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)? Data was collected March-November 2023. 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 Lead Agency presented the Market Rate Survey (MRS) to the CCDF Advisory Council in January 2024. This provided a forum for the council to review the plan and provide input. iv. Local child care program administrators: The Lead Agency and its scholarship contractors used direct email communication to reach out to child care providers and families to collect data and disseminate information during the data collection period of March-November 2023. Additionally, Montana State University (MSU) reached out to individual child care providers for data collection during this time. v. Local child care resource and referral agencies: The Lead Agency coordinated with its scholarship contractors to collect data and communicate survey efforts. The Lead Agency consulted with scholarship contractors in February 2024. vi. Organizations representing child care caregivers, teachers, and directors from all settings and serving all ages: The Lead Agency presented the MRS to the CCDF Advisory Council in January 2024. This includes representatives from organizations representing all settings and serving all ages. vii. Other. Describe: The Lead Agency presented information on the MRS to the Montana Legislature Economic Affairs Interim Committee in January 2024. 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? 12/31/2023 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)? Prices were collected March-November 2023, a nine-month period. iii. Describe how it represented the child care market, including what types of providers were included in the survey: The majority of child care providers in Montana were surveyed, including licensed child care centers and registered family and group home based child care facilities. iv. What databases are used in the survey? Are they from multiple sources, including licensing, resource and referral, and the subsidy program? Data was received solely from the Lead Agency CCUBBS database and from direct responses to the survey instrument. v. How does the survey use good data collection procedures, regardless of the method for collection (mail, telephone, or web-based survey)? The population of interest for the MRS study is child care providers and the children in their child care facilities. The unit of observation in the licensed child care centers is the provider, who reported on the rates charged to families based on the ages of their children. The units of observation in the registered and licensed child care homes are the provider for standard market rates and the child for actual market rates paid. When considering actual market rates paid, the rate paid by the parents of each child in the family or group child care facility was reported. While a substantial amount of information was collected on all providers and the children in their care, the study is focused on those children who received no discounts or scholarships. Head Start facilities were omitted from the summary financial statistics. 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? 53.00 viii. Describe if the survey conducted in any languages other than English: The survey was not conducted in other languages. ix. Describe if data were analyzed in a manner to determine price of care per child: The data was reviewed to analyze the ages of children. x. Describe if data were analyzed from a sample of providers and if so, how the sample was weighted: A sample of providers was not analyzed. 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. Surveys were returned from across Montana's varied geography ensuring both rural and urban population price data was received. Every contracting region responded to the MRS including 344 home-based responses from the following regions (North West, 46; West, 52; South West, 36; South Central, 56; North Central, 36; North East, 32; and South East, 89), and 190 child care center responses from the following regions (North West, 20; West, 37; South West, 12; South Central, 53; North Central, 26; North East, 8; and South East, 34). The MRS determined that there were higher child care rates for high growth counties, which include Flathead, Gallatin, Lewis and Clark, Missoula, Ravalli, and Yellowstone. The high growth counties had population increases of 2,000 people or more from 2000 to 2022. 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 Market Rate Survey instrument link was emailed to all licensed center, registered group home, and registered family home child care provider in an announcement on 4/5/2023. Additional follow up in the form of an online postcard with link, individual phone numbers, and a mailed survey instrument were used to gather responses between April-July 2023. iii. Describe how the market rate survey or pre-approved alternative methodology reflected age of child (e.g., infant, toddler, preschool, school-age): The Market Rate Survey instrument requested standard rates for full-time weekday care and standard part-time weekday rates for four age groups of children: infant (up to 12 months); toddler (1-2 years); preschool (3-5 years); and school age (6 years and older). iv. Describe any other key variations examined by the market rate survey or ACF pre- approved alternative methodology, such as quality level: N/A 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 Narrow Cost Analysis assessed the annual earnings and determined the cost of care from a sampling of licensed child care centers registered family homes, and registered group homes. The Lead Agency conducted individual phone interviews with child care directors to review their financial records and determine the cost of care utilizing a cost study. b. In the Lead Agency’s analysis, were there any relevant variations by geographic location, category of provider, or age of child? The Narrow Cost Analysis sampling included rural and urban child care providers, different sized programs (family home, group home, small center, medium center, or large center), and participation in the state's quality program. Age of child was not reviewed. While the Narrow Cost Analysis included both urban and rural child care providers, there were no relevant variations based on geography location. The Narrow Cost Analysis determined the cost of care varied by provider type. According to the Narrow Cost Analysis, the following was the annual cost of care (when including owner labor): family providers ($11,822/child), group provider at ($12,141/child), and center at ($13,910/child). 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.)? According to the Narrow Cost Analysis, 44% of the child care facilities sampled participated in the Lead Agency’s QRS program. Child care providers were interviewed on the cost of provider quality child care, specifically the costs and revenue associated with the QRS program. All child care providers participating in the Lead Agency's QRS program reported that tuition does not cover the cost of care provided at their current QRS level and that tuition alone would not cover the cost of care provided at the next higher QRS level, if applicable. The cost of care included both a calculation based on reported expenses and enrollment. By including reported expenses to determine the cost of care and almost half of the providers participating in the QRS, an accurate picture for a base level of quality was given. 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 Lead Agency set rates based on the 2023 Market Rate Study, which included a Market Rate Survey and a Narrow Cost Analysis, at the 75th percentile. Rates differ across program type, family home, group home, and center, as well as by age groups. Rates are higher for larger programs to reflect their higher costs of care per child, as demonstrated in the Narrow Cost Analysis. In addition to setting rates at the 75th percentile, the Lead Agency offers high-quality add-on payments for child care providers participating in the Lead Agency’s QRS program at Quality Levels 2, 3, 4, and 5. This incentivizes high-quality child care providers to accept children participating in CCDF. The QRS program is meant to be a pathway to National Association for the Education of Young Children (NAEYC) and National Association of Family Child Care (NAFCC) accreditation. Programs who move through the levels will gain the skills and knowledge necessary to achieve the highest level of quality, national accreditation. Included in the QRS is education, qualifications, and training opportunities; family and community partnership strategies; creating and maintaining high quality supportive environments through the use of the Environmental Rating Scales (ECERS-3, ITERS-3, FCCERS-3); leadership and program management skill building with the use of the Program and Business Administration Scales (PAS, BAS). Additionally, the QRS is a Continuous Quality Improvement (CQI) model. CQI leads to safer environments, more efficient procedures, consistent program practices, workforce recruitment and retention, better learning outcomes and experiences and overall improves services and supports for the children, families, and staff. 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? The Lead Agency set rates based on the 2023 Market Rate Study (MRS), which included a Market Rate Survey and a Narrow Cost Analysis, at the 75th percentile. The Narrow Cost Analysis defined the cost of care annually with owner labor included as a family provider at $11,822 per child, a group provider at $12,141 a child, and a center at $13,910 a child. MRS established a statewide reimbursement half-day (0.01-5.00 hours/day) and a full- time day (5.01-12.00 hours/day). The cost of care from the Narrow Cost Analysis does not consider a child’s age, so preschool age will be used. The annual cost of care for a preschool child are as follows: a family provider is $10,392 ($40 for a full time day X 5 days a week X 4.33 monthly conversion X 12 months); a group provider is $11,691 ($45 for a full time day X 5 days a week X 4.33 monthly conversion X 12 months); and a child care center is $14,289 ($55 for a full time day X 5 days a week X 4.33 monthly conversion X 12 months). In comparison between the annual MRS calculated rates and the Narrow Cost Analysis annual cost of care, both family and group providers have a cost of care in the Narrow Cost Analysis, but the MRS annual calculated rate was higher for child care centers. Since the annual cost of care is within $1,500 for all child care provider types (approximately $100 per month), the Lead Agency believes the established payment rates at the 75th percentile do not show large gaps between cost and price. 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: 1/17/2024 ii. Provide the date the report containing results was made widely available (no later than 30 days after the completion of the report): 2/1/2024 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://dphhs.mt.gov/assets/ecfsd/childcare/documentsandresources/2023Mont anaChildCareMarketRateSurvey.pdf The Lead Agency shared the report with the CCDF Advisory Council, scholarship contract agencies, and provider support contract agencies for further dissemination. 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 Lead Agency presented the report to the CCDF Advisory Council and took oral comments. The survey tool contained space where a child care provider could comment. The Lead Agency received submitted comments from child care providers. The Lead Agency reviewed comments when analyzing the proposed statewide reimbursement rates set at the 75% percentile and completing fiscal expenditure estimates.