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)? Data was gathered for the Market Rate Survey (MRS)/Cost of Quality Care Study during April 27-July 03, 2023. 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: Prior to conducting its survey, a draft survey instrument designed to collect data for the MRS/Cost of Quality Care Study was distributed to the Tennessee Young Child Wellness Council, the state's Advisory Council on Early Childhood Education and Care, Lead Agency staff, child care providers licensed by the Lead Agency, the Tennessee Child Care Resource and Referral Network (CCR&R), and other CCDF Quality Child Care Partners. The Lead Agency received 33 responses, and the most common concerns were related to the cost and difficulty of hiring and retaining qualified staff. After consultation, the final survey instrument included questions relating to staff levels, salary levels, and the cost of benefits. iv. Local child care program administrators: Prior to conducting its survey, a draft survey instrument designed to collect data for the MRS/Cost of Quality Care Study was distributed to the Tennessee Young Child Wellness Council, the state's Advisory Council on Early Childhood Education and Care, Lead Agency staff, child care providers licensed by the Lead Agency, the Tennessee Child Care Resource and Referral Network (CCR&R), and other CCDF Quality Child Care Partners. The Lead Agency received 33 responses, and the most common concerns were related to the cost and difficulty of hiring and retaining qualified staff. After consultation, the final survey instrument included questions relating to staff levels, salary levels, and the cost of benefits. v. Local child care resource and referral agencies: Prior to conducting its survey, a draft survey instrument designed to collect data for the MRS/Cost of Quality Care Study was distributed to the Tennessee Young Child Wellness Council, the state's Advisory Council on Early Childhood Education and Care, Lead Agency staff, child care providers licensed by the Lead Agency, the Tennessee Child Care Resource and Referral Network (CCR&R), and other CCDF Quality Child Care Partners. The Lead Agency received 33 responses, and the most common concerns were related to the cost and difficulty of hiring and retaining qualified staff. After consultation, the final survey instrument included questions relating to staff levels, salary levels, and the cost of benefits. vi. Organizations representing child care caregivers, teachers, and directors from all settings and serving all ages: Prior to conducting its survey, a draft survey instrument designed to collect data for the MRS/Cost of Quality Care Study was distributed to the Tennessee Young Child Wellness Council, the state's Advisory Council on Early Childhood Education and Care, Lead Agency staff, child care providers licensed by the Lead Agency, the Tennessee Child Care Resource and Referral Network (CCR&R), and other CCDF Quality Child Care Partners. The Lead Agency received 33 responses, and the most common concerns were related to the cost and difficulty of hiring and retaining qualified staff. After consultation, the final survey instrument included questions relating to staff levels, salary levels, and the cost of benefits. vii. Other. Describe: Not Applicable. 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? 7/31/2023 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)? The Lead Agency conducts a Market Rate Survey (MRS) and analysis annually to determine maximum payment reimbursement rates for subsidized child care in Tennessee. The market rate data are gathered from an annual reporting survey required of all child care providers licensed by the Lead Agency. MRS data was collected during April 27, 2023, through July 03, 2023. iii. Describe how it represented the child care market, including what types of providers were included in the survey: The MRS utilizes the Lead Agency’s exhaustive list of rates reported by child care provider across licensed care types and child age, as well as the proportion of providers' enrollments that are subsidized. iv. What databases are used in the survey? Are they from multiple sources, including licensing, resource and referral, and the subsidy program? The Lead Agency’s eLicensing documentation system. v. How does the survey use good data collection procedures, regardless of the method for collection (mail, telephone, or web-based survey)? Child care centers and family and group homes licensed by the Lead Agency received notification of the annual market rate survey to ensure rates were current and accurate. Data from all centers and family and group homes licensed by the Lead Agency at the time of data collection were used to complete the MRS. To minimize the effect of subsidization on market rate calculations, providers with more than half of their enrollments receiving subsidies for child care are excluded from analysis. Multiple fee structures reported by providers, i.e., daily, monthly, etc., are converted to a single, standard weekly rate. In the event more than one rate structure is reported within a single age category by a child care provider, an average weekly rate is computed from the calculated standard weekly rates. Within each provider category, rates are further categorized by age of child (infant through school-age). Part-time rates are also excluded from analysis. After these adjustments are made to the data, the average market rate and ranked percentiles are calculated for two tiers of the market, as well as for the state as a whole. The Top Tier Market is comprised of Tennessee counties that are one of the top 20 highest in population or have one of the top 20 highest per capita personal income averages. The Lower Tier Market includes all those counties not in the Top Tier Market. Separating the two markets based on population and personal income captures different conditions faced in each market, and exclusion of heavily subsidized providers minimizes the Lead Agency’s influence on percentile and average calculations. vi. What is the percent of licensed or regulated child care centers responding to the survey? 100.00 vii. What is the percent of licensed or regulated family child care homes responding to the survey? 100.00 viii. Describe if the survey conducted in any languages other than English: The market rate data are gathered from an annual reporting survey using the Lead Agency’s eLicensing documentation system; however, the survey may be translated using Google Translate or similar technology services and the Lead Agency also offers free translation or interpretation services. ix. Describe if data were analyzed in a manner to determine price of care per child: Within each provider category, unweighted rate data is further analyzed by age of child from infants through school-age to calculate an average market rate and ranked percentiles. x. Describe if data were analyzed from a sample of providers and if so, how the sample was weighted: The market rate data are gathered from an annual reporting survey required of all child care providers licensed by the Lead Agency. 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. Provider rates used in the MRS reflect variations in the price of care statewide. Rates are analyzed by county to establish a top tier group that includes counties that were either one of the top-20 highest population counties or one of the top-20 highest average per capita personal income counties. The remaining counties are in the second-tier group. Rates for a given county are established according to their respective tier level. This method is preferable to relying on a ranking of the average child care provider rates charged by child care centers. Use of population and personal income rankings allows selection based on measures that are likely correlated with the conditions in each market for child care services, while at the same time it separates the selection criteria from the Lead Agency's influence on the 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). Rate data for all active child care providers licensed by the Lead Agency are analyzed for three provider categories: child care centers, family child care homes, and group child care homes. iii. Describe how the market rate survey or pre-approved alternative methodology reflected age of child (e.g., infant, toddler, preschool, school-age): Within each provider category, rate data is further analyzed by age of child from infants through school-age. iv. Describe any other key variations examined by the market rate survey or ACF pre- approved alternative methodology, such as quality level: Provider rates used in the MRS reflect variations in the price of care statewide. Rates are analyzed by county to establish a top tier group (Top Tier) that includes counties that were either one of the top-20 highest 2021 population counties or one of the top-20 highest 2019-2021 average per capita personal income counties. The remaining counties are in the second-tier group (Lower Tier). Rates for a given county are established according to their respective tier level. This method is preferable to relying on a ranking of the average child care provider rates charged by child care centers. Use of population and personal income rankings allows selection based on measures that are likely correlated with the conditions in each market for child care services, while at the same time it separates the selection criteria from the Lead Agency's influence on the market rates. 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 the Boyd Center for Business and Economic Research at the University of Tennessee to conduct a narrow cost analysis. The Boyd Center designed a survey instrument to collect 2021-22 financial and other operating information. The survey instrument was distributed to the Tennessee Young Child Wellness Council, the state's Advisory Council on Early Childhood Education and Care, Lead Agency staff, child care providers licensed by the Lead Agency, the Tennessee Child Care Resource and Referral Network (CCR&R), and other CCDF Quality Child Care Partners. Following this consultation, the final survey instrument included questions relating to staff levels, salary levels, and the cost of benefits. The Boyd Center collaborated with the University of Tennessee Social Work Office of Research and Public Service to identify a sample and administer the survey. Quotas were developed to ensure adequate representation from child care centers, group homes, and family homes, with different quality ratings, and from rural and urban counties and grand divisions. The target sample for the narrow cost analysis was 300 providers participating voluntarily. Outreach to providers sampled was provided by the Tennessee Child Care Resource and Referral Network (CCR&R). Data was supplemented by the Provider Cost of Quality Care (PCQC) when survey responses were missing or inaccurate. b. In the Lead Agency’s analysis, were there any relevant variations by geographic location, category of provider, or age of child? The narrow cost analysis found that child care providers with 3-star quality ratings spend more per child than lower quality providers for both Tier 1 and Tier 2 markets. Providers with 3-star quality ratings spend more per child on salary and benefits (combined) than provider with lower quality ratings, and large and medium-sized centers with 3-star quality ratings generally pay higher salaries and benefits than smaller agencies, though smaller providers may pay themselves with profits and not salary expense. Total salaries paid to all staff when measured on a per-child basis showed some variation based on ratings, as centers with a 3-star quality rating reported spending about $4,912 per child versus $3,964 per child for centers with lower quality ratings. Providers located in urban counties, and higher cost-of-living areas such as in the Nashville metropolitan region, offer higher salaries to attract the needed employees. For expenses other than salary, such as rent, food, and classroom supplies, providers with 3-star quality ratings spend more per child than providers with lower quality ratings. No significant differences in rating by grand division or by tier were found. Funding gaps were observed for infant and toddler care for center-based providers, regardless of market tier. For example, a 3-Star Tier 1 Center faces a gap between modeled cost per infant of $43 per week and $22 per toddler. The narrow cost analysis observed preschool enrollment practice, with lower staffing costs, may help center mitigate funding gaps for infant and toddler care. The analysis did not find any statistically significant correlation between selected spending categories and quality, likely due to the lack of variation in star ratings among the agencies in the sample and in the broader population of Tennessee daycare providers, (i.e., a small share of the sample is rated less than 3 stars). 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.)? Child care providers sampled had to meet basic health and safety standards as required by Lead Agency licensure rules at Tenn. Comp. R. & Regs. 1240-04-01 based upon the category of care provided with a 0-Star base level of quality. All providers participated in the Quality Rating Improvement System (QRIS). 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 used the Tennessee Quality Rating Improvement System (QRIS) to define quality levels in the narrow cost analysis, considering 2-Star and 3-Star high quality. 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 analysis did not find any statistically significant correlation between selected spending categories and quality, likely due to the lack of variation in star ratings among the agencies in the sample and in the broader population of Tennessee child care providers, (i.e., a small share of the sample is rated less than 3 stars). Funding gaps were observed for infant and toddler care for center-based providers, regardless of market tier. For example, a 3-Star Tier 1 Center faces a gap between modeled cost per infant of $43 per week and $22 per toddler. The narrow cost analysis observed preschool enrollment practice, with lower staffing costs, may help center mitigate funding gaps for infant and toddler care. The Lead Agency will be conducting a cost of care analysis annually to strengthen provider engagement, refine its methodology, improve data quality, and identify potential gaps to inform potential strategies for deploying resources effectively and in ways that improve quality. 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: 9/20/2023 ii. Provide the date the report containing results was made widely available (no later than 30 days after the completion of the report): 9/20/2023 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.tn.gov/humanservices/information-and-resources/tdhs-reports-and- information.html 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: The Lead Agency distributed its previous 2021 narrow cost analysis with the draft survey instrument to the Tennessee Young Child Wellness Council, the state's Advisory Council on Early Childhood Education and Care, Lead Agency staff, child care providers licensed by the Lead Agency, the Tennessee Child Care Resource and Referral Network (CCR&R), and other CCDF Quality Child Care Partners. Following this consultation, the final survey instrument included questions relating to staff levels, salary levels, and the cost of benefits.