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The 2017-18 Budget: Analysis of Child Care and Preschool Proposals

Legislative Analyst's Office · lao-3618 · Report · 2017-03-16

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The 2017-18 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 • MARCH 16, 2017 2017-18 BUDGET ii Legislative Analyst’s Office www.lao.ca.gov 2017-18 BUDGET TABLE OF CONTENTS Executive Summary ��1 Introduction ��3 Child Care and Preschool in Context ��3 Overview ��3 Eligibility and Access ��4 Settings and Standards ��7 Funding ��10 Trends Over Last Decade ��13 Overview of Governor’s Budget Proposals ��14 Analysis of Preschool Proposals ��17 Overview ��17 Preschool Slots ��19 Preschool Program Alignment ��21 Quality Improvement Activities ��23 Alternative Payment Agencies ��31 Background ��31 Assessment ��35 Recommendations ��36 Summary of Recommendations ��39 www.lao.ca.gov Legislative Analyst’s Office iii 2017-18 BUDGET iv Legislative Analyst’s Office www.lao.ca.gov 2017-18 BUDGET EXECUTIVE SUMMARY Overview of Governor’s Budget Governor’s Budget Includes $3.8 Billion for Child Care and Preschool Programs. The Governor’s budget augments child care and preschool programs by a total of $76 million (2 percent) from the revised 2016-17 level. This augmentation primarily supports the full-year cost of the Regional Market Rate and State Preschool slot increases initiated last year pursuant to a multiyear budget agreement. Though the Governor proposes to fund these parts of the multiyear agreement, he does not fund other parts. The Governor also makes caseload changes for CalWORKs and non-CalWORKs child care programs and increases Transitional Kindergarten funding. Under the Governor’s budget, proposed funding would support an estimated 437,000 child care and preschool slots. Preschool Governor Proposes Changing Certain Requirements for Certain Preschool Providers. The Governor also proposes several preschool-related policy changes. Specifically, the Governor proposes to allow part-day State Preschool programs to serve children with special needs from families above the income threshold as long as all eligible and interested children are served first. The Governor also makes several proposals intended to more closely align State Preschool and Transitional Kindergarten by modifying certain licensing, staffing, and program duration requirements. Concerns With Preschool Proposals. We are concerned that allowing State Preschool programs to serve children above the income threshold would displace low-income children who are currently eligible but unserved. Additionally, we are concerned that the Governor’s other preschool proposals make an already complicated system more complicated, without creating much alignment between programs. Recommend Different, More Holistic Approach. We recommend the Legislature ensure already eligible children are served before expanding preschool eligibility. We also recommend the Legislature reject most of the preschool alignment proposals and take a more holistic approach. Under such an approach, the Legislature would consider how best to serve four-year olds, including what eligibility criteria, program standards, and funding levels it desired for these children. Making these decisions in tandem would promote greater coherence. Quality Improvement Activities California Department of Education (CDE) Recently Submitted Revised Quality Improvement Expenditure Plan. The federal government requires California to spend a certain amount each year on activities to improve the quality of child care and preschool. In 2016-17, the state spent $78 million (ongoing) to support about 30 quality improvement programs—some of which are run at the county level and others at the state level. As required by the 2016-17 Budget Act, CDE submitted a revised quality improvement expenditure plan in February 2017. The revised plan leaves www.lao.ca.gov Legislative Analyst’s Office 1 2017-18 BUDGET virtually all existing programs in place but eliminates one program and shifts a small portion of funding away from eight programs to create a $5.4 million Quality Rating and Improvement System (QRIS) block grant for child care providers serving infants and toddlers. Block grant funds would be used to rate the quality of child care providers and support providers in achieving and maintaining high ratings. Current System Has Several Serious Shortcomings. The state’s current quality improvement plan has several major shortcomings: existing county-level activities can lack coordination and funding can be difficult to target to the highest priorities, little information is available on the effectiveness or efficiency of existing state-level programs, and funding disproportionately serves providers that already meet higher standards. The department’s revised plan addresses a few of these issues by giving county-level entities somewhat more flexibility in the activities they undertake and allowing them to serve some providers that do not meet higher standards. The proposal, however, restricts support to a small share of providers statewide (only those participating in QRIS) and does nothing to address the other shortcomings. Recommend Shifting More Funding Into a New County Block Grant and Reassessing Most State-Level Programs Over Next Several Years. We recommend repackaging $21 million from seven county-level programs into a new county block grant that would allow county-level agencies to support any provider serving subsidized children. We recommend funding the remaining state- level programs as budgeted but hiring an independent evaluator to assess the cost-effectiveness of these programs over the next several years. The Legislature could revisit funding levels for these programs in the future based on the results of the evaluations. Alternative Payment (AP) Agencies State Funds AP Agencies to Administer Most Voucher-Based Programs. The state allocates AP agencies operational funding equal to 21 percent of the voucher payments they make to child care and preschool providers. The AP agencies’ primary activities involve determining family eligibility and paying providers. Current Funding Model Not Tightly Linked With Underlying Cost Drivers. AP agencies’ costs are driven primarily by their caseload and the wages they offer their staff. Although the current funding model has some connection to these underlying cost drivers, some components of the model are not tightly linked to costs. Most notably, an AP agency working with providers that serve a larger share of infants and toddlers receives more operational funding than an agency working with providers serving older children, even though the amount of associated AP workload is the same. Agencies’ funding levels also fluctuate when provider rates change, despite no changes in associated AP workload. Recommend Adopting a Regionally Adjusted Per-Child Funding Model. We recommend the state provide operational funding to AP agencies based on the number of children served. We recommend the state adjust these rates based on regional wage data and phase in the new system over several years. 2 Legislative Analyst’s Office www.lao.ca.gov 2017-18 BUDGET INTRODUCTION In this report, we analyze the Governor’s child associated recommendations. In the following two care and preschool proposals. The report has six sections, we provide in-depth analyses of (1) the main sections. In the first section, we provide state’s various quality improvement activities and background on child care and preschool programs (2) Alternative Payment agencies, which administer in California. In the second section, we provide an certain child care programs. The final section overview of the Governor’s child care and preschool consists of a summary of the recommendations we proposals. In the third section, we analyze make throughout the report. the Governor’s preschool proposals and make CHILD CARE AND PRESCHOOL IN CONTEXT In this section, we provide a high-level children from low-income, working families. As overview of the child care and preschool system in Figure 1 (see next page) shows, the funds are spread California and then discuss eligibility and access, across nine state programs. Three programs relate settings and standards, funding, and trends over to California Work Opportunity and Responsibility the last decade. to Kids (CalWORKs), focusing on families engaged in or transitioning out of welfare-to-work activities. Overview The remaining programs are designed for other Three-Fifths of Children Under 13 in low-income, working families. In addition to the California Live in Families Where Parents Work programs that directly provide subsidized child or Are in School. According to 2015 American care and preschool, California provides two tax Community Survey data from the U.S. Census benefits. The Child Care and Dependent Tax Credit Bureau, 6.6 million children in California are supports about 180,000 tax filers who pay for under the age of 13. Of these children, about child care or preschool with an annual tax credit 60 percent live in families where all parents or of up to $516 per filer. The Employee Child and guardians work or are in school. As a result, many Dependent Care Benefit Exclusion allows taxpayers families must find child care arrangements for their to exclude up to $5,000 of income per year from children. Children may be cared for in settings tax calculations if their employer offers a payroll licensed by the state or in non-licensed settings, deduction program for child care expenses. These such as the home of another family member, friend, provisions primarily benefit families with incomes or neighbor. over $50,000. California Subsidizes Child Care and Federal Government and Local Agencies Preschool for Some Families. In 2016-17, California Also Subsidize Programs. The federal government allocated nearly $3.7 billion to provide 434,000 subsidizes child care and preschool through Early children with subsidized child care and preschool. Head Start (serving children birth through 2) and Of these children, 12 percent are birth through Head Start (serving children ages 3 through 5). In age 2, 59 percent are ages 3 and 4, and 29 percent 2015-16, the federal government allocated roughly are age 5 or older. The funding primarily benefits $1 billion to providers in California that served www.lao.ca.gov Legislative Analyst’s Office 3 2017-18 BUDGET Figure 1 State’s Child Care and Preschool Programs Program Description CalWORKs Child Care Stage 1 Child care becomes available when a participant enters the CalWORKs program. Stage 2 Families transition to Stage 2 child care when the county welfare department deems them stable. Stage 3 Families transition to Stage 3 child care two years after they stop receiving cash aid. Families remain in Stage 3 until the child ages out (at 13 years old) or they exceed the income eligibility cap. Non-CalWORKs Child Care General Child Care Program for low-income, working families that subsidizes care provided in licensed settings. Alternative Payment Program for low-income, working families that subsidizes care provided in licensed and non-licensed settings. Migrant Child Care Program for migrant children from low-income, working families. Care for Children With Severe Disabilities Program for children with severe disabilities living in the Bay Area. Preschool State Preschool Part-day, part-year program for low-income families. Full-day, full-year program for low-income, working families. Transitional Kindergarten Part-year program for four-year olds with birthdays between September 2 and December 2. May run part day or full day. 109,000 children through these programs. The below 70 percent of state median income (SMI) as federal government also has a child care tax credit, calculated in 2007 ($42,216 for a family of three). which provides about 670,000 Californians with an Parents also must demonstrate a “need” for care annual credit of up to $6,000. Finally, some school during the hours that the state subsidizes—for districts support preschool programs using federal example, they must be working, looking for work, Title I funds, special education funding, or local in school, or unable to care for their child for funds. medical reasons. Homeless children and children identified as being (or at risk of being) abused or Eligibility and Access neglected also are eligible for child care, regardless Below, we discuss eligibility criteria and access of parent income and work status. to the state’s various child care and preschool Additional Eligibility Criteria for Migrant programs. Child Care and Care for Children With Severe Disabilities. For Migrant Child Care, families Eligibility Criteria must meet all the criteria for the state’s child care For Most Programs, Eligibility Based on programs as well as earn at least 50 percent of their Income and Working Status. To be eligible for gross income through agricultural work. To be subsidized child care, children must be under eligible for subsidies through the Care for Children the age of 13 and from a family with an income With Severe Disabilities (CCSD) program, a 4 Legislative Analyst’s Office www.lao.ca.gov 2017-18 BUDGET child must have a physical, mental, or emotional families to demonstrate that they have need handicap of such severity that he or she cannot be for care (that is, they do not need to be served appropriately in another child care program working or in school for their children to (as determined by the individualized education participate in the programs). program designed by a special education team). California’s Eligibility Criteria Relatively Children participating in CCSD may remain in Generous Compared to Other States. A National the program until they reach 21 years of age. The Women’s Law Center (NWLC) survey of states CCSD program is available only in the Bay Area. from February 2016 shows that California’s Special Rules for State’s Preschool Programs. income-eligibility threshold results in a higher State Preschool and Transitional Kindergarten percentage of families being eligible for child care each has its own set of rules regarding the age than in 41 other states. In addition to having a of children served, family income, and work higher income threshold, California has fewer requirements. other eligibility restrictions than many states. • Age. State Preschool providers primarily For example, 22 states require parents to work a serve four-year olds but may enroll minimum number of hours per week to receive three-year olds if all eligible and care, while 20 states cap the number of hours interested four-year olds have been served. parents can receive child care. California imposes School districts are required to provide neither of these restrictions. Transitional Kindergarten to all children Access who turn five between September 2 and December 2. (Districts also can choose CalWORKs and Transitional Kindergarten to serve children with birthdays between Families Guaranteed Services. By statute, the state December 2 and the end of the school year, guarantees child care subsidies for CalWORKs but only receive funding for these children families from their initial participation until two after their fifth birthday.) years after they stop receiving cash aid (known as CalWORKs Stage 1 and Stage 2 child care). • Income. Whereas State Preschool shares Families off cash aid for more than two years are the same income threshold as state child not statutorily guaranteed child care subsidies, care programs, it allows up to 10 percent of but the Legislature typically has funded all eligible children to be from families with incomes families (through CalWORKs Stage 3 child care). up to 15 percent above the income threshold California is relatively generous to its welfare- if all eligible and interested children have to-work population in this regard. Only 20 other been served. Transitional Kindergarten has states guarantee child care for welfare-to-work no income-eligibility requirements. recipients and only 17 other states guarantee child • Work Status. To enroll their children in care for families transitioning off welfare-to-work. full-day State Preschool, families must All children eligible for Transitional Kindergarten demonstrate they have a need for care also are statutorily guaranteed a spot in their local during the hours the program operates. school district program. Part-day State Preschool and Transitional All Other Families Are Prioritized Based Kindergarten, however, do not require on Income. Given state funding historically has been insufficient to serve all families eligible for www.lao.ca.gov Legislative Analyst’s Office 5 2017-18 BUDGET non-CalWORKs child care and State Preschool on one list and be alerted if any slot in the area programs, the state requires providers to prioritize becomes available. (Every county had a centralized children based on a number of factors. Providers eligibility list between 2005 and 2010, when the must give first priority to children who are state provided direct funding for the development receiving child protective services or at-risk of and maintenance of these lists.) abuse or neglect. Once all such children are served, School-Aged Children Also Can Participate in providers must serve children from families with After School Programs. Families with school-aged the lowest incomes. To that end, providers place children have access both to the child care system interested families into income brackets and must and various after school programs that may be first offer child care to all families in the lower funded by the state, the federal government, their income brackets before offering to families in school, or other organizations in their community. higher brackets. Within each income bracket, the Families may use both after school programs and state requires providers to prioritize children with child care. For example, a family could enroll their special needs. A family who does not immediately child in an after school program during the school receive a subsidized slot may request to be year and use child care during the summer and placed on a provider’s waiting list. In some areas, winter breaks. The nearby box describes the two providers may work together to develop centralized major after school programs currently available to eligibility lists so that a family can put its name families. Two Major After School Programs After School Education and Safety (ASES) Program. In 2002, voters passed Proposition 49, which created the ASES program. Funded beginning in 2006-07, ASES provides $550 million annually to support after school programming for children at schools with high concentrations of low-income students. In 2016-17, ASES served about 400,000 children in kindergarten through ninth grade at 4,201 schools. The average program operates in schools where four-fifths of students are eligible for free or reduced price meals. (This threshold equates to about $37,000 per year for a family of three.) Programs must operate a minimum of 15 hours per week and must include an educational component (such as tutoring) and an enrichment component (such as art, music, physical activity, career awareness, or community service). 21st Century Community Learning Centers (21st CCLC). California also receives about $130 million for after school programs through the federal 21st CCLC program. In 2016-17, the program served about 70,000 students at 684 schools. (About 55 percent of these schools also received funding through ASES.) The average 21st CCLC program operates in schools with similar shares of low-income students as ASES. The 21st CCLC’s program requirements also are very similar to ASES, with each program operating a minimum of 15 hours per week and including both educational and enrichment components. Unlike ASES, however, 21st CCLC funds can be used to run programs for high school students. 6 Legislative Analyst’s Office www.lao.ca.gov 2017-18 BUDGET Settings and Standards to 14 children. License-exempt care is typically provided by a family’s relative, friend, or neighbor Below, we discuss child care settings and in the provider’s private home. These providers standards. can provide care only for one family at a time. Settings Transitional Kindergarten programs are run by school districts in a classroom setting similar to Children Receive Care in a Variety of kindergarten. These programs are not subject to Settings. Child care and preschool are provided licensing requirements. In 2015-16, the average in four types of settings: licensed centers, licensed kindergarten classroom had 23 students. family child care homes (FCCHs), license-exempt Use of Particular Settings Varies Across homes, and classrooms. Centers typically are Programs. Figure 2 shows the types of settings run by community-based organizations or local in which subsidized children are served by the education agencies and serve an average of about various child care and preschool programs, 50 children. Run by interested individuals out of excluding Transitional Kindergarten. As the their own homes (modified in certain ways to meet figure shows, 85 percent of children were served licensing standards), FCCHs may each serve up in licensed settings in 2015—64 percent in centers Figure 2 Participation in Child Care and Preschool Programs by Setting 2015 100% 90 80 70 60 50 40 License-Exempt 30 Licensed FCCH Licensed Center 20 10 Stage 1a Stage 2 Stage 3 Alternative State General Child Migrant Child Overall Payment Preschool Care Care CalWORKs Non-CalWORKs a Based on 2014 data. FCCH = family child care home. www.lao.ca.gov Legislative Analyst’s Office 7 2017-18 BUDGET and 21 percent in FCCHs. Although a relatively Child Care and State Preschool programs require small share of children are served in license- somewhat higher staff qualifications and staffing exempt settings, the amount varies substantially ratios. by program. In CalWORKs Stage 1, for example, Some Programs Also Required to Include almost half of families use license-exempt care, Developmental Component to Care. In addition whereas in the Alternative Payment program, to being subject to health, safety, and staffing 18 percent of children use license-exempt care. The standards, the General Child Care and State State Preschool and General Child Care programs Preschool programs must provide children with do not allow for license-exempt care. developmentally appropriate activities. This Use of Particular Settings Also Varies Across developmental component often is referred to Counties. The percentage of subsidized children as “learning foundations” after the frameworks in centers ranges from 5 percent in Mariposa developed by the California Department of County to 85 percent in El Dorado County. The Education (CDE) for the programs. The learning percentage of subsidized children in FCCHs foundations describe the skills that children of ranges from 10 percent in Fresno County to different ages should be able to exhibit. 80 percent in Mariposa County. Variation in use Program Monitoring Varies by Provider Type. of license-exempt care is lower, ranging from less Community Care Licensing (CCL), which is part of than 1 percent in Sierra County to 24 percent in the Department of Social Services (DSS), processes San Bernardino County. applications for child care licenses and periodically California Relies More on License-Exempt monitors all licensed entities to ensure compliance. Care Than Other States. Based on preliminary These reviews relate to all health, safety, and staff federal Health and Human Services (HHS) standards. The General Child Care and State data from 2015 (the most recent data available), Preschool programs are subject to these CCL California ranks 11th among the 50 states in terms reviews as well as CDE reviews. The CDE reviews of having a relatively high percentage of subsidized check that providers meet the higher staff standards children in license-exempt child care. California has and offer developmentally appropriate activities. a relatively high percentage of children in license- Transitional Kindergarten Has Different exempt settings receiving care offered by relatives Standards and Monitoring System. Transitional (such as a grandparent), ranking 10th in the nation. Kindergarten is subject to the standards that apply to kindergarten. Specifically, Transitional Standards Kindergarten teachers must have a multiple Standards Vary Across Programs and subject Teaching Credential. Teachers hired after Settings. As Figure 3 shows, all licensed providers, July 1, 2015 also must demonstrate knowledge in at a minimum, must meet health and safety early childhood education (through coursework standards. Licensed providers serving children in or previous work experience). Class sizes cannot the CalWORKs and Alternative Payment programs exceed 33 students, with no requirements for (or other children not subsidized by the state) also additional instructional aides to support teachers. must meet certain staff qualifications and staffing As with all other school buildings, school districts ratios, with more stringent requirements for are required to keep Transitional Kindergarten centers than FCCHs. Compared to the CalWORKs facilities in good repair but are not required and Alternative Payment programs, the General to meet CCL health and safety standards. 8 Legislative Analyst’s Office www.lao.ca.gov 2017-18 BUDGET Regarding program standards, Transitional required the state to spend $78 million on quality Kindergarten classrooms are required to use a improvement activities. The state allocated almost modified kindergarten curriculum that is age half of these resources to training and professional and developmentally appropriate. Transitional development activities, including stipends for early Kindergarten class sizes—as well as class sizes for educators to take more classes and direct funding all other grades—are reviewed as part of a school for various trainings and resources. The rest of the district’s annual independent audit. funds supported activities such as resource and Federal Law Requires State to Spend a Certain referral services for parents seeking child care, Amount Each Year on Quality Improvement licensing enforcement, and coordination among Activities. In 2016-17, the federal government local child care agencies. Figure 3 Standards by Program and Setting Infant Children (Through 24 Months Old a) General Child Care, CalWORKs, CCSD, and Certain Alternative Payment, Migrant Child Care and Certain Migrant Child Care Programs Programs License-Exempt FCCHs Centers Centersb Health and Safety Criminal background check. Staff and volunteers Same as shown for Same as shown for Standards Self-certification of are finger printed. FCCHs. FCCHs. certain health and safety Subject to health standards. and safety standards. Staff Qualifications None. 15 hours of health and Child Development Child Development safety training. Associate Credential Teacher Permit or 12 units in ECE/ (24 units of ECE/ CD.c CD plus 16 general education units).d Staffing Ratios May serve children from 1:4 adult-to-child 1:12 teacher-to-child 1:18 teacher-to-child only one family at a time. ratio.e ratio and 1:4 adult- ratio and 1:3 adult-to- to-child ratio. child ratio. Developmental Standards None. None. None. Requires developmentally appropriate activities. Oversight None. Unannounced visits Same as shown for Same as shown for by CCL every FCCHs. FCCHs, but also three years or onsite reviews by CDE more frequently every three years (or under special as resources allow) circumstances. and annual self- assessments. a Standards for children of other ages similar to those displayed here. For General Child Care, CCSD, and certain Migrant Child Care programs, standards apply to children through 18 months old. b Same standards generally apply to FCCHs serving children in General Child Care and certain Migrant Child Care programs. 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 Ratio applies when all children in home are infants. When mix of ages in home, can have up to 1:8 adult-to-child ratio. CCSD = Care for Children With Severe Disabilities; 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 9 2017-18 BUDGET State Also Supports Local Quality Rating CalWORKs child care, CCDF is blended with Improvement Systems (QRIS). In 2012-13, state funding to support the state’s child care and California received a $75 million four-year preschool programs generally. The federal law grant from the federal government to develop governing CCDF was recently reauthorized. The and fund QRIS. A portion of the funds went to nearby box highlights substantial changes in the create a common matrix that rates child care new act. and preschool providers based on a certain set of State Subsidizes Programs in Four Ways. The indicators, including staff qualifications, ratios, DSS provides funding for CalWORKs Stage 1 child and environment. The remaining funds went to care to county welfare departments via a “single 17 local QRIS consortia to rate programs and help allocation,” which can be used for any combination those programs achieve and maintain high ratings. of Stage 1 child care and welfare-to-work services. Subsequent state and local funding has expanded County welfare departments then use this funding QRIS to 48 consortia serving the entire state. Each to determine eligibility and issue voucher payments consortium is responsible for rating participating to the child care provider of the family’s choice. For programs according to the common matrix and CalWORKs Stage 2, Stage 3, and the Alternative deciding how to assist providers. Support services Payment program, CDE provides funds directly vary by consortium, but typically include stipends to Alternative Payment agencies to make child to allow teachers to take more early education care voucher payments (with a specified share classes, coaching for staff, grants to help providers set aside to cover agencies’ operational costs). improve their classroom environment, and For the General Child Care, State Preschool, and additional funding for highly rated sites. California CCSD programs, the state directly contracts with is 1 of 42 states with a QRIS. Unlike most other providers to serve a specified number of eligible states, however, California’s QRIS is locally run, children. For the Migrant Child Care program, with QRIS consortia in each county conducting the the state subsidizes care using both vouchers and ratings and deciding what kind of support will be direct contracts. Finally, the state provides grants the most beneficial to participating providers. to school districts for Transitional Kindergarten through the state’s K-12 funding formula. Funding Reimbursement Rates Below, we discuss funding sources and allocations, reimbursement rates, and family fees. State Generally Funds Contract-Based Providers Using Standard Reimbursement Rate Funding Sources and Allocations (SRR). Providers running the General Child Child Care and Preschool Supported With Care, State Preschool, contract-based Migrant Mix of State and Federal Funding. In 2016-17, state Child Care, and CCSD programs generally funding (Proposition 98 and non-Proposition 98 are paid using the SRR. The SRR is higher for General Fund combined) comprised approximately centers than FCCHs and is adjusted to account 70 percent of total funding, with federal funding for length of care and various characteristics of comprising the remainder. Federal support is the child served—including age, limited English provided through the Child Care and Development proficiency, or having a disability. Over the years, Fund (CCDF) and Temporary Assistance for the state periodically has updated the SRR to reflect Needy Families (TANF). Whereas TANF supports increasing program costs. 10 Legislative Analyst’s Office www.lao.ca.gov 2017-18 BUDGET Federal Government Recently Reauthorized CCDBG Act With New Rules The federal government reauthorized the Child Care and Development Block Grant (CCDBG) Act in 2014 and made substantial changes to the rules at that time. Many of these changes would require both changes in state law and additional funding. The more substantial changes include: (1) requiring states to reimburse providers based on the most recent Regional Market Rate survey, (2) requiring states to allow subsidized families to continue to receive child care until their incomes reach 85 percent of the most recent State Median Income, (3) allowing families to remain eligible for child care if changes in income and work status are minor or likely temporary, (4) requiring annual inspections of licensed and license-exempt providers who serve subsidized children, and (5) increasing the amount the state is required to spend on quality improvement activities. The state has been granted until September 30, 2018 to comply with the new rules. The consequences for failing to comply with the new requirements after that time are unclear. State Funds Voucher Providers Using Regional Most States Base RMRs on Outdated Market Market Rate (RMR). Reimbursement rates for Information. Federal law requires states to conduct voucher providers and certain General Child Care regional market rate surveys every three years, providers vary based on the county in which the but it has not always required states to base child child is served. These reimbursement rates are care rates on the most recent surveys. As a result, referred to as the RMR and are based on regional many states (including California) have not always market surveys of private providers. Like the SRR, updated their actual RMR ceilings to reflect the the RMR rates vary based on the age of the child, most recent survey results. For example, the state setting, and length of care. The state also applies used the 85th percentile of the 2005 survey as the an adjustment factor to the RMR rates for children basis for setting rates for five years, even though with disabilities. Unlike the SRR, variation in RMR more up-to-date surveys were available during rates is based on the results of the regional market this period. A February 2016 NWLC survey shows survey. The RMR sets the maximum amount the that one-third of states were using RMRs based off state is willing to pay for a certain type of care. If a of market information more than five years old. provider charges less than the maximum amount, Of the states that were using more recent market the state reimburses the actual charge. (The state information, most states set the rates at or below currently reimburses license-exempt providers at the 75th percentile. 70 percent of each county’s maximum RMR for California Relies More on Contracts Than FCCHs.) The state often sets the RMR at a certain Other States. Preliminary federal HHS data from percentile of the survey. This percentile effectively 2015 shows that California is 1 of 12 states that reflects the purchasing power and amount of choice directly contracts with child care and preschool associated with a voucher. Currently, the state links providers. Among these states, California had the the RMR to the 75th percentile of the 2014 survey, fourth-highest share of child care and preschool ensuring that all children have access to at least slots funded via direct contracts. Most states rely 75 percent of their local child care providers. primarily on vouchers to provide subsidized child www.lao.ca.gov Legislative Analyst’s Office 11 2017-18 BUDGET care. In 2015, 30 states reimbursed providers using than the equivalent SRR rate. Rates also differ exclusively vouchers, whereas another 17 states notably for part-time, preschool-aged children in reimbursed them using vouchers in conjunction centers. The SRR rate, which funds the part-day with other payment methods, such as direct State Preschool program to operate for 175 days a contracts. Five states provide cash directly to year and at least four hours per day, is less than half families either as the only funding mechanism the rate provided for Transitional Kindergarten, a or in combination with vouchers for providers or program with similar school year and school day direct contracts. requirements (180 days per year, 3 hours per day). State Funds Transitional Kindergarten The RMR for part-time, preschool-aged children Through Primary K-12 Funding Formula. Funding in centers is $559 higher than the Transitional for Transitional Kindergarten is provided through Kindergarten Rate, although voucher-based the Local Control Funding Formula (LCFF), providers receive this level of funding based on the state’s primary school funding formula. The about 250 days of care per year. LCFF provides schools with base per-student Family Fees funding, adjusted by four grade spans, with additional funding generated for students who State Charges Fees to Some Families. In all are low income, English learners, or foster youth. programs except part-day State Preschool and The LCFF provides the same funding rate for Transitional Kindergarten, families making above students in Kindergarten (including Transitional 40 percent of the SMI as calculated in 2007 (about Kindergarten) through third grade. As with $24,000 per year for a family of three) pay a family Kindergarten, schools Figure 4 are required to offer only Comparing Reimbursement Rates for Centers part-day Transitional Kindergarten. They Annual Reimbursement Rates for Select Ages, 2016‑17a receive the same amount Full-Time Care Part-Time Careb of funding per student Infants (Birth to 18 Months) whether they run part day SRR $17,087 $12,815 RMR averagesc 16,973 11,903 or full day. Toddlers (18 to 24 Months) Rates for SRR $14,072 $10,554 Similar-Aged Children RMR averagesc 16,973 11,903 Preschool (Ages 3-4) Vary by Rate System. As SRRd $10,114 $4,386 Figure 4 shows, annual RMR averagesc 13,008 9,369 reimbursement rates can LCFFe N/A 8,810 School-Age (Ages 6-12) vary substantially within SRR $10,051 $7,538 the same age group and RMR averages 9,408 5,993 setting. For example, the a All rates reflect cost of full-year program, except for part-time preschool SRR and LCFF rates. These rates reflect 175-day and 180-day programs, respectively. RMR for centers that b SRR part-time care rates based on 4 to 6.5 hours of care per day. c provide full-time, full-year RMR average costs are weighted by the number of subsidized children receiving child care in each setting and county. Estimates assume half of children reimbursed at weekly rate and half at monthly rate. care to a preschooler d Displays State Preschool rates. e Operated by school districts, rather than licensed centers. averages about $13,000— SRR = Standard Reimbursement Rate; RMR = Regional Market Rate; and LCFF = Local Control Funding Formula. almost $3,000 higher 12 Legislative Analyst’s Office www.lao.ca.gov 2017-18 BUDGET fee. These fees range from $21 to $373 per month, state reduced license-exempt rates (from 90 percent depending on family size, income, and whether to 60 percent of the FCCH rate). The state also children are in part- or full-time care. In 2015-16, reduced the rates for Alternative Payment agencies’ the state collected $59 million in family fees. The operational expenses by 8 percent. Starting in use of family fee revenue varies by program. For the 2014-15, the state provided three consecutive CalWORKs programs, where the state subsidizes rate increases, with spending on rates in 2016-17 all eligible families, parent fee revenue offsets state $397 million higher than in 2013-14. The state General Fund spending. For all other programs, augmented the SRR by 17 percent over these three where the state does not serve all eligible children, years ($198 million). The state also increased the state practice is for fee revenue to serve additional RMR three times, most recently updating to the children. 75th percentile of the 2014 survey ($162 million). In Family Fees in California Lower Than in addition, the state increased license-exempt rates to Many Other States. According to the NWLC, in 70 percent of the FCCH rates ($37 million). February 2016, the average state charged $206 per Slots Decreased During Recession, Increased month to a family of three earning about $30,000 During Recovery. Between 2007-08 and 2013-14, with one child in full-time care. Such a family paid CalWORKs slots decreased significantly, with $128 per month in California, a lower monthly fee 65,000 (35 percent) fewer slots in 2013-14 than than in 40 other states. California also is one of in 2007-08. The reduction in slots was due three states that did not charge any fees to a family to state actions that changed the number of of three earning about $20,000 a year with one CalWORKs families using child care. Most child in full-time care. The average state charged a notably, beginning in 2009-10, the state exempted family of this size and income level $84 a month. certain CalWORKs parents with young children from the work requirement and allowed them to Trends Over Last Decade stay home while continuing to receive cash aid. Funding Cut During Recession, Increased Since 2013-14, CalWORKs slots have increased by During Recovery. Figure 5 shows funding for child 6,148 (5 percent) due to the net effect of the state care and preschool programs between 2007-08 reengaging these families in the workforce and and 2016-17. Funding for child care and preschool an offsetting decrease in the CalWORKs caseload programs decreased by roughly $1 billion between due to an improving economy. Non-CalWORKs 2007-08 and 2013-14. Since that time, funding for slots also decreased notably between 2007-08 child care and preschool programs has increased by and 2013-14 with 44,000 (17 percent) fewer slots $871 million. We discuss these decreases and Figure 5 subsequent increases in Child Care and Preschool Funding Over Timea more detail below. (In Millions) Rates Mostly Flat 2007-08 2010-11 2013-14 2016-17 During Recession, CalWORKs Child Care $1,442 $1,108 $862 $1,150 Increased in Recent Non-CalWORKs Child Care and 1,711 1,608 1,251 1,834 Years. While most child Preschool care rates were held flat Totals $3,153 $2,716 $2,113 $2,984 a Does not include Transitional Kindergarten funding. Makes no inflationary adjustments. during the recession, the www.lao.ca.gov Legislative Analyst’s Office 13 2017-18 BUDGET in 2013-14 than in 2007-08. This reduction was 2007-08 and 2013-14. Since 2013-14, the Legislature due to various across-the-board reductions to all has increased funding for quality and support non-CalWORKs programs. Since 2013-14, state activities by $65 million (87 percent). In addition augmentations resulted in non-CalWORKs slots to ongoing increases, the Legislature has provided increasing with slots in 2016-17 about 25,000 $59 million in one-time funding. The ongoing (12 percent) higher than in 2013-14. augmentation primarily has supported the State Some Changes in Quality Improvement Preschool QRIS block grant, while the one-time Funding Activities. The state reduced its spending funding has supported preschool teacher training, on a variety of quality improvement and support QRIS for infants and toddlers, and loans for activities by $28 million (27 percent) between acquiring portable preschool facilities. OVERVIEW OF GOVERNOR’S BUDGET PROPOSALS In this section, we provide an overview of the of implementation ($137.5 million for rates and Governor’s child care and preschool budget, then $7.8 million for 2,959 additional State Preschool describe his major spending and policy proposals. slots). Though not formalized in statute, the Governor Proposes $3.8 Billion for Child agreement for 2017-18 assumed (1) annualization Care and Preschool Programs in 2017-18. Of this of the increases initiated the prior year, (2) 2,959 amount, about half is for child care programs and additional State Preschool slots, and (3) $86 million half for preschool programs. As Figure 6 shows, in non-Proposition 98 General Fund rate increases. the Governor’s budget augments these programs The Governor’s budget proposes annualizing some by a total of $76 million (2 percent) from the of the rate and slot increases initiated in 2016-17 revised 2016-17 level. Proposition 98 General but suspending the rest of the agreement for Fund accounts for $30 million of this increase, 2017-18. Given the one-year hiatus, the Governor with the remainder covered by federal funds proposes extending implementation of the plan ($28 million) and non-Proposition 98 General through 2020-21. Fund ($18 million). Under the Governor’s budget, Governor Proposes Mix of Spending and proposed funding would support 437,000 child Policy Changes. Figure 7 (see page 16) shows care and preschool slots (a 1 percent increase from proposed 2017-18 funding changes. As described in 2016-17). more detail below, spending changes are primarily Governor Proposes Suspending Much of associated with implementing elements of the Multiyear Budget Agreement. As part of the budget agreement and making caseload changes 2016-17 budget package, the Legislature and the for CalWORKs and non-CalWORKs child care Governor agreed on a four-year plan to increase programs. The budget plan also contains a notable ongoing child care and preschool funding by federal fund swap. In addition to these changes, roughly $500 million (roughly $200 million in the Governor proposes several policy changes, Proposition 98 General Fund and $300 million primarily to give more flexibility to the state’s in non-Proposition 98 General Fund). In 2016-17, two preschool programs. These proposed policy the state provided $145 million for the first year changes have no associated spending changes. 14 Legislative Analyst’s Office www.lao.ca.gov 2017-18 BUDGET Spending Changes over the former rates. The budget also increased the rate for license-exempt providers from 65 percent to Annualizes Funding for RMR Increases 70 percent of the RMR for family child care home Initiated in 2016-17. The 2016-17 Budget Act providers. These rate increases affected providers initiated two voucher rate increases beginning participating in the Alternative Payment Program January 1, 2017. Specifically, the budget increased and all three CalWORKs child care stages. The the RMR to the 75th percentile of the 2014 survey— Governor’s 2017-18 budget includes $68 million reflecting an average RMR increase of 5 percent Figure 6 Child Care and Preschool Budget (Dollars in Millions) Change From 2016-17 2015-16 2016-17 2017-18 Revised Reviseda Proposed Amount Percent Expenditures CalWORKs Child Care Stage 1 $334 $418 $386 -$32 -8% Stage 2b 419 445 505 60 13 Stage 3 257 287 303 15 5 Subtotals ($1,010) ($1,150) ($1,193) ($43) (4%) Non-CalWORKs Child Care General Child Carec $305 $321 $319 -$1 —d Alternative Payment Program 251 267 279 12 4% Migrant Child Care 29 31 31 —d —d Care for Children With Severe Disabilities 2 2 2 —d —d Infant and Toddler QRIS Grant (one time) 24 — — — — Subtotals ($611) ($620) ($630) ($10) (2%) Preschool Programse State Preschool—part dayf $425 $447 445 -$2 —d State Preschool—full day 555 627 648 21 3% Transitional Kindergarteng 665 704 714 10 1 Preschool QRIS Grant 50 50 50 — — Subtotals ($1,695) ($1,828) ($1,857) ($29) (2%) Support Programs $76 $89 $82 -$7 -8% Totals $3,392 $3,688 $3,763 $76 2% Funding Proposition 98 General Fund $1,550 $1,679 $1,709 $30 2% Non-Proposition 98 General Fund 885 984 1,002 18 2 Federal CCDF 573 639 606 -32 -5 Federal TANF 385 385 446 61 16 a Reflects Department of Social Services’ revised Stage 1 estimates. 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 General Child Care funding for State Preschool wraparound care shown in State Preschool—full day. d Less than $500,000 or 0.5 percent. e Some CalWORKs and non-CalWORKs child care providers also use their funding to offer preschool. f Includes $1.6 million each year used for a family literacy program at certain State Preschool programs. g Reflects preliminary LAO estimates. Transitional Kindergarten enrollment data not yet available for any year of the period. QRIS = Quality Rating and Improvement System; CCDF=Child Care and Development Fund; and TANF=Temporary Assistance for Needy Families. www.lao.ca.gov Legislative Analyst’s Office 15 2017-18 BUDGET Figure 7 2017-18 Child Care and Preschool Changes (In Millions) Proposition 98 Non-Proposition 98 Federal Change General Fund General Fund Funds Total Annualization of Changes Initiated in 2016-17 Annualizes Regional Market Rate increasea — $45 $12 $57 Annualizes State Preschool slot increase $24 — — 24 Annualizes 5 percent license-exempt rate increase — 9 2 11 Subtotals ($24) ($54) ($13) ($91) Caseload Changes Decreases non-CalWORKs slots for statutory growth adjustmentb -$4 -$3 — -$7 Makes CalWORKs caseload and average cost of care adjustments — 61 -$73 -11 Subtotals (-$4) ($58) (-$73) (-$18) Other Adjustments Adjusts Transitional Kindergarten for increases in LCFF $10 — — $10 Replaces state funds with federal funds — -$93 $93 — Removes one-time funding — -1 -6 -7 Subtotals ($10) (-$95) ($88) ($3) Totals $30 $18 $28 $76 a Includes a hold harmless provision so that no provider receives less than it received in 2015-16. This provision will expire at the end of 2017-18. b Reflects 0.4 percent decrease in the birth-through-four population. LCFF = Local Control Funding Formula. to annualize these rate increases ($57 million for Makes Adjustments for Changes in the RMR increase and $11 million for the license- CalWORKs Child Care Caseload and Average exempt rate increase). Cost of Care. The Governor’s budget includes Annualizes Funding for Full-Day State a year-to-year decrease of $11 million to reflect Preschool Slots Initiated in 2016-17. The 2016-17 changes in CalWORKs child care caseload and budget included $8 million for 2,959 full-day State the types of care families select. (Changes in Preschool slots at local education agencies (LEAs) types of care used affect the average cost of care, beginning April 1, 2017. The Governor’s 2017-18 independent from the rate increases described budget includes an additional $24 million for the above.) This decrease is comprised of a $49 million full-year cost of these slots. decrease in Stage 1, offset by a $36 million increase Does Not Complete SRR Increase Initiated in Stage 2 and a $2 million increase in Stage 3. in 2016-17. The 2016-17 Budget Act included a Applies Statutory Growth, but Not Cost-of- 10 percent increase to the SRR that was scheduled Living Adjustment (COLA), to Non-CalWORKs to begin January 1, 2017. Because CDE has difficulty Child Care Programs. The budget decreases implementing a mid-year SRR increase, CDE non-CalWORKs child care and preschool funding instead gave a 5 percent increase to all providers at by $7 million to account for a 0.4 percent decrease the start of the fiscal year. The Governor’s budget in the birth-through-four population in California. does not provide funds to annualize the 10 percent The budget does not include a COLA (estimated to increase—effectively maintaining the 5 percent be 1.48 percent) for non-CalWORKs child care and increase implemented last year. State Preschool programs. The Governor’s budget, 16 Legislative Analyst’s Office www.lao.ca.gov 2017-18 BUDGET however, does include a $10 million increase for Kindergarten, the Governor proposes to allow Transitional Kindergarten associated with the school districts more flexibility in determining the Governor’s overall proposed augmentation for number of hours they operate per day. We discuss LCFF. these specific proposals in the next section. Swaps State With Federal Funds. The Aligns the State Definition of Homelessness Governor’s budget allocates an additional With the Federal Definition. Currently, children $93 million in federal funds to offset state General can be deemed eligible for subsidized care if they Fund expenditures. This increase in available are homeless and a parent needs to access child federal funds is the net result of a $120 million care while looking for permanent housing. The increase in federal TANF funds for the CalWORKs state currently considers children to be homeless Stage 2 program offset by a $27 million reduction for the purposes of child care eligibility if they are in available federal CCDF funds. The additional sleeping in a shelter, transitional housing, or places TANF funds are due to lower overall CalWORKs not designed for use as sleeping accommodations. costs coupled with more realignment-related The Governor proposes to expand the state’s funding for CalWORKs. Both factors work to free definition of homelessness so that it is the same as up TANF funds for CalWORKs Stage 2 costs. the definition used for the federal McKinney-Vento Homeless Assistance Act. The definition used for Policy Changes federal purposes also classifies children as homeless Allows More Flexibility for State Preschool if they are temporarily staying with other people and Transitional Kindergarten Programs. The due to the loss of housing. This slightly expanded Governor’s budget includes four proposals to definition of homelessness likely would increase the provide more flexibility for State Preschool and number of children eligible for child care. We have Transitional Kindergarten providers. For State no concerns with this proposal. Preschool, the Governor proposes to: (1) exempt Allows Providers to Accept Electronic programs run by school districts from licensing Applications for Child Care. Currently, providers requirements, (2) give all programs more flexibility are required to collect paper applications with in meeting minimum requirements for staffing handwritten signatures from families applying for ratios and teacher qualifications, and (3) allow subsidized child care or State Preschool programs. part-day programs to enroll children with special The Governor proposes to allow providers to needs whose families do not meet income eligibility accept electronic applications and signatures from criteria (so long as all eligible and interested families applying for subsidized child care or State children are served first). For Transitional Preschool. We have no concerns with this proposal. ANALYSIS OF PRESCHOOL PROPOSALS In this section, we provide an overview of Overview California’s preschool programs, then discuss key State Has Two Main Preschool Programs. issues relating to preschool slots and preschool In 2016-17, California spent $1.8 billion on two program alignment. main preschool programs: State Preschool and www.lao.ca.gov Legislative Analyst’s Office 17 2017-18 BUDGET Transitional Kindergarten. Of this amount, State Authorized Districts to Create $1.1 billion supported 164,000 State Preschool “Expanded” Transitional Kindergarten in slots and $700 million supported nearly 80,000 2015-16. As part of the 2015-16 budget plan, the Transitional Kindergarten slots. As Figure 8 Legislature enacted trailer legislation that allows shows, these programs have different eligibility school districts and charter schools to enroll criteria, program length, staffing requirements, and four-year old children in Transitional Kindergarten funding rates. Transitional Kindergarten is run if their fifth birthday falls between December 2 and exclusively by LEAs. By comparison, about half of the end of the school year. These children generate State Preschool providers are LEAs (accounting attendance-based funding when they turn five. A for two-thirds of slots) and half are non-LEAs child with a birthday in the middle of January, for (accounting for one-third of slots). In addition example, would generate funding for roughly half to these state programs, the federal government of the school year. The state does not collect data on runs the Head Start preschool program. Of all the number of children enrolled as a result of these subsidized preschool slots for four-year olds in expanded Transitional Kindergarten provisions. California in 2014-15, 52 percent were in State Several large school districts, however, indicate they Preschool, 31 percent in Transitional Kindergarten, have expanded their Transitional Kindergarten and 18 percent in Head Start. programs under the new provisions. In 2015-16, for Figure 8 Comparing California’s Two Major Preschool Programs State Preschool Transitional Kindergarten Eligibility criteria Four-year olds from families with Four-year olds with birthdays between incomes at or below 70 percent of state September 2 and December 2.b median income as calculated in 2007.a Children in full-day program must have parents working or in school. Providers Local education agencies and Local education agencies. subsidized centers. Program length At least 3 hours per day, 175 days per At least 3 hours per day, 180 days per year for part-day program. At least year. 6.5 hours per day, 250 days per year for full-day program. Teacher qualifications Child Development Teacher Permit Bachelor’s degree, Multiple Subject (24 units of ECE/CD plus 16 general Teaching Credential, and a Child education units).c Development Teacher Permit or at least 24 units of ECE/CD or comparable experience.c,d Staffing ratios 1:24 teacher-to-child ratio and 1:8 adult- 1:33 teacher-to-child ratio. to-child ratio. Annual funding per childe $4,386 (part-day) and $10,114 (full-day). Average of $8,810. a Programs may serve three-year olds from income-eligible families if all eligible and interested four-year olds have been served first. b Schools may serve younger four-year olds with birthdays before the end of the school year but those children do not generate state funding until they turn five. c Referenced permit and credential are issued by California’s Commission on Teacher Credentialing. d The requirements shown apply to teachers hired after July 1, 2015. e Funding rates are 2016-17 estimates. ECE/CD = Early Childhood Education/Child Development. 18 Legislative Analyst’s Office www.lao.ca.gov 2017-18 BUDGET example, the Los Angeles Unified School District non-LEAs, and 1,490 full-day slots for non-LEAs indicated it served 2,900 children through the (above the 1,200 already earmarked in the budget). expanded Transitional Kindergarten provisions. In 2016-17, LEAs to date have applied for only 519 State Has Complicated Way of Funding of the 2,959 full-day State Preschool slots available. Preschool Programs. For State Preschool, CDE The CDE is currently in the process of issuing contracts with individual providers using the a second request for applications. If CDE is still SRR for every child served. The funding source unable to find enough LEAs interested in offering is primarily Proposition 98 General Fund, the full-day slots, it will make funding available for though full-day programs run by non-LEAs part-day slots. receive non-Proposition 98 General Fund for the Some State Preschool Providers Report wraparound portion of their program. The state Challenges Earning Their Contracts. Each State funds Transitional Kindergarten through LCFF, Preschool provider contracts with the state for a which is funded with Proposition 98 General Fund specified amount of funding. If it does not spend its and local property tax revenue. full contract amount, the associated funds return to the state. If this occurs for multiple years, CDE Preschool Slots can reduce the contract in future years. In 2014-15, Below, we provide background on recent the most recent year of data available, $101 million increases in preschool slots, describe the Governor’s in State Preschool funding allocated to providers slot-related proposals, assess those proposals, and was “unearned.” This represents 12 percent of all offer associated recommendations. State Preschool funding and is almost double the unearned rate for other contract-based child care Background programs (7 percent). This amount also is 77 percent State Added Total of Almost 10,000 Full-Day higher than the amount unearned for the program State Preschool Slots Over Last Two Years. In in 2013-14. Several factors might contribute to 2015-16, the Legislature added 7,030 full-day State the increased difficulty in filling slots, including: Preschool slots, scheduled to begin January 1, 2016. providers being unable to expand or open new sites Of these slots, the budget act earmarked 5,830 quickly enough to accommodate the rapid and for LEAs and 1,200 for non-LEAs. In 2016-17, the significant increase in slots since 2014-15; increased Legislature added another 2,959 full-day State enrollment in other large competing programs for Preschool slots, all for LEAs, scheduled to begin four-year olds, such as Transitional Kindergarten April 1, 2017. and Head Start; and the state’s outdated income LEAs Have Not Shown Sufficient Interest eligibility threshold, which is based on state median in New Full-Day Slots. To allocate new slots income as calculated in 2007. across the state, CDE requests applications from Multiyear Budget Agreement Assumes Total interested entities and awards contracts to those of Almost 9,000 Additional Slots Over Four-Year that demonstrate they can meet the minimum Period. While not formalized in statute, the program requirements. In 2015-16, due to a lack multiyear budget agreement for preschool included of applicants, CDE issued only 1,646 of the 5,830 8,877 additional full-day State Preschool slots full-day State Preschool slots for LEAs. With the for LEAs. These slots were to be implemented remaining funding, the department issued 3,700 in three equal batches on April 1 of 2017, 2018, part-day slots for LEAs, 851 part-day slots for and 2019. The first batch was funded through the www.lao.ca.gov Legislative Analyst’s Office 19 2017-18 BUDGET 2016-17 Budget Act, with future batches intended part-day State Preschool rate. Despite receiving for inclusion in the 2017-18 and 2018-19 budgets higher levels of funding, Transitional Kindergarten respectively. programs operate for a shorter length of time and have fewer programmatic restrictions. They Governor’s Proposal do not, for instance, have to determine income Does Not Include Funding for Additional eligibility, conduct child assessments, or set Slots in 2017-18. While the Governor’s budget up their classrooms according to specific state includes funding to annualize the cost of the slots standards. Because of higher funding rates and implemented mid-year in 2016-17, it does not fewer restrictions, we think many LEAs might be include funding for the second batch of additional choosing to serve additional four-year olds using slots in 2017-18. (These slots would cost $7.5 million expanded Transitional Kindergarten rather than under the rates proposed in the Governor’s budget.) through full-day State Preschool. Allows Part-Day State Preschool Programs Not All Eligible Children Are Being Served. More Flexibility to Serve Children With Special Although some providers have difficulty earning Needs. To allow providers more flexibility to serve as their State Preschool contracts, we estimate a many children as their contract allows, the Governor substantial portion of eligible children remain proposes to allow part-day State Preschool programs unserved. Specifically, we estimate that at least 1 to serve children with special needs who do not meet in 5 income-eligible four-year olds in California the income-eligibility criteria as long as all eligible are not receiving subsidized preschool through a and interested children are served first. (Current law state or federal preschool program. (If other similar allows part-day State Preschool programs to fill up to programs are indicative, some families with eligible 10 percent of their slots with children from families children might not be interested in participating in with incomes up to 15 percent over the income- a preschool program, but other unserved families eligibility limit if all eligible and interested children might desire it yet be unable to access it.) are served first. Under the Governor’s proposal, Recommendations over-income children with special needs would not count toward this cap.) Allow All Types of Providers to Apply for New Full-Day Slots. If the Legislature is interested in Assessment supporting more full-day State Preschool slots School Districts Do Not Have Strong over the next few years, we recommend it make Incentives to Apply for Full-Day State Preschool funds available to all providers, not only LEAs. Slots. The lack of interest among LEAs in new LEAs currently do not seem to have sufficient full-day State Preschool slots may be due to interest in offering more full-day slots and have their strong fiscal and programmatic incentives strong fiscal incentives to serve children through to serve children using expanded Transitional expanded Transitional Kindergarten rather than Kindergarten. Districts receive substantially more State Preschool. If the Legislature wants more LEAs funding per day for Transitional Kindergarten to operate State Preschool programs over the longer than they receive for State Preschool. On a term, it could address funding disparities between per-day basis, Transitional Kindergarten funding State Preschool and Transitional Kindergarten is 21 percent higher than the average full-day or change eligibility requirements so that each State Preschool rate and nearly twice the average program serves a distinct group of students. 20 Legislative Analyst’s Office www.lao.ca.gov 2017-18 BUDGET Focus on Unserved Eligible Children Before which include a mix of health, safety, and Expanding Eligibility. Given many children eligible programmatic requirements. These CDE rules for State Preschool currently are unserved, we include requirements that furniture and toys be recommend the Legislature reject the Governor’s clean and well-maintained and classrooms be proposal to expand State Preschool eligibility to set up with multiple stations to support different higher-income children with special needs. Though types of learning (for example, classrooms could the Governor’s proposal to serve more children have a science area and an art area). Both CCL with special needs seems well intended, it has and CDE visit sites once every three years to the effect of displacing low-income children who monitor compliance with regulations. By contrast, otherwise would be able to access the program. Transitional Kindergarten programs are not Moreover, LEAs are responsible for ensuring all licensed or inspected. Instead, they must operate four-year old children with special needs receive in buildings with the same safety specifications as service according to their individualized education other K-12 buildings. For example, these facilities program. As a result, this proposal effectively must be built to minimize the risk of damage in an shuffles children with special needs from one earthquake. program to another while bumping out low-income Many State Preschool Programs Participate in children who have no other program option. Local QRIS. The state provides $50 million for State Preschool QRIS each year, with funding allocated Preschool Program Alignment in 2016-17 to 37 local consortia serving 49 counties. Below, we provide additional background on These consortia use the funds to evaluate the State Preschool and Transitional Kindergarten, quality of State Preschool providers and offer describe the Governor’s proposals to better align additional resources to help providers improve the two programs, assess those proposals, and offer or maintain program quality. Local consortia associated recommendations. assess providers based on a five-tier matrix, which awards points for different levels of staffing ratios Background and qualifications, the quality of child-teacher State Preschool and Transitional interactions, and the implementation of certain Kindergarten Have Different Health and Safety child assessments, among other program aspects. Requirements. State Preschool programs must The minimum State Preschool requirements are be licensed and follow CCL health and safety roughly equivalent to a Tier 3 rating. standards. (The CCL is a division within DSS.) Schools Required to Operate Transitional These licensing standards include requirements Kindergarten Same Length of Day as that classrooms be clean and sanitary, children Kindergarten. Under state law, Transitional be constantly supervised, teachers be trained in Kindergarten is the first year of a two-year first aid, and medication and cleaning supplies be Kindergarten program. If a school district runs stored out of reach of children. Members of the Transitional Kindergarten and Kindergarten public can submit complaints to CCL regarding programs on the same site, the two programs possible licensing violations. The CCL is then at that site must be run for the same length of required to visit the facility within 10 days. State the day. Districts that want to operate a full-day Preschool programs also must follow standards Kindergarten and a part-day Transitional set by CDE regarding classroom environment, Kindergarten program on the same site must www.lao.ca.gov Legislative Analyst’s Office 21 2017-18 BUDGET obtain a waiver from the State Board of Education. Assessment (Districts can operate programs of differing lengths Better Alignment of State Preschool and on separate school sites.) Transitional Kindergarten Programs Worthy Goal. The state currently lacks a systematic Governor’s Proposal approach to providing early learning to four-year Governor Interested in Better Aligning State olds, which results in wide disparities in eligibility, Preschool and Transitional Kindergarten. The funding, and the types of services provided. Given Governor’s budget includes several proposals to this lack of coherence and unnecessary complexity, more closely align these two programs. Most of we think better alignment of the state’s two largest the proposals are designed to make State Preschool preschool programs is a very worthy goal. programs more similar to those of Transitional Proposals Make Complicated System More Kindergarten but one proposal is designed to make Complicated. Although the administration intends Transitional Kindergarten more similar to State to better align State Preschool and Transitional Preschool. Kindergarten, many elements of his proposals Exempts State Preschool Programs Run by add greater complexity to the existing system. For School Districts From Licensing Requirements. example, exempting only certain State Preschool The Governor proposes to exempt State Preschool programs from licensing requirements would programs from CCL requirements if they operate create different requirements for State Preschool in facilities constructed according to the state’s programs at LEAs and non-LEAs. Similarly, while K-12 building standards. Programs still would be State Preschools run by LEAs would be exempt required to follow CDE’s requirements for staffing from licensing requirements (and more similar to and environment. Transitional Kindergarten in that respect), they Includes Two Flexibility Proposals for still would have to follow CDE’s regulations about Meeting State Preschool Staffing Requirements. classroom environment (which do not apply to The Governor proposes to exempt State Preschool Transitional Kindergarten). By creating new staffing providers with QRIS Tier 4 or higher ratings from ratio standards for State Preschool teachers with a the State Preschool staffing ratio requirements. teaching credential, the staffing flexibility proposals These providers, however, still would need to meet also add complexity without allowing for complete licensing requirements (that is, have an adult-to- alignment. A State Preschool classroom with a child ratio of 1:12). Similarly, for State Preschool credentialed teacher still would be required to have programs with lower QRIS ratings or no rating, the an adult-to-child ratio (1:12) almost three times Governor proposes to allow classrooms taught by a lower than that of Transitional Kindergarten (1:33). teacher with a Multiple Subject Teaching Credential Additional Concerns With Minimum to operate with an adult-to-child ratio of 1:12 Staffing Requirement Proposals. In addition (rather than the 1:8 ratio currently required). to our concerns about making the system more Allows Districts to Run Part-Day Transitional complicated, we also have specific concerns Kindergarten and Full-Day Kindergarten on with the proposal to allow higher staffing ratios Same Site. The Governor proposes to allow school for credentialed teachers. Specifically, we are districts to run their Transitional Kindergarten concerned that a teacher with a Multiple Subject and Kindergarten programs on the same site for Teaching credential and no early education training different lengths of time without a waiver. requirements might not be better prepared than a 22 Legislative Analyst’s Office www.lao.ca.gov 2017-18 BUDGET teacher with early education training to serve more approach. Under such an approach, the Legislature children with less adult support. would consider how best to serve four-year olds, Transitional Kindergarten and Kindergarten particularly those from low-income families. To Funding Not Aligned With Program Length. Given this end, it would consider what eligibility criteria, the state currently allows school districts to choose program standards, and funding levels it desired the length of day for their Transitional Kindergarten for these children. Making all these decisions in and Kindergarten programs at different school sites, tandem would provide for better alignment and we see no reason to restrict their ability to offer coherence. programs of different length on the same school Adopt Transitional Kindergarten and site. We are concerned, however, that Transitional Kindergarten Flexibility in Tandem With Kindergarten and Kindergarten programs receive Differential Rates. If the Legislature does not the same amount of funding per student regardless pursue holistic reform of programs serving of program length. This lack of alignment results four-year olds, we recommend it adopt the in a funding structure that has little connection to Governor’s proposal regarding Transitional districts’ underlying program costs. Kindergarten and Kindergarten flexibility and also establish differential funding rates for full-day and Recommendations part-day programs. Such an approach would better Reject Preschool Proposals, Pursue Alignment align school district funding to actual program More Holistically. Rather than make marginal costs and reduce funding disparities between changes to existing preschool programs to get part-day State Preschool and part-day Transitional them to operate somewhat more similarly, we Kindergarten programs. recommend the Legislature take a more holistic QUALITY IMPROVEMENT ACTIVITIES In this section, we provide background on a government through CCDF. As a condition of federal requirement that states spend a certain receiving the funds, the state is required to spend amount each year on improving the quality of an additional $200 million each year in state their child care and preschool programs. We then funds to meet a matching requirement. Of this describe a recently revised quality expenditure plan combined $800 million, the federal government submitted by CDE, provide an assessment of the requires the state to spend a certain percentage state’s existing quality improvement programs as on quality improvement. In 2016-17, the state well as CDE’s expenditure plan, and make several was required to spend 10 percent ($78 million) associated recommendations. on quality improvement activities, with 3 percent ($22 million) required for activities benefitting Background infants and toddlers and the remaining 7 percent Federal Law Requires States to Spend a ($56 million) not restricted to any particular Certain Amount Each Year on Improving Quality age group. In addition, the state reappropriated of Child Care and Preschool. California receives $6 million in unspent prior-year quality funds, roughly $600 million each year from the federal bringing total quality spending to $84 million www.lao.ca.gov Legislative Analyst’s Office 23 2017-18 BUDGET in 2016-17. California is required to submit requirements to providing information about child an associated expenditure plan to the federal care options to parents. government every three years. The state’s most California Currently Supports About 30 recent plan was approved in June 2016 and extends Quality Improvement Programs. California through September 30, 2018. appropriates funding for quality improvement Graphic Sign Off Federal Requirement for Quality Spending programs in the annual budget act. In recent Set to Increase Through 2020-21. Due to a recent years, the budget act has earmarked a portion Secretary reauthorization of the federal act governing of funds for specific activities ($22.4 million inA nalyst the CCDF, the federal requirement for quality 2016-17) but given CDE discretion in allocating the MPA ARTWORK #170035 improvement spending will increase gradually remainder ($61.3 million in 2016-17). In 2016-17, Deputy over the next few years, reaching 12 percent CDE allocated quality improvement funds to about Template_LAOReport_mid.ait by 2020-21. The percentage of funds for infant 30 programs. About half of the funds were used and toddler quality improvement activities will for training activities, financial aid programs for remain at 3 percent, with the percentage Figure 9 not restricted to any Federal Law Specifies Ten particular age group Allowable Quality Improvement Activities growing to 9 percent by the end of the period. Training and professional development of child care workforce. Assuming federal CCDF funding remains Developing or implementing early learning and development guidelines. flat, the state would be required to spend Supporting Quality Rating and Improvement Systems. $95 million on quality improvement activities Improving the supply and quality of child care programs for infants and toddlers. in 2020-21. Federal Law Allows Supporting a statewide system of resource and referral services. States to Count Various Activities Toward Facilitating compliance with licensing requirements and other state requirements for inspection, monitoring, training, health, and safety. Meeting Requirement. As listed in Figure 9, Evaluating and assessing the quality and effectiveness of child care programs federal law specifies and services offered. ten allowable quality Supporting child care providers in the voluntary pursuit of accreditation by improvement activities. a national accrediting body with demonstrated, valid, and reliable program These activities range standards of high quality. from training for child care and preschool Developing standards for health, mental health, nutrition, physical activity, and physical development. providers to developing early learning materials Carrying out other activities where the state can measure those activities' effects for these providers to on provider preparedness, child safety and well-being, or entry into kindergarten. enforcing licensing 24 Legislative Analyst’s Office www.lao.ca.gov 2017-18 BUDGET teachers taking additional classes, and supporting using standard curricula. Regarding county-level community colleges in serving students in their support entities, California counts base funding for early childhood education programs. Nearly both R&Rs and Local Planning Councils (LPCs) one-third of funds supported 57 Resource and toward its quality improvement requirement. (Each Referral agencies (R&Rs), which collect data on county has an LPC tasked with identifying areas child care providers and help parents find child with the greatest unmet need for child care and care in their area. The remaining funds supported coordinating activities of local support entities various activities, including licensing enforcement, and child care providers.) California also counts development of early learning resources, and local as quality improvement specific county-level planning activities. activities, including the AB 212 program, which Each Program Has Its Own Requirements. provides stipends to some early educators in each Each of these programs has rules specifying how county taking child development courses. funds can be used. These rules typically are created QRIS Consortia Receive Additional by CDE. For example, CDE specifies how much Funds. Of the $84 million provided for quality certain programs may spend on specified program improvement activities in 2016-17, QRIS consortia activities. Some programs also have certain received $800,000 for child care programs serving rules specifying who is eligible to participate. migrant children. In addition, consortia received For example, the AB 212 Child Care Retention $75 million that was not counted toward the Program (commonly referred to as the AB 212 federal spending requirement. Of this amount, program) can be used only by teachers employed in $50 million is funding from Proposition 98 settings contracting directly with the state. In other General Fund for State Preschool QRIS and cases, programs give priority to certain teachers $25 million is from First 5 California for QRIS but allow other types of teachers to participate if for all types of programs. (First 5 California is additional space is available. Training on child an independent state commission funded with assessments, for example, is prioritized for teachers cigarette tax revenue. It is charged with spending a employed in state-contracted settings but allows certain amount on child care and school readiness other teachers to participate. activities.) In addition, the state designated Funds Used for Mix of State- and $24 million on a one-time basis for infant and County-Level Activities. In California, quality toddler QRIS in 2015-16, with a three-year improvement funding is used for a mix of state- allowable expenditure window extending level activities, base allocations for certain county- through 2017-18. The state also did not count this level support entities, and specific county-level allocation toward the federal quality improvement activities. At the state level, quality improvement requirement. activities include licensing enforcement at DSS, QRIS Consortia Have Small Presence in the development of resources for child care Many Areas of the State. Currently, California has programs around the state, and training on 48 QRIS consortia serving a small percentage of using CDE-developed assessments. In addition, child care and preschool providers located across CDE contracts with other entities to operate the all 58 counties. These consortia are comprised of California Preschool Instructional Network (CPIN) a variety of county-level support entities such as and the Program for Infant and Toddler Care R&Rs, LPCs, and First 5 commissions. Consortia (PITC)—both of which provide statewide training are responsible for rating participating child www.lao.ca.gov Legislative Analyst’s Office 25 2017-18 BUDGET care and preschool programs, helping these System (CLASS), a specific assessment developed programs achieve and maintain high ratings, by early childhood researchers. To conduct these and encouraging unrated sites to participate in assessments, assessors must be trained in the QRIS. Consortia have substantial flexibility in how CLASS tool and certified as reliable in providing they help programs achieve and maintain high ratings in a consistent way. In 2016-17, CDE ratings. For example, a consortium might provide allocated $2 million in quality improvement funds financial aid to teachers so they can take classes or (that counted towards the federal requirement) give grants to child care providers for purchasing to help local assessors get trained and certified. materials and supplies. In 2016-17, the average Consortia also use other QRIS grant funds for consortium received $1.6 million from CDE and rating and certification. First 5 combined. Many consortia coordinate with Revised Quality Improvement other county-level support entities to align other Expenditure Plan quality improvement programs with QRIS. For example, some local training programs may give 2016-17 Budget Act Required CDE to Revise priority to teachers employed in QRIS-rated sites. Quality Improvement Expenditure Plan. The Because such a large portion of QRIS funding is set 2016-17 Budget Act required CDE to revise the aside for State Preschool, providers participating state’s plan and submit a draft to the Legislature by in QRIS are disproportionately State Preschool February 1, 2017. In developing the revised plan, providers. the budget act directed CDE to (1) retain funding Consortia Use QRIS Matrix to Rate Providers for R&Rs, LPCs, and licensing enforcement and in Key Areas. The QRIS matrix has five tiers (2) prioritize the rest for QRIS. The intent is for (or ratings) for providers. Tier 1 is equivalent to the state to submit a revised expenditure plan to meeting minimum licensing health and safety the federal government upon enacting the 2017-18 standards, whereas Tier 3 is roughly equivalent Budget Act. to the program requirements for State Preschool Revised Plan Shifts Some Funding to New and the other contract-based child care programs. Infant and Toddler QRIS Block Grant. As The matrix awards points in seven core areas: required, CDE submitted its revised quality (1) staffing ratios, (2) staffing qualifications, (3) the expenditure plan to the Legislature in February quality of child-teacher interactions, (4) use of 2017. As Figure 10 shows, the proposed plan keeps child observations to inform curriculum, (5) use funding flat for most programs, but eliminates one of developmental screenings, (6) classroom program and creates one new program. Specifically, environment, and (7) director qualifications. Each under the revised plan, CDE proposes to eliminate consortium hires individuals to rate programs in the Child Development Teacher and Supervisor their region. Some of the areas of the matrix are Grant program run by the California Student Aid easier to assess than others. Determining teacher Commission. In 2016-17, this program is providing qualifications, for example, only requires QRIS about $300,0000 in grants to an estimated assessors to review paperwork on file. By contrast, 160 students. The revised plan includes coupling measuring the quality of child-teacher interactions this funding with $5.1 million in reductions to can be more time-consuming and expensive. eight other programs and redirects the combined Assessments of child-teacher interactions are $5.4 million in freed-up funds to a new infant and made using the Classroom Assessment Scoring toddler QRIS program. Consistent with the state’s 26 Legislative Analyst’s Office www.lao.ca.gov 2017-18 BUDGET existing QRIS programs, under the new program, ratings. Of the redirected $5.4 million, $3.7 million consortia would have broad flexibility to determine is taken from specific activities currently conducted what activities they deem the most important by county-level support entities and $1.7 million in helping providers achieve and maintain high is taken from various state-level activities. This Figure 10 Comparing Existing and Proposed Quality Improvement Expenditure Plans (In Thousands) 2016-17a 2017-18 Category Activities Revised Proposed Change Parent resources Resource and Referral Agencies $22,280 $22,280 — 1-800-KIDS-793 Phone Line for Parents 91 91 — Subtotals ($22,371) ($22,371) (—) Training and technical Program for Infant and Toddler Care $6,846 $6,453 -$393 assistance California Preschool Instructional Network 4,000 4,000 — Child Care Initiative Project 3,057 3,027 -30 Health and safety training grants and regional trainers 2,655 2,655 — Inclusion and Behavior Consultation Network 920 920 — Family Child Care at Its Best Project 767 767 — Map to Inclusive Child Care and CSEFEL 750 750 — Desired Results field training 667 667 — Developmental Screening Network 176 176 — California Strengthening Families Trainer Coordination 40 40 — Subtotals ($19,877) ($19,455) (-$423) Financial aid AB 212 Child Care Retention Program $10,750 $8,063 -$2,688 Subsidized TrustLine Applicant Reimbursement 461 461 — Stipend for permit 435 435 — Child Development Teacher and Supervisor Grant Program 318 — -318 Subtotals ($11,964) ($8,958) (-$3,006) Enforcement Licensing enforcement for child care programs $8,000 $8,000 — Support to community Child Development Training Consortium $3,273 $2,892 -$381 colleges California Early Childhood Mentor Program 2,966 2,921 -45 Subtotals ($6,239) ($5,813) (-$426) Early learning Desired Results system for children and families $1,025 $1,025 — resources Development of early learning resources 959 500 -$459 Faculty Initiative Project 455 400 -55 California Early Childhood Online 290 290 — Development of infant/toddler resources 180 180 — Subtotals ($2,909) ($2,395) (-$514) Local planning Local Planning Councils $3,353 $3,353 — Quality Rating and QRIS certification grants $2,000 $1,000 -$1,000 Improvement Migrant QRIS Block Grant 800 800 — System (QRIS) Infant/Toddler QRIS Block Grant — 5,369 5,369 Subtotals ($2,800) ($7,169) ($4,369) Program evaluations Evaluation of quality improvement activities $570 $570 — Totals $78,084 $78,084 — a Does not include $6 million in one-time funding provided for quality improvement activities in 2016-17. CSEFEL = California Social Emotional Foundations of Early Learning. www.lao.ca.gov Legislative Analyst’s Office 27 2017-18 BUDGET component of the revised plan would provide The restrictions placed on quality improvement more flexibility regarding the types of county-level funding also can limit county-level support entities activities that could be performed. from directing funding toward their highest CDE Proposes to Add New Rules to Some priorities. For example, county-level support Existing Programs. In conjunction with the entities could identify a high priority for health and revised quality expenditure plan, CDE proposes to safety training but be unable to direct funding to change the rules for several non-QRIS programs. this purpose given all the existing strings placed on Among the most notable changes, CDE plans to their quality improvement funding. require providers using PITC or CPIN coaching Little Information on Effectiveness of State- to participate in QRIS. For the California Early Level Activities. We think the state can play an Childhood Mentor Program, CDE plans to require important role in supporting quality improvement mentor teachers leading student practicums to be activities. For example, developing training teaching at sites rated QRIS Tier 4 or higher. resources and making them available to entities across the state can reduce the need for local Assessment entities to reinvent the wheel. The state, however, Some Activities Are Essential to Support currently does not have good information on the Subsidized Child Care and Preschool System. We effectiveness or efficiency of its existing state-level believe some current activities that count toward programs. Data collected for each program is the quality improvement expenditure requirement often insufficient to assess program effectiveness. are essential to ensure families have access to child For example, though CDE collects some data on care and state funding is used effectively. Most participants who attend statewide trainings, it notably, quality improvement funding is used to does not collect data on whether participants have help parents find child care, collect data on child access to similar trainings run by county-level care providers, and identify areas in the state with entities or whether they teach in a voucher-based the greatest unmet need for subsidized care. These or a contract-based setting. In addition, though activities currently are conducted by R&Rs and the state has conducted program evaluations of LPCs. Quality improvement funding also partially three activities between 2009 and 2016, none of supports the cost of inspecting licensed child care these evaluations measured whether the programs facilities—essential for ensuring providers meet improved the quality of child care or determined health and safety requirements. whether the activity was an effective use of funding. Quality Improvement Funding at County Instead, the evaluations primarily included Level Can Lack Coordination and Be Difficult descriptive information about how funds were to Target to Highest Priorities. At the county used, who benefited from the programs, and what level, multiple support agencies often use quality participants thought about the programs. Without improvement funding to offer similar programs to better data and program evaluations, determining providers and teachers. For example, teachers can whether current state-level activities are effective receive training by accessing AB 212 stipends from will remain difficult. LPCs, attending training at R&Rs, or accessing Funding Disproportionately Serves Providers training offered by QRIS consortia. With so many That Already Meet Higher Standards. The state training programs, coordination can be difficult, has two sets of standards for child care providers. with no guarantee that training does not overlap. Providers receiving child care vouchers are required 28 Legislative Analyst’s Office www.lao.ca.gov 2017-18 BUDGET to meet licensing health, safety, and staff standards. can receive support. Although exact data is not Providers contracting directly with CDE must available, a small percentage of providers serving meet more rigorous quality standards, including subsidized children currently participate in QRIS. higher staff qualifications, implementation of child Recommendations assessments, and specific rules about program environment. Of the $28 million in CDE’s revised Retain Funding for Essential Activities. plan for training and financial aid, 28 percent Figure 11 (see next page) shows our recommended is restricted to contract-based providers. Under approach to funding quality activities. We CDE’s revised program rules, another 37 percent recommend retaining funding for helping parents would be prioritized for programs participating in find child care, identifying areas in the state with QRIS. Since participation in QRIS is more common the greatest unmet need for child care, and helping among contract-based providers—particularly State local child care providers coordinate resources. Preschool programs—these funds likely would Currently, these functions are performed at the disproportionately benefit contract-based providers county level by R&Rs and LPCs. In the future, the caring for preschool-aged children. Prioritizing Legislature could reconsider how best to support such a large portion of quality improvement funds these activities, including potentially collapsing the for providers with the highest standards comes at two essential functions into one entity. We also do the expense of serving voucher-based providers not have concerns with continuing to use quality that might benefit most from additional support. Of funds for licensing enforcement activities. the state’s subsidized child care and preschool slots, Repackage Other County-Level Funding Into nearly three-quarters of the infant and toddler Block Grant. As Figure 11 shows, we recommend population (aged birth to three) and one-quarter of combining seven programs into a county block the preschool population (aged three through five) grant totaling $21 million. The funding for are served by voucher-based providers. most of these programs currently is allocated to Shifting Funds to QRIS Block Grant Provides county-level support entities, including R&Rs, More Flexibility in Types of Activities . . . LPCs, and community colleges. We recommend By shifting funds from programs with strict the state require key support entities in each requirements to a more flexible QRIS block grant, county—including R&Rs, the LPC, the First 5 the proposal allows more flexibility for county- county commission, community colleges, the level support entities to conduct activities and county welfare department, and the county serve providers they deem most important. The office of education—to designate a lead agency additional flexibility also allows county-level and agree on a plan for how funding will be support entities to develop their own coherent used, taking into account the providers and the improvement systems, which could simplify access subsidized population in their area. (If desired, to improvement activities. multiple counties could submit a joint application . . . But Restricting Funds to QRIS Limits with one lead agency.) To offer greater flexibility, Providers That Can Benefit. Although shifting we recommend making any provider serving funding to a QRIS block grant allows for more subsidized children eligible for funding. We flexibility in the types of improvement activities recommend the state allocate the block grant funds offered, restricting the funds to QRIS consortia based on each county’s percentage of statewide significantly limits the number of entities that subsidized child care and preschool slots. www.lao.ca.gov Legislative Analyst’s Office 29 2017-18 BUDGET Collect Data From Lead Agencies on How participating (QRIS or non-QRIS, contract or Block Grant Funding Is Spent. In tandem with voucher based). We recommend the reports also greater flexibility, we recommend the state require include data on the share of funding spent on each lead agencies to submit annual data reports subsidized age group. detailing how funding was spent and which Ensure Non-QRIS Participants Have Access to providers benefitted from the funding. Specifically, State-Level Programs. To ensure a greater share of we recommend reports be required to include the existing providers can access state-level programs amount spent on each type of activity and detailed such as CPIN and PITC, we recommend rejecting information regarding the types of providers Figure 11 Recommended 2017-18 Quality Improvement Expenditure Plan (In Thousands) Recommendation Activities Amount Fund essential activities as Resource and Referral Agencies $22,280 budgeted but revisit how best Licensing enforcement for child care programs 8,000 to provide these activities Local Planning Councils 3,353 moving forward Evaluation of quality improvement activities 570 Subtotals ($34,203) Repurpose funding from other AB 212 Child Care Retention Program $8,063 existing county-level entities Infant/Toddler QRIS Block Grant 5,369 and activities into county block Child Care Initiative Project 3,027 grant Health and safety training grants and regional trainers 2,655 QRIS certification grants 1,000 Migrant QRIS Block Grant 800 Stipend for permit 435 Subtotals ($21,349) Fund most state-level activities Program for Infant and Toddler Care $6,453 as budgeted but reassess over California Preschool Instructional Network 4,000 next several years California Early Childhood Mentor Program 2,921 Child Development Training Consortium 2,892 Desired Results system for children and families 1,025 Inclusion and Behavior Consultation Network 920 Family Child Care at Its Best Project 767 Map to Inclusive Child Care and CSEFEL 750 Desired Results field training 667 Development of early learning resources 500 Subsidized TrustLine Applicant Reimbursement 461 Faculty Initiative Project 400 California Early Childhood Online 290 Development of infant/toddler resources 180 Developmental Screening Network 176 1-800-KIDS-793 Phone Line for Parents 91 California Strengthening Families Trainer Coordination 40 Subtotals ($22,532) Totals $78,084 QRIS = Quality Rating and Improvement System and CSEFEL = California Social Emotional Foundations of Early Learning. 30 Legislative Analyst’s Office www.lao.ca.gov 2017-18 BUDGET CDE’s proposal to limit participation in certain county block grant for this purpose.) To ensure state-level programs to QRIS participants. evaluations provide valuable information, we Evaluate Effectiveness of State-Level Programs recommend the independent evaluators be required and Revisit Funding Levels in the Future. We to assess the comparative cost-effectiveness of recommend the state fund the remaining programs programs and make recommendations on which in 2017-18 at their existing levels (nearly $23 million activities to fund. We recommend the Legislature combined), but use the planned evaluation funding revisit funding levels in the future based on the to hire an independent evaluator to assess each results of the evaluations, eliminating state-level program over the next several years, starting with programs that are not cost-effective, augmenting the largest programs in 2017-18. (If the Legislature state-level programs that are cost-effective, and would like to complete the evaluation process potentially redirecting some freed-up funding to over a shorter period, it could shift funds from the the county block grant. ALTERNATIVE PAYMENT AGENCIES In this section, we provide an overview of Families can use vouchers in licensed centers, Alternative Payment (AP) agencies, identify several licensed family child care homes, or in license- major shortcomings in the way the state funds exempt care—typically a relative, friend, or these agencies, and make various recommendations neighbor who provides care in a private home. for improving the state’s funding model. State Sets the Maximum Value of Child Care Vouchers. Vouchers are based on a maximum Background RMR, which is derived from a survey of regional Below, we provide background on (1) child market prices. The state conducts the survey every care vouchers in California, (2) AP agencies’ key few years as required by federal regulations. The responsibilities and activities, and (3) the current RMR varies by county, child care setting, and the model the state uses to fund these agencies. age of the child served. Care in a licensed child care center is more expensive than license-exempt Child Care Vouchers in California care and infant care is more expensive than care State Provides Child Care Vouchers to for a school-aged child. The state typically sets Roughly 160,000 Children From Low-Income the maximum RMR at a certain percentile of the Families. Of these children, roughly four-fifths survey results so that families will have access to a receive vouchers via the three stages of CalWORKs certain share of child care providers in their area. child care. The other one-fifth of children Currently, the state bases the maximum RMR at receive vouchers via the Alternative Payment the 75th percentile of the 2014 survey, ensuring program. Because funding for the Alternative that children have access to three-fourths of their Payment program is not sufficient to fund all local child care providers. If a provider charges less eligible families, those with the lowest income than the maximum RMR, the state reimburses the are prioritized and waiting lists for the program actual charge. are common. Child care vouchers allow families State Has Changed RMR Five Times in Past to choose a provider that best meets their needs. Seven Years. In 2010-11 and 2011-12, the state www.lao.ca.gov Legislative Analyst’s Office 31 2017-18 BUDGET decreased the reimbursement rates for license- Of AP agencies, 58 percent have operating budgets exempt care from 90 percent of licensed family smaller than $1 million, 34 percent have budgets child care home rates to 60 percent of family child between $1 million and $5 million, and 8 percent care home rates, with associated spending in have budgets greater than $5 million. Agencies with 2011-12 about $100 million lower than the 2009-10 larger budgets serve more children. As Figure 12 level. In 2014-15, 2015-16, and 2016-17, the state shows, agencies with budgets smaller than provided consecutive increases to the RMR for $1 million together account for less than 15 percent all types of child care settings, with spending in of all caseload, whereas agencies with budgets 2016-17 $199 million higher than the 2013-14 level. in excess of $5 million account for 45 percent of all caseload. Figure 13 (see page 34) includes AP Agencies’ additional information about AP agencies that we Key Responsibilities and Activities collected through a survey. AP Agencies Administer Most Voucher AP Agencies’ Primary Function Is Program Programs. Voucher programs are administered Execution. AP agencies’ primary voucher-related by AP agencies and county welfare departments. responsibilities are to determine a family’s AP agencies administer CalWORKs Stage 2, eligibility for child care, make payments to the Stage 3, and the Alternative Payment program. child care provider of a family’s choice, collect fees In 2016-17, the state’s AP agencies received a total from certain families, ensure families and providers of $999 million to operate these programs— are complying with state rules and regulations, and $824 million to pay child care providers on behalf create and maintain detailed records about each of parents and $175 million for their operational family and provider. To accomplish these tasks, AP costs. County welfare departments administer agencies’ staff spend most of their time talking with CalWORKs Stage 1 and receive funding via families and providers, reviewing paperwork, and a “single allocation” that can be used for any requesting additional information. For example, combination of Stage 1 child care and welfare- to determine family eligibility, AP caseworkers to-work services. In some cases, however, county must collect and review paperwork documenting welfare departments contract with other entities, family income, family size, and hours worked. such as their local AP agency, to administer In some cases, AP agencies also must contact the the program. In 2016-17, 34 county welfare parent’s employer to verify information provided departments contracted with AP agencies to or collect additional information. This workload administer Stage 1 child care programs. does not vary based on child age or the type of care AP Agencies Vary Substantially in Terms provided. Because AP agencies work so closely with of Voucher-Related Funding and Caseload. the families they serve, their workload is primarily As of 2015-16, 76 AP agencies were operating driven by how many families they are serving at in California. Of the 76 AP agencies, 50 are any given time. community-based organizations, 14 are county State Rules Strictly Govern How Program offices of education, and 12 are other local Execution Is to Be Conducted. State law, government entities, such as county welfare regulations, and AP agencies’ contracts with CDE departments or school districts. Figure 12 groups are highly prescriptive with respect to program AP agencies by the size of their voucher-related execution. For example, regulations govern how operating budgets (excluding provider payments). AP agencies reimburse child care providers and 32 Legislative Analyst’s Office www.lao.ca.gov 2017-18 BUDGET Figure 12 Alternative Payment (AP) Agencies Vary Greatly in Size 2015‑16 Number of Percent of All Total Percent of all Operating Budgeta AP Agencies AP Agencies Caseload Caseload Less than $200,000 14 18% 1,742 1% $200,001 to $500,000 15 20 4,282 4 $500,001 to $1,000,000 15 20 10,297 9 $1,000,001 to $3,000,000 18 24 25,234 22 $3,000,001 to $5,000,000 8 11 22,831 20 $5,000,001 to $10,000,000 4 5 22,055 19 $10,000,001+ 2 3 30,384 26 Totals 76 100% 116,825 100% a Reflects state funding for voucher-based programs excluding provider payments and CalWORKs Stage 1 contracts. in which cases providers should be reimbursed AP Agencies’ Operational Funding Based if children are absent. The state also requires AP on Percentage of Provider Payments. After agencies to keep all documentation of income determining each AP agency’s allocation for eligibility on file and up to date at all times. If AP provider payments, CDE provides additional agencies are found to be out of compliance with funding to cover operational costs, equal to these rules, their funding can be reduced. 21.21 percent of provider payments. This funding Many AP Agencies Also Provide Support together with the provider payments comprise the Services to Families and Child Care Providers. total contract amount, or “Maximum Reimbursable Although state law does not prescribe specific Amount” (MRA). For example, an AP agency support services that AP agencies must offer to that receives $1 million for provider payments families and child care providers, AP agencies also receives $212,100 for operational expenses, commonly provide such services. These services for a total MRA of $1,212,100. (An AP agency’s vary from agency to agency, but commonly include operational funding is equivalent to 17.5 percent of parenting classes, translation services, referral the MRA.) to other social services (for example, county AP Agencies’ Operational Funding Varies by food assistance), and provider staff training and Region. Because AP agencies’ operational funding technical assistance. is based on a percentage of provider payments, and provider payments are affected by differences in Funding Model for AP Agencies regional market rates, AP agencies’ funding also CDE Determines Amount Each AP Agency varies based on the regional cost of child care. Receives for Provider Payments. For CalWORKs For example, two AP agencies serving the same Stage 2 and 3, CDE calculates each AP agency’s number of children would receive significantly provider payments based on estimates of caseload different funding levels if they were in areas of the and average cost of care. For the Alternative Payment state with vastly different provider reimbursement program, CDE typically allocates AP agencies rates. the amount they received in the previous year for Operational Funding Is Not Reduced, but provider payments, adjusted for any rate or slot Can Be Increased, Midyear. Though operational changes specified in the most recent state budget. funding is initially determined based on the amount www.lao.ca.gov Legislative Analyst’s Office 33 2017-18 BUDGET AP agencies receive for provider payments, it is not spend all of its provider payment allocation.) Not reduced midyear if the AP agency does not spend facing midyear reductions provide AP agencies with as much on provider payments as CDE expected. some fiscal stability. Such stability is particularly (CDE can reduce an AP agency’s allocation in valued by AP agencies, as regulations restrict the future years if the agency is consistently unable to amount of funding AP agencies can hold in reserve. Figure 13 Key Characteristics of Alternative Payment Agencies Our office conducted a survey of California's Alternative Payment (AP) agencies in May and June 2015. Below, we share some of the survey results. Survey Information Tenure and Locations 63 Responding AP Agencies = 81%Response Average Length of Time in Business = 30-40 Rate 78 AP Agencies Years Responding agencies’ share = 87% Number of Offices Statewide = Over 100 of statewide voucher caseload Other Activities/Funding Percent of Total AP Agencies' Budgets Coming From Voucher Programs Of Surveyed AP Agencies: 70% Resource and Referral Agencies Less than 25% 75% or More 43% State Preschool Providers Are Also 37% General Child Care Providers 33% Early Head Start/Head Start Providers 51% First 5 Funding for Various Activities 25% to 50% Also 46% Receive CDE Quality Improvement Funding 50% to 75% Number of Employees Per Agency Average Family Cases Per Caseworker Fewer than 10 More than 150 Fewer than 100 10 to 25 26 to 50 More than 50 126 to 150 101 to 125 34 Legislative Analyst’s Office www.lao.ca.gov 2017-18 BUDGET If CalWORKs provider payments turn out to be . . . But Two Key Components of the Funding higher than budgeted and CDE provides the AP Model Are Not Tightly Linked With Underlying agency with more funding midyear to cover these Cost Drivers. Although the current AP funding additional costs (for example, due to higher-than- model has some connection to AP agencies’ expected CalWORKs caseload), the AP agency also underlying cost drivers, two components of the will receive a proportional increase in operational model are not tightly linked to these cost drivers. funding. Specifically, AP funding varies according to the Funding Model Different for Stage 1 age of the child receiving care and type of child CalWORKs. County welfare departments that use care that families seek. AP agencies, for example, AP agencies to run Stage 1 negotiate the amount receive more operational funding for an infant they pay AP agencies as part of the contract than a preschool-aged child receiving child care, process. In one large county, AP agencies that serve even though the amount of associated AP workload Stage 1 families receive a certain amount for each is the same for both types of children. Similarly, case they serve. In other counties, AP agencies that AP agencies receive more operational funding serve Stage 1 families receive a set percentage of the for children receiving care in centers than family payments they make to providers. child care homes, though, again, the amount of associated AP workload is the same for children Assessment in the two settings. Taken together, these two Current Funding Model for AP Agencies components generate substantial differences in Has Some Connection to Underlying AP Cost AP funding levels without justification. An AP Drivers . . . Since AP agencies’ main workload agency that reimburses providers serving 100 is related to determining family eligibility and infants in full-time center care, for example, processing associated child care payments, their receives on average more than double the amount operational costs are driven primarily by their of an AP agency that reimburses providers serving caseload and the wages they offer to staff managing 100 school-aged children in full-time family that caseload. The current AP funding model child care homes—despite the two AP agencies has some connection to these cost drivers. AP having virtually identical workload checking these agencies receive more operational funding when families’ eligibility and processing their voucher the child care providers they reimburse serve more payments. subsidized children, which, in turn, affects AP Despite No Change in Workload, AP Agencies’ agencies’ own caseload. Somewhat similarly, AP Funding Levels Fluctuate When Provider Rates agencies also receive more operational funding Change. Because operational funding for AP when the child care providers they reimburse agencies is based on a share of provider payments, pay higher wages for their staff. These higher their operational funding fluctuates when the state wages become reflected in the prices child care changes its reimbursement rates. For example, providers charge, which, in turn becomes reflected when the state decreased the reimbursement in provider reimbursement rates. As AP agencies’ rate for license-exempt providers in 2011-12, AP operational funding is linked to a share of provider agencies’ operational funding, in turn, collectively reimbursements, higher wages offered by providers was reduced by nearly $7 million. (The effect on effectively allow the AP agencies reimbursing them each AP agency varied, depending on the number to offer higher wages to their own staff. of license-exempt cases they served.) Likewise, www.lao.ca.gov Legislative Analyst’s Office 35 2017-18 BUDGET when the state increased the RMR for all settings in services for families and providers. Data on this 2016-17, AP agencies, in turn, collectively received spending is not widely available, but we think AP an additional $9 million in operational funding. agencies that receive relatively high operational In both cases, neither AP agencies’ caseload funding levels likely offer more support services. nor mission changed, but their funding levels Under a new, more straightforward funding fluctuated. model for AP agencies, the state likely would have A New Funding Model Would Not Need to an easier time both determining how much AP Give AP Agencies With Small Voucher-Based agencies spent on these support services and setting Caseloads Special Treatment. In thinking expectations for the type and extensiveness of such about alternative ways to fund AP agencies, we services it wanted all AP agencies to provide. examined if AP agencies with smaller voucher- Recommendations based caseloads might warrant higher per case operational funding levels given their lack of Adopt a Per-Child Funding Model. We economies of scale. We found, however, that recommend the state provide funding to AP AP agencies’ voucher-based caseloads are not a agencies for operational costs based on the number particularly good indicator of their costs per case. of children served, not the amount allocated for This is because many AP agencies receive funding provider payments. Under this model, AP agencies’ from other sources. For example, of the ten AP funding would be more closely tied to its primary agencies that responded to our survey with less driver of workload. If the shift were cost-neutral, than $200,000 in voucher-related operational the Legislature could adopt rates that result in the funding, their total funding from other sources same level of total AP agency operational funding. ranged from $620,000 to $2.8 billion. With so In 2016-17, we estimate that average operational many AP agencies also serving as R&Rs and having funding is $1,325 per child. other funding sources such as State Preschool and Adjust Per-Child Rates Based on Regional General Child Care contracts, few AP agencies Wage Data. Because costs can vary significantly are so small that they do not benefit from any across the state, we recommend the state adjust economies of scale. Moreover, the state does not per-case operational funding rates based on mandate that a certain number of AP agencies regional wage data collected by the Employment operate in California. If a small AP agency finds it Development Department. Based on our review cannot cover its operational costs with the amount of existing data, we think a reasonable approach of operational funding the state is providing, then would be to set four per-case rates across the state. it may consolidate with another, presumably larger Figure 14 shows which counties fall into each AP agency and merge their caseload. These factors group and possible per-child rates assuming total suggest that a new funding model does not need to operational funding and caseload equivalent to provide proportionally higher state funding rates 2016-17. for smaller AP agencies. Apply COLA to Rates in Subsequent Years. We A New Funding Model Could Help Clarify recommend the state apply a COLA to the regional Expectations About AP Agencies’ Support per-child rates so that they keep up with the cost of Services. In thinking about alternative ways to doing business. The state could use the same COLA fund AP agencies, we also sought to determine factor that it currently uses for the state’s child care, how much AP agencies currently spend on support preschool, and K-12 programs. 36 Legislative Analyst’s Office www.lao.ca.gov 2017-18 BUDGET Periodically Review Regional Adjustments. To example, every three years) and determine whether ensure that the per-child rates remain connected (1) the number of current categories reflects the to regional costs over time, we recommend the variation in wages across the state, (2) any counties Legislature review the rates periodically (for should be moved into a different category, and Figure 14 Recommended Regions and Per-Child Rates Region 1: $1,135 per case Region 2: $1,242 per case Region 3: $1,325 per case Region 4: $1,666 per case www.lao.ca.gov Legislative Analyst’s Office 37 2017-18 BUDGET (3) the rate differential between categories is funding rates be phased in over several years to aligned to differences in regional wages. minimize disruption to agencies. A longer phase-in Set AP Agencies’ Initial Allocations and Make period would allow for a smoother transition, Midyear Adjustments Using Existing Budgetary particularly for AP agencies that will see a decline Approach. Similar to the current process, we in their per-child rates. The trade-off, however, is recommend CDE use budget projections of that a longer phase-in preserves existing inequities CalWORKs child care caseload and prior-year for a longer period of time. Alternative Payment program caseload to Set Standard Expectations for Family determine total caseload for each AP agency. We and Provider Support. Moving forward, then recommend that CDE multiply these caseload we recommend the Legislature clarify AP estimates by the regional per-child operational responsibilities in terms of family and provider funding rate to calculate the amount for each AP support. For example, the state could require agency’s operational costs. We also recommend that AP agencies screen families to determine continuing to guarantee AP agencies a minimum eligibility for other health and human services amount of operational funding based on CDE’s programs and refer them to the appropriate initial caseload estimates. This would provide agencies. Alternatively, the state could require budget stability to an AP agency whose caseload that AP agencies make certain training programs unexpectedly declined. (The CDE could reduce available for parents. Setting these expectations funding in future years if caseload did not return would ensure families and providers across the to higher levels.) If an AP agency serves more state receive the same level of assistance from their cases than projected over the course of the year, we AP agency. If the Legislature wants to increase recommend providing it with more funding based support expectations such that the going per-child on the agency’s per-child funding rate. funding rates likely are too low to cover associated Phase In New System Over Period of Several costs, it could increase the per-child rates moving Years. We recommend the Legislature separate forward. With a per-child funding model, such rate the funding model for AP agencies’ operational increases would be straightforward to implement costs from provider payments beginning in and distributed equitably across the state, ensuring 2017-18. Since AP agencies’ effective per-child rates that AP agencies receive increases proportional to currently vary, we recommend the new operational their increased costs. 38 Legislative Analyst’s Office www.lao.ca.gov 2017-18 BUDGET SUMMARY OF RECOMMENDATIONS Preschool • Reject proposal to allow part-day State Preschool programs to serve children from families exceeding the income threshold. If providers cannot earn their contracts, recommend redistributing unearned funding to other part-day State Preschool providers that can serve additional low-income children. • Allow all types of providers, not only local education agencies, to apply for full-day State Preschool slots if additional slots are funded over the next few years. Over longer term, consider options for encouraging local education agencies to run more full-day State Preschool programs. Such options include (1) addressing funding disparities between State Preschool and Transitional Kindergarten or (2) changing eligibility requirements so that each program serves a distinct group of students. • Reject three proposals that make certain changes to licensing, staffing, and program duration requirements for certain State Preschool and Transitional Kindergarten providers. Instead, pursue alignment more holistically by reconsidering eligibility criteria, program standards, and funding levels in tandem. • Adopt Governor’s proposal regarding program duration for Transitional Kindergarten and Kindergarten programs, but, in tandem, establish differential funding rates for full-day and part-day programs. Quality Improvement Activities • Retain funding for Resource and Referral agencies, Local Planning Councils, licensing enforcement, and evaluation of quality improvement activities ($34 million total). • Repackage $21 million from seven programs operated by county-level support entities into a single county block grant. Allow county-level support entities to serve all types of providers. Require county-level support entities to identify a lead agency and develop a plan for spending block grant funds. Require lead agency to report annually on how funds are spent. • Retain funding for remaining programs (nearly $23 million), but use planned evaluation funding to hire an independent evaluator to assess them over the next several years, starting with the largest programs in 2017-18. Revisit funding levels in the future based on the results of the evaluations. www.lao.ca.gov Legislative Analyst’s Office 39 2017-18 BUDGET Alternative Payment (AP) Agencies • Provide operational funding to AP agencies based on the number of children served. Adjust per-child rates based on regional wage data and apply a cost-of-living adjustment in subsequent years. • Base AP agencies’ operational funding on caseload estimates. If an AP agency serves more cases than projected over the course of the year, provide it with more funding based on the agency’s per-child funding rate. • Phase in new system over several years. Moving forward, clarify AP responsibilities in terms of family and provider support. LAO Publications This report was prepared by Virginia Early, and reviewed by Edgar Cabral and 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. 40 Legislative Analyst’s Office www.lao.ca.gov