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California’s subsidized child care providers offer vital early learning and care for families struggling to make ends meet. Even as the COVID-19 pandemic continues, many providers and their staff have risked their health and safety to offer care for children of working parents. These early educators — primarily women and disproportionately women of color — deserve to be paid professional wages for essential work that helps children learn and grow while parents are working to support their families. 

Despite providers’ critical role in nurturing children and assisting families, state leaders have failed to consistently and adequately increase provider payment rates in recent years. Child care providers are unable to offer early educators adequate professional wages, struggle to keep pace with the rising statewide minimum wage, and can’t afford the increasing price of food and supplies if policymakers don’t provide routine and sufficient updates to payment rates. Ultimately, California providers and families suffer when subsidized child care is limited in their communities because of policymakers’ lack of investment.

Providers and families suffer when subsidized child care is limited in their communities because of policymakers’ lack of investment.

How Are Subsidized Child Care Providers Paid in California?

Subsidized child care providers are paid in one of two ways in California: 1) by accepting vouchers from families or 2) by contracting directly with the state. Providers who accept vouchers are reimbursed by the state based on the Regional Market Rate (RMR) Survey. The RMR survey — administered every two to three years — provides “rate ceilings” based on provider setting and the age of the child for all 58 California counties. The rate ceiling is the highest payment a provider can receive from the state for the care of a child. Providers that contract directly with the state are paid with a statewide rate called the Standard Reimbursement Rate, which has typically been adjusted for various factors such as the age of the child or disability status.

Payment Rates for Voucher-Based Child Care Providers Are Not Keeping Pace Across 58 Counties

California experienced strong revenue growth over the past five years, yet state leaders updated voucher-based payment rates for child care providers just twice since the 2016-17 state fiscal year. During this same period, the state law requiring annual increases to the statewide minimum wage went into effect, raising the wage by 40% from 2017 to 2022.1Calculations are based on the minimum wage for employers with 25 employees or less. Senate Bill 3 (Leno, Chapter 4, Statutes of 2016), https://leginfo.legislature.ca.gov/faces/billNavClient.xhtml?bill_id=201520160SB3

The rate ceilings for child care providers across all 58 counties generally have not kept pace with the rising minimum wage even after the most recent increase to payment rates included in the 2021-22 state budget agreement. In the state’s two most populous counties — Los Angeles and San Diego — payment rates for licensed centers caring for preschool-age children increased by half as much as the statewide minimum wage. Providers in some counties, such as Santa Barbara County, saw miniscule rate increases of less than 1%. And in 27 counties, due to weaknesses in the rate-setting methodology, licensed centers have not received a single rate increase for care for preschool-age children since the 2016-17 state fiscal year.2Market rate surveys collect data on the tuition and fees that families can afford to pay for child care in a geographic area. These rates typically do not cover the true cost of care, as many providers supplement tuition and fees with other sources of revenue, such as grants or donations. See Bipartisan Policy Center, The Limitations of Using Market Rates for Setting Child Care Subsidy Rates (May 2020), 4-6, https://bipartisanpolicy.org/report/the-limitations-of-using-market-rates-for-setting-child-care-subsidy-rates/.

State Rate for Contract Providers Doesn’t Match Rising Child Care Business Costs

Similar to voucher-based payment rates, policymakers also have not consistently updated the Standard Reimbursement Rate each year so that contract providers keep pace with rising staff costs and the increasing price of food and supplies. From 2016-17 to 2021-22, the Standard Reimbursement Rate has increased by just 28.2%, falling short of the 40% increase in the state minimum wage.3During this period, policymakers also increased the Standard Reimbursement Rate adjustment
factors for a number of higher-cost groups of children, such as infants or children with disabilities.
Many of these adjustment factors were eliminated in the 2021-22 budget agreement as part of the
transition to a single reimbursement rate system for subsidized child care providers. See Assembly
Bill 1808 (Committee on Budget, Chapter 32, Statutes of 2018),
https://leginfo.legislature.ca.gov/faces/billTextClient.xhtml?bill_id=201720180AB1808; and Assembly
Bill 131 (Committee on Budget, Chapter 116, Statutes of 2021),
https://leginfo.legislature.ca.gov/faces/billNavClient.xhtml?bill_id=202120220AB131.

Even though contract-based providers are required to meet more program standards than voucher-based providers do, the payment rate is lower than the Regional Market Rate ceiling in many counties, illustrating a key problem with the state’s bifurcated rate system. To correct for this, policymakers included a provision in the 2021-22 budget agreement to reimburse contract-based providers with either the Standard Reimbursement Rate or the rate for voucher-based providers, whichever is higher.4Assembly Bill 131 (Committee on Budget).

Subsidized Child Care Providers Urgently Need a Pay Raise

Already operating on thin financial margins, child care providers have struggled during the pandemic with a loss of income and increased costs due to reduced enrollment, temporary closures, and enhanced health and safety requirements.5Kristin Schumacher, California’s Economic Recovery Starts with Child Care (California Budget & Policy Center, February 2021), https://dev.calbudgetcenter.org/resources/california-economic-recovery-starts-with-child-care/. Policymakers’ recent efforts to boost subsidized child care providers’ payment rates and to provide other one-time rate supplements are just the first step to fair and just payment rates. In addition to increasing payment rates, the 2021-22 budget agreement also required the governor’s administration and providers, parents, and other early childhood experts to begin work on a plan to replace the state’s bifurcated rate system with a unified, equitable system.6AB 131 (Committee on Budget).

But subsidized child care providers and the families they serve can’t wait. While a permanent solution is in the works, state leaders should provide another payment rate increase in the 2022-23 budget agreement to ensure child care providers can keep up with rising costs while continuing to offer invaluable care to children and families.

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