Bill Text: CA AB1981 | 2025-2026 | Regular Session | Amended

California Assembly Bill 1981

CA State Legislature page for AB1981

Bill Title: Subsidized childcare: reimbursement rates: reporting.

Sponsorship: Partisan Bill (Democrat 8)

Status: (Engrossed) 2026-06-16 - From committee: Do pass and re-refer to Com. on APPR. (Ayes 4. Noes 0.) (June 15). Re-referred to Com. on APPR. [AB1981 Detail]

Download: California-2025-AB1981-Amended.html

Amended IN Senate June 10, 2026

Amended IN Assembly March 26, 2026

Amended IN Assembly March 20, 2026

CALIFORNIA LEGISLATURE— 2025–2026 REGULAR SESSION

Assembly Bill

No. 1981

Introduced by Assembly Member Aguiar-Curry
(Coauthors: Assembly Members Bonta, Bryan, Haney, Lee, Nguyen, Quirk-Silva, and Soria)

February 13, 2026

An act to amend Section 10227.6 of of, and to add Section 10227.7 to, the Welfare and Institutions Code, relating to childcare, and declaring the urgency thereof, to take effect immediately.

LEGISLATIVE COUNSEL'S DIGEST

AB 1981, as amended, Aguiar-Curry. Subsidized childcare: reimbursement rates: reporting.

Existing law requires the State Department of Social Services, in collaboration with the State Department of Education, to implement a reimbursement system plan that establishes reasonable standards and assigned reimbursement rates for subsidized childcare and development services, and to develop and conduct an alternative methodology for ratesetting, as specified.

Existing law requires the Governor and the Legislature to, by no later than July 1, 2025, establish reimbursement rates based on the alternative methodology, as specified. Existing law requires the department to provide quarterly updates from October 1, 2024, to July 1, 2027, inclusive, on the implementation of the new reimbursement rates set under the alternative methodology. If the new reimbursement rates do not take effect on July 1, 2025, existing law also requires the department to provide the Legislature with a timeline for transitioning from the rates that are in effect on July 1, 2025, to the new established rates.

This bill would instead, under those circumstances, require the department to provide the Chairperson of the Joint Legislative Budget Committee with the department’s anticipated timeline for the above-described rate transition. The bill would also require the quarterly reports described above to continue until the new reimbursement rates set under the alternative methodology are fully implemented.

Existing law states the intent of the Legislature that the reimbursement rates established under the alternative methodology satisfy certain parameters, including, among others, that the rates vary based on geography, type of care setting, regulatory requirements applicable to each type of care setting, time categories, and child age.
This bill would impose various requirements on the department when establishing new reimbursement rates under the alternative methodology, to the extent those requirements are consistent with the Child Care and Development Fund state plan. Among other things, the bill would require the department to vary rates based on specific geographic regions and specific age groupings and to include in the rates an extended hours care rate, an enhanced inclusion rate for children with special needs, and an enhanced transportation rate. The bill would require the new reimbursement rates to be implemented with regards to family childcare providers within 90 days of the state and the provider organization representing those providers reaching agreement on the rates and would prohibit reimbursement rates from being reduced below the amounts in effect on the effective date of the bill.

This bill would declare that it is to take effect immediately as an urgency statute.

Vote: 2/3 Appropriation: NO Fiscal Committee: YES Local Program: NO

The people of the State of California do enact as follows:

SECTION 1.

This act shall be known, and may be cited, as the True Cost of Child Care Act.

SEC. 2.

(a) The Legislature finds and declares all of the following:

(1) The Legislature passed, and the Governor signed to enact, the Building a Better Early Care and Education System Act in 2019, codifying that family childcare providers have the right to form, join, and participate in a provider organization of their choosing to represent them and bargain on matters related to their employment terms and conditions.

(2) Pursuant to the process established by the Building a Better Early Care and Education System Act, childcare providers organized and elected a statewide union, known as Child Care Providers United (CCPU), representing over 70,000 home-based childcare providers, which has successfully negotiated three contracts with the State of California.

(3) The rate of pay for providers negotiated between the state and CCPU is informed by the rate methodology established in state law and funded in the state budget, and the current rate methodology is largely understood to leave providers significantly underpaid, leaving families without access to adequate, quality, reliable childcare in the locations, languages, and other necessities to meet families’ needs.

(4) The Legislature has determined that the state should use a new alternative methodology. This methodology will apply the actual cost of care to calculate how subsidy payments are made to early childhood educators with one goal being to stabilize and improve childcare options for families.

(5) California is committed to advancing racial, economic, geographic, and gender equity across its publicly funded systems, including early learning and care.

(6) Federal regulations allow states to use a cost estimation model. This model can replace a market rate survey to better reflect the true cost of high-quality childcare. It includes adequate compensation for the workforce, investments in health and safety, and compliance with licensing requirements.

(7) California’s existing market-rate methodology significantly underestimates the actual cost of care, with a recent study from the state showing that providers earned just 30 percent of the cost of care in 2024. In a broken market where rates are set based on what families can pay as opposed to what it actually costs to provide quality, developmentally appropriate care reliance on regional market surveys perpetuate historic inequities by embedding disparities in family income, neighborhood wealth, and access to private tuition into the state’s reimbursement structure.

(8) The early care and education workforce is almost exclusively female and predominantly people of color, including many recent immigrants, first-generation college students, and working mothers. An estimated 43 percent of early educators turn to public safety-net support to meet the basic needs of their family.

(9) Chronic underpayment has led to workforce instability, program closures, and less access to care for working families. These impacts are especially felt in low-income communities, rural areas, and communities of color.

(10) Childcare deserts are most prevalent in low-income communities, rural areas, tribal communities, and communities of color, where the market fails to generate rates sufficient to sustain licensed and license-exempt providers serving subsidized families.

(11) As part of developing the alternative methodology, the State Department of Social Services was required to consult early childhood educator stakeholders. This includes Child Care Providers United, the bargaining representative for licensed and license-exempt family childcare providers receiving state subsidies. The goal was to inform the development of a cost-based rate model.

(12) Despite this statutory direction and extensive stakeholder engagement, a rate structure based on the actual cost of care is nowhere near completion. This delay prevents much-needed stabilization of the childcare sector.

(13) Adopting a true cost of care methodology is needed to support the childcare workforce, help families in the state’s subsidized childcare system, and protect the state’s economy.

(b) Therefore, it is the intent of the Legislature to enact the statutory changes to implement a childcare reimbursement methodology based on the actual cost of care and to ensure its timely implementation.

SEC. 3.

Section 10227.6 of the Welfare and Institutions Code is amended to read:

10227.6.

(a) It is the intent of the Legislature to use an alternative methodology, as defined in subdivision (ak) of Section 10213.5, to inform the setting of reimbursement rates for subsidized childcare.

(b) Reimbursement rates are subject to agreement and codification by the Legislature.

(c) The department, in collaboration with the State Department of Education, shall develop and conduct an alternative methodology. The department shall begin the process of data collection and analysis pursuant to developing an alternative methodology by July 1, 2023, and consult with the State Department of Education on data collection, analysis, and methodology for preschool programs. The alternative methodology shall build on the recommendations of the working group established pursuant to Section 10280.2 and shall be aligned with the recommendations of the Joint Labor Management Committee established pursuant to subdivision (a) of Section 10280.2.

(d) No later than February 15, 2024, the department, in collaboration with the State Department of Education and the Joint Labor Management Committee established pursuant to subdivision (a) of Section 10280.2, using information from the cost estimation model, shall define elements of the base rate and any enhanced rates to inform the state’s proposed single-rate structure and rates. These elements shall be subject to the mandated public engagement state plan process and legislative review. The department shall report to the Senate Health and Human Services budget subcommittees, Assembly and Senate Education budget subcommittees, and the Legislative Analyst’s Office on progress made to conduct an alternative methodology and cost-estimate model.

(e) No later than May 15, 2024, the department shall report on the status of the draft Child Care and Development Fund state plan to the Senate Health and Human Services budget subcommittees, Assembly and Senate Education budget subcommittees, and the Legislative Analyst’s Office on the state’s proposed single-rate structure to be submitted to the United States Department of Health and Human Services, Administration for Children and Families.

(f) No later than July 1, 2024, the department shall submit necessary information to support use of a single-rate structure using the alternative methodology to the United States Department of Health and Human Services, Administration for Children and Families in the Child Care and Development Fund state plan or an amendment to the state plan. The department shall provide a copy of the Child Care and Development Fund state plan or amendment to the state plan submitted to the United States Department of Health and Human Services, Administration for Children and Families to the Senate Health and Human Services budget subcommittees, Assembly and Senate Education budget subcommittees, and the Legislative Analyst’s Office no later than July 10, 2024.

(g) (1) Within 60 days of federal approval of the single-rate structure utilizing the alternative methodology in the state plan, the department, in collaboration with the State Department of Education, shall provide the Assembly Committee on Budget, the Senate Committee on Budget and Fiscal Review, and the Legislative Analyst’s Office with a report that outlines the implementation components for the approved single-rate structure. For a period of 30 days, the Legislature shall have the opportunity to review and provide feedback regarding draft guidance for implementation of policies. The report shall include all of the following:

(A) The department’s plan to set new reimbursement rates under the alternative methodology by no later than July 1, 2025.

(B) The estimated costs and estimated timelines associated with the implementation components of the approved single-rate structure, including, but not limited to, state operations resources, technology and infrastructure changes, and any regulatory or statutory changes necessary to implement the approved single-rate structure.

(2) The department shall, from October 1, 2024, until the new reimbursement rates set under the alternative methodology are fully implemented, provide the Assembly Committee on Budget, the Senate Committee on Budget and Fiscal Review, and the Legislative Analyst’s Office with quarterly updates on the implementation of the new reimbursement rates set under the alternative methodology. The quarterly updates shall include any changes to the information provided in the report described in paragraph (1).

(h) Beginning October 1, 2025, and through July 1, 2027, inclusive, the department shall update the Legislature not more frequently than quarterly, to the extent information is available or reported to the department by contractors, regarding progress on implementation of prospective payment and paying based on enrollment, in keeping with the goals set for funds appropriated pursuant to Provision 19 of Item 5180-101-0001 of the Budget Act of 2025 and with subparagraph (i) of paragraph (2) of subdivision (m) of Section 98.45 of Subpart E of Part 98 of Subchapter A of Subtitle A of Title 45 of the Code of Federal Regulations.

(i) The Governor and the Legislature shall, by no later than July 1, 2025, establish reimbursement rates based on the alternative methodology. Provider reimbursement rates shall not be reduced from the reimbursement rates that were in effect on June 30, 2024, pursuant to Sections 10280 and 10374.5 of this code and Section 8242 of the Education Code, inclusive of the cost of care plus rates established pursuant to subdivision (b) of Section 10277.1 and subdivision (b) of Section 10277.2.

(j) (1) If the new reimbursement rates established pursuant to subdivision (i) do not take effect on July 1, 2025, the department shall provide the Chairperson of the Joint Legislative Budget Committee with the department’s anticipated timeline for transitioning from the rates that are in effect on July 1, 2025, to the new rates established pursuant to subdivision (i).

(2) Any temporary reimbursement rates established as part of the transition timeline required by paragraph (1) shall be, at minimum, equivalent to the reimbursement rates established pursuant to Sections 10280 and 10374.5 of this code and Section 8242 of the Education Code, inclusive of the cost of care plus rates established pursuant to subdivision (b) of Section 10277.1 and subdivision (b) of Section 10277.2.

(k) The single-rate structure shall apply to all programs funded by the State Department of Social Services under Chapter 3 (commencing with Section 10225), Chapter 6 (commencing with Section 10235), Chapter 7 (commencing with Section 10240), Chapter 8 (commencing with Section 10250), Chapter 9 (commencing with Section 10260), Chapter 21 (commencing with Section 10370), and Chapter 2 (commencing with Section 11461.6) of Part 2, and the State Department of Education under Chapter 2 (commencing with Section 8200) of Part 6 of Division 1 of Title 1 of the Education Code.

(l) (1) Except as required by subdivision (n), it is the intent of the Legislature, beginning July 1, 2025, to cease using a regional market rate survey pursuant to Section 10436, and instead use an alternative methodology, as defined in subdivision (ak) of Section 10213.5, for the purpose of informing the setting of future childcare rates.

(2) It is the intent of the Legislature that:

(A) Reimbursement rates are set pursuant to statute and informed by the alternative methodology, as defined in subdivision (ak) of Section 10213.5.

(B) Under the single-rate structure, all programs described in subdivision (k) shall be reimbursed under a unified structure that takes into account a common set of rate elements.

(C) Rate levels shall be informed by the costs associated with meeting health and safety requirements and program requirements.

(D) Base rates shall be administered as a per-child amount, and programs shall be able to claim reimbursement for services they deliver consistent with enhanced rates, if any.

(E) Rates shall vary based on all of the following:

(i) Geography.

(ii) Type of care setting.

(iii) Regulatory requirements applicable to each type of care setting.

(iv) Time categories.

(v) Child age.

(m) Commencing July 1, 2026, rates for all programs described in subdivision (k) shall receive the cost-of-living adjustment granted by the Legislature annually pursuant to Section 42238.15 of the Education Code as a minimum annual rate increase for all subsidized childcare providers.

(n) If the United States Department of Health and Human Services, Administration for Children and Families does not approve the alternative methodology developed pursuant to this section, the department shall develop and conduct a survey of the market rates for childcare services.

(o) If the provisions of this section are in conflict with the provisions of a memorandum of understanding reached pursuant to Section 10426, the memorandum of understanding shall be controlling without further legislative action, except that if such provisions of a memorandum of understanding require the expenditure of funds, the provisions shall not become effective unless approved by the Legislature in the annual Budget Act.

(p) When updating the alternative methodology, as required by the triennial federal Child Care Development fund plan, the department shall use values or selection points that reflect the actual, established costs of providing care.

SEC. 4.

Section 10227.7 is added to the Welfare and Institutions Code, to read:

10227.7.
(a) When establishing new reimbursement rates using an alternative methodology, pursuant to subdivision (i) of Section 10227.6, to the extent it is consistent with the Child Care and Development Fund state plan, the department shall do all of the following:
(1) Vary rates based on the following geographic regions:
(A) Region 1 shall consist of the Counties of Alpine, Amador, Butte, Calaveras, Colusa, Del Norte, Fresno, Glenn, Humboldt, Imperial, Inyo, Kern, Kings, Lake, Lassen, Madera, Mariposa, Mendocino, Merced, Modoc, Plumas, San Bernardino, San Joaquin, Shasta, Sierra, Siskiyou, Stanislaus, Sutter, Tehama, Trinity, Tulare, Tuolumne, and Yuba.
(B) Region 2 shall consist of the Counties of Alameda, El Dorado, Mono, Nevada, Riverside, Sacramento, San Luis Obispo, Solano, and Yolo.
(C) Region 3 shall consist of the County of Los Angeles.
(D) Region 4 shall consist of the Counties of Contra Costa, Monterey, Napa, Orange, Placer, San Benito, San Diego, Santa Barbara, Sonoma, and Ventura.
(E) Region 5 shall consist of the Counties of Marin, San Francisco, San Mateo, Santa Clara, and Santa Cruz.
(2) Vary rates, at a minimum, based on whether the childcare provider is a license-exempt childcare provider, a licensed family daycare home, or a daycare center.
(3) Vary rates, at a minimum, based on the following time category considerations:
(A) The availability of part-time care and full-time care.
(B) When determining the hours of certified need in a week, that the week begins at midnight on Sunday and ends at 11:59 p.m. on Saturday.
(C) For families certified for full-time care or with a variable schedule, if more than 40 hours of care are used in a week, the provider shall be paid the full-time rate for the first 40 hours of care and an hourly rate for all care time in excess of 40 hours.
(D) The provision of two weeks’ notice to a childcare provider in advance of the implementation of a change in a family’s certified need.
(4) Vary rates, at a minimum, based on the following child age considerations:
(A) Reimbursing program at the same rate if they serve children of the same age and are required to satisfy the same program requirements.
(B) The establishment of rates based on the following age groupings:
(i) Children who are younger than two years of age.
(ii) Children who are two years of age.
(iii) Children who are three to five years of age, inclusive, and children who are six years of age who are not yet enrolled in first grade.
(iv) Children who are six years of age who are enrolled in first grade and children who are seven years of age and older.
(5) (A) Include an extended hours care rate that is equal to 125 percent of the base rate.
(B) For the purposes of this subdivision, “extended hours care” means certified need from 6:00 p.m. to 7:00 a.m. any day of the week and certified need from 7:00 a.m. to 6:00 p.m. on Saturday or Sunday.
(6) Include an enhanced inclusion rate for children who have an individualized family service plan, individual program plan, individualized education program, a plan pursuant to Section 504 of the federal Rehabilitation Act of 1973 (29 U.S.C. Sec. 794), or an active incidental medical services plan. The enhanced inclusion rate shall be 130 percent of the base rate for children with exceptional needs and 160 percent of the base rate for severely disabled children and shall be retroactive to either the date the referral was made that led to the plan being enacted, or the date when eligibility was granted, whichever occurred earlier.
(7) Include an enhanced transportation reimbursement rate for the cost to childcare providers of transporting children to and from care that is equal to the rate approved by the Internal Revenue Service pursuant to Section 162 of the Internal Revenue Code in connection with deductible mileage expenses under the federal income tax law. If a childcare provider is receiving the enhanced transportation reimbursement rate, the provider shall be required to include a record of daily miles driven for children receiving transportation services.
(8) Ensure that the reimbursement rates permit reimbursement for a specific child to include all rate enhancements for which the child is eligible, and does not limit the number of rate enhancements that can be provided for a specific child.
(9) Ensure that reimbursement rates are based on families’ certified need, as follows:
(A) Providers shall be reimbursed based on the maximum certified hours of care, regardless of attendance.
(B) For families certified for a variable schedule, providers shall be reimbursed based on the maximum certified hours of care.
(C) For license-exempt providers that provide part-time services, providers shall be reimbursed based on the maximum certified hours of care.
(b) Reimbursement rates established under the alternative methodology, pursuant to subdivision (i) of Section 10227.6, shall be implemented with regards to family childcare providers within 90 days of the state and the provider organization representing those providers reaching agreement on the rates.
(c) Reimbursement rates established under the alternative methodology, pursuant to subdivision (i) of Section 10227.6, shall not be reduced below the amounts in effect on the effective date of the act that added this section.

SEC. 4.SEC. 5.

This act is an urgency statute necessary for the immediate preservation of the public peace, health, or safety within the meaning of Article IV of the California Constitution and shall go into immediate effect. The facts constituting the necessity are:

In order to prevent further delays transitioning to the new systems for setting reimbursement rates for subsidized childcare programs, it is necessary for this act to take effect immediately.