The 2021-22 Budget: Child Care Proposals

analysis full gutter The 2021-22 Budget: Child Care Proposals FEBRUARY 2021 In this post, we analyze the Governor’s proposal be administered by CDE. The 2020-21 budget to transition state administration of child care provided DSS with $2 million one-time General programs from the California Department of Fund to plan for the transition. Trailer legislation Education (CDE) to the Department of Social requires DSS to submit a transition plan to the Services (DSS). We then provide background on Legislature by March 31, 2021. The plan is required how the pandemic has affected child care providers and families Figure 1 and provide options the Legislature Several Programs Are Shifting From CDE to DSS could consider to support child care programs in the short term. Child Care and Preschool CDE DSS TRANSITIONING STATE CalWORKs Child Care Stage 1 X ADMINISTRATION OF CalWORKs Child Care Stage 2 X X CHILD CARE PROGRAMS CalWORKs Child Care Stage 3 X X Background Bridge Program for Foster Children X State Subsidizes Child Care Alternative Payment X X and Preschool, Primarily for General Child Care X X Low-Income Families. The state subsidizes child care and preschool Migrant Child Care X X through several programs, serving Care for Children With Severe Disabilities X X an estimated 415,000 children. The vast majority of children participate Head Start Collaboration Office X X in programs currently administered Support Programsa X X by CDE, while DSS administers two programs. State Preschool X 2020-21 Budget Authorized the Transition of Child Care Programs Child Nutrition and One Nutrition Program From Food Distribution Program X CDE to DSS. Trailer legislation shifts administration of state child School Nutrition Programs X care programs and initiatives from Summer Meal Programs X CDE to DSS beginning July 1, 2021 (see Figure 1). Trailer legislation Child and Adult Care Food Program X X also shifts the Child and Adult Care Food Program (CACFP) to DSS. a Includes Resource and Referral, Local Planning Councils, and quality improvement projects. State Preschool and other child CDE = California Department of Education and DSS = Department of Social Services. nutrition programs will continue to 2021-22 LAO Budget Series 1 analysis full gutter to include answers to a number key questions, to DSS. Less than $1 million is funded from the including how the shift will result in better services General Fund. for children and families and what the ongoing cost Provides $13 Million Ongoing General of the shift will be. In February 2021, DSS released Fund for CDE State Operations to Address a transition plan guide, an overview document Administrative Shortfall. As part of the transition, that responds at a high level to the key questions the Governor’s budget includes $13 million and identified in statute. 83 new positions for CDE to backfill some of the positions shifting to DSS. As shown in Figure 3, Governor’s Proposal the Governor proposes backfilling 53 nutrition Shifts $3 Billion in Local Assistance Funds for positions—77 percent of the positions he proposes Child Care and Nutrition Programs. Consistent shifting to DSS. The administration indicates that with the actions taken last June as part of the these additional positions are intended to provide 2020-21 budget package, the Governor’s budget CDE with sufficient staff to administer the nutrition proposes to shift $3 billion in local assistance from programs remaining at CDE, including the Food CDE to DSS. Figure 2 shows the programs and Distribution Program, Summer Meal Programs, associated funding that would be shifted. Under the and the School Nutrition Programs. The bulk of proposal, all of the state’s federal Child Care and the remaining proposed positions are intended to Development Block Grant (CCDBG) funding would support the State Preschool program. be allocated through DSS. Includes New Budget Structure and Shifts $31.7 Million From CDE to DSS for Provisional Language to Modify Shift Midyear. State Operations. The Governor’s budget also The Governor’s budget includes provisional proposes shifting $31.7 million and 185.7 positions language that would allow the administration to on an ongoing basis from CDE to DSS starting transfer local assistance expenditure authority July 1, 2021. As Figure 3 on the next page shows, (both federal fund and General Fund) between these positions are shifting from six different CDE and DSS during the course of the fiscal year. divisions within CDE, with the bulk of positions In addition, the proposed budget bill combines shifting from the Early Learning and Care Division funding for all programs shifting to DSS into one and the Nutrition Services Division. Nearly all schedule. Previously, funding for each child care the positions and funds the Governor proposes program was listed separately in its own schedule, shifting are funded with federal funds intended to while the CACFP was combined with other child support the administration of programs moving nutrition programs administered by CDE. The Figure 2 Governor’s Budget Shifts $3.1 Billion in Local Assistance to DSS 2021-22 (In Millions) Program Shifting General Fund Proposition 64 Federal Fund Total CalWORKs Child Care Stage 3 $397 — $278 $675 Alternative Payment Program 181 $140 332 654 General Child Care 346 50 134 529 Child and Adult Care Food Program — — 525 525 CalWORKs Child Care Stage 2 387 — 81 468 Support Programs 27 — 123 150 Migrant Child Care 40 — 6 46 Care for Children With Severe Disabilities 2 — — 2 Totals $1,379 $190 $1,479 $3,049 Note: Proposition 64 refers to revenue generated from taxes on cannabis. DSS = Department of Social Services. 2021-22 LAO Budget Series 2 analysis full gutter administration noted it intends to modify the needs. The administration’s transition plan guide language this spring and list each program and states DSS is “continuing to assess the resources associated funding separately in the budget bill. and staffing needed” to administer the new programs. LAO Comments Other Elements of Transition Also Lack Detail. Funds and Positions Shifting Not Based on In addition to lacking key information about costs, Workload Analysis. The Governor’s proposed the administration also has not been able to answer shift is almost entirely based on the fund source several key questions regarding the administration associated with these positions. For example, the of programs under DSS. For example, the plan is Governor proposes moving all state operations required to specify how the administration plans to positions funded with federal CCDBG funds maintain existing provider flexibility to transfer funds that are set aside for state administration. This across General Child Care and State Preschool is consistent with the proposed shift of all local contracts. This flexibility allows providers that assistance CCDBG funding from CDE to DSS. have both of these contracts to effectively meet Aligning local assistance and state operations the enrollment needs of their communities. While funding within the same department makes sense. the administration indicates in its plan guide that However, the administration has not conducted it is “actively collaborating to develop processes a workload analysis to determine whether the to maintain these flexibilities,” it has not disclosed funding and positions at DSS are in line with its any details to help the Legislature evaluate whether new administrative responsibilities. As a result, it is these new processes would be more or less uncertain whether the level of proposed resources burdensome for providers compared to current is fully justified. Given the magnitude of the processes. proposed backfill for CDE, it does appear that DSS Lack of Detail Potentially Due to Large would likely have more funding and positions under Workload in the Current Year. Based on our the Governor’s proposal than required to address conversations with both CDE and DSS, planning its new workload. Since there is no new workload for the shift of programs within the time line across both departments, a cost neutral shift would specified in statute has been a large administrative be reasonable. workload on existing staff at both departments. For Cost of Shift Higher Than Anticipated, Full example, both departments have been involved in Cost Unclear. In his proposed 2020-21 budget key workload to administer child care programs, last January, the Governor proposed providing such as developing the state’s Child Care and $10.4 million to create a new Department of Early Development Fund Plan (a plan required by the Childhood Development and having child care programs administered Figure 3 under this department. As part of the May Revision for 2020-21, the Governor Proposes Shifting Positions proposal was modified to instead Across Six Divisions at CDE shift child care programs to DSS. Positions Shifting New Positions The administration indicated it was CDE Division From CDE to DSS at CDE modifying the proposal due to cost Early Learning and Care 72.5 17.0 concerns. The amount of funding Nutrition Services 69.0 53.0 requested in 2021-22 ($13 million), Fiscal and Administrative Services 18.0 6.0 however, now exceeds the cost Audits and Investigations 17.0 7.0 of the initial proposal to create a Technology Services 6.7 — separate department. Furthermore, Legal 1.5 — the cost of the shift could grow in Indirect/Administrative 1.0 — the future as the administration is Totals 185.7 83.0 still determining the resources it CDE = California Department of Education and DSS = Department of Social Services. 2021-22 LAO Budget Series 3 analysis full gutter federal government once every three years). supports adult day care, emergency shelters, In addition to the program shift, staff at both and after school care. The administration departments also have had higher-than-average plans to “connect the existing CACFP with workload as a result of the coronavirus disease other nutrition and child care programs 2019 (COVID-19) pandemic. The state has currently housed at DSS.” However, it is implemented a number of pandemic related unclear why these connections cannot be policies, such as providing temporary child care made within the current structure with CDE slots, stipends, and reimbursement flexibility. administering the program. CDE and DSS (We describe these policies in more detail in the have collaborated on nutrition issues, the next section of this post.) Staff time has been most recent example being the pandemic split between these priorities (the transition and response to provide increased Cal Fresh pandemic response). Moreover, the significant benefits to families impacted by school workload has likely made it difficult for staff to closings. If the administration has specific dedicate sufficient time to preparing for the concerns with how CDE is administering the transition. program, more cost effective solutions likely Given These Concerns, the Legislature exist to address these concerns. May Want to Reconsider Continuing With Legislature Has Several Options on How to Transition. Although the Legislature approved Proceed. In view of the concerns raised above, the shifting programs from CDE to DSS as part of Legislature has a range of options it could consider. the 2020-21 budget package, we think it may Specifically, the Legislature could: want to reconsider the shift given the various issues discussed above. The administrative costs • Stop Transition. The Legislature could decide associated with the shift are higher than anticipated transitioning child care and CACFP to DSS and appear to result in administrative inefficiencies. is no longer a priority. This would “free up” Moreover, the administration has yet to provide $13 million in ongoing General Fund relative to key details of several important elements of the the Governor’s budget proposal that would be transition. While the main rationale for the shift was available to support legislative priorities. to better integrate and coordinate programs, the • Delay Transition. The Legislature could Governor has not provided concrete examples to delay the transition. This would allow the explain how this outcome will in fact be achieved. administration to focus its entire attention We discuss the lack of specificity below. on the pandemic response and plan for the transition on a slower time line. We think • Child Care Programs. The administration has delaying the transition until a year after the not yet provided any specific examples of how COVID-19 emergency declaration has ended the programs will be better integrated and would be a reasonable approach. coordinated at DSS. Rather, the administration • Modify Scope of the Transition. The indicates it is in the process of engaging Legislature could reduce the number of with stakeholders to identify options. The programs shifting to DSS. If the Legislature administration also stated that under DSS, takes this approach, we recommend keeping its implementation of child care programs will CACFP at CDE. The Legislature could further “build upon prior efforts,” such as leveraging minimize the scope of the transition by also data-driven decisions to determine allocation shifting certain child care programs to DSS, of child care funds. It is unclear how these such as California Work Opportunity and efforts under DSS will result in greater benefits Responsibility to Kids Child Care Stages 2 to children and families compared to CDE’s and 3. current efforts. • CACFP. In addition to providing nutrition support to child care providers, CACFP 2021-22 LAO Budget Series 4 analysis full gutter Key Issues for the Legislature to Consider if SUPPORTING CHILD CARE it Decides to Move Forward With the Transition. PROGRAMS DURING THE If the Legislature does decide to move forward with PANDEMIC the transition, we identified two issues that it will want to consider: In this section, we provide background on how the pandemic has affected child care providers and • Revisiting State Preschool Oversight and families. We then provide information on actions the Support. The requested backfill of positions state has taken to support child care providers and for CDE are intended to maintain the existing families. Last, we provide considerations for the level of administration for State Preschool. Legislature to further support child care programs Historically, the level of administration was during the pandemic. based on federal and state requirements, as State Preschool was funded in part with Background CCDBG funding. Since 2019-20, however, State Preschool has been funded entirely from Pandemic Has Affected Child Care Providers the state General Fund and no longer has to and Families. The COVID-19 emergency, has comply with federal CCDBG requirements. placed increased fiscal pressure on child care The state has an opportunity to revisit the providers. The Center for the Study of Child Care state-level oversight and support providers Employment conducted a survey of 953 California receive. For example, instead of having child care providers at the end of June 2020. The staff conduct activities formerly required vast majority of child care providers reported they by federal law, the Legislature may instead were serving fewer children compared to before want to redirect these positions to provide the pandemic and 77 percent of open providers more programmatic support to providers. If reported they experienced a loss of income the state does decide to revisit the level of from families. Providers are also reporting higher support and oversight, staff levels should costs. Of open providers, 80 percent reported align with these oversight and support higher costs for cleaning, sanitation, and personal expectations. protective equipment. Families receiving child care also have been affected, particularly due to school • Maintaining Legislative Oversight. In and child care closures that have required families order for the Legislature to maintain its to find new child care arrangements. oversight role, we recommend modifying the proposed provisional language allowing State Has Taken Several Actions to Support the administration to shift expenditure Child Care Programs During the Pandemic. authority between CDE and DSS. If the The vast majority of these actions were provided administration needs to make any budget on a temporary basis and are only available revisions, we recommend it notify the Joint during the current fiscal year. Most of these Legislative Budget Committee prior to making actions were funded with one-time federal funds any adjustments. We further recommend provided through the Coronavirus Aid, Relief, and amending the proposed budget bill so that Economic Security (CARES) Act. In addition to the funds are appropriated to child care in a $350 million in CARES Act funding specifically for similar structure as the 2020-21 budget act. child care, the state also used $110 million from Specifically, we recommend that funding the Coronavirus Relief Fund (CRF) to support child for each child care program be scheduled care programs. The state had substantial discretion out in separate budget items instead of to allocate CRF for various programs related to the being consolidated together as proposed. COVID-19 emergency. Figure 4 on the next page This approach maximizes transparency and describes the pandemic-related actions in more more effectively facilitates the ability of the detail. Legislature to provide oversight of child care programs. 2021-22 LAO Budget Series 5 analysis full gutter Legislature Established Future Spending funds. This additional funding can be used for most Priorities. The 2020-21 budget package allows of the priorities outlined in the 2020-21 budget CDE to allocate additional federal funds if funds package, as well as any other child care purposes become available in the current year. Trailer related to the COVID-19 emergency. Funds will legislation specifies the priority order and purposes be available for appropriation in the current and the funds must be used for (see Figure 5 on the budget year. next page). In the fall, the state made a budget Governor’s Budget Provides $55 Million revision fully funding the first priority with available One-Time General Fund for COVID-19 Related CRF funds. Support. The Governor’s budget includes California Received an Additional $964 Million $55 million one-time General Fund to support child Federal Funding for Child Care. With the recent care providers and families during the pandemic. passage of H.R. 133 in December 2020, the The Governor does not propose specific uses Coronavirus Response and Relief Supplemental of these funds or indicate how they would be Appropriations Act, the state has received an allocated. additional $964 million in supplemental CCDBG Figure 4 Pandemic-Related Child Care Actions (In Millions) Policy Description Total Alternative Payment Provided $50 million one time in 2019-20 to provide temporary vouchers and $47 million ongoing federal $235 Voucher Slots for funds in 2020-21 to transition families to permanent vouchers. Provided an additional $138 million on a Essential Workers one-time basis for 2020-21. Voucher In 2020-21, voucher-provider payments are based on a child’s authorized hours of care instead of the 63 Reimbursement amount of care used. This holds voucher providers harmless if a child temporarily does not attend child Flexibility care. Family Fees From April 2020 through August 2020, the state temporarily waived family fees for those receiving 62 subsidized care. From September 2020 through June 2021, the state has waived family fees for families not receiving in-person care. Cleaning Supplies The state provided funds for gloves, face coverings, cleaning supplies, and labor costs associated with 50 and Protective cleaning child care facilities. Equipment Voucher Paid Provides an additional 14 paid non-operation days. Funds used so child can attend another provider while 40 Operation Days the original provider is closed. School-Aged Care Funds were to cover the additional cost of providing care to school-aged children. During the school year, 38 school-aged children would typically receive care before and/or after school. As schools in most of the state remain closed, many school-aged children participating in distance learning also are receiving care from a child care provider during the school day. Voucher Stipends Stipends to voucher providers based on the number of subsidized children enrolled. 31 Direct Contract Direct contract providers were provided reimbursement flexibility in 2020-21. To receive this flexibility, — Reimbursement providers must have opened to begin the school year or have been closed due to local or state public Flexibility health guidance. Providers also must provide distance learning services to children enrolled in its programs and submit a distance learning plan to CDE. For providers that meet these conditions, reimbursement will be the lesser of their contract amount or program costs. Typically, provider reimbursement is also generally based on the attendance of eligible children. Attendance Record Trailer legislation allows voucher providers to submit attendance records during 2020-21 without a parent — Requirements signature if the parent is unable to sign due to the COVID-19 pandemic. Typically, providers are required to submit attendance records with a parent signature to receive reimbursement. Total $518 CDE = California Department of Education and COVID-19 = coronavirus disease 2019. 2021-22 LAO Budget Series 6 analysis full gutter Considerations for Figure 5 Supporting Child Care Additional Child Care and Preschool Spending if Programs Federal Funds Become Available Below, we describe issues 2020-21 (In Millions), Listed in Priority Order for the Legislature to consider when determining how to spend Waive fees for families not receiving in-person care $30 additional child care funds and Provide an additional 14 paid non-operation days for voucher providers 35 modify program rules to most Add temporary voucher slots 100 effectively support providers and Provide additional temporary State Preschool and General Child Care slots 30 families during the pandemic. Provide reopening grants to child care providers 15 Consider Actions the State Provide stipends to child care providers 90 Can Implement Quickly. Given Total $300 the immediate issues created by the COVID-19 emergency, the • Use Simple Allocation Methodology. The Legislature will want to prioritize actions the state state may want to allocate one-time funds can implement quickly to get support to child care by using a simple formula instead of opting providers as soon as possible. Such actions could for a more sophisticated approach. Although include the following: complex formulas can more effectively target funding, allocating funds can be delayed as • Use Existing Systems and Programs. While state agencies spend time developing models there is merit to considering new ideas for and collecting the appropriate data. For supporting child care providers and families, example, calculating stipends to providers using existing systems and programs will based on a percent of their total contract deliver funding to providers more quickly would be simpler and quicker than temporarily and make implementation easier. Creating increasing rates based on the regional market new programs and processes takes time, as rate survey. the state would have to develop regulations and/or guidance, collect relevant data, and Consider Spreading Funds Across the Current communicate program rules to providers. and Budget Year. Given the one-time nature of the The state could use existing programs General Fund and federal funds being provided, and systems to avoid these delays in spreading funding over several fiscal years ensures implementation. For example, in spring the state can sustain the temporary support for a 2020, the state used Resource and Referral longer time period. For lump sum payments, such agencies to distribute personal protective as stipends, spreading the funds over several years equipment to subsidized and nonsubsidized also gives providers more flexibility for spending the providers. The state could use these agencies funds. However, the Legislature will want to ensure in the future if it is interested in providing it fully expends federal funds during the allowable similar support. time period. • Extend Existing Pandemic Actions. Virtually Consider Modifying Flexibilities to Ease all pandemic actions for child care providers Administrative Burden. Some of the policies were enacted by the state on a temporary implemented in the current year can be modified basis, ending June 30, 2021. Extending these to ease the administrative burden for the state, flexibilities would be administratively simple, local providers, and families. For example, family as the guidance has already been written and fees for September through July 2021 are waived implemented. Child care providers are already for families not receiving in-person services or clear on how these actions impact their local sheltering in place. Since pandemic-related child programs. care closures and shelter-in-place requirements happen unexpectedly, this policy requires child 2021-22 LAO Budget Series 7 analysis full gutter care providers to revisit family fees throughout pressure to create ongoing slots that allow families the month. Under typical circumstances, child to continue receiving child care. Although the care providers would only collect family fees at temporary slots are intended to address temporary the beginning of the month. Waiving all family increases in the need for care, we would note that fees temporarily during the pandemic would be demand for subsidized child care from low-income administratively simpler for all parties involved. We families has exceeded state funding for decades. estimate this approach would have an annual cost As a result, we do not expect that demand for slots in the high tens of millions of dollars. will decrease notably when the pandemic is over. Without Ongoing Funding, Temporary Slots Applying Same Flexibilities to State Preschool Will Lead to Disenrollment Down the Line. Will Require General Fund Spending. During the During the pandemic, the Legislature has prioritized pandemic, the state has so far provided the same using one-time funds to provide temporary slots flexibilities to State Preschool as it has for other for essential workers. The Legislature may want child care programs. If the state wants to continue to consider providing similar funding with the this practice in the budget year, it would likely need additional CCDBG funding to continue to provide to fund the flexibilities with one-time General Fund. subsidized child care for families. Without ongoing This is because State Preschool programs do not funding, however, families receiving temporary slots meet all of the eligibility requirements to be funded will eventually be disenrolled. Providing additional with CCDBG. one-time funding for slots creates additional cost LAO Publications This report was prepared by Sara Cortez, and reviewed by Edgar Cabral and Anthony Simbol. The Legislative Analyst’s Office (LAO) is a nonpartisan office that provides fiscal and policy information and advice to the Legislature. 2021-22 LAO Budget Series 8