Demystifying California’s Child Care Provider Rate Reform Process

Child care is a “broken market,” meaning families cannot afford to pay what child care actually costs, and providers cannot survive getting paid what families can afford. To address this, California has committed to changing the way the state pays child care providers that offer subsidized care to families. While California providers and advocates have been fighting for fair pay for decades, the state’s process to improve provider pay launched in 2023. The steps involved in changing provider pay are complex and technical. This Q&A clarifies the rate reform process and opportunities for the state to ensure that this process results in fair and equitable pay for child care providers.

How are child care providers currently paid?

Child care providers participating in state subsidy programs receive a reimbursement rate (i.e., payment) from the state, funded with state and federal dollars. The per-child rates vary by a number of factors, including: provider type (e.g., family child care homes, licensed child care centers, or family, friend and neighbor caregivers), size (small or large family child care homes), county, part-time or full-time care, and age of child. There are two types of rates:

Providers that contract directly with the state are paid with a statewide rate called the Standard Reimbursement Rate (SRR).

The SRR is adjusted for various factors such as the age of the child or disability status. Direct-contract providers are mainly child care centers or home-based child care providers that are part of the Family Child Care Home Education Network (FCCHEN). These providers are paid directly by the state.

In addition to the SRR and RMR “base rates,” providers also receive an additional stipend called the “cost of care plus.”

This payment is intended to help address outdated, low RMR/SRR rates resulting from policymakers’ failure to increase the base payment rates.

What are the main problems with how providers are currently paid?

Provider rates are based on how much families can afford to pay (i.e., the RMR survey) or an amount set by 1980s legislation (i.e., the SRR).  In other words, providers are not being paid based on the actual cost of care. This results in several challenges, including:

• Child Care provider pay is too low. Even with the cost of care plus payments, the state is paying providers far less than what it takes to run a child care program, including providing enriching care for children. This often means that providers have to absorb losses and are often unable to pay staff a living wage. 
• The current rate structure is unnecessarily complex. Having two different rates and additional stipends layered on top of these rates creates an administrative burden and additional hurdles when trying to increase pay for providers.

How is the state addressing problems with the current rate structure?

To address outdated, complex rates, the state has committed to paying providers based on the cost of care. In April of 2023, the California Department of Social Services (CDSS) launched the “alternative methodology” process to estimate the cost of providing care, including a living wage for providers.

• The “alternative methodology” refers to a new formula for determining provider pay. This formula results in estimates of how much it costs to provide care. In other words, the alternative methodology will replace the RMR survey and the SRR. The alternative methodology is intended to ensure that providers are paid based on what it actually costs to provide care, as opposed to what families can afford to pay.
• The new rates based on the alternative methodology will have a “single rate structure.” In other words, the SRR and the RMR rate-setting structures will be replaced with one rate structure (i.e., the single rate structure) intended to help eliminate unnecessary complexity and administrative burden. The state often refers to the process for determining the new rates under the single rate structure as the “rate setting process.”

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Does the alternative methodology accurately reflect the cost of care?

In order for the state to truly solve the issues with the current rates, the alternative methodology must produce accurate cost of care estimates. The current cost of care estimates derived from the state’s alternative methodology claim that the state — for some providers in certain counties — is already paying providers more than the cost of care, which is likely not true. Examples of challenges with the alternative methodology include:

• The regions that counties have been grouped within are based on a methodology that replicates many of the existing inequities providers currently experience related to low pay. 
• The alternative methodology estimates school-age cost of care at 60% of full-time care, which does not align with the needs of families requiring full-time care for school-age children (i.e., for families that work during non-school hours, such as hospitality or food service).

Where is the state at in the process of developing a “single rate structure?”

Despite the aforementioned challenges, the state has completed its version of the alternative methodology (as of summer 2025) and is currently developing a new single rate structure based on this new methodology. However, using current cost of care estimates will likely result in inequities within the single rate structure. Since finalizing the alternative methodology, the state has taken the following actions:

• The state and Child Care Providers United (CCPU) published a set of recommendations in December 2025 regarding how to set this single rate structure, including three categories: 1) a set of these recommendations agreed upon by both parties; 2) a set agreed upon just by the state; and 3) a set agreed upon just by CCPU. The recommendations agreed upon by CCPU (and not the state) directly address the challenges with the current alternative methodology. 
• The governor released a proposed January budget containing no updates on when or how the single rate structure might be finalized and implemented (in trailer bill language or elsewhere) or funding for implementation. The state has been utilizing the existing bifurcated rate system for decades, even though it means that providers are often not paid enough to fully cover expenses. Any update to a new rate structure that more accurately reflects the cost of care – including living wages for providers – will require a substantial increase in funding if policymakers hope to maintain the number of children enrolled in subsidized care. Given ongoing budget problems, it’s unclear when the state will prioritize paying providers this new rate.

What can state leaders do to support a fair and equitable rate reform process?

State leaders have the opportunity to align with Child Care Providers United’s recommendations to ensure that the alternative methodology is updated to more accurately reflect the true cost of care. Specifically, state leaders can align with the following CCPU recommendations that (so far) have not been agreed upon by the state. Key recommendations include:

• The alternative methodology is updated regularly to use the most up-to-date information, adjusting regional groupings as needed based on new data. This includes annual updates of model inputs from publicly available data sources.
• Cost of care estimates reflect established real-world costs of providing care (e.g., MIT living wage, discretionary benefit costs for providers and assistants they employ, accurate group sizes, etc.) and are confirmed by relevant data, including the lived experience of family child care providers that care for families with subsidies.
• Rates as part of the single rate structure will not decrease from current rates in accordance with current statute (see WIC 10227.6).

Glossary of Terms for Understanding Rate Reform