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)? October 2023 ￿ February 2024. 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: On July 26, 2023, department staff held an engagement session about the 2023-24 MRS; attendees included representatives from Minnesota’s Children’s Cabinet (state advisory council). The session included a presentation of background information about Minnesota's MRS, detailed information about the MRS questions, data collection and data analysis processes, and information about how CCAP maximum payment rates are set. iv. Local child care program administrators: In July 2023, department staff emailed child care program administrators offering to engage about the 2023- 2024 in the manner that best met their needs, including written comments, suggestions, or questions via email, by requesting a one-on-one discussion with department staff, or by attending a one-hour virtual meeting. The information shared via email included the proposed survey instrument and questions about improving the survey instrument so it’s understandable and relevant to each provider type. On July 26, 2023, department staff held an engagement session about the 2023-24 MRS; attendees included child care providers. The session included a presentation of background information about Minnesota's MRS, detailed information about the MRS questions, data collection and data analysis processes, and information about how CCAP maximum payment rates are set. v. Local child care resource and referral agencies: Staff consult on a regular basis with Minnesota's Child Care Aware or CCR&R System throughout the MRS process. The Child Care Aware system is responsible for conducting the MRS in Minnesota. The department partners with CCR&R staff to develop the survey forms, phone scripts and, the online tool used to field the MRS. The department meets regularly with Child Care Aware of Minnesota throughout the survey period. After the survey fielding is complete, we have a period of reflection about what worked well and what could be improved for the next survey. vi. Organizations representing child care caregivers, teachers, and directors from all settings and serving all ages: : In July 2023, department staff emailed organizations representing child care caregivers offering to engage about the 2023- 2024 MRS in the manner that best meet their needs, including written comments, suggestions, or questions via email, by requesting a one-on-one discussion with the department staff, or by attending a one-hour virtual meeting. The information shared via email included the proposed survey instrument and questions about improving the survey instrument, so it is understandable and relevant to each provider type. On July 26, 2023, department staff held an engagement session about the 2023- 24 MRS. The session included a presentation of background information about Minnesota's MRS, detailed information about the MRS questions, data collection and data analysis processes, and information about how CCAP maximum payment rates are set. The organizations contacted included Minnesota Child Care Provider Information Network, Minnesota Association of Child Care Professionals, Minnesota Tribal Resources for Early Childhood Care (MNTRECC), West Central Initiative, Children’s Defense Fund, Kids Count on Us, Minnesota Head Start, and local provider organizations. 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? 1/6/2025 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 prices in the 2023-2024 survey were collected in a five-month time period. iii. Describe how it represented the child care market, including what types of providers were included in the survey: The 2023-2024 MRS methodology surveyed the entire licensed and certified child care provider population in Minnesota. iv. What databases are used in the survey? Are they from multiple sources, including licensing, resource and referral, and the subsidy program? Child Care Aware of Minnesota’s National Data System 2 and licensing/certified databases are used to identify the providers included in the MRS. Administrative databases are used to identify information on provider quality designations. v. How does the survey use good data collection procedures, regardless of the method for collection (mail, telephone, or web-based survey)? The data collection plan includes defining the objective of the survey, such as the survey questions, data sources, data collection methods, data quality; capturing relevant data; ensuring data accuracy; ensuring data privacy when applicable; data collection efficiency, including targeted outreach to areas with low responses; data collection consistency; and ways to continuously improve data collection. vi. What is the percent of licensed or regulated child care centers responding to the survey? 75.00 vii. What is the percent of licensed or regulated family child care homes responding to the survey? 60.00 viii. Describe if the survey conducted in any languages other than English: Interpreting services are available for child care providers who prefer to respond in their native language. ix. Describe if data were analyzed in a manner to determine price of care per child: Minnesota surveys the entire population of licensed and certified child care programs. x. Describe if data were analyzed from a sample of providers and if so, how the sample was weighted: Minnesota surveys the entire population of licensed and certified child care programs. 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. Minnesota’s MRS methodology surveys the entire licensed and certified child care provider population in Minnesota. Response rates were assessed for each provider type. In the 2023-2024 MRS, there were licensed family child provider respondents in every county, but this is not true for centers. There were no center respondents in the following counties: Big Stone, Clearwater, Koochiching and Wilkin. Information from other local counties are considered representative for these four counties. 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 MRS methodology includes separate data collection and analyses of prices charged by licensed family child care and licensed center care. The collection of price data for these provider types includes three units of time (hourly, daily and weekly) allowed for differences in pricing practices across provider types. The survey targeting certified school age care providers reflects hourly, daily, weekly, monthly and other session rate types. iii. Describe how the market rate survey or pre-approved alternative methodology reflected age of child (e.g., infant, toddler, preschool, school-age): Minnesota’s MRS methodology includes collection and analyses of child care price data for four age groups including infant, toddler, preschool, and school age. iv. Describe any other key variations examined by the market rate survey or ACF pre- approved alternative methodology, such as quality level: Information on provider quality designations was available in administrative data sources. The MRS methodology compares the rates of providers eligible for the quality differentials to the applicable quality maximums to assess the extent to which subsidy maximum rates align with the prices of high quality providers. 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 department conducted a cost model that explored variations by geography (rural, small town, large town, and urban), provider type (center-based and family child care), quality, and age of child. Cost models were completed for child care programs at a base level of quality that were not rated under Parent Aware, Minnesota’s QRIS system, and for programs with a Four-Star Rating. Due to low numbers of child care programs with a One-, Two- or Three- Star Rating, cost models for these quality levels were completed using assumptions about how cost differences would be applied across those Parent Aware Ratings, informed by business interviews and review of Parent Aware Indicators. b. In the Lead Agency’s analysis, were there any relevant variations by geographic location, category of provider, or age of child? The base model found that current revenue does not support the cost of infant care in any geographic, quality, or license type scenario across both centers and family child care. It also found that the lower tuition rates in rural areas mean that subsidy rates for rural programs fail to meet the per-child cost of care across all age groups. Finally, the model found that the resources available to child care programs do not offset the cost of high quality care. 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 base level of quality (not QRIS rated) included average enrollment for family child care at 1 infant, 1 toddler, 8 preschoolers, and 2 school age children. For centers, it included 80 children across age groups. 80% enrollment efficiency was used. The family child care model included costs for health insurance. The center model included salaries and benefits for a director, cook, administrative assistant, and accountant, in addition to salaries and benefits for classroom staff required to meet licensing standards. The models also included rent/mortgage, annual vehicle expenses, supplies/curriculum, and training costs. 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 department defined higher quality as a Four-Star Rated provider via Parent Aware, the State’s QRIS. The model assumed increasing costs at each Star Rating level. The model used the same ratios and group sizes as the base model for the higher quality model. Higher costs for higher quality in the family child care model included: supplies, training/professional development, professional membership dues, and child assessment tools. Higher costs for higher quality in the center model included: higher staff wages, additional staff benefits, professional membership dues, family engagement costs, and child assessment tools/education supplies. 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? For family child care, annual revenue exceeded annual costs across geographies by about $38,000 on average. This translates to an equivalent hourly wage ranging from $8.65 for rural base-quality providers and $16.32 for urban high-quality providers. For centers, only those in urban areas earned a profit, ranging from $119,606 for base quality centers to $28,692 for high quality centers. Rural providers operated in the negative, averaging at about -$366,000 across quality ratings. Small town centers operated in the negative at an average of about -$221,000 across quality ratings, and large centers at about -$226,000. The department has used cost to support legislative proposals for rate increases. The department has not targeted rate increases where larger gaps exist but is currently exploring how rates may be set using cost instead of (or in conjunction with) price; the Lead Agency will provide a report to Minnesota legislature outlining these options by January 30, 2025. 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: 10/9/2023 ii. Provide the date the report containing results was made widely available (no later than 30 days after the completion of the report): 10/17/2023 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: Notes for 4.2.3 i and ii i. Market Price Analysis: 10/3/2024; Cost Modeling Report 10/9/2023 ii Market Price Analysis: 10/24/2024; Cost Modeling Report: 10/17/2023 Report for the 2024 Child Care Market Price Analysis: https://edocs.dhs.state.mn.us/lfserver/Public/DHS-6226H-ENG 2023 Minnesota Child Care Cost Modeling Report: https://edocs.dhs.state.mn.us/lfserver/Public/DHS-7180A-ENG 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 department and its contracted vendor, ICF Early Childhood Insights and Survey Research Team, held more than ten conversations with the Governor’s Children’s Cabinet, local child care program administrators, local child care resource and referral agencies, organizations representing child care caregivers, teachers, and directors from all settings and serving all ages. The conversations included a presentation of background information about Minnesota's MRS, detailed information about the MRS questions, data collection and data analysis processes, and information about how CCAP maximum payment rates are set. The partners asked questions about survey questions and data analysis; they added clarity and confirmed the validity of data collection. The department and its contracted vendor for cost modeling work, First Children’s Finance, held conversations with seventeen partner organizations across the state, including the Governor’s Children’s Cabinet, statewide provider networks, Initiative Foundations, professional development agencies, advocates, Parent Aware (QRIS) Coaches. Each partner conversation included an overview of the study and feedback questions specific to the organization. Partner conversations clarified data collection tool by suggesting alternative wording, data analysis by asking questions about the process, and influencing the inputs and amounts of inputs included in the cost model. Partners also supported outreach efforts during the data collection process. First Children’s Finance also convened an Advisory Group of 8 diverse providers to inform all aspects of the study, including thorough review and clarification of the cost study process, the model and cost of care report. Overall, the partners and Advisory Group added clarity and confirmed the validity of data collection, analysis, the cost model, and the report.