AB120 is a Budget Act–related bill that changes how California reimburses and supports subsidized early childhood education and childcare providers. It extends and expands monthly “cost of care plus” supplements for family childcare providers and centers through June 30, 2026, requires an increase to those July 2025 payments calculated by the Department of Finance, and appropriates $88,550,000 to shift alternative payment program reimbursements to be based on families’ certified need for the 2025–26 fiscal year.
The bill also alters operational rules: it reduces the hours threshold that can trigger daily-rate reimbursements from six to five hours, freezes the annual cost-of-living adjustment for childcare and development programs for 2025–26, extends quarterly legislative reporting on rate implementation through mid-2027 and expresses the Legislature’s intent to replace regional market rate surveys with an alternative methodology and a single, statute-backed rate structure. Several provisions change contract reimbursement formulas for state preschool and contractor programs for 2025–26 and later, and multiple sections defer to existing memorandum-of-understanding processes where conflicts arise.
At a Glance
What It Does
AB120 extends monthly 'cost of care plus' supplements for subsidized family childcare and centers through June 30, 2026 and requires the Department of Finance to calculate a July 2025 increase. For July 1, 2025 through June 30, 2026 it directs alternative payment programs to reimburse providers based on families' certified need and appropriates $88.55 million for that purpose. The bill also lowers the trigger for daily-rate reimbursements from six to five hours and suspends the 2025–26 COLA for childcare and development programs.
Who It Affects
State agencies that run subsidized childcare (State Department of Social Services, State Department of Education), local contracting agencies and alternative payment programs, licensed and license-exempt childcare providers, family childcare home networks, and families enrolled in subsidized childcare. It also affects the Department of Finance and the Legislature by changing reporting and rate-setting inputs.
Why It Matters
This package shifts short-term payment policy and signals a structural move away from biennial market rate surveys toward a single, statute-informed rate structure based on an 'alternative methodology.' For providers and fiscal officers, it changes cash-flow drivers, accountability mechanisms for attendance, and the basis for future rate-setting.
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What This Bill Actually Does
The bill blends one-time and temporary fixes with a statutory pathway toward a new statewide reimbursement model. It continues the monthly cost-of-care-plus payments to family providers and centers and requires the Department of Finance to calculate a percentage increase to those per-child monthly amounts for payments issued between July 1, 2025 and June 30, 2026.
For the 2025–26 fiscal year, AB120 makes a targeted appropriation of $88,550,000 so alternative payment (AP) programs will reimburse providers based on the family’s certified need — meaning providers are paid for the maximum authorized hours regardless of actual attendance during that period.
Operationally AB120 alters how contract reimbursements are determined for state preschool and other contracted programs. For 2025–26 contract reimbursement will be the lesser of the contract’s maximum reimbursable amount and the net reimbursable program costs; beginning July 1, 2026, the calculation adds a third comparator: adjusted child days of enrollment times the contract rate.
The law codifies temporary rules for 2025–26 that shift some providers away from attendance-based billing and toward enrollment- or need-based payments, and it reduces the threshold that allows daily-rate reimbursements from six hours to five.The bill also freezes the statutory cost-of-living adjustment for childcare and development programs for the 2025–26 fiscal year, while specifying that commencing July 1, 2026, programs shall receive the COLA granted by the Legislature annually (subject to the bill’s cross-references). AB120 extends the department’s obligation to provide quarterly implementation updates on the alternative methodology and rate transition through July 1, 2027, and requires additional reporting elements beginning with the October 1, 2025 update.
Finally, the Legislature states intent to stop relying on regional market rate surveys and instead use an alternative methodology and a unified single rate structure that varies by geography, setting, time categories, and child age; federal approval of that approach remains a gating factor.
The Five Things You Need to Know
The bill appropriates $88,550,000 (General Fund) to the State Department of Social Services for FY 2025–26 to reimburse AP-program providers based on families’ certified need (maximum authorized hours regardless of attendance).
It extends monthly 'cost of care plus' supplements through June 30, 2026 and requires the Department of Finance to calculate a July 2025 percentage increase to those per-child amounts.
AB120 lowers the permitted daily-rate reimbursement trigger from six hours to five hours for unscheduled or limited-day circumstances.
The statutory COLA for childcare and development programs is suspended for FY 2025–26; commencing July 1, 2026, programs shall receive the annual COLA granted by the Legislature as the minimum increase.
The bill extends required quarterly legislative updates on implementing the alternative reimbursement methodology through July 1, 2027 and requires additional information to be included starting October 1, 2025.
Section-by-Section Breakdown
Every bill we cover gets an analysis of its key sections.
Standard reimbursement baseline and temporary COLA suspension
This section preserves the existing statutory standard reimbursement rates and reiterates the mechanism that links annual increases to the COLA in Section 42238.15. It explicitly freezes the COLA (sets it to zero) for the 2025–26 fiscal year and directs that the COLA be applied consistently with the provisions in the Welfare & Institutions Code beginning July 1, 2026. Practically, the change codifies a one-year pause in the formula-based increase for preschool contractors and ensures the deferred COLA aligns with the alternative methodology timeline.
Contract reimbursement rules for state preschool programs (2025–26 transition)
The section modifies how state preschool contracting agencies are reimbursed: for programs open and operating in 2025–26, reimbursement is capped at the lesser of the contract’s maximum reimbursable amount and net reimbursable program costs. It preserves earlier temporary provisions for earlier fiscal years and then, effective July 1, 2026, adds a third comparator (adjusted child days times the contract rate). For contracting agencies and fiscal officers this changes how risk and underutilization affect payments and creates an enrollment-days metric to be used in future reconciliations.
COLA formula and 2025–26 suspension for childcare programs
This statutory section defines the COLA mechanism that applies to special education and childcare programs. AB120 inserts 2025–26 into the list of fiscal years in which childcare and development programs do not receive the COLA and clarifies that from July 1, 2026, the cost-of-living adjustment granted by the Legislature will function as the minimum annual rate increase for subsidized childcare providers. This change has fiscal and planning implications for contractors that budget on expected COLA increases.
Attendance documentation, certified-need reimbursements, and $88.55M appropriation
This section tightens attendance documentation rules (monthly signed records, signed under penalty of perjury) while providing an exception when parents are unreachable. Most operationally significant, it requires AP-program reimbursements to be based on families’ certified need for FY 2025–26 (maximum authorized hours regardless of actual attendance), removes the requirement for contractors to track absences for that period, and appropriates $88,550,000 from the General Fund for these reimbursements. The provision temporarily shifts fiscal exposure from attendance verification to certified authorization, changing contractor auditing and payment workflows.
Alternative methodology and single rate-structure intent; implementation timeline and reporting
The department must develop and run an 'alternative methodology' — building on an earlier working group and cost estimation model — and submit supporting materials to federal authorities. AB120 expresses legislative intent to cease use of regional market rate surveys starting July 1, 2025 and prescribes that rates be set by statute informed by this methodology. It requires the department to provide quarterly updates on implementation through July 1, 2027, to include additional elements beginning October 1, 2025, and directs that providers must not see rate reductions below June 30, 2024 levels during the transition. Federal approval remains required before the survey is retired.
Repeal of preschool wraparound reporting element
The annual departmental monitoring and reporting provision is revised to remove the statutory requirement that the statewide summary identify the number of preschool-age children receiving part-day preschool and wraparound childcare services. The department still must report estimated funding for infants and toddlers and provide county-by-county comparisons, but the explicit wraparound headcount requirement is deleted — a change that narrows the report’s scope and may affect tracking of part-day service usage.
Cost-of-care-plus payments: extension, regional rates, and DoF adjustment
These sections extend the once-per-month per-child 'cost of care plus' supplemental payments to family childcare providers and centers through June 30, 2026. The statute preserves the regional per-child rates (different amounts by region and provider type for family providers; regional per-child bands for centers) and directs the Department of Finance to compute a percentage increase for the July 2025–June 2026 period by comparing the cost of statutorily required COLA funding to the estimated cost of the monthly supplements. It also continues one-time earlier payments and administrative fee allowances for agencies that distribute the funds.
Market rate ceilings, daily-rate trigger change, and contract reimbursement transition
This cluster maintains the historical market-rate ceiling approach while legislatively signalling a move away from market surveys. Critically, AB120 reduces the daily-rate reimbursement trigger from six hours to five hours (for unscheduled or limited-day occurrences) and reiterates temporary contract reimbursement changes for 2025–26 (lesser of contract max and net costs) with the post-2026 addition of the adjusted-child-days metric. The net effect realigns multiple payment rules to prioritize certified need and enrollment-based calculations during the transition period.
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Every bill creates winners and losers. Here's who stands to gain and who bears the cost.
Who Benefits
- Licensed and license-exempt childcare providers (FY 2025–26): They receive payment stability during the 2025–26 transition because AP-program reimbursements are based on maximum authorized/certified hours rather than attendance, improving cash flow and reducing billing disputes for that year.
- Family childcare providers and centers: Continued monthly 'cost of care plus' supplements (extended through June 30, 2026) deliver an additional per-child revenue stream and the July 2025 increase mechanism may raise those amounts.
- State agencies and budget offices: A clearer, statute-backed path toward an alternative methodology and single rate structure reduces reliance on ad hoc market surveys and gives agencies legislative direction for rate-setting and reporting.
- Families adding a new child while already enrolled: When a household requests services for an additional child during an existing eligibility period, their eligibility period is extended so the new child is guaranteed at least 12 months of eligibility before redetermination.
- Providers participating in collective bargaining or covered by MOUs: The bill preserves memorandum-of-understanding primacy where conflicts exist, which can protect negotiated terms and ensure existing agreements remain controlling.
Who Bears the Cost
- State General Fund and budget planners: The appropriation of $88.55 million and extended supplements carry direct fiscal costs and increase near-term obligations; suspending COLA for 2025–26 may shift future budget pressure to later years.
- Local contracting agencies and AP programs: Systems must adapt to certified-need reimbursements, change auditing and attendance-verification workflows, and manage potential overpayments or reconciliation work without absence-tracking for the transition year.
- Counties and contractors administering contracts: Reimbursement caps tied to net reimbursable program costs or adjusted child days shift financial risk and reconciliation exposure to contracting agencies when enrollments or attendance patterns change.
- State departments (SSS and SDE): They must perform expanded data collection, provide extended quarterly reports through mid-2027, and develop the alternative methodology and the administrative infrastructure to support a single rate structure — workload and IT costs are implied.
- Taxpayers in the medium term: The pause in the COLA for 2025–26 and subsequent re-instatement in 2026 could concentrate costs in future budgets if wage, operational, or market pressures resume growth before rates catch up.
Key Issues
The Core Tension
The central dilemma is stability versus targeting: AB120 prioritizes provider financial stability and a statutory move to a unified, methodology-driven rate system, but it does so by temporarily loosening attendance-based accountability and suspending the 2025–26 COLA — choices that improve short-term cash flow for providers while shifting fiscal and reconciliation risks to contractors, state administrators, and future budgets.
AB120 mixes temporary fiscal relief and provider stabilization with a statutory push toward a fundamentally different rate-setting regime. The short-term shift to reimbursements based on certified need (and the temporary elimination of absence tracking for AP programs) increases provider cash certainty but reduces attendance-based controls that help align payments to service actually delivered.
That shift raises reconciliation and audit complexity for contractors and increases the risk of overpayment if certified need is not tightly validated.
The bill also attempts to accelerate adoption of an 'alternative methodology' and to stop using regional market rate surveys. That intent clashes with federal oversight: the Administration for Children and Families must approve changes to the Child Care and Development Fund state plan.
If federal approval is delayed or denied, the fallback is a return to market surveys — which creates transition risk and planning uncertainty. Finally, the appropriation and extension of cost-of-care supplements are helpful near-term but may create future fiscal pressure, particularly where COLA was suspended for a year and rate baselines are recalibrated in subsequent years.
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