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I. STUDY BACKGROUND Child Care Market Rate Survey 2023 Page | 2

adjustments to the 75th percentile have been made in this study in order to ensure ascending market rates for higher star ratings. If there are not at least fifty children in an age category/type of facility/rated license-level combination for a county, an imputed rate is used in the development of the market rates for that county. 1. Federal Requirements Federal and state requirements affect how North Carolina conducts its market rate survey and how information gathered through the survey is used to establish payment rates for subsidized child care. Federal requirements are established in regulations for the Child Care and Development Fund (CCDF), the federal block grant for child care, and the instructions to states for developing federally mandated block grant plans (State Plans). The United States Department of Health and Human Services reviews CCDF plans and reports to monitor states’ compliance with federal requirements. When the 2023 Market Rate Survey was conducted, the federal requirements in effect included these provisions:  According to the CCDF, each state must conduct child care market rate surveys to ensure that payment rates for subsidized child care reflect the child care market.  Federal child care regulations require states to ensure that “payment rates are adequate based on a local market rate survey conducted no earlier than two years prior to the effective date of the currently approved Plan.” 3  Each state must provide “a summary of the facts relied on by the State to determine that such rates are sufficient to ensure equal access” to comparable child care services provided to children whose parents are not eligible to receive child care assistance. Federal regulations governing the use of CCDF subsidy dollars suggest a benchmark: “Payments established at least at the 75th percentile of the market would be regarded as providing equal access.”  The Federal Fiscal Year 2023–24 CCDF State Plan requires states to describe how rates are sufficient to ensure equal access to child care services. 2. State Requirements Payment rates for the NC Subsidized Child Care Assistance Program are specified in the North Carolina General Statutes and in State Budget Special Provision legislation detailing how funds made available to state agencies should be used. Special Provision language in State Fiscal Year 2014–15 resulted in adjustments to market rates effective January 2015, and additional increases were provided October 1, 2017, 2018, and 2022 based on partial implementation of the recommended market rates from the 2015 and 2017 Child Care Market Rate Surveys. In October 2023, DCDEE implemented all recommended rates from the 2021 Child Care Market Rate Survey.