Dear Executive Directors and Program Directors of Early Learning and Care Programs;
Changes to Fiscal Year 2021 – 2022 Center-Based Reserve AccountsThe purpose of this communication is to inform contractors of changes to Center-Based Reserve Accounts effective Fiscal Year (FY) 2021-22.
Background on Center-Based Reserves prior to FY 2021-22
Education Code (EC) section 8336 and Welfare and Institution (WIC) section 10441 include that all contractors are encouraged to develop and maintain a reserve within the child development fund, derived from earned but unexpended funds. Reserve Account funds are not contract reimbursement and do not belong to the contractor. Rather, Reserve Account funds are state funds that the contractor holds in reserve as deferred revenue until they are either properly spent or returned to the State. A reserve account is a supplemental source of state dollars available when reimbursable costs exceed contract reimbursement. Contractors can use reserve account funds for planned or unexpected expenses, as long as the expenses are reimbursable under the contract.
Prior to FY 2021-22, Center-Based Reserve Accounts could include the following contract types:
- General Child Care and Development Program (CCTR)
- California State Preschool (CSPP)
- Migrant Child Care and Development Programs (CMIG)
- Child Care and Development Programs for Children with Severe Disabilities (CHAN)
The maximum allowable amount (i.e. reserve account cap) that could be retained in the center-based reserve for contractors holding a CSPP was 15 percent of the sum of all center-based contract types listed above that the contractor held. If a contractor did not hold a CSPP, the maximum allowable amount that could be retained was five percent of the sum of all center-based contract types that were held by the contractor.
Center-Based Reserve Changes in FY 2021-22
Due to the transition of CCTR, CMIG, and CHAN contracts from the California Department of Education (CDE) to the California Department of Social Services (CDSS), effective FY 2021-22, Center-Based Reserve Accounts must be split into two reserve accounts: one reserve for CSPP (i.e. the Preschool Reserve) and one reserve for CCTR, CMIG, and CHAN contract types (I.e. the Center-Based Reserve).
Reserve Account Cap and Balance Beginning FY 2021-22
Effective July 1, 2021, EC Section 8336 amends the Preschool reserve account cap to 15 percent of the sum of the maximum reimbursable amounts (MRA) of all CSPP contracts the contractor holds. WIC Section 10441 was added to allow contractors to retain a maximum of 15 percent of all center-based programs the contractor operates.
The CDE and CDSS will split the current balance between the Preschool and Center-Based reserve accounts using the ratio of the applicable contract MRAs to the sum of total MRAs currently associated with the Center-Based Reserve Account.
Example: Calculating the Reserve Account Balances as of June 30, 2021
To calculate the reserve account balances for each reserve account, contractors must first determine a percentage associated with each reserve account type, and then apply those percentages to the reserve account balance as of June 30, 2021.
Step 1: Determine the percentage associated with each type of reserve account based on FY 2020-21 MRA
Preschool Reserve Account: $750,000 (CSPP MRA) / $2,250,000 (Sum of Total MRAs currently associated with the Center-Based Reserve Account) = 33.3% of the current Reserve Allowance
Center-Based Reserve Account: $1,500,000 (CCTR and CMIG MRAs) / $2,250,000 (Sum of Total MRAs currently associated with the Center-Based Reserve Account) = 66.7% of the current Reserve Allowance
Step 2: Calculate the FY 2021-22 beginning balance for each reserve account
Contractors can find the current reserve account ending balance on the most recent FY 2020-21 Reserve Account Activity Report, emailed by their fiscal analyst. Referencing the FY 2020-21 Reserve Account Activity Report, the contractor can calculate the FY 2020-21 split by using the percentage of the contractor’s current reserve allowance.
Contractor’s FY 2020-21 Ending Balance as of June 30, 2021: $200,000
New Preschool Reserve Balance: $200,000 x 33.3% = $66,667
New Center-Based Reserve Balance: $200,000 x 66.7% = $133,333
Please note that processing of the FY 2020-21 audits (for private agencies) or revised FY 2020-21 June Year End Reports (for Local Educational Agencies (LEAs) and Community College Districts (CCDs)) may change the reserve balances associated with the Preschool and Center-Based Reserve Accounts. Until the audit has been processed or revision deadline has passed, reserve account beginning balances in FY 2021-22 remain preliminary. Final FY 2021-22 reserve account beginning balances will be based on the FY 2020-21 audit (for private agencies), June Year-End report or revised June Year-End Report (for LEAs and CCDs).
Example: Determining the Reserve Account Cap Calculation
The new Preschool and Center-Based reserve account caps can be calculated by multiplying the sum of the MRAs associated with each reserve account type by 15 percent. For example, the Preschool and Center-Based reserve account cap for a contractor holding a CSPP, CCTR, and CMIG contract, would be determined based on the following calculation:
Maximum FY 2021-22 Preschool Reserve Cap = $750,000 x 15% = $112,500
Maximum FY 2021-22 Center-Based (CCTR and CMIG) Reserve Cap = $1,500,000 x 15% = $225,000
Holding contractors harmless if Contractors Exceeded Reserve Account Balance Expenditures for either Reserve Account
The CDE and the CDSS understand that contractors may have already purchased or entered into agreements prior to receiving this notification and had planned to use reserve account funds to cover these costs. In instances where the transfer from the reserve account to their contract exceeds the available balance now associated with the specific reserve account, contractors should reach out to their fiscal analyst prior to transferring these funds. These scenarios will be handled on a case-by-case basis and will be based on whether the agreement or purchase was made prior to the date of this notification.
Timeline for Reserve Account Separation
Additional guidance will be provided to contractors in the coming weeks. The purpose of this communication is solely to notify contractors of the Center-Based Reserve changes and methodology being used to determine reserve balances for FY 2021-22.
If you have any questions related to this guidance, please contact your assigned fiscal apportionment analyst. The Fiscal Apportionment Analyst Directory can be found at https://www.cde.ca.gov/fg/aa/cd/faad.asp.