BILL ANALYSIS Ó Senate Appropriations Committee Fiscal Summary Senator Kevin de León, Chair AB 260 (Gordon) - Individualized County Child Care Subsidy Plans Amended: June 25, 2013 Policy Vote: Education 9-0 Urgency: No Mandate: No Hearing Date: August 30, 2013 Consultant: Jacqueline Wong-Hernandez SUSPENSE FILE. Bill Summary: This bill makes permanent the San Mateo County individualized child care subsidy plan and extends by 2 years the San Francisco County individualized child care subsidy plan. Fiscal Impact: San Mateo subsidy plan: Potentially substantial loss of state savings beginning in 2014-15; likely in excess of $1 million dollars annually. San Francisco subsidy: Substantial loss of state savings in 2015-16; likely in the low millions of dollars. Oversight: Minor workload savings to the California Department of Education (CDE); the department would no longer have administrative workload associated with the requirements of the pilot itself. Background: The state subsidizes child care and development for certain low income families. Certain child care providers have direct service contracts with the CDE, and are commonly referred to as licensed Title 5 programs. These child care providers must meet education and training standards that exceed those of Title 22 child care providers (licensed and license-exempt), as well as provide care that includes an educational component. Title 5 providers are reimbursed at the Standard Reimbursement Rate, which is currently $34.38 per child per day. Current law authorizes pilot projects in San Mateo County (since 2004) and San Francisco City and County (since 2006) that allow the counties to develop and implement an individualized county child care subsidy plan in recognition of the high-cost of AB 260 (Gordon) Page 1 living in those counties. The plans allow Title 5 child care providers in the county to supersede state requirements in the following factors: 1) Eligibility criteria including age, family size, time limits, income level, inclusion of former and current CalWORKs participants, and special needs considerations; 2) fees, including family fees, sliding scale fees, and co-payments for those families that are not income eligible; 3) reimbursement rates; and, 4) methods of maximizing the efficient use of subsidy funds including multi-year contracting with the CDE for center-based child care, and interagency agreements that allow for flexible transfer of funds among agencies. (Education Code 8335.1 and 8341) Individualized child care subsidy plans must be implemented within allocated funds. No additional state funding is provided to either San Francisco or San Mateo counties for individualized child care subsidy plans. Both counties have been required to submit period reports to the Legislature, and are required to terminate and phase out the individualized county child care subsidy plans as follows: 1) San Mateo is to terminate the plan on January 1, 2014, and phase out until January 1, 2016, at which time the county is to implement the state's requirements for child care subsidies. 2) San Francisco is to terminate the plan on July 1, 2014, and phase out until July 1, 2016, at which time the city and county is to implement the state's requirements for child care subsidies. The individualized child care subsidy plan is phased out by not enrolling additional children under the alternative criteria once the plan is terminated. As children age-out or disenroll for other reasons, fewer and fewer children meet the criteria of the individualized plan. Proposed Law: AB 260 makes permanent the San Mateo County individualized child care subsidy plan and extends by two years the San Francisco County individualized child care subsidy plan. With regard to San Mateo County, this bill: AB 260 (Gordon) Page 2 1) Extends by 6 months the individualized child care subsidy plan, from January 1, 2014, to July 1, 2014. 2) Authorizes the individualized child care subsidy plan to continue to be implemented permanently. 3) Sunsets the existing provisions and recasts nearly identical language for the continuance of the individualized child care subsidy plan with the existing requirement for showing increases in enrollment and the role of the Department of Social Services (DSS) in reviewing outcome measures. 4) Requires the county to prepare and submit to the Legislature, the DSS, and the CDE, an annual report, until January 1, 2018, as specified. With regard to San Francisco County, this bill: 1) Extends the sunset on the individualized child care subsidy plan for 2 years, from July 1, 2014, to July 1, 2016, and phase out period (to 2016-2018). 2) Extends by 6 months the due date of the final report to the Legislature, and requires that the report include an evaluation of the pilot project's operation between the 2011-12 and 2013-14 fiscal years, and provide a recommendation as to whether the pilot project should continue as a permanent program. Related Legislation: AB 86 (Committee on Budget), approved by the Legislature on June 14, 2013, extends both the San Francisco and San Mateo individualized child care subsidy plans for an additional year. The prior two extensions were implemented through the Budget Act. This bill exceeds the authority granted by the Budget Act and would chapter out those provisions if enacted. Staff Comments: The individualized child care subsidy pilot program in San Mateo and San Francisco counties was established to increase subsidized child care access and options in two counties with a high cost of living. Under the pilot program, both counties were allowed to provide subsidized child care to AB 260 (Gordon) Page 3 families whose income levels would have made them ineligible in other parts of the state, to pay increased reimbursement rates to child care providers, and to temporarily reallocate funds among providers when one provider was not going to be able to fully expend the funding in its contract. The pilot program did not provide the counties additional funding for subsidized child care; it simply made it easier for the two counties to spend the funding they were allocated annually. As intended, the pilot resulted in more subsidized child care money being spent on subsidized child care in those counties, and less reverting back to the state General Fund. In 2002-03, the year before the pilot began, San Mateo County was unable to spend 15% of its allocation, and returned that money to the General Fund. By contrast, in 2011-12, it was unable to spend only 3.6% of its allocation, and returned $652,580 to the state. San Francisco County returned $1,134,639 - 2.3% of its allocation, in 2011-12. The flexibility afforded by the pilot program is the primary reason that the county has been able to offer more subsidized child care and spend its allocation. Another reason is that state budget reductions to subsidized child care have substantially reduced the available funds for each county to spend. Absent the special rules (whether in pilot or permanent form) governing subsidized child care in San Mateo and San Francisco counties, there would be a reduction in child care services. Providers would no longer find it as attractive to offer subsidized child care services (which reimburse less than the market rate for child care) and fewer families would qualify for the services in those counties, to begin with. The amount of unspent funds that would revert from those counties back to the General Fund would increase, but it is not clear how much it would increase. Since 2002-03, a number of mitigating factors have been introduced, including child care allocation reductions, contract changes, and the flexibility for all counties to temporarily reallocate funds among child care providers in the county when a provider is not going to spend its full contract amount (which was previously only allowable for San Mateo and San Francisco counties under this pilot). AB 260 (Gordon) Page 4