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V. DETERMINING CHILD CARE MARKET RATES

Child Care Market Rate Survey 2023 Page | 30

A. MARKET RATES AND THE FEDERALLY MANDATED SURVEY This section documents procedures and findings of the analysis designed to model market rates for the 2023 survey cycle. The market rate analysis presented here takes into account the previously discussed North Carolina Star Rated License System (referred to as star rating), which is designed to encourage and reward increased child care quality, measured by facilities’ achievements in program standards and staff education. Facilities apply for, are evaluated on the basis of, and are awarded by DCDEE star rated licenses for operation. The star ratings range from a one-star rated license ensuring the provider is meeting a minimum standard of care, up through a five-star rated license indicative of providers who have met higher standards for quality. The market rate analysis is based on the assumption that there is a direct relationship between market rates and star rating: that is, market rates will increase as star rating increases. B. DETERMINING RAW MARKET RATES 1. Raw Market Rates For the 2023 analysis and in previous surveys, the number of children by age at a given star-rating level in each county is calculated as the sum of the number of private-paying children and the number of children receiving a subsidy. Children receiving subsidies in a facility are counted at the facility’s private-pay rate, because that is the rate charged by the facility for care. Each county’s “raw market rate” is determined by rank-ordering the private-pay rates for all the children reported, from lowest to highest, for each combination by age and star rating. At some point in such a rank ordering, 25 percent of children will be higher up the scale and 75 percent will be lower on the scale; this point is known statistically as the “75th percentile”, and this figure represents the “raw market rate” for each combination of age category and star rating for that county. Legislative mandate requires that rates be set using the reported rates of at least 50 children. The process of dividing the rates in each county into provider type, age category, and star rating often results in too few children at a particular combination of care to allow this minimum 50-child requirement to be met. Also, the 75th percentile rates do not always rise naturally across star levels as desired. The analyses relied on a strategy to determine modeled rates and to correct for the inherent surges and dips in each county’s rates across star levels. This method constructs preliminary market rates by using the actual 75th percentiles found within each combination of type (center or family), age category, and star rating in each county when the number of children is large enough (at least 50). When there are not enough children in a particular combination of type, age category, and star rating in a county, the preliminary rate is imputed based on data from a wider group of children and is called the imputation level.