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-January 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: The Subsidy Advisory Committee was involved in reviewing the 2023 Market Rate Survey and provided feedback on the survey questions prior to the surveys going to providers. The Committee also reviewed the final survey results. Upon meeting, there was an opportunity to ask questions and have ongoing discussion. iv. Local child care program administrators: CCR&R agencies, as part of the Subsidy Advisory Committee meeting, were involved in reviewing the 2023 Market Rate Survey and viewed the survey results. Upon meeting, there was an opportunity to ask questions and have ongoing discussion. v. Local child care resource and referral agencies: CCR&R agencies, as part of the Subsidy Advisory Committee meeting, were involved in reviewing the 2023 Market Rate Survey and viewed the survey results. Upon meeting, there was an opportunity to ask questions and have ongoing discussion. vi. Organizations representing child care caregivers, teachers, and directors from all settings and serving all ages: The Subsidy Advisory Committee includes child care program administrators as well as provider association leadership. Information and updates about the MRS were shared in select statewide meetings, conferences and with the Child Care Commission. 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? 10/1/2023 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)? October 2023 ￿ January 2024 iii. Describe how it represented the child care market, including what types of providers were included in the survey: All regulated child care centers and family child care homes were included in the survey population except Head Start centers, Developmental Day Centers, and providers that offer only part-time care for children (ages 0 to 5 for less than 32 hours a week in September 2023). Head Start programs were excluded from the survey because their financing is different from those of other child care facilities. Certified Developmental Day Center rates were also excluded because their rates are captured through a different process. Centers and homes that served only children receiving subsidy services in September 2023 (no care for children of private-paying parents) were included in the survey with the stated private-pay rates charged by the facilities used in the calculation of updated market rates. iv. What databases are used in the survey? Are they from multiple sources, including licensing, resource and referral, and the subsidy program? DCDEE Regulatory Database v. How does the survey use good data collection procedures, regardless of the method for collection (mail, telephone, or web-based survey)? Three methods were offered for completing the market rate survey: return mail, online, or by telephone. A Market Rate Survey packet was mailed to 5,035 child care centers and family child care homes in North Carolina in October 2023. The survey packet included a letter from the Director of DCDEE asking child care providers to complete an online survey at a secure site hosted by Centers for Urban Affairs and Community Services (CUACS). The secure website allowed respondents to download a PDF of the survey if they preferred to complete the survey on paper and return by mail. The survey package also included instructions, a prepaid business reply envelope, and a postcard that could be returned if respondents believed they were ineligible to participate in the survey. Three weeks after the initial survey packet was mailed, trained interviewers made telephone calls to non-responding child care providers in an attempt to complete the survey. These telephone calls were conducted over a period of nineteen weeks. Using an established protocol, telephone interviewers reminded survey non-respondents of the importance of the survey and assured confidentiality of their information. Providers who chose not to complete the survey via internet or telephone were reminded of the option of using mail or fax to return the survey form. Based on outcomes of the telephone calls, survey packets were mailed or faxed to respondents who had not completed the survey online, who had lost or discarded the survey packet, or who reported not having received a survey packet. vi. What is the percent of licensed or regulated child care centers responding to the survey? 86.60 vii. What is the percent of licensed or regulated family child care homes responding to the survey? 86.60 viii. Describe if the survey conducted in any languages other than English: The survey document was only composed in English, but interpreters were available if needed. ix. Describe if data were analyzed in a manner to determine price of care per child: Data was collected by survey from child care providers. This data was used to help determine where existing market rates are inconsistent with the price of care in the private market. The analysis did 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: A regression analysis was performed for each county in order to ensure an increase in rates with an increase in star levels, and the new rates were set as the rates determined by the regression. The regression models were weighted by the number of children at each star level. If there were no children at a star level, the weight was set as 1 in order to include the imputed value in the regression. Even though all imputations were based on more children than the individual category, the imputed rates were determined using the number of children at each star level. It therefore made sense to weight a star rating with many children more than a star rating with few children when performing the regression. 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. All regulated child care centers and family child care homes, statewide, were included in the survey population except Head Start centers, Certified Developmental Day Centers, and providers that offer only part- time care for children (ages 0 to 5 for less than 32 hours a week in September 2023). Head Start programs were excluded from the survey because their financing is different from those of other child care facilities. Certified Developmental Day Center rates were also excluded because their rates are captured through a different process. Centers and homes that served only children receiving subsidy services in September 2023 (no care for children of private-paying parents) were included in the survey with the stated private-pay rates charged by the facilities used in the calculation of updated market rates. 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 study involved the use of a single survey form for child care centers and family child care homes. As in the previous surveys, the 2023 survey was designed to capture information on child care enrollment and rates for the month of September 2023 and for summer care for school-age children during July 2023. A pretest of the survey and instructions was conducted with a random sample of six child care programs statewide. Providers were encouraged to participate based upon the assurance that information collected via the pretest survey would be used for the official survey, with limited follow-up for any additional information needed. Based on respondent input during the pretest, minor changes were made to the final survey form and instructions. iii. Describe how the market rate survey or pre-approved alternative methodology reflected age of child (e.g., infant, toddler, preschool, school-age): County market rates are specified for child care centers and family child care homes and by age for infants up to children aged 13 for center and home-based care. County market rates are established by star level (from NC's QRIS) and age group for center and home-based care. The age groups for centers are infant-toddler, 2-year olds, 3-5- year olds, and school age children. The age groups for home-based care are infants,1- year olds, 2-year olds, 3-5-year old, 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: Not applicable 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 Lead Agency contracted with NC State University’s Center for Urban Affairs & Community Services to complete the narrow cost analysis. The analysis relied on data gathered in the North Carolina Child Care Market Rate Study 2023 Final Report and cost models previously published by the Center for American Progress (CAP), American Institutes for Research (AIR), and the NC Division of Child Development and Early Education (DCDEE). For all child care facilities surveyed in the NC Child Care Market Rate Study 2023 Final Report, 77.9% of facilities accepted subsidized payment while 66.5% of children were enrolled in private- pay-only facilities. Additionally, the NC Subsidized Child Care Assistance Program reimbursement rate was highly reported as a determinant in the setting of private-pay rates. With these figures in mind, it is important to accurately conceptualize subsidy reimbursement rates, private-pay rates, and the true cost of providing care when making recommendations for subsidized child care market rates. When determining accessibility of child care, the NC Child Care Market Rate Study 2023 Final Report found that the current subsidy reimbursement for all facilities only covered 32.2% of children receiving care compared to the modeled rates which covered costs for 58.7% of children receiving care. While these modeled rates are more accessible than current subsidized child care market rates, they are representative of payment rates rather than the true cost of providing care. Differences between child care centers and family child care homes were highlighted in the NC Child Care Market Rate Study 2023 Final Report, specifically in their reliance on public funding sources and acceptance of subsidized payment. Centers and homes also differ in enrollment, staffing, and other cost-driving factors. Compared to homes, a higher percent of centers accepted subsidized payment, and these centers served a higher number of children regardless of payment type. For these reasons, the narrow cost analysis was completed using different methods for each facility type. For centers, the NC Revenue and Expense Model (NC CCREM) was used to model costs by age, star rating, and county classification. For homes, the Center for American Progress (CAP) Cost of Child Care online interactive was used to model costs by quality additions. Due to current modeling efforts’ limitations, the models for both homes and centers did not include all ages subsidized in the NC Subsidized Child Care Assistance Program. For centers, the costs and subsidies for five-year-olds, not yet enrolled in school, and school- age children were not included in the Model. For homes, the cost per child rates were modeled regardless of age. In addition to the two models analyzed above, an analysis was also completed using the North Carolina Child Care Cost-Estimation Tool (NC CCCET) published in 2023. This tool allows for costs to be modeled for every age category and star rating for both centers and homes. To better estimate the gaps between the cost of care and current subsidies across North Carolina, an additional analysis was completed using this tool’s modeled costs for both centers and homes. b. In the Lead Agency’s analysis, were there any relevant variations by geographic location, category of provider, or age of child? The NC Child Care Revenue and Expense Model can model center costs across five-star rating levels (one to five) and three county classifications (rural, suburban, and urban) for age categories of infant to 4 years of age. The current subsidies calculated by this model are averages of the current subsidized child care market rates across the rural, suburban, and urban regions. From the NC Child Care Market Rate Study 2023 Final Report, data for 2,105 centers which enrolled at least one child, regardless of age, in the NC Subsidized Child Care Assistance Program in September 2023 was utilized. Centers which did not have any children enrolled in September 2023 were excluded. Additional exclusions were made for centers that chose not to participate in the NC Subsidized Child Care Assistance Program or centers that only provided NC Pre- K. Of these centers, 37.20% were in counties classified as rural, followed by 34.39% of centers in counties classified as urban. Across all county classifications, 40.86% of centers had a three-star level rating. Four-star and five-star centers each constituted between 20 ￿ 22% of the total centers regardless of county classification. Fewer than 2% of centers had a two-star rating, and about 16% had a one-star rating. According to the NC Child Care Market Rate Study 2023 Final Report, a smaller percentage of homes receive assistance in the form of donated space, rent assistance, free or reduced cost for services, and monetary contributions than centers. Of the homes receiving child care subsidy reimbursements, only 7.2% charge the difference between the reimbursement and tuition amount. For child care homes in North Carolina, completing a narrow cost analysis was complicated by variable operating costs, staffing, and assistance contributions. Without charging the difference, many homes are left with costs not covered by subsidies or parent payments. To best estimate the monthly cost per child (CPC) for home providers in North Carolina, models were created using the interactive Cost of Child Care model published by the Center for American Progress (CAP). The CAP Cost of Child Care model was originally developed in 2018 and was updated in 2021 to include child care homes as well as updated data on costs, wages, and regulations. Due to the CAP Cost of Child Care model only calculating CPC, current subsidies for homes were calculated using current subsidized child care market rates and county classifications according to the NC Rural Center. For homes in North Carolina, current subsidized child care market rates are set by age category (infants, one-year-olds, two-year-olds, three-to- five-year-olds, and school age) and county. To draw comparisons between these modeled costs and current subsidized child care market rates, all modeled CPC rates were adjusted for inflation using the CPI Inflation Calculator by the U.S. Bureau of Labor Statistics. Modeled rates were adjusted for inflation to reflect costs when current subsidized child care market rates were implemented. The North Carolina Child Care Cost-Estimation Tool (NC CCCET) estimates the cost per child (CPC) across a variety of modeled facilities. This tool estimates the CPC for both child care centers and family child care homes, considering the size of the facility (small, medium, large, and extra-large) and locale (rural, suburban, and urban). For all facilities, the locale was determined by federal Common Core Data defined by ZIP codes. For this analysis, the NC CCCET’s locale are comparable to county classifications. Costs are calculated for infants, one-year-olds, two-year-olds, three-to-five-year-olds, and school age children. The NC CCCET takes two approaches to estimating costs; the cost-based approach and the adequacy-based approach. When developed, the cost-based approach was expected to estimate the current cost of care and for the purposes of this narrow cost analysis will serve as the three-star equivalent. The adequacy-based approach estimates the costs needed to meet the five-star licensing requirements. To estimate costs for four- star facilities, the three- and five-star equivalent costs were averaged. The NC CCCET’s inclusion of a size variable is unlike previous cost estimating tools. Sizes for centers and homes differs slightly in the NC CCCET where centers are classified as any of the four sizes while homes are either small or large. To calculate the gap between CPC and the subsidy payment, current subsidies for homes were calculated using current subsidized child care market rates and county classifications according to the NC Rural Center. In North Carolina, current subsidized child care market rates are set by age category and county. For centers, the subsidized age categories are infants and toddlers, two-year-olds, three- to-five-year-olds, and school age children. For homes, the subsidized age categories are infants, one-year-olds, two-year-olds, three-to-five-year-olds, and school age children. The average current subsidy by county classification, star rating, and age category for centers and the averages for homes were calculated. Using the NC CCCET, costs for centers and homes were modeled for each locale, size, and age category to produce modeled costs for each facility scenario. Gaps were then calculated using the current subsidies for each facility scenario. While the NC CCCET provides a CPC for each age category, current subsidies for centers are set for infants and toddlers as one. In this analysis’ gap calculations, the current subsidy value was the same for infants and one-year-olds. Since the current subsidies do not account for facility size, all gaps were calculated using the current subsidy for that county classification and star rating. 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.)? To complete a narrow cost analysis for centers, models were created using the NC Child Care Revenue and Expense Model published by Simon Workman and Jeanna Capito in 2020. This cost model calculates the cost per child (CPC), the current subsidy, and the gap between the two values based on a center profile comprised of several factors. Costs can be modeled across five star rating levels (one to five) and three county classifications (rural, suburban, and urban) for infants to those age four. The current subsidies calculated by the Model are averages of the current subsidized child care market rates across the rural, suburban, and urban regions. Each center profile consists of the size of the center, efficiency, and quality additions. The size of the center is determined by the number of classrooms which are divided by age from infants to four-year-olds. The NC Child Care Revenue and Expense Model includes several baseline assumptions about employee benefits, classroom ratios, and possible quality additions. The number of classrooms is based on the minimum requirements set by Department of Health and Human Services’ Classroom Staff-to-Child Ratios. These ratios range from one teacher per five children for infants to one teacher per thirteen children for four-year-olds, increasing for each age. The Model assumes one teacher and one assistant teacher per classroom, so the total number of children in each age or classroom reflects this ratio. The number of classrooms, calculated from these ratios, is directly related to the calculated costs for centers. To calculate revenue, the Model considers the number of children enrolled in the NC Subsidized Child Care Assistance Program, NC Pre-K, Local Pre-K, and privately paid full- time care. This model assumes that each center employed a full-time director, a part-time assistant director, and a full-time administrative assistant. In addition to the classroom teachers, a floater to assist with opening/closing the center was included. Wages for these positions were pulled from the Workforce Survey, originally administered in 2015 and adjusted for inflation. In addition to the number of classrooms and staff wages, the modeled costs were calculated based on two factors broadly titled efficiency and quality additions. The Model at baseline assumes 85% enrollment efficiency, 3% bad debt, and no quality additions. Quality additions that can be accounted for in the Model are enhanced space, enhanced ratios, time for staff training/professional development, and three options for higher salaries (Kindergarten Parity Salaries, Model Salary Scale, and Minimum Wage Override). Additions to benefits like offering health insurance, sick days, and paid time off can be considered additionally in the model. These quality additions would each presumably increase the costs for centers. Nine center profiles were created using the NC Child Care Market Rate Study 2023 Final Report data and the calculated average enrollment for those surveyed. While the NC Child Care Revenue and Expense Model (NC CCREM) allows for one- and two-star centers to be modeled, these were not included in the Narrow Cost analysis since these centers are ineligible for the NC Subsidized Child Care Assistance Program. Three models including ages from infants to four-year-olds were created for each county classification at the three-star, four-star, and five-star levels. To model these centers’ costs, the average number of children enrolled in full-time care was calculated for each age in each county classification and at each star rating. When calculating the average number of four-year- olds, those enrolled in NC Pre-K were not included, as this program is at no cost for eligible families and could result in inaccurate modeled values. All averages were rounded up to the nearest whole number, as they represent the count of children. Regardless of county classification, the average number of children enrolled in full-time care in September 2023 was highest for two- and three-year-olds. The average number of four- year-olds enrolled was like that of two- and three-year-olds but was lower by one or two children for most centers. This may be due to the existence of the NC Pre-K program as an alternative to the NC Subsidized Child Care Assistance Program. Fewer than 10 infants were enrolled in each center, and the average number of one-year-olds ranged from 7 to 13 children. Once county classification was considered, the average number enrolled was typically highest for urban centers. Regarding star rating, three- and five-star centers reported the highest and second highest total enrollments for each county classification. The center profiles also required the average number of children enrolled in the NC Subsidized Child Care Assistance Program to be calculated. Across all centers, the average number of children enrolled in the NC Subsidized Child Care Assistance Program was between 18 to 21 children. As two- and three-year-olds had the highest average enrollments in full-time care, the same pattern is present in enrollment in the NC Subsidized Child Care Assistance Program. The center profile models follow many of the Model’s original assumptions to ensure they represent a baseline or minimum quality of care. Employee wages and benefits remained at baseline to represent the minimum costs incurred by the average center. Enrollment efficiency of 85% and 3% bad debt were also assumed in these models, as they are the typical rates reported by the Model. Aside from those enrolled in the NC Subsidized Child Care Assistance Program, the number of children receiving other forms of subsidized payment such as NC Pre-K and Local PreK were assumed to be zero. To best estimate the monthly cost per child (CPC) for home providers in North Carolina, models were created using the interactive Cost of Child Care model published by the Center for American Progress (CAP). The CAP Cost of Child Care model was originally developed in 2018 and was updated in 2021 to include child care homes as well as updated data on costs, wages, and regulations. According to the methodology report published by Simon Workman and MK Falgout in 2021, the baseline model for a child care home assumes no assistant teacher, state licensing regulations for maximum group size, and a 55-hour work week for the owner of the home. Salaries for these home providers were modeled to match the hourly wage of a child care center teacher. Additional data, for both baseline and quality addition calculations, was pulled from the U.S. Bureau of Labor Statistics and the U.S. Bureau of Economic Analysis. This model allows for the user to select the facility type from three ages for center care and one for home care. For each facility type, the user can then add several quality additions, including two higher salary types, providing retirement benefits, increasing contributions to health insurance, providing more time for lesson planning, and increasing resources for classroom materials. For homes, the maximum group size was assumed to be six children per one adult for states without specified regulations, however, North Carolina has set their maximum group size for homes at eight children total, five or fewer preschool age children, and three school-age children. In this model, the maximum group size was set to five based on the minimum teacher-child ratio for infants of one adult per five children. For the kindergarten parity quality addition, provider salary aligned with kindergarten teacher salaries from the U.S. Bureau of Labor Statistics. The increase salary option aligns home provider salary with the midway between early childhood teacher and kindergarten teacher salary. Quality additions like retirement benefits and health insurance take different forms for home providers than centers but were included to capture the cost of potential contributions. The baseline model accounted for five hours per week of planning time for home care providers; the quality addition of more time increases planning time to 10 hours per week. Increasing resources for classroom materials calculated a 30% increase from the base model. Costs were measured with each individual quality addition, as well as a combination of quality additions and higher salary types. At baseline, the NC CCCET assumes facilities include mandatory benefits (Social Security and Medicare) and standard materials/equipment costs. Additional inputs can be made for voluntary benefits such as health and life insurance. In addition to standard materials and equipment costs, the tool can account for diapering materials and meals. Provider and staff salaries can also be adjusted in the model, while baseline models estimate costs from salaries from the 2023 provider survey. The baseline assumption in this analysis’ models for meals was two meals (breakfast and lunch) and one snack (afternoon snack) according to DCDEE’s nutritional guidelines. The NC CCCET’s inclusion of a size variable is unlike previous cost estimating tools. Sizes for centers and homes differs slightly in the NC CCCET where centers are classified as any of the four sizes while homes are either small or large. Using the NC CCCET, costs for centers and homes were modeled for each locale, size, and age category to produce modeled costs for each facility scenario. For all scenarios, baseline assumptions were used for benefits, meals, and provider pay. Gaps were then calculated using the current subsidies for each facility scenario. While the NC CCCET provides a CPC for each age category, current subsidies for centers are set for infants and toddlers as one. In this analysis’ gap calculations, the current subsidy value was the same for infants and one-year-olds. Since the current subsidies do not account for facility size, all gaps were calculated using the current subsidy for that county classification and star rating. 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). For purposes of this narrow cost analysis, a provider with a 3-star rated license is considered base level of quality. Higher quality is defined as a provider achieving a 4-star or 5-star rated license. Modeling and analysis for one- and two-star providers was not included in the narrow cost analysis because these centers are ineligible for the NC Subsidized Child Care Assistance Program. The Lead Agency uses the Quality Rating Improvement System to determine star rated licenses. The models used for this analysis account for higher levels of quality using enhanced space, enhanced ratios, offering health insurance, time for staff training/professional development, and three options for higher salaries (Kindergarten Parity Salaries, Model Salary Scale, and Minimum Wage Override). Benefits including offering sick days and paid time off can also be considered additionally in the models. Enhanced space increases the square footage per child from 25 to 30 sq. ft. Enhanced ratios use enhanced ratios set by DHHS’ regulations. The other quality additions like sick days and paid leave considered are more variable between individual providers and therefore harder to accurately model without additional information from providers. 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? • Cost and gap analysis for centers based on the NC Child Care Revenue and Expense Model (NC CCREM): Across all center profiles and modeled amounts, the cost per child (CPC) is highest for infants and decreases as the age of the child increases. The calculated CPC is also highest for five-star centers as compared to three- and four-star centers. Additionally, the calculated CPC is highest for urban centers as compared to rural and suburban centers. The estimated annual cost for infants enrolled in a rural three-star center is just below $10,800, and for infants enrolled in an urban five-star center, the annual cost is $13,119. Alternatively, as the group with the lowest costs, the annual CPC for four-year-olds ranged from about $7,000￿$9,000 for all modeled centers. Regardless of the center’s county classification or star level, child care centers in North Carolina face annual costs of at least $7,000 for each child enrolled. Current subsidies follow similar age, star rating, and county classification patterns as the modeled costs per child. Current subsidies were the lowest for rural and three-star centers within their respective categories. For rural three-star centers, the current annual subsidy amounts ranged from $7,413 to $8,054. Alternatively, rural five-star centers’ lowest current annual subsidy amount was $9,536 for four-year-olds. In terms of county classifications, urban centers received the highest current subsidies. Urban three-star centers’ current subsidies ranged from $10,650 to $11,768 annually, and urban five-star centers’ current subsidies were lowest at $11,966 for four-year-olds and highest at $13,728 for both infants and one-year- olds. As was the case with costs, the minimum current annual subsidy for centers was at least $7,000 per child, regardless of center profile. While current subsidies increased with both star rating and county classification, the gap between these values and the cost per child highlights several discrepancies. When calculated monthly, several centers had gaps of less than $10. While this does not seem to be a large gap compared to the subsidies and costs, the annual gap for more than one center profile was close to $3,000 per child. Overall, the largest negative annual gaps were for children younger than three and those enrolled in three- or four-star rural or suburban centers. Children younger than two only receive sufficient subsidies in urban four- and five-star centers. Current subsidies for those older than one was sufficient in all suburban and urban centers. Rural three-star centers, which receive the lowest current subsidies for all ages, had negative annual gaps per child of $2,762 for infants and more than $550 for those aged one to three. This negative annual gap for infants is only surpassed by the $2,908 estimated gap for rural four-star centers. Rural three-star centers additionally had the only negative gap for four-year-olds, which was only $4 annually, or less than $1 monthly. Alternatively, urban five-star centers, which receive the highest current subsidies for all ages, had positive annual gaps for all ages ranging from $609 to $3,125. In addition to modeling costs for centers of different county classifications and star ratings, costs were modeled for several quality additions available in the Model. 25 Center profiles were manipulated to include enhanced space, enhanced ratios, offering health insurance, and two of the three salary options. For three- star rural centers, annual baseline costs range from $7,417 to $10,725 and for five-star rural centers, baseline costs range from $8,385 to $12,384. Across all star ratings, these costs are increased the most by Kindergarten Parity Salaries and the Model Salary Scale. Enhanced space increased the cost per child by the smallest amount across all ages in rural centers. Enhanced ratios resulted in the widest range of increase; the cost per child for four-year-olds in rural centers increased by $206 to $332 for three- and five-star centers, while infants’ CPC increased by more than $1000 for each star rating. Providing health insurance resulted in the same increase in cost regardless of age or star rating. Suburban centers displayed similar patterns to rural centers for quality additions. Baseline costs for suburban centers were higher than rural centers yet the rate of increase for enhanced space and health insurance were the same across rural and suburban centers. Enhanced ratios resulted in increases ranging from just below $300 for four-year-olds in three-star centers to $1,908 for infants in five-star centers. As with rural centers, Kindergarten Parity Salaries and the Model Salary Scale resulted in the largest increases from the baseline cost per child. Urban centers had the highest costs per child across county classifications; at baseline the costs range from $8,234 to $13,119. The increases in cost for enhanced space and health insurance were the same for urban centers as they were for both rural and suburban centers. Enhanced ratios resulted in increases in cost for urban centers similar to rural and suburban centers, although the exact amount differed by less than $300. Increases in the cost per child for Kindergarten Parity Salaries and the Model Salary Scale were between $1,792 and $6,911. • Cost and gap analysis for homes based on the Center for American Progress (CAP) Cost of Child Care Model: Current models for the cost of providing care in homes are limited compared to similar models for centers. CAP’s Cost of Child Care Model provides one monthly rate regardless of age, star rating, or county classification. Comparisons of the CPC and current subsidies based on these variables could not be accurately modeled with current methods. The average current subsidy for homes with a three-star rating or higher for all counties is $617 monthly based on current subsidized child care market rates. This average current subsidy is lower than all modeled CPC values. Homes providing the baseline of care have a modeled CPC $666 more than the average monthly current subsidy. This gap between CPC and current subsidy increases as the quality-of-care increases. If the CPC for homes follows similar patterns to centers, it may be assumed that the baseline CPC for homes is truly higher than is modeled for younger children and is lower for older children. • Cost and gap analysis for centers and homes based on the North Carolina Child Care Cost Estimation Tool (NC CCCET): Current subsidies for rural centers range from $575￿$792 for three-star centers to $663￿$1,010 for five-star centers. The modeled CPC according to NC CCCET was greater than the current subsidy for all age categories in small and medium three-star rural centers. In large and extra-large three-star rural centers, the gap is positive for three-to-five-year-olds yet negative for all other age categories. As the CPC increased from three-star to four- and five-star centers, the gaps were negative for all age groups in four- and five-star centers regardless of size. In these centers, monthly gaps can reach up to $1,500￿$2,000 monthly for infants while gaps for school-age children range anywhere from $100￿$1,000 monthly depending on the center size. Due to the CPC typically decreasing as the size of the center increased, the gaps between CPC and current subsidy were smaller for large and extra-large centers than small or medium-sized centers with the same star rating. Like rural centers, small centers have the largest gaps between CPC and current subsidy. The current subsidies for suburban centers range from $691￿$1,513 monthly for all star ratings. Regardless of star rating, all gaps are negative for small centers. For four- and five-star centers, gaps are negative for almost all age categories and sizes. One exception is three-to-five-year-olds in large and extra-large four- star centers. The gap for three-to-five-year-olds is not only positive for these four-star centers but also positive in three-star centers medium and larger. The maximum gap for these children is $250.19 monthly in extra-large three-star centers. Extra-large three-star centers also have a positive gap for two-year-olds. All gaps in suburban five-star centers were negative. These gaps reach close to $2,000 monthly for infants in small five-star centers. As with both rural and suburban centers, small urban centers have the largest gaps between CPC and current subsidy. Current subsidies for urban centers range from $800￿$1,357 monthly for all star ratings. The gap decreases as the size of the center increases resulting in positive gaps for several age categories in three- and four-star centers that are large or extra-large. The gap for three-to-five-year-olds is positive in three-star centers medium or larger, and four-star centers that are large or extra-large. One-year-olds and two-year-olds additionally have positive gaps in extra-large three-star centers. For all five-star centers the gaps were negative and reached up to $1,700 monthly. For rural homes, the gap between CPC is greater for large homes than small homes at the three-star rating. For both small and large three-star homes, the gap is positive for all age categories infants to three-to-five-year-olds. School-age children had a negative gap in small three-star homes, less than $10 monthly. In large homes, the gap for school-age children was positive like the other age categories. For rural three-star homes, gaps were highest for infants and lowest for school-age children. Four- and five-star homes had negative gaps for all age categories except infants in large four-star homes. However, this gap was less than $1 monthly. Gaps in these homes were inversely related to age category, with the largest negative gaps being for school-age children compared to infants or one-year-olds. Unlike rural three-star homes, four- and five-star homes had larger gaps for small homes compared to large homes. The gaps for small four-star homes range from $171.25 for infants to $274.25 for school-age children. For large four-star homes, these negative gaps range from $22.71 for one-year-olds to $94.49 for school-age children. Small five-star rural homes have gaps which follow a similar distribution as four- star rural homes, however, these gaps are almost double that of four-star rural homes of the same size. The CPCs range from $429.14 for infants to $532.68 for school-age children in small rural five-star homes and up to $314.10 for large rural five-star homes. Like rural homes, suburban homes had positive gaps for most age categories in three-star homes. The exception was school-age children in small three-star homes, with a gap of $54.73 monthly. Positive gaps for small three-star suburban home range from $13.15 for three- to-five-year-olds to $100.50 for infants. For large three-star suburban homes, the gap ranges from $9.12 for school-age children to $173.77 for infants. Four- and five-star suburban homes had negative gaps for all age categories. In four- and five-star suburban homes, the gaps were larger for small homes compared to large homes. The gaps for five- star homes were almost double the amount of their four-star equivalents. Small four-star suburban homes have gaps ranging from $182.21￿$326.01 and large four-star suburban homes have gaps ranging from $5.56￿$141.09. Gaps for five-star suburban homes are above $150 for all age categories, up to $557.85 for school-age children in small homes. For urban homes, the gap is again negative for school-age children in three-star homes. All other age categories in these three-star homes are positive. In small centers, the positive gaps range from $23.21 for three-to-five-year-olds to $83.72 for infants. In large centers, two-year-olds have the lowest positive gap of $50.03 while infant’s gaps are $83.18 monthly. As with previous locales, all gaps for four- and five-star homes were negative. The gaps for small urban four-star homes range from $196.59￿$328.77 and for large urban four-star homes, the gaps range from $118.63￿$184.57 with three-to-five-year-olds having the smallest gap. Gaps for five-star homes were again, almost double, that of their four-star equivalents. The gaps for small urban five-star homes range from $467.06 for infants to $552.32 for school-age children. For large urban five-star homes, the gaps range from $299.27 for three-to-five-year-olds to $397.68 for infants. • Overall, the current subsidies are not proportionate to the baseline costs of providing care and operating a child care facility. Both centers and homes providing a higher quality of care face higher costs per child in addition to baseline costs not covered by subsidy reimbursements. Current funding levels are insufficient to serve the number of children currently receiving subsidies at the recommended per-child subsidy rates. To address this, DCDEE’s long term plan is to implement subsidy rates based on the Child Care Cost Estimation Tool in a phased-in approach. Additional funding is being requested from the NC General Assembly to adjust rates in 2 different ways as a step towards the long term goal. First is to increase all rates to those recommended in the NC Child Care Market Rate Study 2023 Final Report. Second is to implement a statewide average based on the same final report and allow providers to be paid either their county market rate or the statewide average; whichever is higher. 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: 7/25/2024 ii. Provide the date the report containing results was made widely available (no later than 30 days after the completion of the report): 8/5/2024 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://ncchildcare.ncdhhs.gov/Provider/Child-Care-Subsidy/Market-Rate-Study In addition to posting the Market Rate Study to the DCDEE website, it will also be shared widely in the Raising NC Newsletter which reaches the majority of child care providers. The Subsidy Advisory Committee also shares the report among their stakeholders. 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: DCDEE considered stakeholder views and comments in the detailed Market Rate Survey report through consultation with the Subsidy Advisory Committee, which includes providers, county staff (local purchasing agency) representatives and multiple other partner groups to ask for their input on the survey design and analysis, and final results. The design of the survey questions especially those related to providers charging the difference between private rate and subsidy rate were amended based on feedback from partners and the changes are reflected in the final report. There was also significant feedback from partners about economic conditions on quality child care and this input was also included in the final report.