California Spending Plan

(Final Version)

Child Care and Preschool

Budget Act Provides $4 Billion for Child Care and Preschool Programs. Of this amount, $2 billion is for preschool programs, $1.9 billion is for child care programs, and $93 million is for support programs. As Figure 5 shows, the 2017‑18 Budget Act augments these programs by a total of $310 million (8.3 percent) from the revised 2016‑17 level. Proposition 98 General Fund covers the bulk of this increase ($164 million), with additional non‑Proposition 98 General Fund ($104 million) and federal funds ($42 million) comprising the rest of the increase.

Figure 5

Child Care and Preschool Budget

(Dollars in Millions)

	2015‑16 Revised	2016‑17 Reviseda	2017‑18 Enacted	Change From 2016‑17
	2015‑16 Revised	2016‑17 Reviseda	2017‑18 Enacted	Amount	Percent
Expenditures
CalWORKs Child Care
Stage 1	$334	$418	$361	‑$57	‑14%
Stage 2b	419	445	519	74	17
Stage 3	257	284	306	21	8
Subtotals	($1,010)	($1,147)	($1,185)	($38)	(3%)
Non‑CalWORKs Child Care
General Child Carec	$305	$308	$360	$52	17%
Alternative Payment Program	251	283	292	10	3
Migrant Child Care	29	31	35	4	12
Bridge program for foster children	—	—	19	19	—
Care for Children With Severe Disabilities	2	2	2	—d	12
Infant and Toddler QRIS Grant (one time)	4	—	—	—	—
Subtotals	($611)	($623)	($708)	($85)	(14%)
Preschool Programse
State Preschool—part dayf	$425	$447	$503	$55	12%
State Preschool—full day	555	627	738	111	18
Transitional Kindergarteng	691	739	755	17	2
Preschool QRIS Grant	50	50	50	—	—
Subtotals	($1,721)	($1,863)	($2,046)	($183)	(10%)
Support Programs	$76	$89	$93	$4	4%
Totals	$3,418	$3,722	$4,032	$310	8%
Funding
Proposition 98 General Fund	$1,576	$1,713	$1,878	$164	10%
Non‑Proposition 98 General Fund	885	984	1,088	104	11
Federal CCDF	573	639	635	‑4	‑1
Federal TANF	385	385	427	42	11
Federal Title IV‑E	—	—	4	4	—
aReflects Department of Social Services’ revised Stage 1 estimates. Reflects budget act appropriation for all other programs with adjustment for section letters. Specifically, reflects midyear $15.9 million fund shift from General Child Care and CalWORKs Stage 3 into the Alternative Payment Program. 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 preliminary LAO estimates for 2016‑17 and 2017‑18. QRIS = Quality Rating and Improvement System; CCDF = Child Care and Development Fund; and TANF = Temporary Assistance for Needy Families.

Higher Spending Predominantly Due to Reimbursement Rate Increases. As Figure 6 shows, higher reimbursement rates account for the vast majority of the year‑over‑year funding increase, with additional slots, new eligibility rules, and various other adjustments comprising the remainder of the increase. We discuss these augmentations in greater detail below.

Figure 6

2017-18 Child Care and Preschool Changes

(In Millions)

Change	General Fund		Federal Funds	Total
Change	Prop. 98	Non-Prop. 98	Federal Funds	Total
Reimbursement Rates
Increases SRR 6 percent starting July 1, 2017	$61	$32	—	$93
Increases SRR to cover cost of rate increase adopted in 2016-17	44	24	—	68
Annualizes RMR increase initiated January 1, 2017	—	45	$12	57
Increases RMR to the 75th percentile of the 2016 regional market survey starting January 1, 2018a	—	32	8	41
Annualizes 5 percent license-exempt rate increase initiated January 1, 2017	—	9	2	11
Subtotals	($104)	($143)	($22)	($269)
Slots
Annualizes State Preschool slots initiated April 1, 2017	$24	—	—	$24
Creates Emergency Child Care Bridge Program for Foster Children	—	$15	$4	19
Provides 2,959 full-day State Preschool slots at LEAs starting April 1, 2018	8	—	—	8
Subtotals	($31)	($15)	($4)	($51)
Caseload and Cost of Care
Makes changes to eligibility and family reporting requirements	—	$25	—	$25
Adjusts Transitional Kindergarten for changes in attendance and LCFF	$17	—	—	17
Provides 1.56 percent COLA to certain child care and preschool programs	16	$13	—	29
Makes statutory adjustment to non-CalWORKs slotsb	-4	-3	—	-7
Makes CalWORKs caseload and average cost of care adjustments	—	24	-$100	-76
Subtotals	($29)	($59)	(-$100)	(-$12)
Other Adjustments
Increases funding for quality improvement activities	—	—	$9	$9
Funds YMCA of West San Gabriel Valley facility	—	2	—	$2
Replaces state funds with federal funds	—	-113	113	—
Removes one-time funding from prior year	—	-1	-6	-7
Subtotals	(—)	(-$113)	($116)	($3)
Totals	$164	$104	$42	$310
aIncludes a temporary hold harmless provision so that no provider receives less in 2017-18 than it received in 2016-17. bReflects 0.4 percent decrease in the birth-through-four population.
SRR = Standard Reimbursement Rate; RMR = Regional Market Rate; LEA = local education agency; LCFF = Local Control Funding Formula; and COLA = cost-of-living adjustment.

Reimbursement Rates

Increases Standard Reimbursement Rate (SRR) 11 Percent From Effective 2016‑17 Rates. 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 2017‑18 budget provides $160 million to increase the SRR by 11 percent. Of this increase, $68 million is for a 5 percent rate increase approved in 2016‑17 and $93 million is for an additional 6 percent rate increase. The bulk of the SRR increase goes to support the State Preschool and General Child Care programs. The new rate for a full‑day, center‑based State Preschool slot is $11,433 per year, whereas the new rate for a full‑day, center‑based General Child Care slot for a preschool‑aged child is $11,360 per year. The 11 percent rate increase applies to centers, family child care homes, and all age groups.

Increases Regional Market Rate (RMR) for Many Voucher Providers. The state also funds child care through the California Work Opportunity and Responsibility to Kids (CalWORKs) and Alternative Payment programs, which operate using a voucher system based on the RMR. The state conducts surveys of regional market costs for child care every two years and typically sets the RMR such that families in every county can use their vouchers to access a certain percentage of child care providers in their areas. Beginning January 1, 2017, the state increased the reimbursement rates for providers from rates based on a mix of data from the 2005 and 2009 surveys to the 75th percentile of the 2014 survey, ensuring subsidized families could access three‑fourths of the child care providers in their areas. Beginning January 1, 2018, the rates are set to increase to the 75th percentile of the 2016 survey. Both of these rate increases were accompanied by temporary hold harmless provisions giving providers the higher of the new or old rates. Trailer legislation (Chapter 15) specifies that after December 31, 2018, all rates be set at the 75th percentile of the 2016 survey. The 2017‑18 budget provides $57 million to fund the RMR rate increases initiated January 1, 2017 and $41 million for the RMR increases starting January 1, 2018.

Slots

Funds Additional State Preschool Slots. The budget provides $24 million to annualize the cost of 2,959 preschool slots added April 1, 2017. The budget also provides $8 million for 2,959 new full‑day State Preschool slots at local education agencies (LEAs) starting April 1, 2018. This slot increase represents the second of three equal batches of State Preschool slots that the Legislature and the Governor agreed to add as part of the 2016‑17 multiyear budget agreement.

Establishes Emergency Child Care Bridge Program for Foster Children. The budget provides $19 million ($15 million non‑Proposition 98 General Fund and $4 million federal funds) to establish the Emergency Child Care Bridge Program for Foster Children, beginning January 1, 2018. This program will be jointly administered by the Department of Social Services (DSS) and county welfare departments. The program’s overarching intent is to allow foster families to access immediate child care slots until ongoing slots become available in the regular subsidized child care system. On an ongoing annual basis, the program is to receive $38 million for three related purposes:

Fund emergency child care vouchers lasting up to one year for participating foster families.
Support additional staff at Resource and Referral (R&Rs) agencies. The additional staff are to help foster families access services on an ongoing basis through the state’s regular subsidized child care programs.
Fund R&Rs to offer training to child care providers on how best to serve the unique needs of foster children.

Trailer legislation (Chapter 24) does not specify how funds will be allocated across these three purposes or across counties. Participation in the program is optional at the county level.

Makes Changes to Eligibility Criteria and Family Reporting Requirements. The budget includes $25 million reflecting the combined effect of increasing the eligibility thresholds and changing reporting requirements for families. Currently, to be eligible for care, parents must be working or in school and earn below 70 percent of the State Median Income (SMI) as calculated in 2007‑08. This threshold equates to $42,216 for a family of three. The budget package updates to using the most recent SMI as well as establishes different entry and exit eligibility thresholds. Families would be eligible to enter the program if they have below 70 percent of the 2015 SMI ($52,076 for a family of three) and continue receiving assistance as long as their income is below 85 percent of SMI ($63,235 for a family of three). This change increases the number of CalWORKs Stage 2 and Stage 3 slots. This is because some families that otherwise would have stopped receiving subsidized child care due to increases in their income will continue to be served. In addition to expanding income eligibility, the budget package allows families to report information necessary for determining eligibility only once a year unless changes in income make them ineligible. Under the new policy, families will not be required to report any changes in hours at work or in school between the annual eligibility determinations. Previously, families were required to report any change in income or work hours—even if the change did not affect their eligibility for care—within five days or lose their subsidy. This reporting change has the effect of increasing CalWORKs child care costs, as families with reduced work hours may access longer hours of care. (In the non‑CalWORKs programs, which are capped, increasing the eligibility thresholds and changing reporting requirements have the effect of lengthening the time that some families receive care while increasing the number of other families that are waiting to receive care.)

Other Budget Actions

Makes Adjustments to CalWORKs Child Care. The budget adjusts CalWORKs child care down by $76 million compared to the revised 2016‑17 level due to changes in caseload and the underlying cost of care. (Changes in the types of care families use affect the average cost of care, independent from the rate increases described above.) The bulk of the year‑over‑year decrease ($63 million) is due to changes in cost of care relative to 2016‑17 budget estimates. The reduction results from lower average cost of care in Stage 1 and Stage 3, offset by a slight increase to average cost of care in Stage 2. The remaining year‑over‑year decrease ($13 million) is due to caseload changes. Specifically, Stage 1 and Stage 3 drop by a combined 3,048 cases, offset partly by an increase of 1,830 Stage 2 cases.

Makes Statutory Adjustments to Non‑CalWORKs Child Care and Preschool Programs. The budget provides $29 million to fund a 1.56 percent cost‑of‑living adjustment (COLA) for non‑CalWORKs child care programs and the State Preschool program. For the programs that receive the SRR, the COLA augments the rate that providers receive. In the Alternative Payment program, however, the COLA goes to create extra child care slots. The budget also makes a $7 million downward adjustment to these programs reflecting an estimated 0.4 percent decrease in the birth‑through‑four population in California.

Augments Transitional Kindergarten (TK). The budget adds $17 million for TK, reflecting a 2.7 percent increase funding from the Local Control Funding Formula, offset by a slight expected decrease in TK average daily attendance.

Swaps State With Federal Funds. The state receives federal funding for child care and preschool through the Temporary Assistance for Needy Families (TANF) program and the Child Care and Development Fund (CCDF). The budget allocates an additional net $113 million from these sources in 2017‑18, offsetting a like amount of state General Fund expenditures. The change is due to a $120 million increase in TANF funds for the CalWORKs Stage 2 program offset by a $7 million decrease in available CCDF funds. The additional TANF funds are due to lower overall CalWORKs costs coupled with more realignment‑related funding for CalWORKs. Both factors work to free up TANF funds for CalWORKs Stage 2 costs.

Policy Changes

Changes Licensing Requirements for State Preschool Programs Run by LEAs. Currently, all State Preschool programs are required to be licensed. To be licensed, providers must meet certain health and safety standards, referred to as Title 22 standards, which are established by DSS. State Preschool programs also are required to meet various other health, safety, and programmatic standards, referred to as Title 5 standards, which are established by the California Department of Education (CDE). Trailer legislation (Chapter 15) exempts State Preschool programs run by LEAs from Title 22 licensing standards beginning July 1, 2019. It also requires our office to convene a workgroup to discuss what Title 22 standards should be added to Title 5 to ensure LEAs continue to meet essential health and safety standards.

Allows Part‑Day State Preschool Programs to Serve Children With Special Needs Over Income Threshold. Chapter 15 allows part‑day State Preschool programs to serve children with special needs who do not meet the income‑eligibility criteria as long as all eligible and interested children are served first. Under current law, part‑day State Preschool programs are allowed to fill up to 10 percent of their slots with children from families with incomes up to 15 percent over the income‑eligibility limit. Pursuant to Chapter 15, children with special needs from families above the income threshold would not count toward this existing limit.

Aligns the State Definition of Homelessness With the Federal Definition. Currently, children can be deemed eligible for subsidized child care if they are homeless and a parent needs to access child care while looking for permanent housing. Chapter 15 changes the definition of homelessness so that it is the same as the definition used for the federal McKinney‑Vento Homeless Assistance Act. This change expands the definition of homelessness to include children who are temporarily staying with other people due to loss of housing as well as children who are sleeping in a shelter, in transitional housing, or places not designed as sleeping accommodations.

Allows Providers to Accept Electronic Applications for Child Care. Chapter 15 allows providers to accept electronic applications and signatures from families applying for subsidized child care or State Preschool. Previously, providers were required to collect paper applications with handwritten signatures.