SB 120 and the State Budget: What Early Educators Need to Know

Governor Gavin Newsom signed the 2025–26 California state budget, SB 131, on Friday, June 27, 2025. On that date, the Governor also signed several Trailer Bills, including Senate Bill 120, which includes all early care and education budget provisions. The provisions in Senate Bill 120 took effect July 1, 2025. 

We have received a number of questions regarding the budget and SB 120's impacts on programs. In an effort to provide clarity to EveryChild California's members and the field, we have addressed some of the commonly asked questions below.  

Is Hold Harmless Continuing in 2025-26?

Yes. In a major victory (see our original announcement HERE) for EveryChild California members and the ECE field, Hold Harmless is continuing through 2025-26. Please see the text from SB120 below:

“This bill would instead require, commencing July 1, 2025, and through June 30, 2026, if the program is open and operating in accordance with its approved program calendar and remains open and providing services to certified children throughout the program year, the contract reimbursement to be based on the lesser of the maximum reimbursable amount stated in the contract and the net reimbursable program costs.”

As CDE has noted in their Budget Update Email, “In previous years, the 'Hold Harmless' policy required contractors to be open and offering services; for 2025–26, the contractor must be open and providing services.”

This applies to center-based programs operated under CDE and CDSS. 

For Alternative Payment programs: “This bill would, beginning July 1, 2025, and through June 30, 2026, instead require those programs to reimburse childcare providers based on families’ certified need, as specified.”

It is vital to note that we must continue to advocate for permanent solutions to funding early learning and care programs in California at the true cost of care, based on enrollment, not attendance. “Hold Harmless" continues to be a temporary fix to a much larger issue that must be addressed to shore up our early learning and care infrastructure. 

What Happens After June 30, 2026?

“The bill would also require, commencing July 1, 2026, the contract reimbursement to be based on the lesser of the maximum reimbursable amount stated in the contract, the net reimbursable program costs, or the product of the adjusted child days of enrollment for certified children times the contract rate set forth in the above-described provisions.”

Basing contract earnings on the adjusted child days of enrollment instead of adjusted days of attendance is yet another huge, hard-fought victory for the early learning and care field. This means that moving forward, contract earnings will not be based on adjusted attendance, as they were prior to the hold-harmless period. 

This continuation does not mean we can relax our advocacy efforts. Quite the opposite. We need to advocate strongly in 25-26 to ensure that the new rate structure reflects the true cost of care and that contract earnings are based on a flex-factor that reflects the needs of reimbursements based on enrollment. 

What does this mean for abandonment of care?

While adjusted days of attendance will no longer be a factor in your contract earnings, programs will still need policies that determine when a child has left care, and you may allow another family to fill that seat. 

CDE has released their draft regulations on removing abandonment of care for feedback: https://www.cde.ca.gov/re/lr/rr/attendance.asp

It is important to note two things. One, please provide feedback on these draft regulations for CDE as it is a vital part of the advocacy process. Two, please note that these are draft regulations and do not take effect until finalized. Unless CDE issues guidance in a Management Bulletin or email that says otherwise, abandonment of care remains in place. 

CDSS has not yet released any updates regarding abandonment of care; we will keep our members posted. 

What about the Cost of Care Plus Rate?

SB120 extends the Cost of Care Plus rate through to June 30, 2026, with a percentage increase specific to this rate allocation, based on recently released data, the increase is 9.2% for all center-based programs.

“This bill would extend the payment of the monthly cost of care plus rate to June 30, 2026, and would allocate additional funds to the State Department of Social Services and State Department of Education from the Budget Act of 2025 to provide a once-per-month cost of care plus rate for each child served who is enrolled in subsidized childcare, therefore making an appropriation. From July 1, 2025, to June 30, 2026, inclusive, the bill would require that monthly rate to be equal to the existing rate increased by a percentage calculated by the Department of Finance based on a specified formula.”

The CDE has also noted in their Budget Update Email that:

“At the time this email is being released, no agreement has been reached between the State and the CCPU, therefore, the Cost of Care Plus rate increase will take effect immediately only for centers. Family Child Care Home Education Network (FCCHEN) providers will continue to receive the previous Cost of Care Plus rates as reflected in the chart below in the column entitled 'Licensed Family Childcare Providers,' in keeping with the now-expired memorandum of understanding and Welfare and Institutions Code Section 10427.”

What is happening with Rate Reform/Alternative Methodology? 

SB120 extends the implementation of the Alternative Methodology to July 1, 2027. The next meeting of the Quality and Rate Workgroup is scheduled for August 7, 2025, at 12pm. 

“(2) The department shall, from October 1, 2024, to July 1, 2027, inclusive, 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.”

What about our COLA?

“The bill would additionally suspend the annual cost-of-living adjustment for the 2025–26 fiscal year.”

The COLA has been suspended for 2025-26. Once rate reform is implemented, a new system will identify rate increases. For early care and education programs for 2025-26, the COLA only applies to the Cost of Care Rate payments.

We Stand Together

As California’s early learning landscape continues to evolve, staying informed and engaged is more important than ever. At EveryChild California, we remain committed to supporting our members through these changes: advocating for fair funding, clear guidance, and policies that reflect the real needs of providers, children, and families.

Together, we will continue to push for lasting solutions that ensure stability, equity, and opportunity across our early care and education system.

Stay informed on the latest budget updates and calls to action at:
www.everychildca.org/legislative-resources

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