SB 120 makes a set of budget-year and statutory changes to how California pays for subsidized early childhood education and childcare. It extends and increases short-term per-child supplements for family childcare homes and centers, authorizes a one-year move to enrollment-based reimbursement for alternative payment programs with a dedicated appropriation, lowers the hourly threshold for daily-rate payments, and adds a family-eligibility protection when a household adds a child.
The bill also suspends the annual cost-of-living adjustment for childcare programs for the 2025–26 fiscal year, extends state reporting and oversight timelines tied to the transition away from regional market rate surveys, and expresses legislative intent to replace market surveys with an ‘‘alternative methodology’’ and a unified single-rate structure to be implemented in statute. The measures are aimed at stabilizing provider revenue in the short term and aligning future rate-setting under a common framework, while raising implementation and fiscal trade-offs for agencies and the General Fund.
At a Glance
What It Does
SB 120 (1) extends and funds a monthly ‘‘cost of care plus’’ supplement for family childcare providers and centers through June 30, 2026 and mandates a Finance Department calculation to adjust those amounts for July 1, 2025–June 30, 2026; (2) temporarily requires alternative payment programs to reimburse providers based on families’ certified need (enrollment) rather than actual attendance for FY 2025–26 and appropriates $88,550,000 for that purpose; and (3) codifies a shift away from regional market rate surveys toward an alternative methodology and a single statutory rate structure.
Who It Affects
Family childcare providers and childcare centers that serve subsidized children, local contracting agencies and alternative payment contractors that administer vouchers, the State Department of Social Services and State Department of Education (implementation and data exchange), and families who receive state or federally subsidized childcare.
Why It Matters
The bill alters payment triggers and timing that determine provider cash flow and administrative practices: enrollment-based payments reduce revenue volatility but increase state exposure for absent-days payments; the move to a single rate structure changes how future rates are calculated and codified by the Legislature; and the suspension of the 2025–26 COLA concentrates pressure on providers and the budget in the medium term.
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What This Bill Actually Does
SB 120 is a budget-related package that changes several levers the state uses to pay for subsidized childcare. For the short term it extends and funds monthly per-child supplements (the ‘‘cost of care plus’’ payments) to family childcare homes and centers and tasks the Department of Finance with calculating a percentage increase to these amounts for the 2025–26 period.
The statute defines regional per-child ranges for family providers ($98–$211 per month depending on provider type and region) and centers ($140–$211 per month depending on region) and preserves the state’s authority to provide one-time payments and administrative processing fees.
Operationally, the bill temporarily switches alternative payment programs (the agencies that administer vouchers) from reimbursing providers on the basis of days and hours of attendance to reimbursing based on the family’s certified need for service for the 2025–26 fiscal year. That means providers serving voucher families will be paid for maximum authorized hours regardless of actual attendance during that year.
To fund that change, the Legislature appropriated $88,550,000 for the State Department of Social Services. The law also instructs contractors that, while this reimbursement rule is in effect, they are not required to track absences for purposes of payment.SB 120 reduces a threshold used elsewhere in state law: reimbursements that qualify as daily-rate payments will be available when a family’s documented unscheduled need is five hours or more (down from six).
The bill preserves existing signature-and-attestation attendance record requirements generally, but includes an exception authorizing monthly provider-submitted records without a parent signature in documented cases where parents are unreachable.On rates and long-term structure, the statute accelerates a transition away from relying on regional market rate surveys. The State Department of Social Services, working with the State Department of Education, must develop and implement an ‘‘alternative methodology’’ and a single rate structure that sets base per-child rates and allows specified enhancements.
The Legislature expresses its intent that future rates be set in law, be informed by costs of meeting health and safety and program requirements, and vary by geography, age, time categories, setting type, and regulatory requirements. If the alternative methodology is not approved at the federal level, the department must fall back to conducting market rate surveys.
The Five Things You Need to Know
The bill appropriates $88,550,000 from the General Fund for FY 2025–26 to reimburse alternative payment program providers based on families’ certified need (enrollment), available for encumbrance until June 30, 2026.
From July 1, 2025, through June 30, 2026, alternative payment programs must reimburse providers at the maximum authorized hours of care for each family (including variable schedules and license-exempt part-time providers), and contractors are not required to track absences for payment purposes.
SB 120 extends the monthly ‘‘cost of care plus’’ supplement through June 30, 2026; family childcare per-child monthly amounts are statutorily set by region and provider type between $98 and $211, while center amounts range $140–$211, with the Department of Finance authorized to calculate a percentage increase for 2025–26.
The statute lowers the eligibility threshold for daily-rate reimbursements from an unscheduled documented need of six hours to five hours per occurrence (or five hours that exceed no more than 14 days per month).
The Legislature directs a permanent shift toward an alternative methodology and a single, statute-backed rate structure (with rate elements specified) and forbids reducing provider reimbursement rates below the levels in effect on June 30, 2024, while requiring legislative codification of the new rates.
Section-by-Section Breakdown
Every bill we cover gets an analysis of its key sections.
Reimbursement plan and COLA timing for state preschool
This section reaffirmes the department’s obligation to implement reimbursement standards and sets the mechanics for cost-of-living adjustments for state preschool contractors. It freezes the COLA for the 2025–26 fiscal year (zero for certain years) and ties the future application of COLAs to a provision in the Welfare and Institutions Code that lays out how the alternative methodology’s rate adjustments will be applied from July 1, 2026. Practically, contractors should plan for no statutory COLA in 2025–26 and expect COLA mechanics to be governed by the unified rate structure starting in mid-2026.
Temporary contract reimbursement method for state preschool contractors
This provision changes how state preschool contractors are paid for several fiscal years. For July 1, 2025–June 30, 2026, contract reimbursement is based on the lesser of the contract’s maximum reimbursable amount or net reimbursable program costs. Beginning July 1, 2026, an additional metric applies: adjusted child days of enrollment multiplied by the contract rate can also cap payment. The change shifts some payment risk back onto contractors that operate below contract-enrollment levels or whose net costs exceed contracted amounts.
Suspension of COLA for childcare and how workload is measured
This section amends the statutory formula used to calculate annual funding increases for childcare and preschool programs. It explicitly suspends the cost-of-living adjustment for childcare and development programs for the 2025–26 fiscal year (adding that fiscal year to an existing list of suspensions). The statute also clarifies that workload for childcare programs is measured by state population of children age four and under, which will influence the base used by the COLA formula when it resumes.
Attendance documentation and FY 2025–26 enrollment-based reimbursement
Codifies monthly attendance records and signature requirements while creating a narrow exception when parents are unreachable. Critically, it requires alternative payment programs to reimburse providers based on the family’s certified need (maximum authorized hours) for July 1, 2025–June 30, 2026, rather than actual days/hours of attendance, and appropriates $88,550,000 to cover those payments. The statute also relieves contractors of a legal obligation to track absences for payment during that period — a meaningful operational change for local administrators.
Alternative methodology, single rate structure, and implementation timeline
Directs the State Department of Social Services (in collaboration with the State Department of Education) to develop and implement an alternative methodology and a single, unified rate structure that will inform statutory reimbursement rates. It sets deadlines for data collection, federal state plan filings, and requires the Governor and Legislature to establish rates by July 1, 2025; if federal approval is delayed, the department must prepare a transition timeline and temporary rates no lower than the June 30, 2024 levels. The section also extends quarterly legislative updates on implementation through July 1, 2027, and lists the rate elements (geography, type of setting, regulatory requirements, time categories, and child age) the methodology must consider.
Streamlines annual reporting on infants and toddlers
Narrows the department’s annual reporting requirement: the department must continue to monitor and report statewide estimates of funding used for infants and toddlers and include a county-by-county comparison to the prior year, but the prior statutory requirement to identify counts of preschool children receiving part-day preschool and wraparound services is deleted. The change alters the data the Legislature receives and may affect program planning that previously relied on the removed metric.
Eligibility windows and extension for an added child
Reaffirms the 24-month eligibility and reporting protections that limit recertifications and requires that when a family already receiving services adds a child and requests care for that child during the current eligibility period, the family’s eligibility period must be extended as necessary so that the added child receives at least 12 months of eligibility before a redetermination. The provision preserves continuity for families and prevents a new child from immediately triggering a full recertification.
Regional ‘‘cost of care plus’’ supplements, one-time payments, admin fees, and daily-rate threshold
These sections lay out the monthly per-child supplement program for family providers and centers (regional rate tables and definitions), authorize one-time payments (e.g., $500–$3,000 earlier disbursements for family providers and $3,000 for centers), and specify administrative processing fees (10% for monthly, 5% for one-time payments). They also change a reimbursement detail under the regional market rate framework: daily-rate reimbursements qualify when a documented unscheduled need is five hours or more (reduced from six). The sections give the Department of Finance a role in calculating the percentage increase for the 2025–26 supplement amounts and exempt certain payment distribution contracts from standard state contracting rules to speed disbursement.
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Who Benefits
- Family childcare providers: receive monthly per-child ‘‘cost of care plus’’ supplements through June 30, 2026 and were eligible for one-time payments; the enrollment-based reimbursements in FY 2025–26 reduce day-to-day revenue volatility by paying for authorized hours regardless of attendance.
- Childcare centers: receive the monthly regional supplements and one-time $3,000 payments, improving short-term cash flow and partially offsetting operating costs.
- Families adding a child while already enrolled: get an eligibility extension so the added child will be guaranteed at least 12 months of subsidized care before a recertification that could terminate benefits.
- Providers serving voucher families in FY 2025–26: benefit from simpler invoicing and elimination of absence-tracking for payment purposes, reducing administrative burden and late-payment risk.
Who Bears the Cost
- State General Fund and budget authors: absorb the $88,550,000 appropriation plus the ongoing cost of the extended monthly supplements and administrative fees, creating near-term fiscal pressure.
- State agencies (State Department of Social Services and State Department of Education): take on the operational workload for rolling out alternative methodology, calculating Finance Department adjustments, exchanging data, and implementing expanded reporting and quarterly updates.
- Local contracting agencies/alternative payment contractors: must change payment processes, reconcile enrollment-based payments, and may face cash-flow timing and accounting challenges while distributing funds and adjusting IT systems.
- Contracted preschool operators and some local contractors: face new payment caps tied to contract maximums or net reimbursable costs (and later to adjusted child days of enrollment), which can shift financial risk back to operators when enrollment or attendance drops.
Key Issues
The Core Tension
The central trade-off is between short-term provider stability and long-term fiscal accountability: SB 120 stabilizes cash flow by paying on authorized enrollment and promising per-child supplements, but that stability raises the state’s financial risk (paying for nonattendance) and requires new administrative systems and federal approvals to move from market surveys to a single, statute-backed rate structure.
SB 120 stitches together temporary revenue supports with structural changes to future rate-setting, but the interaction creates implementation and policy friction. Paying providers on the basis of certified need stabilizes revenue for an 18-month window, yet it also increases the state’s exposure to payments for absent children and removes an attendance-based control that historically limited overpayment risk.
Contractors will need modified financial controls and IT changes to accommodate enrollment-based payments and to process the monthly supplements; the statute relieves contractors from tracking absences during FY 2025–26, but that relief does not eliminate the need to reconcile eligibility, audits, and potential fraud recovery.
The statutory move away from regional market rate surveys to an alternative methodology is a material policy shift and depends on federal approval and robust data. The law requires the alternative methodology to consider multiple cost drivers and tasks the Legislature to codify rates, but it also gives the Department of Finance a role in calculating short-term supplement adjustments.
This creates a governance puzzle: who ultimately owns rate-setting judgments and cost assumptions, and how transparent will the Finance calculation be? Finally, the suspension of the COLA for 2025–26, followed by a shift to a new rate floor in 2026, creates a cliff dynamic—temporary supports expire at specific dates and could expose providers to a sudden funding gap if legislative or administrative follow-through is delayed.
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