California Spending Plan

Child Care and Preschool

Budget Act Provides $3.7 Billion for Child Care and Preschool Programs. Of this amount, $1.8 billion is for preschool programs, $1.8 billion is for child care programs, and $89 million is for support programs. As shown in Figure 14, the 2016–17 Budget Act augments these programs by a total of $199 million (6 percent) from the 2015–16 Budget Act level. Proposition 98 General Fund covers the bulk of this increase ($129 million), with additional federal funds ($64 million) and non–Proposition 98 General Fund ($6 million) comprising the rest of the increase.

Figure 14

Child Care and Preschool Budget

(Dollars in Millions)

	2014–15 Actual	2015–16 Budget Acta	2016–17 Budget Act	Change From 2015–16
	2014–15 Actual	2015–16 Budget Acta	2016–17 Budget Act	Amount	Percent
Expenditures
CalWORKs Child Care
Stage 1	$311	$410	$413	$3	1%
Stage 2b	364	414	445	31	8
Stage 3	223	278	287	9	3
Subtotals	($899)	($1,103)	($1,146)	($43)	(4%)
Non–CalWORKs Child Care
General Child Carec	$274	$305	$324	$19	6%
Alternative Payment Program	182	251	267	16	6
Migrant child care	28	29	31	2	5
Care for Children With Severe Disabilities	2	2	2	—d	5
Infant and Toddler QRIS Grant (one time)	—	24	—	—	—
Subtotals	($485)	($611)	($624)	($13)	(2%)
Preschool Programse
State Preschool—part dayf	$409	$425	$480	$54	13%
State Preschool—full day	453	555	591	36	7
Transitional Kindergarteng	626	680	719	39	6
Preschool QRIS Grant	50	50	50	—	—
Subtotals	($1,537)	($1,710)	($1,840)	($129)	(8%)
Support Programs	$73	$76	$89	$13	17%
Totals	$2,994	$3,500	$3,698	$199	6%
Funding
Proposition 98 General Fund	$1,280	$1,565	$1,694	$129	8%
Non–Proposition 98 General Fund	790	977	983	6	1
Federal CCDF	570	573	639	66	12
Federal TANF	353	385	383	–2	–1
aReflects DSS revised Stage 1 estimates for cost of care and caseload. Reflects budget act appropriation for all other programs. bDoes not include $9.2 million provided to community colleges for certain child care services. cGeneral Child Care funding for State Preschool wraparound care shown in State Preschool—full day. dLess than $500,000. eSome CalWORKs and non–CalWORKs child care providers use their funding to offer preschool. fIncludes $1.6 million each year used for a family literacy program at certain State Preschool programs. gReflects estimates available at the time the 2016–17 budget was enacted. QRIS = Quality Rating and Improvement System; CCDF = Child Care and Development Fund; TANF = Temporary Assistance for Needy Families; and DSS = Department of Social Services.

Higher Spending Predominately Due to Reimbursement Rate and Slot Increases. As shown in Figure 15, higher reimbursement rates account for the vast majority of the year–over–year funding increase, with additional slots and additional spending on two quality improvement activities accounting for the remainder of the increase. We discuss these augmentations in greater detail below.

Figure 15

2016–17 Child Care and Preschool Changes

(In Millions)

	Proposition 98 Funds	Other Funds	Total
Reimbursement Rates
Increases the Standard Reimbursement Rate 10 percent starting January 1, 2017	$44	$24	$68
Increases the Regional Market Rate to the 75th percentile of the 2014 regional market survey starting January 1, 2017a	—	56	56
Adjusts Transitional Kindergarten for LCFF increases	39	—	39
Increases license–exempt rate from 65 percent to 70 percent of family child care home voucher rates starting January 1, 2017	—	14	14
Annualizes funding for Regional Market Rate ceiling increase initiated in 2015–16	—	9	9
Annualizes funding for 5 percent license–exempt rate increase initiated in 2015–16	—	5	5
Subtotals	($82)	($108)	($190)
Slots
Adjusts State Preschool for annualization of slots initiated in 2015–16b	$31	$3	$34
Provides 2,959 full–day State Preschool slots at LEAs starting April 1, 2017	8	—	8
Increases non–CalWORKs slots for statutory growthc	1	1	2
Subtotals	($40)	($4)	($44)
Other
Increases funding for quality improvement activities	—	$12	$12
Creates three–year pilot program in Los Angeles County to fund training and wage increases for 150 child care workers	—	1d	1
Removes one–time Infant and Toddler QRIS grant funds	—	–24	–24
Makes CalWORKs caseload and average cost of care adjustments	—	–25	–25
Other technical adjustments	$7	–6	—e
Subtotals	($7)	(–$42)	(–$36)
Totals	$129	$70	$199
aIncludes a hold harmless provision so that no provider receives less than it received in 2015–16. bAnnualizes the cost of 5,830 LEA and 1,200 non–LEA full–day State Preschool slots initiated January 1, 2015. cReflects 0.13 percent growth in the birth–through–four population. dUses $1.4 million in unspent prior–year Proposition 98 funds. eLess than $500,000. LCFF = Local Control Funding Formula; LEA = local educational agency; and QRIS = Quality Rating and Improvement System.

Reimbursement Rates

Standard Reimbursement Rate (SRR) Increases by 10 Percent. The state funds State Preschool, General Child Care, a portion of Migrant Child Care, and Care for Children with Severe Disabilities through direct contracts based on the SRR. The 2016–17 budget provides $68 million for a 10 percent increase to the SRR starting January 1, 2017. The bulk of this increase goes to support the State Preschool program ($44 million Proposition 98 General Fund) and General Child Care ($22 million non–Proposition 98 General Fund), with the remainder increasing rates for the other two child care programs. The new rate for a full–day, center–based State Preschool slot is $10,596 per year, whereas the new rate for a full–day, center–based General Child Care slot for a preschool–aged child is $10,530 per year. (The 10 percent rate increase applies to centers, family child care homes, and all age groups.)

Regional Market Rate (RMR) Increases for Many Voucher Providers. The state also funds child care through CalWORKs and Alternative Payment programs, which operate using a voucher system based on the RMR. The state conducts surveys of the regional market costs for child care every two years. The state historically has set the RMR such that families in every county can use their voucher to access a certain percentage of child care providers in their areas. In 2015–16, providers were reimbursed at the greater of (1) 104.5 percent of the 85th percentile of the 2009 survey deficited by 10.11 percent or (2) 104.5 percent of the 85th percentile of the 2005 survey. The 2016–17 budget provides $56 million to increase the RMR to the 75th percentile of the 2014 survey starting January 1, 2017. (When the RMR is set at the 75th percentile, a voucher covers the cost of all but the most expensive quartile of providers in the area.) The budget package includes a two–year hold harmless provision such that providers receive the higher of the old or new rates. Trailer legislation specifies that after July 1, 2018, all rates be set at the 75th percentile of the 2014 survey.

License–Exempt Rates Increase to 70 Percent of Family Child Care Home Voucher Rates. License–exempt providers are family, friends, and neighbors who provide child care to roughly one–third of all children in the CalWORKs and Alternative Payment programs. The state links rates for license–exempt providers to a percentage of the rates for family child care homes accepting vouchers. The budget provides $14 million to increase license–exempt rates from 65 percent to 70 percent of the family child care home rates starting January 1, 2017.

Budget Package Annualizes Rate Increases Initiated Last Year. The 2016–17 budget also includes $9 million to annualize RMR increases for licensed providers and $5 million to annualize license–exempt rate increases initiated last year. (Beginning October 1, 2015, the 2015–16 budget package increased the RMR for licensed providers by 4.5 percent and increased license–exempt rates from 60 percent to 65 percent of the family child care home rates.)

Trailer Legislation Contains Intent Statements Regarding Future Rate Changes. Trailer legislation states legislative intent to increase the SRR and the RMR through 2018–19 to reflect higher costs to providers resulting from increases in the state minimum wage. Trailer legislation also specifies legislative intent to link the RMR to the 85th percentile of the most recent market survey based on available funding.

Slots

Budget Package Increases Funding for State Preschool Slots. The budget provides $34 million for the State Preschool program to annualize the cost of preschool slots added January 1, 2015. The budget also provides $8 million for 2,959 new full–day State Preschool slots at LEAs starting April 1, 2017. The Legislature and the Governor have stated their intent to fund additional full–day State Preschool slots in future years.

Other Actions

Budget Makes Adjustments to CalWORKs Child Care. The budget adjusts the CalWORKs child care budget down by $25 million compared to the 2015–16 Budget Act due to changes in caseload and underlying cost of care. (Changes in the underlying cost of care do not include the rate increases in the 2016–17 budget. The adjustments reflected here result from changes in the age of children served, choices families make about settings, and the number of hours per week children are in care.) The bulk of the decrease ($18 million) is due to overall CalWORKs child care caseload projections for 2016–17 being revised downward. The rest of the decrease is due to lower average cost of care in Stage 1 in 2016–17. These decreases are partly offset by a slightly higher average cost of care in Stage 2.

Budget Includes Additional Funding for Quality Improvement Activities. Federal law requires the state to spend a certain amount on activities designed to improve the quality of child care. Currently, the state allocates improvement funds to resource and referral agencies, local planning councils, licensing enforcement, and dozens of other programs that provide financial and technical support to child care workers and assistance to parents. Due to recent changes in federal law and additional federal funds the state is receiving, the state is required to spend $12 million more on quality improvement activities than last year, bringing total quality improvement spending in 2016–17 to $89 million. The budget also provides $1.4 million one–time Proposition 98 General Fund for the Los Angeles Trade–Tech Community College to provide job training, mentoring, and college courses to child care workers. These funds are available for expenditure through June 30, 2019.

Budget Requires CDE to Develop New Quality Improvement Expenditure Plan. Federal law requires states to submit plans to the federal government describing how they will use their quality improvement funds. The 2016–17 budget requires CDE to submit a new draft expenditure plan to the Legislature by February 1, 2017 and to the federal government by March 1, 2017. In the new plan, CDE is to (1) retain funding for resource and referral agencies, local planning councils, and licensing enforcement and (2) prioritize funds for Quality Rating and Improvement Systems over other existing improvement activities.