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. [x] 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? Data collection took place between February 20 and April 4, 2024. The data was used to inform the cost estimation model and the alternative methodology which was completed on June 30, 2024. 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. There were no major changes in the pre-approved methodology and the final methodology used. 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: Prior to submission of the alternative methodology pre-approval request to the Office of Child Care, the Lead Agency State Director, Michael Leach, shared the process for pursuing an alternative methodology with the State Advisory Council (ECAC) in its 8/17/2023 meeting with an opportunity for comment and questions. He explained the Lead Agency’s commitment to engaging with the ECAC through their regular meetings, along with additional members of the workforce and other stakeholders in developing the cost study and cost model, analyses and results. The ECAC Program Manager was invited to participate on the Alternative Methodology Technical Workgroup that was being formed to meet monthly to inform all aspects of the alternative methodology process. The ECAC, Technical Workgroup, a broad array of child care provider groups and constituents were consulted before and after data collection. Once the model was developed initial results and analysis generated were provided for input. The cost survey approach, cost estimation model, quality variables for the model, the model’s data-gathering and analysis assumptions, on how to assure that providers are engaged in both the data gathering process and in the review of model results, and on any modifications the model may require based on analysis of results in partnership with the Lead Agency. iv. Local child care program administrators: Emails and a variety of social media outreach methods by the Lead Agency and its contractors were used multiple times to reach all regulated child care providers and license-exempt child care providers enrolled with ABC Quality (SC’s QRIS) in a variety of formats to share information with them about the Cost of Child Care Study and to encourage them to participate in input sessions to share their perspectives about their costs in providing child care, as well as to complete the Cost of Child Care survey. Special sessions were held at 2 statewide professional development conferences, South Carolina Early Childhood Association (SCECA) and South Carolina Association of Early Care and Education (SCAECE) which were attended by approximately 300 child care directors and owners on 2/2/2024 (SCECA) and 3/2/2024 (SCAECE) to share information with them about the Cost of Child Care Study and to encourage them to participate in input sessions to share their perspectives. 15 virtual input sessions were scheduled on dates and times convenient to child care providers representing all regions of SC during March 2024 in which more than 300 child care program administrators participated. Input sessions were conducted in English and Spanish. These input sessions assured that child care program administrators understood the anticipated benefits of the cost-based approach to rate setting and could contribute to the alternative methodology approach to data collection. v. Local child care resource and referral agencies: The Director of SC CCR&R was invited to participate on the SC Alternative Methodology Technical workgroup (described in 4.2.1.c. i above) and actively participated. The SC CCR&R hosted two forums to support provider awareness and engagement in which Prenatal to Five Fiscal Strategies (P5FS) participated. P5FS participated in the SC CCR&R Partner Forum to hold an information session for state partners that support child care providers. This information session provided an overview of the alternative methodology process and how providers could be supported and engaged. P5FS leveraged the SC CCR&R Director Forum to hold four regional input sessions in which over 80 child care center directors/administrators and family child care home owners/providers participated. The SC CCR&R also supported outreach and shared registry data with P5FS. vi. Organizations representing child care caregivers, teachers, and directors from all settings and serving all ages: Leaders of SC professional associations representing the child care workforce (SC Association of Education of Young Children, SC Early Childhood Association, SC Association of Early Care and Education, and SC Afterschool Alliance) were invited to participate on the SC Alternative Methodology Technical workgroup (described in 4.2.1.c. i above). Child care directors representing all types of child care who attended 2 statewide professional development conferences in February and March 2024 (SCECA and SCAECE) described in 4.2.1.c.ii above) were invited to participate in special conference sessions in which information about the Cost of Child Care study was shared with them. They were encouraged to participate in input sessions to be conducted in English and Spanish in February through March 2024 to share their perspectives on the cost study and issues affecting their child care services. vii. Other. Describe: The Lead Agency’s child care technical assistance contractors that serve child care programs (SC CCR&R, SC Inclusion Collaborative, SC Program for Infant-Toddler Care), its contractor for child care data collection and analysis, and directors/managers of major program areas in the Lead Agency affecting the alternative methodology process and cost model development (Child Care Scholarships, ABC Quality, Child Care Licensing, SC Endeavors professional development and workforce registry, and information technology team) also participated on the Alternative Methodology Technical Workgroup described in 4.2.1.c.ii above. 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. Multiple emails from the Lead Agency were sent to all child care providers in the priced child care market throughout SC who are included in the Lead Agency’s child care licensing data base and it's data base of license-exempt providers who are enrolled in ABC Quality (SC’s quality rating and improvement system) which qualifies them to provide child care services to children with CCDF-funded Scholarships, encouraging them to complete SC’s alternative methodology child care costs survey. Both data bases include providers’ physical addresses and counties where they operate. SC counties are clustered in four (4) major geographic areas: Upstate, Midlands, Pee Dee, and Low Country. Follow-up contacts with providers were made by the Lead Agency’s contracted technical assistance partners including the SC Child Care Resource and Referral Network to emphasize the importance of providers responding to the survey. Responses to the cost survey from child care providers about their costs of operating are compiled by their location and summarized into the 4 major areas of SC. Child care programs that responded to the survey reflect about the same percentage of total providers that operate in each major area of SC, with approximately one fourth of providers in each of the four major areas of the state: 24% of survey responses came from child care providers in the Upstate area of SC where 24% of the total providers in SC operate; 26% of survey responses came from providers in the Midlands area of SC where 28% of total providers in SC operate; 24% of survey responses came from providers in the Pee Dee area of SC where 24% of total providers in SC operate; and 26% of survey responses came from providers in the Lowcountry area of SC where 25% of total providers in SC operate. 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 percentages of respondents to the alternative methodology child care costs survey reflected nearly the same percentages as the various types of providers to total child care providers in SC: 56% of survey responses were from licensed and registered child care centers which represent 63% of the total child care providers in SC; 42% of survey responses were from licensed and registered family/group child care homes which represent 32% of total child care providers in SC; 1% of survey responses were from license-exempt providers which represent 5% of providers in SC. iii. Describe how the market rate survey or pre-approved alternative methodology reflected age of child (e.g., infant, toddler, preschool, school-age): The cost estimation model developed as part of the alternative methodology includes outputs by age of child, aligned with the age groupings used by licensing. Variations in the cost by child are driven by the ratio and group size regulations in licensing and ABC Quality. The cost estimation model assigns classroom personnel expenses based on the licensed capacity of the classroom with shared expenses distributed proportionally across all children in the program. iv. Describe any other key variations examined by the market rate survey or ACF pre- approved alternative methodology, such as quality level: The cost estimation model developed as part of the alternative methodology includes quality variables aligned with the requirements of ABC Quality. P5FS analyzed the provider requirements under ABC Quality and developed a quality frame to capture those requirements that had a cost impact. Data from input sessions and the provider survey were used to inform the costs related to each of these variables, including family engagement, professional development, and paid planning time. In addition, the increased compensation necessary to provide high-quality care was integrated into the cost estimation model. Multiple salary options were reviewed and discussed, including current salaries from the provider survey, data from the Bureau of Labor Statistics and data form the MIT Living Wage Calculator. The cost estimation model includes the ability to estimate the cost of care using these different salary options. The variables and their values were reviewed with the Alternative Methodology Technical Workgroup prior to finalizing in the cost estimation model. 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 has contracted with national experts, Prenatal to Five Fiscal Strategies (P5FS), to develop a cost estimation model to inform the alternative methodology. P5FS’ role includes data collection and analysis, cost model development, cost estimation using the model, and related reports. The process included a provider survey, provider input sessions and interviews with child care providers across the state, along with a review and integration of existing statewide data sources for the development of the cost estimation model. The alternative methodology process involves constituent engagement at the state and provider levels and captures providers’ experiences and costs in implementing program requirements including licensing regulations and ABC Quality standards (SC’s Quality Rating and Improvement System, QRIS). SC’s cost estimation model includes licensing child care center and group child care home providers, licensed and registered family child care home providers, and licensed-exempt child care centers enrolled with ABC Quality to enable cost scenarios to be run for the different care types. The cost model also includes both revenues and expenses (personnel and non-personnel expenses) to show their relationship in delivering child care services, including how variables and program characteristics impact costs (e.g., program type, program size, quality level, age range of children served, variety of child populations served and geographic variances). The alternative methodology process included collecting data directly from providers using a survey process that is representative of all provider types, from all regions of the state, reflecting the diversity of programs including program quality, location, ages of children served, income, mix of children served, culture, and language, with targeted outreach for underrepresented provider groups. Information was gathered through provider input sessions and interviews with a mix of programs (multi-site, nonprofit and for-profit, programs serving children with subsidies, licensed and registered providers, license- exempt programs, programs serving different combinations of age groups including school-aged children in all regions of the state). Input sessions also captured additional costs programs may incur if they were to make changes such as increasing compensation or improving program quality. This process ensures the cost estimation model fully captures the cost of operating a quality child care program. Development of the cost model was completed in June 2024. Scenarios reflecting the cost of care with variations for types of child care, program sizes, ages of children served, program regulations (minimum health and safety licensing/regulatory requirements), higher quality standards (aligned with ABC Quality), equity and quality enhancements were completed in June 2024 which will inform the rate setting process. b. In the Lead Agency’s analysis, were there any relevant variations by geographic location, category of provider, or age of child? The cost estimation model includes variations in the cost of care based on provider type and age of child. Data was analyzed separately for child care center and family child care home settings to identify the specific costs related to each of these settings. For example, in family child care homes non-personnel expenses are categorized as 100% business use and shared business use to accurately capture the expenses related to the operation of the child care program. Age-based variations in the cost of care are based on the ratio and group size requirements under SC licensing requirements and ABC Quality standards. The cost per child is comprised of classroom costs for each age group, divided by the capacity of that classroom (with the variation in the number of children based on group size requirements) and shared costs that are evenly distributed across the program. In the family child care home scenarios, there is no variation in the cost per child for full time care due to the program operating as essentially one classroom. School age care in home-based programs is different, reflecting their attendance being a mix of full-time during school breaks and part-time during the school year. The cost estimation model does not reflect geographic variation in the results. Data collected during the alternative methodology process did not point to significant variations in the key cost drivers by geographic location. While some variation in current salaries and non-personnel expenses were identified during the provider data collection, results were inconsistent and further analysis of this data indicated that variations were most likely related to other program characteristics such as funding source, for profit/non- profit status, access to in-kind support etc., rather than geographic location. 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.)? State licensing regulations are used to determine cost of care at the base level of quality including ratios, staff compensation, benefits and training, as well as all nonpersonnel expenses necessary to operate a program. Nonpersonnel expenses are based on defaults in the Provider Cost of Quality Calculator. Personnel expenses are based on compensation level and staffing pattern. The staffing pattern for classroom teachers is derived from adult:child ratio requirements provided by licensing regulations. While group size requirements are not specified by regulation, the cost estimation model assumes a group size of double the ratio, requiring two teachers in the classroom. Additional staffing is included to cover open/close and breaks. Non-classroom staffing includes a program director at full time, an assistant director or equivalent at 0.5 FTE per 50 children, and an administrative assistant at 0.5 FTE per 50 children. In family child care settings, the small FCC is assumed to have capacity of 6 with one provider/owner while the group FCC has a capacity of 12 with the addition of a full-time assistant. Compensation selections at the base level of quality are based on data collected from child care providers through the 2024 cost of care survey. In addition, the model includes the cost of discretionary benefits in the form of $5,540 annually per employee as well as 10 paid sick days and 10 paid leave days. The model also includes the cost of training and professional development in the form of a substitute or floater to cover the employees’ responsibilities while engaging in training. At the base level of quality this includes 20 hours annually for the program director, and 15 hours for all caregivers. The family child care model includes 10 hours annually for professional development. 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 uses state-defined quality measures established for its ABC Quality Program to define higher levels of quality which include ratios, group size, staffing levels, staff compensation, and professional development standards. The cost estimation model incorporates these standards by (1) including the lower ratio requirements and group size requirements under ABC Quality, (2) increasing the number of hours of professional development to 30 hours annually for a center-based director and 20 hours annually for center-based caregivers, (3) adding 1 hour a day of substitute/floater coverage for lead teachers and/or provider/owners to engage in planning without also supervising children, and (4) adding 2 family/teacher conferences annually. The expense of family teacher conferences is based on the cost to pay a substitute or floater to release the teacher from caregiving responsibilities while planning and leading the conference. In addition, the model includes salary options that are higher than current salaries reported by providers through the cost of care survey. These higher salaries are selected for the higher-quality scenarios reported in the cost estimation model report. 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? Results from the cost estimation model were compared to current Child Care Scholarship rates and presented to the technical workgroup in June 2024. The statewide cost of care was compared to the Urban and Rural rates as well as to a statewide average rate, providing a geographic analysis of the gap between price and current payment rates which are based on the most recent market price survey. For center-based programs there is a gap between the cost of care and the current payment rate for all ages of children in a child care center apart from school-agers in a program receiving the Urban rate. The gaps range from $210 per week per child for an infant in a program receiving the Rural rate, to $2 per week per child for a four-year-old in a program receiving the Urban rate. The gap analysis found that the gaps were largest for the youngest children, with infants and toddlers having larger gaps between cost and current payment rates, compared to preschool and school age children. In addition, programs in rural areas faired worse than programs in urban areas, with the average gap in a child care center of $116 per child per week in a rural area and $50 per child per week in an urban area. Full details of the gap analysis are available in the detailed Cost Estimation Model report. After gaps were identified between costs of care and current payment rates, prioritization was given to raising payment rates where gaps were largest: for family child care, programs in rural areas, and infants. Based on the prioritizations for rate increases, rate modifiers ranged from 54% to 100% of the costs of care in urban and rural settings by type of care, age of child and quality level. 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: 6/28/2024 ii. Provide the date the report containing results was made widely available (no later than 30 days after the completion of the report): 7/1/2024 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://www.scchildcare.org/media/jf4j5a0t/sc-alternative-methodology-cem- report_june-2024_predesign.pdf 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: Results from the cost estimation model, including the estimated cost of care and the gaps between current payment rates and the cost of care, were presented to the SC Alternative Methodology Technical Workgroup on June 10, 2024, at the ECAC state advisory meeting on June 20, 2024, and at the CCDF Plan Public Hearing on June 14, 2024. Feedback from constituents at these meetings informed the final scenario selections made in the cost estimation model and reported in the detailed report. For example, discussion with partners and constituents supported the decision for the cost model to use only statewide values and produce a statewide cost of care. Similarly, decisions around the default program sizes for the scenarios used in the report were reviewed and refined during these meetings. In addition, by building a process that incorporated provider engagement and feedback throughout, the South Carolina cost estimation model has benefited from the input of hundreds of constituents across the state, as documented in the detailed report.