Agencies outline timetable and $18.7 billion estimate to shift to a 'cost‑of‑care' rate model
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Summary
Department of Social Services and education officials described plans to replace market‑based rates with an alternative 'cost‑of‑care' methodology, estimated transition work would take roughly 24 months after statute and funding are set, and CDSS reported a July 2025 estimate of roughly $18.7 billion in direct service costs under the alternative methodology.
State agency witnesses told Assembly Budget Subcommittees that California is moving from a regional market‑rate structure toward an 'alternative methodology' based on the actual cost to deliver care, but cautioned that the transition requires statute changes, data systems work and multi‑year automation.
Jennifer Troia, Director of the Department of Social Services, described the alternative methodology as a measure of cost rather than parental ability to pay and said CDSS has submitted an alternative‑methodology assessment to the federal government. "From that period ... it would be about 24 months we estimate, depending on the complexity of those rates that are ultimately set in statute, to automate and prepare for implementation of such a transition in the rates," Troia said.
Jackie Burrows (CDSS) told the committee that the department's July 2025 quarterly report estimated the total direct‑service cost at the alternative methodology to be about $18,700,000,000. She clarified that the figure covers direct service costs and is not inclusive of contractor administrative costs.
Virginia Early (California Department of Education), speaking on behalf of State Superintendent Tony Thurmond, said the proposed governor's rates remain below the alternative methodology in many counties — citing Los Angeles County rates about 29% below and San Diego and Contra Costa about 14% below the alternative methodology estimate — and urged COLA be added to base rates to reduce provider uncertainty.
Panelists described steps the administration expects: contracting a vendor to update alternative‑methodology surveys, convening focus groups and public meetings (including the Early Childhood Policy Council), and submitting the next Child Care and Development Fund state plan to the federal government by July 1, 2027 with an updated alternative methodology.
Members and advocates pressed for legislative input into methodology design and asked that cost‑of‑care payments and COLA increases be integrated into agency contracts in ways that preserve transparency and provider confidence.
Next steps: agencies said they will engage focus groups and vendors through fiscal year 2627 and that the legislature will be consulted as policy specifics are developed; the committee requested an LAO/CDSS process for contract-level COLA/cost‑of‑care payments.