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. [ ] Market rate survey. i. When were the data gathered (provide a date range; for instance, September – December 2023)? b. [x] ACF pre-approved alternative methodology. i. [ ] The alternative methodology was completed. ii. [x] 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). ECECD’s current rates are based on its 2021 alternative methodology model and the department is in the process of updating its alternative methodology model for 2025-2027. ECECD updated its rates in August 2023 using the 2021 alternative methodology model. ECECD will use the flexibilities allowed by the Office of Child Care and will complete its updated alternative methodology in September 2024 and implement new rates to align with the state’s 2026 budget cycle. ECECD has been actively engaged in the alternative methodology process since October 2023 when the state’s Early Childhood Education and Care Advisory Council (ECECAC) approved the continued use of alternative methodology to inform the state’s subsidy rates. The ACF Pre Approval letter was submitted in December 2023 to the Region VI Administrator and approval was granted in March 2024. The creation of the Alternative Methodology Task Force was initiated at the December 2023 ECECAC meeting, membership includes members from across the Council’s four subcommittees. This Task Force, includes representation from 16 different organizations allowing for diverse participation from different areas of the state, has met monthly since January 2024, and will continue to meet through the summer of 2024. The Alternative Methodology Task Force has supported constituent and provider engagement with the dissemination of the Cost of Care and Rate survey that has been distributed to different types of child care providers across the state, including center directors, family child care owners, and registered homes. The survey launched in April 2024, and closed May 2024. A total of 279 provider surveys were completed and were reflective of the total programs in the state, by provider type and region. . The Task Force has also supported engagement in input sessions across the state; nine sessions were completed, with a total of 68 providers participating in the sessions.. In addition to surveys and input sessions; information sessions, routine communications, and survey support sessions have all occurred during April and May to best support the alternative methodology process. Data analysis was completed in June 2024, and review of data analysis occurred at the Task Force’s June meeting, with initial results and cost model functioning finalization occurring at the July 2024 meeting. Cost model outputs will also be presented to ECAC at the July 2024meeting, after the Task Force reviews outputs. The ECECD 2026 budget request will include funding to increase rates based on the updated cost alternative methodology. This process will conclude in March 2025 and depending on available revenues, increased rates will be in effect by July 2025. 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: Previously, members of the State Advisory Council were consulted for the existing alterative cost methodology. For the updated alternative cost methodology process ECECD consulted with and received approval from the New Mexico Early Childhood Education and Care Advisory Council to submit the request to the Office of Child Care to conduct an alternative methodology during the October 4, 2023. Members of the council continue to be consulted throughout the ACF pre- approved alternative methodology that is in process. iv. Local child care program administrators: During the first round of alternative methodology development in 2021, local child care program administrators were included in the stakeholder workgroup. For the 2024 update, as part of its ACF pre-approved alternative methodology process, ECECD has established an Alternative Methodology Task Force that includes child care providers, ECEC Advisory Council members, child care program administrators, the NM Kids Child Care Resource and Referral, advocates, representatives from the New Mexico Head Start Association and the New Mexico Association for the Education of Young Children, the New Mexico Early Care and Education Association, and state partners. The Alternative Methodology Task Force is providing input on (1) Model Enhancements & Constituent Engagement; (2) Cost Model Frame; (3) Cost Model Functioning; and (4) Cost Model Results. ECECD has also incorporated feedback from local child care program administrators through the use of a survey and virtual feedback sessions. v. Local child care resource and referral agencies: In previous and current alternative methodology processes, the child care resource and referral agency informed model development. ECECD’s current ACF pre-approved alternative methodology process has established an Alternative Methodology Task Force that includes individuals involved with the state’s child care resource and referral agency (CCR&R) and has used data from the CCR&R to inform processes. vi. Organizations representing child care caregivers, teachers, and directors from all settings and serving all ages: In previous and current alternative methodology work, ECECD has consulted the professional associations in the state that support child care caregivers, teachers, and directors from all settings and serving all ages. For example, in the 2021 stakeholder workgroup and in the 2024 Alternative Methodology Taskforce, members include representatives from the New Mexico Head Start Association, the New Mexico Association for the Education of Young Children, and the state child care association. 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? 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)? iii. Describe how it represented the child care market, including what types of providers were included in the survey: iv. What databases are used in the survey? Are they from multiple sources, including licensing, resource and referral, and the subsidy program? v. How does the survey use good data collection procedures, regardless of the method for collection (mail, telephone, or web-based survey)? vi. What is the percent of licensed or regulated child care centers responding to the survey? vii. What is the percent of licensed or regulated family child care homes responding to the survey? viii. Describe if the survey conducted in any languages other than English: ix. Describe if data were analyzed in a manner to 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: 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. The state’s previous ACF pre-approved alternative methodology investigated the regional variations in expenses experienced by programs in New Mexico. From the cost data gathered by programs, no significant regional variation in expenses was found. While variations in program occupancy expenses were seen, these were not aligned with geographic location, and instead were the result of individual program characteristics, such as whether the program was co-located in another building, had an organizational sponsor that covered occupancy costs, or had a long-term below market lease. The state’s current pre-approved alterative methodology is in process. 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 state’s previous ACF pre-approved alternative methodology model developed sample scenarios for varying types of providers including a child care center, a small family child care home, and a large family child care home. The state’s current pre-approved alterative methodology is in process and will reflect variation in type of provider in the methodology. iii. Describe how the market rate survey or pre-approved alternative methodology reflected age of child (e.g., infant, toddler, preschool, school-age): The state￿s previous ACF pre-approved alternative methodology cost estimation model developed sample scenarios for varying types of providers providing care to varying ages of children. The model detailed the annual cost per child, including variations by age of children served. The cost model revealed that in order to be financially viable, a child care program must provide care for a mixed age group of children. The cost estimation model demonstrated that center-based programs serving only infants and toddlers suffer the most financially. At any level of quality, a program that serves only infants and toddlers saw the biggest gap between the cost of those services and the funding they receive under current subsidy rates. The cost model results found the most financially viable option to serve children under ECECD’s current rate schedule is to include all ages, birth to school aged. The state’s current pre-approved alterative methodology is in process and will reflect age of child in the methodology. iv. Describe any other key variations examined by the market rate survey or ACF pre- approved alternative methodology, such as quality level: The state￿s previous ACF pre-approved alternative methodology cost estimation model developed sample scenarios for other key variables such as the quality level of the child care provider. The cost estimation model demonstrated that the then subsidy rates did not cover the cost of care for any age group of children from birth to age five, at any quality level or type of care setting. The infant age group had the largest gap at each quality level, and had the largest shortfall overall, with infant care at the highest level of quality costing $325 more per month per child than the maximum monthly subsidy payment. The state’s current pre-approved alterative methodology is in process and will examine key variations. 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)? In its 2021 alternative methodology process, which was used to set the current child care reimbursement rates, ECECD conducted a cost study to inform the building of a cost-estimation model. The updated alternative methodology will use the same method, which collects cost data through a cost study and includes how several material variables and program characteristics (e.g., program type, size, quality level, the wide variety of child populations served, and geographic location) impact cost. The data are built into a cost-estimation tool, allowing ECECD to understand the cost of services for different ages of children, across provider types, and at different levels of quality. b. In the Lead Agency’s analysis, were there any relevant variations by geographic location, category of provider, or age of child? Within its existing alternative methodology, ECECD did not find relevant variations by geographic location. It did find relevant variations by category of provider, as well as age of child. The base rate and differential rates, therefore, do vary based on provider type and age of child. ECECD will repeat similar analyses during its new ACF Pre-Approved alternative methodology process to examine relevant variations by geographic location, category of providers, or age of 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.)? The state’s previous ACF pre-approved alternative methodology addressed the cost of child care providers' implementation of health, safety, quality and staffing requirements as the alternative methodology included the identification and analysis of each of these costs. The state’s current pre-approved alternative methodology is in process and will repeat similar assumptions and analyses. 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 took the cost of higher quality into account in the development of proposed payment rates by using the requirements of the quality rating and improvement system, FOCUS, as well as other assumptions such as increased wages at higher quality levels. Survey and interview participants included centers and family child care homes that participate in all FOCUS quality levels and that serve children of all ages throughout the state. FOCUS includes five levels of quality that represent tiers of quality. The current alternative methodology includes the following variances at levels of quality: ratios, staff qualifications, professional development and planning time. Additional elements of quality included teacher compensation. As FOCUS cost drivers remain the same, the updated alternative methodology will utilize similar assumptions. 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 gap between cost and the rate paid by the Child Care Assistance Program was significant upon the first completion of the 2021 alternative cost methodology, but the gap has significantly decreased since the implementation of the cost model. ECECD targeted the gap between cost and price at 4- and 5-star infant and toddler levels in both centers and family child care in order to incentivize quality and building the supply of child care for the ages most needed. 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: 6/1/2021 ii. Provide the date the report containing results was made widely available (no later than 30 days after the completion of the report): 6/1/2021 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://www.nmececd.org/wp- content/uploads/2021/08/P5FS_NMReport_v.3d_forWeb.pdf https://www.nmececd.org/new-mexico-child-care-cost-model/. 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: ECECD considered partner views and comments in the detailed report published in 2021 by establishing a stakeholder group to advise on the ACF pre-approved alternative methodology process. The stakeholder advisory group was comprised of child care providers (including representatives of the state’s two child care associations), members of the state’s Early Learning Advisory Council (ELAC), advocates, resource and referral staff, representatives from the New Mexico Head Start Association, representatives from the New Mexico Association for the Education of Young Children, and other state partners. This group was tasked with providing input on (1) the cost survey approach and reach; (2) the cost estimation model; (3) the quality variables that frame the model; (4) the model’s data- gathering and analysis assumptions, (5) ensuring that providers were engaged in both the data gathering process and in the review of model results; (6) modifications to the model based on analysis of interim results and; (7) feedback and validation of the assumptions in the model. ECECD also hosted a trio of public meetings to discuss the cost model findings and solicit feedback. The public meetings were held March 24, March 30, and April 1, 2021, reaching nearly 80 attendees. The public meetings offered American Sign Language (ASL) Interpretation, and one session was presented in Spanish. Additionally, at each discussion of the cost model finding meetings, the introduction was done in both Spanish and English, and a separate breakout room was available to accommodate Spanish speakers. Meeting times varied, both during the day and in the evening to accommodate provider schedules. As part of its 2024 process, ECECD will utilize a similar process. ECECD has deployed a survey to collect data and gather partner perspectives as it updates its alternative methodology that has reached child care providers in homes and centers across the state. In addition, ECECD has convened an Alternative Methodology Task Force to advise on the process, led by Prenatal to Five Fiscal Strategies, the national expert group that is developing the methodology for New Mexico. This group consists of partners from the New Mexico Head Start Association, the New Mexico Child Care Providers and Educators Association, community based child care providers, members of the Early Childhood Education and Care Advisory Council, representatives from the legislative and executive agencies responsible for developing the state budget, and other key partners. The group meets monthly to advise the development of updated alternative methodology to be released by August 2024.