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)? b. [x] ACF pre-approved alternative methodology. i. [x] The alternative methodology was completed. ii. [ ] The alternative methodology is in process. If the alternative methodology was completed: When were the data gathered and when was the study completed? Primary data collection occurred through a limited provider cost survey conducted in January 2024. Secondary data from local, state, and national sources was gathered between November 2023 and March 2024 and were used to develop and refine the cost model. The final study was completed in May 2024. 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. CDEC followed the approved alternative methodology detailed in the proposal approved by OCC. There were no major changes or differences. The cost model was updated to account for changing funding levels and requirements based on state policies (such as HB24-1223 provisions introduced in March 2024) and the federal Final Rule on Improving Child Care Access, Affordability, and Stability in the Child Care and Development Fund (CCDF) (https://www.federalregister.gov/documents/2024/03/01/2024- 04139/improving-child-care-access-affordability-and-stability-in-the-child-care- and-development-fund-ccdf#h-31). 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). 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. iii. State Advisory Council or similar coordinating body: The Early Childhood Leadership Commission (ECLC) (State Advisory Council) held a work session to specifically provide feedback and recommendations on the published draft of the plan on May 20, 2024. The methodology and draft report was shared and discussed. Feedback was collected verbally during the meeting and incorporated into the report. In addition, the ECLC’s Data Subcommittee regularly provides feedback on the state’s rate-setting plan and discussed the alternative methodology for rate setting at the March 20, 2024 meeting. iv. Local child care program administrators: Participants of the CCCAP Rate Setting Committee include child care program administrators. The CCCAP Rate Setting Committee has been a key interest holder group providing insight, context, and feedback throughout the process. There were nine meetings held with the CCCAP Rate Setting Committee between March 2023 and May 2024. The methodology was discussed at each meeting and feedback was collected verbally. Feedback was incorporated and then presented in future meetings v. Local child care resource and referral agencies: Participants of the CCCAP Rate Setting Committee include child care resource and referral agency representatives. The CCCAP Rate Setting Committee has been a key interest holder group providing insight, context, and feedback throughout the process. There were nine meetings held with the CCCAP Rate Setting Committee between March 2023 and May 2024. The methodology was discussed at each meeting and feedback was collected verbally. Feedback was incorporated and then presented in future meetings vi. Organizations representing child care caregivers, teachers, and directors from all settings and serving all ages: Participants of the CCCAP Rate Setting Committee include representatives from organizations representing caregivers, teachers and directors. The CCCAP Rate Setting Committee has been a key interest holder group providing insight, context, and feedback throughout the process. There were nine meetings held with the CCCAP Rate Setting Committee between March 2023 and May 2024. The methodology was discussed at each meeting and feedback was collected verbally. Feedback was incorporated and then presented in future meetings vii. Other. Describe: The CCCAP Rate Setting Committee has been a key interest holder group providing insight, context, and feedback throughout the process. There were nine meetings held with the CCCAP Rate Setting Committee between March 2023 and May 2024. The methodology was discussed at each meeting and feedback was collected verbally. Feedback was incorporated and then presented in future meetings. The CCCAP Rate Setting Committee includes representatives from: Early Childhood Leadership Commission (ECLC) (State Advisory Council) Local child care program administrators Local child care resource and referral agencies, as well as school-age providers Organizations representing child care caregivers, teachers and directors 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? 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)? iii. Describe how it represented the child care market, including what types of providers were included in the survey: iv. What databases are used in the survey? Are they from multiple sources, including licensing, resource and referral, and the subsidy program? v. How does the survey use good data collection procedures, regardless of the method for collection (mail, telephone, or web-based survey)? vi. What is the percent of licensed or regulated child care centers responding to the survey? vii. What is the percent of licensed or regulated family child care homes responding to the survey? viii. Describe if the survey conducted in any languages other than English: ix. Describe if data were analyzed in a manner to determine price of care per child: x. Describe if data were analyzed from a sample of providers and if so, how the sample was weighted: 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. The alternative methodology accounts for variations in costs driven by geographical differences. For example: cost of living adjustments were made to personnel costs in the model; fair market rental rates published by HUD differentiated facility costs were included to inform home-based licensed providers costs across the state; and data from the limited cost survey were used to validate the local level costs associated with various provider types and settings. The alternative methodology produced distinct rates for each county in the state. 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). The alternative methodology produced distinct rates for center-based and home-based licensed providers. iii. Describe how the market rate survey or pre-approved alternative methodology reflected age of child (e.g., infant, toddler, preschool, school-age): The alternative methodology produced distinct rates by age of child: Age 0-12 mo. Age 12-24 mo. Age 24-36 mo. Age 3 years old Age 4 years old Ages 5 ￿ 12 (school age care) iv. Describe any other key variations examined by the market rate survey or ACF pre- approved alternative methodology, such as quality level: The alternative methodology produced distinct rates by Colorado Shines (QRIS) quality levels. 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)? As part of the development and implementation of the approved alternative rate setting methodology, a cost of care analysis was completed using a two-pronged approach, defined as a cost model informed by limited cost surveys. This approach validated key factors that impact the cost of providing quality care, including staff salaries and benefits, training and professional development, curricula and supplies, group size and ratios, enrollment levels, facility size and costs, and other expenses. The formula used to recommend and establish CCCAP provider reimbursement rates considers the eligible population and the appropriate reimbursement rate. Using the approved alternative rate setting methodology in conjunction with other cost analyses, including the rates set through the 2022 market rate survey and narrow cost analysis, the alternative provider reimbursement rates are considered appropriate for this formula. b. In the Lead Agency’s analysis, were there any relevant variations by geographic location, category of provider, or age of child? To ensure consistency with previous rate structures, the alternative methodology provided a daily rate per county, setting, child age, and quality tier. This structure presents 21 rates for each of Colorado’s 64 counties. Rates for child age groups associated with each provider type were prepared based on the specified range of child age in months included in the group. 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.)? The following considerations were integrated in the development of the cost estimation model: -Ensure quality programming for Colorado’s child care delivery system -Meet federal and state requirements -Account for geographic variation -Ensure provider business sustainability -Account for a mixed delivery system -Assess incentives for child care services for infants and toddlers -Value early childhood workforce qualifications and improved compensation -Consider fiscal viability and alignment; -Address financial efficiency and mitigation of hidden costs -Identify impacts on other parts of the ECE system -Quantitative data used in the cost model included: -Licensing data on providers maintained by the state -Child population by county, age, and family income status from sources including the American Community Survey -Rates and methodology from the most recent Colorado Market Rate Survey (2022) -Current regulations and funding rates at the federal and state levels -Economic indicators, including county cost of living and inflation rates -Wages and salaries for the child care industry from the Bureau of Labor Statistics -Additional data sources included: -The Colorado Early Childhood Cost Estimator which incorporates and expands upon the methodology used in the PCQC. -Results from stakeholder interviews and discussions pertaining to specific areas of need across the state and considerations about the effectiveness and appropriateness of current or potential rate-setting approaches. -Literature scan of best practices associated with early childhood service delivery, early childhood cost estimation, public subsidy structures, and rate setting. The alternative methodology also considered post-pandemic pressures including federal interest rates and levels of inflation. Sunsetting of stimulus funding from several sources was also incorporated. 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). Colorado Shines rates the quality of Colorado’s early learning programs on a scale of 1 to 5, based on how well the program: ● Supports children’s health and safety, ● Ensures staff are well-trained and effective, ● Provides a supportive learning environment that teaches children new skills, ● Helps parents become partners in their child’s learning, and ● Demonstrates good leadership and business practices The cost model integrates the costs associated with meeting Colorado’s child care licensing standards for each of the five levels of quality within Colorado Shines. 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? Colorado examined the differences in payments between the current and new rates across geographies, settings, quality levels, and child ages. These differences were used to project the additional cost that would be incurred to achieve the higher payment rates. Comparing the additional cost with projected funding levels informed the decision to implement the new rates over a three-year transition period. 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. a. 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: 6/12/2024 ii. Provide the date the report containing results was made widely available (no later than 30 days after the completion of the report): 6/17/2024 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: The report is posted on the CDEC website under the Provider Reimbursement and Payments section at this link: https://cdec.colorado.gov/for-providers/colorado- child-care-assistance-program-for-providers . It was also shared in an operational memo and shared in the CDEC newsletter. 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: Multiple stakeholder groups were consulted to obtain perspectives, identify potential challenges, and ensure overall feasibility. Stakeholders included representatives and members of the Colorado Child Care Assistance Program Rate Setting Committee; the State Rules Advisory Council; the ECLC; county and local child care program administrators; local child care resource and referral agencies; providers representing all age groups including school-age providers; organizations representing child care caregivers, teachers and directors, among others. Stakeholder feedback was collected via meeting engagements and via email for those who shared information outside of the meetings. Stakeholder feedback was incorporated into the final version of the report and shared again with the stakeholders. CDEC made an attempt to incorporate or address all stakeholder feedback received.