‘Historic’ California child care deal slashes ‘family fees’ — here’s what it means for families, providers

Child care providers across California are voting on an agreement some advocates are hailing as “transformative” for the beleaguered industry.

The state has promised and set deadlines to overhaul its reimbursement model for providers of subsidized care, which advocates believe is key to solving the shortage of child care in California.

The state has also agreed to significantly reduce, and in many cases eliminate, the fees that low-income families must pay to receive state-subsidized child care.

In a state where child care for the youngest children typically costs more than $19,000 a year, California provides financial help for some low-income families toward it. Families who make 85 percent of the state median income or below — that’s up to $96,300 pre-tax annually for a family of four — are eligible for subsidized child care, according to the state’s income limits for the current fiscal year.

But the subsidy system doesn’t reach four out of five young California children who qualify for it, The San Diego Union-Tribune found in a January investigation.

And for the low-income families that it does serve, the subsidized care used to come at a hefty price.

Families have had to pay 10 percent of their monthly income as a “family fee” or co-payment for their subsidized child care — as much as $607 a month.

Federal law requires states to charge family fees on a sliding scale for subsidized care. But it leaves it up to states to decide how much and which families to charge.

Advocates for years have criticized California’s fees as inequitable and unaffordable for low-income families, noting that other states charge much less. South Dakota, for instance, charges no more than $82 a month; Oregon charges up to $130 a month and Washington state charges up to $215.

California has used COVID-19 aid to waive family fees since the onset of the pandemic, but before this summer’s budget deal, the fees had been set to return this year.

In a recent survey conducted by advocacy groups Parent Voices and EveryChild California, more than half of families surveyed said they would quit subsidized child care if they had to pay a family fee. Many said they would have to choose between paying for child care and paying for rent, food, gas, utilities and other necessary living costs.

“The idea was like, why do we even pay these at all?” said Blake Hofstad, organizing director for Parent Voices, which for years has advocated for the elimination of family fees in California.

Under the state budget deal reached this summer, families who make less than 75 percent of the state median income will no longer have to pay any fees for their subsidized child care starting Oct. 1. That means a family of four who makes less than $84,972 annually will not have to pay any fees.

For the minority of families who still have a co-payment, the state slashed the fees, too, so that they will total no more than 1 percent of a family’s income. No family will have to pay more than $61 a month for subsidized care, according to a copy of the new family fee schedule obtained by the Union-Tribune.

The state will use $56 million from its general fund to reduce the fees.

“This is hundreds of dollars a month, thousands of dollars a year that stay in families’ pockets,” Hofstad said.

On top of reducing family fees, state leaders agreed to several other child care reforms in a deal for a two-year contract struck late last month with Child Care Providers United, a statewide union that represents more than 40,000 family child care providers, who are small business owners providing care out of their own homes.

The tentative agreement provides $600 million over two years for one-time rate increases for providers of subsidized child care.

That means starting Jan. 1, San Diego County family child care providers will get $160 more a month per child. License-exempt providers such as family members, friends and neighbors also get a boost of $112 per child.

The agreement also provides $80 million for a first-of-its-kind retirement fund for providers, $100 million in ongoing annual funding for health care and a two-year extension of a COVID-era policy reimbursing providers based on enrollment rather than attendance.

But the biggest win for child care in the agreement, advocates say, is a promise and a timeline from the state to address a fundamental problem with how California — and most other states — fund subsidized child care.

Generally California decides how much to reimburse providers of subsidized care based on the market prices that families were paying for child care five years ago. As a result, the state’s reimbursement rates fail to reflect current costs of living and rapid inflation of the past few years.

They also fall far short of meeting providers’ operating costs. Providers frequently set their prices below their true costs, because they know parents can’t afford to pay more.

A national firm found last year that the gap between what California pays providers and their actual costs amounts to more than $10,000 per child, per year, in almost every region of the state for almost every age group of children served.

Providers of subsidized care often bridge that gap by giving up their own income, over-working themselves and taking other drastic measures that drive many out of business, creating severe shortages of labor and available child care.

With the union agreement, the state promises to formulate a new reimbursement model based on estimates of providers’ costs. The state will decide on elements of the new model by Feb. 15 and submit it for federal approval by July 1 — the state already requested pre-approval in late March, according to the agreement.

Within 60 days of receiving federal approval for the new cost-based model, the state will reopen bargaining with the union about reimbursement rates.

Hussein Almukhtar, a family child care provider based in Lakeside and a member of the union’s negotiations team, called the agreement “historic” and necessary.

Had it not been for the rate increases, he said he would have had to shut down his business, because he doesn’t make enough to stay afloat. He serves entirely children whose families are receiving subsidies.

Almukhtar said he has not been able to find an assistant willing to work for his business, partly because he can’t afford to pay an assistant well. He said he can only afford to pay himself about $5 an hour. So the temporary rate increases will help.

“That’s going to help me keep my doors open until the state fixes their system,” Almukhtar said.

The child care providers union is now voting on ratifying the agreement, with voting to conclude on Monday.

This story originally appeared in San Diego Union-Tribune.