BILL ANALYSIS                                                                                                                                                                                                    Ó



                                                                  AB 260
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          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








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             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









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           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  








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               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  








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          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  








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          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. 








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          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









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          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  








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          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. 








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          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  








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               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 the  2004-05   2010-11   
               fiscal year.








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                 (B) The amount of the increase shall be at least equal to  
                 the aggregate child days of enrollment in the final  
                 quarter of the  2004-05   2010-11  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  








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            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 submit  an  
            interim   a  report to the Legislature, the State Department of  
            Social Services, and the department on or before  December 31,  
            2010, and shall submit a final report to those entities on or  
            before June 30, 2014   December 31, 2014.  ,  The report shall  
            summarize   summarizing  the 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 








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          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