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City Council
Staff Report
From: City Manager
Report Type: CONSENT CALENDAR
Lead Department: Community Services
Meeting Date: June 17, 2025
Report #:2505-4680
TITLE
Approval of Professional Services Contract No. C26193874 with Palo Alto Community Child Care in an Amount Not-to-Exceed $3,228,146 to Provide Management of the City’s Childcare Subsidy Program for a Term of Five Years. CEQA Status – Not A Project
RECOMMENDATION
Staff recommends that the Council approve and authorize the City Manager or designee to execute Contract No. C261938741 with Palo Alto Community Child Care (PACCC), to provide management of the City’s Childcare Subsidy program for low-income children, for a term of five years and a total not to exceed $3,228,146.
EXECUTIVE SUMMARY
The scope of services in this contract covers the administration and management of a childcare subsidy program for up to 45 low-income children annually enrolled in PACCC’s childcare and afterschool programs. Services include all paperwork and processes related to eligibility certification, maintenance of an eligibility list, data tracking and compilation, program revenue and expenditure tracking, contract reporting, as well as other subsidy administration services as requested by the City.
BACKGROUND
The City of Palo Alto has had a long commitment to childcare in the community and PACCC as illustrated by the key historical points listed below:
1 Palo Alto Community Child Care, provide management of the City’s Childcare Subsidy program for low-income children, Contract # C26193874; https://www.paloalto.gov/ /files/assets/public/v/1/community-services/human- services/palo-alto-community-child-care-contract-c26193874.pdf
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•In 1974, the Council established a Childcare Task Force to develop and implement priorities for childcare services. The Task Force recommended the City take an active role in childcare and that a nonprofit be created to coordinate these efforts. •As a result, Palo Alto Community Child Care (PACCC) was formed and incorporated as a 501(c)(3). On March 25, 1974, the Council approved a contract with PACCC to fund administrative support and implement components of the Task Force Plan. •In 1984, the City reduced administrative funding, retaining only a contract with PACCC to administer the City’s childcare subsidy program. PACCC’s funding continued through the Human Services Resource Allocation Process (HSRAP). •In 2014 (FY15), Council approved direct contracts with Avenidas and PACCC, removing them from the HSRAP review process, with 2015–2020 (FY16-FY21) being the first contract term.
•The current contract (C21178948) term is July 1, 2020, to June 30, 2025, and was approved by the Council on November 9, 2020.2
PACCC was removed from the HSRAP process in May 2014, and separately contracts with the City for management of the City‘s Childcare Subsidy Program. These contracts have each had five-year terms with CPI increases applied when funding was available. The table below summarizes these contracts.
Table #1: Contracts with PACCC since FY2016
FY2016-FY2020 $2,425,925
FY2021-FY2025 $2,775,614
PACCC is the only childcare provider in the community with sufficient organizational capacity and experience to perform the services requested, justifying award as a sole source contract and exempt from solicitation. An exemption from competitive solicitation per Palo Alto Municipal Code 2.230.360(d) was approved by the City Manager.
PACCC is also the only local provider of financial aid support for families and children who qualify through the State of California, Child Development Division. PACCC can therefore combine City and State subsidy funds, when appropriate, to assist low-income families, therefore leveraging city funds to provide assistance to more children.
Families also benefit from PACCC’s ability to manage both City and State funding because 2 City Council, November 9, 202; Summary Minutes, Item 9; https://portal.laserfiche.com/Portal/DocView.aspx?id=1142&repo=r-704298fc 7 3
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parents need only work with one agency regardless of the funding stream. Since PACCC operates infant, preschool and afterschool childcare (TK-5th), children who remain eligible for a subsidy can receive continuity of care for several years, greatly reducing both the financial burden and stress placed on low-income families. If PACCC were no longer the administrator of the program, the currently enrolled 37 children of low-income families would most likely lose Staff prepared the proposed contract to align with the standards for nonprofit contracts identified3. These standards include defining specific service levels, goals and objectives, and reporting requirements. This contract will be closely monitored by staff in the Office of Human Services (OHS), including review of semi-annual reports and payments requests. Additionally, on a biennial basis, PACCC will submit a copy of an independent financial audit and OHS staff will conduct a status review of PACCC’s agreed upon performance indicators that may include a site visit.
ANALYSIS
Access to affordable and quality childcare is key to the ability of parents to work. The burden to pay for market rate childcare is out of reach financially for many low-income parents, therefore subsidized care is a lifeline.
A 2023 study commissioned by the Santa Clara County Office of Education reports4 that the average annual cost for full-time infant care in the County is $33,456, while full-time preschool care averages $20,256. Staff analysis indicates that costs in Palo Alto are at least 20% higher, though often significantly more. Direct comparisons are challenging due to variations in how programs define age groups, services included in full-time care, and how fees are presented. Despite these variables, the cost of full-time childcare in Palo Alto is unaffordable for most low-income families. For currently enrolled families in the City funded childcare subsidy program, over 65% are headed by a single parent and the average family (one- or two- income earners) income is around $5,000/month or $60,000/year. This makes it extremely difficult to pay for childcare and other essential expenses such as housing in Palo Alto without assistance.
The City’s childcare subsidy program allows parent(s) to work and provide for their families - often at multiple jobs - and/or go to school to increase their ability to earn higher wages. Access to high quality childcare at a young age can improve a child’s social and emotional well-being and help get children “kindergarten ready”. Childcare centers such as those operated by PACCC also help connect parents to vital services in the community such as social services, healthcare 3 Policy and Services Committee, June 14, 2022; Item 1; https://portal.laserfiche.com/Portal/DocView.aspx?id=30868&repo=r-704298fc 4 Santa Clara County Child Care Average Tuition Rate Survey 2023; https://www.sccoe.org/supoffice/lpc/Documents/Reports/Average_Rate_Survey_Brief_Digital.pdf 7 3
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and mental health support, which further sustains the low-income families in the subsidy program.
Eligibility in the program is based on meeting residency and income guidelines (Attachment A, Exhibit B) and a stated priority list governs the process as a space becomes available. Once in the program, participants are required to re-certify for continued eligibility on an annual basis.
A co-payment is determined based on total family income and an established Family Fee Schedule (see contract, Exhibit B-25).
Contract Specifics
The following tasks currently performed by PACCC in the management of the City’s Childcare Subsidy Program will continue for the next five years, 2025 – 2030, if Council approves the staff recommendation. The work plan includes but is not limited to the following tasks:
1. Administer and manage childcare subsidy program for up to 45 low-income children annually enrolled in childcare and afterschool programs.
2. Comply with state Program Specifications and PACCC Operating Procedures related to the administration and management of subsidy funding, including verification of family and child eligibility, need, residency, and attendance; completion of annual re- certifications for enrolled families; and maintenance of Contracts for Services that appropriately reflect changes in the above.
3. Collect, track, and compile data sufficient to provide annual financial reports, including all agency revenue and expenditures as required under City of Palo Alto contract.
4. Adhere to the Family Fee Schedule.
5. Coordinate with the Office of Human Services to conduct an annual evaluation of program services and goals.
6. Maintain a ranked Eligibility List for participation in the program, with enrollment priority based upon income level, initially using established priorities as detailed in the Program specifications of the contract. The eligibility list will be reviewed and ranked each time a new family is added.
7. Conduct detailed Eligibility List analysis to identify trends in community need and groups of applicants with the longest waiting periods.
8. Communicate all changes in policies/procedures/eligibility of the state subsidy program to the City as it relates to the service of any family with co-mingled funds. 5 Palo Alto Community Child Care, provide management of the City’s Childcare Subsidy program for low-income children, Contract # C26193874; https://www.paloalto.gov/ /files/assets/public/v/1/community-services/human- services/palo-alto-community-child-care-contract-c26193874.pdf 7 3
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9. Provide referrals to local community service agencies and programs that offer resources that PACCC cannot for low-income families.
For the full scope of services including program goals and objectives, see the Palo Alto Community Child Care Contract C26193874.6
FISCAL/RESOURCE IMPACT
The FY 2026 Proposed Operating Budget includes $606,794 for this contract in the Community Services Department budget, which is sufficient to fund year one of the agreement. For Fiscal Years 2027 - 2030, the cost for the contract will be subject to the City Council review and annual appropriation of funds.
STAKEHOLDER ENGAGEMENT
The Human Relations Commission held a Listening Session on childcare issues on May 8, 2025.7 Human Services staff worked closely with PACCC leadership to review and develop the agreement.
ENVIRONMENTAL REVIEW
Council action on this item is exempt from review under the California Environmental Quality Act (CEQA) because it can be seen with certainty that there is no possibility that a contract to administer the City’s Childcare Subsidy Program will have a significant effect on the environment. CEQA Guidelines 15061(b)(3).
ATTACHMENTS
None.
APPROVED BY:
Kristen O'Kane, Community Services Director
6 Palo Alto Community Child Care, provide management of the City’s Childcare Subsidy program for low-income children, Contract # C26193874; https://www.paloalto.gov/ /files/assets/public/v/1/community-services/human- services/palo-alto-community-child-care-contract-c26193874.pdf 7 Human Relations Commission, May 8, 2025; Item 1;
https://portal.laserfiche.com/Portal/DocView.aspx?id=170186&repo=r-704298fc