The 2016-17 Budget: Analysis of Child Care and Preschool Proposals

The 2016-17 Budget: Analysis of Child Care and Preschool Proposals MAC TAYLOR • L E G I S L A T I V E A N A L Y S T • FEBRUARY 2016 2016-17 BUDGET 2 Legislative Analyst’s Office www.lao.ca.gov 2016-17 BUDGET EXECUTIVE SUMMARY Overview of Governor’s Budget Governor’s Budget Includes $3.6 Billion for Child Care and Preschool Programs. The Governor’s budget augments existing child care and preschool programs by a total of $95 million (3 percent) from the revised 2015-16 level. The increase is due to various factors, including raising Transitional Kindergarten (TK) funding rates, annualizing the cost of preschool slots initiated last year, adding new slots for demographic growth, and applying cost-of-living adjustments to reimbursement rates. Under the Governor’s budget, proposed funding would support an estimated 455,000 child care and preschool slots. As part of his budget package, the Governor has two major restructuring proposals involving preschool and child care. Preschool Restructuring Governor Proposes to Restructure Preschool Programs. The Governor proposes to consolidate three existing preschool programs into a new $1.6 billion early education block grant intended to benefit low-income and at-risk preschoolers. Specifically, the proposal would redirect $845 million from the California State Preschool Program (CSPP), $726 million from TK, and $50 million from the CSPP Quality Rating and Improvement System (QRIS) grant. Funds from the proposed block grant would be given to local education agencies and potentially other entities based on historical funding allocations and local need. Providers would set low-income eligibility criteria locally. The administration plans to develop the remaining aspects of the program—such as allowable providers, program standards, and funding rules—over the next few months. While Governor’s Approach Targets Resources More Effectively, Funding Model Problematic. California currently has several programs serving preschool-aged children. These existing programs have different eligibility criteria and standards. Many preschool slots (those provided through TK) are not currently targeted to benefit low-income and at-risk children. This is a problem as low-income families are both less likely than higher-income families to be able to afford preschool and more likely to benefit from it (according to most research). At-risk children who have had adverse early childhood experiences also are likely to be able to benefit from supportive preschool environments. For these reasons, we think the Governor’s proposal to consolidate preschool funding into one program prioritized for low-income and at-risk children is an improvement over the current system. We are concerned, however, that allowing income eligibility to be defined locally and basing funding on historical allocations would create inequities among school districts in terms of who is served and how much funding districts have for each child. For example, school districts that previously operated similarly sized TK programs would have the same amount of resources to serve potentially different numbers of low-income and at-risk children. Recommend a Preschool Restructuring Approach That Links Funding to Children. We recommend the Legislature create a single, coherent preschool program designed to provide access to all low-income and at-risk children (as defined by the Legislature) and offer a full-day option www.lao.ca.gov Legislative Analyst’s Office 3 2016-17 BUDGET for working families. We also recommend the Legislature provide a uniform per-child funding rate and distribute funds based on the number of eligible children participating in the program. Additionally, we recommend providing substantial local flexibility on program implementation but requiring all programs to include developmentally appropriate activities, meet minimum state staffing requirements, and report some key information to the state. Child Care Restructuring Governor Initiates Five-Year Plan for Transitioning All Subsidized Child Care to Voucher System. Currently, the state offers child care through a mix of direct contracts with providers and vouchers that families can use for various child care arrangements. The Governor has proposed trailer bill language that would require the California Department of Education (CDE) to develop a plan to transition most contracted funding for child care programs to vouchers over the next five years. The Governor’s proposal also would redirect some quality funds currently supporting contract-based providers into the expanded voucher system. Converting to Vouchers an Improvement Over Current System. In the current system, families receiving vouchers can choose from a variety of providers—selecting care that best fits their needs. Other similar families, however, can only access child care at specific locations with specific providers that contract directly with CDE. By converting contracted slots to voucher slots, the Governor’s proposal would allow all families to have the same level of choice in selecting child care providers. Governor’s Proposal Does Not Address Other Design Flaws in Current System. Beyond constraining choice, the current system has several other design flaws. First, existing child care slots are not currently distributed equitably across the state, and children in different counties have differing levels of access. Secondly, voucher-based slots are not required to include developmental components, so a shift away from contract-based child care could mean that young children who are not in school would not receive developmentally appropriate care. Thirdly, the current rate structure for vouchers is unnecessarily complicated and removed from the market rates for child care. Recommend Converting to Vouchers Over Five Years, Addressing Other Design Flaws as Part of Restructuring. We recommend the Legislature pursue the Governor’s proposal to unify the existing child care system into one voucher-based program. In doing so, we recommend the Legislature require all child care programs accepting vouchers to include developmentally appropriate activities for children birth through age three. We also recommend the Legislature take steps to equalize service levels across counties, replace the current funding model for vouchers with a simplified and market-driven model, and establish regional monitoring systems to oversee certain components of local programs. 4 Legislative Analyst’s Office www.lao.ca.gov 2016-17 BUDGET INTRODUCTION In this report, we analyze the Governor’s child the Governor’s preschool restructuring proposal. care and preschool proposals. In the first section, In the final section, we provide background on we provide a high-level overview of these proposals. California’s child care programs and assess the In the second section, we provide background Governor’s child care restructuring proposal. on California’s preschool programs and assess OVERVIEW OF GOVERNOR’S BUDGET PROPOSALS Governor Proposes $3.6 Billion for Child consolidate funding streams for various existing Care and Preschool Programs in 2016-17. Of this preschool programs into a new block grant to serve amount, $1.9 billion is for child care programs low-income and at-risk children. The Governor and $1.7 billion is for preschool programs. As also proposes tasking the California Department of shown in Figure 1 (see next page), the Governor’s Education (CDE) with creating a five-year plan to budget augments these programs by a total of transition all child care subsidies to vouchers. $95 million (3 percent) from the revised 2015-16 Governor’s Budget Adjusts Transitional level. Proposition 98 General Fund covers the bulk Kindergarten and State Preschool Amounts Before of this increase ($83 million), with a relatively small Shifting Into New Block Grant. The fund shift from increase in non-Proposition 98 General Fund. These Transitional Kindergarten and State Preschool into increases in state funds are partially offset by a small the new block grant reflects the Proposition 98 net decrease in federal funds. Under the Governor’s funds that those programs would have otherwise budget, proposed funding would support an received in 2016-17. The Transitional Kindergarten estimated 455,000 child care and preschool slots. fund shift includes a $40 million augmentation, Higher Spending Due to Various Adjustments. which reflects higher projected funding rates under Figure 2 (see page 7) shows proposed 2016-17 the Local Control Funding Formula (LCFF). The changes. The largest change is an $80 million State Preschool fund shift includes a $36 million increase to preschool programs (discussed further Proposition 98 augmentation, which reflects below), followed by $18 million for California annualizing the cost of certain slots, 0.13 percent Work Opportunity and Responsibility to Kids statutory growth, and a 0.47 percent COLA. (CalWORKs) child care. The budget includes a total (Rather than shifting into the block grant, the of $14 million for annualizing rate increases to the Governor proposes leaving $3 million in related Regional Market Rate and license-exempt rate that non-Proposition 98 growth in the General Child were initiated on October 1, 2015. The budget also Care program.) makes various other adjustments, such as providing Governor’s Budget Does Not Move All statutory growth and cost-of-living adjustments Full-Day State Preschool Wrap Into New Block (COLA) for non-CalWORKs programs. Grant. Currently, State Preschool wrap is provided Governor Proposes Major Restructuring by local education agencies (LEAs) and non-LEAs. of California’s Child Care and Preschool The Governor does not move $143 million Programs. Specifically, the Governor proposes to supporting the wrap provided by non-LEAs into www.lao.ca.gov Legislative Analyst’s Office 5 2016-17 BUDGET the proposed block grant. This wrap component these existing preschool wrap funds into the block is currently funded out of General Child Care grant, General Child Care slots increase by about (non-Proposition 98). As a result of not moving 13,000 in 2016-17 under the Governor’s display. PRESCHOOL RESTRUCTURING In this section, we provide background on provide an assessment of the Governor’s proposal; California’s major preschool programs; describe the and offer a framework for developing a single, Governor’s proposal for preschool restructuring; coherent preschool program. Figure 1 Child Care and Preschool Budget (Dollars in Millions) Change From 2015‑16 2014‑15 2015‑16 2016‑17 Revised Reviseda Proposed Amount Percent CalWORKs Child Care Stage 1 $330 $410 $394 -$17 -4% Stage 2b 364 414 422 8 2 Stage 3 223 278 316 38 14 Subtotals ($917) ($1,103) ($1,132) ($29) (3%) Non‑CalWORKs Child Care General Child Carec $531 $450 $450 —d —d Alternative Payment 182 251 255 $4 2% Migrant child care 28 29 29 —d —d Care for Children With Severe Disabilities 2 2 2 —d —d Infant and Toddler QRIS Grant (one time) — 24 — -24 -100 Subtotals ($742) ($756) ($736) (-$20) (-3%) Preschool Programse State Preschool $604 $835 — -$835 -100% Transitional Kindergarten 604f 686f — -686 -100 Preschool QRIS Grant 50 50 — -50 -100 Targeted Play and Learning Block Grant — — $1,654g 1,654 — Subtotals ($1,258) ($1,571) ($1,654) ($83) (5%) Support Programs $73 $76 $79 $3 3% Totals $2,991 $3,506 $3,600 $95 3% Proposition 98 General Fund $1,258 $1,571 $1,654 $83 5% Non-Proposition 98 General Fund 809 977 998 21 2 Federal CCDF 570 573 583 10 2 Federal TANF 353 385 365 -20 -5 a Reflects Department of Social Services’ revised Stage 1 estimates for cost of care and caseload. Reflects budget act appropriation for all other programs. b Does not include $9.2 million provided to community colleges for certain child care services. c In 2014-15, includes funding for all State Preschool wrap slots. Beginning in 2015-16, includes funding for State Preschool wrap slots provided only by non-LEAs. d Less than $500,000 or 0.5 percent. e Some CalWORKs and non-CalWORKs child care providers use their funding to offer preschool. f LAO estimate based on average daily attendance in Transitional Kindergarten, as reported by CDE. g Consists of $878 million shifted from State Preschool, $726 million shifted from Transitional Kindergarten, and $50 million shifted from the Preschool QRIS Grant. QRIS = Quality Rating and Improvement System; CCDF = Child Care and Development Fund; TANF=Temporary Assistance for Needy Families; CDE = California Department of Education; and LEA = local education agency. 6 Legislative Analyst’s Office www.lao.ca.gov 2016-17 BUDGET Figure 2 2016-17 Child Care and Preschool Changes (In Millions) Proposition 98 Non-Proposition 98 Federal Change General Fund General Fund Funds Total Preschool Programs Creates new early education block grant $1,654 — — $1,654 Moves part-day State Preschool and full-day wrap run by LEAs -878 — — -878 into proposed early education block grant Moves Transitional Kindergarten into proposed early education -726 — — -726 block grant Moves Preschool QRIS Grant into early education block grant -50 — — -50 Adjusts Transitional Kindergarten for increases in LCFF before 40 — — 40 moving into block grant Adjusts State Preschool for annualization of slots initiated in 2015-16 36 $3b 40 and statutory growth and COLA before moving into block granta Subtotals ($76) ($3) (—) ($80) Child Care Programs Makes CalWORKs caseload and average cost of care adjustments — $38 -$20 $18 Annualizes funding for Regional Market Rate ceiling increase — 10 -1 9 initiated in 2015-16 Adjusts non-CalWORKs child care programs for statutory growth — 4 — 4 and COLAa Annualizes funding for 5 percent license-exempt rate increase — 4 1 5 initiated in 2015-16 Removes one-time Infant and Toddler QRIS Grant funds — -24 — -24 Subtotals (—) ($32) (-$19) ($12) Other Technical Adjustments $7 -$14 $10 $3 Totals $83 $21 -$9 $95 a Reflects 0.13 percent growth in the birth-through-four population and 0.47 percent COLA. b Annualizes the cost of the 1,200 non-LEA, full-day State Preschool wrap slots initiated January 1, 2015. COLA = cost-of-living adjustment; LCFF = Local Control Funding Formula; LEA = local education agency; and QRIS = Quality Rating and Improvement System. Background whereas the other two programs do not have a work requirement. The programs operate out of California Has Several Major Preschool school districts, subsidized preschool centers, Programs. Figure 3 (see next page) highlights or both places. The state funds each of the three key features of California’s four largest preschool state programs using a different funding method programs: center-based voucher programs, the (family vouchers, direct state contracts, and school California State Preschool Program (CSPP), district LCFF payments). Though not shown in the Transitional Kindergarten (TK), and federal figure, in 2014-15 the state also began providing Head Start. As shown in the figure, the programs $50 million annually for Quality Rating and are similar in some ways and different in other Improvement Systems (QRIS) designed to promote ways. For example, three of the four programs improvement among some CSPP providers in some determine eligibility based on family income areas of the state. In addition to the programs whereas one determines eligibility by a child’s already mentioned, some preschool in California birthday. Two of the programs require low-income is funded with federal Title I funds, local First 5 families to be working to receive full-day preschool funds, and special education funding. Some www.lao.ca.gov Legislative Analyst’s Office 7 2016-17 BUDGET children may benefit from multiple preschool voucher programs, CSPP, and Head Start are programs. For example, some children are enrolled unable to serve all eligible children. The number in both CSPP and Head Start. of available slots for these programs is determined For Some Programs, Available Slots by annual budget appropriations and priority is Insufficient to Serve All Eligible Children. Some given to certain children. Voucher programs and Figure 3 Major Preschool Programs in California Center‑Based California State Transitional Voucher Programsa Preschoolb Kindergartenc Head Startd Eligibility Family income 70 percent of 2007 70 percent of 2007 None 100 percent eligibility cap state median income state median income of federal poverty level Annual income cap $42,216 $42,216 N/A $20,090 for family of three Work requirement Yes Yes for full-day No No program Age eligibility Two- through five-year Three- and four-year Four-year olds with Three- and criteria olds olds birthdays between four-year olds September 2 and December 2 Four-year olds 5,400 138,400 83,000 46,400 servede Program Provider(s) Subsidized centers LEAs and subsidized LEAs LEAs and centers subsidized centers Duration Varies based on At least 6.5 hours Must operate no Determined by parents’ work per day, 250 days fewer than 180 local provider schedules per year for full-day days per year, program; at least hours per day 3 hours per day, determined by 175 days per year for district part-day program Funding Method of payment State provides funds to State directly State provides 5-year federal providers on behalf contracts with funds through grant directly of families providers LCFF to providers Total funding for $60 million $740 million $690 million $420 million four-year oldse Annual funding per Average of $10,600 for $4,200 (part-day) and Average of $8,500 Average of childe full-time program $9,600 (full-day) $9,100 a Includes the CalWORKs child care and Alternative Payment programs. Programs are offered to children birth through 12 years of age, with certain funding rates and program requirements for children two through five-years old. Number of four-year olds served is estimate of four-year olds receiving care in a center. Overall, 19,100 four-year olds received vouchers for care in a variety of settings. Full-time rate assumes reimbursement on a monthly basis. b Up to 15 percent of children in program may come from families with incomes above cap. Program gives priority to serving four-year olds. c Districts may choose to serve other four-year olds, but those children do not generate state funding until they turn five. d Up to 10 percent of children in program may come from families with incomes above cap. Some programs also provide home visits and wraparound services such as health check-ups. Number of four-year olds served is based on 2014-15 enrollment. e Number of four year-olds served, total funding, and per-child funding are 2015-16 estimates. LEA = local education agency and LCFF = Local Control Funding Formula. 8 Legislative Analyst’s Office www.lao.ca.gov 2016-17 BUDGET CSPP must give priority to children receiving law does not require school districts to create a child protective services, children at risk of being mainstream preschool program if they do not abused or neglected, and children from families already have one, some children with special needs with the lowest incomes. Head Start providers are may not have a mainstreaming option available. In required to develop their own priority ranking 2013-14, 41 percent of three and four-year olds with based on the needs of the local community, but special needs were served in mainstream programs, they too generally limit eligibility to children from 34 percent were served in specialized programs, low-income families. For TK, all four-year olds with and 25 percent did not receive any form of early September 2 to December 2 birthdays, regardless education. of family income, are guaranteed slots. School Programs Have Different Standards and districts receive TK funding for these children Oversight. Figure 4 (see next page) describes automatically as part of their LCFF allotments. the standards that apply to the four preschool Some Children From Low-Income Families programs. Each program has a unique set of Not Currently Served. Based on participation requirements related to teacher qualifications, data from the four programs, we estimate between staffing ratios, health and safety standards, 60 percent and 80 percent of four-year olds from developmental standards, and oversight. As shown families that earn below 185 percent of the federal in the figure, all programs are required to meet poverty level (FPL) are served by subsidized some minimum health and safety standards, preschool centers and school districts. This range although specific standards vary by program. is large because we do not have data on the number Three of the programs must include developmental of children enrolled in multiple programs. (The standards, but these specific standards also vary 185 percent threshold is used as an eligibility somewhat across the programs. Center-based criterion for various K-12 education programs, voucher programs are not required to include including a major child nutrition program. In developmental standards, but some may provide 2015-16, the 185 percent threshold equated to services similar to CSPP. about $37,000 a year for a family of three.) Eligible Governor’s Proposal children may not be participating for a variety of reasons. Some families may not be aware of Governor Proposes Consolidating Three subsidized programs, may choose not to enroll Existing Funding Streams Into New Block Grant. their children, or may be unable to find slots in The Governor proposes to consolidate three nearby programs. existing preschool programs into a new $1.6 billion Many Children With Disabilities Not Early Education Block Grant. Specifically, the Currently Served in Mainstream Programs. proposal would redirect funding from CSPP Federal law requires that LEAs provide appropriate ($845 million), TK ($726 million), and the QRIS services, in many cases including preschool, to Block Grant for CSPP ($50 million). Funds from children with disabilities. Federal law also requires the new block grant would be given to LEAs and that students with disabilities be served in the potentially other entities that currently offer CSPP least restrictive environment. For most three to operate a developmentally appropriate preschool and four-year olds with disabilities, this means a program. The providers also would be required program where they are served along with their to conduct some support activities, including mainstream peers, such as in CSPP. Because federal family engagement, screening for developmental www.lao.ca.gov Legislative Analyst’s Office 9 2016-17 BUDGET disabilities, and referral to supportive health and Low-Income and At-Risk Children to Receive social services, if appropriate. The Governor’s Priority. The Governor’s proposal requires block proposal does not shift $33 million in CSPP funds grant recipients to prioritize services to children that support preschool programs at 55 community from low-income families (as defined locally), colleges. (These programs serve the dual purpose homeless children, foster children, children with of providing preschool for children of community disabilities, children at-risk of abuse and neglect, college students and serving as a lab school for and English learners. Although the proposal students training to become preschool teachers.) specifies which students should receive priority, the Figure 4 Standards for Major Preschool Programs Center-Based California Transitional Voucher Programs State Preschool Kindergarten Head Start Teacher Child Development Child Development Teacher Bachelor’s degree Half of teachers must have Qualifications Associate Credential Permit (24 units of and multiple a bachelor’s degree in (12 units in ECE/CD).a ECE/CD plus 16 general subject Teaching ECE/CD or a bachelor’s education units).b Credential and a degree with ECE/CD Child Development experience. Rest of Teacher Permit or teachers must have at least 24 units associate’s degree of ECE/CD or in ECE/CD (typically comparable between 24 and experience.c 40 credits) or associate degree with ECE experience. Staffing Ratios 1:12 teacher-child 1:24 teacher-child ratio and 1:33 maximum 1:20 teacher-child ratio and ratio or 1 teacher 1:8 adult-child ratio. teacher-child ratio. 1:10 adult to child ratio. and 1 aide per 15-18 children. Health and Staff and volunteers are Staff and volunteers are Staff are fingerprinted. Staff and volunteers are Safety fingerprinted. Subject fingerprinted. Subject Subject to K-12 fingerprinted. Subject Standards to health and safety to health and safety education health to health and safety standards. standards. and safety standards. standards. Developmental None. Developmentally Locally developed, The Head Start Early Standards appropriate activities modified Learning Outcomes designed to facilitate kindergarten Framework. transition to kindergarten. curriculum. Oversight Unannounced visits Unannounced visits by Teacher-child ratios Unannounced visits by CCL by CCL every CCL every three years subject to annual every three years or more three years or or more frequently under audit. Some school frequently under special more frequently special circumstances. facilities inspected circumstances. Onsite under special Onsite reviews by CDE by county offices of reviews by the Federal circumstances. every three years (or as education. Office of Head Start every resources allow) and three years. annual self-assessments. a The Child Development Associate Credential is issued by the National Credentialing Program of the Council for Professional Recognition. b The Child Development Teacher Permit is issued by California’s Commission on Teacher Credentialing. c Effective for new TK teachers hired after July 1, 2015. CCL= Community Care Licensing; CDE = California Department of Education; and ECE/CD = Early Childhood Education/Child Development. 10 Legislative Analyst’s Office www.lao.ca.gov 2016-17 BUDGET proposal does not require providers to serve any environments. Finally, prioritizing children with specific group of students. disabilities as part of a larger mainstream program Hold Harmless Provision for LEAs. The creates more opportunities for them to be served Governor’s proposal includes a hold harmless alongside their peers. provision that ensures LEAs receive the same Allowing Income Eligibility to Be Locally amount from the new block grant as they otherwise Determined Likely to Result in Similar Children would have received from TK and CSPP contracts. Receiving Different Levels of Service. We are The state would distribute any remaining block concerned about the Governor’s proposal to let grant funds based on local need. (At the time of income eligibility criteria be locally determined. this writing, the administration’s proposed trailer Allowing this core eligibility criterion to be legislation had no specific definition of “local set locally very likely would result in notable need.”) differences across the state in services and funding Administration Plans to Submit Additional per child. This could result in similar children Details of New Program as Part of May Revision. being treated very differently based on where they The Governor’s January proposal contains few live. Neighboring school districts with similar details about the restructured preschool program. levels of funding, for example, could target their The proposal, for example, does not set forth program to a different set of students and provide specific eligibility criteria, the role of private significantly different levels of service. providers, program standards, or clear funding Hold Harmless Provision Limits Ability to rules. The administration intends to solicit feedback Allocate Funding Based on Need. We also are from stakeholders on these issues and release a concerned about the Governor’s proposal to lock more detailed proposal in May. in districts’ funding allocations permanently. Because TK eligibility is based on birth month and Assessment not tied to need, school districts with relatively low Consolidating Funding and Prioritizing and relatively high shares of low-income students Based on Need Are Improvements Over Current currently may be operating TK programs that are Approach. The Governor’s proposal to consolidate similar in size. Thus, the Governor’s proposed hold three preschool funding streams into one harmless provision would result in some districts program would help simplify and streamline the permanently receiving a disproportionate amount state’s existing labyrinth of preschool programs of funding relative to their numbers of low-income while improving transparency and coherence. and at-risk children. These districts would be able Prioritizing funds for low-income children would to expand eligibility to serve a much larger share of ensure that the state’s available resources are their children or provide a much more expensive directed to those most likely to benefit. Low-income program for low-income or at-risk children in families are both less likely than higher-income their areas. By contrast, some school districts with families to be able to afford preschool and more relatively high proportions of low-income and likely to benefit from access to preschool (according at-risk children would receive proportionately fewer to most research). Prioritizing at-risk students resources. As a result, these districts would have would provide children who have had adverse to narrow eligibility or operate with notably less early childhood experiences access to supportive funding per child. www.lao.ca.gov Legislative Analyst’s Office 11 2016-17 BUDGET Recommendations children being served, we recommend the Legislature allocate funding to providers based on Key Features of Any Restructured Preschool the number of eligible children who participate Program. As discussed below, we believe certain in the program. This approach is similar to the features are important to include as part of any current funding approach for CSPP and TK. (As restructured preschool program. discussed in the nearby box, setting a per-child One Consolidated Funding Stream. We funding rate is likely to be among the Legislature’s recommend the Legislature consolidate all existing most difficult program decisions.) If the Legislature Proposition 98 funding for preschool into one new were to adopt a hold harmless provision for current program. Under this approach, the state would providers, we recommend the provision only take consolidate nearly $1.7 billion in funding from effect during the transition to the new system, CSPP, TK, and QRIS, as well as the set-aside for as this would better ensure funding upon full community college lab schools, into one program. implementation is linked to children. Specific Eligibility Criteria. To ensure similar Convenience for Families. The Legislature children are treated similarly across the state, we could take a couple of steps to make participation recommend the Legislature set specific criteria for easier for families. We recommend the state require which students are eligible for the new preschool providers to offer full-day preschool programs program. We think a reasonable approach would for children from low-income, working families. be to provide preschool to all four-year olds from Without a full-day option, some families would families with incomes below 185 percent of FPL, and otherwise be unable work or opt to place their all four-year olds who are receiving child protective children in less formal environments that have no services, are at-risk of being abused or neglected, specific learning expectations. We also recommend are homeless, or have disabilities. Providers under the Legislature create a streamlined eligibility such an approach might choose to offer preschool to verification process that reviews eligibility only children above 185 percent of FPL, but they would once per year (at the beginning of the school year). need to do so using other resources. Under such an approach, a child would remain Funding Linked to Children. To ensure that eligible for the entire school year, regardless of additional funding directly results in additional changes in family circumstances. Illustration of One Possible Funding Rate for New Preschool Program One of the most difficult decisions the Legislature likely would face as part of restructuring is setting the specific per-child funding rate. Ideally, the funding rate would be based on the cost of the service being sought. For illustrative purposes, if the Legislature required new preschool programs to operate 180 days per year (the same as the school year), it might offer a part-day rate of $5,200 and a full-day rate of $7,800 (part-day rate plus a $2,600 wraparound rate). This part-day rate is 20 percent higher than the current California State Preschool Program (CSPP) part-day rate. This wraparound rate is the same as the current CSPP wrap rate, adjusted for 180 days. These rates are roughly comparable to the current market-based, full-time, monthly voucher preschool rates, adjusted for 180 days. At these rates, we estimate the state could serve all children who meet our recommended eligibility criteria within existing resources. 12 Legislative Analyst’s Office www.lao.ca.gov 2016-17 BUDGET Developmentally Appropriate Activities. We information on key elements of a program, such also recommend providers be required to include as the length of the program (hours per day and developmentally appropriate activities in their days per year), curriculum, process for measuring preschool programs. This could include using the program’s added value to the child, and family California’s Preschool Learning Foundations engagement activities. or an alternative framework, such as the Head Other Key Restructuring Decisions Start Early Learning Outcomes Framework, that includes age-appropriate activities. Foundations Various Trade-Offs to Consider When such as these typically focus on helping children Designing Remaining Features of Program. In learn self-awareness and self-regulation, how to addition to the above issues, the Legislature faces interact with peers and teachers, language and basic other important restructuring decisions. These literacy, and basic numeracy. Because these types of decisions entail selecting providers, developing a frameworks are not overly prescriptive, providers method for disbursing funding, and figuring out still would retain a great deal of flexibility to how best to oversee the new program. Below, we develop a specific curriculum tailored to the needs discuss some trade-offs the Legislature faces in and interests of their children. making each of these decisions. Minimum Staffing Requirements. We Providers. One key decision the Legislature recommend the Legislature set some minimum would face in restructuring preschool is identifying standards to ensure a baseline of services for all which entities should be responsible for providing eligible children. At a minimum, we recommend the program. On the one hand, school districts the state require teachers to have some education and charter schools offer greater opportunity to in child development (for example, a Child ensure preschool is aligned with kindergarten and Development Permit, as is required in CSPP) and the rest of the K-12 school system. Additionally, set a maximum teacher-child ratio. because school districts already have specific Basic Reporting Requirements. We district boundaries and are required to serve all recommend the Legislature also require basic school-aged children within those boundaries, information from providers. We recommend they are well-positioned to ensure that all eligible requiring providers to collect basic student children living within their catchment area have demographic information, such as race, gender, access to a new preschool program. (Smaller school family income, and disability status. This data districts, charter schools, and county offices of would allow educators and policymakers to education also are familiar with forming joint monitor program participation. The Legislature powers agencies to help them coordinate program also could require CDE to report preschool services within their vicinities.) Currently, no participation rates by county. This would help the similar catchment system exists for non-LEA state identify geographical areas that consistently providers. On the other hand, many non-LEA enroll relatively few eligible children, thereby providers have a long history and considerable allowing the state to make targeted efforts to expertise serving preschool-aged children. In many increase preschool enrollment in those areas. cases, these providers also provide wraparound To foster transparency, we also recommend the services, such as infant or toddler child care and state require providers to create plans that would after school care. Furthermore, non-LEA providers be available online. Such plans could include may provide certain types of preschool options that www.lao.ca.gov Legislative Analyst’s Office 13 2016-17 BUDGET have greater appeal to some families and may be to serve all children showing up for the program. more conveniently located for some families than If LEAs were selected as providers, then disbursing their LEA options. funds through LCFF and using local governing A Method for Disbursing Funds. Another boards as oversight agents become more natural important decision the Legislature would face in downstream decisions. Alternatively, were the restructuring preschool is deciding how to disburse Legislature to decide to select both LEAs and funds to providers. Disbursing funds to LEAs non-LEAs as providers, then disbursing funds through the LCFF system is straightforward and through direct state contracts and using state requires no special administrative structure. Were agencies to perform some oversight activities both LEAs and non-LEAs to provide preschool become more natural downstream decisions. programs, however, the state likely would need Transition another funding disbursement mechanism. For example, it might continue issuing direct contracts Multiyear Phase In. Any effort to restructure with providers. Though direct contracts are California’s preschool programs into a single, somewhat more administratively burdensome coherent program will involve many decisions than LCFF allocations, they still can keep funding and take some time. By gradually introducing new linked with children served and track slots allotted eligibility, program, funding, and administrative to each provider. requirements over a number of years, the state Oversight and Accountability. Finally, if it could minimize disruption to children, families, pursues preschool restructuring, the Legislature and providers while ensuring steady progress will need to decide how to oversee program towards a better system. Given families typically providers. On the one hand, having a robust state make enrollment decisions and providers typically oversight system could result in greater consistency make staffing and budget decisions several months among programs statewide. On the other hand, a in advance, we recommend the Legislature allow local oversight system could take into account local plenty of time to notify them of any program priorities and challenges while also providing more changes. tailored feedback to local providers on improving Transition Plan. As part of restructuring, we their programs. recommend the Legislature create a transition plan Some Program Components Fit Together that sets forth when certain changes would take Better Than Others. Some combinations of place. For example, in the first year of a transition decisions seem to fit together better than other plan, the state could continue CSPP and TK under combinations. In particular, certain combinations existing rules. In the second year, the state could of eligibility, provider, funding, and oversight replace CSPP and TK rules with new eligibility decisions seem to go together. For example, if the rules and begin changing funding allocations to Legislature were to decide to serve all low-income match children served. In the third year, children, then relying on school districts becomes the state could fully transition to the new funding a relatively natural fit, as districts could be required formula and begin to ramp up program oversight. 14 Legislative Analyst’s Office www.lao.ca.gov 2016-17 BUDGET CHILD CARE RESTRUCTURING In this section, we provide background on Figure 5 highlights key features of California’s four California’s major child care programs, describe the main subsidized child care programs: CalWORKs Governor’s proposal for child care restructuring, child care, the Alternative Payment (AP) Program, assess the current system, and set forth a package of General Child Care, and Migrant Child Care. All recommendations for improving the system. four of these programs generally are designed to serve low-income, working families during the Background hours that parents work or are participating in an California Has Several Child Care Programs education or training program. In addition to these Designed to Serve Low-Income, Working Families. programs, California funds the Care for Children Figure 5 Major Child Care Programs in California CalWORKs Alternative Payment General Migrant Child Care Program Child Care Child Care Family income 70 percent of 2007 state 70 percent of 2007 70 percent of 2007 70 percent of 2007 state eligibility median income state median income state median income median income ($42,216 per year for a ($42,216 per year for ($42,216 per year for ($42,216 per year for a family of three) a family of three) a family of three) family of three), half of gross income must be from agricultural work Age eligiblity Birth through age 12 Birth through age 12 Birth through age 12 Birth through age 12 Access Guaranteed for current Subject to available Subject to available Subject to available slots and former CalWORKs slots slots families until no longer income- or age-eligible for programa Priority — 1. Children receiving 1. Children receiving 1. Family moves from place (if access limited) child protective child protective to place services or at-risk of services or at-risk of 2. Family meets 1st criteria abuse and neglect abuse and neglect within past five years 2. Children from 2. Children from 3. Family lives in rural area families with the families with the and is dependent upon lowest incomesb lowest incomesb seasonal agricultural work Number of 130,970 32,852 28,738 3,060 children servedc Settings Licensed center, FCCH, Licensed center, Licensed center, FCCH Licensed center, FCCH, license-exempt FCCH, license- license-exempt exempt Administrative Vouchers Vouchers Contracts Mix of vouchers and mechanism contracts Total funding $1,103 $251 $450d $29 (in millions)c a CalWORKs Stage 1 and 2 Child Care are statutory entitlements. The Legislature traditionally has funded Stage 3 Child Care as an entitlement. b Within income bracket, these programs prioritize children with exceptional needs. c Number of children served and total funding are 2015-16 estimates. d Includes $145 million for full-day State Preschool wrap provided by non-local education agencies. FCCH = family child care homes. www.lao.ca.gov Legislative Analyst’s Office 15 2016-17 BUDGET with Severe Disabilities program, which provides an individual of the family’s choosing—typically a child care to about 150 children birth to 21 in the relative, friend, or neighbor who provides care in a San Francisco Bay Area. (The nearby box provides private home. additional detail on the stages of CalWORKs child Some Standards Vary Across Voucher- and care.) Contract-Based Programs. As shown in Figure 6, State Subsidizes Through Vouchers and Direct the state sets standards for each type of child Contracts. The state provides subsidized child care provider. All licensed providers must meet care in two ways. Families participating in the Community Care Licensing (CCL) health and CalWORKs and AP programs receive vouchers safety standards. Licensed voucher-based providers that they may use to access care with different types also must meet certain CCL staff qualifications of child care providers. The state subsidizes other and staffing ratios. Collectively, these health, families via direct contracts with certain licensed safety, and staff standards are commonly referred child care providers. Migrant Child Care provides to Title 22 standards. Contract-based providers services to children of migrant parents through both must meet Title 22 health and safety standards but vouchers and direct contacts with licensed providers. have somewhat different staffing ratios. Contract- Voucher- and Contract-Based Care Provided based providers also require teachers to have more in a Variety of Settings. Families receiving child training than teachers in voucher-based programs. care vouchers can choose from three types of child Contract-Based Programs Required to care settings: licensed centers, licensed family child Include Developmental Component to Care. This care homes (FCCHs) and license-exempt care. requirement is a key difference from voucher-based Families in contract-based programs may access programs, which have no explicit requirement to licensed centers and FCCHs. For both the voucher- provide developmentally appropriate activities. and contract-based programs, centers typically are Often the developmental component of contract- run by community-based organizations or LEAs based programs is referred to as the “learning and often serve more children than other types foundations” after the frameworks developed by of providers. The FCCHs operate from providers’ CDE for the programs. The learning foundations homes, with each home typically serving 6 to describe the skills that children of different ages 12 children. License-exempt care is provided by should be able to exhibit. Programs required CalWORKs Child Care Consists of Three “Stages” Families participating in welfare-to-work activities through California Work Opportunity and Responsibility to Kids (CalWORKs) are statutorily guaranteed child care subsidies during “Stage 1” and “Stage 2” of the program. Families are considered to be in Stage 1 when they first enter CalWORKs and connect to services at county welfare departments. Once CalWORKs families become stable (as defined by the county), they move into Stage 2. Families move into “Stage 3” two years after they stop receiving cash aid. Families in CalWORKs Stage 3 are not statutorily guaranteed child care subsidies, but the Legislature has in practice funded all eligible families. Families remain in Stage 3 until their income exceeds 70 percent of state median income or their child ages out of the program. 16 Legislative Analyst’s Office www.lao.ca.gov 2016-17 BUDGET to use the foundations focus their activities centers and 36 percent are served in FCCHs (see around supporting the development of these Figure 7, next page). About one-third of children skills. Together, the health, safety, staffing, and receiving vouchers rely on license-exempt care. developmental requirements that apply to contract- License-exempt care is most common among based child care providers are commonly referred CalWORKs families. More than one-third of to as Title 5 standards. CalWORKs children receive license-exempt care, Reliance on Particular Child Care Settings whereas about one-fifth of non-CalWORKs AP Differs Between Contracts and Vouchers. children receive this type of care. (The General Three-fourths of subsidized children are served Child Care and Care for Children with Severe in licensed settings. Based on the most recently Disabilities programs do not allow for license- available data, 38 percent of children are served in exempt care.) Figure 6 Standards for Child Care Providers Infant Children, Aged Birth Through 24 Monthsa Providers Accepting Vouchers Direct Contracts License-Exempt FCCHs Centers Centersb Staff None. 15 hours of health and Child Development Child Development Teacher qualifications safety training. Associate Credential Permit (24 units of ECE/CD or 12 units in plus 16 general education ECE/CD.c units).d Staffing ratios May not serve children 1:6 adult-child ratio.e 1:12 teacher-child ratio 1:18 teacher-child ratio and from multiple families and 1:4 adult-child 1:3 adult-child ratio. at any given time. ratio. Health and safety Criminal background Staff and volunteers are Same as voucher- Same as voucher-based standards check. Self- finger printed. Subject based FCCHs. FCCHs. certification of to health and safety certain health and standards. safety standards. Developmental None. None. None. Requires developmentally standards appropriate activities. Oversight None. Unannounced visits by Same as voucher- Same as voucher-based CCL every three years based FCCHs. FCCHs, but also onsite or more frequently reviews by CDE every under special three years (or as circumstances. resources allow) and annual self-assessments. Applicable CalWORKs, CalWORKs, CalWORKs, General Child Care, Migrant programs AP Program, AP Program, AP Program, Centers, Care for Children Migrant Vouchers Migrant Vouchers Migrant Vouchers With Severe Disabilities a Standards for children of other ages similar to those displayed here. Infants in Title 5 Centers are aged birth through 18 months. b Same standards generally apply to FCCHs serving children in General Child Care program. 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. e No more than four infants may be served by any one adult. AP = Alternative Payment; CCL = Community Care Licensing; CDE = California Department of Education; ECE/CD = Early Childhood Education/Child Development; and FCCHs = family child care homes. www.lao.ca.gov Legislative Analyst’s Office 17 2016-17 BUDGET Reimbursement Rate Structures Vary for willing to pay for a certain type of care. If a provider Contracts and Vouchers. Providers running charges less than the ceiling, the state reimburses General Child Care, contract-based Migrant the actual child care charge. (The state currently Child Care, and Care for Children with Severe reimburses license-exempt providers at 65 percent Disabilities programs generally are paid a Standard of each county’s maximum RMR for FCCHs.) Reimbursement Rate (SRR). The SRR is higher Rates Based on Historical Decisions. The for centers than FCCHs. The SRR is adjusted to SRR generally is based on rates dating back to the account for various characteristics of the child 1940s. Over the years, the state has updated the served—including age, limited English proficiency, SRR to reflect increasing program costs. These or having a disability. In contrast, reimbursements adjustments, however, have not occurred every for voucher providers and certain General Child year. For the RMR, the state historically set the Care FCCHs vary based on the county in which ceilings at the 85th percentile of the most recent the child is served. These reimbursement rates are market survey. (The percentile at which the state referred to as Regional Market Rates (RMRs) and sets the RMR effectively reflects the purchasing are based on regional market surveys of private power and amount of choice associated with a providers, conducted every two years as required voucher. At the 50th percentile, for example, a by federal regulations. Like the SRR, the RMR is voucher would allow a low-income family to select adjusted based on the age of the child and if the among the less-expensive half of all providers.) child has a disability. Unlike the SRR, the RMR sets Over the past few years, the state has adjusted the rate “ceilings” for the maximum amount the state is RMR in various ways to reflect the increasing cost Figure 7 Participation in Child Care Programs by Setting Based on 2014 and 2015 Data 100% 90 80 70 60 50 40 30 License-Exempt 20 FCCH 10 Licensed Center CalWORKs CalWORKs CalWORKs Alternative General Migrant Overall Stage 1 Stage 2 Stage 3 Payment Child Care Child Care Vouchers Contracts FCCH = Family child care homes. 18 Legislative Analyst’s Office www.lao.ca.gov 2016-17 BUDGET of child care. Today, the state sets the RMR at the eligibility for care and process payments to greater of 104.5 percent of (1) the 85th percentile providers. (For CalWORKs Stage 1, the state funds of the 2005 regional market survey or (2) the county welfare departments that either issue 85th percentile of the 2009 regional market survey, payments to providers directly or subcontract this deficited by 10.11 percent. work out to AP agencies.) For Migrant vouchers, Recent Rate Changes Have Resulted in Greater the state contracts with Migrant AP agencies to Differences Across Counties. Most notably, the undertake similar functions. deficit factor applied to the 2009 survey has resulted State Continues to Make Efforts to Improve in inequities in access across the state. In counties Quality of Care. The state makes efforts every where most child care providers charge at or about year to improve the quality of voucher- and the same rates, a 10 percent cut in the value of the contract-based child care. On a longstanding basis, vouchers means that families do not have access to the federal government has required the state to as much of the market as families living in counties spend a certain amount annually to improve the with wide variation in provider rates. quality of care. In 2015-16, the state allocated about State Has Higher Reimbursement Rate for $70 million for this purpose. More recently, the Lower Standard of Care. While the RMR is below state has worked with local consortia to establish the SRR in some counties, most RMR rates are local Quality Rating and Improvement Systems higher on average than the SRR rate, as shown (QRIS) in some areas of the state, using a mix of in Figure 8. Since most providers that accept the federal, state, and local resources. These QRIS RMR are not required to include developmental typically evaluate and monitor programs based on components in their care, this means that in many various metrics, including teacher qualifications, cases the state pays more for a lower standard of curriculum, and environment. Associated funding care. covers these evaluation and monitoring costs as To Help Administer Voucher Programs, State well as supports staff development for providers. Contracts With AP Agencies. For CalWORKs While federal and state spending (approximately Stages 2 and 3 and the AP program, the state $200 million since 2012) for these QRIS is set to contracts with AP agencies that determine sunset in 2015-16, First 5 California—a commission Figure 8 Comparing Reimbursement Rates for Vouchers and Contracted Slotsa Average Annual Reimbursement Rate for Center-Based Programs Infant Preschool‑Aged School‑Age (Birth to 24 months) (Ages 2‑5) (Ages 6‑12) RMR SRRb RMR SRRc RMR SRR Full-time care $18,372 $16,273 $12,730 $9,633 $9,116 $9,573 Part-time cared 11,695 12,205 9,315 7,224 5,850 7,179 a RMR average costs are weighted by the number of subsidized children receiving child care in centers in each county. Estimates assume 250 days of operation, with half of children reimbursed at weekly rate and half at monthly rate. b Represents the SRR infant rate. The SRR defines infants as birth through 18 months and toddlers as 18 months through 36 months. The toddler rate is $13,403 for full-time care. c Represents the SRR preschool rate. The SRR defines preschool-aged children as children age 3 up to kindergarten. Because the part-time care rate shown is based on 250 days of operation, it is higher than the part-day rate for State Preschool ($4,177), which is based on 175 days. d Reflects rate for between 4 and 6.5 hours of care per day. RMR = Regional Market Rate and SRR = Standard Reimbursement Rate. www.lao.ca.gov Legislative Analyst’s Office 19 2016-17 BUDGET established to use tobacco tax revenues to for redirecting quality funds from activities now benefit children birth through five—has recently benefiting only contract-based providers to activities announced that it plans to spend $190 million that would benefit the expanded voucher system. between 2015-16 and 2019-20 to expand and Assessment enhance QRIS. Counties Serve Very Different Proportions of Converting to Vouchers Would Offer Families Low-Income Children. We estimate that counties More Flexibility in Selecting Providers. The in the Central Valley serve the lowest proportions Governor’s proposal to convert contracted slots to of low-income children. The highest share of vouchers would give some families greater choice children served is in San Francisco County. Despite than they now have in selecting the child care this variation among counties, almost all counties providers that best meet their needs. Moreover, in in California serve a relatively small proportion of an all-voucher system, every family would have low-income children, with most counties serving the same level of choice in selecting providers less than 20 percent. These estimates are based that meets their needs. We believe this would be a on our comparison of the number of low-income significant improvement over the current system, as children by county with the total number of similar families currently receive different levels of subsidized child care slots by county (excluding choice. CSPP). (Because data on the share of low-income Converting to Vouchers Could Result in children with working parents is not available, Some Children Not Receiving Developmentally we cannot know how many children actually are Appropriate Care. In 2015-16, about 35,000 birth eligible for subsidized child care. Additionally, through three-year olds received contract-based the state does not currently track the demand for child care (including three-year olds in CSPP), child care among eligible families. Between 2005 thereby receiving care with a developmental and 2010, the state funded all counties to maintain component. Since child care providers that accept centralized eligibility lists [CELs] that consolidated vouchers are not required to include development the waiting lists for all non-CalWORKs programs components, converting these 35,000 slots into and allowed the state to track the demand for child vouchers could result in a corresponding loss care among eligible families.) of developmentally appropriate care. (Children older than three years of age could receive Governor’s Proposal developmentally appropriate learning opportunities Initiates Five-Year Plan for Transitioning through preschool and school.) All Subsidized Child Care to Voucher System. Converting to Vouchers Likely Would Entail The Governor has proposed trailer bill language Additional Cost. Given the RMR ceilings are that would require CDE to develop a plan to higher than the SRR in most cases, transitioning transition contracted funding (General Child all slots to vouchers likely would entail some cost. Care and Migrant Child Care) to vouchers over Assuming all families previously receiving care the next five years. Under the plan, all contracted in centers continued to choose center care when funding except for funds supporting the Care for given the voucher option, converting SRR slots Children With Severe Disabilities program would into vouchers would cost roughly $70 million. be converted to vouchers. The Governor’s proposal If families instead made similar decisions to also would require CDE to make recommendations families currently in the AP program and relied 20 Legislative Analyst’s Office www.lao.ca.gov 2016-17 BUDGET more heavily on FCCHs and license-exempt care, vouchers, the Legislature would need to consider converting SRR slots into vouchers would cost whether it wanted to continue giving migrant roughly $25 million. children priority access. If the Legislature wishes Converting to Vouchers Over Five-Year to prioritize these children, it could do so within Period Minimizes Disruption, Allows for Better a single voucher program or it could retain a Planning and Implementation. A change to stand-alone voucher program reserved only for vouchers could cause substantial disruption to migrant children. Both approaches have benefits providers and families if not done gradually over and drawbacks. Prioritizing migrant children time. At a minimum, the state would need to within a single voucher program would create a phase out contracts, adjust reimbursement rates, more unified system. This approach, however, could and determine what standards would apply to result in other low-income children receiving less subsidized providers. access if slots are limited and migrant children end up receiving a greater number of slots under Recommendations the integrated program. Continuing to rely on a Below, we set forth a package of separate voucher program for migrant children recommendations for building a more coherent would result in a more fragmented system but allow child care system. the Legislature to target funds to a certain number Create One Voucher-Based System. We of migrant children in certain areas of the state. recommend the Legislature pursue the Governor’s Require Programs Serving Children Birth proposal to unify the existing child care system Through Age Three to Include Developmentally into one voucher-based program. Toward this end, Appropriate Activities. We recommend the we recommend converting General Child Care Legislature require all centers and FCCHs serving and all Migrant Child Care slots into vouchers. subsidized children birth through age three to Converting to all vouchers would result in a include a developmental component to their care. simpler, more rational, and more transparent (Under our preschool recommendations, four-year system that would be easier for families to use olds would receive developmentally appropriate and easier for the state to administer. Under an care through preschool.) Under the current system, all-voucher system, families now using contract- only a small share of children in subsidized child based care would be given greater choice in care birth through age three can access programs selecting convenient care providers. The change that are required to include such a component. to an all-voucher system would affect roughly We recommend the Legislature direct CDE to 300 subsidized providers that currently contract develop standards for children birth through age directly with CDE. Under our recommendation, three that are similar to current Title 5 standards we believe many of these providers would shift but modified to reduce programmatic and to accepting voucher clients. Though accepting administrative burden. Requiring a developmental vouchers is a somewhat less predictable business component in programs for these children likely model for them than direct contracting, Title 22 would require some existing Title 22 providers to centers and homes have been operating under a obtain additional training. This training could be voucher-based business model for decades. supported with one-time funds provided during a Special Considerations for Migrant Program. transition period or redirected quality dollars. When converting all Migrant Child Care slots into www.lao.ca.gov Legislative Analyst’s Office 21 2016-17 BUDGET Provide Similar Levels of Access Across the income cap to 70 percent of the 2007 SMI. This the State. Given the variation in the proportion cap equates to about 60 percent of the 2014 SMI, the of eligible families served across the state, we most recent year for which we have data. Updating recommend the Legislature equalize access across the income cap to this level imposes no additional counties. The Legislature could consider addressing program cost. For purposes of establishing voucher the differences across counties in various ways, eligibility, we recommend the state update the SMI including: annually based on the most recent data available (for example, using the 2015 SMI when preparing • Serve Same Share of Families in Each the 2017-18 budget). County. Under this option, the Legislature Create Simpler, More Transparent could adjust funding levels to serve the Reimbursement Rate Structure. As part of a same share of eligible families in each new voucher-based system, we recommend the county. Legislature eliminate the current reimbursement • Serve Families Based on Statewide Income rate structures and replace with one simplified, Cut-Off. Under this option, the Legislature market-driven structure. Looking at the most could adjust funding levels to serve all recent RMR survey indicates that the differences families under a certain percentage of state across counties generally cluster into three median income (SMI). groups. Urban and coastal counties tend to be the highest-cost counties, with monthly school-age The first option accounts for regional differences in rates varying less than 4 percent. The medium-cost family income and cost of care. Under this option, counties (including San Bernardino and higher-cost counties might serve eligible families Sacramento) also have monthly rates that vary less with incomes closer to the cap. For example, than 4 percent. The low-cost counties (which tend families whose incomes were 60 percent of SMI to be the rural northern counties) have somewhat might receive child care in high-cost counties more variation, 7 percent on average. Given these whereas families with similar incomes in low-cost groupings, we recommend the state create a system counties may not receive child care because all with three reimbursement rates (tiers 1, 2, and 3) available slots are taken by families with lower to reflect basic cost differences among counties. incomes. By comparison, the second option treats This system would replace the state’s existing RMR all families across the state similarly regardless of structure which provides unique rates to every regional cost differences. Under the second option, county. Understanding the new system therefore those counties with a greater share of families at the would be much easier yet the rates still would bottom of the income distribution would see more remain connected to the child care market and families served than those counties with relatively accurately reflect notable cost differences among higher-income families. We believe either option counties. would be an improvement over the existing ad hoc To Start, Set Reimbursements at the service levels across counties. 65th Percentile of Most Recent Survey. As a first Update Eligibility Criteria to Be More step in moving toward a new rate structure, we Transparent. To create more transparency in terms recommend the Legislature link the rates to a of who is being served, we recommend the state specified percentile of the 2014 RMR survey based link the income eligibility cap with recent SMI on available funding. We estimate that setting data. For the past several years, the state has linked 22 Legislative Analyst’s Office www.lao.ca.gov 2016-17 BUDGET the initial reimbursement rates at about the (Moving forward, the state also could consider 65th percentile would allow the state to serve the whether CDE should play a role in ensuring same number of children without additional cost. consistency in the monitoring of providers.) (This estimate assumes $143 million now used for Transition CSPP wrap at non-LEAs is available for vouchers and slots for three-year olds now funded by CSPP Main Elements of a Transition Plan. In the are converted to vouchers.) For each of the three first year of the transition to a fully voucher- groupings of counties, the 65th percentile of the based system, we recommend the state create a applicable counties could be averaged to set the new reimbursement rate structure, monitoring corresponding rate. Setting the initial rates using system, and program standards, as well as develop the most recently available data helps lay a more associated regulations. In year two, we recommend appropriate foundation for the new rate structure. beginning to implement the changes by applying (To the extent additional funds were available, the the new reimbursement rates to all existing state could link rates to a higher percentile in future voucher slots, beginning to convert contracted years.) slots to vouchers, beginning to equalize service Reinstate CELs so State Can Track Demand levels across counties, providing some one-time for Subsidized Child Care. To help families access funds to help providers learn about and meet any care, equalize service levels across the state, and higher program standards, and designating a small make corresponding funding adjustments, we amount of ongoing funds for reinstating the CELs. recommend the Legislature reestablish consolidated In years three through five of the transition, we waiting lists. We estimate restarting CELs would recommend the state complete the phase out of cost between $5 million and $10 million annually. contracted slots and the equalizing of service levels (The previous CEL contracts cost approximately across counties. $8 million annually.) Task CDE With Working Through Certain Establish Regional Monitoring System for Implementation Decisions. Many implementation Programs Serving Children Birth Through Age decisions will arise if the Legislature pursues Three. We recommend the Legislature establish a the Governor’s proposal to convert contracted regional monitoring system for programs serving slots to voucher-based slots. We recommend the children birth through age three. Specifically, we Legislature adopt the Governor’s basic proposal recommend the Legislature direct CDE to contract to have CDE develop a transition plan but be with regional nonprofit or public entities (such more specific in what CDE is to address in the as AP agencies or county offices of education) to plan. Consistent with the elements laid out in the inspect and monitor centers and FCCHs to ensure above paragraph, we recommend the Legislature they meet required standards. Based on funding task CDE with certain responsibilities, including provided for similar monitoring systems within developing regulations relating to modified California, we believe the cost of the regional program standards and a plan for converting system would be in the low tens of millions of contracted slots to vouchers. dollars. These costs could be covered by redirecting After Initial Restructuring Plan Completed, remaining quality dollars, redirecting existing Recommend State Examine Three Other Related administrative funds, or augmenting funding Issues. After addressing the overarching issue of for AP agencies or county offices of education. converting contracted slots to voucher slots, we www.lao.ca.gov Legislative Analyst’s Office 23 2016-17 BUDGET recommend the Legislature consider three other to other low-income families. For school-age areas for possible restructuring: (1) the CalWORKs children, the state could consider alternative stages of child care, (2) care for school-age children, ways to coordinate and fund afterschool care and and (3) the funding model for AP agencies. For voucher-based care. For AP agencies, the state CalWORKs care, the Legislature could explore could consider funding models that might be more ways to treat CalWORKs families more similarly transparent and better linked to services provided. CONCLUSION We commend the Governor for focusing and depth of these existing problems, we encourage attention on the state’s existing preschool and the Legislature to pursue restructuring of both child care programs and putting forth proposals to subsidized preschool and child care. In both areas, improve them. As evident from earlier sections of our packages of recommendations are intended to this report, the state’s existing preschool and child help give the Legislature starting points. Should care programs are fraught with inconsistencies the Legislature wish to pursue restructuring, much in eligibility criteria, standards, funding rates, work remains to be done. The Legislature would funding mechanisms, and oversight systems. need to dedicate concerted attention over the next Under these existing programs, otherwise similar several months to develop plans for restructuring, children are treated differently for reasons such as then allow at least a few years for implementing their birth month or location. Given the breadth those plans. 24 Legislative Analyst’s Office www.lao.ca.gov 2016-17 BUDGET SUMMARY OF LAO RECOMMENDATIONS Preschool Restructuring • Funding Streams. Consolidate $1.7 billion in Proposition 98 funding currently supporting the California State Preschool Program, Transitional Kindergarten, and preschool Quality Rating and Improvement Systems into one new preschool program. • Eligibility and Access. Set specific, need-based eligibility criteria and offer program to all eligible children. (To be consistent with other programs for school-age children, Legislature could consider providing access to all children from families with incomes at or below 185 percent of the federal poverty level.) • Eligibility Verification. Require providers to determine eligibility only once per year and allow children to remain in program through the year regardless of changes in family circumstances. • Convenience for Families. Require providers to offer full-day preschool programs for children from low-income, working families. • Program. Require providers to create plans for their programs. Provide substantial local flexibility in developing these plans but require all programs to include developmentally appropriate activities. Also require providers to meet minimum staffing requirements in terms of teacher training and child-to-teacher ratio, as determined by the state. • Funding Rules. Allocate funding to providers based on the number of eligible children who participate in the program. Have hold harmless provision only during transition to new system. • Reporting. Require providers to post their preschool plans on their websites. Also require providers to collect basic demographic information on participating children and report that information to the state. Consider requiring the California Department of Education to report preschool participation rates by county. Child Care Restructuring • Move to Vouchers. Transition General Child Care and contract-based Migrant Child Care slots into voucher-based slots over five years. • Eligibility and Access. Update income eligibility criteria to be based on most recent state median income data. Equalize service levels across the state. Reinstate centralized eligibility lists so the state can track demand for subsidized care. • Program. Require programs serving children birth through age three to include developmental component in care. www.lao.ca.gov Legislative Analyst’s Office 25 2016-17 BUDGET SUMMARY OF LAO RECOMMENDATIONS (CONTINUED) • Funding. Replace existing reimbursement rate structure for vouchers with a simplified, market-driven structure that has three reimbursement tiers reflecting basic cost differences across counties. Initially set reimbursements at the 65th percentile of the 2014 survey (could be accomplished with existing resources). • Oversight. Establish regional monitoring system for programs serving children birth through age three to ensure they meet required developmental standards. 26 Legislative Analyst’s Office www.lao.ca.gov 2016-17 BUDGET www.lao.ca.gov Legislative Analyst’s Office 27 2016-17 BUDGET LAO Publications This report was prepared by Virginia Early, with assistance from 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