The 2019-20 Budget: Early Education Analysis

The 2019-20 Budget: Early Education Analysis GABRIEL PETEK LEGISLATIVE ANALYST MARCH 4, 2019 analysis full gutter 2019-20 BUDGET LEGISLATIVE ANALYST’S OFFICE analysis full gutter 2019-20 BUDGET Executive Summary In this report, we analyze the Governor’s early education proposals. Below, we highlight key messages from the report. Full-Day Kindergarten Expansion Recommend Against Funding More Kindergarten Facility Grants at This Time. The 2018-19 budget provided $100 million one-time non-Proposition 98 General Fund for kindergarten facility grants. The state primarily intended the grants to cover the facility costs associated with converting part-day kindergarten programs to full-day programs. The Governor’s 2019-20 budget provides an additional $750 million for this purpose. We analyzed the first-round applications for the existing grant program and found that most grants likely will go to districts already running full-day programs. Because the program as currently structured does not notably advance the state’s core objective of increasing the number of full-day programs, we recommend the Legislature not proceed with an expansion of the grant program at this time. This would free up $750 million for other budget priorities. If Interested in Promoting Full-Day Kindergarten Programs, Explore Options That Are More Targeted. The Legislature could revisit the Governor’s proposal in 2020-21 after evaluating all the applications submitted for the initial $100 million in grants. (A second round of applications will be initiated shortly.) Should the Legislature desire to provide more grants based on a review of these applications, we recommend it create a more targeted program focused on districts running part-day programs due to facility constraints. We encourage the Legislature to structure any new grant rules such that they do not create incentives to circumvent the existing School Facility Program or otherwise work at cross purposes with it. Should the Legislature be interested in creating an even stronger incentive for full-day programs, it could consider reducing the part-day per-student kindergarten rate under the Local Control Funding Formula. The part-day rate currently is the same as the full-day rate despite the fewer hours of instruction provided. Before lowering the part-day rate, we think the Legislature should weigh the trade-offs of part-day and full-day programs carefully, as some parents prefer to send their children to part-day programs. One-Time Improvement Initiative Recommend Collecting Basic Information Before Expending One-Time Funds. The Governor’s budget includes $500 million one-time non-Proposition 98 General Fund to improve the state’s child care and preschool system. Specifically, the budget includes (1) $245 million for child care workforce grants, (2) $245 million for facility grants to help support expansion, and (3) $10 million for a plan on how to improve child care access and affordability. Unfortunately, the state’s lack of information about key aspects of the existing system makes prioritizing one-time funding difficult. Instead of designating the funding now, the Legislature could set aside some amount of one-time funding into an account specifically earmarked for child care expansion and improvement efforts. Additionally, instead of spending $10 million on another child care plan (given the many plans already developed to date), we recommend the Legislature designate www.lao.ca.gov 1 analysis full gutter 2019-20 BUDGET $1 million each for two focused studies. We recommend one study survey providers on their facility arrangements and another study survey parents about their child care arrangements. We recommend these reports be completed by October 2020 (the same time the results of a workforce survey are expected) to ensure the additional information is available to inform 2021-22 budget decisions. Upon receiving the results of the studies, the Legislature could then begin allocating the funds set aside in 2019-20. Full-Day Preschool Expansion Recommend Slower Ramp Up Given Logistical Challenges. The Governor’s budget includes $125 million non-Proposition 98 General Fund to provide 10,000 additional full-day State Preschool slots for non-local education agencies (LEAs) beginning July 1, 2019. This expansion is the first of three planned augmentations over the next three fiscal years, with the goal of serving all low-income four-year olds by 2021-22. If adopted, the Governor’s proposal would be the largest increase earmarked for non-LEAs to date. We think non-LEAs might be unable to accommodate all 10,000 slots in 2019-20. We recommend funding fewer slots in 2019-20 (2,500 full-day slots) and starting them mid-year. This increase provides a significant number of new slots for non-LEAs, while recognizing the logistical challenges of expanding quickly. We also recommend providing $4 million in ongoing funding for local planning councils to assist providers with facility expansion. In addition, we recommend adopting the Governor’s proposal to fund all non-LEA slots from one fund source. In the future, the Legislature could consider funding all State Preschool (LEA and non-LEA slots) from one fund source to give providers maximum flexibility in serving families. Recommend Keeping Full-Day Program Focused on Working Families. The Governor proposes to eliminate the requirement that families must be working or in school for their children to be eligible for full-day State Preschool. The Governor’s proposal, however, does not account for the behavioral effect of families accessing more full-day care. If more families choose full-day care, the cost of the program would increase substantially, as full-day slots cost more than double part-day slots. Absent additional funding, removing the work requirement could result in serving fewer overall children than projected and fewer children from working families (as working families effectively would be competing for full-day slots with families in which one parent stays home). We recommend keeping the work requirement to ensure full-day State Preschool slots are available to address the needs of working families. CalWORKs Child Care Programs Consider Providing More Funding to Cover Potentially Higher 2019-20 Caseload. The California Work Opportunity and Responsibility to Kids (CalWORKs) Stages 2 and 3 programs provide child care services to certain families. In 2017-18, the state made two changes that significantly increased caseload. The state (1) increased income eligibility and (2) required families to report information for determining eligibility only once per year. Though caseload has increased notably in recent years, the administration projects CalWORKs Stages 2 and 3 caseload will increase only 3 percent in 2019-20. The Legislature may want to budget more funding in the event caseload grows more quickly than the administration assumes. If Stages 2 and 3 caseload were to increase 9 percent—triple the rate the administration assumes but still lower than growth the past two years (11 percent and 15 percent, respectively)—the Legislature would need to provide an additional $33 million to cover program costs. 2 LEGISLATIVE ANALYST’S OFFICE analysis full gutter 2019-20 BUDGET INTRODUCTION In this report, we provide an overview of the the number of full-day preschool slots. We then Governor’s early education proposals, then assess the administration’s cost estimates for the analyze his three major proposals in this area. California Work Opportunity and Responsibility to Specifically, we analyze his proposals to (1) fund Kids (CalWORKs) child care programs. We end facilities for more full-day kindergarten programs, the report with a summary of our early education (2) make targeted one-time improvements to the recommendations. child care and preschool system, and (3) expand OVERVIEW In this section, we provide an overview of the for the reclassification of certain State Preschool Governor’s early education budget proposals. costs as non-Proposition 98 General Fund), and State Subsidizes Child Care and Preschool, a $218 million (25 percent) decrease in federal Primarily for Low-Income Children. The state funding (largely to account for the expiration of subsidizes child care and preschool through several a one-time Child Care and Development Fund programs. As Figure 1 shows, these programs augmentation provided in 2018-19). Under the have somewhat different eligibility requirements. Governor’s budget, proposed funding would CalWORKs child care programs focus on families support 492,000 child care and preschool slots—a engaged in or transitioning out of welfare-to-work 4 percent increase from 2018-19. (Cost increases activities. The remaining programs are primarily are greater than slot increases because a large, designed for other low-income, working families, proposed one-time augmentation does not add any with the exception of transitional kindergarten, slots.) which is age based and has no family work requirement. In Figure 1 2018-19, these programs are State Child Care and Preschool Programs receiving a total of $4.7 billion in state and federal funding. Program Key Eligibility Requirements Governor’s Budget CalWORKs Child Care • Family is low income. Includes $5.3 Billion for • Parent(s) work or are in school. Child Care and Preschool • Child is under age 13. • Slots are available for all eligible children. Programs in 2019-20. As Figure 2 (see next page) Alternative Payment and • Family is low income. shows, the Governor’s budget General Child Care • Parent(s) work or are in school. • Child is under age 13. augments these programs • Slots are limited based on annual budget appropriation. by a total of $669 million (14 percent) from the revised State Preschool • Family is low income. • Child is age 3 or 4. 2018-19 level. This increase is • If parent(s) work or are in school, child is eligible for full-day the net effect of a $1.1 billion program. (78 percent) augmentation • Slots are limited based on annual budget appropriation. in non-Proposition 98 Transitional Kindergarten • Child is age 4 with a birthday between September 2 and General Fund, a $211 million December 2. (10 percent) decrease in • Slots are available for all eligible children. • Program has no income or work requirement. Proposition 98 General Fund (largely to account www.lao.ca.gov 3 analysis full gutter 2019-20 BUDGET Figure 2 Child Care and Preschool Budget (Dollars in Millions) Change From 2018-19 2017-18 2018-19 2019-20 Revised Reviseda Proposed Amount Percent Expenditures CalWORKs Child Care Stage 1 $323 $292 $276 -$16 -5.5% Stage 2b 504 560 597 37 6.6 Stage 3 339 399 482 84 21.0 Subtotals ($1,167) ($1,250) ($1,355) ($105) (8.4%) Non-CalWORKs Child Care General Child Carec $340 $412 $457 $45 10.9% Alternative Payment Program 292 530d 340 -189 -35.8 Bridge program for foster children 20 41 45 4 9.8 Migrant Child Care 35 40 45 5 12.0 Care for Children With Severe Disabilities 2 2 2 —e 2.6 Subtotals ($349) ($1,024) ($889) (-$136) (-13.3%) Preschool Programsf State Preschool—full day $738 $804 $977 $173 21.5% State Preschool—part dayg 503 538 552 14 2.6 Transitional Kindergartenh 808 861 890 29 3.3 Preschool QRIS Grant 50 50 50 — — Subtotals ($2,098) ($2,253) ($2,468) ($215) (9.5%) Support Programs $91 $144 $629 $485 336.1% Totals $3,704 $4,672 $5,341 $669 14.3% Funding Proposition 98 General Fund $1,930 $2,077 $1,865 -$211 -10.2% Non-Proposition 98 General Fund 746 1,417 2,524 1,107 78.1 Federal CCDF 635 857 639 -218 -25.4 Federal TANF 388 311 298 -13 -4.1 Federal Title IV-E 5 10 14 4 41.3 a Reflects Department of Social Services’ revised Stage 1 estimates. Reflects budget act appropriation for all other programs. The 2018-19 budget plan also funds the Inclusive Early Education Expansion Program ($167 milllion) using 2017-18 Proposition 98 General Fund. Funding for this proposal is not included in this table. 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 Includes $205 million for additional slots in 2018-19 and 2019-20. e Less than $500,000. f Some CalWORKs and non-CalWORKs child care providers use their funding to offer preschool. g Includes $1.6 million each year used for a family literacy program offered at certain State Preschool sites. h Reflects preliminary LAO estimates. Transitional Kindergarten enrollment data are not yet publicly 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. Bulk of New Funding Is for One-Time intended to improve the child care workforce and Purposes, Rest for Ongoing Commitments. expand child care facilities. The largest ongoing Figure 3 shows the Governor’s child care and augmentation is $125 million to expand the number preschool proposals. The Governor’s one-time of full-day State Preschool slots. The Governor’s child care initiative consists of $500 million primarily budget also includes a net increase of $103 million 4 LEGISLATIVE ANALYST’S OFFICE analysis full gutter 2019-20 BUDGET to reflect changes in CalWORKs Figure 3 child care caseload and cost Governor Has Several Child Care and Preschool Proposalsa of care. For non-CalWORKs child care programs, the budget (In Millions) includes $79 million for a statutory 3.46 percent cost-of-living One-Time Initiative adjustment, partially offset by Workforce development $245 a $20 million reduction due Infrastructure 245 to a projected 0.89 percent Plan 10 decrease in the birth through Subtotal ($500) four population in California. The Ongoing Commitments budget also incorporates the 10,000 additional full-day State Preschool slots $125 CalWORKs child care caseload and cost of care 103b cost to annualize certain policies Non-CalWORKs child care COLA and slots 59 initiated in the current year. In Annualization of certain adjustment factors applied January 2019 40 addition to these child care and Annualization of State Preschool slots added April 2019 27 preschool augmentations, the Annualization of Alternative Payment slots added September 2018 3 Governor proposes $750 million Subtotal ($357) one time to help school districts All Other Changesc -$188 cover facility costs associated Total $669 with converting their part-day a In addition to these child care and preschool proposals, the Governor proposes $750 million one time to increase the kindergarten programs into number of full-day kindergarten programs. b Of this amount, $80 million is associated with higher 2018-19 caseload. Excludes $1.4 million that is embedded in the full-day programs. “annualization of certain adjustment factors” row. c Largely reflects the expiration of one-time 2018-19 funds. FULL-DAY KINDERGARTEN EXPANSION In this section, we begin by providing School Districts May Run Part-Day or background on kindergarten programs and existing Full-Day Programs. Districts determine the length state funding for full-day kindergarten facilities. We of their kindergarten programs. Part-day programs then describe the Governor’s proposal to increase operate between three hours (the state required funding for kindergarten facilities. We conclude with minimum) to four hours per day, whereas full-day our assessment and recommendation. programs operate for more than four hours per day. A recent survey released by the California Background Department of Education (CDE) found that part-day California Requires School Districts to programs averaged 3.5 hours per day, whereas Operate Kindergarten Programs. The state full-day programs averaged 5.6 hours per day. requires all elementary and unified districts to Schools operating part-day programs typically run offer kindergarten classes that are taught by a morning session and afternoon session in the credentialed teachers and adhere to California’s same classroom using two teachers throughout the academic standards. In California, kindergarten is day. One teacher leads the class in the morning open to all five year olds, including students who session while the other leads in the afternoon turn five between September 2 and December 2. session. In contrast to part-day sessions, each (These younger students qualify for two years of full-day session requires a separate classroom and kindergarten.) Kindergarten programs currently is typically assigned one full-time teacher who leads serve about 530,000 students statewide. the class throughout the day. The teacher may www.lao.ca.gov 5 analysis full gutter 2019-20 BUDGET receive assistance from an instructional aide. The facility costs associated with converting part-day state funds kindergarten through the Local Control kindergarten programs into full-day programs. Funding Formula (LCFF), which provides districts Similar to the SFP, the kindergarten facility grants the same per-student funding rate for part-day and are intended to cover 50 percent of the cost of full-day programs ($8,235 per student in 2018-19). constructing a new kindergarten classroom and Most Districts Operate Full-Day Programs. As 60 percent of the cost of renovating an existing of 2017-18, 71 percent of school districts ran only kindergarten classroom, with the grants covering full-day kindergarten programs, 19 percent ran only a higher share if a district faces challenges raising part-day programs, and 10 percent ran a mix of its local match. The grant rules regarding project full-day and part-day programs. Based on program savings also are similar to the SFP, with districts data reported to CDE, we estimate that roughly generally allowed to use savings for other facility 370,000 (70 percent) of kindergarten students priorities, unless they receive state funding beyond attend a full-day program and roughly 160,000 the standard share. The eligibility criteria for the (30 percent) attend a part-day programs. Over the new grants, however, are different from the SFP. past two decades, the share of students attending Grant eligibility is based on (1) a school site not full-day programs has grown notably. A 2007-08 having enough classroom space to operate full-day survey found that 43 percent of students were kindergarten or (2) the existing kindergarten attending full-day programs, with many districts classroom not meeting CDE regulations. If meeting reporting that they converted from part-day to either condition, an applicant can request funding full-day programs during the mid-2000s. for either new construction or renovation. School Facility Program (SFP) Provides The Office of Public School Construction Funding to Build and Renovate Facilities. (OPSC) Administers School Facility Programs. The state and school districts share the cost of OPSC administers both the SFP and the new building new school facilities and modernizing old kindergarten facility grants. It has decided to award ones. The state generally covers 50 percent of the the kindergarten grants through two application cost of new construction for districts unable to rounds—one that concluded this January that accommodate all existing or projected enrollment will allocate $37.5 million and another in May that and 60 percent of the cost of renovating facilities will allocate $60 million. (As allowed by statute, that are at least 25 years old. For both types of OPSC has reserved the remaining $2.5 million projects, the state can contribute up to 100 percent for administrative costs it expects to incur over of project costs if districts face challenges in raising the current and subsequent three years.) To the their local shares. The state covers its share of extent the kindergarten grants are oversubscribed, cost using state general obligation bonds whereas the budget requires OPSC to give preference to school districts typically cover their share using districts that face challenges raising their local local general obligation bonds. In certain cases, shares and districts with high proportions of the SFP allows districts completing projects below low-income students. Regulations adopted by the budgeted cost to use project savings for other OPSC also provide that the state will fund one facility priorities. (The exception is for districts that project at each eligible district prior to allocating receive state funding in excess of the standard cost funds for additional projects. These regulations are shares. These districts are required to return any intended to ensure grants are not disproportionately unspent funds to the state.) awarded to a small number of districts proposing a larger number of projects. State Created Kindergarten Facility Grants Last Year. During budget deliberations last year, Initial Demand for Kindergarten Facility the Legislature indicated that increasing the number Grants Exceeds $100 Million. In the January of full-day kindergarten programs throughout application round, 70 districts requested a total the state was a priority. The 2018-19 budget of $262 million for 262 projects. The vast majority package accordingly provided $100 million in (76 percent) of these projects involve construction one-time General Fund to help districts cover the of new classrooms. Twenty-seven districts 6 LEGISLATIVE ANALYST’S OFFICE analysis full gutter 2019-20 BUDGET requested additional state funds due to challenges all full-day programs are eligible to receive raising their local share. The average share of funding for constructing additional classrooms if low-income students across the applicant pool is their kindergarten classrooms do not meet CDE 72 percent. The OPSC currently is verifying grant regulations. (For example, the classrooms do not eligibility for these applicants. have self-contained restrooms or are located away from a parent drop-off area.) Moreover, districts are Governor’s Proposal eligible for new construction funding even if their Provides Additional $750 Million for Full-Day overall enrollment is declining and they have space Kindergarten Facility Grants. The Governor available elsewhere in the district. Given these grant proposes to provide $750 million in one-time rules, districts can apply to replace or upgrade their General Fund for additional grants in 2019-20. facilities rather than convert part-day kindergarten These grants would operate similarly to the current programs to full-day programs. Though districts grant program, with one exception. Districts would likely will view the new kindergarten classrooms or be allowed to use project savings for program upgrades as beneficial, the facility projects do not support activities, in addition to facility purposes. advance the state’s core goal of increasing full-day For instance, districts could use savings for programs. professional development or instructional materials Most Applicants for Existing Grant Program to support full-day programs. The new flexibility Already Run Full-Day Programs. Our review of would apply even to those districts receiving state the first round of applications confirms that the grants that cover the full budgeted cost of the initial interest in kindergarten facility grants is kindergarten facility project. primarily among districts already operating full-day programs. Of all applicants, we estimate that Assessment 76 percent already offer only full-day programs (Figure 4). Given that the current funding round Grant Rules Are Broader Than Legislature’s is oversubscribed, we also performed a second Core Policy Objective. As the Legislature analysis focusing on the districts most likely to deliberated over the initial $100 million for receive state funding under the rules establishing kindergarten facility grants, it indicated its primary project priority. Specifically, we examined a subset objective was encouraging districts to convert of 24 districts reporting difficulty raising local part-day programs to full-day programs. The matching funds or having particularly high shares Governor’s Budget Summary articulates the same of low-income students. We found that a similar goal, describing the $750 million augmentation share of these districts (79 percent) already operate as a way to “put California on a path for all only full-day programs. If the state were to provide kindergartners to attend full-day kindergarten.” another $750 million for the grant program, we As structured, however, the grant program has believe much of the funding likewise could go to eligibility rules much broader than this core districts already operating full-day programs. objective. Most notably, districts currently running Figure 4 Significant Majority of Initial Applicants Already Run Full-Day Programs (Dollars in Millions) Districts Applying Projects Submitted Funding Requested Programs Operated Number Percent Number Percent Amount Percent Full-day only 53 76% 121 46% $135 52% Full-day and part-day 9 13 100 38 86 33 Part-day only 8 11 41 16 41 16 Totals 70 100% 262 100% $262 100% www.lao.ca.gov 7 analysis full gutter 2019-20 BUDGET Districts Operate Part-Day Programs for a facility grants are not notably advancing the state’s Variety of Reasons. We asked several districts objective of expanding full-day programs, with about their reasons for operating part-day instead the vast majority of applicants already running of full-day programs. Although some districts only full-day programs. Moreover, the majority of described limited classroom space as an important districts already converted to full-day kindergarten consideration, districts cited other reasons for programs using existing state and local facility running part-day programs, including teacher and funding, without any special grant funding. parent preferences. Some districts believed their Furthermore, some districts that continue to teachers preferred part-day programs because operate part-day programs indicate strong teacher they received assistance from another teacher and parent preferences for those programs. For all throughout the day. Some districts indicated these reasons, we recommend the Legislature not their parents preferred a shorter school day for proceed with an expansion of the grant program their children and were not interested in full-day at this time. This would free up $750 million programs. A few districts also mentioned concern in one-time non-Proposition 98 General Fund over the somewhat higher staffing costs for full-day purposes that could be used for key budget programs. Full-day programs sometimes hire more priorities (including building higher reserves and support staff (such as instructional aides and making larger supplemental pension payments). custodians) compared to part-day programs. Could Revisit Issue Next Year and Create Most Districts Have Converted to Full-Day More Tailored Grant Program. Should the Kindergarten Programs Using Existing State Legislature remain interested in expanding full-day and Local Funds. The share of students attending kindergarten programs through facility grants, full-day kindergarten has grown significantly over it could revisit this proposal in 2020-21. After the past two decades despite the absence of receiving and examining all the applications for any specific state program funding kindergarten the initial $100 million in grant funding, the state facilities. A district running part-day programs can will have more information about the demand for qualify for new construction funding under the new facilities among districts running part-day existing SFP if it is experiencing an overall increase programs. Were part-day programs to document in its K-12 enrollment or qualify for modernization unmet facility issues, the Legislature could craft funding if its classrooms are more than 25 years a more narrowly tailored program next year. old (and likely do not meet CDE kindergarten We recommend any such program direct funds regulations). Districts may also fund facility only toward districts currently running part-day projects by raising local bond funds. Districts have programs due to facility constraints that cannot successfully relied on these existing funding sources be addressed through the SFP. We encourage the to expand their full-day programs. Over the past Legislature to structure any new grant rules such ten years, the share of students enrolled in full-day that they do not create incentives to circumvent the programs grew from 43 percent to 70 percent. SFP or otherwise work at cross purposes with it. Over just the past three years (from 2015-16 to Consider Reducing Part-Day Per-Student 2017-18)—prior to the creation of the kindergarten LCFF Funding Rate if Interested in Creating facility grants—the share of districts offering full-day a Stronger Incentive. The state’s approach to programs grew from 64 percent to 71 percent. funding kindergarten—providing the same amount These trends suggest that existing state and of LCFF funding per student for part-day and local funds have been sufficient for most districts full-day programs—is rare. Normally, the state funds interested in operating more full-day programs. at a lower rate when fewer hours of service are provided. For example, the state provides a notably Recommendations lower rate for part-day State Preschool programs Recommend Against Expanding Grant compared to full-day State Preschool programs. Program at This Time. Based upon an analysis of To be more consistent with regular state funding first-round applications, the existing kindergarten practice and provide an even stronger incentive for 8 LEGISLATIVE ANALYST’S OFFICE analysis full gutter 2019-20 BUDGET schools to operate full-day kindergarten programs, $450 million in state savings at full implementation. the Legislature could reduce the LCFF part-day In contrast, were all existing part-day programs kindergarten funding rate. The part-day rate, for to convert to full-day programs by year three, the example, could be reduced by the difference in state would achieve no ongoing savings. (The hours between the average part-day and full-day state would achieve near-term savings for districts program (about 35 percent). Assuming the 2019-20 not converting all their programs in year one of LCFF funding rates in the Governor’s budget, this the transition.) We think some districts eventually would equate to about $5,500 in base funding would respond by converting part-day to full-day per student in a part-day program compared to programs, such that the state would achieve some $8,500 per student in a full-day program. savings but likely far less than $450 million. While Reducing Part-Day Rate Likely Yields reducing the part-day rate would create a strong Initial Budget Savings, but Raises Important fiscal incentive to convert to full-day programs, we Trade-Offs. If the Legislature desires to implement encourage the Legislature to weigh all the pros and a rate reduction for part-day programs, we cons of full-day and part-day programs carefully recommend it do so over a three-year period, before changing the associated LCFF funding rates. beginning in 2020-21. This would allow districts Given districts report that some parents prefer time to consider and plan for any additional full-day part-day programs, the state might not want to programs. If no district decided to add full-day create a strong disincentive for districts to offer programs, the rate reduction would yield roughly those programs. ONE-TIME IMPROVEMENT INITIATIVE In this section, we provide background on the Associate Credential is issued by a national child care and preschool workforce, facilities, nonprofit organization focused on educating and planning. We then describe the Governor’s and training child care workers. Other child care proposals to provide a total of $500 million workers, mostly aides and directors, have different one-time funding to make improvements in these education and experience requirements. Compared three areas. We end by providing our assessment to teachers, aides have fewer requirements and making associated recommendations. whereas directors have additional requirements. For example, a director in a center that contracts Workforce with the state must have a bachelor’s degree with Child Care and Preschool Workers Must Meet 24 units of early childhood education coursework, Certain Education Requirements. Child care and 6 units of administration coursework, and 2 units of preschool workers have requirements they must adult supervision coursework. meet to serve in specific capacities. Most notably, State Funds Many Programs to Educate a teacher employed at a child care or preschool and Train Child Care and Preschool Workers. center that contracts directly with the state Each year the state allocates funds intended to must hold a Child Development Teacher Permit. improve the quality of its child care and preschool The permit, which is issued by the California system. In 2018-19, it allocated about $50 million Commission on Teacher Credentialing, requires specifically for workforce training. These funds are 24 units of early childhood education coursework used to support a variety of activities, including and 16 units of general education coursework. By coaching and providing stipends to employees comparison, the minimum requirement for a teacher attaining more education. employed in other licensed centers in California State Has Minimal Workforce Data, Some is a Child Development Associate Credential Information Forthcoming. The state does not or a minimum of 12 units of early childhood collect core data on the child care and preschool education coursework. The Child Development workforce. As a result, it lacks information on www.lao.ca.gov 9 analysis full gutter 2019-20 BUDGET the number of child care workers, their years of • Lease at Market Rate. Other providers lease experience, the wages they earn, their educational space and pay market rent. attainment, and their credentials. Although the state Providers Typically Must Cover Cost of does not collect this information, a few research Periodic Facility Maintenance and Repairs. entities periodically conduct surveys of the child Providers typically are responsible for major care and preschool workforce. The most recent maintenance and repairs of their facilities. Some survey, a national survey conducted in 2012, facility maintenance is voluntary and preventative, provides some information for California, such as such as replacing a boiler that has come near the the educational attainment of its center-based end of its useful life. Some repairs are required. For workforce. The survey does not have a large example, Community Care Licensing can require a enough sample to disaggregate California provider to repair a facility if a safety issue emerges information by region. A new, California-specific (such as fixing a cracked walkway). Providers survey is underway that plans to provide both might use their reserves, special grant funding, or a statewide and regional information about the facility loan to cover these costs. workforce. The study is being funded by a mix of State Funds Child Care Facilities Revolving public and private funding. The results of this study Loan Program to Help With Program Expansion are expected to be released in late 2020. and Maintenance. The state administers a loan Facilities program to help providers (1) serve additional children and (2) cover major maintenance and Licensed Child Care Facilities Must Meet repairs in their current facilities. With state loans, State Safety Standards. All licensed child care providers could purchase portable classrooms and preschool facilities must meet specific safety or repair current facilities. In recent years, only a standards. For example, playgrounds must be few providers have used the loan program, citing enclosed by a fence that is at least four feet concerns with their ability to repay. high. To ensure facilities meet state standards, State Has Minimal Information About Facility Community Care Licensing (a division in the Arrangements and Overall Maintenance Department of Social Services) inspects facilities Conditions. The state does not collect data on before providers can begin serving children in them. providers’ facility arrangements. For example, the It inspects all existing facilities on a three-year cycle state lacks basic information on facility ownership (with plans to start doing annual visits). and lease costs. The state also lacks information Providers Have Three Common Facility on the major facility maintenance projects that Arrangements. Whether opening a first site or providers have had to undertake in recent years. looking to add new sites, providers typically access (Although Community Care Licensing checks to child care and preschool facilities in one of three see that providers have remedied safety issues, it ways, described below. does not compile readily available statewide data on • Lease at Subsidized Rate. Some providers repair needs.) have partnerships with other public entities, Planning such as school districts and cities. These partner entities subsidize providers’ monthly Local Planning Councils (LPCs) Are facility costs. In many cases, subsidies are Responsible for Ongoing Needs Assessment. large. For example, some providers pay Each county has an LPC, with membership $1 per year to rent facilities from a city selected by the county board of supervisors and government. county superintendent of schools. Membership • Own. Some providers own their facilities. consists of parents, providers, public agency staff, In these cases, providers either are making and other community representatives. The state monthly mortgage payments or have paid off provides a total of $3.5 million ongoing funding to their mortgages. LPCs. Each LPC is responsible for conducting a 10 LEGISLATIVE ANALYST’S OFFICE analysis full gutter 2019-20 BUDGET county needs assessment at least once every five children eligible for subsidized care. Trailer bill years and submitting it to CDE. indicates the funds would go to one or more Several Special Planning Efforts Have “local partners” within each county but does not Been Undertaken Over Past Few Years. Over specify allowable local partners. The administration the past several years, numerous workgroups indicates CDE would have broad discretion to have convened to develop recommendations to review applications and distribute funding among improve the child care and preschool system. grantees. Grantees could use funds for educational These workgroups have included policymakers, expenses such as tuition, transportation, and practitioners, and representatives of state agencies, substitute teachers. The $245 million would be with support from researchers. One recent apportioned in equal amounts over the next five workgroup published a set of recommendations years ($49 million in each year). for reforming the system’s complex rate structure. Provides Funding for Facilities Expansion. Another group, the Assembly Blue Ribbon The budget provides $245 million for facility grants Commission on Early Childhood Education, began to providers willing to serve additional children. meeting in March 2017 and is expected to release CDE would distribute the funds competitively and a set of recommendations for improving the system prioritize applicants in low-income communities that in April 2019. In addition to these workgroups, a have high shares of eligible unserved children and group of researchers recently released a series of plan to serve those children. Providers could use reports known as Getting Down to Facts II that funds for one-time infrastructure costs, including covered many areas of interest to the Legislature. site acquisition, facility inspections, or construction For example, the series compiled research findings management. As with the proposed workforce on access to child care, services for young children grant, funds would be apportioned in equal with special needs, the child care workforce, and amounts over the next five years. alignment with kindergarten. Provides Funding for Report on Improving New Planning Effort Now Underway. The state Child Care and Preschool System. The budget was recently awarded a Preschool Development also provides $10 million for the State Board of Grant totaling $10.6 million in federal funds. Education to contract with a research entity to With the funds, CDE is examining current levels produce a report by October 2020. The report is of access to child care and preschool programs to include recommendations on how to improve throughout the state. CDE also intends to develop access and affordability of state subsidized child a strategic plan that will identify steps the state care and preschool programs. The report also could take to improve programs for children from is to include steps the state can take to provide birth through age five. The strategic plan will preschool to all children, cost estimates for its address topics including access, workforce, and associated recommendations, and strategies for facilities and will be developed in coordination prioritizing state funds. with practitioners and representatives of state Assessment agencies. All associated activities are expected to be completed by December 2019. Workforce and Facilities Are Key Issues. The Governor’s proposal sets aside funding for Governor’s Proposals important issues in the child care and preschool Provides Funding for Workforce Development. system. Based on our conversations with providers, The Governor’s budget provides $245 million to workforce development issues (especially retaining (1) increase the number of child care and preschool staff) and facilities issues (especially covering workers and (2) increase the education and training the cost of repairs) are commonly cited as key of these workers. CDE is to distribute the funds challenges. to each county based upon its relative need for State Lacks Data to Make Informed Spending additional child care and preschool workers, the Decisions on Workforce and Facilities. The cost of living in each county, and the number of administration’s intention to allocate proposed www.lao.ca.gov 11 analysis full gutter 2019-20 BUDGET funds based on need is laudable. The state’s lack The Governor’s proposed report likely would make of data, however, makes prioritizing based on need recommendations that overlap significantly with difficult. With regard to the workforce proposal, the prior reports or planning efforts already underway. state does not know what geographic areas need Recommendations additional child care and preschool workers or what areas would most benefit from additional worker Get Better Information Before Funding education and training. With regard to the facility New Initiative. Given the state lacks much of proposal, the state does not collect information the information it needs to address child care that would allow it to determine the most significant workforce and facility issues, the Legislature might facility challenge facing providers or the geographic want to collect better information over the coming areas experiencing the greatest challenge. The state year. Then, over the subsequent few years, it could also does not collect the information that would use one-time funds in a more targeted and effective be necessary to identify cost-effective options for way. To this end, the Legislature could set aside addressing facility issues. Without this information, some amount of one-time funding in 2019-20 into deciding how much funding to set aside for each an account designated specifically for future issue area, how to distribute funds across the state, improvement efforts. As it learns more, it could and how to use the funds are all difficult. allocate funds from this account as part of the State Still Lacks Key Information About Needs regular budget process. of Families. As the state thinks about expanding Fund Studies to Understand Current Facility child care and preschool programs to make them Arrangements and Access to Child Care. Instead more accessible to families, it may want to better of spending $10 million on another child care plan, understand families’ child care and preschool needs. we recommend the Legislature designate $1 million Unfortunately, the state collects little information each for two focused studies, described below. about how the availability of care aligns with the needs and preferences of families. Existing efforts • Facility Arrangements. This study would to assess need focus on measuring the existing survey subsidized providers and collect child care and preschool capacity of geographic information on how they obtained their regions and comparing them with estimates of facility, if they rent or own, the amount of the number of families that would be eligible for their monthly facility payments, their interest subsidized programs. However, we are not aware of in expanding, and the associated challenges studies that have focused on measuring what hours they face. The survey would also collect eligible families tend to work, what hours they need information on providers’ maintenance care, and what factors affect their child care and issues and how they cover the cost of major preschool decisions. This type of information could maintenance projects. help the state allocate its slots in a manner that is • Child Care and Preschool Accessibility. more preferable and accessible for families. For This study would survey parents eligible for example, a region with a disproportionate number child care benefits to better understand their of families that work evenings or weekends may needs. The survey would ask parents about not benefit as much from additional full-day State the hours they need child care, existing child Preschool programs, which tend to operate under a care and preschool arrangements, and the traditional work week schedule. key considerations affecting their child care Another Plan Likely Duplicative of Many arrangements. The survey would attempt to Recent Efforts to Improve Child Care and include eligible families currently not receiving Preschool System. Given the significant number child care benefits due to the capped nature of child care and preschool workgroups, reports, of some child care programs. and recommendations that have been produced in Align Timing of Studies So They Can Inform recent years (or are currently underway), we believe 2021-22 Budget Decisions. For these studies, an additional report in these areas is unnecessary. CDE could run a request for applications from 12 LEGISLATIVE ANALYST’S OFFICE 2019-20 BUDGET interested research entities. We recommend forthcoming workforce study) would be available requiring CDE to award contracts to research to inform 2021-22 budget decisions. That year, the entities by October 2019, with the results of the Legislature could begin withdrawing funds from studies available by October 2020. This time the account designated specifically for child care frame would ensure all reports (including the expansion and improvement. STATE PRESCHOOL In this section, we provide an overview of the in 2018-19 is serving 103,000 children in part-day State Preschool program, describe and assess State Preschool programs and 67,000 in full-day the Governor’s preschool proposals, and offer programs. associated recommendations. State Preschool Serves Mostly Four-Year Olds. The total number of State Preschool slots Background funded in any given year is determined by the state State Preschool Has Two Key Objectives. as part of its annual budget process. Providers State Preschool has part-day and full-day options. must first serve all eligible four-year olds, with Both options focus on fostering kindergarten children from the lowest-income families getting readiness among children from low-income families, priority. If space remains available, providers with the full-day option also helping low-income, may serve three-year olds—also prioritizing the working families with their child care costs. The lowest-income families. After enrolling all interested part-day program provides at least 3 hours of and eligible children, providers may enroll children developmentally appropriate activities per day for from families who are not income eligible (up to 175 days per year. The full-day program offers 10 percent of slots). We estimate State Preschool between 6.5 and 10.5 hours of care per day for in 2018-19 is serving 123,000 four-year olds and 250 days per year. The amount of care children 47,000 three-year olds. receive in full-day programs depends on the hours State Has Increased Full-Day Slots in Each providers offer services as well as parents’ work of Past Five Years. The state has significantly or school schedules. Providers choose whether increased full-day State Preschool slots in the past to operate part-day or full-day programs, and five years. As Figure 5 shows, the state has added they determine how many hours per day their more than 27,000 full-day slots over this period— full-day programs operate. We estimate the state an increase of 70 percent. Figure 5 State Has Significantly Increased Full-Day State Preschool Slots Slots Added by Fiscal Year Slots Existing as of 2013-14 2014-15 2015-16 www.lao.ca.gov 13 2016-17 2017-18 2018-19 analysis full gutter 39,202 27,407 analysis full gutter 2019-20 BUDGET State Also Has Increased Income Eligibility $12,070 per child enrolled in a full-day program. Threshold. Prior to 2017-18, families were income (Providers receive the full-day rate for any child eligible (for both entering and exiting the program) served between 6.5 and 10.5 hours.) All part-day if they earned below 70 percent of the 2007 state State Preschool is funded with Proposition 98 median income (SMI)—$42,216 for a family of General Fund. All full-day State Preschool provided three. The 2017-18 budget package updated by LEAs also is funded with Proposition 98 General the eligibility threshold to the most recent SMI. Fund. Full-day non-LEA programs are funded with Currently, families are eligible to enroll in State a mix of Proposition 98 and non-Proposition 98 Preschool if their income is below 70 percent of General Fund. the 2016 SMI—$54,027 for a family of three. The Several Other Programs Serve new policy also increased the threshold for exiting Preschool-Aged Children. In addition to State the program. Families can remain enrolled in Preschool, California has several other subsidized State Preschool as long as their income is below programs that serve preschool-aged children. Each 85 percent of SMI (currently $65,604 for a family of these programs has a different set of eligibility of three). In 2019-20, families will be eligible to and program requirements. Figure 7 compares enroll if their income is under 85 percent of SMI. major aspects of these programs. Each income eligibility change in recent years has increased the number of children eligible for State Governor’s Proposal Preschool. Funds More Full-Day Slots for Non-LEAs. State Preschool Is Offered by Several Types The Governor’s budget includes $125 million of Providers. State Preschool is offered by non-Proposition 98 General Fund to provide various local government and nonprofit agencies. 10,000 additional full-day State Preschool slots Roughly two-thirds of State Preschool slots are for non-LEAs. This expansion is the first of three provided by school districts and county offices of education Figure 6 (local education agencies or LEAs). Nonprofit agencies, A Greater Share of Non-LEA Slots Is Full Day county welfare departments, and 2018-19 cities (non-LEAs) also operate State Preschool, accounting for LEA Slots Non-LEA Slots about one-third of slots. Of all LEA slots, 64 percent are part day and 36 percent are full day (Figure 6). Non-LEAs are more likely to operate full-day programs, Part Day accounting for roughly half of their Part Day slots. Funding Source for Full-Day Programs Varies by Provider Type. In 2018-19, the state provided $1.3 billion for the State Preschool program—$538 million Full Day for part-day programs and Full Day $804 million for full-day programs. This funding is based on underlying per-child rates—$5,233 per child enrolled LEA = local education agency. in a part-day program and 14 LEGISLATIVE ANALYST’S OFFICE analysis full gutter 2019-20 BUDGET planned augmentations over the next three fiscal Shifts All Funding for Non-LEAs to years. The administration intends to provide a total Non-Proposition 98 Side of the Budget. The of 30,000 additional slots by 2021-22, with the budget shifts $297 million in State Preschool intent to serve all low-income four-year olds at that funding from Proposition 98 General Fund to time. (The estimate of additional slots needed to non-Proposition 98 General Fund. Under the serve all eligible four-year olds is highly sensitive to Governor’s proposal, non-LEA providers would be several underlying assumptions. Depending upon funded entirely with non-Proposition 98 General the specific set of assumptions made, estimates of Fund, while all LEA providers would be funded with unserved children can vary by tens of thousands.) Proposition 98 General Fund. Expands Eligibility for Full-Day Slots. The Assessment Governor proposes to eliminate the requirement that families must be working or in school for their Non-LEAs Generally Have Longer Program children to be eligible for full-day State Preschool. Hours. Though the state lacks data on the length Under the Governor’s proposal, all three- and of each full-day program, our conversations with four-year olds who meet the income requirements experts in the field suggest that school districts would be eligible for the full-day program. and COEs tend to operate for 6.5 hours per day, Figure 7 Several Programs Serve Preschool-Aged Children in California California Contract or Voucher Transitional State Preschool Programsa Kindergarten Head Start Eligibility Criteria: Family income 70 percent of state median 70 percent of state None. 100 percent of eligibility capb income. median income. federal poverty level. Income cap for family of $54,027 $54,027 N/A $21,330 three (2018-19)b Work requirement Yes for full-day program. Yes. No. No. Ages of children served 3- and 4-year olds. Under age 13. 4-year olds with birthdays Under age 5. between September 1 and December 1. Approximate number of 170,000c 50,000 90,000 70,000c 3-year old and 4-year olds served (2018-19) Preschool Program Criteria: Academic content Developmentally appropriate None for voucher Locally developed, The Head Start standards activities designed to programs. Contract modified kindergarten Early Learning facilitate transition to programs same as curriculum. Outcomes kindergarten. State Preschool. Framework. Duration At least 6.5 hours per day, Varies based on parents’ Must operate no fewer Determined by local 250 days per year for full-day work schedules. than 180 days per provider. program. At least three hours year. Hours per day per day, 175 days per year determined by district. for part-day program. a Includes the CalWORKs child care, Alternative Payment, and General Child Care programs. b Reflects cap for 2018-19. Beginning in 2019-20, cap set to increase to 85 percent of state median income. c May count children dually enrolled in State Preschool and Head Start. www.lao.ca.gov 15 analysis full gutter 2019-20 BUDGET whereas non-LEAs tend to operate 10 hours or proposal would increase non-LEA full-day slots more per day. Although the state provides the by about 40 percent in 2019-20—the largest slot full-day rate for 6.5 hour programs, these programs increase earmarked for non-LEAs to date. By are less likely to address the child care needs of 2021-22, the Governor’s proposal would more full-time working parents. Given these differences, than double the number of non-LEA full-day State providing new slots to non-LEAs increases the Preschool slots. Given this would be such a large likelihood that these new slots will address working increase, we think non-LEAs might be unable to families’ child care needs. accommodate all 10,000 new slots in 2019-20. Work Requirement Is Reasonable Way to Although non-LEAs filled all available slots when Prioritize Full-Day Care. We think retaining the slots were last earmarked for them (in 2015-16), work requirement is the most cost-effective way they received a much smaller number of additional of helping the state meet the dual objectives slots (1,200) that year. Such a large one-year slot of promoting kindergarten readiness among all increase also may be difficult for CDE to administer. low-income children while helping low-income To award new slots to providers, CDE must provide working families meet their child care needs. technical assistance and review applications from hundreds of providers. An expansion of this Governor Does Not Account for Possible magnitude would create a much higher volume of Effects of Removing Work Requirement. workload than previous, less ambitious expansions. The Governor’s proposal to remove the work requirement is problematic in a few notable ways. Slots Cannot Be Used Until Midyear. We also Most notably, the proposal does not account for think any new State Preschool slots likely cannot be any resulting behavioral changes—changes that filled until the middle of 2019-20. To award slots, could substantially increase the cost of State CDE must first develop a request for applications, Preschool. Though the Governor proposes to allow review applications, and decide which applications all children to participate in full-day programs, he to fund. Providers who are awarded additional does not build in the higher associated cost of slots must then make facility arrangements, make converting part-day to full-day slots. A full-day necessary repairs, have their facilities approved slot, however, is more than double the cost by Community Care Licensing, hire staff, conduct of a part-day slot. Were half of part-day slots outreach, and enroll children. Given these to convert to full-day slots, the cost of State challenges, we think new slots realistically could Preschool would be $360 million higher than not be used before January 1, 2020. the Governor’s proposed 2019-20 funding level. Additional Facilities a Key Issue. Absent providing additional funding to cover the Accommodating new State Preschool slots is likely cost of slots converted from part day to full day, to entail various challenges, including finding and the Governor’s proposal could have the unintended paying for additional facilities. To expand, providers effect of serving fewer children. This is because must first identify available facilities that could be providers receive preschool contracts for a dollar suitable for operating a preschool program. This amount, not a number of slots. Lastly, since all might entail developing partnerships with nearby income-eligible children would become eligible school districts, cities, county groups, or real estate for the full-day program, working families would experts. Once a facility is identified, a provider compete for full-day slots with low-income families must then complete certain steps before the facility where at least one parent stays home. Even at full can operate a State Preschool program. These implementation (once all low-income four-year olds steps can entail working with the city regarding are served), a four-year old from a family with a the zoning requirements of the property, making parent staying at home would receive full-day State renovations and repairs, and ensuring the facility Preschool care while a three-year old with parents is reviewed and approved by Community Care who work would not get a slot. Licensing. These issues can be particularly difficult Non-LEAs Might Not Be Able to Expand as for small providers that may lack the administrative Quickly as Proposed. If adopted, the Governor’s capacity to manage a new facility project. 16 LEGISLATIVE ANALYST’S OFFICE analysis full gutter 2019-20 BUDGET Using One Fund Source Has Benefits. Shifting An additional 2,500 slots beginning January 1, all non-LEA State Preschool funding to one 2020 would have a half-year cost of $16 million in fund source provides administrative flexibility for 2019-20, growing to a full-year cost of $31 million non-LEA providers and CDE. Non-LEA providers in 2020-21. In future years, the Legislature could would be able to shift funding between their various decide how many new slots to approve based on CDE contracts—part-day State Preschool, full-day the take-up in 2019-20. State Preschool, and General Child Care—to best Keep Work Requirement and Give New Slots serve families in their communities. Since a portion to Providers Operating at Least a 10-Hour of full-day State Preschool is currently funded with Day. To ensure full-day State Preschool slots are Proposition 98 General Fund, providers currently available to address the needs of working families, are unable to shift funding between full-day and we recommend maintaining the requirement that part-day programs. The additional flexibility offered parents be working or in school. Removing the by the Governor’s proposal also simplifies the work requirement would result in some children contracting process for CDE, as it is no longer from families where one parent stays at home required to verify that providers have maintained receiving priority for full-day programs over other separate accounting of their Proposition 98 and children from families with child care needs. non-Proposition 98-funded programs. Additionally, we recommend prioritizing new slots State’s Patchwork of Preschool Programs Is to non-LEAs that agree to operate at least 10 hours Poorly Designed. The state has a complex system per day. This would ensure that new slots meet the of preschool programs that lacks coherence. needs of parent(s) working full time. Most notably, the largest school-run program— Provide Ongoing Funding to Assist With Transitional Kindergarten—has no income eligibility Facility Expansion. To increase the take-up of new requirements and does not address the child care State Preschool slots, we recommend providing needs of working families. The state’s voucher $4 million in ongoing funding to assist providers with programs, which are designed to meet families’ facility expansion. For 2019-20, we recommend child care needs, do not require programs to having CDE distribute the funding among LPCs have an academic or developmental component. based on the county’s population of low-income This complex patchwork of programs also can be children under five. In the future, the state could use difficult for families to understand and navigate. data from CDE’s forthcoming needs assessment Some programs, for example, accept all eligible to distribute funding based on each county’s children, while other programs have waiting unserved preschool population. With the funds, lists or have a fixed set of services that may not we recommend requiring LPCs to have a facility necessarily meet families’ needs. specialist who supports providers interested in finding additional facilities. (Our estimate assumes Recommendations one full-time facility specialist for each large county Fund Fewer New Slots in 2019-20, Start and a portion of a specialist’s time for smaller Them Midyear. We suggest the Legislature add counties.) These facility specialists could work 2,500 new non-LEA slots beginning January 1, with local governments to address local zoning 2020. This is roughly a 10 percent increase from ordinances and other local issues serving as barriers the full-day slots non-LEAs currently provide, and to using facilities for child care and preschool. Given more than twice the number of slots provided to LPCs already are intended to serve a key planning non-LEAs in 2015-16. This increase provides a role and include representation from an array of significant number of new slots for non-LEAs, while stakeholders, we think they are well positioned to recognizing the logistical challenges of expanding help plan and provide support related to facilities. quickly. Starting the slots midyear gives CDE time Support Non-LEAs Slots From One Fund to review and approve applications, while giving Source. This change allows more flexibility for providers time to find facilities, get their facilities non-LEA providers to use slots in a way that best licensed, hire additional staff, and enroll children. meet families’ needs. This change also simplifies www.lao.ca.gov 17 analysis full gutter 2019-20 BUDGET contracting for the state and providers. The The state could build off the structure of the Legislature could go further and fund all State existing State Preschool program, which assures Preschool for all providers from one fund source, all participating children receive at least three thereby offering more flexibility for LEAs too. hours of developmentally appropriate activities and Over Coming Year, State Could Design One also provides wrap care for working families. To Program That Better Met Two Core Goals. To improve the convenience for families and increase better meet the core goals of fostering kindergarten the likelihood that all low-income children can readiness and meeting the child care needs of participate, the state could also require providers low-income families, the Legislature may want to offer programs year-round, operate at least to consider consolidating state funding for all 10 hours per day, and have flexible start times for existing preschool programs into one program. part-day programs. CALWORKS CHILD CARE In this section, we provide background on care providers vary by county. The rates are based CalWORKs child care. We then describe the on a regional market survey of a sample of licensed Governor’s proposal to augment CalWORKs child child care providers. The state conducts a survey care funding by $103 million to reflect increases in of regional market costs every two years. Currently, caseload and cost of care. We end by providing our the state links the RMR to the 75th percentile of the assessment and associated recommendations. 2016 survey (the most recent one available). This ensures that all families have access to at least Background three-quarters of their local child care providers. Chapter 29 of 2016 (SB 858, Committee on Budget State Provides Subsidized Child Care to CalWORKs Participants. CalWORKs provides and Fiscal Review) included intent language to cash grants and employment services to reimburse child care providers at the 85th percentile of the most recent survey (although the state to low-income families with children. Under the date has not funded at this higher level). CDE program, parents who work or are in school expects to release the results of the 2018 survey in qualify for subsidized child care benefits. Parents April 2019. may progress through three CalWORKs child care stages. Families are considered to be in CalWORKs Stages 2 and 3 Caseload Declined Stage 1 when they first enter CalWORKs. Once Throughout Much of the Economic Recovery. CalWORKs families become stable (as determined Figure 8 shows Stages 2 and 3 caseload from by the county welfare department), they move into 2010-11 to 2018-19. Consistent with overall Stage 2. Families move into Stage 3 two years after CalWORKs program enrollment, CalWORKs child they stop receiving cash aid. They can continue care caseload declined during the state’s economic receiving subsidized care until their income exceeds recovery. In 2017-18, however, caseload began 85 percent of the SMI or their child ages out of increasing and 2018-19 caseload is projected to the program (turns 13 years old). At the state exceed the 2010-11 level. We describe the factors level, Stage 1 is administered by the Department contributing to this recent increase below. of Social Services, while Stages 2 and 3 are State Made Two Changes That Significantly administered by CDE. The 2018-19 Budget Act Increased Stages 2 and 3 Caseload. In 2017-18, included $1.3 billion in combined state and federal the state made changes to income eligibility funding for CalWORKs child care, with an estimated criteria and a key family reporting requirement. 137,000 children being served. These changes significantly increased Stages 2 CalWORKs Child Care Providers Are and 3 caseload. Although these changes apply to Reimbursed Based on Regional Market Rates Stage 1, the effects were less notable for that stage (RMR). Reimbursement rates for CalWORKs child due to its additional participation requirements. 18 LEGISLATIVE ANALYST’S OFFICE analysis full gutter 2019-20 BUDGET Figure 8 After Steadily Dropping, Caseload Has Risen Steeply the Past Few Years Average Monthly Stages 2 and 3 Combined Caseload 110,000 100,000 90,000 80,000 2010-11 2011-12 2012-13 2013-14 2014-15 2015-16 2016-17 2017-18 2018-19 (Estimated) • Income Eligibility. Under the new policy, primarily due to higher caseload but the cost per families are eligible to enroll in subsidized child child also has increased as a result of the state care if their income is below 70 percent of updating to the 2016 RMR survey. the 2016 SMI—$54,027 for a family of three. Families can continue receiving benefits as Figure 9 long as their income is below 85 percent of Stages 2 and 3 Child Care Costs SMI ($65,604 for a family of three). Previously, Have Increased to be income eligible (for both entering and (In Millions) exiting the program), parents were required to earn below 70 percent of the 2007 SMI $1,100 ($42,216 for a family of three). • Family Reporting Requirement. Families 1,000 now must report information necessary for determining eligibility only once a year unless changes in income make them ineligible. 900 Previously, families were required to report any change in income or work hours within five 800 days. Cost for Stages 2 and 3 Has Significantly 700 Increased In Recent Years. As Figure 9 shows, the combined cost of CalWORKs Stages 2 600 and 3 has grown from $714 million in 2016-17 to 2016-17 2017-18 2018-19 (Estimated) more than $1 billion in 2018-19—an increase of 45 percent across the period. The increase is www.lao.ca.gov 19 analysis full gutter 2019-20 BUDGET Governor’s Proposal Assessment and Recommendation Makes Adjustments for Changes in Legislature May Want to Budget More CalWORKs Child Care Caseload and Average Funding in 2019-20. The administration assumes Cost of Care. The budget includes a net increase caseload will increase 3 percent in 2019-20. Given of $103 million to reflect changes in CalWORKs the substantial year-over-year caseload growth in caseload and cost of care. This includes a recent years, the Legislature may want to budget combined $119 million increase in Stages 2 more funding in the event caseload grows more and 3 costs, partly offset by a $16 million decrease quickly than the administration assumes. Budgeting in Stage 1 costs. The decrease in Stage 1 is due initially at a higher level would minimize the chance to a decline in overall CalWORKs participation the state has to use reserves to cover higher costs resulting from an improved economy. down the road. It also would prevent the state from Administration Requested Additional having to disenroll children midyear if additional Funding to Cover Current-Year Shortfall. The funding is unavailable. If 2019-20 caseload administration projects an $80 million shortfall were to increase 9 percent—triple the rate the in Stages 2 and 3 in 2018-19, largely due to administration assumes but still lower than growth higher caseload. The administration recently the past two years (11 percent and 15 percent, notified the Legislature of the shortfall and respectively), the Legislature would need to provided a current-year augmentation to cover provide an additional $33 million to cover Stages 2 it. The administration built the higher costs into and 3 costs. its 2019-20 budget (that is, $80 million of the Administration’s Cost Estimates Do Not $103 million increase noted above is associated Include Updating Rates for 2018 Survey Results. with higher 2018-19 costs). The administration continues to base its cost of care estimates on the 75th percentile of the 2016 survey. Given CDE expects to release new regional market survey results this spring, the Legislature may be interested in updating provider reimbursement rates. Based upon the state’s recent experience with survey-based rate increases, updating survey rates in 2019-20 likely would cost in the tens of millions. 20 LEGISLATIVE ANALYST’S OFFICE analysis full gutter 2019-20 BUDGET SUMMARY OF RECOMMENDATIONS Full-Day Kindergarten Expansion • Reject the Governor’s 2019-20 proposal to provide $750 million in one-time non-Proposition 98 General Fund for more kindergarten facility grants. Based upon first-round grant applications, the program is not likely to notably advance the state’s objective of increasing the number of full-day kindergarten programs. • Examine all the applications received this year to determine the extent to which districts running part-day programs require additional facility funding to convert to full-day programs. • If the Legislature would like to provide more facility grants in 2020-21, consider creating a more targeted program. Focus the new program on districts currently operating part-day programs due to facility constraints. Structure any new grant rules such that they do not create incentives to circumvent the School Facility Program or otherwise work at cross purposes with it. • If interested in creating an even stronger incentive for full-day programs, consider reducing the part-day per-student kindergarten rate under the Local Control Funding Formula over a three-year period. Before lowering the part-day rate, weigh the trade-offs of full-day and part-day programs carefully, as some parents prefer to send their children to part-day programs. One-Time Improvement Initiative • Hold off on spending $500 million from the Governor’s one-time initiative given the state lacks key data to make informed spending decisions about the child care workforce and facilities. • Consider setting aside some amount of one-time funding in a new account specifically for future child care expansion and improvement efforts. • Designate $2 million for two studies ($1 million for each study), instead of spending $10 million on a plan. Authorize one study to survey child care providers’ on their facility arrangements and another study to survey eligible families on their child care needs. Require the results of both studies to be submitted to the Legislature by October 2020 (the same time the results of a workforce survey are expected). • Use the set-aside funds starting in 2021-22 to address specific challenges identified in the forthcoming studies. (Continued) www.lao.ca.gov 21 analysis full gutter 2019-20 BUDGET Full-Day Preschool Expansion • Add 2,500 full-day State Preschool slots for non-local education agencies starting January 1, 2020, instead of the 10,000 slots starting July 1, 2019 as proposed by the Governor. This option would cost $16 million non-Proposition 98 General Fund in 2019-20, instead of the $125 million the Governor proposes. • Reject the Governor’s proposal to eliminate the requirement that parents must work or be in school to be eligible for full-day State Preschool. Retaining the requirement ensures full-day State Preschool is available for working parents. • Require the California Department of Education to prioritize expansion funding for providers agreeing to operate at least 10 hours per day. This also ensures full-day State Preschool is available for working parents. • Provide $4 million ongoing to local planning councils so each has a facility specialist that assists providers in identifying facility options. • Approve the Governor’s proposal to shift $297 million in State Preschool funding from Proposition 98 General Fund to non-Proposition 98 General Fund. • Consider funding all State Preschool from one fund source to give providers maximum flexibility in serving families. CalWORKs Caseload and Cost of Care • Consider providing more funding than in the Governor’s budget to cover potentially higher Stage 2 and 3 caseload. The Legislature would need to provide an additional $33 million if Stage 2 and 3 caseload were to increase 9 percent in 2019-20—lower growth than the past two years but triple the growth the administration assumes. Contact Information Sara Cortez One-Time Improvement Initiative 916-319-8348 Sara.Cortez@lao.ca.gov Full-Day Preschool Expansion CalWORKs Caseload and Cost of Care Amy Li Full-Day Kindergarten Expansion 916-319-8358 Amy.Li@lao.ca.gov LAO PUBLICATIONS This report was prepared under the supervision of Edgar Cabral and Kenneth Kapphahn, and reviewed by Jennifer Kuhn Pacella. 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. 22 LEGISLATIVE ANALYST’S OFFICE