Many providers are struggling just to stay afloat while continuing to serve our communities.

Providers should not be asked to accept less while continuing to do more. Thank you.

Thank you for allowing me to speak today. My name is Natasha Finister, and I'm a family childcare provider of thirty one years in the city of Hawthorne, California. Every single day, families across California are unable to find childcare because there simply are not enough providers to meet the need. And every single day, providers are being pushed closer to leaving this profession because the rates paid to us are outdated, inadequate, and disconnected from the true cost of care.

And caregivers who love what they do, but too many are being forced to consider leaving the job that they love in order to care for the families that they love.

I personally have side jobs, which equal nine jobs on the side, nights, weekends, and holidays. I basically spend all of my time working. The legislator has already recognized the need to move toward true cost of care rates. Now is the time to be bold and ensure that the commitment is reflected in this year's budget. We cannot continue balancing this system on the backs of underpaid providers while families struggle to find care.

This is a moment for action. Investing in providers means investing in children, working families, and the future of our communities. We urge you to stand with providers and make meaningful investments that reflect the real cost of care. Thank you.

Thank you.

Good morning. My name is Sylvia Hernandez and I am a family childcare provider in Venice. And I'm here right now to tell you that too many families qualify for childcare assistance but are denied access because there's simply not enough funding available. AGC's approved families, but there's not enough funding for childcare slots or vouchers. That means that parents are left scrambling, children lose stability, providers are forced to absorb costs just to help families stay afloat.

Without them, the slots or vouchers, working class families are being denied the opportunity to succeed. Childcare was allowed parents to work, continue their education, and contribute to California's economy and future. We're asking the state to invest in children's, parents, and California's future by expanding access to, childcare slots and vouchers. Families should not turn be turned away simply because the state failed to fund the care that they already qualify for. Thank you.

Thank you.

Hello. My name is Yvonne Bejar. I'm a member to the CCPU. The government may revision omits the one time cost needed to the security prospective payment for childcare providers. The Biden administration champion this policy, but it was removed and our requirement under the Trump administration.

Adulting prospective pay in the with the CCPU contract will make tremendous progress in stabilizing care for parents and providers. Prospective pay is not paperwork, it's a piece of mint. In the difference between coming to work with dignity or coming with fair that payroll and support won't be there when the children need asthma. The governors might revision or meet the one time cost requirement to security protective payment for childcare providers. I'm asking you to include in now because the stabling can weigh.

When providers help pay on time, we keep our staff, parents come through that the care and kids can stay in the same loving classroom. This is the moment, please.

Thank you.

Thank you.

Hello. My name is Portia Triplett, and I am a FFN childcare provider from Pasadena, California. I have served my community for over ten years. In January 2025, the Altadena wildfires affected my family, burned my home partially and left me and my family out of a place to live for about six months. Overnight, I lost my home, my community and my income.

To to to survive, I had to pay, double rent, rent a rental car and I couldn't serve my family. The FFM providers like me are essential. We set up single parents, low income families who have nowhere else to turn. I am grateful to be back in my home serving my community, but the financial pain from that disaster, I am still struggling from.

I am grateful for the budget funding to help the the victims like me stabilize our childcare, but the relief needs to reach the license exempt providers too.

Because we are we were hit so hard, we serve a crucial part in our community. We are we are we urge the legislative to include the FFM providers to adopt the CCPU's guidance to how the LA fire childcare facility riven excuse me. How that should be put back into our communities and put back into our our funds to help us rebuild. Thank you.

Thank you.

Good morning. My name is Yolanda Thomas, and I am a childcare provider for childcare provider with childcare providers united, a partnership between the United Domestic Workers, 3930 AFSCME, SEIU, locals 99 and 521. We are eager to work with the governor and the legislator to ensure that our joint labor management committees, committee recommendations are achieved in the final budget. Pay should account for transportation, fair compensation for weekend and evening care and more.

JLMC recommendations are critical when it comes to including childcare providers, ensuring recommendations are made for us by us.

Early childhood educators, as early childhood educators, we wear very many hats. We're transporters. We're late night caregivers. And just an overall safe haven for parents and children. We work 12 to 14 hours a day, the invisible clock.

We are only compensated for 8 to 10 hour blocks.

Thank you so much, ma'am. Thank you.

Good morning. Sara Bachez with Children Now we urge you to reject the proposal of reducing the AP and CCTR slots of which 69% of the families on are on AP vouchers. They're enrolled in family friend and neighbor care. They're predominantly Latino and African American families.

The same parents and guardians that work in the care industry and work non traditional hours. These are the same families facing the trifecta of the impacts from the harshest of federal actions and the minimization and destabilization of family support systems through stricter and unrealistic expectations during these difficult economic times for our most vulnerable children. Thank you.

Thank you.

Good morning. Jasmine Vai on behalf of the Low Income Investment Fund, LIF, a CDFI that supports affordable housing, childcare facility, school, and other community infrastructure projects serving low income communities. Lyft strongly aligns itself with the ECE coalition priorities. We urge the legislature to provide full funding for 2026 to 2027 cost of living adjustment, one that meaningfully reflects today's rising cost. Providers continue to face increasing expenses related to staffing, utilities, diapers, all of which impact their ability to continue serving families.

Lyft also greatly appreciates the Senate's continued commitment to childcare, including the proposal to fund an additional 44,000 childcare slots. This is an important investment toward expanding access for working families across the state. Additionally, LIFT has had the privilege of partnering with CDSS to help administer 350,000,000 through the childcare infrastructure grant program and has seen firsthand the extraordinary demand for childcare facility funding across California. We continue to support the 11,500,000 in infrastructure funding for fire recovery, and we're pleased to see 28,000,000 for natural disaster recovery added. Thank you.

Good morning, Chair, Members, and staff. Andrew Avila with Early Edge California. We want to respectfully, raise our concerns with the proposal to abandoned or to reduce COLA for childcare, to abandon prospective pay for providers, and the lack of the funding for the promise slots that our families so desperately need. We really urge you to, please create a final budget that will support providers and families and meaningfully move us towards rate reform. Thank you.

Thank you.

Hello. Jennifer Greppy with Parent Voices California. And I asked the sergeant to hand this, to you all. And what this is a study that we did about families that are on that childcare waiting list. And I will direct you to the second page which has a picture of a four year old changing her baby sister's diaper.

Okay? That is the consequence of keeping families on the waiting list. And we want to, like, applaud the Senate proposal that adds 44,000 spaces that were promised to these families. These families have been waiting and waiting and waiting on the no hope list and we just have to get them funded this year. Thank you.

Thank you.

Good morning. My name is Candida Duparwa. I'm the Director of public policy at the California Child Care Resource and Referral Network. I wanna echo my colleagues behind me, but I also wanna say that I was once a mom on the waiting list. And I had to go on child CalWORKs to get childcare.

So I am speaking today as a a lived experience. Also, I wanna, represent our R and R's throughout our state on the cola because we we are not fully funded in the R and R. And so we really need the super COLA. So I wanna, and then I wanna echo your 44,000. Thank you so much for that.

But we do have 1,800,000 children that are eligible and waiting for childcare. Thank you.

Thanks.

Mackenzie Richardson on behalf of Thriving Families California Foundation known as TFC. We thank the chair and the committee for your steadfast commitment to protecting childcare spaces already appropriated by the legislature and for addressing the systemic barriers that limit the state's ability to serve the maximum number of families. At the same time, contractors cannot be expected to maximize contracts without the sustainable infrastructure necessary to do so.

And as Thomas Niernger, noted earlier, community based organizations have not received an increase to their administrative rates since the great recession, while the cost of doing business has risen dramatically, including double digit increases in this year alone to liability insurance and workers' compensation costs. So I'd like to lift up that agencies need, administrative and support service funding levels that provide the stable infrastructure required to maximize contracts, meet growing program requirements, and effectively serve families.

And we look forward to working with the legislature, and the administration to do so moving forward. Thank you.

Thank you.

Good morning. Maeva Renaud with Kidango. We just wanna say thank you so much to the Senate leadership for supporting the 44,000 childcare spaces and also for your proposal to put CSP non LEA CSPP into Prop 98. I just want to emphasize some of the things that my colleagues have mentioned in regards to making sure that we are investing in our mixed delivery system in in a in a equitable way, because we are all serving the same children, California's children.

And so, one, we just wanna say that, we're asking you to reject the cuts to the, general childcare or CCTR funding and AP funding slots.

We're asking you to adopt a 15% flex factor to contract enrollment for center based programs, maintain the 35,000,000 to enable county offices of ed to implement universal pre kindergarten, and in alignment with the ECE budget coalition, increased the COLA for the cost of care plus and adopt the alternative methodology. Thank you.

Thank you.

Good morning, Chair and Members. Alicia Hatfield, Every Child California. We urge the rejection of reductions to general childcare, and thank you for speaking out against that. We ask that uncontracted funds not be treated as lack of need. Families are still waiting, and contractors are navigating through structural and systemic barriers as quickly as they can to meet the need.

We urge careful review of the site safety and emergency procedures trailer bill. We support strong safety standards, and implementation must come with funding and careful reviews of federal compliance doesn't become another unfunded burden on an already strained field. When it comes to COLA, I would like to note that CSBP is being moved under prop 98. We urge, fiscal support for two cost of care implementation, ask that AB 1981 passage be paired with fiscal resources.

We also urge the preservation of higher reimbursement for three year olds.

Finally, as CSPP moves under Proposition 98, community based providers need replacement contract flexibility. CCTR should be part of the proposition 98 solution. Thank you.

Thanks.

Hello. Alexa Chavez. Let's advocate with UDW. Here to just echo the comments made by our childcare providers who spoke earlier today. And thank you for your thoughtful conversations around the disparities on the COLAs in the proposed budget and, all of your thoughtful questions overall and understanding that childcare is essential for our economy.

Thank you.

Thanks.

Good morning. Monique Ramos on behalf of the ECE Coalition which represents all the folks you've heard already and many of most of the folks behind me. And I just wanna underscore that, you know, childcare is the thing that's gonna help families when they face all the cuts. The CalWORKs cuts, the Medi Cal cuts, and all the things.

It's child care that's gonna enable those families to go to work and be able to feed their families. Because, let's be honest, we know that the state's not gonna be able to backfill everything that we had with the feds. And it's dealing with our wages and making sure that providers receive adequate and fair pay that means somebody doesn't have to work nine jobs in order to care for a baby. And so we appreciate the Senate's leadership in this, and we ask you to continue to to push through negotiations.

Thank you.

Good morning, Senator. Karina Lago with the Childcare Law Center. We wanna first thank you for, being the leader and having this great budget plan that includes 44,000 spaces for childcare, you're right. You can't say we we can't say we're having savings and also cut services. We also must ensure that childcare providers get the support they need to continue providing enriching care.

As Senator Grove said, we can't take money away from providers, children, and families, and then move it somewhere else to balance the budget. So that we so we urge the Senate Democrats, the Senate to increase revenues and to ensure that the 44,000 spaces due start 07/01/2026 and include as many AP vouchers as possible to meet the urgent need of families. We also ask that, the legislature reject reject any reduction to childcare spaces that we have fought so hard for it.

As you said, we can't go from 125 to 123. And we also ask that the legislature reject the reduction in the childcare COLA and ensure parity between TK-12 educators and childcare providers.

We want to uplift that we support CES's CalWORKs, trailer billing, which will harmonize childcare eligibility and data sharing elements.

Thank you.

Thank you.

Good morning, Madam Chair. Good to see you. Thank you, members, for this opportunity. Pamela Gibbs representing the Los Angeles County Office of Education. I will lend my, voice on behalf of our agency in support of, equitable, COLA for the early childhood education programs, to mirror what's happening, across Prop 98, for our k 12, schools.

Also, urging your support, for the infrastructure dollars that are being, put in place, for the childhood education programs. So we were happy to see that, as a result of the, 2025 wildfires. So thank you for that. And we support. I'll say continued support for the universal pre kindergarten county office of education coordinator support for, not only the planning and implementation grants for UPK, which is still fairly new, and also, for the early, education training and development funds.

Many of our school districts have signed on to a letter asking our support and the support of other county offices of education, to do so. So thank you again.

Thank you.

For your support.

Good morning, Chair, Committee, Senators. Debray Sanders with Black ECE. First, they wanna thank you, and your leadership as well as the Senate for the proposal to, one, generate revenue, as well as to, fund 44,000 slots.

Again, we would like we request that Senate deny the cut to the COLA and also work in whatever way is to the extent possible to ensure that there's alignment with other education because that was it's the only one to align the COLA with this at least the super COLA or at least do the best we can to have them be close, or at least keep up with inflation, which is 3.8% as as of yesterday.

We also, really appreciate the investment of $11,000,000 for child infrastructure grants in in relations to the Altadena and Eaton fires and do request that there is explicit effort with the trailer bill to ensure that, historically black community of Altadena is included and receive those supported needs.

There are still folks that have still not gotten what they need from that those funds. We also ask that in the feedback as we continue to work to move towards an alternative rate methodology that reflects the true cost of care that we continue to generate revenue to.

Pay for it. Thank you.

Thank you.

Yes. Thank you.

Good morning, Chair, committee Members. Blake Johnson, LMEF for Child Action. I'm serving Sacramento County. I'm the Chief Strategy Officer. First off, thank you all for your leadership, advocating for our field.

I just wanna say that we oppose the permanent reductions or shifts in alternative program funding while our families remain underserved. In Sacramento County alone, we have more than 4,500 children remaining on the wait list waiting for subsidized child care. These reductions have the greatest impact on low income working families who already struggle accessing affordable child care. AP programs are critical to California's mixed delivery system and provide the flexibility working families need to remain employed.

We are urged to protect ongoing AP funding and continue expanding access for care for California's families.

Thank you.

Thank you so much. The subcommittee is gonna take a ten minute recess before we move on to part b.

Okay. Welcome back to part B on the health portion of this committee. Starting off with one issue under the Department of State Hospitals.

Good morning, Madam Chair. Mark Beckley, Chief Deputy Director of Operations for the Department of State Hospitals. I'm joined here today by my colleague, Christina Edens, who is the Chief Deputy Director for Program Operations. I'll be covering all of the May Revision items with the exception of IST Solutions and the Independent Placement Panel trailer bill, which will be covered by Ms. Edens. I'll start off with providing a program overview, and then presenting the BCPs, and then I'll talk about our premise adjustments.

At the May Revision, the Department of State Hospitals proposes a total budget of $3,200,000,000, which is an increase of 1% or $31.4 million over the Governor's budget. DSH's projected census at the end of the next fiscal year is 8,362, which is a decrease of 65 patients across our various programs. I'll now move on to our first BCP, which is our central utility plant project at Metro.

The Department of State Hospitals requests to revert the existing authority of $50,500,000 from the Public Buildings Construction Fund and provide $58,100,000 in new lease revenue authority for the construction of the DSH Metropolitan Central Utility Plant, or CUP, replacement project. This is a net increase of $7,600,000 in overall authority for the construction phase.

This project will replace the CUP, which currently supplies steam for hot water and central heating, as well as chilled water for air conditioning, to 32 housing and administrative buildings. The system is 38 years old and is nearing the end of its useful life. The project will install new chillers, boilers, pumps, and controls at the central plant, and replace the existing steam piping system with a new hot water piping system.

The cost increase is attributable to additional requirements identified during the design and working drawings phase of the project to ensure that safety, energy efficiency, and other code requirements are met. And it also includes replacing the CUP's roof and HVAC system, relocating the central control room, and providing dedicated electrical heating sources to two buildings.

I'll now move on to our next BCP, which is our continuum electronic health record proposal. DSH proposes $27,600,000 in fiscal year 2026-27 to fund 68.6 limited term positions and to implement the organization's EHR solution for DSH Coalinga and to begin readiness activities for DSH Metro and Atascadero. DSH also proposes to reappropriate up to $6,300,000 from 2025-26 and proposes provisional language to augment project funding as needed to maintain the proposed 2026-27 project schedule.

The EHR will digitize and centrally store patient health information so that care can be administered quickly and accurately, enables hospitals to operate more efficiently, provide continuity of care for patients who are moved from one DSH facility to another, and allows DSH to more easily analyze patient data for quality assurance and treatment improvement purposes. The EHR will bring DSH up to electronic data standards found in most modern hospital systems.

We'll now move on to our first premise item, which is county bed billing reimbursement authority. The county bed billing reimbursement authority pertains to hospital beds that DSH makes available to counties for the Lanterman-Petris-Short, or LPS, and non-restorable incompetent to stand trial patients who are a county responsibility. DSH requests a reduction in county bed billing reimbursement authority of $12,400,000 in 2025-26, and $5,800,000 for 2026-27 and ongoing to reflect the phase-in of LPS beds and projected bed utilization.

Since last year, DSH has increased its available bed capacity for LPS patients from 556 beds to 625 beds. This increase was accomplished in two phases.

25 beds were added at the end of fiscal year 2024-25. An additional 44 beds were added in February of this year. This reimbursement adjustment reflects the timing of the phase-in, bed utilization, and projected reimbursements to be collected. I'll now move on to a budget bill language item, which is limited public contract code exemption authority.

DSH proposes budget bill language to provide the department with contract exemption authority for online services and subscriptions providing health care and pharmaceutical information that support the quality of and access to patient health care, where DSH historically has received only one bid for these services.

DSH has subscriptions with a number of vendors that provide online support to our clinicians, nurses, and pharmacists for patient care and treatment. For instance, our pharmacists currently use an online pharmacy formulary that provides them with the most up to date medication information, including flagging negative medication interactions. Another important online subscription is for our nursing plans. This is a suite of tools that provides our nurses and level of care staff with up to date evidence based clinical decision support.

And the ability for nursing care plans to be generated from this content, and then tailored to our specific patient needs. This limited contract exemption language would enable DSH to quickly process contract amendments for online health care subscriptions and contracts so that there are no interruptions in services. In addition, we have experienced issues in the past where certain contracts were deemed to be IT contracts because this information is provided on the internet.

However, the vendor that we contract with or propose to contract with is not technically an IT vendor, creating challenges for the procurement process that has resulted in significant delays in DSH's procurement of these critical resources. These services are essential and delays can contribute to delays in services of critical care for our patients, while DSH tries to work to secure alternative providers.

And this could result in poor patient outcomes. I'll now move on to reversion of our prior year unspent funds. DSH proposes to revert $20,000,000 General Fund from the 2024-25 fiscal year in operating expenses and equipment, where contracts were not fully utilized. And then finally, for the workforce development premise, DSH proposes to use Behavioral Health Services Act funds to support its existing workforce development programs, including psychiatric residency, fellowships, and psychiatric training programs in lieu of General Fund.

In order to make this change, DSH requests a $10,300,000 General Fund reduction in 2026-27, and a $10,900,000 reduction in 2027-28,

and then commensurate increases in BHSA reimbursement authority. The BHSA funds would be received via an interagency agreement from the Department of Health Care Access and Information. In addition to that proposal, DSH also proposes $3,800,000 in 2026-27, and $3,500,000 ongoing in BHSA reimbursements to support an additional cohort at DSH Napa for its psychiatric training program, called our Fast Track program. This would provide an additional 30 psychiatric technician assistants to increase the psych tech workforce at Napa.

And this would help address a current 39% vacancy rate that we have for psych techs at Napa hospital.

I'll now turn it over to Ms. Edens to address the IST Solutions and IPP TBL.

Hi. Christina Edens, Chief Deputy Director for Program Services. This is the Incompetent to Stand Trial Solutions issue. First up, the department is reporting a $59,000,000 reduction to the one time prior year fiscal 2023-24 savings of $114,000,000 reported in the Governor's budget. This is related to the DSH funding infrastructure program.

In addition, the department is also reporting an additional one time savings of $11,000,000 in fiscal year 2025-26, and another $8,000,000 in 2026-27 one time, related to updated program activation schedules of our DSH diversion and community based restoration programs. The cumulative total savings for all IST related programs across both the Governor's budget and the May Revision are $55,000,000 one time in fiscal year 2023-24, $128,800,000 one time in the current year, and $102,200,000 one time in 2026-27.

In addition, the department is requesting to realign $10,000,000 in IST Solutions funding in 2026-27 and ongoing to, one, support increased statewide IST bed capacity at the Placer County Jail Based Competency Treatment Program, totaling $3,900,000; and to correctly reflect funding of $6,100,000 for the Conditional Release Program to support a 24 bed mental health rehab center as part of the continuum of care.

I'll move on to the proposed trailer bill language. The department is proposing trailer bill language to remove the 6/30/2026 sunset date for the Independent Placement Panel program. The Independent Placement Panel was piloted as an independent panel to improve CONREP access and participation for primarily not guilty by reason of insanity and offenders with mental health disorder commitments.

The IPP could thereby expand the availability of state hospital beds for IST individuals by facilitating discharge of DSH patients to CONREP for commitment types with historically longer lengths of stay. Overall, this pilot was successful.

The Independent Placement Panel largely met its objectives with increasing step downs to the CONREP continuum of care, providing standardized, neutral, and quality reports to the courts, and increasing public safety. The requested trailer bill will allow this effective program to continue ongoing. That concludes our testimony. Happy to take any questions.

Anything to add, Will? On the, thank you. On the public contract code exemption, how many contracts will be exempt?

I don't have an exact figure for you. We could definitely get that.

Is the authority to limit all of them?

Yes. For any of our contracts that involve an online electronic subscription, specifically for health support and information, that would exempt those contracts. Yes.

So we do have the exact number, just not right now. And for how long?

This would be in perpetuity.

Okay. And then I know you started to share about the impacts if we don't do this. Yes. Can you do a little bit, can you, is it for people who we are contracted with right now? Because we need to renew them to continue care, or

Yeah, it would apply to existing contracts as well as any future contracts. The problem that we've run into is we may have something like the online pharmacy formulary, right? And that is something that created some delays because the vendor themselves do not define themselves as an IT vendor.

They define themselves as a services vendor. So when we go out to contract for those types, we go out to contract as a services vendor. DGS and CDT, in reviewing the contracts, will sometimes say, this is actually an IT contract because they're providing their services through an IT mechanism through the internet. And so there's a lot of back and forth with DGS and CDT as well as with the vendor.

And I think really for a lot of these vendors, what's confusing to them is, since they don't see themselves as an IT vendor, there's a lot of separate terms and conditions that apply to IT contracts that don't apply to general services contracts.

And so just, you know, kind of educating them on these terms and then communicating with our control agency partners in terms of some of the concerns that they have. There's just a lot of back and forth that happens, and that does contribute to delays. The second thing that we see is sometimes the vendor will just make a really simple technical change to their platform that may trigger a contract amendment.

And sometimes those contract amendments just can get held up or delayed. And those, we see, should be processed fairly quickly, especially to avoid interruptions.

But we're specifically targeting just contracts that are providing health care medical information online and support because of the dangers of the interruption to services and patient care. So that's why we're looking for this very narrow exemption to apply to just healthcare contracts that provide online services.

Because the amendment part, you wouldn't have to go through the whole process just for an amendment on a contract, would you?

It depends on the contract. Sometimes, yes. Sometimes DGS or CDT, depending on the scope of the contract change, may have to go through a review by them. And then again, it can just trigger questions and delays in executing the contract amendment.

Okay. The reversion of unspent funds, this is from two years ago. And I think we just got updated information just on clarity of this. So we knew these were unspent last year.

No, well, we have just done our reconciliation of prior year funds. These funds technically could be encumbered for an additional year. But in our examination, we're really comfortable that the amount of funds that we've identified to date are available and can be reverted back to the General Fund early.

When did we come across the unused funds?

We do monthly projections. So we usually take a really robust snapshot in the middle of the year around December, kind of determine how close or far off we are with our prior year spending levels. And then we kind of revisit this monthly leading up to the May Revision. So when we looked at the numbers, we identified that we would have sufficient money. So we decided as a prior budget solution that we would propose this.

So it wasn't made aware to the department in last year's May discussion that this was going to, because this was already unspent last year. Yeah.

Yeah, well, last year, I mean, with these contracts, we do a lot of projections about utilization and what the hospitals may need. But we're not comfortable with reverting the funds in that current same year because they still have plenty of time to bill and expend those funds. So looking back one year is probably safe where we do have a good understanding of what's going to be saved and what's going to be spent.

And so, yeah, we're in that place now.

Going to hold the item open. Thank you. Move on to DHCS.

Good morning, madam chair. Michelle Baass, director of the Department of Health Care Services. Gonna speak to issue two the medical, local assistance assessment for the May revision. The department estimates, medical spending to be, about a 194,000,000,000 total funds. 48,600,000,000 general fund in 2526.

And 216,700,000,000 total funds, 44,900,000,000 general fund in 2627. The May revision reflects a 2,200,000,000 general fund increase for Medi Cal expenditures in 2526 compared to the governor's budget. This increase is driven primarily by a delay in federal approval for the 2025 hospital quality assurance fee. Federal funds repayment and deferrals for state only populations. Increased healthcare costs for managed care and fee for service.

The medical shortfall in 25-26, at the May revision is estimated to be 4,200,000,000 general fund. In terms of our case load, we are projecting a case load of about 14,000,000, 14,300,000 in the current year, and in the budget year, 13,800,000 individuals. The May revision projects Medi Cal general fund expenditures of 44,900,000,000 in 26-27, a decrease of about 3,700,000,000 compared with the revised twenty six twenty five twenty six expenditures.

This decrease is primarily driven by reduced costs resulting from some of the budgetary, proposals, to save general fund, lower managed care based costs associated with the projected decline in caseload, and revised timing assumptions for the hospital quality assurance fee, program. The major proposals, in the budget and, major proposals related to general fund spending are the the managed care organization tax.

We are proposing a renewal of the tax to generate about 2,300,000,000, in annual dollars. And I know that's an agenda item for later so I will, be brief. HR 1, the May revision reflects, that about 44,000 individuals will be disenrolled in the budget year. At governor's budget, we had projected 233,000 individuals. So do the work on our medically frail exemption and CalFresh ABODS exemption, we were able to improve the number of individuals maintaining coverage as a result of HR 1.

We have a proposal to transition individuals with unsatisfactory immigration status to fee for service. And I know that is another agenda item later, for today. We have a proposal related to, medical efficiencies. A general fund reduction of 68,000,000 in 26-27 increasing to over 550,000,000 in 29-30. And this relates to strengthening utilization management controls for applied behavioral analysis and transportation in the in the medical program.

The, budget also includes general fund savings related to addressing the, projected budget shortfall. And again, those are, discussed in more detail later in the agenda. And that concludes, the the general comments on the the May revision, Medi Cal local assistance estimate.

Hello. And if you wanna if it's I know we're gonna dive more into the budget solution. So if you wanna save those comments for issue eight, we can. But if you have overall comments.

Minh Li, LAO. So we believe that the underlying case load and and cost projections reflected in the May revision estimates are are broadly consistent with the the long run trends. Therefore, we recommend the legislature to treat the the baseline estimates as a reasonable starting point and and focus its attention on on the major proposals. That said, we would just mention that May revision continues to show, sizable growth in in current enrollee spending, in areas like managed care rates and pharmacy, spending.

Therefore, over the longer term, the legislature may wish to, better understand what's driving these cost increases.

It's also the second consecutive year where the Medi Cal budget in the current year has seen a a sizable upward adjustment. And so, again, the legislature may, wish to work with the administration, to explore a potential refinements to medical budgeting.

Thank you. Director, I have some other questions. As I mentioned, issue eight will cover will dive into deep in those budget solutions. I wanted to talk about the department's recent, decision to forego dialysis treatment for the emergency medical only. I know that's not being discussed here.

So, my first question is, is this a budget solution? Are we saving dollars by doing this?

Thank you, Madam Chair. Tyler Sadwith, State Medicaid Director. This is not a budget solution. As context, the department has been engaging with our federal partners at CMS since 2020 regarding our state only programs where we've expanded medical coverage to individuals with unsatisfactory immigration status. These reviews have entailed, you know, CMS reviewing our methodologies for, claiming appropriate federal dollars related to emergency Medicaid services for which federal financial participation is available for individuals with unsatisfactory immigration status.

And historically, we had, claimed, outpatient dialysis care as emergency Medicaid pursuant to our best understanding at the time and we drew down federal matching funds accordingly. In late twenty twenty five, CMS clarified that outpatient dialysis is not considered emergency Medicaid for the purposes of drawing down federal matching funds for, Medicaid members with unsatisfactory immigration status. They directed us to change our claiming processes. And as a result, we updated billing guidance regarding, you know, outpatient dialysis care for individuals enrolled in restricted scope.

So it's unrelated to the budget. It's a federal new federal clarification from this administration.

Can you help me? I've been trying to this is a new issue that just came across. So some questions may not come out appropriate. So I'm just I'm I'm learning as we're going. If it's federal guidance but other states are continuing coverage of that, why is California interpreting a different way?

So I'm not aware of

Twenty one other states we're seeing are still covering outpatient dialysis. So it so it's but it's the department stands that this is federal guidance that has to be done.Stakeholders that

Thank you Senator Yeah. I'm not aware of 21 other states that are that are doing this today. It is it is federal guidance that has been provided directly to California on a one to one basis. This is not federal guidance that was published nationally. It was provided through, you know, under the, sort of purview of the ongoing review that CMS conducts on every single quarterly CMS 64 claim that we submit to certify federal funding.

Okay. What's the cost in the general fund impact to switching only to hospital dialysis?

We don't have that at the moment but we are working on it. It's been requested, earlier this week.

Director Kyu share was there analysis run on the impact of the changes before the changes being implemented?

Thank you, madam chair. YingjiaHuang, deputy director. We do have that. We just don't have it, but we could provide it as, an action item.

Okay. So an analysis was ran?

We did have to yes. We did have to, run an analysis of, the claims that we claimed under, incorrectly under the emergency category. So we do have this information and can't provide that.

So sorry. Let me rephrase my question. My question is on the analysis of the impact of this change, not the analysis of claims.

We do not have that available but we could take that as an action item.

Was was it run? I I know you don't have it here but was an analysis done to show the impact of this change?

And and by analysis, you mean impact to members. I think based on kind of it was a federal audit on claims. And so we have the the audits of the claims and the claim available. I think we can take back kind of the the question on how what does that translate into an impact to members.

And also the cost of the general fund. So but we don't we haven't run that yet. We don't know those that information yet.

At this time.

When does this go into effect? Or did it already go into effect?

The guidance has already been updated, just last month.

Okay. So we sent out a guidance, but we don't have the full impact of it just yet?

That's correct. As Michelle and Tyler indicated, this was an a financial management audit of the actual claims. So we have the claims information, but understanding, at this time, we don't we have not ran an analysis on the impact on the members.

Okay. Director, not talk well, let's talk numbers a little bit. I'm just wondering, we keep talking about how Medi Cal costs are just booming so much. An individual who is now only accessible, able to get dialysis in a hospital, emergency cases is gonna get sicker. I don't think they'll be able to go to the hospital three times a week, most dialysis patients.

My Theo, my uncle goes three to four times a week. I don't think you could do that in a hospital. You're gonna get sicker and they're gonna go into the hospital even more and more and more. Is it is it a safe correlation to then draw to say this is gonna cost us more in the end run? If we're if we're gonna get sicker

I think one could could come to that conclusion. Yes.

Okay. But it's the stands that this is a federal requirement just for California Because it was a one on one guidance. Not an actual CMS. Whatever we we have our own APLs, our whole guidance letter to the whole states. It's just California has to do this.

That is, that is correct, Senator. We're not aware of CMS issuing national guidance on this. CMS provided this direction through their review and audit of our, quarterly claim for federal funding.

Could you help me explain from my knowledge what we follow from CMS that is an actual policy change versus, hey, you California, you need to do this. What is our obligation to follow two separate kind of guidance that are more formal guidance?

Generally speaking, we follow, you know, guidance that CMS provides in a number of different ways and this can include, you know, guidance that they publish in various formats such as a state Medicaid director letter, a state health official letter, a informational bulletin. They have regulations that they promulgate and at times they also do provide, you know, direction via, I guess, email correspondence.

And, through this ongoing review of our state only program where CMS issues, you know, has issued and continues to issue deferrals of federal funding that we submitted to CMS saying this is eligible for federal funding including dialysis in as an emergency claim. And CMS then provides feedback to to DHCS, through meetings and through instruct written instructions, notifying us that certain claim lines or certain claims or certain types of claims are not eligible for federal funding.

Because in this example, they're not included in the definition of emergency services.

So this is through a formal review process of the mechanism by which we draw down federal matching funds, and discuss the eligibility of those federal matching funds with the CMS oversight team on their financial management review team.

Okay. I would love to get confirmation if in fact other states still are paying getting Medicaid. And so the option here, if it's our interpretation that the Federal Government's asking us to do this, in order to provide continuing continued coverage of outpatient dialysis, that would be a general fund state coverage only because the interpretation is that no federal match will come down.

Correct. That's correct.

And, madam chair, one also clarification, And, madam chair, one also clarification, on impact. You know, this would only be for the restricted scope populations for folks impacted by the adult freeze.

Oh, no. So it's not Yeah. It's not the broad UIS population. They have full scope state funded coverage of this. This is just for

the UIS that don't they don't

Who that because of the freeze. The freeze. Yes. Yes. Yes.

So it's yes. So So previous It's not the Yes. 2,000,000 individuals.

The 2,000,000 Individuals. They will still have access to that. This just impacts every

But more and more people are gonna fall off of that. That's accurate. Recognize so more and more people are gonna fall into the That's accurate. The lack of coverage here. Okay.

Give me a second here.

Can you Director, can you give me an update on our, we're seeking approval from the CMS on the Prop 56 dental rates sometime in the fall. Are we supposed to hear back sometime in the fall regarding

So by the end of June, since these will go into effect in July 1, we need to do a public notice of the the proposed change in rate. And then by the end of September, so the end of the before the end of the first quarter, we have to submit to CMS what we call kind of essentially a a rate kind of evaluation. Because we're saying to fee feedback from anything we heard during the public comment process.

And that's kind of the formal process by which we would make these changes.

In our report that we're sending, you know, because stakeholders are sharing that a lot of providers are gonna leave the network in in droves. CMS is gonna be reviewing if we have adequate coverage in that. Where we anticipating CMS to share given the our changes here and that impact there?

So just maybe a little bit more on the analysis that we have to provide. We, based on the public feedback, we respond to the public feedback, the historical trends, provider participation, and service utilization. And so that, will then be submitted to CMS. And then based on kind of their review and engagement with the the department, kind of understanding, whether or not they they will approve the the rate reduction.

Is our review that is our, is the summary of our review or the department's perspective that the changes in rates are not gonna have an impact and is that the report we're gonna be sending to CMS or is

We haven't completed the report yet. That's It's not due to CMS until the end of September.

Issue three is the November or the, excuse me, the 2025 May revision family local assistance estimate.

Okay. Thanks. For later. Okay. We're gonna move. That was already or I'll hold it open regardless. Moving on to issue three. Okay.

The department estimates the family health spending to be 292,700,000 total funds, 265,000,000 of that general fund in '25 '26, and growing to 297,900,000 total funds, 275 of that general fund in '26 '27. Really no significant changes in, with regards to to the programs covered in the family local assistance estimate.

Hold open. Move on to issue number four.

Issue four is the managed care organization tax, and Proposition 35. The May revision proposes to renew an MCO tax as of 01/01/2027 that conforms with the new federal requirements in HR 1. The budget reflects net revenue of 575,000,000 in budget year, 2,300,000,000 in each of '27, '28, and '28, '29, and 1,700,000,000 in '29 '30. So, an annual amount about 2,300,000,000.

Funds would be used, 2,000,000,000 of the 2.3 would be used to support the Medi-Cal program, provide just general support to the Medi-Cal program, and about 300,000,000 annually for the targeted rate increases, that went into effect in 2024 to maintain 87.5% of Medicare rates for primary care, maternal care, and non specialty mental health.

For background today, the department administers the MCO tax consisting of two components.

We have a component authorized by AB 119, which is subject to Proposition 35. And a component authorized by SB 136 and AB 160, which is not subject to Prop 35. Both of those components sunset at the end of the calendar year. So 12/31/2026.

Proposition 35 requires the state seek federal approval to continue a Proposition 35 tax on MCOs on 01/01/2027 that is substantially similar to the current tax and caps the annual non Medicaid tax liability to 36,000,000. HR 1 enacted eight months after Proposition 35 passed drastically changed the federal landscape for healthcare related taxes and significantly constrained state options. Among the changes, HR 1 prohibits taxes that assess higher tax rates on Medicaid plans than commercial plans. Or otherwise disproportionately burden the Medicaid plans.

For California, the, HR 1 prohibits us from continuing a tax on MCOs that is really structured anything like what is authorized in Prop 35.

In order to comply with both Proposition 35 and HR 1, the administration proposes to seek federal approval of a renewal of an MCO tax with two components. A Proposition 35 tax that is substantially similar to what is authorized today, but we is not compatible with HR 1. And then as a separate component that is substantially dissimilar that is compatible with HR 1 and requires legislative authorization via a two thirds vote bill, and is not subject to Proposition 35.

We anticipate this re this approach will result in federal disapproval of the Proposition 35 tax component and approval of the non proposition 35 tax component which is, would be compliant with HR 1. The administration does not see a path to obtaining federal approval for a tax on MCOs that is both compatible with Proposition 35 and HR 1.