Restructuring California's Child Care and Development System

Restructuring California’s Child Care and Development System MAC TAYLOR • L E G I S L A T I V E A N A L Y S T • APRIL 4, 2014 AN LAO REPORT 2 Legislative Analyst’s Office www.lao.ca.gov AN LAO REPORT EXECUTIVE SUMMARY California’s Child Care and Development System Serves Approximately 300,000 Children. California dedicates approximately $2 billion annually to subsidized child care and development programs. The state provides about 60 percent of this funding, with the federal government covering about 40 percent. (Revenue from family fees comprise a very small share of total funding.) California’s subsidized system serves approximately 300,000 children. Generally, the state’s subsidized programs are intended to enable low-income parents to work while also helping maximize the growth and development of their children. To be eligible for subsidized programs: (1) families must earn less than 70 percent of state median income (SMI), (2) children must be under the age of 13, and (3) parents must be working (with the exception of the State Preschool program). Current System Has Several Serious Design Flaws. We believe California’s child care and development system has four major shortcomings. • Similar Families Have Different Levels of Access. In the current system, California Work Opportunity and Responsibility to Kids (CalWORKs) families and certain former CalWORKs families are guaranteed services, whereas other low-income, working families that have never accessed CalWORKs are prioritized based on income. As a result, long waiting lists exist for non-CalWORKs families, with many eligible families never receiving care. Moreover, some former CalWORKs families that now effectively are guaranteed child care benefits for as long as they remain under the income cap and their children remain under the age cap have higher incomes than other eligible, low-income families that never receive even a single year’s worth of child care benefits. • Similar Families Have Different Amount of Choice in Selecting Care. CalWORKs families (and some other non-CalWORKs families receiving vouchers) can choose from a variety of providers—selecting care that best fits their needs. Other non-CalWORKs families, however, can only access child care at specific locations that contract directly with the California Department of Education (CDE). • Similar Families Provided Different Standards of Care. The standard of care also varies based upon the type of subsidy a family receives. Those families receiving vouchers generally have access to providers that meet only health and safety standards, whereas those families receiving direct-contracted services have access to providers that meet health, safety, and developmental standards. • State Has Higher Reimbursement Rate for Lower Standard of Care. In 19 counties, the state pays more to providers that are subject only to health and safety standards than to providers subject to health, safety, and developmental standards. Recommend Restructuring System Child Care and Development System in Need of Comprehensive Restructuring. Given these serious problems with the current child care and development system, we recommend the Legislature www.lao.ca.gov Legislative Analyst’s Office 3 AN LAO REPORT fundamentally restructure the system. We lay out a plan for a new, simplified, and rational system. Overall, the restructured system could be implemented with little, if any, additional cost. The new system would: • Provide Similar Levels of Access to Most Low-Income Families. We recommend the Legislature continue to prioritize families new to CalWORKs for child care subsidies, as these families are likely to be among the most vulnerable families eligible for care. In order to provide greater access to eligible families, however, we recommend setting time limits on subsidized child care for all families. Providing eligible families six to eight years of child care would give them time to become more economically stable, while expanding services to approximately 35,000 additional families. • Provide Similar Levels of Choice. We recommend the Legislature provide all eligible families similar levels of choice by providing subsidies primarily through vouchers. As a result, families currently limited to care in specific locations could choose the provider that best fits their needs. (Because of the manner in which local educational agencies [LEAs] generally are funded and the benefits of connecting families to the broader K-12 system, we recommend the Legislature make an exception to the voucher-based system and continue to have CDE contract directly with LEAs for preschool.) • Require Developmentally Appropriate Care for Children Birth Through Age Four. We recommend requiring all child care providers serving children birth through age four to provide developmentally appropriate care. We recommend the Legislature direct CDE to develop standards that are similar to existing requirements for direct-contracted programs but modified to reduce some programmatic and administrative burden. In addition, we recommend the Legislature direct CDE to develop a monitoring system to ensure programs meet the new standards. Lastly, we recommend the Legislature update reimbursement rates to reflect the new standards. Roadmap to New System. Since a fundamental restructuring would require significant changes, we provide the Legislature a roadmap by which it could consider incrementally moving to this new system. In the first year, we recommend the Legislature update the reimbursement rates based on current data and determine the time limit for services. In the second year, we recommend the Legislature adopt new standards for programs serving children birth through age four, but wait until year four to require all providers to meet the new standards. In year four, we recommend the Legislature align the reimbursement rates to ensure families have access to providers meeting the new standards. By year five, families would access subsidized child care through vouchers, with the exception of LEA preschool programs. The five-year roadmap assumes no additional resources are provided for the restructured system. If the Legislature appropriated additional resources, it could implement certain components of the new system more quickly. 4 Legislative Analyst’s Office www.lao.ca.gov AN LAO REPORT INTRODUCTION This report provides a comprehensive overview major shortcomings of California’s system. and assessment of the state’s child care and Given the serious flaws of California’s existing development system. The first part of the report system, the fourth section sets forth a package of contains background on California’s child care recommendations for restructuring it, and the programs. The second part compares California’s final section provides a roadmap showing how the child care and development system with other Legislature might transition to the restructured states’ systems. The third section identifies several system. BACKGROUND The child care and development system Eligibility and Access in California is a complex—and in many Subsidized Child Care Generally Designed ways confusing—patchwork of providers and for Low-Income, Working Families. Subsidized policies. The piecemeal evolution of the system child care programs are intended to serve two is summarized in Figure 1. Below, we provide primary purposes: (1) enable low-income families an overview of the state’s existing child care and to work and (2) improve low-income children’s development system—focusing on eligibility cognitive and educational development. California criteria, access to care, programs, funding, provides child care subsidies to some low-income administration, and oversight. families, including those families participating in CalWORKs as well as other low-income families Figure 1 System Developed Incrementally Over Time 1940 Congress enacts the Lanham Act. Provides federal funding for child care centers to promote female participation in the workforce. 1947 Legislature backfills loss of federal funding after the war ends and maintains child care centers with state funding. Targets services to low-income, working families. 1965 Legislature establishes State Preschool modeled after the Federal Head Start program and targeted to low-income children. 1976 Legislature creates the Alternative Payment (AP) Program using state funds. The AP Program provides families vouchers for child care and reimburses providers at lower rates than school districts. Standards for providers also are lower. (Prior to 1976, the majority of child care programs were operated by school districts.) 1978 Proposition 13 eliminates school districts’ ability to levy additional property taxes to support child care programs. Legislature backfills school districts’ lost child care revenue, increasing the state’s investment in these programs significantly. 1980 Legislature directs the Superintendent of Public Instruction to develop a “standard reimbursement rate” (SRR). The SRR is intended to serve as a target reimbursement rate for school district programs (as existing district rates varied significantly). 1997 CalWORKs provides all welfare-to-work participants access to child care vouchers. www.lao.ca.gov Legislative Analyst’s Office 5 AN LAO REPORT who have never participated in CalWORKs. typically become aware of child care subsidies Families generally must meet the following three through county welfare departments (CWDs) or criteria to be considered eligible for child care the Alternative Payment (AP) agencies that CWDs subsidies. use to help them administer CalWORKs child care. (Thirty eight CWDs contract with AP agencies • Parents must be working or participating to inform families of child care options and in an education or training program—that provide various related services.) Non-CalWORKs is, the family must demonstrate “need” families—families who are low-income but have for care. (Families may receive subsidized never participated in CalWORKs—have no single child care only for the hours the parents are means of connecting to subsidized care. These working.) families may learn about subsidies from friends • A family’s income must be below or family, through outreach and advertising, or 70 percent of SMI as calculated in 2007-08. through visiting a resource and referral agency. (For a family of three—either two parents These agencies are nonprofit entities supported and one child or one parent and two by state funding that provide information about children—the SMI cap the state currently child care options in their counties. (Resource and uses is $42,216.) referral agency services are available to all families, regardless of whether they receive subsidies.) • Children must be under the age of 13. Only CalWORKs Families Are Guaranteed Eligibility for Migrant and Handicapped Subsidized Care. CalWORKs families are Child Care Programs. The state also subsidizes statutorily guaranteed child care subsidies during care for two specific populations—children “Stage 1” and “Stage 2” of the program. Families of migrant workers and children with severe are considered to be in Stage 1 when they first enter handicaps. For migrant child care, families must CalWORKs and connect to CWDs’ services. Once meet all the criteria specified above as well as CalWORKs families become stable (as defined by earn at least 50 percent of their gross income the county), they move into Stage 2. Families move through agricultural work. To be eligible for into “Stage 3” two years after they stop receiving subsidies through the handicapped child care cash aid. Families in CalWORKs Stage 3 are not program, a child must have a physical, mental, or statutorily guaranteed child care subsidies, but emotional handicap of such severity that he or she the Legislature in practice has funded all eligible cannot be served adequately or appropriately in a families. Families remain in Stage 3 until their regular child care program (as determined by the income exceeds 70 percent of SMI or their child individualized education program designed by a ages out of the program. special education team). Children participating Non-CalWORKs Families Prioritized Based in the handicapped program may remain in the on Income Level. Given funding is sufficient to program until 21 years of age. The handicapped subsidize only a portion of eligible non-CalWORKs child care program is only available in the San families, the state prioritizes these families based Francisco Bay Area. on income. Those families with the lowest income Families Learn of Available Child Care are prioritized over those families with relatively in Various Ways. Those CalWORKs families higher incomes. participating in training or seeking employment 6 Legislative Analyst’s Office www.lao.ca.gov AN LAO REPORT Waiting Lists Common for Non-CalWORKs subsidized about 325,000 low-income children in Programs. Those eligible non-CalWORKs families 2012-13. Figure 2 shows the share of subsidized that do not receive subsidies may be put on waiting child care slots by program. Non-CalWORKs lists. Families can remain on waiting lists for years programs comprised 62 percent of all slots whereas and may never receive a subsidized child care slot. CalWORKs child care comprised 38 percent From 2005 to 2010, the state funded all counties to of all slots. The single largest program is State maintain Centralized Eligibility Lists (CELs). Each Preschool (with 40 percent of all slots), followed by county’s CEL consolidated the waiting lists for CalWORKs Stage 2 (with 20 percent of all slots). all non-CalWORKs programs within the county. Age of Children Served Varies Somewhat The consolidated waiting list enabled providers to by Program. In 2012-13, 25 percent of children connect families more easily to available subsidies, served in the state’s subsidized child care system since once a family signed up for one program’s were infants and toddlers (birth through age waiting list, the family was automatically on the three), 34 percent were preschool-aged children, waiting list for all of the programs in the county. and 41 percent were school-aged children. The State support for counties’ CELs was eliminated General Child Care program serves the highest during the recession. Some counties, however, share of infants and toddlers (34 percent of its continue to maintain their own CELs using local slots served this age group in 2012-13), followed resources. by the CalWORKs Stage 2 and the AP programs Families May Continue Receiving Subsidies (at 19 percent and 18 percent of their slots, Until They Income Out or Children Age Out. Once respectively). By comparison, CalWORKs Stage 3 Graphic Sign Off a CalWORKs or non-CalWORKs family accesses serves the highest share of school-aged children a subsidy, the family may continue receiving the (more than two of every three Stage 3 slots served Secretary subsidy as long as it continues to meet the program’s school-aged children in 2012-13). Excluding Analyst eligibility criteria. Some families that access the State Preschool, which targets enrollment to MPA system stop receiving benefits only Deputy after their youngest child turns 13 Figure 2 years of age. (Data do not exist on the Subsidized Slots by Program average number of years families in 2012-13 the system receive subsidies.) Stage 1 CalWORKs State Programs Preschool The state offers a variety of Stage 2 programs through which families may access child care. Families participating in CalWORKs receive subsidies through the three stages of the CalWORKs child care program. Stage 3 Non-CalWORKs families participate Non-CalWORKs in the AP Program, General Child Alternative Payment Care, or State Preschool. Across General Child Care all of these programs, the state www.lao.ca.gov Legislative Analyst’s Office 7 Template_LAOReport_mid.ait ARTWORK #140067 AN LAO REPORT four-year-olds, 55 percent of children served in all Special Rules for State Preschool. State other programs were school-aged. Preschool has a few unique features compared to Children Receive Care in a Variety of other child care programs. One unique feature is Settings. Families participating in CalWORKs that State Preschool prioritizes four-year-olds for child care programs or non-CalWORKs families enrollment (but may serve three-year olds if space participating in the AP Program can choose from remains after enrolling all eligible four-year-olds). three types of child care settings: licensed centers, State Preschool also may serve some families that licensed family child care homes (FCCHs), and have incomes up to 15 percent above the eligibility license-exempt care. Centers typically are run by threshold. In addition, families do not have to be community-based organizations or LEAs and often working to enroll their child in a part-day preschool serve more children than other types of providers. program. State Preschool can be offered at a child The FCCHs operate from the provider’s home, care center, a family child care network home, with each home typically serving 6 to 12 children. a school district, or a county office of education License-exempt care is provided by an individual of (COE). Today, 324 LEAs provide preschool programs the family’s choosing—typically a relative, friend, serving approximately two-thirds of all children or neighbor who provides care in a private home. enrolled in State Preschool. While not all school All non-CalWORKs families participating in the districts offer State Preschool, most school districts General Child Care program are served in centers offer transitional kindergarten (TK) to some Graphic Sign Off or in FCCHs associated with a center (referred to as four-year-olds (described in the box on page 10). child care network homes). State Sets Different Standards for Different Secretary Reliance on Particular Child Care Settings Providers. Figure 4 identifies the child care Analyst Differs Across Programs. Looking across all standards that apply to different providers. MPA child care programs, the vast majority of children License-exempt providers must have a criminal Deputy are served in licensed settings—64 percent of Figure 3 children are served in Participation in Child Care Programs by Setting centers and 20 percent 100% of children are served in FCCHs (see Figure 3). License-exempt care is most 80 common among CalWORKs families. Whereas more than 60 one-third of CalWORKs slots rely on license-exempt 40 care, about one-fifth of License Exempt non-CalWORKs AP slots 20 Family Child Care Homes rely on license-exempt care. Centers (The General Child Care and Stage 1 Stage 2 Stage 3 General State Alternative Overall State Preschool programs do Child Care Preschool Payment not allow for license-exempt CalWORKs Non-CalWORKs care.) 8 Legislative Analyst’s Office www.lao.ca.gov Template_LAOReport_mid.ait ARTWORK #140067 AN LAO REPORT background check and self-certify that they meet able to exhibit. Programs using the foundations certain health and safety standards required focus activities around supporting the development by Community Care Licensing (CCL). Families of these skills. The requirement that these programs using licensed centers and FCCHs (in any of the include developmentally appropriate activities is a various child care programs) are guaranteed child key difference from other programs. The state also care that meets CCL health and safety standards requires teachers in these programs to have more known as Title 22 standards. General Child Care training than teachers in other child care settings. and State Preschool providers must meet Title 22 Together, these requirements are commonly standards and include cognitive development referred to as Title 5 standards. (If a provider must and an educational component as part of their meet only Title 22 standards, we hereafter refer to it programs—commonly referred to as “learning as a Title 22 provider. If a provider must meet both foundations.” The learning foundations describe health and safety as well as educational standards, the skills that children of different ages should be we hereafter refer to it as a Title 5 provider.) Figure 4 Standards for Child Care Providers Preschool-Age Childrena License-Exempt Title 22 Title 22 Title 5 Providers FCCHs Centers Centersb Staff Qualifications None. 15 hours of health and Child Development Child Development safety training. Associate Credential or Teacher Permit (24 units 12 units in ECE/CD.c of ECE/CD plus 16 general education units).d Staffing Ratios None. 1:6 adult-child ratio. 1:12 teacher-child ratio 1:24 teacher-child and or 1 teacher and 1 aide 1:8 adult-child ratio. per 15 children. Health and Safety Criminal background Staff and volunteers are Same as Title 22 Same as Title 22 Standards check. Self-certification finger printed. Subject FCCHs. FCCHs. of certain health and to health and safety safety standards. standards. Content Standards None. None. None. Requires developmentally appropriate activities. Monitoring None. Unannounced visits by Same as Title 22 Same as Title 22 CCL every five years or FCCHs. FCCHs, but also onsite more frequently under reviews by CDE every special circumstances. three years (or as resources allow) and annual outcome reports. Applicable Programs CalWORKs, CalWORKs, CalWORKs, General Child Care, AP Program AP Program AP Program Migrant Child Care, State Preschool a Standards for children of other ages similar to those displayed here. b Same standards apply to Title 5 family child care network homes. c The Child Development Associate Credential is issued by the National Credentialing Program of the Council for Professional Recognition. d The Child Development Teacher Permit is issued by California’s Commission on Teacher Credentialing. FCCHs = family child care homes; ECE/CD = Early Childhood Education/Child Development; CCL = Community Care Licensing; CDE = California Department of Education; and AP = Alternative Payment. www.lao.ca.gov Legislative Analyst’s Office 9 AN LAO REPORT Funding condition of receiving the CCDF is that a state dedicate some child care spending—currently State Makes Significant Investment in approximately $70 million for California—to Subsidized Care. Figure 5 displays the sources of activities intended to improve the quality of child funding for child care and development programs. care programs.) In 2013-14, California dedicated $2.1 billion to State Pays for Services Through Contracts these programs. State funding—non-Proposition 98 and Vouchers. The state provides child care and Proposition 98 General Fund combined—made subsidies through a combination of contracts (with up approximately 60 percent of total funding, while particular providers) and vouchers (that families federal funding made up approximately 40 percent. can use for almost any provider). Federal support is provided through the Child Care and Development Fund (CCDF) and Temporary • Contracts. The CDE contracts directly Assistance for Needy Families (TANF). Whereas with providers that meet Title 5 standards. TANF predominately supports CalWORKs Stage 1 These providers are reimbursed based child care, the CCDF is blended with state funding on the number of children served (up to support child care programs generally. (One to a specified total cost). In 2012-13, Transitional Kindergarten State Recently Created New Program for Four-Year-Olds. Chapter 705, Statutes of 2010 (SB 1381, Simitian), changed the eligibility for kindergarten and established a new “transitional kindergarten” (TK) program. Previously, children who turned five before December 2 were eligible for kindergarten. Under the new criteria, children must turn five before September 2 to be allowed to enroll in kindergarten. Consequently, the new TK program was created to serve those children turning five between September 2 and December 2 who would no longer be eligible for kindergarten. The kindergarten eligibility change and TK program took effect in 2012-13. In the first year, only children turning five in November were eligible for TK. In the subsequent year, both October and November birthdays were eligible for the program. In 2014-15, all children turning five between September 2 and December 2 will be eligible for the program. TK Differs From State Preschool in a Few Key Ways. The TK program and State Preschool have a few notable differences. Regarding eligibility, State Preschool targets four-year-olds born in any month of the year whereas TK is only available for four-year-olds born within the last quarter of the calendar year. In addition, State Preschool serves low-income children whereas TK serves children regardless of family income. Regarding curriculum, TK programs must use a “modified kindergarten curriculum” that is age and developmentally appropriate. State Preschool programs also use a curriculum that is age and developmentally appropriate, but providers typically base their programs on the state’s preschool learning foundations rather than its kindergarten standards. Regarding types of providers, all TK programs are operated by school districts. (Most school districts, however, currently offer TK at only a few school sites.) By comparison, State Preschool is offered by some school districts and some private providers. (Private providers are not eligible to run state-funded TK programs.) 10 Legislative Analyst’s Office www.lao.ca.gov Graphic Sign Off Secretary Analyst AN LAO REPORT MPA Deputy 54 percent of all child care slots Figure 5 were reimbursed through direct Sources of Funding for Child Care Programs contracts. • Vouchers. Providers serving TANF families participating in Federal Proposition 98 General Fund CalWORKs child care and the AP Program are paid using vouchers. The AP agencies determine State which families are eligible to CCDF receive vouchers. Once a family is determined as eligible for a voucher, the AP agency works with the family to connect them Non-Proposition 98 General Fund to child care. The AP agency CCDF = Child Care and Development Fund; and then reimburses the child care TANF = Temporary Assistance for Needy Families. provider directly for the hours of eligible care used by the family. purchasing power, amount of choice, and quality In 2012-13, 46 percent of all child assoc T i e a m ted p w la i t t e h _ a L v A o O u R ch e e p r. o A rt t _ t m he i d 50 .athi t percentile, care slots were provided through vouchers. for example, a voucher would allow a low-income Reimbursement Rate Structures Vary for family to select among the less-expensive half of all ARTWORK #140067 Contracts and Vouchers. Providers required providers. Like the SRR, the RMR also is adjusted to meet Title 5 standards are paid a Standard based on the age of the child and if the child has a Reimbursement Rate (SRR) that is set in Education disability. The SRR and the statewide average RMR Code and in the annual budget act. The SRR is for full-day care of a preschool-age child is $716 per higher for Title 5 centers than Title 5 FCCHs. month and $714 per month, respectively. The SRR also is adjusted to account for various Different Reimbursement Rules Used for characteristics of the child served—including License-Exempt Providers. The state reimburses age, being limited English proficient, or having license-exempt providers at a percentage of their a disability. In contrast, reimbursements for county’s maximum RMR or their actual costs, providers meeting Title 22 standards vary based whichever is lower. Currently, the reimbursement on the county in which the child is served. These rate for license-exempt providers is set at 60 percent reimbursement rates are referred to as Regional of each county’s maximum RMR. Market Rates (RMRs) and are based on regional Actual Reimbursements Vary Based on What market surveys of private providers. Currently, Provider Charges. Reimbursements for Title 22 the state sets the RMR at the 85th percentile of a providers also vary based upon what they actually 2005 regional market survey. (Though the state charge. If a Title 22 licensed center or FCCH has conducted more recent surveys, as required charges less than the county’s RMR, then the by federal regulations, it has chosen not to set voucher covers the cost of care. If a family selects rates based upon them.) The percentile at which a provider that charges above the RMR for the the state sets the RMR effectively reflects the county, the family must pay the difference between www.lao.ca.gov Legislative Analyst’s Office 11 AN LAO REPORT the value of the voucher and what the provider provides CWDs a “single allocation” of funding. charges. To prevent providers from shifting any Funding for Stage 1 child care is part of the cost above the RMR to other families, the state single allocation. The CWDs may use their single requires that providers charge subsidized families allocations for any combination of subsidized child and non-subsidized families the same price. care and welfare-to-work services. Funding for State Requires Contribution From Families families in Stage 2 and Stage 3 is provided through Too. Families not receiving CalWORKs cash CDE. All non-CalWORKs child care programs also assistance must pay fees for child care, requiring are administered by CDE. families to make an investment in the services Program Monitoring Varies by Provider Type. provided. Fees are based on family size, income, All centers and FCCHs must have a license to and whether the family receives part-day or operate (a license ensures providers meet Title 22 full-day care. (Full-day care is defined as six or standards). The CCL—part of DSS—processes more hours of care.) For instance, a family of applications for child care licenses, inspects three making approximately $2,000 per month is applicants, and periodically monitors those who required to pay $2.50 per day for full-day care and have been granted a license. Licensing visits $1.25 per day for part-day care (regardless of the typically happen once every five years. Title 5 number of children in care). Family fees increase providers are monitored by CCL for health and as family income increases. All fees collected safety standards but they also are monitored are used to offset the state General Fund cost by CDE for meeting developmental standards. of the programs. In 2012-13, the state collected Typically, Title 5 providers receive monitoring visits approximately $54 million in fees across all child every three years, but CDE recently began using a care programs. risk-review process that targets monitoring visits Recent Recession Reduced Funding for to those providers at higher risk of not meeting Child Care. Between 2009-10 and 2011-12, requirements. As a result, some providers are significant budget shortfalls required the state to visited more frequently than every three years, make reductions to a variety of state programs. while others are visited less frequently. License- Funding for child care programs was reduced exempt providers are not actively monitored by a by approximately $1 billion. The reduction was state agency. implemented through a combination of narrowing State Collects Some Information on Children eligibility, reducing reimbursements for license- Served. In general, CDE collects descriptive exempt providers, and serving fewer children. information about the families served in subsidized During this period, the state held the RMR and child care programs. Specifically, CDE collects SRR at 2005 and 2007 levels, respectively. The data on the age of the children served, the setting nearby box describes some of the effects of these in which the child is served (licensed or licensed- actions on the child care system. exempt), and whether the care is full day or part day. In addition, CDE collects data on the income Administration and Oversight level of families receiving subsidized care and the Two State Departments Administer program through which they receive subsidies. the Programs. The CalWORKs program is By comparison, DSS only collects information on administered at the state level by the Department the type of setting in which CalWORKs families of Social Services (DSS). For CalWORKs, DSS receive Stage 1 child care services. 12 Legislative Analyst’s Office www.lao.ca.gov AN LAO REPORT Changes in the Child Care Landscape Fewer Title 22 Providers, Higher Costs. There were 3,880 (or 10 percent) fewer Title 22 family child care homes and 312 (or 2 percent) fewer Title 22 child care centers operating in 2013 compared to 2008. (These figures reflect changes in the total number of Title 22 licenses statewide, not only those serving subsidized families.) Partly due to this reduction in child care capacity and partly a result of the state not updating reimbursement rates as child care costs increased, the percentage of Title 22 providers charging at or above the maximum regional market rate (RMR) increased in almost all counties over the past six years. That is, the relative value of vouchers diminished significantly in almost all counties. Comparing the current RMR for preschool-age children served in centers to the 2012 RMR survey reveals that vouchers cover the full cost of care for less than 50 percent of providers in seven counties. In 22 other counties, the current preschool RMR for centers provides access to between 50 percent and 70 percent of providers. Fewer Title 5 Providers. Based on data provided by the California Department of Education (CDE), 224 Title 5 providers (or approximately 16 percent) declined to renew their contracts during the recession. (This figure does not include contracts terminated by CDE due to fiscal or programmatic noncompliance.) While the reimbursement rate may not have been the deciding factor in all contract terminations, CDE indicates providers typically terminate contracts due to insufficient funding. When a provider declines to renew its contract with CDE, the department tries to find another provider to take on the additional child care slots. In some cases, providers within the same community are able to provide the additional slots. In other cases, CDE cannot find a provider in the same community to take on the contract, and CDE ends up contracting with a provider in a different area to provide the slots. As a result, the availability of subsidized child care in particular communities changes. CALIFORNIA IN CONTEXT In this section, we compare California’s child addition, federal TANF regulations allow for up to care and development system to other state’s 30 percent of the TANF grant to be transferred to systems, focusing primarily on income eligibility, CCDF to augment child care services for a broader prioritization of low-income families, duration of low-income population. Using some combination benefits, standards of care, and reimbursement of these federal funds, all states offer some amount structures. of subsidized child care. All States Have Subsidized Child Care California’s Income-Eligibility Threshold for Low-Income Families. All states receive a Is Relatively High. Federal regulations set the minimum level of federal funding for subsidized maximum income-eligibility level at 85 percent of child care. If states contribute matching funds, SMI but allow states to set lower thresholds. (Rather they receive additional federal funds. Together, than using SMI, some states use the federal poverty these federal funds are known as the CCDF. In level [FPL] as an alternate way to set income www.lao.ca.gov Legislative Analyst’s Office 13 AN LAO REPORT eligibility.) The U.S. Department of Health and families transitioning off of TANF (but do Human Services collects data on states’ eligibility not guarantee those families subsidized thresholds relative to the FPL. The majority of child care when participating in TANF). states (31) set their eligibility threshold at or below • Other States Prioritize in Various Ways. 200 percent of the FPL (approximately $39,000 For the rest of states, policies on how for a family of three) and the remaining 19 states to prioritize families vary. Some states set their eligibility threshold somewhere between do not guarantee any family access to 200 percent and 250 percent of the FPL. The lowest subsidized child care but still give TANF eligibility threshold is in Nebraska (at 120 percent families priority over other low-income of the FPL) and the highest eligibility threshold families. Other states do not prioritize is in New Hampshire (at 250 percent of the FPL). welfare-to-work families but instead give By comparison, California’s current eligibility low-income families subsidized slots threshold equates to 228 percent of the FPL. essentially on a first-come, first-served California Among Group of States Prioritizing basis. Child Care Subsidies for Welfare-to-Work Families. Similar to states’ latitude in setting their Duration of Benefits in California Probably income-eligibility thresholds, federal regulations Longer Than Many States. While most states do governing CCDF allow flexibility in how states not have explicit time limits for child care, often prioritize families. Federal CCDF regulations states limit eligibility to those participating in require that children with special needs and TANF. That is, once families either exhaust the children in very low-income families be prioritized; time allowance for job search or the time limit for however, states have discretion as to how to define cash aid, families lose eligibility for subsidized child these characteristics. As described below, given the care. As a result, the time limits associated with significant level of discretion allowed under federal states’ TANF programs also act as time limits for regulations, states vary in how they prioritize subsidized child care. By comparison, California families’ access to subsidized care. guarantees subsidized child care benefits for former welfare recipients for as long as they meet work and • Twenty Two States, Including California, income requirements and have children younger Guarantee Child Care Subsidies for than age 13. Once a low-income, non-welfare Welfare-to-Work Families. In these states, recipient in California receives subsidized child families participating in TANF receive top care, he or she also continues to receive benefits as priority for subsidized care. long as all other requirements are met. (With the • Nineteen States, Including California, exception of Oregon, all states set the child care age Guarantee Services to Families cap at 13. Oregon discontinues child care benefits at Transitioning Off of Welfare. Fourteen of age 12.) the states that guarantee subsidized child California’s Standards Relatively High. care to families participating in welfare- Federal regulations require that states set licensing to-work activities (including California) standards for child care providers in the areas of also guarantee subsidies to families who health and safety. Twenty-one states, including recently went off cash assistance. Five other California, exceed federal regulations in these states guarantee subsidized child care for areas. Some states, including California, not only 14 Legislative Analyst’s Office www.lao.ca.gov AN LAO REPORT have stricter health and safety standards but also California’s Reimbursement System Unique exceed federal regulations by requiring providers to Among the States. The majority of states use have training in child development. (The amount of vouchers as the primary means of providing required child development training varies across subsidized child care. By comparison, California these states.) In an effort to promote high child uses both vouchers and direct contracts with child development standards, some states use a Quality care providers. California is one of only a few states Rating and Improvement System (QRIS) to identify that directly contracts with child care providers. providers that meet certain standards. California Moreover, among the states that use direct does not use a QRIS; yet, even compared to those contracts with providers, California uses contracts states using quality rating systems, its Title 5 for a relatively large share of subsidized child care. standards for developmentally appropriate care are Given these differences, California’s child care relatively high. system is more centralized than other states. ASSESSMENT Overall, California’s child care system has two consequences resulting from them. We discuss components that we believe are core strengths. One each of these shortcomings further below. strength relates to choice whereas the other relates Similar Families Have Different Levels to high standards. Regarding choice, families of Access. The prioritization of families in or accessing some subsidized child care programs may formerly in CalWORKs over otherwise similar choose among a broad array of providers, thereby non-CalWORKs families results in different access increasing the likelihood they can find a provider to services without clear justification. In counties that meets their needs. Regarding standards, with waiting lists, some non-CalWORKs families families in some subsidized child care programs never receive services, whereas current and former have access to developmentally appropriate CalWORKs families are guaranteed services as care. Though these two strengths exist, the Figure 6 fundamental shortcoming Current System Treats Similar Families Differently of California’s current Design Flaws system is that no 9 subsidized program Similar families have different levels of access. exhibits both of these 9 Similar families have different amount of choice in selecting care. strengths concurrently. 9 This inconsistent Similar families provided different standards of care. treatment of families 9 State has higher reimbursement rate for lower standard of care. stems from four serious design flaws with the Other Consequences of Design Flaws state’s current system. 9 Resources not always used most strategically. Figure 6 lists these design 9 flaws as well as two other Levels of service vary across the state. www.lao.ca.gov Legislative Analyst’s Office 15 AN LAO REPORT long as they remain otherwise eligible. As a result, care at a specific location. The limited choice for former CalWORKs families can receive more than families receiving a contracted slot can result in 13 years of subsidized child care, whereas a similar significant match issues. That is, the contracted low-income family might not receive even a single slot may not match the parents’ needs because the year of benefits. Moreover, some CalWORKs and location of the center is far from where the parents non-CalWORKs families have similar incomes, work and live, or the slot available does not fit particularly when comparing Stage 3 families to with the hours of care the family requires. Due to non-CalWORKs families. The income distribution challenges associated with matching parents’ needs of these two groups of families is quite similar, with to available contracted slots, some non-CalWORKs a slightly greater share of Stage 3 families having families are unable to take advantage of subsidized Graphic Sign Off higher incomes than non-CalWORKs families. care when it becomes available. This issue is most Similar Families Have Different Amount of prevalent for State Preschool programs, since the Secretary Choice in Selecting Care. As displayed in Figure 7, majority of programs only offer part-day care. For Analyst CalWORKs families (and other families receiving those families working full time, a part-day slot is MPA vouchers) can choose from a variety of providers. insufficient. Deputy These families can choose among different care Similar Families Provided Different settings and locations—choosing child care that Standards of Care. Families receiving subsidies best fits their needs. By comparison, families can receive care meeting different standards. This receiving a contracted slot only have access to is true between CalWORKs and non-CalWORKs Figure 7 Some Families Have Less Choice in Selecting Provider Families Receiving Vouchers Family Receiving May Choose From: Contracted Slot Licensed Title 22 Centers License-Exempt Providers Licensed Title 5 Centers or Licensed Family Network Homes Child Care Homes 16 Legislative Analyst’s Office www.lao.ca.gov ARTWORK# 140067 Template_LAOReport_mid.ait AN LAO REPORT families and across non-CalWORKs families. children who have access to the state’s After School This is because the standard of care varies based Education and Safety (ASES) program as well as upon the type of subsidy received. Those families the federal 21st Century Program—both of which receiving vouchers are guaranteed providers that provide educationally focused wraparound care meet only health and safety standards, while for low-income children. (In 2013-14, the state those families that access contracted slots receive spent $550 million on ASES and $132 million care that meets health, safety, and developmental on the 21st Century Program.) Given these other standards. (Care provided to families with vouchers programs, additional resources are dedicated to can but is not required to have educational and children already receiving academic instruction developmental components.) in school rather than focusing those resources on State Has Higher Reimbursement Rate for low-income infants, toddlers, and preschool-age Lower Standard of Care. Figure 8 displays the children. Moreover, TK eligibility is based on RMR and SRR for preschool-age children in birth month, not income, such that middle- and the 15 most populous counties. (As mentioned high-income children born in the selected months Graphic Sign Off earlier, the RMR is used to pay Title 22 providers, receive preschool while low-income children born Secretary which are subject only to health and safety in other months do not have access to preschool. Analyst standards, whereas the SRR is used to pay Title 5 Moreover, the state pays a substantially higher MPA providers, which are subject to health, safety, rate—almost 50 percent more—for non-need based Deputy and developmental standards.) As shown in the TK than need-based preschool. figure, the RMR is higher than the SRR in over Levels of Service Vary Across the State. half of the 15 counties. Statewide, the RMR is Because data on the share of low-income children higher than the SRR in 19 counties (for preschool-age Figure 8 children based on monthly State Pays More for Lower reimbursements). In these Standard in 9 of 15 Most Populous Counties cases, the state is paying a Monthly Rate higher reimbursement rate for a lower standard of care. $1,200 RMR Resources Not Always 1,000 SRR Used Most Strategically. 800 The existing system does not target resources to 600 low-income children to 400 promote school readiness. While the state provides 200 a significant number of s T l i o t t l s e f 5 o p r r S o t g at r e a m Pr s e ( s t c h h o o s o e l , Ala m C e o d n a tra Costa Fresno K L e o r s n Angeles Orange Rivers S id a e cr S a m an e n B t e o rnardin S o an S D a ie n g F o ranc S is a c n o Joaqu S in an Ma S te a o nta Clara Ventura program with an educational component) serve children of RMR = Regional Market Rate and SRR = Standard Reimbursement Rate. all ages, including school-age www.AlaoR.cTaW.gOovR K L e#g1is4la0t0iv6e7 Analyst’s Office 17 Template_LAOReport_mid.ait AN LAO REPORT with working parents is not available, we cannot is in Modoc County (with 30 percent of low-income know how many children actually are eligible for children served). San Francisco County also serves subsidized child care. Data is available, however, a relatively high proportion of low-income children on low-income children by county, which we (27 percent). Despite this variation among counties, compared with the total number of subsidized almost all counties in California serve a relatively child care slots by county. Based on this measure, small proportion of children, with 54 counties counties in the San Joaquin Valley and southern serving less than 20 percent of low-income children part of the state serve the lowest proportions of and 26 counties serving less than 10 percent of low-income children, with Kern County serving the low-income children. smallest share. The highest share of children served RECOMMENDATIONS As discussed above, California’s child care otherwise be in the midst of a difficult transition. and development system has several serious This does not necessarily apply to other low-income shortcomings. Similar families have different levels families. Guaranteeing these families subsidized of access to programs that offer different choices child care can help them manage this transition among providers that meet different standards and overcome a key barrier to employment. As of care and, in turn, are reimbursed at different work participation is a key component of the rates. In short, the system is complex, bifurcated, subsidized child care system, this benefit could be confusing, and inconsistent. We recommend critical for helping these families reengage in the undertaking a fundamental restructuring to workforce. create a simpler, more rational, and efficient Set Time Limits on Subsidies for All Families. system. Figure 9 summarizes our package of We recommend the Legislature set a time limit recommendations. Below, we discuss each of of six to eight years for child care subsidies. our recommendations in more detail. (In the Time limits would apply to both CalWORKs subsequent section, we lay out a five-year roadmap and non-CalWORKs families. (As noted earlier, for transitioning to the new system.) most states do not have explicit time limits for child care, but effectively set time limits through Access TANF.) Providing eligible families six to eight Continue to Prioritize Families New to years of child care would give them time to become CalWORKs. Though we believe a main goal of more economically stable. In addition, after six to the restructured system should be to treat similar eight years of child care subsidies, many families’ families similarly, we recommend the Legislature children would be school age, at which time the make an exception by giving families new to children could access before and after school CalWORKs priority for child care subsidies (if they programs. Moreover, providing child care for six to participate in welfare-to-work activities). Families eight years still represents a significant investment new to CalWORKs are likely to be among the most by the state—a total of at least $40,000 per child. vulnerable families eligible for subsidized child Capping the number of years a particular family care in that they might recently have lost a job or could receive care would allow the state to serve 18 Legislative Analyst’s Office www.lao.ca.gov AN LAO REPORT Figure 9 Summary of Recommendations Access 9 Priority. Continue to give families new to CalWORKs priority for subsidized child care. Guaranteeing child care for these families helps overcome a key barrier to employment. 9 Time Limit. Cap number of years families may receive subsidized child care. Set time limit between six and eight years. (Allows more low-income families to benefit.) 9 Choice. Give families similar levels of choice in selecting care. Allow families to choose among licensed centers and family child care homes (FCCHs) as well as license-exempt providers. 9 Service Levels. Provide similar levels of access across the state. Reestablish CELs. Standards 9 School Readiness for Four-Year-Olds. Require centers and FCCHs serving low-income four-year-olds to include educational components for three hours per day. Require families to opt-out of licensed care. 9 Developmentally Appropriate Activities for Children Birth Through Age Three. Require centers and FCCHs serving children birth through age three to provide developmentally appropriate activities for three hours per day. 9 Health and Safety for School-Age Children. Repeal Title 5 requirements for school-age children but retain Title 22 health and safety standards. Payments 9 Vouchers. Subsidize child care primarily using vouchers. Continue to contract directly with LEAs, however, for preschool. 9 New Rate Structure. Rather than 58 unique county rates, provide three rates based on cost of care in low-, medium-, and high-cost counties. Use a standard reimbursement rate for LEAs. 9 Rates by Age. Provide highest reimbursement rate for infants/toddlers, next highest rate for preschool- aged children, and lowest rate for school-aged children. 9 Update Rates. Assuming total funding remains the same, new reimbursement rates would reflect 70th percentile of most recent (2012) regional market survey. 9 Future Rate Adjustments. Update reimbursement rate in order to meet standards described above. Administration 9 CalWORKs. Merge CalWORKs child care Stage 1 and Stage 2 into one program and administration to the Department of Social Services. 9 New CalWORKs Child Care Grant. Remove child care funding from counties’ single allocation and create new child care grant. 9 Monitoring. Develop regional system to monitor programs serving children birth through age four. CELs = Centralized Eligibility Lists and LEA = local educational agency. www.lao.ca.gov Legislative Analyst’s Office 19 AN LAO REPORT approximately 35,000 additional families (assuming because a voucher-based program would be total funding remained the same). substantially different from how they receive Give Families Similar Levels of Choice in virtually all other funding. Selecting Care. We recommend the Legislature Provide Similar Levels of Access Across provide all eligible families similar levels of choice the State. Given the variation in the proportion by providing subsidies primarily through vouchers. of eligible families served across the state, we Under this approach, rather than some families recommend the Legislature equalize access across having to take whatever slot opens for them in counties. The Legislature could consider addressing General Child Care or State Preschool, these the differences across counties in one of two ways. families would receive vouchers allowing them • Serve Same Share of Families in Each to choose the provider that best fits their needs. County. For instance, the Legislature could This would eliminate the “match” issue some adjust funding levels to serve 10 percent of families currently face in accessing care when and all eligible families in each county. where they need it. This recommendation would provide greater choice for approximately 89,000 • Serve Families Based on Statewide Income children (or 28 percent of all subsidized families). Cut-Off. For instance, the Legislature could All children currently enrolled in General Child adjust funding levels to serve all families Care, as well as all children in State Preschool under 50 percent of SMI. programs run by private providers, would be The first option accounts for regional differences in affected. The recommendation would affect income and cost of care. Because average income approximately 280 private providers that currently levels are higher in some areas of the state, some contract directly with CDE for subsidized slots counties would serve families closer to the income in the General Child Care and State Preschool cap, yet these families still might struggle to cover programs. Under the recommendation, we believe the cost of child care in their county given it is many of these providers would shift to accepting more expensive than in other areas. For example, voucher clients. Though accepting vouchers is a subsidies could reach families whose incomes somewhat less predictable business model than were 50 percent of SMI in coastal counties but direct contracting, all Title 22 providers have been only 40 percent of SMI in inland counties. By operating under the voucher-based business model comparison, the second option treats all families for decades. across the state similarly regardless of regional Continue to Contract With LEAs for cost differences. Under the second option, those Preschool. As an exception to the voucher-based counties with a greater share of families at the system, we recommend the Legislature continue bottom of the income distribution would see more to have CDE contract directly with LEAs for families served than those counties with relatively preschool. Collocating State Preschool programs higher-income families. We believe either option with LEAs has advantages for transitioning would be an improvement over the existing ad hoc children into kindergarten, leveraging LEAs’ service levels across counties. resources (including counselors and nurses), and connecting low-income families to the educational Standards system. Without direct contracts, LEAs, however, Require Programs Serving Four-Year-Olds could be less likely to provide preschool programs to Focus on School Readiness. We recommend 20 Legislative Analyst’s Office www.lao.ca.gov AN LAO REPORT requiring all centers and FCCHs serving Require Programs Serving Children Birth low-income four-year-olds to include educational Through Age Three to Include Developmentally components. The state already makes significant Appropriate Activities. We recommend the investments in school readiness for four-year-olds Legislature require all centers and FCCHs serving through State Preschool and the existing TK children birth through age three to include some program. Currently, not all four-year-olds in cognitive development to their care. Under the subsidized child care, however, have access to current system, only a small share of children programs that are required to provide educational in subsidized child care birth through age three components. In creating the standards for these may access programs that are required to include programs, we recommend the Legislature direct cognitive development. Growing research indicates CDE to develop standards that are similar to that investing in developmentally appropriate existing Title 5 requirements but modified to care for children birth through age three can have reduce some programmatic restrictions and significant impacts on social, emotional, motor, administrative burden. For instance, CDE could and cognitive skills, which, in turn, can result in (1) relax some environmental requirements, such low-income children being better prepared for as classroom configuration; (2) provide some school. As with our recommendation for standards flexibility in teacher ratios; and (3) reduce some for four year-olds, we recommend the Legislature reporting requirements. direct CDE to develop standards for children birth Could Redirect Funds to Support Educational through age three that are similar to current Title 5 Component of Care. While the state would not standards but modified to reduce programmatic incur costs directly from requiring programs to and administrative burden. As with programs meet higher standards (aside from monitoring, for four-year-olds, requiring a developmental which we discuss later), some providers might component in programs for children birth through want to make additional investments in age three likely would require some existing curriculum and professional development. In Title 22 providers to obtain additional training. addition, some existing Title 22 providers likely This training also could be supported with would have to enroll in additional training to redirected quality dollars. meet the higher teacher qualifications (though Apply Developmental Standards to Part of some of these providers already might have the the Day. We recommend the Legislature require requisite education to meet higher standards). programs serving children birth through age four For instance, some Title 22 teachers likely would to meet the new developmental standards for three have to complete 12 additional early education hours per day. Requiring developmentally appropriate units and 16 general education units (typically at a activities for a core portion of the day is consistent community college) to attain a Child Development with the state’s current approach for State Preschool, Teacher Permit. Should the Legislature wish TK, and kindergarten—all of which are part-day to provide support for these providers, it could programs. For the other portion of the day, we redirect existing “quality” funding. (As noted recommend the Legislature require providers to meet earlier, a condition of CCDF is that the state must only Title 22 health and safety standards. (Should set aside approximately $70 million for improving the Legislature expand TK to all four-year-olds, we child care quality.) recommend only requiring a focus on cognitive development for children birth to age three.) www.lao.ca.gov Legislative Analyst’s Office 21 AN LAO REPORT Balancing Developmentally Appropriate meet the new standards). Though availability for Care With Choice. The state has a long history these families might be somewhat reduced, these of struggling to satisfy the two core goals of its families now would be provided care that includes subsidized child care system: (1) maximizing choice developmentally appropriate activities (unlike in to ensure parents can find subsidized care during the current system). For those families currently work hours while also (2) maximizing quality to receiving contracted slots, their choice of providers ensure children are benefiting from their care. would increase substantially under the new rules In an attempt to provide a reasonable balance of (as these families no longer would be limited to these sometimes competing policy objectives, taking whichever contracted slot might become we recommend the Legislature continue to allow available). Moreover, this latter group of families families with children birth through age three to would see little, if any, change in the standard choose license-exempt care. For these youngest of care provided (as Title 5 already contains children, families may be more comfortable with a developmental standards). family or friend caretaker. Moreover, in some cases, Do Not Require Educational Component for these caretakers may provide care that is superior Child Care Programs Serving School-Age Children. to care in centers and FCCHs (though the state We recommend the Legislature repeal Title 5 currently does not assess whether care on average requirements for school-age children. School-age is better or worse in these settings). Once children children already receive several hours per day of reach four years old, the state has a greater interest instruction from certificated teachers. Moreover, in ensuring low-income children are prepared for the state and federal government already provide school. The state, however, cannot readily ensure substantial resources to support “educationally that developmentally appropriate activities are enriching” after school care for low-income occurring for four-year-olds in license-exempt children. As noted earlier, excluding State Preschool, settings. Therefore, we recommend families be 55 percent of children in subsidized care are school required to opt out of licensed settings for their age, including approximately 23,000 school-age four-year-olds. Families requiring full-day care still children in General Child Care. Repealing the could choose license-exempt care for wraparound requirement to include educational components hours without going through an opt-out process. to care for these children would free up additional We recommend families wishing to opt out be resources to support developmentally appropriate required to provide a satisfactory reason for not activities for children birth through age four. enrolling their four-year-olds in preschool, with Payments approvals granted if families make a solid case that the alternative care setting is higher quality or Reimburse Vouchers Based on High-, essential to maintain their jobs. Medium-, and Low-Cost Areas. As discussed Effect of New Rules on Families Mixed. earlier, we recommend offering families similar These new rules would affect families differently levels of choice among providers by paying for depending upon the subsidized child care subsidized child care primarily through vouchers. programs they currently use. For those families As part of the new voucher-based system, we currently receiving vouchers, these new rules could recommend the Legislature eliminate the current reduce the number of available providers (as some reimbursement rate structures and instead existing Title 22 providers might decide not to reimburse based on high-, medium-, and low-cost 22 Legislative Analyst’s Office www.lao.ca.gov AN LAO REPORT counties. Looking at the most recent RMR survey step in moving toward a new rate structure, we indicates that the differences across counties recommend the Legislature set the high-, medium-, generally cluster into three groups. Urban and and low-cost county reimbursement rates at a coastal counties tend to be the highest-cost counties specified percentile of the 2012 RMR survey based with monthly preschool rates varying less than on available funding. For instance, we estimate that $20. The lowest-cost counties (which tend to be the setting the initial reimbursement rates at about the rural northern and Central Valley counties) also 70th percentile would allow the state to serve the have rates that vary less than $20 per month. The same number of children without additional cost. medium-cost counties (including San Bernardino (For each grouping of counties—high, medium, and Sacramento) have somewhat more variation, and low—the 70th percentile of the applicable with differences as great as $60 per month, counties could be averaged to set the corresponding but even this difference is relatively small on a rate.) Figure 10 shows what the rates would be percentage basis (8 percent of the average monthly under the simplified rate structure assuming the rate in this set of counties). Relying only on high-, current funding level. (LEAs could be reimbursed medium-, and low-cost rates would be a significant at the average of the three county rates for simplification of the current system, whereby each preschool-aged children—$738 per month.) Setting county has a different maximum reimbursement the initial rates using the most recently available rate. Understanding the new system therefore data helps lay a more appropriate foundation for the would be much easier yet the rates would remain new rate structure. connected to the child care market and accurately Moving Forward, Align Rates With reflect notable cost differences among counties. Standards. In the new system, we recommend Provide Higher Subsidy for Those Programs the Legislature think differently about what the Required to Have Developmental Component. reimbursement rates represent. Under the current We recommend the Legislature set higher system, the state sets rates at a percentile of regional reimbursement rates for programs that meet the market prices to ensure families can access a cognitive development and education standards Figure 10 developed by CDE for children birth through age A New, Greatly Simplified four. Each high-, medium-, and low-cost county Rate Structure rate would reflect the higher standard for infants, 2014-15 Ratea toddlers, and preschool-aged children, with lower High-Cost Counties rates for school-aged children. For license-exempt Infants $1,342 providers, we recommend the Legislature continue Preschool 902 to provide a notably lower rate (for example, School-age 601 60 percent of the licensed rates), given underlying Medium-Cost Counties costs and requirements are notably lower. For Infants $1,077 LEAs, we recommend the Legislature continue to Preschool 719 School-age 479 use a standard reimbursement rate, as LEAs receive a standard rate for virtually all other K-12 services Low-Cost Counties they provide. Infants $836 Preschool 594 To Start, Set Reimbursements at the School-age 396 70th Percentile of Most Recent Survey. As a first a Reflects reimbursement per month for full-time child care. www.lao.ca.gov Legislative Analyst’s Office 23 AN LAO REPORT certain quality of child care provider. Given the families due to differences in stability, however, state does not directly measure the quality of these does not affect access to the program, as all active providers, the rate only indirectly reflects quality CalWORKs families as well as all families recently (presumably, the higher the percentile setting, the off CalWORKs cash aid are guaranteed subsidized higher the quality). Under our suggested system, care. Moreover, CDE’s current administration of the state would directly address the quality issue CalWORKs Stage 2 does not affect the associated by requiring all providers to offer developmentally standard of care. Providers serving Stage 2 (or appropriate care. The state would still need to Stage 3) families are not required to participate ensure that the reimbursement rate was adequate in provider training administered by CDE, nor enough that low-income families could access child does CDE monitor these programs in such a way care providers that meet the required standards as to know how many children are in care with without undue burden (for example, having to an educational focus. Consequently, having DSS drive an excessive amount to find a qualified administer CalWORKs child care would not provider willing to accept their vouchers). The inherently hamper providers’ quality. Given DSS Legislature could consider various options to administers all other aspects of the CalWORKs achieve this goal. For example, families receiving program (including employment services and vouchers could be surveyed to determine whether cash aid), we recommend it administer the new they can find a qualified provider. The Legislature, consolidated CalWORKs child care program. in turn, could use this data to identify whether any Create Separate Grant for CalWORKs Child access problems were emerging in the new system. Care. We recommend the Legislature remove child Another option would be to narrow the regional care funding from counties’ single allocation (such market rate survey to providers meeting the new that the single allocation would fund primarily standards and select a rate deemed appropriate welfare-to-work activities) and create a separate for ensuring a reasonable level of access among CalWORKs child care grant. We recommend the these providers. Once the reimbursement rate Legislature allow some amount of transfer (for has been modified to reflect the standards of the example, up to 10 percent) across the welfare- restructured system, we recommend the Legislature to-work and child care grants. This flexibility continue to monitor whether families can access would allow CWDs to respond to changes in providers meeting the updated standards. unanticipated increases in child care caseload or increases in demands for welfare-to-work Administration services. Separating the grants, however, would Merge CalWORKs Stage 1 and Stage 2 make identifying CalWORKs child care funding Into One Program and Shift All CalWORKs much easier, as estimating the portion of the single Administration to DSS. We recommend the allocation currently going for child care services is Legislature consolidate CalWORKs Stage 1 and a challenge at the state level every year. Separating Stage 2 into a single program administered by the welfare-to-work and child care grants, while DSS. The current distinction between the child also consolidating CalWORKs stages, also could care stages rests primarily upon the expected help ensure eligible CalWORKs families can access differences in families’ “stability”—those families subsidized care more quickly and easily, as all in Stage 2 are expected to be more stable than related funding would be combined into a larger those families in Stage 1. Distinguishing between child care pot. The amount of the new child care 24 Legislative Analyst’s Office www.lao.ca.gov AN LAO REPORT grant would be based on anticipated CalWORKs recommend the Legislature direct CDE to contract child care caseload—much as it is today—but with regional nonprofit or public entities (such as would fund costs only for families first entering AP agencies, resource and referral agencies, and CalWORKs, those participating in welfare-to-work COEs) to inspect and monitor centers and FCCHs activities, those receiving cash aid, and those to ensure they meet the required standards. Based recently off cash aid. on funding provided for similar monitoring Merge CalWORKs Stage 3 and Non-CalWORKs systems within California, we believe the cost Child Care Programs. We recommend merging of the regional system would be in the low tens the child care program for current Stage 3 families of millions of dollars. (These costs could be (those that have been off CalWORKs cash aid for covered by redirecting remaining quality dollars more than two years) with the non-CalWORKs or augmenting existing funding for AP agencies, program (for low-income families that have never resource and referral agencies, or COEs. Absent accessed CalWORKs benefits). In the near term, no additional resources, any augmentations made to family currently in the system would be affected support the regional monitoring system would by this change. Moving forward, if the Legislature result in fewer children served.) were to make changes to the non-CalWORKs child Direct CDE to Do Certain Inspections to care program, these two groups of families would be Ensure Consistency. To ensure consistency across affected similarly, without prioritization or special the state, we recommend directing CDE to do treatment of one group over the other. (Regardless inspections of providers each year in different areas of whether a family entered the subsidized child care of the state. Inspections performed by CDE would system through CalWORKs or non-CalWORKs, it be based on risk reviews of data collected from the would continue to receive child care benefits until it regional monitoring agencies. For instance, if a reached the time limit—six to eight years.) particular monitoring agency certified a far greater Have CDE Administer Merged Program. share of providers than other monitoring agencies, We recommend CDE administer the merged CDE could randomly inspect a few providers in program, as it already administers both the Stage 3 the agency’s area to ensure providers were meeting and the non-CalWORKs programs. As part of its the standards. Resources currently used by CDE administration, CDE would continue to use AP to oversee Title 5 providers could be redirected for agencies to provide vouchers to former Stage 3 and these risk reviews and inspections. (Currently, CDE some non-CalWORKs families as well as begin has approximately 20 staff assigned to monitoring converting contracts with existing Title 5 providers Title 5 centers adherence with developmental to vouchers for other non-CalWORKs families. standards.) Consequently, AP agencies would issue more Reestablish CELs. In order to help families vouchers compared to today. In addition, CDE would access care, equalize service levels across the state, continue to contract with LEAs to provide preschool. and make corresponding funding adjustments, Establish Regional Monitoring System for we recommend the Legislature reestablish Programs Serving Children Birth Through Age consolidated waiting lists. We estimate restarting Four. We recommend the Legislature establish a CELs would cost between $5 million and regional monitoring system for programs serving $10 million annually. (The previous contract for the children birth through age four. Specifically, we CEL cost approximately $8 million annually.) www.lao.ca.gov Legislative Analyst’s Office 25 AN LAO REPORT ROADMAP TO FUTURE SYSTEM Figure 11 lays out a roadmap the Legislature CalWORKs Changes Could Take Effect in could use to transition to the new system. The the Second Year. Due to the administrative and roadmap assumes the Legislature does not make budgeting changes associated with consolidating substantial new investments. Without such the CalWORKs stages and creating a new child investments, the roadmap assumes the transition care grant, we recommend the Legislature wait would take five years. To the extent additional until year two of the transition to implement funding were provided, some elements of the these changes. In year one of the transition, the timeline could be accelerated. For instance, if the Legislature could direct CDE and DSS to work Legislature provided funding for additional slots, together to determine how to forecast the caseload consistent service levels across counties could be and funding for the new CalWORKs child care achieved more quickly. (Other elements of the grant. In addition, CDE could determine how restructuring, such as developing revised program many CalWORKs Stage 3 families would require standards and a regional monitoring system, vouchers under the new system. In year two, would take a certain amount of time to implement CalWORKs Stages 1 and 2 could be consolidated regardless of available funding.) Below, we discuss and child care services could be funded through the main milestones in the roadmap. the new CalWORKs child care grant (administered Time Limits Could Begin in the Second Year. by DSS). Stage 3 families would continue to receive In the first year of restructuring, we recommend vouchers administered by CDE until they reach the Legislature determine the time limit for child the time limit. Their child care services, however, care subsidies. Setting the time limit at six years technically would not be considered part of the would reflect the maximum number of years CalWORKs child care grant. CalWORKs families are currently statutorily New Standards and Associated Monitoring guaranteed subsidized child care. Setting the time System Could Be Phased In Over Four Years. To limit at eight years would extend beyond this allow existing providers that do not meet the new guarantee and provide families additional time to child care standards time to gain the required become self-sufficient. Due to limited resources, training, we recommend the Legislature phase in however, for each additional year of subsidized care the new standards over four years. In year one of provided to one family, another family is unable to the transition, the Legislature could direct CDE access care. Once a time limit is set, we recommend to adopt a new set of streamlined standards for the Legislature implement the time limit in programs serving children birth through age four. year two of the transition. For families already In year two, CDE could inform providers of the participating in subsidized child care programs, new standards and the Legislature could consider their time clock would start in year two and they reallocating quality dollars to help providers would continue to receive services (if they remain both learn of and begin implementing the new otherwise eligible) until they reach the time limit. standards. In year three, oversight agencies could Any families new to subsidized child care would begin monitoring providers to identify whether start their time clocks in the first year they receive the new standards were met. In year four, only services. providers certified by the regional monitoring system as meeting the required standards would be 26 Legislative Analyst’s Office www.lao.ca.gov AN LAO REPORT Figure 11 Roadmap to New System Year 1 (2014-15) Adopt new reimbursement rate structure and update voucher rates. Direct CDE to modify standards for programs serving children birth through age four. Direct CDE to develop regulations for implementing a regional system of monitoring developmental standards. Begin equalizing service levels across counties. Have CDE identify cost-effective options for creating CELs. Year 2 (2015-16) Determine how to align reimbursement rates with new standards. Establish time limit for subsidized child care services. Consolidate Stage1 and Stage 2 and shift all CalWORKs child care to DSS. Remove CalWORKs child care from single allocation and create separate child care grant. Adopt modified program standards. Implement regional monitoring system. Continue to equalize county service levels. Implement most cost-effective option for creating CELs. Year 3 (2016-17) Use monitoring system to identify programs that meet standards for children birth through age four. Begin converting reimbursements for former Title 5 private providers from direct contracts to vouchers. Continue to equalize county service levels. Year 4 (2017-18) Require all providers serving children birth through age four to meet standards. Adjust reimbursement rates to reflect new standards. Continue converting former Title 5 private providers from direct contracts to vouchers. Continue to equalize county service levels. Year 5 (2018-19) Finalize conversion of former Title 5 private providers from direct contracts to vouchers. Complete equalization of county service levels. CDE = California Department of Education; CELs = Centralized Eligibility Lists; and DSS = Department of Social Services. www.lao.ca.gov Legislative Analyst’s Office 27 AN LAO REPORT allowed to receive subsidies for children ages birth state.) After year five, CDE would only contract through age four. (As these activities are occurring, directly with LEAs to provide preschool. providers serving school-aged children could be Equalizing Service Levels Across Counties notified that they remain subject to health and Also Likely to Take Five Years. We recommend safety standards but not additional developmental the Legislature direct CDE to develop a proposal in standards beyond what the children receive during the first year of restructuring for how to establish the course of the regular school day.) consistent levels of service across counties based Voucher-Based System Could Be Phased In on one of the two options outlined earlier in this Over Five Years. We recommend the Legislature report. In the second year of restructuring, we direct CDE to begin phasing out contracts with recommend the Legislature review CDE’s proposal, Title 5 private providers starting in year three of adopt a plan to adjust service levels, and direct CDE restructuring and completely transition to vouchers to implement it over the subsequent four years. by year five. One option for phasing out Title 5 Each year, CDE would redirect a portion of funding contracts would be for CDE to reduce contracts for vouchers across counties to meet the service- incrementally each year, giving Title 5 providers level goal. (As mentioned above, shifting from some financial stability as they become familiar Title 5 contracts to vouchers could help CDE make with the voucher-based system. For each Title 5 these adjustments.) These funding shifts could slot reduced, CDE would increase the number of happen incrementally over four years to minimize vouchers correspondingly. (This approach also any disruption in services. could help CDE adjust service levels across the CONCLUSION Though the state’s existing child care system undertake a comprehensive restructuring to correct provides choice for some low-income families the existing system’s design flaws. In the latter half and access to developmentally appropriate care of this report, we describe the elements of a new, for other low-income families, the system does simplified, and more rational system and lay out not provide both choice and developmentally a roadmap for transitioning to the new system appropriate care to all low-income families by over the next several years. Taken together, our design. We believe this inconsistent treatment recommendations would provide the same amount of low-income families reflects a fundamentally of choice for all eligible low-income families as well flawed system, and we recommend the Legislature as ensure access to the same quality of care. LAO Publications This report was prepared by Carolyn Chu and reviewed by Jennifer Kuhn. 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 report 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. 28 Legislative Analyst’s Office www.lao.ca.gov