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LAO Report
June 19, 2015

Child Care and Preschool

Budget Act Provides $2.8 Billion for Child Care and Preschool Programs. As shown in Figure 1, the 2015-16 budget agreement includes $1.6 billion for non-CalWORKs programs, $1.1 billion for CalWORKs programs, and $150 million for support programs. Combined, the budget augments these programs by $423 million (18 percent) from the 2014-15 Budget Act level. The bulk of the increase is covered by higher Proposition 98 and non-Proposition 98 General Fund support.

Figure 1

Child Care and Preschool Budget

(Dollars in Millions)

2013-14
Actual

2014-15
Budget Act

2015-16
Budget

Change From 2014-15

Amount

Percent

Expenditures

CalWORKs Child Care

Stage 1

$337

$330a

$411

$81

24%

Stage 2b

367

355

414

60

17

Stage 3

202

220

278

58

27

Subtotals

($906)

($904)

($1,103)

($199)

(22%)

Non-CalWORKs Programs

State Preschool

$507

$614

$835

$220

36%

General Child Care

464

544

450

-94

-17

Alternative Payment

177

182

251

68

37

Migrant

27

28

29

2

6

Handicapped

1

2

2

Subtotals

($1,177)

($1,370)

($1,567)

($197)

(14%)

Support and Quality Programs

$74

$123

$150

$27

22%

Totals

$2,157

$2,397

$2,820

$423

18%

Funding

Non-Proposition 98 General Fund

$764

$809

$977

$169

14%

Proposition 98 General Fund

507

664

885

220

33

Federal CCDF

556

570

573

3

Federal TANF

330

353

385

31

9

aReflects Department of Social Services’ revised Stage 1 estimates for cost of care and caseload.

bDoes not include $9.2 million provided to community colleges for Stage 2 child care.

CCDF = Child Care and Development Fund and TANF = Temporary Assistance for Needy Families.

Higher Spending Predominantly Due to Reimbursement Rate and Slot Increases. New program enhancements and expansions account for the vast majority of the year-to-year increase. As shown in Figure 2, the largest augmentations are for reimbursement rates and additional slots, which receive an additional $163 million and $133 million, respectively. We discuss these augmentations and caseload adjustments in greater detail below.

Figure 2

Child Care and Preschool Changes

(In Millions)

Change

Proposition 98

Other

Total

Reimbursement Rates

Increases the Standard Reimbursement Rate 5 percent starting July 1, 2015

$38

$23

$61

Increases Regional Market Rate 4.5 percent starting October 1, 2015

44

44

Annualizes Regional Market Rate increase initiated January 1, 2015

34

34

Increases license-exempt rate from 60 percent to 65 percent of family child care home rates starting October 1, 2015

18

18

Increases part-day State Preschool rate 1 percent starting July 1, 2015

6

6

Subtotals

($44)

($119)

($163)

Slots

Provides 6,800 Alternative Payment Program slots starting July 1, 2015

$53

$53

Annualizes funding for 4,000 full-day State Preschool slots initiated June 15, 2015

$16

21

36

Provides 7,030 full-day State Preschool slots starting January 1, 2016a

28

3

32

Provides 2,500 part-day State Preschool slots with priority for children with disabilities starting July 1, 2015

12

12

Subtotals

($58)

($75)

($133)

Other

Makes CalWORKs child care caseload and average cost of care adjustments

$116

$116

Provides one-time infant and toddler quality activity block grant

24

24

Provides growth and COLA to non-CalWORKs child care programs

$8

11

19

Carries forward one-time funds for federally required quality activities

3

3

Shifts LEA full-day State Preschool “wrap” into Proposition 98

145

-145

Removes one-time funding for State Preschool facilities and quality activities

-35

-35

Subtotals

($118)

($9)

($128)

Totals

$220

$203

$423

aOf these slots, 5,830 are for LEA providers, with the remainder for non-LEA providers.

COLA = cost-of-living adjustment and LEA = local educational agency.

Reimbursement Rates

Standard Reimbursement Rate Increases by 5 Percent. The budget provides $61 million for a 5 percent increase to the Standard Reimbursement Rate (SRR) starting July 1, 2015. For the State Preschool program—both part- and full-day—this 5 percent increase is in addition to the 1 percent increase to the part-day rate described below. Previously, both General Child Care and State Preschool were funded using the SRR. Due to the differential rate increase to the part-day State Preschool rate described below, the new part- and full-day State Preschool rates will be higher than the SRR.

Regional Market Rates (RMR) Increase by 4.5 Percent. The 2014-15 Budget Act increased the RMR to the greater of the 85th percentile of the 2005 regional market rate survey or the 85th percentile of the 2009 regional market rate survey deficited by 10.11 percent. These rate increases were effective January 1, 2015. The 2015-16 budget provides $34 million to annualize the cost of these rate increases. It also provides $44 million to increase the RMR by an additional 4.5 percent starting October 1, 2015. As of this date, the RMR will be set at the higher of 104.5 percent of the 85th percentile of the 2005 regional market rate survey or 104.5 percent of the 85the percentile of the 2009 regional market rate survey deficited by 10.11 percent.

License-Exempt Rates Increase to 65 Percent of Family Child Care Home Rates. The budget provides $18 million to increase license-exempt rates from 60 percent to 65 percent of the regional market rate for family child care home providers starting October 1, 2015. License-exempt providers are family, friends, and neighbors who provide child care to children in the CalWORKs and Alternative Payment programs.

Part-Day State Preschool Rate Increases 1 Percent. The budget provides $6 million to increase the part-day State Preschool rate by 1 percent to expand professional development activities for teachers and increase training for parents. The full-day State Preschool rate—which is funded through a combination of the part-day State Preschool rate and a “wrap” rate—also receives a 1 percent increase for the part-day preschool portion of the rate.

Slots

Significant Increase in Slots. As shown in Figure 3, the budget funds almost 23,000 (7 percent) more preschool and child care slots in 2015-16 compared to 2014-15. This includes about 17,400 (9 percent) additional slots in non-CalWORKs programs and 5,600 (4 percent) additional slots in the CalWORKs programs. Of the increase in slots for non-CalWORKs programs, about 7,500 are full-day preschool slots and 2,900 are part-day preschool slots. (These reflect annualized slots, as the budget funds additional slots for the full- and part-day programs starting at different times.) The budget also funds 6,800 additional Alternative Payment Program slots. For the CalWORKs programs, the 4 percent increase in caseload primarily is due to more families projected to participate in welfare-to-work activities and, as a result, use Stage 1 child care.

Figure 3

Child Care and Preschool Subsidized Slotsa

2013-14 Actual

2014-15
Budget Actb

2015-16
Budget Billb

Change From 2014-15

Amount

Percent

CalWORKs Child Care

Stage 1

35,583

38,859

44,154

5,295

14%

Stage 2c

53,984

51,956

50,971

-985

-2

Stage 3

31,702

34,563

35,845

1,282

4

Subtotal

(121,269)

(125,378)

(130,970)

(5,592)

(4%)

Non-CalWORKs Programs

State Preschool—Part Day

91,170

96,087

98,956

2,869

3%

State Preschool—Full Day

44,889

50,989

58,504

7,515

15

General Child Cared

27,757

28,632

28,738

106

Alternative Payment

30,132

25,967

32,852

6,885

27

Migrant

2,534

2,505

2,514

9

Handicapped

144

145

146

1

Subtotal

(196,626)

(204,325)

(221,710)

(17,385)

(9%)

Total

317,895

329,703

352,680

22,977

7%

aReflects average monthly full-day slots, except for State Preschool—Part Day.

bReflects DSS estimates for CalWORKs Stage 1, DOF estimates for CalWORKs Stage 2 and Stage 3, and LAO estimates for non-CalWORKs programs.

cDoes not include community college child care slots (1,300 to 1,800 slots annually).

dState Preschool “wrap” slots funded by General Child Care are included in State Preschool—Full Day.

DSS = Department of Social Services and DOF = Department of Finance.

Budget Shifts $145 Million in State Preschool “Wrap” Into Proposition 98. Previously, full-day State Preschool was funded by a combination of Proposition 98 and non-Proposition 98 General Fund. Specifically, Proposition 98 funded the part-day preschool program and non-Proposition 98 General Fund supported the wrap portion of the day. The budget package shifts non-Proposition 98 General Fund wrap funding provided to local educational agencies (LEAs) into Proposition 98. (The minimum guarantee is not rebenched for this shift.) Full-day State Preschool slots offered by non-LEA providers remains funded with a combination of Proposition 98 and non-Proposition 98 General Fund.

Training and Improvement Activities.

One-Time Infant and Toddler Quality Rating and Improvement System (QRIS) Block Grant. The budget provides $24 million in one-time funds to support a QRIS block grant to support improvements in care for infants and toddlers. This funding builds upon the ongoing $50 million provided for the preschool QRIS starting in 2014-15. The California Department of Education will allocate the infant and toddler QRIS funds to existing regional consortia, which first developed under the federal Race to the Top grant. No more than 20 percent of the funding awarded to QRIS consortia may be allocated directly to child care providers. Rather, the funding is intended to be used by the consortia for professional development, training, technical assistance, and other resources for providers.