BILL ANALYSIS
AB 2323
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Date of Hearing: April 7, 2010
ASSEMBLY COMMITTEE ON EDUCATION
Julia Brownley, Chair
AB 2323 (Torlakson) - As Introduced: February 19, 2010
SUBJECT : Direct service contracts
SUMMARY : Authorizes a child care and development program
contractor to carry forward certain reimbursable expenses and
unearned funds to a subsequent contract issued by the California
Department of Education (CDE) to continue the same program or
services. Specifically, this bill :
1)Specifies that notwithstanding any other provision of law, a
contractor whose reimbursable expenses in any direct service
contract exceed the earnings in the contract shall be allowed
to carry forward the reimbursable expenses that exceed
contract earnings to a contract issued by the CDE to continue
the same program services, except that the expenses carried
forward shall not exceed 10% of the maximum reimbursable
amount of the contract from which the expenses are carried
forward.
2)Specifies that a contractor shall be allowed to carry over up
to 20% of unearned funds in a direct service contract to a
contract issued by the CDE to continue the same program
services during a subsequent contract period. Those unearned
funds shall be reimbursed pursuant to the laws and regulation,
including earning funds, that apply to the subsequent period.
The CDE may require the contractor to submit a plan to earn
the carryover funds in the subsequent contract period.
3)Specifies that nothing in this bill shall require the CDE to
issue a new contract to a contractor in a subsequent period to
continue services.
EXISTING LAW establishes a system of child care and development
services for children up to 13 years of age, specifies certain
requirements for the payment by the state for these child care
and development services, and establishes reimbursement rates,
including requirements for their adjustment and application.
FISCAL EFFECT : Unknown
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COMMENTS : Background . The CDE administers a child care and
development system, maintaining over 1,500 service contracts
with approximately 786 public and private agencies supporting
and providing services to about 500,000 children from birth to
13 years of age. Contractors include school districts, county
offices of education, cities, colleges, other public entities,
community-based organizations, and private agencies. In Fiscal
Year (FY) 2009-10, child care and development programs received
almost $3.1 billion, of which, according to the Legislative
Analyst's Office (LAO), approximately 83% goes to child care,
14% to preschool programs, and 3% for related support
activities. Eligibility for child care and development programs
is limited to families participating in the California Work
Opportunity and Responsibility to Kids (CalWORKs) program and
families whose income is at or below 75% of the State Median
Income according to family size ($56,101 for a family of four).
The CDE awards direct service contracts to center-based
providers and selects county based Alternative Payment Programs
(APP) to administer a voucher program, which authorizes the APPs
to issue vouchers to parents to pay for child care services.
The APP is intended to provide parents options by offering a
variety of child care arrangements, including licensed family
child care homes and center-based care, and licensed-exempt
providers, who are relatives or friends of parents or guardians.
The problem . For a number of years, there have been unspent
funds of approximately $200 million each year in the child care
and development programs, despite a waiting list of
approximately 200,000 children each year. According to the LAO,
$200 million equates to approximately 22,000 slots. The FY
2006-07 budget required the CDE to submit a one-time report to
the Legislature identifying the source and reasons for unspent
funds and to develop recommendations on how funds may be
allocated and reallocated to prevent eligible families from
losing funding. The CDE released "Report on Unspent Child Care
Funding" in April, 2007.<1> The document reported results of a
survey conducted by the CDE in December 2002 asking providers
the reasons they were unable to "earn" their maximum contract
amounts. The majority of the respondents indicated having
facility issues, including incomplete new facilities and limited
classroom space to expand enrollment; having available slots but
---------------------------
<1> The explanations provided in the report were based on
information from more than five years ago. It is unclear
whether any or all of the explanations are still valid today.
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not in high demand areas; licensing delays; inadequate staffing
or inability to find qualified staff; cash flow problems due to
delayed enactment of the state budget; and low reimbursement
rates. The report also indicated that inadequate staffing
within CDE coupled with a lengthy Request for Application (RFA)
process delayed allocation of funding from the state.
Unspent funds are also due to contractors' reluctance to over
spend. Agencies are required to "earn" their funding through
the standard reimbursement rate of $34.38 per child per day of
enrollment, or $8,595 a year, based on 250 days of operation.
The report states that providers must balance enrollment with
capacity while staying within their contracts' maximum
reimbursable amounts. The sponsor of the bill, the Child Care
Development Administrators Association (CCDAA), states that
programs hold back on needed supplies, equipments, and other
needs to prevent over spending. Providers do not receive
additional funds if enrollment or expenditures are higher than
their contracted allotment. This causes providers to be prudent
by intentionally under enrolling or under spending. As an
example, the report estimated that if center based programs
enrolled to 95% of their capacity in 2005-06, there would be
approximately $50 million in unspent funds.
Report recommendations . The report made several recommendations
to address the problem of unspent funds, including increasing
CDE staffing to process RFAs and provide technical assistance,
provide CDE with the authority to reassign contract funds when
agencies relinquish or terminate their contracts mid-year,
provide CDE with the authority to enable contractors to adjust
their contracts mid-year without penalty and allow the CDE to
transfer funds not needed by one contractor to another
contractor that anticipates needing additional funds, authorize
CDE to initiate improvement of internal systems, apply cost of
living adjustments on an ongoing basis to increase reimbursement
to direct service contracts, and others.
Voluntary Transfers . As part of the FY 2008-09 budget, the CDE
was required, through AB 1279 (Budget Committee), Chapter 759,
Statutes of 2008, to arrange for interagency adjustments between
different contractors with the same type of contract (e.g.,
transfer from a contractor with a state preschool contract to
one or more contractors with state preschool contracts) in order
to promote full utilization of child care and development funds.
The CDE established two 15-day periods during the fiscal year
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whereby Local Child Care and Development Planning Councils in
each county coordinate the identification of contractors who
anticipate under earning and are willing to voluntarily and
temporarily release funds and those who anticipate over earning
and are interested in receiving one-time additional funds during
that fiscal year. Once the identifications are made, the CDE
reviews all applications and makes decisions on the transfers.
The first voluntary transfer period occurred in November 2009,
whereby six contractors released $1.3 million in funds to 14
recipient contractors. The majority of the funds were released
by the Los Angeles Unified School Districts to other Los Angeles
County contractors. The next voluntary transfer period is in
May, 2010. It is too early to determine whether this process
will slow or solve the problem of unspent funds.
This bill addresses the issue of intentional under spending in
order to avoid over spending. According to the sponsor, it is
not uncommon for contractors to plan expenditures based on 95 to
97% of their budgets, in the event there is any unintended
emergencies or unexpected expenses. The three to five percent
of unspent funds is then left unallocated.
The bill offers two different solutions. One provision of the
bill would allow a contract to carry over a maximum of 10% of
expenditures that exceed the maximum reimbursable amount in the
contract to a future contract. For example, if a contractor
with a $100,000 contract exceeds expenses by $1,000, that amount
can be counted as reimbursable expenses in the following year's
contract. CCDAA states that this provision would give agencies
the confidence to plan their budgets based on 100% rather than
95 or 97% of their earned funds to more adequately serve the
needs of the agency. CDE expresses concerns that this provision
would enable a contractor to serve fewer kids the following
year. The sponsor indicates that there is no intention to
require the CDE to increase future contracts as a result of this
bill or to specify that some portion of the future contract is
not required to be earned.
The other proposal in this bill approaches the problem from a
different direction. The bill allows a contractor to carry over
a maximum of 20% of unearned funds from one year's contract to
the next year's contract. Contractors must earn the funds in
the subsequent year; the bill, however, authorizes the CDE to
require the contractor to submit a plan to earn the carryover
funds. It is unclear whether unearned funds can be carried over
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continuously, which may have the unintended consequence of
agencies continuously under enrolling kids.
Committee amendments :
1)Strike the provision that allows carry over of up to 20% of
unearned funds in subdivision (b) on page 2, lines 7 through
14.
2)Specify that nothing in the bill requires the CDE to increase
a future contract allotment as a result of a contractor
carrying forward expenses, and clarify that this bill does not
waive the requirement that contractors must earn their
contract allotment.
3)Sunset the bill on January 1, 2016 and require the CDE to
report back to the appropriate policy and fiscal committees of
the Legislature by January 1, 2014 on the number and
percentage of contractors that carried over expenses pursuant
to this bill.
Arguments in Support . The CCDAA states, "California Department
of Education child care contractors annually return a
significant amount of money to CDE, unspent, for a variety of
reasons. One reason is the 'caution factor' - avoiding the
severe financial penalty of overspending in any single contract
year. It is not possible to accurately spend every dollar in a
contract without overspending, and there is no provision to
allow agencies to make up for such overspending. This bill
offers two different solutions that would allow agency directors
and budget managers to reduce the amount of returned funds."
REGISTERED SUPPORT / OPPOSITION :
Support
American Federation of State, County and Municipal Employees
Child Care and Development Administrators Association
Child Development Policy Institute
Professional Association for Childhood Education
Opposition
None on file
AB 2323
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Analysis Prepared by : Sophia Kwong Kim / ED. / (916) 319-2087