Understanding the Calculation Worksheet FAQs

Contract Earnings

1. How are California State Preschool Program (CSPP) contract earnings determined?

   Pursuant to California Code of Regulations, Title 5 (5 CCR) Section 17812, contract reimbursement is based on three limits of reimbursement: (1) the contract’s maximum reimbursable amount (MRA); (2) the net reimbursable program costs; (3) the product of the adjusted child days of enrollment for certified children, times the contract rate per child day of enrollment, times the actual percentage of attendance plus 5 percent, but in no case to exceed 100 percent of enrollment (also referred to as service earnings). For the determination of contract earnings between Fiscal Year (FY) 2021-22 and FY 2024-25, please refer to question 1 under the Hold Harmless section of this FAQ.

2. What is meant by "service earnings?"

   Service earnings refer to the third limit of reimbursement outlined in California Code of Regulations, Title 5 (5 CCR) Section 17812. Specifically, service earnings are derived from the total days of enrollment reported for certified children and is calculated by multiplying the adjusted child days of enrollment (cdes) for certified children, by the contract rate per cdes, and the actual percentage of attendance plus 5 percent, but in no case exceed 100 percent of enrollment.

3. What is a projection factor?

   The California Department of Education (CDE) uses a projection factor to estimate the year-end service earnings and reimbursable costs of an agency’s program. This projection factor is derived by dividing the contract’s minimum days of operation (MDO) by the actual days of operation. The application of the projection factor to estimate the year-end service earnings and reimbursable costs assumes that enrollment and costs do not vary drastically throughout the year.

Hold Harmless

1. What does it mean to be held harmless?

   Pursuant to California Code of Regulations, Title 5 (5 CCR) Section 17812, contract reimbursement is based on three limits of reimbursement: (1) the contract’s maximum reimbursable amount (MRA); (2) the net reimbursable program costs; (3) the product of the adjusted child days of enrollment for certified children, times the contract rate per child day of enrollment, times the actual percentage of attendance plus 5 percent, but in no case to exceed 100 percent of enrollment (also referred to as service earnings). During hold harmless service earnings (the third limit) is not considered when determining contract earnings and contractors will be reimbursed based upon the lesser of the net reimbursable costs or the contract MRA. If you have questions about how to earn your contract, please contact your fiscal analyst.

2. How long will hold harmless last?

   Pursuant to California Education Code (EC) Section 8245.5(c), hold harmless ends June 30, 2025. After June 30, 2025, contractors will be reimbursed according to California Code of Regulations, Title 5 (5 CCR) Section 17812. Refer to question 1 under the Contract Earnings section of this FAQ for more information on determination of contract earnings beyond June 30, 2025.

Flex Factors

1. How does the two percent flex factor for the minimum days of operation (MDO) affect the contract reimbursable amount (MRA)?

   Pursuant to California Code of Regulations, Title 5 (5 CCR) Section 17813, if a contractor fails to operate at least 98 percent of the MDO required in its contract, the MRA will be reduced in proportion to the percentage of the contract MDO that the contractor was not in operation. For purposes of calculating contract earnings, the California Department of Education (CDE) provides up to a 2 percent flex factor for contractors who operate at least 98 percent of the contracted MDO. This flex factor ensures that the MRA is not reduced when contractors operate at least 98 percent of the contracted MDO. For example, contractors that operate 98 percent of their contract MDO will receive a 2 percent flex factor, which will increase their percentage to 100 percent, thereby resulting in no reduction to the MRA, when determining contract earnings. A contractor that operates 97 percent or less will not receive a 2 percent flex factor, and the MRA will be reduced accordingly. This calculation is done only on June Enrollment, Attendance, and Fiscal Reports, as well as when the audit is processed. The CDE recommends that contractors review their actual days of operation to the service calendar that was submitted. If the service calendar needs to be revised, contractors should contact their assigned Program Quality Implementation (PQI) consultant to request a change to their contract MDO. All requests for calendar changes must be submitted to the Early Education Division by the end of the fiscal year (i.e. June 30) for the request to be considered and a contract amendment to be processed if approved.

2. How does the five percent attendance flex factor affect service earnings?

   Service earnings are calculated by multiplying the adjusted certified enrollment by the service county rate. The certified service earnings are then adjusted based on the attendance percentage, which includes up to a 5 percent allowance pursuant to California Code of Regulations, Title 5 (5 CCR) Section 17812. This 5 percent allowance is known as the attendance flex factor. When actual attendance falls below 95 percent of enrollment, service earnings will be adjusted accordingly.
   
   For example, a program with 96 percent attendance will be calculated at 100 percent of actual service earnings; a program with 94 percent attendance will be calculated at 99 percent of actual service earnings or a 1 percent reduction due to low attendance.
   
   To determine adjusted contract earnings, a 5 percent flex factor is applied as an allowance, and 5 percent is added to the actual percentage of attendance.

Administrative and Indirect Costs

1. Will the 15 percent net cost calculation for administrative expenses continue to be calculated against net reimbursable costs after hold harmless ends?

   Yes. Education Code (EC) Section 8258 limits reimbursement of administrative costs to not exceed 15 percent of the funds provided. The CSPP contract does not provide funds for costs paid by restricted income, and therefore calculations limit reimbursement of administrative costs to 15 percent of net reimbursable costs. More information on administrative costs can be found in the Early Education and Nutrition Fiscal Services Fiscal Handbook (DOCX).

2. How do I negotiate my indirect cost rate?

   Indirect costs are limited to an indirect cost rate that must be based on a certified public accountant approved cost allocation plan, not to exceed the rate specified in the annual preschool contract per California Code of Regulations, Title 5 (5 CCR) Section 17805(j). Federal regulation allows a maximum indirect cost rate of 10 percent for any non-federal entity that has never received a negotiated indirect cost rate. For any non-federal entity that has a negotiated indirect cost rate, such as California Department of Education (CDE) approved rates for school districts and county offices of education, the maximum indirect cost rate shall be the lesser of the negotiated indirect cost rate or the 10 percent.

3. Are programs allowed to spend 10 percent on indirect costs in addition to the 15 percent allowed for administrative costs?

   No, indirect costs are part of the program’s total allowable administrative costs. For example, a program who has 10 percent indirect costs would only have 5 percent for direct administrative costs.

4. How would administrative costs above the allowable limit affect the calculation of our net reimbursable costs?

   Pursuant to California Code of Regulations, Title 5 (5 CCR) Section 17700(e), costs are defined as costs incurred for administrative activities where neither the family, the child, nor the service providers operating family childcare homes directly benefit from the activity. Education Code (EC) Section 8258 and 5 CCR Section 17805(b) limits administrative costs for state-funded preschool programs to 15 percent of net reimbursable costs.
   
   Contractors are required to report the actual administrative costs, whether it exceeds the 15 percent allowance or not. Any costs in excess of 15 percent would be considered non-reimbursable and will be subtracted from the net reimbursable costs when determining contract earnings.

Payments and Billings

1. How soon after the end of the year should we expect an invoice for any calculated payments?

   Invoices from a calculated overpayment can be expected after contract closure. For Local Educational Agencies (LEAs), contracts are considered closed after the specified revision deadlines. Specifically, LEAs must submit revisions by February 13 following the end of the fiscal year and Community College Districts must submit revisions by March 1 following the end of the fiscal year. If no revision is submitted, the calculated earnings from the most recently certified report become final. Non-LEAs (private agencies) are required to submit an audit, and contracts are considered closed once an acceptable audit is submitted and processed.