HHS04 Simplify California’s Subsidized Child Care System to Deliver Better Service to Families

Summary
California’s subsidized child care “system” is cumbersome and complicated due to the division of responsibilities for administering CalWORKs’ child care between two state agencies, different agencies at the local level with responsibility for different parts of the system, and state budget and operational policies. Simplifying the system would reduce unnecessary administrative burdens and better serve families and children.

Background
CalWORKs child care administration
The California Department of Social Services (DSS) and the California Department of Education (CDE) share responsibilities for child care under California’s family welfare program known as CalWORKs. Historically, DSS has viewed child care as a support service necessary for the welfare parent to be able to work. CDE, on the other hand, has primarily viewed child care from the perspective of a child’s development or education. This philosophical difference drives the emphasis each agency places on such questions as the type of care, the cost of care, and the quality of care that should be funded. The departments’ philosophical differences affect ongoing negotiations over policies and practices that impact the entire subsidized child care system including CalWORKs child care.

California’s CalWORKs child care system is probably the most complicated in the country. [1] It is administered through three stages split between DSS and CDE. The split in CalWORKs child care administration between DSS and CDE arose during the CalWORKs legislative negotiations in 1997 to implement the new federal Temporary Assistance for Needy Families (TANF) program. DSS and CDE had historically been involved in the delivery of child care to welfare and low-income families, respectively. DSS is the single state agency for TANF, and CDE is the single state agency for federal Child Care and Development Funds (CCDF) from the federal Health and Human Services Department. Concerns about ensuring parental choice and ready access to child care led to the three-stage system and the involvement of both departments. [2] The existing child care system administered by CDE provided a ready infrastructure on which to build. [3]

Under the CalWORKs legislation, county welfare departments administer Stage 1 child care, which begins when a CalWORKs recipient starts working or participating in a CalWORKs work-related activity. Thirty-two welfare departments contract with alternative payment agencies (CDE’s payment agencies) to administer Stage 1 child care, and the remainder of the county departments do it themselves. [4]

The CalWORKs family is transferred to Stage 2 child care when the family situation is determined by the welfare department to be stable or after six months, depending on individual welfare department policy. CDE administers Stage 2 through contracts with alternative payment agencies—agencies that also administer CDE’s voucher child care programs for the working poor. [5] Stage 2 continues until two years after the recipient no longer receives cash assistance, at which point the family is transferred to Stage 3, which is still under CDE and most of the same alternative payment agencies, and is eligible for child care until the family’s income reaches 75 percent of state median income or until the family’s children receiving child care reach age 13.

Stage 3 is budgeted as a subset of the larger working poor child care system, and to date, does not have separate time limits. According to the RAND evaluation of CalWORKs implementation, state and county staff hoped for a simpler child care system than had existed under the prior welfare-to-work system, while child care advocates hoped for a more unified system that would lead to child care entitlement for the working poor. Neither hope was realized. [6]

For Fiscal Year 2004–2005, the total state-subsidized child care budget is $3 billion. Of that amount, the total CalWORKs child care budget is $1.2 billion; the DSS CalWORKs child care budget for Stage 1 is $530 million and the CDE CalWORKs child care budget for Stages 2 and 3 is $665 million. [7] Stages 1 and 2 are entitlements under state law with capped appropriations; Stage 3 is subject to annual budget determinations, which to date have fully funded the child care needs of families leaving Stage 2. CDE’s non-CalWORKs child care budget is $1.8 billion, of which $422 million is for voucher programs. [8]

Annually, DSS provides the state’s 58 county welfare departments with a single block grant for CalWORKs, which includes an allocation for Stage 1 child care. Welfare departments have the flexibility to spend their child care dollars not just on child care but on other CalWORKs priorities, although their future child care allocations are now based on prior child care expenditures. CDE administers its Stage 2 and 3 funds through four different contract types, and contracts with 81 alternative payment agencies. Most agencies have four contracts with CDE for CalWORKs. [9]

CalWORKs child care system problems
Funding issues cause friction between DSS and CDE as well as between welfare departments and alternative payment agencies, and result in agencies not being able to manage their funds effectively. The full appropriation for Stages 1 and 2 is not allocated to DSS and CDE at the beginning of the year. Five percent is held back in a reserve for Stages 1 and 2 to cover any estimating errors between the stages. Because the process of obtaining approval to access this reserve takes several months, money doesn’t flow to the local level until spring, often too late for the local alternative payment agencies to hire staff to transfer in backlogged cases. In the interim, without an assurance of additional funds, alternative payment agencies—which are often nonprofits—have sometimes been forced to send cases back to Stage 1 from Stage 2, requiring notices to the affected families and more paperwork, even if the same agency is administering Stages 1 and 2. More often, when Stage 2 does not have enough money, Stage 2 agencies have simply refused to accept more families for fear of overspending their contracts. This raises concerns among welfare departments that they will overspend their Stage 1 allocations. [10]

Other differences between CDE’s and DSS’s administration of CalWORKs child care increase the complexity of the program. Welfare departments report to DSS on expenditures and caseload on a quarterly basis while alternative payment agencies report to CDE on expenditures, caseload, and individual cases monthly.

Alternative payment agencies contracting with welfare departments must meet the welfare departments’ reporting requirements. Alternative payment agencies under CDE’s administration apply Fair Labor and Standards Act requirements to license-exempt care, requiring payment of minimum wage. [11] As a result, certain Stage 1 providers serving approximately 9,300 children cannot be transferred to Stage 2 due to their inability to meet Fair Labor and Standards Act requirements. [12] When the families’ Stage 1 eligibility expires, they have to change their child care arrangements in order to continue receiving child care under Stage 3. In addition, there are some differences in counting income between Stages 1 and 2. Because of the categorical eligibility of CalWORKs recipients, this income treatment impacts only families that no longer receive cash assistance.

A major budget issue for the past several years has been the increased funding needed as families reach the Stage 2 two-years-off-aid time limit. Because there are long waiting lists for the working poor child care system administered by CDE, the Legislature has had to direct new funds to Stage 3 to ensure that former CalWORKs recipients are served. Stage 3 has been treated like a parallel alternative payment program with all the same rules as the general population alternative payment program but under separate contracts.

Waiting lists for non-CalWORKs child care give priority for service to the lowest income families—after child protective services families. Under the current priorities for service, if former CalWORKs recipients weren’t guaranteed child care, they would be unlikely to get service since their income had to be high enough to no longer receive cash assistance. The current waiting list priority provides little or no incentive for families to increase their earnings, since increased income would move them further down on the waiting list.

Many organizations and people familiar with CalWORKs child care have identified the bifurcation and “stages” as a problem. The 2000 RAND report on CalWORKs implementation identified a long list of child care service problems stemming from the split, including the philosophical issues between DSS and CDE (parent focus versus child development focus), funding issues, and equity issues such as guaranteed child care for CalWORKs recipients and long waiting lists for the working poor served by CDE, as well as administrative and policy issues. [13] Many of the administrative and policy issues have been addressed by DSS, CDE, and county work groups, but not all.

Some welfare departments have suggested that splitting CalWORKs child care between DSS and CDE should occur when families no longer receive cash assistance. The County Welfare Directors Association (CWDA) recently recommended that child care administration be consolidated in one state agency to prevent “duplicate efforts and disruption for families and children.” At the same time, however, the CWDA’s Executive Director indicated that CDE would not be acceptable as the single agency unless it had a stake in meeting federally mandated participation rates. [14]

The County Welfare Directors Association also cited the annual reserve process as a problem resulting from splitting the administration of the program between CDE and DSS. Others have recommended that a single agency administer CalWORKs child care, but have raised reservations about both of the possible agencies. Concern has been expressed about CDE’s contracting process and whether it could be responsive to the needs of county welfare departments. On the other hand, the 2002 State Master Plan for Education adopted by the Joint Master Plan Committee recommends that all child care and development funding be consolidated under CDE, and some alternative payment agencies have expressed the desire to keep the current split instead of giving all CalWORKs child care responsibilities to DSS to administer, in part because of the child development focus of CDE. [15] Consolidation under either DSS or CDE is complicated because CDE is overseen by the Superintendent of Public Instruction, a constitutional officer.

Administration in other states
Split responsibility is not an issue in other states because almost all other states administer their federal Child Care Development Fund (CCDF) programs through the same agency that administers federal Temporary Assistance for Needy Families funding. [16] Both funds are often merged at the state level to provide child care services with priority for TANF recipients. Other states, however, are now experiencing increasing complexities due to the new national emphasis on preschool and school readiness. In some states with preschool initiatives, preschool is overseen by the department of education while in other states it remains part of the human services agency with an advisory role for education. Increasingly, to address the federal CCDF “Good Start, Grow Smart” initiative, states are developing early learning standards in consultation with their departments of education or under their leadership. [17]

Non-CalWORKs child care administration
CDE administers the rest of California’s subsidized child care programs either through contracts for direct center care services with nonprofits and local education agencies, or through contracts for vouchers administered by most of the same alternative payment agencies that administer CalWORKs child care. [18] If a program is funded by the state’s General Fund and federal funds, agencies administering the programs sign two contracts based on these two fund sources, which have slightly different rules. CDE uses 15 different contract types for its non-CalWORKs programs and four for its CalWORKs programs, each with separate funding terms and conditions that contractors must follow. One agency has 15 different contracts with CDE, including CalWORKs contracts. [19]

CDE’s center contracts provide high quality full or part-day programs for low-income children from infancy through age 12. [20] These programs include the following:

  • Part-day preschool and wrap-around preschool;
  • Year-round, full-day general child care and development programs in centers or family child care home networks for infants through age 12 with varying priorities for service by age and location, such as community colleges or HUD housing;
  • Migrant child care centers; and
  • Year-round before- and after-school programs known as latchkey programs.

The main voucher program serves low-income working poor with a smaller voucher program for migrants in the Central Valley. In addition, CDE administers one very small contract in the Bay Area for non-income-based child care for severely handicapped children.

Administering 15 separate contracts requires CDE to maintain separate funding terms and conditions, process more contracts for approvals and amendments, and track more contracts. It does allow the state to specifically track and control federal funds and General Funds although the federal government permits pooling of state and federal funds and reporting on pooled funds. Separate federal and state contracts also allow the state to maintain eligibility standards that are slightly different from federal standards, although over time the differences have decreased. The only difference that cannot be eliminated by state law is the state constitutional prohibition on providing sectarian child care services. However, the federal government does not require separate state and federal contracts for federal and state funds; they require that contracts be legal under state requirements. [21]

At the contractor level, the same issues arise with separate state and federal fund contracts. Local agencies must process more contracts for approvals and amendments, and track expenditures against each contract ceiling. Agencies must make sure that expenditures stay under each contract ceiling—the maximum reimbursement amount. Consolidating contracts would allow for greater utilization of funds by local agencies.

In total, CDE’s Child Development Division administers approximately 2,100 contracts with 850 agencies ranging in size from small nonprofits to the Los Angeles Unified School District. [22]

CDE has already eliminated two types of contracts and is planning to eliminate two more in FY 2004–2005 in order to further simplify state and local administration. [23] CDE spends an estimated 1.1 percent of total child care expenditures on child care administration, ranking California 49th among all states and well below the 5 percent maximum allowed under federal Child Care and Development Fund rules. [24]

    Recommendations
  1. By January 2005, the California Health and Human Services Agency, or its successor, should work with the Secretary of Education and the California Department of Education to seek state legislation to merge CalWORKs child care Stages 1 and 2, and place responsibility for administration of child care for CalWORKs recipients under county welfare departments until families leave aid, effective July 1, 2006. When families no longer receive cash assistance, they would transition to a single set-aside in CDE’s voucher program for low-income families.

    2. This would clarify the administration of CalWORKs child care by placing responsibility for CalWORKs child care in one agency and responsibility for non-CalWORKs child care in the other, and simplify it by eliminating one of the three stages. Alternative payment agencies would be required to serve families leaving aid (and be funded to serve them), and county welfare departments could not change their criteria for keeping or sending families to Stage 2 based on funding availability.

  2. By January 2005, the Health and Human Services Agency, or its successor, should seek legislation directing CalWORKs agencies to urge families to get on waiting lists when they begin participating in CalWORKs, but specifying that CalWORKs families would not become eligible to move out of the set-aside funding until they had been off cash aid for two years. The legislation would have an effective date of January 1, 2006. [25]

    3. This legislation also should make the waiting list priority for subsidized child care “first come, first served” (after child protective services cases) for families with incomes up to 50 percent of state median income instead of the current system where applicants with the lowest income are first priority.

    Allowing the waiting list to be “first come, first served” treats CalWORKs and non- CalWORKs applicants equally. Keeping the priority for service within a band of up to 50 percent of state median income still focuses priority on lower income families. The Legislature would continue to have the option to fully fund former CalWORKs families after they reach the end of their two-years-off-aid time period.

  3. By January 2005, the Health and Human Services Agency, or its successor, should work with the Secretary of Education and the California Department of Education to seek state legislation to give it the authority to reduce the number of CDE contracts by consolidating all dual-contract programs (federal/state) into single contracts; eliminating the latchkey program (with the option for agencies to convert their latchkey program to a general child care and development program); and converting the wrap-around preschool program into a general child care and development program, effective July 1, 2006. Legislation would include elimination of the relatively minor differences between the federal and state programs. Cost neutrality would be achieved by holding total contract maximum reimbursement amounts constant.
    4.

    This recommendation, together with Recommendation A, would reduce the number of contract types from 17 to 10. The additional time for implementation recognizes that CDE has to issue contracts prior to the start of the fiscal year and would not have sufficient time to do that by July 1, 2005. This would provide CDE time, in consultation with impacted agencies and the Department of Finance, to revise regulations and contract funding terms and conditions, and ensure that budget schedules and provisions conform.

Fiscal Impact
After implementation, these recommendations will achieve minor administrative savings from contract administration in CDE and at the local level. These costs cannot be estimated at this time.

Endnotes
[1] Telephone interview with Bob Garcia, program specialist, Child Care and Development Fund programs, Administration for Children and Families, Region IX, Health and Human Services (San Francisco, March 23, 2004). Three other states had an agency outside of social or human services administering Child Care and Development Funds according to their last state plans: Florida had the Partnership for School Readiness, Massachusetts had the Office of Child Care Services, and Minnesota had the Department of Children, Families, and Learning. However, Minnesota’s Department of Human Services is now administering Child Care and Development Funds. Telephone interview with Cherrie Kotilinek, manager, Child Care Assistance, Minnesota Department of Human Services, St. Paul, Minnesota (April 12, 2004).
[2] Jacob Alex Klerman, Gail L. Zellman, Tammi Chun, Nicole Humphrey, Elaine Reardon, Dona Farley, Patricia A. Ebener, Paul Steinberg, “Welfare Reform in California: State and County Implementation of CalWORKs in the Second Year,” 2000, http://www.rand.org/publications/MR/MR1177/MR1177.ch7.pdf, p. 199 (last visited June 8, 2004).
[3] Telephone interview with Bruce Wagstaff, deputy director, California Department of Social Services, Sacramento, California (May 10, 2004).
[4] Counties that Contract out Their Stage One to an APP [Alternative Payment Agency] (32), summary sheet dated February 9, 2003, provided by Lyn Vice, chief, Child Care Programs Bureau, California Department of Social Services.
[5] Parents receive vouchers that can be used for child care at a provider of their choice. Payments are made from the alternative payment agency to the child care provider under written agreements or contracts.
[6] Jacob Alex Klerman, Gail L. Zellman, Tammi Chun, Nicole Humphrey, Elaine Reardon, Dona Farley, Patricia A. Ebener, Paul Steinberg, “Welfare Reform in California: State and County Implementation of CalWORKs in the Second Year,” 2000, http://www.rand.org/publications/MR/MR1177/MR1177.ch7pdf, p. 199 (last visited June 19, 2004).
[7] Governor’s Budget May Revision FY 2004–2005, California Department of Education, Child Development Funding Charts, “Child Care and Development Funding,” FY04-05-Gov-Budget-May Revise.xls, May 17, 2004, and CalWORKs Child Care Funding FY 2001–02 through FY 2004–05 (as of May Revise), CalWORKs-Bar-Chart-4 years, May 14, 2004. The estimates for Stage 1 and Stage 2 include the 5 percent reserve that is held back from the departments’ allocations. California Department of Social Services funding is federal Temporary Assistance for Families funds and General Fund, California Department of Education’s is Temporary Assistance for Families funds that convert to Child Care and Development Funds, General Fund, and federal Child Care and Development Funds.
[8] Governor’s Budget May Revision FY 2004–2005: California Department of Education, Child Development Division Funding Chart: “Child Care and Development Funding,” FY04-05-Gov-Budget-May Revise.xls (May 17, 2004).
[9] Email from Phyllis Savage, manager, Child Development Fiscal Services, California Department of Education (April 8, 2004).
[10] Email from Lyn Vice, chief, Child Care Programs Bureau, California Department of Social Services (May 25, 2004).
[11] Telephone interview with Bob Garcia, program specialist, Child Care and Development Fund programs, Health and Human Services Department, Region IX (March 23, 2004). Although Health and Human Services provided this direction to Child Care and Development Fund agencies, it did not provide the same guidance to Temporary Assistance for Families agencies.
[12] Email from Lyn Vice, chief, Child Care Programs Bureau, California Department of Social Services, May 25, 2004.
[13] Jacob Alex Klerman, Gail L. Zellman, Tammi Chun, Nicole Humphrey, Elaine Reardon, Dona Farley, Patricia A. Ebener, Paul Steinberg, “Welfare Reform in California: State and County Implementation of CalWORKs in the Second Year,” 2000, pp. 204–209, http://www.rand.org/publications/MR/MR1177/MR1177.ch7.pdf, pp. 204–209 (last visited June 8, 2004).
[14] Letter from Frank Mecca, executive director, County Welfare Directors Association, to Governor-Elect Arnold Schwarzenegger, dated November 5, 2003; and meeting with Frank Mecca (Sacramento, California, April 8, 2004).
[15] The California Master Plan for Education, Senator Dede Alpert, Chair, Assemblywoman Elaine Alquist, Co-Vice Chair, Assemblywoman Virginia Strom-Martin, Co-Vice Chair, 2002. Recommendation 53.1. “The State should consolidate, under the California Department of Education, all child development funding sources, including those from the departments of Education and Social Services . . . ,” p. 145. The Master Plan also recommends that the Department of Education should be under the Governor. Recommendation 26, p. 92.
[16] Telephone interview with Bob Garcia, program specialist, Child Care and Development Fund programs, Department of Health and Human Services (March 23, 2004).
[17] From interviews with state Child Care and Development Fund program directors and reviews of Child Care and Development Fund state plans (Pennsylvania, North Carolina, Wisconsin, Florida, New York, Illinois, Ohio, and Minnesota). Telephone interview with Kathryn J. Holod, child care administrator, Pennsylvania Department of Public Welfare, Harrisburg, Pennsylvania (April 6, 2004); North Carolina Child Care and Development Fund Plan for FFY 2004–2005, http://149.168.194.28:8000/pdf_forms/2003_CCDF_Final.pdf (last visited June 8, 2004); Wisconsin Child Care and Development Fund Plan for FFY 2004–2005; http://www.dwd.state.wi.us/dws/programs/childcare/pdf/ccdf_plan051003.pdf (last visited June 8, 2004); Florida Child Care and Development Fund Plan for FFY 2004–2005, http://www.schoolreadiness.org/files/ccdf-_final_version1.pdf (last visited June 8, 2004); New York Child Care and Development Fund Plan for FFY 2004–2005 (received via email from Ann Haller, May 6, 2004); Illinois Child Care and Development Fund Plan for FFY 2004–2005, http://www.dhs.state.il.us/newsPublications/plansReports/pdfs/StatePlan2004-2005.pdf (last visited June 8, 2004); Ohio Child Care and Development Fund State Plan for FFY 2004–2005, http://jfs.ohio.gov/ocf/fund_plan/fund_plan2004.pdf (last visited June 8, 2004); Cherrie Kotilinek, manager, child care assistance, Minnesota Department of Human Services, St. Paul, Minnesota (April 12, 2004).
[18] This does not include the before- and after-school programs administered by California Department of Education’s Learning Support and Partnerships Division that are not based on family eligibility criteria nor designed to meet family child care needs. These include the 21st Century Community Learning Centers program and the After-School Education and Safety program. Neither of these programs is administered through contracts.
[19] Memo from Cliff Marcussen, executive director, Options (May 25, 2004).
[20] Disabled children are served up to age 22.
[21] Telephone interview with John McGee, financial operations specialist, Child Care and Development Fund programs, Federal Health and Human Services Department (June 7, 2004).
[22] California Department of Education Fact Book 2003, Child Care and Development Programs, http://www.cde.ca.gov/re/pn/fb/yr03childcare.asp (last visited June 8, 2004).
[23] E-mail from Cecelia Fisher-Dahms, consultant, Child Development Division, California Department of Education, Sacramento, California (May 21, 2004).
[24] Letter from Sharon M. Fujii, regional administrator, Administration for Children and Families, Department of Health and Human Services, Region IX, to Jack O’Connell, California Superintendent of Public Instruction, December 23, 2004, p. 2. “The State spends about 1.1 percent of total expenditures on administration although up to 5 percent of the total grant is allowed. We believe the cap on administrative costs is negatively affecting the State’s ability to use available grant funds . . . ” This is based on the federal Child Care and Development Fund grant expenditures plus state match expenditures.
[25] Because the elimination of Stage 2 wouldn’t occur until July 1, 2006, from January through June 2006, the limitation on moving out of the set-aside funding would apply to families in both Stage 2 and Stage 3.