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quality requirements under CCDF. However, quality-based payment add-ons have been used to offset the potential costs of higher quality. In addition, whether payment rates are adequate to support the requirements of CCDF heavily depends on the scale of each provider’s participation. For providers that only care for a small number of children with subsidy relative to the total number cared for, payment rates will have no true impact on whether that provider can meet CCDF requirements. On the other hand, for programs where most of the children cared for are in the subsidy program, payment rates will have a greater impact on the program’s ability to meet CCDF requirements because their financial viability is intrinsically linked to their total subsidy funding. When determining if payment rates are adequate to meet CCDF requirements, the Lead Agency is increasing base rates to the 60th percentile of the current MRS, a level that meets or exceeds the base level quality for many rates. This determination was supported by evaluating the cost of the base level of quality in a total cost study in comparison to the proposed rates. The Lead Agency must focus on how these rates will impact the providers who participate to a higher degree of scale. Careful analysis shows that providers who care for many children with subsidy, across a variety of ages, will see increased total payments compared to historical rates, and for most, total payments will exceed their total cost of care for those children. Also, history and experience demonstrate that payment rates have not compromised CCDF requirements in the past, and thus higher payment rates relative to the past, as proposed, would not logically change this precedent. c. How did the Lead Agency use the cost of care, either from the narrow cost analysis or the ACF pre-approved alternative methodology to inform rate setting, including how using the cost of care promotes the stabilization of child care providers? The Lead Agency used the cost of care at the base level of quality to inform rate setting. Doing so provided valuable perspective for interpreting the impact of rates. The lead agency compared the current market-based rates at the 60th percentile to the cost of quality in the state's QRIS, which is a 1-star provider. The Lead Agency is setting rates at the 60th percentile of each market rate zone and a QRIS rating is required by all child care subsidy providers and therefore the base level of quality is a 1-star provider. The Lead Agency has two primary types of care in the child care subsidy program and those are full-day care and before and after school care. For full time care, there are twenty-four rates, and each rate has been set at the 60th percentile. For five of the twenty-four rates, the rate amount is greater than the estimated cost. An additional five rates are at least 90 percent of cost. While six additional rates are least 80% of cost. Establishing rates at the 60th percentile means that the Lead Agency has made a great deal of progress towards meet the cost of care. The Lead Agency intends to continue to regularly collect data regarding the cost of care in order to educate and engage with providers and stakeholders on the value that understanding the cost of care. The Lead Agency believes that understanding the cost of care and working to invest, when possible, to align subsidy rates more closely with the cost of care will help strengthen and stabilize child care by providers by ensuring that rates adequate enough to support provider cost. d. How did the Lead Agency account for the cost of higher quality while setting payment rates? When setting base rates, the Lead Agency considered only the base level of quality but not high quality since the Office of Child Care makes compliance determinations only at the lowest rate available. High quality, which makes up most subsidy providers, was considered when determining add-on payments for Quality Rated 2- and 3-star programs.