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. [x] Market rate survey. i. When were the data gathered (provide a date range; for instance, September – December 2023)? Market Rate Survey (MRS) data collection took place between November 2023 and January 2024. In addition, data collected in the Summer of 2022 (Stabilization Grant Round 3) was utilized. b. [ ] ACF pre-approved alternative methodology. i. [ ] 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? 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. 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 State Administrator meets regularly with stakeholders who are represented on the State Advisory Council (SAC) in addition to other stakeholders. During these meetings there is an opportunity to hear about barriers, challenges and opportunities to collect new information, including the way we try and gather this information from providers. This group also reviewed the draft MRS plan and participated in a consultation session focused on the results and recommendations. The SAC members were later provided with a summary of the broader feedback that was collected through the MRS Hearings and survey and supported the changes that were made to the final report. Lessons learned will be used for ongoing work to assess the cost of care. iv. Local child care program administrators: Prior to fielding the market rate survey, the survey instrument was tested using cognitive interviews with a sample of providers, including center-based and home-based providers. A purposive sampling design was used to ensure diversity. In addition to responding to the survey questions, as written, interviewees were asked follow-up questions about how they interpreted and responded to each question. The interview responses were analyzed to identify common themes and patterns that might indicate potential issues with language use, response options, and overall survey design. Based on the results, minor changes were made to the wording of several questions. Otherwise, the cognitive interview responses suggested that the survey questions were clear and that providers were likely to interpret the questions as intended. This group also had an opportunity to provide feedback on the draft MRS during the Hearings and through a survey before it was finalized. v. Local child care resource and referral agencies: The State Administrator meets regularly with the state’s ten Great Start to Quality Resource Centers and Regional Early Childhood Support Networks (ECSNs) to hear about barriers, challenges and opportunities to hear about how program policy is impacting providers and families. Members of these groups were included in the SAC and participated in several of the consultation sessions and the MRS Hearing, and provided feedback before the report and recommendations were finalized. vi. Organizations representing child care caregivers, teachers, and directors from all settings and serving all ages: The State Administrator meets regularly with child care caregivers, teachers, and directors from all settings that serve a variety of age groups to hear about barriers, challenges and opportunities to understand how program policy is impacting providers and families. Members of this group were also engaged in the SAC, in the consultation sessions and Hearings and provided feedback on the report before it was finalized. vii. Other. Describe: N/A 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? 1/3/2024 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)? All of the survey data were collected within the three-month time period from November 2023 through January 2024. iii. Describe how it represented the child care market, including what types of providers were included in the survey: All licensed child care providers in the priced market were invited to complete Michigan’s 2023-2024 market rate survey. Final analytic data included 2,738 unduplicated responses, for an overall response rate of 34%. The response rate was above 30% for all three types of licensed providers in Michigan, including 34% of centers, 35% of family homes, and 35% of group homes. The response rate among providers who received CDC payments in November 2023 was 45%. iv. What databases are used in the survey? Are they from multiple sources, including licensing, resource and referral, and the subsidy program? The sampling frame for the market rate survey was developed from MiLEAP’s child care licensing database and a provider database maintained by the Early Childhood Investment Corporation (ECIC). The information gathered included license number, provider name, contact information, location, provider type, quality level, services offered, and licensure status over time. v. How does the survey use good data collection procedures, regardless of the method for collection (mail, telephone, or web-based survey)? A multi-pronged outreach, follow-up, and monitoring process was used to maximize the survey response rate and ensure data quality. First, the provider databases (child care licensing database and the provider database maintained by ECIC) were used to generate a full list of current providers, along with their contact information. The survey was offered through multiple modes, including paper, online (by computer or mobile phone), and by telephone. To further promote a strong response rate, incentives of $150 each were offered to 10 randomly selected survey completers. In preparation for fielding the survey, an introductory postcard was mailed to each provider that explained, simply and persuasively, the purpose of the survey and the benefit to children, families, and providers of completing it. In addition, general brief notices were distributed through existing MiLEAP networks, as well as various child care resource and referral agencies and provider networks. Finally, three live informational webinars were conducted to inform interested partners and providers about the importance of the survey, how it would be conducted, and how they could participate. A paper survey packet was mailed to each provider address. The survey packet included a letter describing the purpose of the survey and instructions, along with a postage-paid return envelope for submitting completed responses. The instructions also included a QR code and directions for accessing the online survey. The online survey included both an anonymous version, accessible via a link distributed with the paper surveys and through child care listservs in Michigan, and a targeted version sent directly to providers’ emails using the contact information from the sampling frame. Starting in the second month of survey data collection, telephone calls were made to providers who had not yet responded to invite them to complete the survey over the phone. Email and listserv reminders were sent at regular intervals during survey administration to encourage providers who had not yet responded to complete the survey. Throughout the data-collection phase, incoming surveys were monitored for completion rates and data quality. vi. What is the percent of licensed or regulated child care centers responding to the survey? 34.00 vii. What is the percent of licensed or regulated family child care homes responding to the survey? 35.00 viii. Describe if the survey conducted in any languages other than English: Outreach materials and invitations included a phone number to call for assistance with completing the survey, and translated versions of the survey could be made available upon request. ix. Describe if data were analyzed in a manner to determine price of care per child: The survey asked providers to select the most common method of charging full- time and part-time fees (e.g., daily, hourly, weekly, monthly, or other) per child for each age group (i.e., infants and toddlers, preschoolers, and school-aged children) and provide the rate charged. Each entry type was converted into an hourly rate based on a nine-hour day, which was chosen due to its stability, as determined in past market rate studies. x. Describe if data were analyzed from a sample of providers and if so, how the sample was weighted: The final analytic data set from the market rate survey was a sample that represented 34% of Michigan’s licensed child care providers. The final dataset was weighted by provider type and geography to ensure the appropriate representation of providers and geography in Michigan. The weights were created by determining the number of providers in each American Community Survey Public Use Microdata Area (PUMA). PUMAs were used, because they group providers from smaller, adjacent counties together based on similarity in demographics, thus reducing the potential bias in rate calculations for small-population counties with few child care providers represented in the sample. 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 American Community Survey divides Michigan into 33 Public Use Microdata Areas (PUMAs). Market rate survey responses were collected from every PUMA in Michigan, with response rates by PUMA ranging from 27% to 46%. To allow for geographic analysis of price data, survey responses included provider license numbers, which were matched with provider addresses using Michigan Department of Lifelong Education, Advancement and Potential (MiLEAP) child care licensing database. 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). As of November 2023, the Michigan Department of Lifelong Education, Advancement, and Potential (MiLEAP) database of licensed child care providers included a total of 8,035 licensed and active providers; 2,738 of those providers responded to the market rate survey, for an overall response rate of 34%. The response rate was above 30% for all three types of licensed child care providers in the state, including 34% of centers, 35% of family homes, and 35% of group homes. License numbers included with survey responses were matched with MiLEAP’s child care licensing database to identify the type of provider, which allowed survey results, including prices, to be disaggregated by type of provider. iii. Describe how the market rate survey or pre-approved alternative methodology reflected age of child (e.g., infant, toddler, preschool, school-age): In addition to asking providers to indicate the number of children currently in care in each age group (i.e., infant/toddler, preschool, and school age), the market rate survey also asked providers to indicate the prices they charge for full-time and part-time care by age group. 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 the variations described above, the market rate survey examined prices by quality level. License numbers included with survey responses were matched with data from Great Start to Quality, Michigan’s quality recognition and improvement system, to identify each provider’s current quality level. 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)? The Provider Cost of Quality Calculator (PCQC) was used to conduct a narrow cost analysis to assess the cost of quality care to meet the health and safety standards in Michigan. The PCQC is a dynamic, web-based tool that calculates the estimated cost of the inputs used by providers to deliver services at various levels of quality. The PCQC model considers hypothetical expenditures and revenues for child care centers and home settings separately. As described in the response to item c., below, data from multiple sources were used to refine the inputs used in the PCQC models to better reflect costs among Michigan’s child care providers. To determine what impact various factors thought to be cost drivers could have on the bottom line for operating costs, including age of children, the model was used to create multiple scenarios by systematically altering several of these factors. b. In the Lead Agency’s analysis, were there any relevant variations by geographic location, category of provider, or age of child? According to the PCQC models, home providers benefit more from progressing to higher quality levels compared to centers. For centers moving from a quality level of Enhancing Quality to Enhancing Quality-Validated, there is only a marginal boost in their revenue because increases in revenue are offset by the increase in salaries for staff. Without the additional staffing costs, home providers are likely to experience more of a net revenue boost at higher quality levels. Although assessing costs by location is relatively straightforward, capturing variations in cost by age group is complicated by the fact that the vast majority of providers care for children in multiple age groups, and the cost data available at the time of the study did not separate costs by age of children. Furthermore, while it is possible to adjust inputs, such as ratios, to account for differences in age groups in the cost models constructed for the analysis, other model inputs are still based on cost data for care across all age groups, again making it difficult to isolate true cost differences by age. One possible approach to get around these data limitations is to analyze costs among the subset of providers who only serve specific age groups. The average cost per infant is the highest of the three age groups, approximately 19% to 26% higher than the cost for preschoolers and toddlers. The average cost per toddler is the lowest of the three age groups. When analyzing costs among centers and family and group homes that serve only infants and toddlers, there is high variability between regions. Wayne-Oakland-Macomb has the highest average cost per infant and toddler, while Central Michigan has one of the lowest. Additionally, looking at providers that only serve preschool-aged children, there is variability in cost across regions, though it is less pronounced than with infant and toddler care. Northeast Michigan has the highest average cost per toddler, followed by Northwest and Kent. The lowest average costs are in the Central, Eastern, and Western regions of Michigan. Lastly, when looking at centers and family and group homes that serve school- aged children, there is significant variation in costs. Southwest Michigan experiences the highest average cost per school-aged child, followed by Southeast and Wayne-Oakland- Macomb. The lowest costs are found in Northeast Michigan, followed by Eastern, Upper Peninsula, and Western regions. It is important to note, however, that by looking only at providers who serve single age groups, these analyses are based on very small sample sizes. Therefore, the degree to which the results are representative of actual variations in cost by age and geography is unclear. 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.)? An important source of secondary data was data compiled by the Early Childhood Investment Corporation from child care stabilization grant applications submitted during summer 2022. As part of the application process for those grants, providers were asked to provide detailed estimates of their average monthly operating expenses covering various categories, such as personnel costs, physical/space overhead expenses, health and safety practices, equipment and supplies, goods and services, and mental health services. In addition to the stabilization grant data, estimates of personnel cost data from the Bureau of Labor Statistics, estimates of revenue from subsidies data from MiLEAP, estimates of revenue from CACFP participation data from CEPI, and the newly gathered adjusted child to teacher ratio data from the MRS were also used to determine the cost of care at the base level of quality. As a means of testing and further refining the PCQC input values, interviews were conducted with 16 child care providers. Providers were selected using a stratified random- sampling scheme, with licensed providers stratified by provider type (centers, family homes, and group homes) and quality level. Separate interview tools were developed for centers and home-based providers. The questions in both instruments focused on each provider’s estimates of annual operating costs, including both personnel and non- personnel costs. The interviews also provided the opportunity to collect provider input on the factors that most influence tuition rates, the impact of current regulations on costs, and the costs associated with providing quality child care and in meeting health and safety requirements. The PCQC utilized the following age groups: infant/toddler (birth to 30 months), preschool (30 months through age four), and school age (kindergarten or 5 years old but less than 13 years). The model assumes all age groups attend full time, even school-age children. The maximum group size for centers adhered to State of Michigan definitions. In cases where the maximum group size was not specified for center preschool and school-aged children, the number of children in the ratio was doubled. Staff compensation levels were derived from Bureau of Labor Statistics data for Michigan and adjusted for quality level. In general, positions in programs at the enhancing quality level fell at the 50th percentile, while positions in programs at lower quality levels were at the 25th percentile, and positions at programs at higher quality levels were at the 75th percentile. The majority of centers in Michigan do not have an educational coordinator. Therefore, educational coordinators were omitted from the scenarios. Similarly, health consultants were excluded from the scenarios, as school nurses are not commonly employed outside of a school district setting. In accordance with State of Michigan licensing regulations, full-time staff requirements are based on the operating hours of the center per day. Consequently, all center-based scenarios in the cost analysis included a full-time director. Additionally, an administrative assistant was included in scenarios where there were 40 or more enrolled students. For home providers, the hours worked per week were set at 45 hours per week. Other personnel costs included applying Michigan’s minimum wage of $10.10 for substitutes and assistants for homes. Worker’s compensation was established at $0.61, reflecting the average employer cost per $100 of covered wage in the State of Michigan for the year 2020. The unemployment insurance tax rate was fixed at 2.7%, mirroring the liability rate applicable to new employers in the State of Michigan. Additionally, the maximum dollar amount taxed per employee for unemployment insurance was capped at $9,500. No additional benefits were inputted, and disability was set to zero. 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). Great Start to Quality (GSQ) is Michigan’s quality recognition and improvement system. GSQ utilizes over 40 program quality practices to recognize early childhood program quality across five categories: staff qualifications, family and community partnerships, professional development, inclusive practices, and curriculum, instruction, and learning environment. Costs per-child, per-classroom, and per-site by quality level and facility type were derived mainly from the provider cost data compiled from Summer 2022 Child Care Stabilization Grant applications. Scholarship participation and tuition rates, which vary by provider type and quality rating, were derived from the market rate survey results. Salary levels were taken from BLS data for Michigan and adjusted for quality level and provider type. Positions in programs at the enhancing quality level fell at the 50th percentile, while positions in programs at lower quality levels were at the 25th percentile, positions at programs at higher quality levels were at the 75th percentile. Staffing ratios and maximum group sizes for centers adhered to State of Michigan definitions. In cases where the maximum group size was not specified for center preschool and school-aged children, the number of children in the ratio was doubled. 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? Due to the variability among both the cost data compiled from provider stabilization grant applications and the provider interview data, it is difficult to define the specific gap between provider costs and prices. However, the analysis did indicate that, at the market rate, tuition alone is often insufficient to cover provider costs. The cost models demonstrated that to cover costs, providers often need to pass some of the costs on to families in the form of additional fees (i.e., annual registration fees, supply fees, etc.) and/or participate in other government programs to assist with costs (i.e. Child and Adult Care Food Program). The current reimbursement rates for centers and home-based providers were set by the state legislature effective September 2024. The information collected is synthesized into yearly rate recommendations for consideration. Due to the variable data noted above, specific gaps are not clearly identified, however, more densely populated regions experience higher costs. The department intends to continue to monitor and incorporate observed gaps into rate recommendations and has continued see a decrease in the gaps between base market rates and base CDC scholarship rates. Looking at the average per-child cost for centers and the base market rate, prices cover about 38% to 63% of the per-child cost, depending on the age of the child. For family and group homes, average per-site costs are higher than per-child costs, and prices cover about half of the per-site costs. 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: 4/11/2024 ii. Provide the date the report containing results was made widely available (no later than 30 days after the completion of the report): 4/12/2024 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: https://www.michigan.gov/mileap/early-childhood-education/early-learners-and­ care/cdc/partners/fy25-27-ccdf-consultation The MRS report was posted with the State Plan sections on the MiLEAP Child Care and Development Fund State Plan webpage (michigan.gov). Notification that the report was posted was broadly communicated through the same networks that were invited to engage in discussions and review of the full State Plan and on social media. Two public hearings were conducted on April 25 and April 30 and comments were collected via a dedicated email link to a survey, and by fax between April 12 and May 10, 2024. In addition, one of the SAC meetings (April 23) was dedicated to discussing the draft report and collecting questions and feedback. 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: The SAC members and attendees of the two MRS Hearings were provided with an overview of the report that included the methodology used, findings, highlights regarding progress made since the last MRS and recommendations for continued improvement. Questions were gathered and addressed, and discussions focused on the recommendations that the evaluators included in the report. In addition to the information collected during these virtual sessions, feedback that was submitted by survey response was included in the feedback response report from the evaluators and presented to the SAC and MiLEAP leadership for consideration and prioritization.