BILL ANALYSIS Ó AB 260 Page 1 Date of Hearing: April 16, 2013 ASSEMBLY COMMITTEE ON HUMAN SERVICES Mark Stone, Chair AB 260 (Gordon) - As Introduced: February 7, 2013 SUBJECT : Individualized county child care subsidy plans SUMMARY : Makes permanent the individualized county child care subsidy pilot plans (pilot) for San Mateo and San Francisco County. Specifically, this bill : 1)Maintains the sunset date for the San Francisco County pilot until July 1, 2014 and allows it to continue as a permanent program thereafter. 2)Changes the statutory inoperative and repeal dates for the San Francisco County pilot from July 1, 2016 to July 1, 2014 and from January 1, 2017 to January 1, 2015, respectively. 3)Changes the sunset date for the San Mateo County pilot from January 1, 2016 to July 1, 2014 and allows it to continue as a permanent program thereafter. 4)Changes the statutory inoperative and repeal dates for the San Mateo County pilot from January 1, 2016 to July 1, 2014 and from January 1, 2016 to January 1, 2015, respectively. EXISTING LAW 1)Authorizes San Mateo and San Francisco County to develop and implement a pilot, upon approval by their local child care planning council (council) and the California Department of Education (CDE) to ensure that child care subsidies received by the county are used to address local needs, conditions, and priorities of working families in the community. 2)Allows both counties' pilot plan to supersede state law on only the following factors: a) Eligibility criteria, as specified; b) Fees, as specified; c) Reimbursement rates; and AB 260 Page 2 d) Methods of maximizing subsidized funds. 3)Requires both counties to work with the CDE in developing the pilot, which includes an assessment to identify each county's subsidized child care system barriers and goals for participation in the pilot, which includes a comprehensive review of each county's: a) Demographics; b) Availability of subsidized child care; c) Level of need for subsidized child care; d) Subsidized child care rates, i.e. the Standard Reimbursement Rate (SRR) and Regional Market Rate (RMR); e) Self-sufficiency income level; f) Family fee schedule; g) Child care provider costs; and h) Unemployment trends and housing affordability index. 4)Requires each pilot to be reviewed by the Legislative Analyst and the Senate Office of Research prior to submission to their council for approval. 5)Requires each pilot to submit an independent evaluation report to the Legislature, California Department of Education and the California Department of Social Services (DSS). 6)Allows the San Francisco County pilot to operate until July 1, 2014, phases out the pilot through July 1, 2016 and renders the authorizing statute inoperative July 1, 2016 and repeals it January 1, 2017. 7)Allows the San Mateo County pilot to operate until January 1, 2014, phases out the pilot through January 1, 2016 and renders the authorizing statute inoperative and repeals it January 1, 2016. FISCAL EFFECT : Unknown AB 260 Page 3 COMMENTS : Background There are generally two types of child development providers in the state; commonly referred to as either Title 22 or Title 5 programs. Title 22 refers to Division 2 of Title 22 of the California Code of Regulations (CCR), which is governed by DSS and Title 5 refers to Divisions 19 and 19.5 of the CCR, which is governed by the CDE. Title 22 establishes general health and safety requirements, staff to child ratios, and basic provider training qualifications. In order for any person to operate a child development program, the program must first become a licensed provider under Title 22. Title 22 providers set their own rates and may voluntarily accept child development subsidy vouchers, along with statutorily established family fees, provided through the California Work Opportunity and Responsibility to Kids (CalWORKs) program or other state-funded child care subsidy programs. Voucher rates are set by the Regional Market Rate (RMR), which is generally intended to reflect the true regional cost of care in the private child care market. However, as established by AB 1497 of 2012, the education budget trailer bill (Chapter 29, Statutes of 2012), the RMR is currently set at the 85th percentile of the 2005 RMR Survey. According to DSS, as of February 6, 2013, there were approximately 47,477 child care agencies with a licensed capacity to serve up to 1,095,672 children in California. Title 5 governs the state's subsidized child development programs, which are overseen by the CDE. These programs must be licensed by DSS under Title 22 regulations and meet higher quality standards established under Title 5 regulations. These requirements include: A developmentally and age-appropriate educational program for enrolled children; Staff development opportunities to improve program quality; Parental involvement and education, including a parent AB 260 Page 4 survey; Nutritional standards that comply with federal child nutrition program requirements, such as the National School Lunch Program: A health and social services component to identify and refer eligible children and their families to community or public health and social services, such as CalFresh: A self-evaluation process to continually improve and enhance their program; and An environment rating scale that measures educational, staff development and parental involvement and education. It is important to note that Title 5 programs, as a condition of being contracted with the CDE, must accept and serve needy and eligible subsidized children. Title 5 programs are funded through the receipt of the Standard Reimbursement Rate (SRR) based upon the number of children enrolled and the number of hours of care, and statutorily established family fees. Whereas a Title 22 program accepting a voucher would be reimbursed by the RMR, which is generally higher than the SRR because of its association with the regional private provider market, a Title 5 program is reimbursed using the SRR. The SRR is statutorily set and is supposed to be increased annually with a cost of living adjustment (COLA), however, a COLA has not been provided since the 2007-08 fiscal year. The SRR currently stands at $34.38 for one full-day of enrolled care, which is defined by regulation as six and one half hours of care. There are "adjustment factors" that are applied to the SRR to reflect the increased cost of care for the varying ages and needs of children, i.e., infants and toddlers, special needs, etc. however, they too have not changed since their establishment in AB 2311 (Chu), Chapter 435, Statutes of 2002. Title 5 programs earn their SRR reimbursement based upon child days of enrollment, meaning they are reimbursed at the rate of $34.38 per day for each day the needy or eligible child receives care. This creates challenges for Title 5 programs, as they budget based upon the total number of days and children they anticipate having to serve in a fiscal year. Add into this the uncertainty of a child's regular and continuous enrollment, a AB 260 Page 5 family being deemed as no longer eligible or in need of care, and fluctuating statewide budgets, it becomes a formidable challenge for a Title 5 program to fully earn their contract's maximum reimbursable amount (MRA). The goal set by CDE for Title 5 programs is to annually earn no less than 98% of their MRA. According to CDE, as of the 2009-10 fiscal year, there were approximately 1,420 service contracts with nearly 770 public and private agencies supporting and providing services to 489,200 children. Title 5 providers contract with the CDE and include school districts, county offices of education, cities, local park and recreation districts, county welfare departments, other public entities, community-based organizations, and private agencies. Supply and demand In 1997, the state developed a nine county pilot program to consolidate waiting lists for subsidized child care programs to better organize and prioritize enrollment of eligible and needy children. This nine-county pilot was expanded statewide and made permanent in 2005. Referred to as the Centralized Eligibility List (CEL), it not only became a valuable tool to help prioritize enrollment based upon eligibility and need, it also helped to demonstrate the need for subsidized child care and funding county-by-county and statewide. The state annually appropriated $7.9 million to operate all 58 county CELs and the statewide CEL. Unfortunately, due to the ongoing budget deficit at the time, funding for CEL was eliminated in the Budget Act of 2011 (Senate Bill 87, Chapter 33). At the time of its elimination, there were approximately 240,000 eligible and needy children waiting for a subsidized child care slot to open up. Since then, some counties have pursued maintaining their own CEL with existing local funds, but it remains difficult to accurately estimate the total number of needy and eligible families and children waiting for subsidized child care. However, using the number of eligible and needy children who were on the statewide CEL in 2011, and taking into account the nearly $700 million, or 42% of subsidized child care funding that has been cut from the budget over the past five years, it is not unreasonable to estimate that the number of eligible and needy children waiting for subsidized child care is hovering AB 260 Page 6 around 300,000 children statewide. History of the pilot and challenges to provide subsidized child care in high cost counties The San Mateo County pilot was established in 2004 and the San Francisco pilot in 2006. Both were established in response to the unintended consequences of living in a high cost county has on needy and otherwise eligible families and the ability of Title 5 programs to accept and serve them. On the one hand, a low-income family who earns just enough money to meet the high costs of housing could inadvertently be deemed as having too high an income to qualify for subsidized child care. On the other, the statutorily established SRR, which is the uniform statewide reimbursement rate for subsidized care is wholly insufficient for agencies to cover their program and operational costs. As a result, child care subsidy funds allocated to these two counties were not being fully expended because too many low-income families were being deemed ineligible due to the high cost of living, and provider reimbursement rates were insufficient to cover the cost of care. Since slots went unfilled, subsidies went unspent. Through the pilot, San Mateo and San Francisco County are provided limited local flexibility with increased state oversight to revise their eligibility and need determinations, adjust their reimbursement rates and family fees based upon a local evaluation and assessment, and modify their funding requirements, as specified. This allows both counties to use the funds they would have otherwise not earned and reinvest that into their providers through increased reimbursement rates. For example, prior to the pilot, San Mateo County returned upwards of 15% of their overall subsidized child care allocation to the state. Using an ongoing estimation of how much money would go un-earned, in the 2010-11 fiscal year, San Mateo was able to reallocate those funds amongst its agencies that were able to increase their enrollment. They were also able to provide increased reimbursement rates ranging from 1.5 percent to eight percent above the SRR. In San Francisco, the reimbursement rates were increased to $36.63 for their center based agencies and $39.46 for their programs operated by San Francisco Unified School District. AB 260 Page 7 Both counties are also able to adjust how they determine a family to be eligible for subsidized care. In San Mateo County, they switched from using the 75% of the "benchmark" state median income to 85% of current state median income as published by the U.S. Department of Health and Human Services, the maximum allowable under federal regulations (which is the maximum allowable under the pilot). According to San Mateo County in their initial 2004 subsidy plan: Although this represents a 39% increase in the income eligibility threshold, this new threshold is only 67% of San Mateo County's median income from the 2000 Census and still falls well below the County self-sufficiency standards developed by Wider Opportunities for Women, the San Mateo County Human Services Agency or the California Budget Project. In San Francisco, eligibility was set at 80% of state median income, which allowed San Francisco to retain 392 children who would have been otherwise deemed ineligible under the statewide rate of 70% of state median income for the 2011-12 fiscal year. Evaluation of the pilot programs San Mateo County San Mateo County has been successful in meeting the goals of the pilot. Over the first six years of the pilot, San Mateo consistently increased their child days of enrollment, which has helped to steadily increase their contract earnings. According to their independent evaluation, they increased their earnings percentage from 88% in the 2003-04 fiscal year, which was the year prior to the implementation of the pilot, to 96% the following fiscal year. On average, San Mateo earned just over 97% of their total direct service funds over the first seven years of the pilot. Based upon this data and the independent evaluations of the San Mateo County pilot, San Mateo County has continually met and exceeded the goals of the pilot and merits having it made permanent. City and County of San Francisco AB 260 Page 8 San Francisco has had a few more challenges in implementing the pilot. Some of its challenges can be attributed to how the pilot was implemented. At the outset, San Francisco's pilot mirrored much of San Mateo's, which, in retrospect was not the best use of the pilot as it did not reflect the unique and different challenges facing San Francisco. Although this was not the only challenge facing its pilot, it did present a significant challenge. As a result, San Francisco decreased, rather than increased its contract earnings. They dropped from 98% to an average of 93% over the first six years of the pilot. In response, San Francisco and the CDE conducted a holistic review and adjustment of the pilot for the 2011-12 fiscal year. As a result, the pilot was revised and a number of revised elements were implemented. According to the independent evaluation of San Francisco's 2011-12 fiscal year, the revised pilot: ? draws upon lessons learned in the original pilot and focuses on unique aspects of the San Francisco Pilot project, such as technical assistance and the beginning of an enhanced CEL called the San Francisco Child Care Connection (SF3C). In the first year of the revised pilot, San Francisco considerably reduced their under-earned amount for the 2011-12 fiscal year to 1.7 percent of their countywide service allocation, which is a substantial improvement. Additionally, according to San Francisco, they are on track to further reduce the amount of the under-earned service allocation for the current 2012-13 fiscal year. It should also be noted that San Francisco has also steadily increased their child days of enrollment under the revised pilot. However, one year is not a good measure of year-over-year consistency and progress. Should year-over-year sustained progress for at least three consecutive years be made, it would demonstrate that the pilot is effective and beneficial to San Francisco and is in the state's best interest to be made permanent. RECOMMENDED AMENDMENTS: It is the recommendation of this committee that should San Francisco successfully demonstrate over three consecutive fiscal years (2011-12, 2012-13, and 2013-14) that it earned nearly 100 percent of its countywide direct service funds and increased AB 260 Page 9 child days of enrollment, the pilot should be strongly considered to be made permanent at that time. In order to demonstrate continued progress, and therefore merit making the San Francisco County pilot permanent, and recognizing that the pilot was revised and implemented in the 2011-12 fiscal year to better reflect the challenges San Francisco County faces, it would be advisable that their pilot remain in effect for an additional two years. This would: Allow San Francisco to demonstrate, under the revised pilot, a minimum of three consecutive years of improvement through the 2013-14 fiscal year; Provide sufficient time for an independent evaluation to be conducted to report to the Legislature, DSS and CDE whether the pilot merits permanency based upon the principles of the revised pilot between the 2011-12 and 2013-14 fiscal years; and Allow legislation to be pursued no sooner than the 2015 legislative year to make the pilot permanent. Otherwise, if San Francisco is not successful, the pilot can be phased out. Specifically, staff recommends the following amendments: 1)On page two, line five delete "July 1, 2014" and insert "July 1, 2016" 2)On page two, line 14 before "may continue" add the following language to read: " shall terminate the plan. Between July 1, 2016, and July 1, 2018, the city and county shall phase out the individualized county child care subsidy plan and, as of July 1, 2016, shall implement the state's requirements for child care subsidies. A child enrolling for the first time for subsidized child care in the city and county after July 1, 2016, shall not be enrolled in the pilot program established pursuant to this article and is subject to existing state laws and regulations regarding child care eligibility and priority. 3)On page two, delete lines 14 through 16. AB 260 Page 10 4)On page two, line 17 before "SEC. 2." add the following amendment to Section 8335.1 of the Education Code to read: 8335.1. Prior to implementing the local subsidy plan, the City and County of San Francisco, in consultation with the department, shall develop an individualized county child care subsidy plan for the city and county that includes the following four elements: (a) An assessment to identify the city and county's goal for its subsidized child care system. The assessment shall examine whether the current structure of subsidized child care funding adequately supports working families in the city and county and whether the city and county's child care goals coincide with the state's requirements for funding, eligibility, priority, and reimbursement. The assessment shall also identify barriers in the state's child care subsidy system that inhibit the city and county from meeting its child care goals. In conducting the assessment, the city and county shall consider all of the following: (1) The general demographics of families who are in need of child care, including employment, income, language, ethnic, and family composition. (2) The current supply of available subsidized child care. (3) The level of need for various types of subsidized child care services including, but not limited to, infant care, after-hours care, and care for children with exceptional needs. (4) The city and county's self-sufficiency income level. (5) Income eligibility levels for subsidized child care. (6) Family fees. (7) The cost of providing child care. (8) The regional market rates, as established by the department, for different types of child care. (9) The standard reimbursement rate or state per diem for AB 260 Page 11 centers operating under contracts with the department. (10) Trends in the county's unemployment rate and housing affordability index. (b) Development of a local policy to eliminate state-imposed regulatory barriers to the city and county's achievement of its desired outcomes for subsidized child care. (1) The local policy shall do all of the following: (A) Prioritize lowest income families first. (B) Follow the family fee schedule established pursuant to subdivision (f) of Section 8263 for those families that are income eligible, as defined by Section 8263.1. (C) Meet local goals that are consistent with the state's child care goals. (D) Identify existing policies that would be affected by the city and county's child care subsidy plan. (E) (i) Authorize any agency that provides child care and development services in the city and county through a contract with the department to apply to the department to amend existing contracts in order to benefit from the local policy once it is adopted. (ii) The department shall approve an application to amend an existing contract if the child care subsidy plan is approved pursuant to subdivision (b) of Section 8335.3, or modified pursuant to subdivision (c) of Section 8335.3. (iii) The contract of a department contractor who does not elect to request an amendment to its contract remains operative and enforceable. (2) (A) The city and county shall, by the end of the first fiscal year of operation under the approved child care subsidy plan, demonstrate an increase in the aggregate child days of enrollment in the county as compared to the enrollment in the final quarter of the2004-052010-11 fiscal year. AB 260 Page 12 (B) The amount of the increase shall be at least equal to the aggregate child days of enrollment in the final quarter of the2004-052010-11 fiscal year for all contracts amended as provided in subparagraph (E) of paragraph (1), under which the contractor receives an increase in its reimbursement rate, times 2 percent. (C) The amount of the increase shall also be proportional to the total contract maximum reimbursable amount to reflect the changes in the budget allocation for each fiscal year of the pilot. (3) The local policy may supersede state law concerning child care subsidy programs with regard only to the following factors: (A) Eligibility criteria including, but not limited to, age, family size, time limits, income level, inclusion of former and current CalWORKs participants, and special needs considerations, except that the local policy may not deny or reduce eligibility of a family that qualifies for child care pursuant to Section 8353. Under the local policy, a family that qualifies for child care pursuant to Section 8354 shall be treated for purposes of eligibility and fees in the same manner as a family that qualifies for subsidized child care on another basis pursuant to the local policy. (B) Fees including, but not limited to, family fees, sliding scale fees, and copayments for those families that are not income eligible, as defined by Section 8263.1. (C) Reimbursement rates. (D) Methods of maximizing the efficient use of subsidy funds, including, but not limited to, multiyear contracting with the department for center-based child care, and interagency agreements that allow for flexible and temporary transfer of funds among agencies. (c) Recognition that all funding sources utilized by direct service contractors that provide child care and development services in the city and county are eligible to be included in AB 260 Page 13 the child care subsidy plan of the city and county. (d) Establishment of measurable outcomes to evaluate the success of the plan to achieve the city and county's child care goals and to overcome any barriers identified in the state's child care subsidy system. The State Department of Social Services shall have an opportunity to review and comment on the proposed measurable outcomes before they are submitted to the local child care planning council for approval pursuant to Section 8335.3. 5)On page two , line 17 before "SEC. 2." add the following amendment to Section 8335.4 of the Education Code to read: 8335.4(a) Upon approval of the plan by the Child Development Division of the department, the City and County of San Francisco shall annually prepare and submit to the Legislature, the State Department of Social Services, and the department a report that summarizes the success of the pilot project and the city and county's ability to maximize the use of funds and to improve and stabilize child care in the city and county. (b) The City and County of San Francisco shall submitan interima report to the Legislature, the State Department of Social Services, and the department on or beforeDecember 31, 2010, and shall submit a final report to those entities on or before June 30, 2014December 31, 2014.,The report shall summarizesummarizingthe impact of the plan on the child care needs of working families in the city and county , evaluate the pilot's operation between the 2011-12 and 2013-14 fiscal years, and provide a recommendation as to whether the pilot should continue as a permanent program . 6)On page two, line 20, delete "2014" and insert "2018" and delete "2015" and insert "2019" 7)On page two, line 21, delete "2015" and insert "2019" 8)Delete all references to the City and County of San Francisco and make conforming changes to Section 5 of the bill. REGISTERED SUPPORT / OPPOSITION : Support AB 260 Page 14 San Mateo County Board of Supervisors - Co-sponsor California Alternative Payment Program Association (CAPPA) California Child Care Coordinators Association California State Association of Counties (CSAC) City and County of San Francisco - Co-sponsor County Welfare Directors Association of California (CWDA) San Francisco Child Care Planning and Advisory Council (CPAC) San Mateo County Child Care Partnership Council (CCPC) San Mateo County Office of Education Urban Counties Caucus (UCC) Opposition None on file Analysis Prepared by : Chris Reefe / HUM. S. / (916) 319-2089