A federally funded childhood development program in Santa Cruz County is facing an uncertain future after the nonprofit organization operating it pulled out of its multi-year grant last month amid financial turmoil.
The Head Start program was enacted during the administration of former President Lyndon Johnson and has been reauthorized and grown by Congress ever since. It supports working class families by providing early education, child care, family support, and nutrition for children from ages 3 to 5. In 1995, it was expanded to include the Early Head Start program, which covers children from birth to age 3.
Encompass Community Services operated the Head Start program in the county since 1983, but laid off all of the program’s staff in September, then again in October after rehiring them. The organization finally confirmed in November it would not operate the program this year as it tried to navigate a convergence of funding issues that were exacerbated by the federal government shutdown that lasted from October into November, according to Encompass’ interim CEO Kim Morrison.
The organization also underwent a leadership change in October as layoff notices were issued, withdrawn, then re-issued to the program’s 91 staff, who are represented by Service Employees International Union Local 521.
The confusion, spending decisions, and layoffs were lambasted by SEIU 521, which accused the organization of overspending and a lack of transparency in its finances and decision-making.
Staff layoffs draw union fire
A spokesperson for Encompass, Renae Donus, rejected those claims and said the organization had never failed an audit and that all expenses related to the program are verified by the federal Office of Head Start and paid through approved reimbursements.
Morrison said the change in CEOs was not related to funding decisions or the layoffs and had no impact on the decision to withdraw from operating the program. Encompass said in a news release in October that the previous CEO, Shellee Stopera, told the organization she did not feel the job was the “right fit” for her, and Morrison said Encompass’ board agreed.
Morrison said the organization was at loggerheads with the Office of Head Start since July, when the federal office told Encompass to submit its budget for the upcoming budget year for a program with its previous enrollment number of about 420 students. While that was the program’s high before enrollment started to drop during the COVID-19 pandemic in budget year 2020-21, it was no longer the number of students it served, which was about 250 this past year.
Encompass was told to submit a new plan for the lower enrollment number but didn’t hear back until September, when it got a response from the Office of Head Start that its grant would be reduced from about $9.8 million to about $5.9 million starting in the next budget year, which runs from November through October.
Encompass appealed, but Morrison said it never received a response.
Meanwhile, the organization was counting on utilizing about $400,000 in unspent “carryover” funds from the grant’s previous year to be disbursed in this past year’s grant cycle. But a policy change enacted by the administration of President Donald Trump prevented those funds from being disbursed.
That left Encompass both short of its budget for the operating year that ran through October and uncertain about its award amount for the budget year starting Nov. 1.
When the federal government shut down in early October amid a congressional spending stalemate, Encompass found itself without anyone to contact at a critical time as it continued to press for its original grant award of $9.8 million.
Morrison said the program could not operate at the lower level of funding, which was about 40% less, about the same as the decline in enrollment. She said staff and classroom costs in Santa Cruz County were too expensive to fulfill federal requirements on staff-to-student ratios.
She said Encompass could have kept negotiating with the Office of Head Start but it would have taken extended time and that pulling out of the grant was the fastest way to get the families connected with Head Start services again through a federal interim provider that steps in when there are gaps with the program.
Staff laid off, program students merged
A spokesperson for SEIU 521, Ian Newman, said the union received layoff notices in late September. Those were rescinded after the union and Encompass lobbied for bridge funding from the Santa Cruz County Office of Education to keep Head Start operating through October. But just days after their reinstatement, and after the previous CEO resigned, Morrison again laid off the staff, citing the looming November deadline for the new budget year.
Students in the program were merged into the Pajaro Valley Unified School District as the uncertainty played out, a move that the union said was an effort to skirt labor laws by “outsourcing” their jobs to the school district.
“The sudden layoff of 91 dedicated Head Start staff members was not only heartbreaking, Encompass handled this crisis with a lack of transparency afforded to educators and families,” Head Start teacher director Suzanna Lopez said in a statement provided by the union. “Our teaching workforce is the backbone of early childhood education in our community.”
Newman rejected Encompass’ attribution of the closure of the program to the federal government shutdown and said the organization had not been forthcoming with the union’s request for more information on its expenditures related to facilities costs.
“The sudden layoff of 91 dedicated Head Start staff members was not only heartbreaking, Encompass handled this crisis with a lack of transparency afforded to educators and families.”
Union statement
He questioned why the Santa Cruz County program was the only one to shut down in California, despite the shutdown and changes in federal policy affecting all programs the same.
Recent years’ independent audits posted on the federal Office of Head Start website show that Encompass has passed each one without drawing any violations for noncompliance related to accounting or questionable costs.
But the OHS snapshot for the program’s 2024-25 budget year that ended Oct. 31 outlines a program funded for 422 children.
Donus, Encompass’ spokesperson, confirmed the program was operating at the higher grant amount when it had the higher enrollment. When pressed further on why the reduction in money could not accommodate the reduced number of enrolled families, both Morrison and Donus reiterated that OHS had standards around facility maintenance, health and safety they said made operating the program at that level unrealistic.
CDI Head Start steps in temporarily
Now that Encompass has exited from the grant, the interim provider, Community Development Institute, also known as CDI Head Start, will take over the program and new grantees will be considered.
Encompass can apply for future awards, but Morrison said she was unsure if the organization would be interested under the new terms and said there were too many unknowns to predict if it would try to operate the program again in the future. She said she was hopeful the Office of Head Start would recognize Santa Cruz County’s higher cost of running the program and increase its grant award.
Morrison said the decision was not an easy one but the organization ultimately felt it was the fastest way to connect the impacted families with the multitude of services the program provides. She was unsure, as was Newman, about how many of the union’s positions would be offered by the interim provider, but said SEIU 521 members would have first priority for whatever positions are available.
The federal Office of Head Start said in a statement that it “regrets that Encompass Community Services has chosen to relinquish its Head Start and Early Head Start grants and recognizes the impact this has on the Santa Cruz community.”
A spokesperson said the CDI Head Start operator was assessing what services the community needed most as it prepared to take over.
“Looking ahead, OHS will initiate a competitive process in the coming year to identify a new permanent provider, as required by federal statute. This process will ensure that Santa Cruz families continue to benefit from high-quality early childhood education and support.”