The 2014-15 Budget: Child Care and Preschool Programs

The 2014-15 Budget: Child Care and Preschool Programs MAC TAYLOR • L E G I S L A T I V E A N A L Y S T • MARCH 4, 2014 EXECUTIVE SUMMARY In this brief, we assess the Governor’s proposed 2014-15 budget for child care and preschool programs. The Governor’s budget for these programs adjusts funding to account for changes in caseload and per-child costs of care but does not include any policy changes. Our review indicates that the Governor’s budget overestimates caseload and underestimates per-child costs—on net leaving child care funding a few million dollars short of fully covering 2014-15 costs. The next major installment of data (in late April) will enable the Legislature to refine these estimates and finalize its 2014-15 budget decisions for child care. INTRODUCTION This brief provides background information Governor’s proposal to create a Child/Parent on the state’s child care and preschool programs, Demonstration Pilot Project in our report The describes the Governor’s related budget proposals, 2014-15 Budget: Analysis of the Human Services and analyzes those proposals. (We discuss the Budget.) BACKGROUND California Subsidizes Child Care Through a CalWORKs families, the state subsidizes child care Variety of Programs. California traditionally has for several years, with Stage 1 care provided for guaranteed subsidized child care for families that families seeking employment, Stage 2 care provided currently are participating or have participated for families who have gained stable employment in the California Work Opportunity and and are transitioning off of cash assistance, and Responsibility to Kids (CalWORKs) program. For Stage 3 care provided for families who have been off 2014-15 BUDGET cash assistance for at least two years. Low-income, Payment Rates Vary by Provider Type. working families not currently or previously Three main types of providers—licensed child participating in CalWORKs may access subsidized care centers, licensed child care homes, and child care through the General Child Care, license-exempt caregivers—provide subsidized Alternative Payment, and Migrant Child Care child care. (License-exempt care is provided programs. (The state also operates a very small by neighbors, friends, or relatives of the family Handicapped Child Care program for children receiving the child care subsidy.) The state pays with disabilities in San Francisco.) State funding different reimbursement rates depending on the is sufficient to provide subsidies to only a portion child care setting. Center-based care is reimbursed of non-CalWORKs families, making waiting at the highest rate, while license-exempt care is lists for non-CalWORKs child care common. reimbursed at 60 percent of the center-based rate. The state also funds a part-day, part-year State State’s Budget Approach Varies by Program. Preschool program for three- and four-year-old Funding for CalWORKs child care is based on two children from low-income families. With the factors: estimates of (1) the eligible caseload and exception of CalWORKs Stage 1 child care, which (2) the per-child costs of providing child care. The is administered by the Department of Social state traditionally funds all eligible caseload in the Services, all child care and preschool programs CalWORKs child care programs. In estimating are administered by the California Department of per-child costs, the state typically considers the Education. distribution of care across types of providers as Families Qualify for Subsidized Child Care well as the average hours of care provided per child. Based on Two Criteria. Under current law, families In contrast, funding levels for non-CalWORKs generally must meet two criteria to be eligible programs usually are based on whatever amount for subsidized child care. They must (1) display was provided in the prior year adjusted for “need” for care and (2) earn less than 70 percent projected changes in the overall population of of the state median income. Need is defined children under five years of age in California. as participating in welfare-to-work activities, This statutorily required “growth” adjustment working, or attending school or training. As long is intended to account for potential changes as families meet these two requirements, children in demand for these programs. In addition to can continue to receive services until they turn growth, funding for the non-CalWORKs programs 13 years of age. (The State Preschool program is an typically is adjusted for changes in the cost of exception in that parents do not need to be working living, but this statutory adjustment is suspended and up to 10 percent of children served may come through 2014-15. from families that earn up to 15 percent more than the income cap.) GOVERNOR’S PROPOSALS The Governor’s 2014-15 proposal for the state’s the Governor’s estimates for eligible caseload in child care and preschool programs represents a the CalWORKs child care programs and makes “workload” budget. That is, the proposal funds statutorily required adjustments but does not 2 Legislative Analyst’s Office www.lao.ca.gov 2014-15 BUDGET include any other augmentations. This section increase in General Fund support ($7 million). discusses the caseload and cost assumptions Proposition 98 funding for State Preschool underlying the Governor’s 2014-15 budget. increases very slightly ($2 million). Budget Includes Slight Changes to Federal and Overall Caseload Also Increases Slightly. As State Funding. A combination of federal and state shown in Figure 2 (see next page), the Governor non-Proposition 98 General Fund monies supports estimates about 206,000 children would be served subsidized child care programs, whereas State in the state’s child care programs in 2014-15, an Preschool is funded entirely with Proposition 98 increase of nearly 3,300 slots (2 percent) compared General Fund. As shown in Figure 1, the to 2013-14. This increase primarily is due to Governor’s 2014-15 budget provides $1.7 billion anticipated caseload growth in the CalWORKs for child care programs and $509 million for Stage 1 program. For the State Preschool program, preschool. Funding for child care programs the Governor estimates total slots would grow increases by $64 million (4 percent) from the by nearly 600 to almost 137,000, an increase of revised current-year level. The increase primarily 0.4 percent. is covered by additional federal funds, with a small Figure 1 Child Care and Preschool Budget (Dollars in Millions) Change From 2013-14 2013-14 2014-15 2012-13 Revised Proposed Amount Percent Child Care Expenditures CalWORKs Child Care Stage 1 $289 $337a $385 $48 14% Stage 2b 419 358c 364 6 2 Stage 3 162 183c 186 3 2 Subtotals ($870) ($878) ($935) ($57) (6%) Non-CalWORKs Child Care General Child Care $465 $473d $479 $6 1% Alternative Payment 174 177d 179 2 1 Other child care 28 28d 28 — 1 Subtotals ($666) ($678) ($687) ($9) (1%) Support Programs $76 $74 $73 -$2 -2% Totals $1,612 $1,630 $1,694 $64 4% Child Care Funding State Non-Proposition 98 General Fund $779 $776 $783 $7 1% Other state funds 14 — — — — Federal CCDF 549 541d 556 15 3 Federal TANF 372 313a 355 42 13 State Preschool(Proposition 98) $481 $507 $509 $2 — a Reflects LAO funding estimate based on administration’s adjusted Stage 1 caseload estimate. b Does not include $9.2 million provided to California Community Colleges (CCC) for Stage 2 child care. Governor’s budget documents display this cost in CCC’s budget. c Does not reflect midyear augmentation of $9.4 million for Stage 2 and $12.1 million for Stage 3. d Differs from administration’s estimate due to reflecting both the assumed federal sequestration cut and the associated General Fund backfill. CCDF = Child Care and Development Fund and TANF = Temporary Assistance for Needy Families. www.lao.ca.gov Legislative Analyst’s Office 3 2014-15 BUDGET Stage 2 costs will average Figure 2 2 percent more per child Child Care and Preschool Slotsa and Stage 3 costs will Change From 2013-14 2013-14 2014-15 average 1 percent more 2012-13 Revised Proposed Amount Percent per child in 2014-15 Child Care compared to what was CalWORKs Stage 1 34,849 37,774 42,719 4,945 13% CalWORKs Stage 2b 63,379 56,593 55,943 -650 -1 assumed for the current CalWORKs Stage 3 25,448 32,784 30,830 -1,954 -6 year in the 2013-14 Subtotals (123,676) (127,151) (129,492) (2,341) (2%) Budget Act. The Governor General Child Care 46,036 46,835 47,429 594 1% includes these increases Alternative Payment 24,854 26,218 26,515 296 1 Migrant 2,491 2,534 2,567 33 1 because recent data Handicapped 143 144 145 1 1 suggests per-child costs Subtotals (73,524) (75,731) (76,656) (952) (1%) in 2013-14 are trending Total Child Care 197,200 202,882 206,148 3,266 2% higher compared to State Preschool 129,511 136,182 136,755 573 —c a prior years, resulting in Reflects average monthly slots. For 2012-13, reflects actual caseloads. For 2013-14 and 2014-15, reflects administration’s caseload estimates for the three stages of CalWORKS child care. All other caseloads reflect LAO estimates. b a combined shortfall of Does not include 1,781 Stage 2 community college child care slots, consistent with the display in Figure 1. c Less than 1 percent. about $22 million for Stage 2 and Stage 3 in Governor’s Budget Proposals for CalWORKs 2013-14. (A process is Child Care Driven Partly by Caseload Estimates. . . underway to make a midyear funding adjustment As shown in Figure 2, the Governor estimates to account for this shortfall.) Data suggest these average monthly Stage 1 caseload will increase by higher costs primarily have resulted from a larger almost 5,000 slots in 2014-15. Correspondingly, portion of families opting for care in licensed Figure 1 shows a $48 million increase in funding child care centers rather than by license-exempt for Stage 1 in 2014-15. This increase is based on providers. The rise in costs also may partially the assumption that recent policy changes in be related to the economic recovery, with CalWORKs work requirements will result in more families attaining full-time—rather than greater numbers of CalWORKs families engaging part-time—work and therefore requiring more in welfare-to-work activities and therefore needing hours of care. (Based upon its review of available child care. Based on multiyear caseload trends, the data, the administration does not project higher Governor estimates average monthly caseload will per-child costs for Stage 1 in 2014-15.) decline by 650 slots for Stage 2 and by nearly 2,000 Governor’s Budget Slightly Increases Funding slots for Stage 3 in 2014-15. for Non-CalWORKs Child Care Programs. . . . . .And Partly by Per-Child Cost Estimates. The Governor proposes to increase funding for Despite the projected decreases in Stage 2 and Stage non-CalWORKs child care programs by $9 million 3 caseload, the Governor’s budget assumes funding (1 percent). This additional funding would support increases for both stages ($6 million and $3 million, about 950 additional non-CalWORKs child care respectively) from the revised current-year levels. slots compared to the current year. A majority This is because the Governor projects an increase ($6 million) of the overall increase is due to various in the per-child costs of providing child care in accounting adjustments. The remaining increase these stages. Specifically, the proposal assumes ($3 million) is due to 0.4 percent statutory growth 4 Legislative Analyst’s Office www.lao.ca.gov 2014-15 BUDGET in the number of children birth through four years is to provide the statutory 0.4 percent growth of age. adjustment ($2 million), which equates to 573 . . .And State Preschool. The Governor’s only additional part-day slots. proposed change for the State Preschool program ASSESSMENT We have some concerns with certain for the Stage 2 and Stage 3 programs are too assumptions underlying the Governor’s budget low. While the Governor increases his per-child for CalWORKs child care. In particular, the cost estimates compared to the 2013-14 Budget Governor’s proposed funding levels do not align Act cost assumptions, they still are lower than with expected caseload in CalWORKs Stage 2 the actual costs being reported for 2013-14. and per-child costs in both Stage 2 and Stage 3, as Specifically, 2013-14 per-child costs currently are discussed below. averaging about 4 percent higher in Stage 2 and Governor Likely Overestimates CalWORKs about 2 percent higher in Stage 3 compared to the Stage 2 Caseload. We believe Stage 2 caseload in Governor’s estimates for 2014-15. (These increases 2014-15 will be approximately 3,000 cases lower are double those assumed in the Governor’s than the Governor’s estimates for two reasons. budget.) We believe these current-year increases First, existing Stage 2 caseload levels are almost in per-child costs very likely will continue into 2,000 cases below the administration’s caseload 2014-15. estimate for 2014-15. Second, data suggest a large Budget Currently Looks Short but Better number of families will reach the end of their Estimates Will Be Available in Late April. Based Stage 2 eligibility and transition to Stage 3 in the on the most recent available data, we believe the budget year. Due to the administration’s reliance Governor has overestimated Stage 2 caseload and on multiyear trends for estimating caseload, the underestimated per-child costs for Stage 2 and Governor’s budget and caseload estimates do Stage 3—the net effect of which would leave the not account for these factors. We believe a more Governor’s CalWORKs child care funding levels a accurate estimation approach incorporates data few million dollars short of fully covering 2014-15 recently submitted by child care contractors, the costs. More information will be available in late anticipated effects of recent policy changes, and the April (when data from the first three-quarters of expected transition of caseload across CalWORKs 2013-14 are released). The next major installment stages of care. of data will enable the Legislature to develop more Governor Likely Underestimates Per-Child accurate caseload and cost estimates for child care Costs for CalWORKs Stage 2 and Stage 3. We programs in 2014-15. believe the Governor’s per-child cost estimates www.lao.ca.gov Legislative Analyst’s Office 5 2014-15 BUDGET LAO Publications This brief was prepared by Carolyn Chu and reviewed by Rachel Ehlers. The Legislative Analyst’s Office (LAO) is a nonpartisan office that provides fiscal and policy information and advice to the Legislature. To request publications call (916) 445-4656. This brief and others, as well as an e-mail subscription service, are available on the LAO’s website at www.lao.ca.gov. The LAO is located at 925 L Street, Suite 1000, Sacramento, CA 95814. 6 Legislative Analyst’s Office www.lao.ca.gov