Back to 2013 Issues



Other Budget Issues

Last Updated: 3/13/2013
Budget Issue: Governor’s January budget adjustments.
Program: Child care and preschool
Finding or Recommendation: Recommend Legislature (1) wait until May Revision to finalize CalWORKs child care caseload estimates based on updated data, (2) reject minor proposed reductions for non-CalWORKs child care and State Preschool programs, and (3) fund additional preschool slots.
Further Detail

Governor’s Proposals

Governor Proposes Few Changes for Child Care and Preschool Funding. In contrast to budget proposals from the past several years, the 2013-14 Governor’s Budget does not contain notable reductions for child care and preschool programs. Specifically, as shown in Figure 1, the Governor’s budget would provide $2.2 billion for child care and preschool programs in 2013-14. Based primarily on minor changes in funding for the three stages of California Work Opportunity and Responsibility to Kids (CalWORKs) child care, overall funding for child care and preschool programs would increase by $12 million (1 percent) compared to the revised current-year level. This increase would be covered by an increase in non-Proposition 98 General Fund spending (with various other changes in federal funds and other state funds almost entirely offsetting each other). The Governor proposes only very small changes (less than $1 million) in General Fund spending for non-CalWORKs child care programs and in Proposition 98 spending for State Preschool. Additionally, the Governor’s proposal does not include a cost-of-living adjustment (COLA) for any child care or preschool program, as the 2012-13 budget package suspended COLAs for these programs through 2014-15.

Administration’s Caseload Estimates for CalWORKs Programs Reflect Effects of Recent Policy Changes. Figure 2 displays the administration’s estimates for slots in each program based on the funding levels displayed in Figure 1. (The administration uses different cost-per-slot assumptions in projecting caseload changes across different programs.) As shown in Figure 2, the administration estimates average monthly Stage 1 caseload will increase by 1,877 slots. This reflects the projected effects of the state phasing out short-term work exemption policies that curbed caseload rates in recent years. The administration estimates average monthly Stage 2 caseload will decrease by 5,187 slots due to an exceptionally large cohort of families projected to “time out” of the program. For the Stage 3 program, the administration projects an increase of 1,385 slots to reflect the number of families expected to transition from Stage 2 to Stage 3. (Our 2012-13 estimates for Stage 3 slots incorporate the midyear funding augmentation of $13.5 million.)

Governor’s Budget Also Adjusts Slots for Non-CalWORKs Child Care and Preschool Programs. In contrast to the CalWORKs child care programs, which the state traditionally funds based on projections of total eligible caseload, the state typically does not provide sufficient funding to accommodate all eligible participants in the non-CalWORKs child care programs (General Child Care, Alternative Payment, and migrant child care) or the State Preschool program. As such, waiting lists exist for these programs. The state typically does, however, annually adjust existing funding levels for these programs based on projected changes in the overall population of California children under age five. This adjustment is intended to account for potential changes in demand for slots in these programs. For 2013-14, the administration projects the state’s population of children under age five will decline very slightly—by 0.05 percent. The Governor’s budget includes this adjustment, resulting in a minor decrease for the non-CalWORKs child care programs ($333,000 in non-Proposition 98 General Fund) and State Preschool program ($242,000 in Proposition 98 funds). As shown in Figure 2, the administration projects this funding reduction will result in a decrease of roughly 100 slots across these programs.

LAO Assessment

The Governor’s adjustments for child care and preschool programs reflect statutory provisions and the administration’s caseload estimates. Though these are intended as “baseline” adjustments, we identify several issues for the Legislature to consider as it sets funding levels for these programs.

Stage 2 Estimates Do Not Account for Midyear “Diversion” Cases. Since the administration developed its budget proposal, data have become available that likely will alter cost projections for the Stage 2 program. Specifically, several counties responded to a midyear shortfall in Stage 3 funding by “diverting” some families back into the Stage 2 program. Diversion is a statutory clause that authorizes county welfare agencies to place eligible children back into Stage 2 for up to 24 months when no funded slot is available in Stage 3 and family members need child care to remain employed and avoid going back on CalWORKs assistance. Data suggest at least 1,100 children were diverted from Stage 3 back into Stage 2 between October 2012 and January 2013. These shifts may increase caseload and costs for Stage 2 above what the 2012-13 Budget Act and the 2013-14 Governor’s Budget anticipated.

Stage 3 Estimates Do Not Account for Midyear Funding Augmentations. Because of state budget constraints, the 2012-13 Budget Act included a 9 percent ($14 million) across-the-board funding reduction for the Stage 3 program. The Governor’s projections for Stage 3 caseload growth in 2013-14 assume 2012-13 caseloads were reduced to accommodate this funding reduction. Subsequent to the passage of the 2012-13 Budget Act, however, $13.5 million in non-Proposition 98 state funds were redirected to support 2012-13 Stage 3 costs on a one-time basis, likely increasing Stage 3 caseload beyond what the 2013-14 Governor’s Budget assumed. (The bulk of the midyear augmentation occurred after the Governor had developed his proposal.) In setting Stage 3 funding levels for the coming year, the Legislature faces the decision whether to (1) backfill for the one-time funds and fund higher Stage 3 caseload in 2013-14 or (2) not backfill for the one-time funds, which could require disenrolling some families from the Stage 3 program in 2013-14.

Questionable Rationale for Decreasing Funding for Non-CalWORKs Child Care and State Preschool Programs. The Governor’s proposed minor reductions for the non-CalWORKs and State Preschool programs reflect current law. The underlying assumption behind the adjustments, however, seems less applicable in the context of the large unmet need for subsidized child care and preschool across the state. Given the thousands of children on waiting lists for slots in these programs, a slightly declining child population likely will not noticeably decrease demand for existing slots.

Governor Does Not Apply Any Proposition 98 Increases to State Preschool Program. The Governor’s proposed approach for funding the State Preschool program mirrors that for the non-CalWORKs child care programs. That this program is funded with Proposition 98 monies, however, allows the Legislature to consider adopting a different approach without putting additional pressure on the state General Fund. This is because the Proposition 98 minimum guarantee is projected to increase by $2.7 billion. The Governor proposes to use these additional funds to augment funding levels and provide COLAs for most K-12 and community college programs. (Under the Governor’s proposal, several discrete K-12 programs would be merged into a new funding formula, and COLAs and increases would be applied to the new formula.) The State Preschool program is one of the few Proposition 98-funded programs the Governor does not propose to increase in 2013-14, despite the fact that it has experienced larger funding reductions than most other Proposition 98-funded programs in recent years. (While the state did provide funding for a new Transitional Kindergarten program for four-year olds beginning in 2012-13, this program was not designed to accommodate children displaced by reductions to the State Preschool program. Specifically, Transitional Kindergarten is not targeted for children from low-income families and only serves children born between September and December who previously would have been eligible for traditional kindergarten.)

LAO Recommendations

For CalWORKs Child Care Programs, Wait for May Revision Updates. We recommend the Legislature wait to adopt specific spending levels for the CalWORKs programs until updated data on current caseloads are available. By the time of the May Revision, better data will be available to determine current-year Stage 2 and Stage 3 changes. These data, in turn, will improve estimates of caseloads and associated costs in the budget year.

Reject Small Proposed Reductions for Non-CalWORKs Child Care and State Preschool Programs. Given existing waiting lists, we recommend rejecting the Governor’s proposal to reduce funding for the non-CalWORKs child care and State Preschool programs by $330,000 and $242,000, respectively.

For State Preschool Program, Use Portion of Proposition 98 Growth to Fund Additional Slots. We recommend the Legislature allocate a share of the projected increase in the Proposition 98 minimum guarantee to fund additional preschool slots. The State Preschool program experienced disproportionately large funding reductions in recent years compared to other Proposition 98 programs. In addition, increasing funding would treat preschool comparably to other Proposition 98 programs, most of which the Governor proposes to increase. Assuming the Legislature ultimately adopts the same Proposition 98 spending level as the Governor, spending more on preschool would require spending less on other Proposition 98 activities compared to the Governor’s proposals. Given the Proposition 98 minimum guarantee likely will change at the May Revision, we recommend the Legislature wait to determine how much additional preschool funding to provide within the context of its overall Proposition 98 package.