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? In May 2024, EEC contracted with an external research team from the American Institutes for Research (AIR) to support execution of the cost-based methodology pre-approved by ACF in January 2024. The methodology leveraged multiple existing administrative data sources as well as new data and stakeholder input was collected during the summer and fall of 2024 to update and refine EEC’s cost models. As planned, existing data included and was not limited to EEC licensing data, monthly application and summer 2024 survey data (including questions developed specifically to inform the cost research) from the Massachusetts Commonwealth Cares for Children (C3) grant program (which represents approximately 90% of the universe of licensed and funded programs), data on fair market rent from the U.S. Department of Housing and Urban Development, and data from the Provider Cost of Quality Calculator (PCQC). State administrative data sources provided information about program size, enrollment, staffing patterns, and compensation. PCQC data included and was not limited to utilities, insurance, educational supplies, licensing fees, permits, and accreditation memberships. Both qualitative and quantitative data were analyzed in August and September and final updates and refinements were made to the cost models by September 30, 2024. Increases to rates based on the alternative methodology were presented to the EEC Board in December and approved in January 2025. Rate adjustments were implemented on March 1, 2025 for center-based programs and May 1, 2025 for family child care programs, retroactive to July 1, 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. The final methodology used to inform payment rates is consistent with the pre-approved methodology and there were no major changes to stakeholder engagement, data collection, sources, or analysis, assumptions, or proposed scenarios. 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: EEC and the external research team engaged with the EEC Board, which serves as the State Advisory Council for the Massachusetts CCDF plan, during the summer and fall of 2024 (August, November, and December) about both the development and execution of the alternative methodology. The EEC Board also provided input on and approved the adjustments to reimbursement rates that were made in response to the alternative methodology. iv. Local child care program administrators: EEC and the external research team engaged with local program administrators during the summer of 2024 through program interviews and listening sessions that informed the cost model assumptions and inputs including but not limited to staffing structures and benefits such as paid time off. v. Local child care resource and referral agencies: EEC and the external research team engaged with local child care resource and referral agencies during the summer of 2024 through meeting with EEC’s Advisory Council on the project design, data sources, and cost model inputs. vi. Organizations representing child care caregivers, teachers, and directors from all settings and serving all ages: EEC and the external research team engaged with organizations representing child care caregivers, teachers, and directors across all program settings and serving all ages through listening sessions in September 2024 that gathered feedback on the cost model data sources, assumptions, and inputs. vii. Other. Describe: NA 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 reflected costs associated with geographic variation across different regions of the state. EEC’s cost models include estimates by program type and age group for EEC’s six subsidy regions which include: Western, Central, Northeast, Metro, Metro Boston, and Southeast Massachusetts. 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 reflected costs associated with different provider types including licensed center-based and family child care 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 reflected costs associated with serving different ages of children including infants, toddlers, preschoolers, and school age children. iv. Describe any other key variations examined by the market rate survey or ACF pre- approved alternative methodology, such as quality level: In addition to variation in cost by region, program type, and child age, the alternative methodology examined variation in licensed capacity, enrollment, and program size. The alternative methodology accounted for key variations by different indicators of program quality including staff compensation, benefits, other professional supports, and educational materials. 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)? EEC completed a pre- approved cost-based methodology which addressed all of the components required in a narrow cost analysis including examining what it costs to deliver child care at different levels of quality and variation by provider type, child’s age, and geographic location. The alternative methodology also analyzed gaps between estimated costs and current reimbursement rates to inform rate setting in fiscal year 2025. b. In the Lead Agency’s analysis, were there any relevant variations by geographic location, category of provider, or age of child? The execution of the cost-based pre-approved methodology examined and found variation by geographic region, program type (center- based and family child care), and age of child (infant, toddler, preschool, and school age). 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.)? As part of implementing the pre-approved alternative methodology, the cost of care at a base level of quality was estimated using the state’s robust licensing regulations including staffing ratios and group sizes as well as professional development expectations. EEC also collects regular data on wages by staff role, and these data were used to inform the salary assumptions in the cost models at the base level of quality. The FCC cost model is a hybrid and also uses wage data and assumes that the FCC owner’s salary is equivalent to that of a center-based Director, which is higher than some current salaries. 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). The alternative methodology reflects costs associated with higher levels of quality by incorporating increased staff compensation, benefits, and professional supports. The alternative methodology also accounts for quality indicators such as instructional supports, professional learning opportunities, and materials needed for quality interactions and instruction. The FCC cost model accounts for the cost of higher quality by assuming the FCC owner’s compensation is equivalent to that of a center-based Director. 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? Tuition rates from the 2022 market rate study were used as a secondary data source to inform targeted adjustments to CCFA rates. EEC will continue to track tuition prices over time, in addition to costs, to understand broader trends within the child care market. EEC targeted increases considered where gaps were largest between costs and prices. 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: 3/24/2025 ii. Provide the date the report containing results was made widely available (no later than 30 days after the completion of the report): 4/7/2025 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: https://www.mass.gov/doc/alternative-methodology-report-2024-cost-research- and-cost-model-updates/download 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: EEC engaged multiple stakeholders and partners through the development and execution of the alternative methodology. The alternative methodology report includes additional details about stakeholder engagement. Partners that were engaged included the EEC Board, EEC Advisory Council, local child care program administrators, local child care resource and referral agencies, and organizations representing child care caregivers, teachers, and directors. Partner views influenced the data sources considered, several of the cost assumptions in the models, including program reserves and health care and retirement benefits, and validation of key findings. More details on how partner input influenced the development of the cost-based methodology can be found on page 3 of the alternative methodology report. The data sources, assumptions, inputs, and findings in the report were shared and discussed at EEC Board meetings in November and December 2024 as well as live-streamed, recorded, and made available to the public. The alternative methodology report was also translated into Spanish.