Legislative Analyst's Office Analysis of the 2002-03 Budget Bill

Child Care and Development

The Governor's Child Care Reform Proposal

The Governor's budget proposes substantial changes to current child care eligibility rules, reimbursement rate limits, and family fees. We withhold recommendation on the Governor's child care reform proposals pending further review of programmatic and fiscal impacts.

The Subsidized Child Care System. California's subsidized child care system is administered primarily through the State Department of Education and the Department of Social Services. A limited number of child care slots are also provided through the California Community Colleges. The Governor proposes $3.2 billion ($1.8 General Fund and $1.4 federal funds) for all subsidized child care programs in 2002-03, as shown in Figure 1. This level of funding will support approximately 736,000 child care slots.

Governor's Child Care Reform Proposal. The Governor proposes to reform California's subsidized child care system by modifying current eligibility rules, reimbursement rate limits, and family fees. Specifically, the Governor proposes to reduce income eligibility limits, reduce reimbursement rates for child care providers, implement fees for lower-income families, increase current fees for higher-income families, and eliminate eligibility for 13-year-old children. The administration estimates that the proposed reforms will result in savings of approximately $400 million. These savings result from a combination of higher family fees, lower reimbursement rates, an estimated 21,000 children losing eligibility for Stage 1 CalWORKs child care, and an estimated 29,000 slots losing funding under the Stage 3 "set-aside" for former CalWORKs recipients. The Governor proposes to reinvest the savings, thereby increasing the availability of regular subsidized child care for approximately 96,000 children. In addition, the Governor proposes to increase the availability of after-school child care by about 79,000 new slots. These enrollment changes from the current year (November Revision) are shown in Figure 2, along with estimated program enrollments based on the enacted 2001-02 Budget Act.

The CalWORKs Child Care System. Of the total appropriation for subsidized child care, the Governor proposes $1.3 billion for CalWORKs child care (funded from both the Departments of Social Services and Education). For a discussion of the CalWORKs child care system and the impact of the Governor's systemwide reform proposal on this system, please see our analysis of the CalWORKs program in the "Health and Social Services" chapter of this Analysis.

Withhold Recommendation. The Governor's proposed reforms are extensive and involve significant policy and fiscal considerations. At the time this Analysis was prepared, the administration had not provided the Legislature with draft language for legislation needed to enact the proposed reforms. Major fiscal uncertainty also exists regarding the amount of General Fund support that will be needed for the Proposition 98 guarantee in 2002-03. If in the spring the guarantee proves to be significantly higher than the budget's estimate, the Legislature may wish to consider various changes, such as (1) providing full funding of the Stage 3 "set-aside" for former CalWORKs recipients (discussed in our analysis of the CalWORKs program) and (2) replacing federal Temporary Assistance for Needy Families (TANF) block grant funds currently budgeted for child care with Proposition 98 funds. (These freed-up TANF funds could replace non-Proposition 98 General Fund spending in the CalWORKs program.) This would help the state meet increased funding requirements under the Proposition 98 guarantee at no additional cost to the General Fund, and thereby help preserve the Legislature's ability to maximize the provision of child care services in a challenging fiscal environment. In view of the above, we withhold recommendation on the Governor's child care reform proposals pending further review of their fiscal and programmatic implications.