BILL ANALYSIS Ó
AB 812
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Date of Hearing: April 30, 2013
ASSEMBLY COMMITTEE ON HUMAN SERVICES
Mark Stone, Chair
AB 812 (Mitchell) - As Amended: April 22, 2013
SUBJECT : Child care: contracts: termination and suspension
SUMMARY : Revises existing authority for the California
Department of Education (CDE) to suspend or terminate child care
contracts. Specifically, this bill :
1)Removes the authority of the CDE to suspend a child
development agency's contract.
2)Clarifies that a contracted child development agency shall
submit all required monthly and quarterly reporting forms to
the CDE prior to appealing the termination of their contract.
3)Clarifies the application of the "clear contract,"
"provisional contract," and "conditional contract"
designations for contracted child development agencies.
4)Clarifies the CDE's authority to immediately terminate a child
development agency's contract if it is found, upon the
recommendation of the CDE's general counsel, that the agency
violated specified conditions.
5)Adds to the reasons a child development agency may have its
contract immediately terminated failure to reimburse a
significant number of its child care providers, pay its
employees, or pay its federal payroll tax within 15 calendar
days of the established date provided by the Alternative
Payment Program (APP) in its plan for timely payments, unless
the failure is due to the state's inability to distribute
funds in a timely manner to the APP.
6)Deletes specific references to penal code violations as reason
to prohibit the hiring and placement of a person into a
position of fiscal responsibility, and replaces it with
prohibitions that relate to state or federal convictions of
the misuse or misappropriation of state or federal funds, or
crimes involving moral turpitude.
7)Eliminates the requirement that the CDE provide a 90-day
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notice to an agency found in violation of placing a person who
has been convicted of specified crimes into a position of
fiscal responsibility.
8)Prohibits a child development agency from continuing to
provide services while under an appeal if the agency's
contract is terminated under an immediate termination action,
as specified.
EXISTING LAW
1)Establishes the Child Care and Development Services Act
(CCDSA) to provide a comprehensive, community-based,
coordinated, and cost-effective system of child care and
development services for children from birth to age 13 with
the purpose of enhancing the social, emotional, physical, and
intellectual development of children.
2)States the intent of the Legislature that all families have
access to child care and development services, regardless of
their demographic background, in order to help them attain
financial stability through employment, while maximizing
growth and development of their children, and enhancing their
parenting skills through participation in child care and
development programs.
3)Defines child care and development services as care and
services designed to meet a wide variety of needs of children
and their families, while their parents or guardians are
working, in training, seeking employment, incapacitated, or in
need of respite.
4)Authorizes local government agencies or non-profit
organizations to contract with the CDE to operate APPs and
provide alternative payments and support services to parents
and child development providers.
5)Establishes requirements and procedures APPs and child
development providers must follow as contracted agencies with
the CDE, including but not limited to tracking and reporting
of attendance, accounting and auditing requirements, and
reimbursement and payment procedures.
6)Provides the State Superintendent of Public Instruction (SSPI)
the authority to establish a contract classification system to
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identify, monitor and provide technical assistance to
contracted child development providers and APPs.
7)Defines a "clear contract" as a designation of a contracted
agency that is in full compliance withal applicable statutory
provisions, funding terms and conditions, and applicable
program quality guidelines.
8)Defines a "provisional contract" as designation of a newly
awarded contract to an agency, under which the timeframe of
this status is at the discretion of the CDE.
9)Defines a "conditional contract" as a designation of a high
risk contracted child care agency that is out of fiscal or
programmatic compliance.
10)Rules a child care agency under a "conditional contract"
ineligible for purposes of applying for additional state child
development program funds.
11)Permits the CDE to suspend or immediately terminate a
contracted child care agency upon the following violations:
a) Fraud or conspiracy to defraud;
b) Misuse of state funds in violation with the California
Accounting Manual;
c) Embezzlement;
d) Threats of bodily or other harm to state officials;
e) Bribery or attempted bribery of a state official;
f) Unsafe or unhealthy physical environment or facility;
g) Substantiated abuse or molestation of children;
h) Failure to report suspected child abuse or molestation;
i) Theft of supplies, equipment or food; and
j) Places a person in position of fiscal responsibility or
control who has been convicted of specified crimes,
including financial violations.
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12)Requires the CDE to provide notice of suspension or
termination, as specified.
13)Provides due process rights to a child care agency, which
include the right to an independent appeals process
administered by the Office of Administrative Hearings (OAH).
FISCAL EFFECT : Unknown
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 the
Department of Social Services (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 (Committee on Budget), Chapter 29, Statutes of 2012, which
was the education budget trailer bill, 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
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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
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 education
quality, parental involvement, and staff development 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
children eligible for subsidies. 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
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and needs of children, e.g., 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 to this the
uncertainty of a child's regular and continuous enrollment, a
family being deemed 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 its contract's maximum
reimbursable amount (MRA). The goal set by the CDE for Title 5
programs is to annually earn no less than 98% of their MRA.
According to the 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. Since then, some counties have pursued
maintaining their own CEL with existing local funds, but it
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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 could be around
300,000 children statewide.
Suspension and Termination
Current law and regulations provide the CDE the authority to
identify and address child development agencies that face
challenges or violate the law in the administration of their
contracts. The manner in which the CDE addresses these agencies
depends on the nature of the issues the agency faces. In a
large number of cases, agencies are operated with the good
intentions of operating a beneficial program that provides for
an enriched child development environment that both provides for
the care and intellectual development of the children they
serve. However, the oftentimes complex and challenging
requirements to meet state programmatic or more demanding fiscal
requirements place some programs in arduous positions. This
reflects the nature in which the state provides child
development funds, whereby programs have to earn up to but not
more than 100 percent of their contracted reimbursement amount.
In order to help provide assistance, guidance and accountability
for the provision of developmental care and fiscal
responsibility to agencies, current law authorizes the CDE to
use a tiered process to addresses programs that are in good
standing, struggling or at risk of not meeting state
requirements. Although it's also provided for in statute, much
of the specific process the CDE uses is laid out in Title 5 of
the California Code of Regulations (CCR) or in its issuance of
Management Bulletins (MB). MBs are issued periodically to
remind or provide guidance to contracted child development
agencies as to changing requirements under law, to respond to
thematic issues that may arise from misunderstandings about how
to implement or comply with statutory or regulatory
requirements, or other directives necessary as determined by the
CDE.
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Through this multi-faceted approach, the CDE examines
programmatic reviews and fiscal audits to determine the health
of a child development agency. If an agency is operating in
compliance with the law and otherwise satisfactorily, it is
labeled as an agency in good standing; referred to as a "clear
contract." If an agency is struggling due to misunderstanding
of requirements or misinterpretations of law, technical
assistance and professional development are made available to
the agency in to order to better ensure that the program is
complying with statutory and regulatory requirements. However,
if after annual review and the provision of technical
assistance, the program continues to struggle, the CDE can place
the agency into "conditional contract" status, which then
identifies the agency as at-risk. This can be for several
reasons, including inability to comply with the law or
purposeful or otherwise unauthorized administrative behavior.
Conditional status typically lasts for one year, but can last
for more. It involves amending the agency's contract and
placing specific goals upon the agency to improve its
performance in order to bring it into compliance with statutory
and regulatory requirements. If, after a specified period of
time, the agency does not meet the conditions placed upon it
under its "conditional contract" status, then the CDE can begin
to pursue action to terminate the contract.
In most cases involving unacceptable performance, such as
criminal actions or outright negligence, the CDE may act on the
program by suspending or terminating the contract for specified
reasons. These reasons can span from theft and embezzlement to
continued misappropriation of funds. In most cases, the CDE
will attempt to work with the agency unless the actions are so
egregious that their programmatic, fiscal, and legal staff
determines that the contract would best be served with another
agency or organization.
Reason for the bill
According to the author, in writing for the need for the bill:
AB 812 would clarify, streamline, and strengthen the child
care contracting process to better protect children and
taxpayer funds from the most egregious circumstances, and
also remove administrative barriers to ensure fair access
to contractors with "conditional" contracts to apply for
funding.
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Current statutory authority surrounding the child care
contract termination process is vague and confusing, making
it difficult for CDE to remove a contract from an
egregiously irresponsible contractor. The changes proposed
by AB 812 provide the department with the statutory tools
necessary to appropriately protect children receiving child
care services, child care providers, child care employees
and the taxpayers' dollars from these irresponsible
contractors. As a state, it is imperative that we ensure
these children are provided the highest quality services in
the hands of the most responsible stewards of public funds.
Clarification and enhanced authority for the CDE
This bill seeks to clarify some ambiguous portions of the code
as it relates to how the CDE may address problematic agencies
through suspension, but also enhances its authority to
immediately terminate a child development agency's contract
without allowing the agency to operate while under appeal.
Regarding suspension, the CDE argues that current law is
ambiguous as to how and when suspension should occur. But it
should also be noted that suspension is not a valid and
practical option to address problematic child development
agencies. As stated previously in this analysis, the state
faces a substantial shortage in the availability of child care
slots for children. If the CDE were to use its suspension
authority, it raises questions as to how those slots provided by
a suspended child development agency could be filled. There
aren't any substitute or temporary services provided within the
child development industry. If a child development agency were
to be suspended, it would render the agency inoperative, thus
eliminating the availability of the child care slots it
provides. This is undesirable, especially at a time when the
need for child care is so great.
Regarding increased authority, this measure would eliminate the
limited scope under which the CDE may immediately terminate a
child development agency's contract, and, conversely, expand how
and when immediate termination may be invoked. Currently, the
CDE has limited authority to immediately terminate a contract,
unless an agency is placing the health and welfare of the
children under its care in immediate danger. Typically, this
relates to severe violations of Title 22 of the CCR relating to
basic health and safety. However, this authority does not
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extend to those agencies whose actions extend to egregious
fiscal or programmatic violations.
With the number of state budget cuts child development agencies
have sustained over the past seven years, the need to triage and
ensure that the state has accessible and quality child
development programs is essential. This is especially important
now that parents receiving CalWORKs aid have a truncated time
period to fulfill their welfare-to-work requirements. Providing
the CDE the authority to appropriately and more immediately act
upon child development agencies acting egregiously in a fiscal
or programmatic manner is good state policy.
Additional considerations
Current law provides definitions of what conditional,
provisional, and clean contracts are and provides for an appeals
process, but does not provide clear statutory requirements on
how they are addressed. It should also be noted that much of
the CDE's administrative process to identify and address
struggling or high-risk agencies, or agencies simply in need of
increased technical assistance, is laid out in administrative
policy documents and not statute or regulations.
Although this measure expands the authority of the CDE to go
after egregious child development agencies, current law lacks
adequate statutory requirements for a process that might help
keep well-intended but struggling agencies from falling into
disrepair. Perhaps it would be beneficial to develop clearer
statutory standards to govern how and when an agency is reviewed
and identified for additional technical assistance.
Additionally, considerations should be made as to the labeling
of agencies whose contracts are falling into non-compliance, as
there may be a wider range of more appropriate designations to
better address the exact status of an agency. This measure also
leads to questions regarding whether statute should include the
detailed process for terminated contracts, how agencies might be
identified to take over a terminated contract and the child
development slots it contains, and whether there should be a
sole source process for awarding a terminated contract to
another agency in order to ensure the continued care of
children.
POLICY COMMENT
Should AB 812 pass out of this committee, the committee should
encourage the author to explore additional language to
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strengthen statutory provisions on the timeline and steps
necessary to address the varying needs of child care agencies,
including:
1) Clear definitions and processes regarding how and when
an agency needs technical assistance, intervention or other
actions taken due to programmatic or fiscal issues.
2) A clear timeline of when and how the CDE may take
appropriate action toward an agency that is appropriately
responsive to or proportional to an agency's challenges,
which includes periods for technical assistance,
conditional or probationary status, and other steps as
necessary.
3) Whether more appropriate and descriptive contract
designations should be explored to better reflect the
varying needs and challenges of child care agencies.
4) How a contract can be re-issued when a child development
agency is terminated so as to avoid impacting children in
care.
5) Whether universal appeal rights should be afforded in
some or all cases involving actions taken against an
agency.
RECOMMENDED AMENDMENTS
Staff recommends the following amendments:
1)Amend subdivision (b) of 8406.6 on lines 12 through 20 on page
5 to read:
(b) Provisional contract. This designation applies to a
contracting an agency's first contract for any particular
service , or for if by the contract of an existing contract
contracted agency for a new , modified, or different type of
service services or by a contracting agency that does not have
an existing contract for services . The time frame of a
provisional contract is at the discretion of the department
and is given to ensure that the contracting agency can
demonstrate fiscal and programmatic compliance before the
contract is designated as a clear contract. The contract
status shall be reviewed annually.
2)Add a new section 8401.5 of the Education Code to read:
The State Department of Education shall provide for an
internal appeal process to resolve disputes that may arise
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between the department and child development contractors
regarding the interpretation and application of any term or
condition of a contract or any finding made by the department
resulting from any fiscal or programmatic reviews, including,
but not limited to, an error rate notification. Any contractor
shall have the right to appeal the results of a review and
appeal to make a modification to the findings, including, but
not limited to, an error rate finding, by submitting a request
for appeal in accordance with the internal appeal process the
department provides.
REGISTERED SUPPORT / OPPOSITION :
Support
State Superintendent of Public Instruction (Sponsor)
American Federation of State, County and Municipal Employees
(AFSCME), AFL-CIO
Child Care Alliance of Los Angeles
Opposition
None on file
Analysis Prepared by : Chris Reefe / HUM. S. / (916) 319-2089