Child Care and State Preschool

Overview

Provides $7.4 Billion for Child Care Programs. As shown in in Figure 1, total child care program costs decreased by $85 million (1 percent) relative to the revised 2024-25 levels. This increase includes an additional $95 million for California Work Opportunity and Responsibility to Kids (CalWORKs) child care programs and $60 million for non-CalWORKs child care programs, offset by a $240 million reduction for support activities.

Figure 1

Child Care Budget

(Dollars in Millions)

	2023‑24 Revised^a	2024‑25 Revised^b	2025‑26 Enacted^c	Change From 2024‑25
	2023‑24 Revised^a	2024‑25 Revised^b	2025‑26 Enacted^c	Amount	Percent
Expenditures
CalWORKs Child Care
Stage 1	$550	$614	$622	$8	1%
Stage 2^d	420	549	657	109	20
Stage 3	559	537	515	‑22	‑4
Subtotals	($1,530)	($1,700)	($1,794)	($95)	(6%)
Non‑CalWORKs Child Care
Alternative Payment Program	$2,028	$1,990	$2,003	$13	1%
General Child Care^e	1,255	1,495	1,585	90	6
Bridge program for foster children	94	107	64	‑43	‑40
Migrant Child Care	70	79	79	—	—
Care for Children With Severe Disabilities	2	2	2	—	3
Subtotals	($3,449)	($3,672)	($3,732)	($60)	(2%)
Support Programs	$1,594^f	$2,161^g	$1,921^h	‑$240	‑11%
Totals	$6,573	$7,533	$7,448	‑$85	‑1%
Funding
Proposition 98 General Fundⁱ	$3	$2	$1	‑$1	‑37%
Non‑Proposition 98 General Fund	3,188	4450	4,924	473	11
Proposition 64 Special Fund	270	639	195	‑444	‑69
Federal	3,111	2,442	2,328	‑114	‑5
^aReflects 2024‑25 May Revision estimates with LAO adjustments. ^bReflects 2025‑26 May Revision estimates with LAO adjustments. ^cReflects 2025‑26 Budget Act with LAO adjustments. ^dDoes not include $4.4 million provided to community colleges for certain child care services. ^eIncludes funding for family child care home education networks . ^fIncludes cost estimates for quality programs, child care infrastructure, Child and Adult Care Food Program, CCPU Retirement Benefit Trust, CCPU Health Benefit Fund, accounts payable, whole child community equity, court cases, and costs associated with 2023‑24 MOU and parity agreement. ^gIncludes cost estimates for quality programs, child care infrastructure, Child and Adult Care Food Program, CCPU Training Fund, CCPU Retirement Benefit Trust, CCPU Health Benefit Fund, accounts payable, whole child community equity, and costs associated with 2023‑24 MOU and parity agreement. ^hIncludes cost estimates for quality programs, child care infrastructure, Child and Adult Care Food Program, accounts payable, prospective pay, reimbursement based on certified need, rate reform support, administrative support, and whole child community equity. The budget authorizes the Department of Finance to increase spending by up to $195 million on CCPU funds for retirement, health, and training. ⁱReflects Proposition 98 funds for Child and Adult Care Food Program.
CCPU = Child Care Providers United and MOU = memorandum of understanding.

Provides $7 Billion for Preschool Programs. Of this amount, $4.1 billion is for transitional kindergarten and $2.8 billion is for State Preschool. As shown in Figure 2, the 2025-26 Budget Act increases these programs by a total of $2.1 billion (43.8 percent) from the revised 2024-25 level. These increases are primarily driven by the final expansion of transitional kindergarten to serve all eligible four-year olds, as well as higher per-student rates. (We describe these changes in more detail in The 2025-26 California Spending Plan: Proposition 98 and K-12 Education.)

Figure 2

Preschool Budget

(Dollars in Millions)

	2023‑24 Revised	2024‑25 Revised	2025‑26 Enacted	Change From 2024‑25
	2023‑24 Revised	2024‑25 Revised	2025‑26 Enacted	Amount	Percent
Expenditures
Preschool Programs
Transitional Kindergarten^a	$2,104	$2,615	$4,128	$1,513	57.9%
State Preschool^b	2,567	2,173	2,806	633	29.1
Preschool QRIS Grant	50	50	50	—	—
Subtotals	($4,721)	($4,838)	($6,984)	($2,146)	(44.4%)
Other Support	$32	$19	$1	‑$18	‑94.5
Totals	$4,753	$4,857	$6,985	$2,128	43.8%
Funding
Proposition 98 General Fund	$3,784	$3,992	$5,963	$1,971	49.4%
Non‑Proposition 98 General Fund	916	865	1,022	157	18.2
Federal One‑time COVID‑19 Relief	54	—	—	—	—
^aReflects LAO estimates. ^bIncludes up to $5 million each year used for a family literacy program offered at certain State Preschool sites.
QRIS = Quality Rating and Improvement System.

Major Spending Changes

Budget Package Incorporates Costs of Recent Collective Bargaining Agreement. In 2019, the state authorized licensed family home and license-exempt providers participating in subsidized child care and preschool programs to form and join a statewide provider union and collectively bargain on matters, including, but not limited to, reimbursement rates, benefits, and training. In August 2025, the state and Child Care Providers United (CCPU) signed a memorandum of understanding (MOU) that extends through June 30, 2028. The budget package extends most provisions of the new collectively bargained agreement to non-represented, center-based child care and State Preschool providers (with the exception of the health, retirement, and training funds, which are limited to CCPU-represented providers).

Extends and Increases Monthly Cost of Care Plus Payments for Child Care and State Preschool. The budget package extends and increases the monthly per-child cost of care plus payments for child care and State Preschool providers through June 30, 2028. These payments were previously scheduled to expire on June 30, 2025. As Figure 3 below shows, the budget provides $628 million in non-Proposition 98 General Fund for the costs of these payments for child care providers. This amount reflects nine months’ worth of costs. (The first three months of costs are covered with unspent prior-year funds.) Of the total amount, $59 million non-Proposition 98 General Fund is to increase the per-child rates for child care providers. For State Preschool, the budget provides an additional $19 million Proposition 98 General Fund and $8 million non-Proposition 98 General Fund to cover the increased rates. (The rest of the costs are funded with unallocated State Preschool funds.) For child care providers, the increase to the monthly cost of care plus payments for the first six months of the fiscal year will be paid to providers as a lump sum by January 1, 2026.

Figure 3

Changes in Child Care and State Preschool Spending

(In Millions)

	General Fund		Prop. 64	Federal	Total
	Prop. 98	Non‑Prop. 98	Prop. 64	Federal	Total
Child Care
Monthly cost of care plus payments	—	$628	—	—	$628
Child care stabilization payments	—	158	—	—	158
CalWorks caseload and cost of care	—	157	—	‑$62	95
Reimbursement based on maximum certified need	—	89	—	—	89
Annualization of General Child Care slots added fall 2025	—	76	‑$3	—	73
Administrative support for AP agencies	—	70	—	—	70
Child and Adult Care Food Program caseload and COLA	‑$1	0.3	—	40	40
Prospective pay	—	30	—	—	30
Technical adjustments	—	22	‑$32	‑108	‑119
One‑time adjustments^a	—	‑756	‑$409	16	‑1,149
Child Care Totals	‑$1	$473	‑$444	‑$114	‑$85
Preschool
Transitional kindergarten attendance and rate changes	$997	—	—	—	$997
Restoration of one‑time State Preschool reduction	519	$153	—	—	673
Transitional kindergarten lower student‑to‑adult ratio	517	—	—	—	517
Shift of unspent State Preschool funds to ELOP	‑81	—	—	—	‑81
Additional cost of care plus payments	19	8	—	—	27
Removal of one‑time 2024‑25 spending	—	‑18	—	—	‑18
One‑time stabilization payments	—	16	—	—	16
Shift of local assistance to state operations	—	‑1	—	—	‑1
Preschool Totals	$1,971	$157	—	—	$2,128
Total Child Care and Preschool	$1,970	$631	‑$444	‑$114	$2,043
^aIncludes prior year one‑time costs associated with quality carryover, SB 140 carryover, child care infrastructure program, court cases, and the whole child community equity program. Assumes no spending in 2025‑26 for CCPU funds. The budget authorizes the Department of Finance to increase spending by up to $195 million for this purpose.
AP = Alternative Payment; COLA = cost‑of‑living adjustment; and ELOP = Expanded Learning Opportunities Program.

Suspends Statutory Cost-of-Living Adjustment (COLA). The budget package suspends the statutory COLA for child care and State Preschool in 2025-26. The savings associated with this suspension ($67 million non-Proposition 98 General Fund and $19 million Proposition 98 General Fund) is redirected to cover the increases to monthly cost of care plus payments.

Authorizes Funding to Restore Balances in Certain CCPU Accounts. The budget authorizes the Department of Finance (DOF) to provide additional funding to restore the balance in three funds administered by CCPU:

Up to $100 million annually for the CCPU Workers Health Care Fund, which funds health insurance for CCPU members. The refill amount is based on the number of providers enrolled in the fund.
Up to $80 million annually for the CCPU Retirement Trust, which supports retirement costs for enrolled providers. The refill is only available in years when child care reimbursement rates do not increase or when both rates and the number of enrolled providers increase.
Up to $15 million annually for the CCPU Training Partnership Fund, which supports the training of CCPU members.

Annual deposits into these funds are required through 2027-28, contingent upon CCPU providing DOF with annual reports that describe the distribution of funds in the prior year and the remaining balance.

Stabilization Payments. The budget provides $158 million in non-Proposition 98 General Fund for one-time payments to State Preschool and child care providers. Licensed providers will receive a one-time stabilization payment of $431 per child based on their enrollment in April 2025, while license-exempt providers will receive $300 per child enrolled that month.

Funds One-Time Administrative Costs. The budget provides $115 million one-time non-Proposition 98 General Fund to support administrative costs for Alternative Payment agencies. Of this total, $70 million is to cover the costs of implementing aspects of the agreement between the state and CCPU, such as collecting provider dues. The remaining $45 million is to support the costs of administering monthly cost of care plus payments.

Extends Reimbursement Flexibility Based on Maximum Certified Need for Voucher-Based Providers. The budget provides $88.6 million non-Proposition 98 General Fund to continue to pay voucher-based providers based on a child’s maximum certified hours of care rather than on attendance. This policy was enacted during the pandemic, subsequently extended, and set to expire on June 30, 2025. The budget package extends this reimbursement flexibility through June 30, 2028.

Sets Aside State Preschool Funding for Three-Year Olds. The budget makes available $63 million Proposition 98 and $35 million non-Proposition 98 General Fund on an ongoing basis to increase contracts for anticipated growth of the number of three-year old children served in State Preschool. (The per-child rate for three-year olds is 80 percent higher than the rate for four-year olds.) The costs associated with these increases are covered with unallocated State Preschool funds.

Reduces Emergency Child Care Bridge Program Funding. The budget reduces funding for the Emergency Child Care Bridge program by $30 million non-Proposition 98 General Fund on an ongoing basis. This reduction was based on the administration’s projections of the amount of funding necessary to meet demand for the program and is not intended to reduce access to services. A total of $63.6 million ongoing funding ($53.4 million non-Proposition 98 General Fund, $3.8 million Proposition 64, and $6.5 million federal funds) remains available for the program.

Funds Transition to Paying Providers Prospectively. The budget provides $30 million one-time non-Proposition 98 General Fund to transition state and local systems to begin paying providers prospectively. This shift is motivated by a change in federal regulations requiring states to pay providers in advance of providing services, rather than the past requirement to pay providers within 21 days of submitting attendance records. The MOU between the state and CCPU extends the practice of paying providers within 21 days of submitting attendance records through June 30, 2028, subject to renegotiation if the Legislature increases subsidized child care rates.

Provides Funding to Reform and Automate Systems Based on New Rate Structure. The budget provides $21.8 million in one-time federal funding to reform and automate state and local data systems to allow for the implementation of new child care provider rates based on an alternative methodology. These reforms include developing the California Supporting Providers and Reaching Kids, or CalSPARK system, to replace older systems. The MOU between the state and CCPU requires CCPU be notified and provided an opportunity to confer on the impact of system updates when updates are possible.

Supports New State Operations Positions. The budget includes a total of $9.8 million in funding and authority for 41 new child care related positions at the Department of Social Services (DSS). Of the total, $6.4 million in federal funding and 29 positions are provided to support a variety of activities, including maintaining compliance with federal rules and administrative functions of the Child Care and Development Division. The remaining $3.3 million is funded with ongoing non-Proposition 98 General Fund and includes five positions to implement prospective pay, four positions to implement enrollment-based funding, and three positions to support direct deposit for child care providers.

Other Actions

Extends Reimbursement Flexibility for Direct Contractors, Transitions to Enrollment-Based Funding in 2026-27. The budget package extends for one additional year the policy of funding direct contract child care and State Preschool providers based on the lesser of (1) the maximum reimbursable amount in their contract or (2) the contractor’s reimbursable program costs, irrespective of child attendance in the program. This policy was enacted during the pandemic, subsequently extended, and set to expire June 30, 2025. The net effect of the policy is that less unspent funding will be returned to the state at the close of the fiscal year. Beginning 2026-27, the budget package sets a new policy to fund direct contract providers based on the lesser of (1) the maximum reimbursable amount in their contract, (2) the contractor’s reimbursable program costs, or (3) the contract rate per child day of enrollment. The budget does not provide additional funding for this change.

MOU Includes a Reopener Clause. The MOU between the state and CCPU includes a clause that would reopen negotiations regarding provider reimbursement rates and payment procedures prior to the expiration of the MOU (on June 30, 2028) if the Legislature provides funding to increase child care reimbursement rates. Reopened negotiations due to this clause would not apply to the elements of the alternative methodology.

Expands Rate Reform Reporting Requirements. Trailer legislation included in the 2024-25 budget package requires DSS to provide quarterly updates on progress toward implementing child care rate reform through January 2026. The 2025-26 budget package extends this requirement through July 2027 and requires the quarterly reports to also include reporting on progress toward prospective pay and enrollment-based funding. The MOU between the state and CCPU also requires the convening of a Joint Labor Management Committee to meet monthly to provide recommendations by November 30, 2025 on the implementation of a single rate structure based on the alternative methodology.

Extends Child Care Eligibility for Families with New Children. Current law requires families deemed eligible for subsidized child care to receive those services for at least 24 months before having their eligibility recertified. The budget modifies this requirement so that when families already receiving child care services add a child to the family size and request services for the child, eligibility is not recertified until the new child has received at least 12 months of services.