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Subsidized Child Care Providers – and Children – Can’t Afford a Pay Cut

May 2020 | By Kristin Schumacher

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During this unprecedented health and economic crisis, many subsidized child care providers in California have stepped up to the challenge of providing early learning and care for families with low and moderate incomes – particularly for children with parents who are essential workers. While the state and federal government have both provided emergency funding to support subsidized child care providers, total support falls far short of the estimated level necessary to sustain child care providers. In addition, the Governor’s May Revision would cut provider payment rates by 10%. These rate cuts could be detrimental for child care providers who were already underpaid and operating on thin margins prior to the COVID-19 pandemic. Now, during this crisis, providers are faced with dramatically higher costs due to smaller class sizes, increased staffing per child, and the added expense of keeping facilities clean as they care for and educate children.

Subsidized child care providers are paid in one of two basic ways: by contracting directly with the state or by accepting vouchers from families. Providers who accept vouchers are reimbursed based on the Regional Market Rate (RMR) Survey, which provides “rate ceilings” for all 58 California counties by the type of care and the age of the child. The rate ceilings in use in the 2019-20 state fiscal year are based on the 75th percentile of the 2016 survey. In theory, this should allow families to access 75 out of every 100 providers in their county. However, because the state is currently using an outdated survey, families are able to access far fewer providers.

A 10% decrease to the current, outdated rate ceilings would further restrict families’ access to care. For example, in Los Angeles County where one-quarter of children eligible for subsidized child care live, the proposed rate ceiling for full-time, center-based care for an infant would be $1,435 per month, which means that families would have access to just 54% of providers in their community based on the most recent survey from 2018. Across California, the proposed rate ceilings for many counties would fall far short of the 75th percentile benchmark from the most recent survey.

Providers that contract directly with the state are reimbursed with a statewide rate called the Standard Reimbursement Rate, which is adjusted based on different factors such as the age of the child. Contract-based providers have to meet quality standards, in addition to meeting the health and safety standards that voucher-based providers are held to. Given the additional standards required by the state, a higher rate should be provided for contract-based providers. However, in 14 counties contract-based centers caring for preschool-age children are paid at a monthly rate that is less than vouchers for center-based providers. One reason for this is because policymakers have not consistently increased the Standard Reimbursement Rate each year, and this key payment rate has lost value over time. A 10% cut would erase some of the gains made after the Great Recession in boosting the Standard Reimbursement Rate.

Child care providers’ ability to offer subsidized care depends, in part, on the state’s reimbursement rates. When providers are not paid at a level that allows them to operate their businesses, attract and retain qualified staff, and afford materials and supplies to educate children, they may be unable to offer care to families with low incomes. Some may be forced to permanently close their doors.

While the May Revision proposes to use $125 million in federal emergency funds to provide one-time stipends to subsidized providers, the value of these stipends will likely fall far short as compared to the long-term loss in income due to the Governor’s proposed 10% payment rate cut. In the meantime, California could lose an invaluable number of child care providers and diminish families’ access to care.

Child care providers are offering early learning and care for thousands of California children and are playing an outsized role as essential workers who ensure that other vital workers in our communities can go to work. Policymakers should use all available funds to stabilize subsidized child care providers by providing stipends for increased costs as proposed in the May Revision and maintaining provider payment rates. This is critical to helping providers survive the COVID-19 crisis, supporting families with low incomes who must leave their homes to work, and aiding the state’s economic recovery.

Support for this work is provided by First 5 California. 

Child Care & Preschool
Covid-19

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The share of California corporate income paid in state taxes declined by more than half during the past three decades. In the early 1980s, corporations that reported profits in California paid more than 9.5% of this income in state corporation taxes. In contrast, corporations paid just 4.2% of their California profits in corporation taxes in 2017, the most recent year for which data are available. California’s state budget would have received $11.2 billion more revenue in 2017 had corporations paid the same share of their income in taxes that year as they did in 1981 – more than the state spends on the University of California, the California State University, and student aid combined.

Corporations pay less of their income in taxes today – even amid the COVID-19 economic crisis – than they did in the 1980s in part due to the reduction of tax rates by state policymakers. Since increasing the corporate tax rate to 9.6% in 1980, the Legislature has cut the rate twice: from 9.6% to 9.3% in 1987 and from 9.3% to 8.84%, its current level, in 1997.

In addition to cutting tax rates since the 1980s, state policymakers have enacted several corporate tax breaks that reduce the share of income that corporations pay in California corporation taxes. For example, beginning in 1987, California allowed multinational corporations to lower their tax liability by calculating their California income based on either their total income from worldwide operations or only from their operations within the US. This so-called “water’s edge” election will cost the state an estimated $2.4 billion in 2019-20. Also in 1987, state policymakers established the state’s research and development (R&D) tax credit, which primarily benefits large corporations and will cost the state an estimated $1.8 billion in 2019-20. As with many corporate income tax credits, the amount spent on the R&D credit each year is unlimited, and there is no expiration date. In total, California is projected to spend $5.7 billion on tax expenditures for corporations in 2019-20.

California spending on tax breaks for corporations far exceeds the amount the state spends on tax benefits for low-income Californians. In 2019, California was projected to spend $1 billion on the state’s two largest tax credits targeted to Californians with low incomes – the California Earned Income Tax Credit (CalEITC) and the Young Child Tax Credit (YCTC). The CalEITC and YCTC boost the incomes of families and individuals with annual earnings of less than $30,000, a large majority of whom are people of color. The CalEITC alone directly benefited 3.7 million Californians in 2018. One example of how tax credits, exemptions, and deductions could be more equitably targeted is to extend the CalEITC and YCTC to all immigrant families. The Legislature could pay for the extension of the CalEITC and YCTC to these immigrant families by eliminating or reducing tax breaks for corporations that can afford to contribute more.

Corporations can contribute more not only because they are paying less than half the amount in state taxes than they did three decades ago, but also because they are likely to pay far less of their income in federal taxes due to the federal Tax Cuts and Jobs Act (TCJA), signed by President Trump in 2017. The TCJA made several changes to federal tax law that benefit corporations, including slashing the federal corporate income tax rate from 35% to 21%, the largest one-time reduction in US history. The Institute for Taxation and Economic Policy (ITEP) estimated that the tax benefit to California corporate business owners was more than $13 billion in 2018. The reduction in federal corporate taxes may argue for an increase in the state’s corporate income tax rate. However, policymakers have other options for ensuring that corporations pay their fair share in state taxes. For example, they could review existing corporate tax provisions, such as corporate tax credits, exemptions, and deductions, and reduce or eliminate those that are not achieving the state’s policy goals. By reducing spending on corporate tax breaks, the state would have more resources available to support families with low incomes who are struggling to afford the costs of living in California, COVID-19 crisis or not.

Covid-19
Taxes & Revenue

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On a given night, more than 150,000 Californians are homeless. These individuals face significant risk of exposure to COVID-19 and serious barriers to following stay home orders to limit the spread of infection. Due to older ages and high rates of physical health conditions, they are also at high risk of severe complications or even death from the virus. Black Californians are greatly overrepresented among homeless individuals, making their health especially endangered by COVID-19. Policymakers should make sure the urgent housing and health needs of Californians who are homeless are met, to protect their health and the broader public health and to address racial health disparities exacerbated by this pandemic.

  • Nearly 3 in 4 Californians experiencing homelessness are unsheltered– living on the street, in cars, or in other places not meant for habitation. Lack of proper housing makes it impossible for these individuals to follow stay home orders or even practice basic hygiene, such as washing their hands.
  • Social distancing and self-quarantine are also a challenge for Californians staying in emergency shelters and transitional housing, due to shared sleeping, eating, bathroom, and living spaces.
  • The lack of housing and inability to consistently follow public health recommendations puts Californians who are homeless at greater risk of contracting COVID-19. This also hinders statewide efforts to stop the virus from spreading.

  • Older adults are at high risk of developing severe health complications from COVID-19. According to the US Centers for Disease Control and Prevention (CDC), adults age 50 and over have the highest rate of hospitalization due to COVID-19 — and those age 55 and older accounted for 92% of provisional COVID-19 deaths as of April 21, 2020.
  • Even prior to the pandemic, the aging of the homeless population meant that older adults are now – and will continue to increasingly be – a large portion of Californians experiencing homelessness. In Los Angeles County, about 2 in 5 homeless adults are older than 50.
  • Further, homeless individuals demonstrate rates of illnesses and geriatric conditions on par with or higher than adults with stable housing who are 20 years older, increasing their risk of complications from COVID-19.

  • People with chronic health conditions also tend to have worse COVID-19 outcomes. A preliminary study by the CDC found that adults with COVID-19 who had at least one  underlying health condition or risk factor were significantly more likely to require  hospitalization or ICU admission, compared to those who did not.
  • In addition, experiencing homelessness exacerbates existing health conditions and can lead to new ones, such as chronic illnesses and infectious and communicable diseases. In a national study of homeless single adults, more than 8 in 10 unsheltered individuals (84%) reported having at least one physical health condition.

  • Racial disparities linked to current and past discriminatory policies and practices are startlingly apparent in Black Californians’ overrepresentation both within the homeless population and among severe health outcomes and deaths related to COVID-19.
  • While Black Californians only comprise 6% of the state population, nearly 1 in 3 individuals experiencing homelessness are Black, and therefore face high risk of COVID-19 exposure and significant barriers to preventing and addressing infection.
  • Black Californians accounted for 12% of COVID-19 related deaths statewide as of April 19, 2020 — double their share of the state population. In Los Angeles County, where 1 in 11 residents (9%) are Black, they have accounted for 1 in 6 deaths (16%) due to COVID-19 as of April 18, 2020.

Federal and state policymakers have taken initial steps to address the needs of Californians experiencing homelessness during the COVID-19 crisis, such as providing support to house some individuals in hotels and allocating funds to local jurisdictions to address local homeless services needs. This support for individuals without a permanent home will be needed as long as the pandemic lasts. It is also critical to ensure that Californians at high risk of severe COVID-19 health outcomes – including older adults and individuals with chronic health conditions – do not fall into homelessness. Strong interventions are also important to avoid further exacerbating the disproportionate burdens of homelessness and COVID-19 among Black Californians. Given the high risk and devastating consequences for both individuals’ health and broader public health efforts, policymakers should prioritize the urgent COVID-19 health and housing needs of homeless Californians, while taking steps to address the state’s long-term homelessness challenges and racial health disparities.

Covid-19
Housing & Homelessness

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Choosing between paying the bills or caring for their families has never been an easy choice for California workers, and COVID-19 health and economic conditions have only exacerbated that dilemma. The federal Families First Coronavirus Response Act temporarily addresses workers’ lack of paid time off in the United States by requiring employers to provide both paid sick days and job-protected paid leave to care for a family member (see Table for more details). While the federal government will provide tax credits to businesses to cover the cost of the required leave policies, the federal law has exemptions that allow some employers to opt out of providing paid time off to workers, many of whom earn low wages, have limited benefits, and are at heighted risk of being exposed to COVID-19.

Workers ineligible for new federal leave laws may be able to rely on California’s family and medical leave laws, but these policies also have limitations that create barriers for workers taking paid time off from work. These barriers are particularly acute for workers with low wages – disproportionately women, Black, and Latinx workers. Finally, some workers may be covered by their employers’ benefits, but workers with low wages are far less likely to have paid time off via workplace benefits. This means that even as state leaders work to stop the spread of COVID-19 and have directed people to stay home, some workers cannot access paid time off to care for themselves or family members and still support their household needs.

How are workers caught in the paid time off gap?

Caught in the Gap: A part-time cashier at a nationwide pharmacy needs several weeks away from work to stay home to care for her spouse who is gravely ill and is under an isolation order, but she is ineligible for federal paid time off because she works for an employer with more than 500 employees. While this worker could use California’s paid family leave, she would not be able to take leave with job security because she works just 20 hours a week, which does not meet the requirements for job-protected leave under California law. Closing the Gap for Workers:

  • Federal policymakers should require large businesses with more than 500 employees who are currently excluded in the Families First Act to provide paid time off. This could reach millions of additional workers in California.
  • State policymakers should extend job protections to all workers who take family and medical leave regardless of the size of the employer, hours worked, or tenure.

Caught in the Gap: A single mom working at a small, local grocery story finds herself without care for her children due to the closure of local schools and day care centers. Her employer has told her that providing her with paid time off to care for her children would be a hardship that would jeopardize the business, and she is not eligible to utilize federal paid leave. California’s paid family leave program is not an option for parents who suddenly find themselves without care for their children due to a public health emergency. Her only option is to apply for unemployment insurance benefits. Closing the Gap for Workers:

  • Federal leaders should limit small-business exemptions to those who would be forced to immediately close if they gave their employees paid time off under this new federal leave program. Currently, the Department of Labor definition of hardship is vague and requires only self-certification by small employers. Small businesses should also be required to submit a simple form to the federal Department of Labor, rather than current practice, which is to self-certify without any documentation.
  • State policymakers should include care for a family member due to the closure of school, child care center, or adult day center during a public health emergency or natural disaster as a reason one can utilize paid family leave.

Caught in the Gap: A worker in the cleaning and maintenance department of a small, rural hospital fears he might have been exposed to COVID-19 when he dropped off groceries for his mother who has since tested positive for the virus. He knows he should self-quarantine for the recommended 14 days, but he only has three days of sick time under California’s paid sick days law and he’s worried about paying his bills. His employer has already informed him that he is considered a health care worker, and they won’t be providing any paid sick days under new federal laws. He could apply for state disability insurance, but he needs medical certification. Unfortunately, even though he works in a hospital, he does not have a primary care doctor, has been unable to schedule an appointment with a new doctor, and is afraid to go to urgent care due to the risk of spreading the virus or increasing his risk of exposure. Closing the Gap for Workers:

  • Federal policymakers should provide health care workers and emergency responders with paid time off to care for themselves or their family. The regulations are overly broad and allow employers to exclude many workers, many of whom have a greater chance of being exposed to COVID-19, and they may need time off, too. Adding to their dilemma and economic hardship, many of these workers likely earn low wages, such as janitors in hospitals and factory workers building medical supplies.
  • State policymakers should increase the minimum required number of paid sick days provided by all employers, which is currently just three days or 24 hours, to the equivalent of two weeks during a public health emergency and seven days when not in a public health emergency. Governor Newsom recently signed an Executive Order expanding paid sick days, but just for essential workers in the food sector who work for large employers currently excluded from federal law.
  • State policymakers should waive medical certification necessary for state disability insurance or paid family leave during a public health emergency to ease the strain on the health care system.

Everyone needs time off to care for themselves or their families, and the COVID-19 pandemic has only heightened the necessity for all workers – crisis or not – to know they can safely keep their jobs and care for the health and well-being of loved ones. State and federal laws create a patchwork of policies to address the need for paid time off but leave notable gaps and workers without a reliable way to care for themselves and others. Both state and federal policymakers should take additional action in the midst of this public health and economic crisis to support California’s workforce in the same way workers show up for the economy every day.

Support for this work is provided by First 5 California. 

Covid-19
Poverty & Inequality

Source: Budget Center analysis of federal and California state law and administrative documents.

1 The law doesn’t apply to workers covered under a collective bargaining agreement with certain provisions, to certain public employees, and certain airline employees.

2 Certain employees and certain types of employment are exempt and don’t contribute to state disability insurance. In addition, employers or a majority of employees can opt into voluntary disability plans 

in lieu of state disability insurance and paid family leave with approval from the state.

3 Businesses with fewer than 50 employees can opt out of providing paid sick days or paid leave for workers who need time off to care for family due to a closure of a care facility if it would jeopardize the         

business.

4 Employers can opt to exclude health care workers and emergency responders.

5 The definition of “family member” varies across state and federal laws.

6 May be prorated for part-time work.

7 The 2019-20 budget agreement extended the duration from six weeks to eight, effective July 1, 2020.

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Millions of California workers have lost jobs or seen their work hours significantly cut back as a result of the public health measures that state and local governments have put in place to slow the spread of COVID-19. While necessary to protect the state’s health care system and mitigate the spread of infection, these disruptions seriously threaten the economic stability of a significant share of California workers – and their families. Yet these disruptions do not affect all Californians equally, with a greater burden on California workers with less education, those who are immigrants, and California’s children and adults of color.

To understand who may be most affected, this piece examines the demographics of workers and the families of workers in California industries that are directly and immediately affected by the business slowdown and closures due to the COVID-19 pandemic.

 

In this fact sheet you will learn about:

  1. Who are the State’s Struggling Workers: Many Californians Face High Risk of Economic Devastation from the COVID-19 Business Slowdown
  2. Wage & Educational Disparities: Workers With Low Wages and Less Education Face High Risk of Losing Work
  3. Job Hits Worsen Racial Inequalities: Californians of Color and Their Children Are Particularly Vulnerable to Economic Instability
  4. Impossible Situation for Immigrants: California’s Immigrants Face Financial Crisis, With Millions Left out of Public Support
  5. Opportunities Now & Beyond: Policymakers Can Address Racial and Economic Inequities with COVID-19 Responses
Covid-19
Poverty & Inequality

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The federal Supplemental Nutrition and Assistance Program (SNAP) — known as CalFresh in California — is one of the nation’s most powerful antipoverty programs, helping millions of people buy the food they need to support their families and households. Even with a strong economy in 2019, CalFresh provided food assistance to nearly 1 in 10 Californians. Program participation varied across the state’s 53 Congressional districts, but was especially high in the 8th District (R-Cook), 16th District (D-Costa), and 21st District (D-Cox) (see Map 1). CalFresh enrollment will increase dramatically in the coming weeks and months as many across the state lose jobs and income due to the COVID-19 public health and economic crisis.

SNAP is also one of the federal government’s most effective tools in boosting the economy when participants purchase food in their communities. While recent federal legislation responded to the COVID-19 pandemic by enacting temporary provisions in the SNAP program to streamline administration, maintain participation, and provide emergency benefits, more needs to be done. Federal policymakers should take additional actions to help households put food on the table and to boost the economy. Until the public health emergency is over and the economy improves, policymakers should increase SNAP’s maximum benefit and minimum monthly benefit and halt any administrative actions that would limit SNAP food assistance.


Covid-19

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The COVID-19 public health crisis has upended the lives of Californians. Millions of people have experienced serious disruptions to their jobs following social distancing public health recommendations and state and local shelter-in-place orders aimed at slowing the spread of the virus. While necessary to prevent overwhelming the state’s health care system, the business reductions and closures forced by these orders will have a severe economic impact on Californians as well as on regional economies.

This Fact Sheet shows that the major industries most immediately impacted by the COVID-19-related economic shutdown – leisure and hospitality, retail trade, transportation and warehousing, and other services – employ large numbers of Californians in the state’s largest metropolitan areas.1 Without a sufficient federal response to help workers and their families, the shutdown will have a ripple effect throughout local economies as people who lose work will lose income and be forced to cut back on their spending, thus reducing demand for business more broadly.

Covid-19

1 Although many people employed in leisure and hospitality, retail trade, transportation and warehousing, and other services have lost work in recent weeks, there are notable exceptions. For example, within retail trade, grocery stores and pharmacies remain open; within leisure and hospitality, some restaurants have remained in business by providing takeout service instead of in-house service; and within transportation and warehousing, there has been increased demand for jobs supported by online shopping. Due to data limitations for metropolitan areas, it is not possible to present job figures for the industries within these sectors that have been most immediately impacted by the economic shutdown. For these figures at the state level, see The California Industries Hit Hardest by COVID-19 Economic Shutdown: These Industries Employ Millions of Californians.

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The COVID-19 public health crisis has upended the lives of Californians. Millions of people have experienced serious disruptions to their jobs following social distancing public health recommendations and state and local shelter-in-place orders aimed at slowing the spread of the virus. While necessary to prevent overwhelming the state’s health care system, the business reductions and closures forced by these orders will have a severe economic impact on Californians and will hit those with low incomes especially hard.

This Fact Sheet shows that the types of occupations most immediately impacted by the COVID-19-related economic shutdown typically pay low wages, providing annual incomes near or below the poverty line based on the Supplemental Poverty Measure for Los Angeles, even for full-time work.1 This means that the Californians who will bear the brunt of the economic slowdown live paycheck to paycheck even when work is plentiful and are unlikely to have savings to fall back on when their jobs disappear.

Covid-19

1 Although many people employed in these occupations have likely lost work in recent weeks, there are notable exceptions. For example, within transportation and warehousing, there has been increased demand for jobs supported by online shopping.

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