4.2 Assess Market Rates and Analyze the Cost of Child Care

To establish subsidy payment rates that ensure equal access, Lead Agencies must collect and analyze statistically valid and reliable data and have the option to conduct either a (1) market rate survey (MRS) reflecting variations in the price to parents of child care services by geographic area, type of provider, and age of child, or (2) an ACF pre-approved alternative methodology, such as a cost estimation model, which estimates the cost of care by incorporating both data and assumptions to estimate what expected costs would be incurred by child care providers and parents under different scenarios. All Lead Agencies must analyze the cost of providing child care through a narrow cost analysis or pre-approved alternative methodology. Prior to conducting the MRS or pre-approved alternative, Lead Agencies must consult with the State Advisory Council on Early Childhood Education and Care (designated or established pursuant to the Head Start Act (42 U.S.C. 9837b(b)(1)(A)(i)) or similar coordinating body, local child care program administrators, local child care resource and referral agencies, and other appropriate entities; and organizations representing child care caregivers, teachers, and directors. Prior to conducting the MRS or pre-approved alternative methodology, Lead Agencies must consult with the State Advisory Council on Early Childhood Education and Care (designated or established pursuant to the Head Start Act (42 U.S.C. 9837b(b)(1)(A)(i)) or similar coordinating body, local child care program administrators, local child care resource and referral agencies, and other appropriate entities; and organizations representing child care caregivers, teachers, and directors. Note: Any Lead Agency considering using an alternative methodology instead of a market rate survey to set payment rates, is required to submit a description of its proposed approach to OCC for pre- approval in advance of developing and conducting the alternative methodology. Advance approval is not required if the Lead Agency plans to implement both an MRS and an alternative methodology to set rates at a percentile of the market rate, but a Lead Agency conducting a limited market rate survey and using it to inform their cost model would need pre-approval for this approach. In its request for ACF pre-approval, a Lead Agency must provide details on the following elements of their proposed alternative methodology: • Overall approach and rationale for using proposed methodology • Description of stakeholder engagement • Data collection timeframe (if applicable) • Description of the data and assumptions included in the methodology, including how these elements will yield valid and reliable results from the model • Description of how the methodology will capture the universe of providers, and reflect variations by provider type, age of children, geographic location, and quality 4.2.1 Completion of the market rate survey or ACF pre-approved alternative methodology Did the Lead Agency conduct a statistically valid and reliable MRS or ACF pre-approved alternative methodology to meet the CCDF requirements to assess child care prices and/or costs and determine payment rates? Check only one based on which methodology was used to determine your payment rates. a. ☐ Market rate survey. i. When were the data gathered (provide a date range; for instance, September – December 2023)? Not applicable. b. ☐ X ACF pre-approved alternative methodology. i. ☐ The alternative methodology was completed. ii. ☐ X The alternative methodology is in process. If the alternative methodology was completed: When were the data gathered and when was the study completed? Not applicable. Describe any major differences between the pre-approved methodology and the final methodology used to inform payment rates. Include any major changes to stakeholder engagement, data, assumptions or proposed scenarios. Not applicable. If the alternative methodology is in progress: Provide a status on the alternative methodology and timeline (i.e., dates when the alternative methodology activities will be conducted, any completed steps to date, anticipated date of completion, and expected date new rates will be in effect using the alternative methodology). Engagement Activities: California Department of Social Services (CDSS), in partnership with external contractor Prenatal to Five Fiscal Strategies (P5FS), has carried out all of the alternative methodology engagement activities outlined in the approved approach. Seven meetings of the Rate and Quality Advisory Panel (RQAP), a representative community body tasked with advising the alternative methodology process, were held from May 2023 to May 2024. These meetings were open to the public and covered all elements of the process from data collection and provider engagement approach to data analysis to input on cost model functioning and application of selection points within the cost model. The RQAP will continue to meet regularly throughout FY 24-25 to provide feedback to the alternative methodology process. Additionally, the Early Childhood Policy Council (ECPC), California’s child care state advisory council, has been engaged through its quarterly meetings in review and advisement on the alternative methodology approach, analysis, and results. Alternative methodology remains a standing topic at ECPC meetings to allow for ongoing updates and opportunities to receive feedback. In addition to the official advisory bodies referenced, CDSS and P5FS consulted with many other groups and individuals to inform the cost study and cost model, to assure that all aspects of the work are informed through an equity lens, and to ensure that constituents are fully informed of the alternative methodology approach and able to contribute to related activities. Other advisors who have been consulted at different points in the process have included child care and early learning programs; leaders from groups representing programs and providers; program experts from both CDSS and the California Department of Education (CDE); subject-matter experts from organizations such as the Child Care Law Center, Child Trends, the University of California, Berkeley Center for the Study of Child Care Employment, and the University of Southern California Equity Research Institute; historically marginalized communities, including people of color and tribal communities; organizations that include the child care and early learning workforce in their membership; child care resource and referral agencies; local First 5 commissions; multi-site networks; entities administering subsidy payments and child care and development contracts, and others. In California, subsidy reimbursement rates and other matters within the scope of representation are bargained by the State and the Child Care Providers United (CCPU) union, which represents family child care providers. In FY23-24, a Rate and Quality System Structure Review Joint Labor Management Committee comprised of representatives from the State and CCPU met and arrived at consensus on the elements of the new Single Rate Structure to be informed by alternative methodology. These constituents have been engaged both before and after data collection to provide content input on the cost survey approach and reach; the elements that frame the model; the cost estimation model; and the model’s data- gathering and analysis assumptions. Cost Study and Data Collection: To address the alternative methodology process, P5FS developed a comprehensive data collection and analysis plan, which was reviewed and informed by feedback from CDSS, CDE, CCPU and the RQAP. This same group of stakeholders was continuously engaged throughout the data collection and analysis phase to help guide the various activities of the workplan, including development of questions for the survey and input sessions. Data collection to inform the alternative methodology cost model was conducted in multiple ways to ensure that the full universe of California child care providers and programs was represented. In total, some 1,000 organizations were included in the outreach plan. Methods of data collection included the following: Survey: The survey was administered from July through October 2023 in several languages, including English, Spanish, Mandarin, Cantonese, Russian, Somali and Arabic. The survey was promoted through multiple distribution and communication channels, including through email, direct mail, newsletters, meeting announcements and use of incentives. The survey sought to understand current provider/program costs and how costs differ by county, provider type, characteristics of children and families served, child ages served, and community need index. All child care and development and preschool providers, including child care and development centers, family child care homes, tribal programs, and license-exempt family, friend, and neighbor providers were invited to complete the survey. Responses were analyzed and underrepresented groups received additional outreach. Input sessions: Beginning in July 2023, over 100 input sessions were scheduled across multiple dates and times in English, Spanish, Arabic and Somali. The goal of these sessions was to gather more in-depth, qualitative data on the barriers to providing quality care and the costs that providers/programs face, and to gain a deeper understanding of true costs. Sessions explored richer and more detailed data beyond what can be collected in a survey, and facilitated understanding of what it should cost to run a program, as opposed to the current costs, which reflect current market rates and parents’ ability to pay. All providers invited to complete the survey were also invited to a virtual input session, as were other entities that work with providers/programs. Interviews: To facilitate access for providers/programs who were unable, or preferred not to, complete a survey, P5FS conducted one-on-one interviews to collect their data. Topical ad-hoc groups: To broaden the input gathered and understand costs related to serving children and families in special circumstances, from October to December 2023 P5FS also hosted eight "ad hoc groups" to hear from various entities that support providers. The ad hoc session topics included: Family Child Care Home Education Networks, Multi-Language Learners, Children Experiencing Delays and Disabilities, Care During Non-Traditional Hours, Geographic Considerations, Migrant Programs, California State Preschool Programs and Child Welfare. The goal of these sessions was to understand how costs, cost drivers and barriers to quality differ for providers serving children in special circumstances. In total, P5FS received input from over 10,000 providers across the State through the survey and/or input sessions. The respondents were 58% family child care providers, 27% centers, and 15% friend, family and neighbor (FFN) providers. Data on the number of unlicensed FFN providers in California is not available, but P5FS was able to analyze the proportionate participation of licensed family child care and center providers. To do so, FFN providers were removed from the total count of respondents, revealing that among licensed providers, FCCs represented 69% of participants in the data gathering as compared to 71% of all licensed providers in California, and centers represented 31% of participants in the data gathering as compared to 29% of all licensed facilities. Furthermore, participants came from all of California’s 58 counties, and their geographic distribution closely mirrored the distribution of all licensed programs (both FCCs and centers) across counties. A total of 464 participants engaged in over 100 input sessions conducted both virtually and in person. The vast majority of participants were FCC home providers who made up around 80% of participants. Center based participants represented 19% of participants, and FFNs represented 2%. Cost Model Development: The state of California, in partnership with RQAP, CDE, CCPU, the ECPC, and other partners, developed a dynamic cost estimation tool. The cost estimation model that P5FS developed for California is a robust analytic and modeling tool informed by data from alternative methodology data collection activities in 2023. The tool allows users to understand how the cost of care changes depending upon variables such as licensing requirements, program type, characteristics and ages of children served, number of children served, geographic location, contract regulations for contracted slots and others. In addition, the tool factors in subsidy levels and other forms of revenue, providing insight into the extent to which current revenue levels support or fall short of expenses under different scenarios. The State’s 2023-2025 Memorandum of Understanding (MOU) with CCPU authorized a Joint Labor Management Committee (JLMC) comprised of representatives of the union and the State to “define the elements of the base rate and any enhanced rates to inform the State’s proposed Single Rate Structure.” In March 2024, the JLMC approved the following elements of the Single Rate Structure. Base Rate Elements: Discretionary Benefits – Employer Share of Health Benefits Discretionary Benefits – Paid Time Off Child Education and Development Child Health Dual Language Learner Support Education Program Extended hours Family Engagement Group Size and Ratios Inclusion Supports Mandatory Expenses Related to Staffing (i.e., employment taxes) Non-Personnel Administration/Office Costs Occupancy Costs Operating Reserve Planning Time Salary/Wages/Income Staffing Pattern Training Enhanced Rate Elements Child Transportation Enhanced Inclusion Supports Extended Evening and Weekend Hours These rate elements are subject to change given that they are the subject of bargaining that will take place later in FY 24-25 and must ultimately be approved through the Legislative budget process. Rate Setting and Implementation: The final step of the alternative methodology process, rate setting and implementation informed by the cost estimation model, is pending completion. The timing and sequence of the following steps are prescribed in state statue and in the 2023-2025 Memorandum of Understanding (MOU) with CCPU. Administration for Children and Families (ACF) approval of the July 2024 CCDF State Plan submission (anticipated on or around October 1, 2024) is the trigger that will initiate these steps: Within 60 days of federal approval of the July 2024 State Plan submission: The department will provide CCPU and the State Legislature with an implementation plan for the approved single rate structure. For the next 30 days: the Legislature and CCPU will have the opportunity to review and provide feedback regarding draft guidance for implementation of policies. 90 days subsequent to ACF approval: The State and CCPU will re-open negotiations to restructure the current subsidy reimbursement rates and Cost of Care Plus Rate, and the associated funding, for family child care providers, consistent with the ACF-approved Single Rate Structure. Certain aspects of rate implementation will also be negotiated. Concurrent with rate negotiations: Rate setting will occur for non-CCPU- represented provider/program types through the State’s FY 25-26 budget development process, concurrent with and informed by rate negotiations for family child care providers. July 1, 2025: Date by which rates informed by the alternative methodology will be set. Subsequent to rate negotiations: Rates will take effect when any other activities needed to implement have occurred, such as regulatory and policy guidance, training for contractors, updates to contracts and necessary data system modifications. c. Consultation on data collection methodology. Describe when and how the Lead Agency engaged the following partners and how the consultation informed the development and execution of the MRS or alternative methodology, as appropriate. i. State Advisory Council or similar coordinating body: A central component of (P5FS’s approach to conducting the alternative methodology is broad engagement with diverse early care and education entities and partners across the State. The Early Childhood Policy Council (ECPC) has 27 members appointed by the Governor and the Legislature and includes both a Parent and a Workforce Advisory Committee. As stated on the ECPC webpage, it was established “…to elevate the needs of young children and their families as well as advise the Governor, Legislature, and Superintendent of Public Instruction on statewide early learning and care and child development.” The ECPC is comprised of a diverse group of individuals who are experts, including practitioners in the early learning and care field as well as parents and providers. The ECPC and Parent and Workforce Advisory Committees reviewed and provided advisement on all aspects of the alternative methodology approach, analysis, and results through their regularly scheduled meetings. During the meetings, the CCDF administrator gave updates on the progress of implementation and elicited input from the council members. ii. Local child care program administrators: The CDSS and P5FS also consulted with a diverse group of advisors to support cost model development and ensure all aspects of the cost model development and alternative methodology activities are informed through an equity lens. These advisors consisted of child care and early learning programs, leadership from groups representing programs and providers, and program experts from both the CDSS and CDE. iii. Local child care resource and referral agencies: The CDSS and P5FS also conducted listening sessions with organizations that included the child care and early learning workforce in their membership, child care resource and referral agencies, local First 5 commissions, multi-site networks, entities administering subsidy payments and child care contracts, and others. Engagement with these groups was intended to ensure that constituents have a full understanding of and can contribute to the alternative methodology approach, the requests related to data collection, and the anticipated benefits of the cost-based approach to rate setting. iv. Organizations representing child care caregivers, teachers, and directors from all settings and serving all ages: Several program and provider groups and entities representing the child care and early learning sector have been involved in rate reform work in California for the last several years, including providing guidance on the development of the cost model tools. A Rate & Quality Systems Joint Labor Management Committee and the California Rate and Quality Workgroup (both legislatively formed to respond to the need for subsidy rate reform in the state) were active advisors in a cost modeling process that informed the final report from Rate and Quality Workgroup, which included a recommendation to move to a cost-based approach to rate setting and to pursue alternative methodology for California’s Child Care and Development Fund (CCDF) rate setting. The Rate and Quality Workgroup was charged with assessing the methodology for establishing reimbursement rates and the existing quality standards for child care and development and preschool programs, including, but not limited to, licensing standards and regulations for equity and accessibility to all program types and settings. v. Other. Describe: Not applicable. d. An MRS must be statistically valid and reliable. An MRS can use administrative data, such as child care resource and referral data, if it is representative of the market. Please provide the following information about the market rate survey: i. When was the market rate survey completed? Not applicable. ii. What was the time period for collecting the information (e.g., all of the prices in the survey are collected within a three-month time period)? Not applicable. iii. Describe how it represented the child care market, including what types of providers were included in the survey: Not applicable. iv. What databases are used in the survey? Are they from multiple sources, including licensing, resource and referral, and the subsidy program? Not applicable. v. How does the survey use good data collection procedures, regardless of the method for collection (mail, telephone, or web-based survey)? Not applicable. vi. What is the percent of licensed or regulated child care centers responding to the survey? Not applicable. vii. What is the percent of licensed or regulated family child care homes responding to the survey? Not applicable. viii. Describe if the survey conducted in any languages other than English: Not applicable. ix. Describe if data were analyzed in a manner to determine price of care per child: Not applicable. x. Describe if data were analyzed from a sample of providers and if so, how the sample was weighted: Not applicable. e. Price variations reflected. The market rate survey data or ACF pre-approved alternative methodology data must reflect variations in child care prices or cost of child care services in specific categories. i. Describe how the market rate survey or pre-approved alternative methodology reflected variation in geographic area (e.g., county, region, urban, rural). Include information on whether parts of the State or Territory were not represented by respondents and include information on how prices or costs could be linked to local geographic areas. California’s data collection using alternative methodology included a survey, interviews and over 100 virtual input sessions, which yielded feedback from over 10,000 providers representing the full diversity of the state’s child care and development field. Additionally, a focus group was held to drill down on geographic considerations in the cost of care. Researchers gathered cost data, analyzed it by sub-state regions and took steps to ensure that cost study respondents were representative of each geographic region. Where available and appropriate, extant data on costs at the sub-state level were utilized. For example, various sources of wage data available at the sub- state level were utilized to understand regional variation in wages and cost of living (i.e., minimum wage data, Bureau of Labor Statistics data and data from the MIT Living Wage Calculator). ii. Describe how the market rate survey or pre-approved alternative methodology reflected variation in type of provider (e.g., licensed providers, license-exempt providers, center-based providers, family child care home providers, home based providers). California’s data collection using alternative methodology included a survey, interviews and over 100 virtual input sessions, which yielded feedback from over 10,000 providers representing the full diversity of the state’s child care and development field. Additionally, focus groups were held to drill down on considerations specific to certain types of providers, such as state preschool programs and Family Childcare Home Education Networks. Participating providers included license-exempt friend, family and neighbor providers, licensed home-based providers, licensed center-based providers and state preschool programs. Data was disaggregated and analyzed by provider type. iii. Describe how the market rate survey or pre-approved alternative methodology reflected age of child (e.g., infant, toddler, preschool, school-age): California’s data collection using alternative methodology included a survey, interviews and over 100 virtual input sessions, which yielded feedback from over 10,000 providers representing the full diversity of the state’s child care and development field. Participating providers served the full array of children from birth to age 13. Data was disaggregated and analyzed by age of child served. iv. Describe any other key variations examined by the market rate survey or ACF pre- approved alternative methodology, such as quality level: Focus groups were held on special topics to better understand the drivers of quality and the associated cost of care. For example, focus groups explored what it takes to effectively serve multi-language learners, children experiencing delays and disabilities, children in migrant families, and child welfare involved children. 4.2.2 Cost analysis If a Lead Agency does not complete a cost-based pre-approved alternative methodology, they must analyze the cost of providing child care services through a narrow cost analysis. A narrow cost analysis is a study of what it costs providers to deliver child care at two or more levels of quality: (1) a base level of quality that meets health, safety, staffing, and quality requirements, and (2) one or more higher levels of quality as defined by the Lead Agency. The narrow cost analysis must estimate costs by levels of quality; include relevant variation by provider type, child’s age, or location; and analyze the gaps between estimated costs and payment rates to inform payment rate setting. Lead agencies are not required to complete a separate narrow cost analysis if their pre-approved alternative methodology addresses all of the components required in the narrow cost analysis. Describe how the Lead Agency analyzed the cost of child care through a narrow cost analysis or pre-approved alternative methodology for the FFY 2025–2027 CCDF Plan, including: a. How did the Lead Agency conduct a narrow cost analysis (e.g., a cost model, a cost study, existing data or data from the Provider Cost of Quality Calculator)? California is in the process of completing the Administration for Children and Families (ACF) pre-approved Alternative Methodology. Therefore, a narrow cost analysis was not conducted. b. In the Lead Agency’s analysis, were there any relevant variations by geographic location, category of provider, or age of child? California is in the process of completing the ACF pre-approved Alternative Methodology. Once finalized, the State Plan will be updated with this response. c. What assumptions and data did the Lead Agency use to determine the cost of care at the base level of quality (e.g., ratios, group size, staff compensations, staff training, etc.)? California is in the process of completing the ACF pre-approved Alternative Methodology. Once finalized, the State Plan will be updated with this response. d. How does the Lead Agency define higher quality and what assumptions and data did the Lead Agency use to determine cost at higher levels of quality (e.g., ratio, group size, staffing levels, staff compensation, professional development requirements)? A Lead Agency can use a quality improvement system or other system of quality indicators (e.g., accreditation, pre-Kindergarten standards, Head Start Program Performance Standards, or State-defined quality measures). California is in the process of completing the ACF pre- approved Alternative Methodology. Once finalized, the State Plan will be updated with this response. e. What is the gap between cost and price, and how did the Lead Agency consider this while setting payment rates? Did the Lead Agency target any rate increases where gaps were the largest or develop any long-term plans to increase rates based on this information? California is in the process of completing the ACF pre-approved Alternative Methodology. Once finalized, the State Plan will be updated with this response. 4.2.3 Publicly available report on the cost and price of child care The Lead Agency must prepare a detailed report containing the results of the MRS or ACF pre- approved alternative methodology and include the Narrow Cost Analysis if an ACF pre-approved alternative methodology was not conducted. The Lead Agency must make this report widely available no later than 30 days after completion of the report, including posting the results on the Lead Agency website. The Lead Agency must describe in the detailed report how the Lead Agency took into consideration the views and comments of the public or stakeholders prior to conducting the MRS or ACF pre-approved alternative methodology. Describe how the Lead Agency made the results of the market rate survey or ACF pre-approved alternative methodology report widely available to the public by responding to the questions below. i. Provide the date the report was completed: California is in the process of completing the Administration for Children and Families (ACF) pre-approved Alternative Methodology. A detailed cost estimation report presenting the results of California’s alternative methodology process will be submitted to the ACF by July 1, 2025. Once finalized, the State Plan will be amended to update this response. ii. Provide the date the report containing results was made widely available (no later than 30 days after the completion of the report): California is in the process of completing the ACF pre-approved Alternative Methodology. A detailed cost estimation report presenting the results of California’s alternative methodology process will be publicly posted within 30 days of completion of the report, i.e., by July 31, 2025). Once finalized, the State Plan will be amended to update this response. iii. Provide a link to the website where the report is posted and describe any other strategies the Lead Agency uses to make the detailed report widely available: California is in the process of completing the ACF pre-approved Alternative Methodology. Once the detailed cost estimation report is completed, it will be posted to the Lead Agency’s Rate Reform and Quality website at https://www.cdss.ca.gov/inforesources/child-care-and-development/rate- reform-and-quality. iv. Describe how the Lead Agency considered partner views and comments in the detailed report. Responses should include which partners were engaged and how partner input influenced the market rate survey or alternative methodology: California is in the process of completing the ACF pre-approved Alternative Methodology. Since launching its alternative methodology process in Spring of 2023, California has facilitated broad engagement with a diversity of early care and education entities and partners across the state. Formal bodies with an advisory and/or decision-making role in rate reform have included the ECPC, the RQAP, and the Rate and Quality System Structure Review Joint Labor Management Committee. Additionally, over 10,000 providers of all types participated in the alternative methodology data collection process. California’s detailed cost estimation report, which will be submitted to the ACF in July 2025, will include a more detailed description of how partner feedback was solicited and utilized throughout the alternative methodology process.