The 2019-20 Budget

Analysis of Governor’s Preschool Slot Estimate

The Governor proposes expanding the State Preschool program over the next three years, with the intent to serve all low-income four-year olds. To this end, the administration estimates that 30,000 additional State Preschool slots would be needed. In this post, we compare the administration’s estimate with our independent estimate, then discuss the key assumptions underlying each of the estimates. At the end of the post, we identify additional factors not considered by the administration that the Legislature may want to consider if it is interested in expanding State Preschool.

Estimates

Governor Proposes Funding 30,000 Additional Preschool Slots by 2021‑22. The administration proposes to add 10,000 State Preschool slots each year for the next three years, for a total of 30,000 added slots. The administration estimates the 30,000 additional slots would be sufficient to serve all income-eligible four-year olds. (In 2019‑20, families will be eligible to enroll their child in State Preschool if their family income is at or under 85 percent of state median income—currently $65,604 for a family of three.)

LAO Estimate of Unmet Need Is Slightly Lower Than Administration’s Estimate. We estimate the state would need to add 27,000 slots to meet the Governor’s goal of serving all eligible, interested children. The estimate of unserved children, however, is highly sensitive to several underlying assumptions. Depending upon the specific set of assumptions made, estimates of unserved children can vary by tens of thousands. In the next section, we walk through the key assumptions in our respective estimates.

Key Assumptions

Total Number of Four-Year Olds. The administration assumes approximately 514,000 four-year olds live in California. The administration derived this estimate using population data from the American Community Survey (ACS), an annual survey administered by the U.S. Census Bureau. The Department of Finance (DOF) also makes population projections. DOF estimates 502,000 four-year olds will reside in the state in 2019‑20. We base our estimate on DOF’s population estimates, as the state typically relies on DOF’s demographic estimates for state planning and budgeting purposes. (Figure 1 provides a side-by-side comparison of all the administration’s assumptions compared with our assumptions.)

Number of Income-Eligible Four-Year Olds. The administration assumes 47 percent of four-year olds (about 241,000) are from income-eligible families. We believe using ACS data to calculate the share of income-eligible four-year olds is a reasonable approach, but the administration’s estimate of eligible children appears notably understated. (The share of four-year olds that it deems income eligible is substantially smaller than the share of K-12 students qualifying for a federal meals program—a program that has a lower income cap.) We think the administration’s estimate fails to adjust for family size. (For State Preschool, income eligibility thresholds vary by family size, with larger families having higher income thresholds.) Adjusting for family size, we estimate 59 percent of four-year olds are from income-eligible families.

Share of Eligible Children Likely to Attend Subsidized Preschool Program. The administration assumes 85 percent of eligible children would be interested in participating in a subsidized preschool program. This participation rate is similar to the percentage of children that the California Department of Education estimates attends public kindergarten. We think this is a reasonable assumption and make the same assumption in building our estimate. Other reasonable assumptions arguably exist, as the participation rates for statewide public preschool programs vary significantly, with rates as low as 60 percent and as high as 90 percent. Assuming a lower participation rate, however, is riskier for the state, as corresponding state funding could fall short were the actual participation rate to come in higher.

Share of Children Currently Served in State-Funded Programs. The administration estimates 141,000 income-eligible four-year olds are currently served in state-funded programs. This estimate is based on finalized 2016‑17 data. We think using 2016‑17 counts notably understates the number of children currently enrolled in state-funded programs. We assume the state currently serves 197,000 income-eligible four-year olds. Our estimate accounts for the growth in authorized slots in state-funded programs over the past two years. Compared to the administration, we also assume a larger share of income-eligible four-year olds participate in Transitional Kindergarten. As noted above, this is because we estimate a larger share of the overall four-year old population is income eligible.

Share of Children Served in Head Start. The administration assumes 25 percent of four-year olds in Head Start also participate in State Preschool. The state does not collect data on this overlap in participation. Based upon our conversations with providers, we know some overlap exists, but we do not know the extent of that overlap. Moving forward, collecting data on dual program participation would result in more accurate and reliable estimates of unserved children. Given the lack of existing data, we think the administration’s Head Start program overlap assumption seems reasonable and make the same assumption. We differ from the administration in that we use more recent participation data and we use federal program participation data that is most comparable to state data. Due to these differences, we assume somewhat fewer children are currently served in Head Start relative to the administration.

Other Factors

Governor’s Plan Does Not Account for Cost of Removing Work Requirement. The administration’s estimate does not take into account several factors that would increase the cost of serving all eligible children. The most notable factor not considered is the effect of the Governor’s proposal to remove the work requirement for the full-day State Preschool program.
If the Legislature were to adopt this proposal, all children eligible for part-day State Preschool would become eligible for full-day State Preschool. Because full-day slots cost more than part-day slots, fewer children overall would be served absent additional funding to cover the higher cost of full-day slots. If half of the part-day slots converted into full-day slots, the Legislature would need to add $360 million to serve the same number of children.

Governor’s Plan Does Not Consider That Some New Slots Will Serve Three-Year Olds. The Governor also understates the cost of his proposal given existing prioritization rules for the State Preschool program. Under current law, State Preschool providers must first serve all eligible four-year olds, with children from the lowest-income families getting priority. If space remains available at a particular preschool site, then providers may serve three-year olds—also prioritizing the lowest-income families. We estimate State Preschool in 2018‑19 is serving 123,000 four-year olds and 47,000 three-year olds. The administration, however, assumes all 30,000 additional slots will be used by four-year olds. Given local logistical issues, having all new slots used by four-year olds is very unlikely. Were the same share of new slots to be used by three-year olds as is currently the case, the state would need to provide an additional 7,000 slots above the administration’s estimate of 30,000 slots to still be able to serve all eligible four-year olds. Funding 7,000 additional slots equates to $87 million in higher costs.

Governor’s Plan Does Not Account for Provider Flexibility to Transfer Funds Between Programs. Providers that offer both State Preschool and General Child Care have the option twice a year to transfer non-Proposition 98 funds between those two contracts. The transfers can be one-time or permanent. If providers were to find that they had more demand for infant care and otherwise would not be able to fulfill their State Preschool contract, they could request to serve infants with State Preschool funds by transferring those funds to their General Child Care contract. Conversely, providers could shift funds from General Child Care to State Preschool. Over the next few years, the Legislature could request annual reports that monitors the amount of funds being transferred between State Preschool to General Child Care and then consider adjusting State Preschool funding and slots accordingly.