Looking Ahead, State Must Go Much Further in Boosting Payments to Child Care Providers

October 31, 2014

The Senate Select Committee on Women and Inequality convened last week in Los Angeles to explore strategies for promoting economic opportunity for women in California. Throughout this hearing, the importance of child care was a recurring theme. As Senator Holly Mitchell discussed, the state’s 2014-15 spending plan includes some reinvestment in the state’s child care and development system, including an increase in child care provider payment rates.

Provider payment rates are a key issue in helping women and their families to advance. Adequately reimbursing child care providers increases families’ access to providers. When women have access to affordable child care, they are more likely to find and keep jobs and to have money to pay for other necessities such as rent and groceries. This is critical for their own economic success and for the well-being of their children, too. Policymakers had not raised provider payment rates since 2006, and the recently approved increase is long overdue.

However, policymakers have more work to do, especially for families who use vouchers to pay for child care (as opposed to going to child care providers that contract directly with the state). Even with the rate increase included in the budget agreement, scheduled to go into effect on January 1, 2015, voucher-based providers offering care in licensed family child care homes (LFCH) will not see an increase in their payment rates for infant care in more than half of California counties. Similarly, these providers will not see an increase in rates for preschool-age children in 19 counties. In fact, across the state so few counties will see an increase that the median percent increase for LFCHs for infant care is 0 percent. For preschool-age children the median percent increase is just 1.2 percent.

In addition, even while it might appear that licensed child care centers (LCCs) fared well in the budget agreement, the median increase in the provider payment rates for infant care at LCCs translates to just $131 a month — and this after nearly a decade without any rate increase. Likewise, the median rate increase for preschool-age children in LCCs is $103 per month. The table below displays how both kinds of licensed providers fared in the 2014-15 budget cycle. (You can also view a PDF of this table here. )

103014 childcare-reimbursement-blog

As we discussed in a recent blog post, California has far to go in restoring funding to the child care and development system in the aftermath of the Great Recession. Access to subsidized child care and preschool programs is a key component in helping families achieve economic security, and it is critical that policymakers continue to take steps to reinvest in California’s child care and development system.

— Kristin Schumacher

How Should California Spend Nearly $2 Billion?

August 25, 2014

The state of California is poised to direct an estimated $1.8 billion over the next four years to new and expanded tax breaks for specific industries and businesses based on actions recently taken by state lawmakers, or actions pending and likely to be approved by state lawmakers in the coming days. These include:

  • Nearly $420 million in tax breaks for aerospace companies — specifically targeted to Lockheed Martin and Northrop Grumman — that are competing to build the next generation of stealth bombers, an incentive package approved by the state Legislature and signed into law by Governor Brown earlier this month;
  • Expansion of a state tax credit for film and TV production — from $100 million to $400 million annually — that is currently working its way through the Legislature; and
  • Efforts to lure Tesla Motors to build a new “gigafactory” in California, which are likely to include tax credits to help meet Tesla’s demands that state and local governments help pay for 10 percent (estimated at $500 million) of the cost of construction. The legislation, expected to emerge in the coming days, is also likely to exempt Tesla from some environmental (CEQA) requirements.

All told, these actions stand to commit the state to nearly $2 billion over the next four years in targeted tax breaks for business and industry.

We think that California would benefit more from investing this money in vital public systems and services. While we don’t question that state leaders should place a high priority on boosting employment and expanding opportunity, we do question whether these new and expanded credits and incentives are the best strategy for meeting those objectives. Consider just a few alternatives for the state’s $2 billion:

  • Phasing in a refundable state Earned Income Tax Credit (EITC) to further leverage the federal EITC, which would boost the incomes of working families most in need of assistance, raising thousands Californians out of poverty each year;
  • Continuing to restore the 110,000 subsidized child care and preschool slots (nearly one-quarter of the total) cut since 2007-08 that help working parents find and keep jobs and build a foundation for children’s success; and
  • Making a down payment on reinvesting in the economic engines that are the state’s higher education systems, for which state General Fund spending per student has declined significantly over the last three decades.

All of these alternatives, among others, are proven winners at helping working families to prosper, while the evidence on targeted tax breaks for businesses is mixed at best.

As state leaders clamor to give away tax credits to high-profile businesses and projects, we should all be asking the question “How should California spend nearly $2 billion?”

— Chris Hoene

How Did Child Care and Preschool Really Fare in the State Budget?

July 15, 2014

The 2014-15 budget agreement (read our initial analysis here) made changes to California’s subsidized child care and state preschool program that one legislator described as “the largest investment in those two areas in a decade.” This reinvestment is a positive step forward in restoring funding for the state’s child care and development system, but it is only the first step of many necessary to fully reinvest in these critical programs. A closer look at the numbers illustrates how much further California still has to go.

The budget agreement restores funding for 13,000 child care and preschool slots in 2014-15. Of these, 7,500 full-day, full-year preschool slots, 500 Alternative Payment Program slots, and 1,000 General Child Care slots were added on July 1, and an additional 4,000 full-day, full-year preschool slots will be added on June 15, 2015. However, even with the new slots the total number is still more than 20 percent below the number funded in 2007-08, and total state funding is still 31 percent lower than in 2007-08, after adjusting for inflation. The spending plan also does not restore funding for the Centralized Eligibility List (CEL), thus making it impossible to determine just how many children are waiting for a child care or preschool slot. Before funding for the CEL was cut in 2011, close to 200,000 children were waiting for a slot, and this number has likely grown since then.

The 2014-15 spending plan updates provider payment rates, but in many cases these rates still lag behind the rates paid in 2007-08. For example, providers that contract directly with the state will see a 5 percent increase in their payment rates, but will still be reimbursed at a value that is nearly 7 percent lower than the 2007-08 rate, after adjusting for inflation. Likewise, payments for providers that are reimbursed with vouchers will now be based on a 2009 market rate survey — an update from the 2005 survey used previously — but only after the 2009 regional market rates are reduced by 13 percent in making them the basis for payment. As a result, many providers won’t see an increase at all. In fact, in 46 out of 58 counties, providers categorized as licensed child care homes will not see an increase in their payment rate for infant care.

Further, providers that contract with the state have to meet more stringent licensing requirements that include a developmental component. This is in addition to meeting the health and safety standards that voucher-based providers are held to. Due to the more stringent licensing requirements, contract-based providers should be paid at a greater rate for the higher-quality standards that they are required to meet. However, in 17 counties — representing a third of all counties — voucher-based centers caring for preschool-age children will be paid at a rate that actually exceeds that for contracted providers, even though the quality standards may not be as high. In addition, in eight counties voucher-based licensed child care centers will be paid at a rate for infant care that exceeds contract-based providers.

Lastly, state policymakers did not update the income eligibility limit, which is the highest income at which a family qualifies for subsidized child care and preschool. Yet, as we noted in a recent report, state policymakers have not adjusted the income eligibility limit in years, and it is currently set at just 70 percent of the 2005 state median income (SMI). This means that families lose eligibility at a lower income than they would if the income limit were updated to reflect the most recent SMI for which data are available. In fact, the income limit would increase by more than 10 percent if based on the most recent SMI — a difference of over $400 a month for a family of three.

The 2014-15 budget agreement represents a missed opportunity to more significantly invest in one of California’s most vulnerable populations: children living in poverty. Access to subsidized child care and high-quality preschool programs helps to mitigate the effects of poverty and helps families achieve economic security. This boosts local economies and reduces future state costs for remedial education, corrections, and safety net programs, to name a few. Increasing support for California’s child care and development system doesn’t just boost support for low- income families, it is an effective way to invest in California’s economic future as well.

— Kristin Schumacher


Reinvesting in California’s Children: Preschool for All?

May 7, 2014

High-quality early care and education (ECE) programs are widely considered to be one of the most effective ways to reduce educational achievement gaps, improve life outcomes, and invest in our children. Mounting evidence regarding the benefits of high-quality preschool programs has contributed to the momentum for investing in high-quality programs. At the federal level, President Obama proposed “preschool for all” in his 2013 State of the Union address, elevating the ongoing conversation among policymakers and advocates at all levels of government. At the state level, 22 governors — both Republican and Democrat — cited the importance of ECE in their 2014 State of the State addresses, and a number of these governors included proposals for expanding access to quality ECE programs. In addition, cities as diverse as New York, San Antonio, Denver, San Francisco, and Seattle have either implemented programs or are debating proposals for municipal preschool efforts.

Here in California as well, policymakers and advocates are shining a light on the state’s ECE system. Recent public opinion polling shows that a majority of Californians think that preschool is important to students’ academic success, support expanding preschool to all 4-year-olds, and believe that such an expansion is worth the investment of public dollars. On the legislative front, Senate President pro Tem Darrell Steinberg’s SB 837 would expand the Transitional Kindergarten program (TK) — which currently offers an additional year of kindergarten only for select four-year-olds based on their date of birth – to all four-year-olds in California, essentially creating a universal preschool program. In addition, Senator Carol Liu’s SB 1123 aims to improve the ECE system for children from birth to age 3.

Ensuring that children are “kindergarten-ready” increases their chances for academic success, and it is widely acknowledged that preschool plays an important role in preparing three- and four-year-olds for kindergarten. Currently, a portion of California’s three- and four-year-olds are served through both the existing TK program and the California State Preschool Program (CSPP). Specifically:

  • The TK program was created as part of the state’s Kindergarten Readiness Act of 2010 (SB 1381), which changed the kindergarten-eligibility birth date from December 2 to September 1. As a result, many children who were formerly eligible for kindergarten in the next school year were no longer eligible based on their date of birth. To help prepare these children for school, SB 1381 established an additional year of kindergarten — otherwise known as TK. For the 2014-15 school year, four-year-olds turning 5 during the last four months of the calendar year may enroll in TK — regardless of family income.
  • The CSPP provides full- and part-day preschool for certain three- and four-year-olds from low- and moderate-income families — that is, those with incomes generally below 70 percent of the 2005 state median income, equal to $42,216 for a family of three. In 2011-12, the state served slightly more than 200,000 three- and four-year-olds through the CSPP.

Yet, in California, nearly two in three low-income three- and four-year-olds — a group most at-risk for falling behind in school — are not enrolled in preschool. In fact, only 37.0 percent of low-income three- and four-year-olds are enrolled in preschool, compared to 56.0 percent of higher-income three- and four-year-olds being enrolled in preschool.

As the debate over expanding access to ECE continues, it is important that new investments use public dollars in a manner that is equitable, efficient, and effective. As mentioned earlier, SB 837 expands the existing TK program to all four-year-olds in California. The estimated annual cost of this program expansion is $1.46 billion when fully implemented in the 2019-20 school year. These funds would be added to the Proposition 98 minimum school funding guarantee, thereby securing a minimum level of funding for TK in years to come.

However, opponents argue that expanding TK may not be the best use of the state’s limited resources. The ECE system is operating at diminished levels of funding in the aftermath of the Great Recession, and the state has yet to support low-income working families by reinvesting in subsidized child care or the CSPP — such as by adding back the more than 100,000 lost slots or updating the income eligibility limits. Assuming it may not be feasible to both reinvest in the ECE system and make access to TK universal, policymakers will need to consider whether state dollars would be better spent on the current ECE system or in providing universal access to TK.

Preschool researchers and advocates are divided on the question of whether public programs should be available to all children regardless of income or targeted to low-income children, who could benefit the most from access to a high-quality program. Proponents of a targeted approach claim that such programs are preferable because they direct public dollars to children who are the most at-risk of falling behind in school. With resources directed to low-income children, the available money, teachers, and facilities are not stretched thin in an attempt to serve all children. However, targeted programs may also be seen as an entitlement, which could create stigma and result in a lack of public support. In addition, the quality of targeted programs may not be as high as universal programs because targeted programs often do not serve all eligible children and may often be subject to funding cuts.

On the other hand, universal programs are much more expensive to operate than targeted programs, and many observers claim that a share of the public dollars for universal programs would support children from higher-income families who not only can afford to pay for such services, but are already doing so. Yet, research demonstrates that it isn’t just low-income children who benefit from access to high-quality preschool programs. Moderate-income children benefit as well. In fact, children from families with incomes near the median have been found to also have low preschool participation rates as compared to all income groups. Moreover, mixed-income classrooms have been found to generate better results than classrooms segregated by income, as in the case with targeted programs. As such, some researchers argue that the added cost of providing universal access to preschool may be justified by the long-term savings realized from serving all children — such as from reduced costs of remedial education and corrections spending and increased tax revenue from additional earnings.

As this legislative session moves forward, the debate around universal versus targeted programs is likely to continue. Policymakers have important choices to make on how to best allocate finite public dollars, and these choices aren’t limited to either a targeted or universal preschool program. Policymakers can invest in a comprehensive ECE system that benefits all of California’s children from birth through age 5. One thing is clear: It is time to reinvest in California’s children.

— Kristin Schumacher

Child Care and Preschool in the Governor’s Proposed 2014-15 Budget: Deep Cuts From Prior Years Remain in Place

January 22, 2014

Access to high-quality, affordable child care and preschool is extremely important for families across California. Child care and preschool help children learn and explore, while allowing parents to find and keep jobs knowing their children are in good hands.

A new CBP analysis — the first in a series of briefs on Governor Brown’s 2014-15 proposed budget — takes a look at child care and preschool funding, and shows that the Governor’s proposal would leave in place current, diminished levels of support. Despite increased state revenues, the Governor’s budget proposal includes no major reinvestment in child care and preschool funding, which state policymakers have cut by nearly 40 percent in recent years.

This CBP brief looks at several key benefits of subsidized child care and preschool and identifies policy options for boosting support for these programs.

— Steven Bliss