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)? September 2024 to May 2025. 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: TWC solicited comments in 2016, when the MRS instrument was significantly modified, on the draft MRS implementation plan and survey questionnaires from Boards, CCR, TEA, the Children’s Learning Institute (CLI), and multiple child care policy and advocacy groups. The MRS methodology has not been significantly modified since this time. iv. Local child care program administrators: TWC solicited comments on the draft MRS implementation plan and survey questionnaires from providers that serve subsidized children. v. Local child care resource and referral agencies: TWC solicited comments on the draft MRS implementation plan and survey questionnaires from Boards and contractors that provide child care resource and referral services. TWC incorporated feedback into the survey methodology. vi. Organizations representing child care caregivers, teachers, and directors from all settings and serving all ages: TWC solicited comments on the draft MRS implementation plan and survey questionnaires from the Texas Licensed Child Care Association. vii. Other. Describe: After the vendor submitted its MRS implementation plan, which included the MRS statistical methodology and process, TWC provided a copy of the plan process and the draft MRS survey questionnaire to Boards, CCR, TEA, CLI, and multiple child care policy and advocacy groups. The stakeholders had 30 days to review and comment. TWC reviewed the comments with the vendor and incorporated changes as appropriate. TWC funds and publishes the MRS every year. Each year, upon publication of the MRS, TWC also ensures that stakeholders are notified of the MRS each year. TWC also updates stakeholders on rate actions taken by the Commission in response to each year’s updated MRS as well as the complimentary Cost of Quality/Price Modeling Report. 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? 7/22/2025 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)? September 2024 to May 2025. iii. Describe how it represented the child care market, including what types of providers were included in the survey: The survey represents LCCCs, LCCHs, and RCCHs. The MRS summarizes child care market rate data for the entire state of Texas and for each of its 28 LWDAs. The most recent age scheme (added in 2022) was included in this report. This scheme is more detailed than the traditional infant, toddler, preschool, and school-age scheme used prior to 2022. Instead, it uses eight age groups as mandated by legislation (Texas Government Code, §2308.315, implemented in FY’24) to characterize rates charged for child care. iv. What databases are used in the survey? Are they from multiple sources, including licensing, resource and referral, and the subsidy program? The survey sample was drawn from a list of all 13,611 licensed and registered child care facilities provided by the HHSC CCR department on August 12, 2024. The list includes LCCCs, LCCHs, and RCCHs in each of the 28 LWDAs. Before the survey sample was finalized, a match was performed between the list of sampled facilities and TWC’s data indicating which facilities were serving subsidized children, and whose published rates were already available through administrative records. These partially subsidized facilities were randomly split into two groups, with one half being retained in the sample and the other half set aside to be excluded from further study. This sampling plan can be described as an under-sample of subsidized facilities, whose rate data are largely redundant with existing data sources, and a corresponding over-sample of non-subsidized facilities who rates constitute the bulk of the paid market and are not otherwise available without surveying. Before final rates were estimated, data from the statewide sample were combined with that from the local samples in their respective areas as well as the published rate data, and weighting schemes were applied as appropriate. The number of rate observations collected by this design was more than adequate to provide stable rate estimates. TWC provided the MRS researchers with the administrative data for providers that accept subsidy (reported published rates and their Texas Rising Star status/certification level). v. How does the survey use good data collection procedures, regardless of the method for collection (mail, telephone, or web-based survey)? Detailed training and supervision were provided to research staff members on survey methodology, interviewing protocols, data collection, data entry, and tracking procedures by the project manager and more tenured research staff. Prior to interviews, the research team mails introductory postcards and/or emails to all facilities in the sample explaining the survey purpose, goals, objectives, confidentiality policies, and voluntary nature of participation. Data collection began in September 2024 and ended in May 2025. Research staff members maintained a tracking database containing basic provider information and call history. vi. What is the percent of licensed or regulated child care centers responding to the survey? 44.70 vii. What is the percent of licensed or regulated family child care homes responding to the survey? 35.10 viii. Describe if the survey conducted in any languages other than English: Prior to interviews, the research team mailed introductory postcards and/or emails to all facilities in the sample explaining the survey purpose, objectives, confidentiality policies, and voluntary nature of participation. Information was presented in both English and Spanish unless providers’ surnames suggested they were of Vietnamese origin, in which case information was presented in both English and Vietnamese. A website was also available for providers to obtain further information about participating in the survey. To prevent a delay in data collection, bilingual staff members (English/Spanish or English/Vietnamese) were hired to conduct interviews with centers and homes. ix. Describe if data were analyzed in a manner to determine price of care per child: Because different types of facilities tend to set their rates differently, analysis of center rates was based on the rates for a category of care (for example, full-day care for toddlers), while the rates for home-based care (LCCH and RCCH) were determined by the amounts charged for individual children. In interviews with centers, research staff asked for the rates charged for a particular age group following a particular schedule. Research staff asked home- based facilities for the age and rate charged for each individual child. x. Describe if data were analyzed from a sample of providers and if so, how the sample was weighted: Before final rates were estimated, data from the statewide sample were combined with that from the local samples in their respective areas, as well as the published rate data, and weighting schemes were applied as appropriate. The number of rate observations collected by this design was more than adequate to provide stable rate estimates for all LWDAs, without needing to rely on other estimates or approximations. 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. Each of the 28 LWDAs were represented in the MRS. To accomplish this, a small statewide representative sample of 1,000 facilities was randomly selected to provide greater statistical power for estimating statewide rates and trends and increase the precision of rate estimates for the largest Boards that provide the bulk of care in the state. A second random sample was drawn from the remaining facilities to estimate rates at the LWDA level. For this latter sample, a target number of centers was chosen and a separate target for homes from every LWDA based on projections of the number needed to yield an average of 200 independent rate observations across full-day rate categories. Projections based on detailed response rates to the last three annual surveys indicated that, on average, 66 LCCCs, 33 LCCHs, and 79 RCCHs per LWDA were needed to reach this goal. These target numbers were then increased by between 3 percent and 7 percent for LWDA and facility type combinations that showed low response rates in recent surveys. The target number of facilities was then randomly selected from each LWDA, or if fewer providers were available in any given combination of LWDA and facility type, the entire population was selected (a complete census). Implementation of this sampling scheme resulted in all facilities of any type being selected from one, LWDA 19, Golden Crescent. In addition, a complete census of LCCCs was necessary in three LWDAs, a complete census of LCCHs was necessary in nine more LWDAs, and a complete census of RCCHs was necessary in sixteen more LWDAs. During the interview, research staff members screened out facilities that did not represent the true price market for child care in Texas. These facilities include those that only offered drop-in care, part-day care with no after-school care, summer camps, care provided to specific populations only (i.e. children with special needs, children of teen moms, children of staff at a company, etc.), and free/family-discounted child care services. School and kindergarten programs that did not offer regular afterschool care and Head Start programs were also excluded. Finally, facilities that had closed or no longer had children enrolled were determined to be ineligible. 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 MRS included the following three types of child care facilities in each of the 28 LWDAs: LCCCs; LCCHs; and RCCHs. Because different types of facilities tend to set their rates differently, analysis of center rates was based on the rates for a category of care (for example, full-day care for toddlers), while the rates for home-based care (LCCH and RCCH) were determined by the amounts charged for individual children. That is, in interviews with centers the researchers asked for the rates charged for a particular age group following a particular schedule. In contrast, researchers asked home-based facilities for the age and rate charged for each individual child. iii. Describe how the market rate survey or pre-approved alternative methodology reflected age of child (e.g., infant, toddler, preschool, school-age): The most recent child age scheme (added in 2022) was included for this report. This scheme is more detailed than the traditional infant, toddler, preschool, and school-age scheme used prior to 2022. It uses eight age groups as mandated by legislation (Texas Government Code, §2308.315, implemented in FY’24) to characterize rates charged for child care. The eight age group scheme is as follows: Infants 1: Age 0 through 11 months; Infants 1: Age 12 months through 17 months; Toddlers: Age 18 through 23 months; Toddlers: Age 24 through 35 months; Preschool-age children: Age 36 through 47 months; Preschool-age children: Age 48 through 59 months; Preschool-age children: Age 60 through 71 months; and School-age children: Age: 72 months and older. iv. Describe any other key variations examined by the market rate survey or ACF pre- approved alternative methodology, such as quality level: Providers who responded to the MRS were asked two questions related to their accreditation or certification status. The questions asked if they had any national accreditations or certifications and if they were a Texas Rising Star Provider. Providers that indicated they were a Texas Rising Star provider were then asked about their star level certification. Results show Texas Rising Star certification has increasingly become the more common quality signifier over the last few years. This continues to show an increase in the availability of quality care among centers over the years examined, with Texas Rising Star certifications fully accounting for the increase. Until a bump this year, the general trend in quality among homes has been relatively flat over the last several years, with the increase in Texas Rising Star certification being largely offset by a reduction in national accreditation. With the inclusion of 2025 data, the recent trend for homes is now decidedly positive, indicating increased participation in quality certification. 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)? TWC contracted with the Ray Marshall Center, LBJ School of Public Affairs, and the University of Texas at Austin to conduct a study of the cost of providing quality child care in the State of Texas. The 2025 Cost of Quality Price Modeling Report provides a narrow cost analysis by comparing the costs of providing higher quality child care under Texas Rising Star in LCCHs and RCCHs, relative to prices charged by comparison groups of homes who are not Texas Rising Star certified but are otherwise selected to be as similar as possible to the higher quality providers of interest. The report also models a baseline for rates that satisfy a minimum level of quality (meeting basic health and safety requirements). The 2025 Cost of Quality Price Modeling Report was published in July 2025. b. In the Lead Agency’s analysis, were there any relevant variations by geographic location, category of provider, or age of child? TWC develops price modeling reports for center- based care and home-based care in alternating years. The 2025 Cost of Quality Price Modeling Report focuses on center-based care. The 2025 calculators show that overall, prices charged for quality care for younger children provided by nationally accredited centers in 2025 were 20 to 30 percent higher than prices charged for care from non- accredited centers, and 30 to 42 percent higher for school-age children. In contrast, in a series of less robust pricing effects, care for young children at Four-Star Texas Rising Star facilities in 2025 was priced about 4 to 8 percent higher than care at comparable non- certified centers, and 6 to 12 percent higher for school-age children. These patterns largely replicate the findings from 2023, except that the Four-Star pricing effects are now smaller than seen in recent years. Prices for care at Three-Star and Two-Star centers were found to not be significantly higher than care provided at comparable non-certified centers. 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.)? Texas completed a Texas Child Care Cost of Quality Price Modeling Report for home-based care in 2024 and a similar report for center-based care in 2025. The approach of this study diverges from the child care cost literature in that this study seeks to determine the costs of providing care based on extensive empirical modeling of the prices charged. The present study replicates the methodology of the 2023 version of this study with some modifications. A sample of center-based child care facilities was surveyed to capture important quality factors and pricing information. In addition, extensive data were assembled to develop statistical models of the price of quality child care. These models estimate the marginal price of providing quality care based on quality choices individual facilities make, as revealed by the survey, as well as features of the local markets in which they operate, as measured by public data. 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 2025 Texas Child Care Cost of Quality Price Modeling Report uses Texas Rising Star certification and national accreditation as examples of higher quality. The report presents several calculators focused on factors related to the structural quality of early childhood education programs. These factors include, for example, staffing ratios and staff turnover; director and staff education and experience; staff training expenses; staff earnings and benefits provided; and curriculum and assessment factors. The calculators are intended to assist providers, Local Workforce Development Boards, the State, and other stakeholders in understanding cost drivers for improving quality as well as revealing which structural quality factors are typically used by providers to reach higher quality tiers. These calculators represent the results of statistical models that control for differences in external supports facilities receive, including reduced cost services, donations, participation in the Child and Adult Care Food Program, and other factors. Controlling for these extraneous costs increases the precision of the estimated price of quality and related factors. Texas Rising Star is a tiered quality rating and improvement system with certifications of higher quality at Two-, Three-, and Four-Star levels. Accreditation from the following national accrediting bodies were considered evidence of higher quality: National Association for the Education of Young Children (NAEYC); National Association for Family Child Care (NAFCC; for home-based providers); National Early Childhood Program Accreditation (NECPA); National Accreditation Commission for Early Child Care and Education (NAC); Council of Accreditation (COA); Cognia (formerly AdvancED Quality Early Learning Standards, or QELS); and Association of Christian Schools International (ACSI). 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? TWC used the 2024 and 2025 Texas Child Care Cost of Quality/Price Modeling reports to inform rate setting, making targeted increases (above the 75th percentile) to over 45 percent of individual rates. Statewide, rates at the 75th percentile increased by 9 percent. The Cost of Quality Report includes baseline rates, which reflect the amount required to, at a minimum, meet state licensing standards. If the Cost of Quality Report indicated that the baseline rate exceeded the Market Rate Survey 75th percentile, TWC used the baseline rate from the Cost of Quality Report. For example, for child care centers, 71 percent of infant base rates were increased above the 75th percentile and 29 percent of toddler rates were increased above the 75th percentile. For home-based providers, 82 percent of infant rates 67 percent of toddler rates were increased above the 75th percentile. TWC will continue to increase rates based on this methodology to ensure gaps between cos and price are addressed. 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: 7/22/2025 ii. Provide the date the report containing results was made widely available (no later than 30 days after the completion of the report): 7/22/2025 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: TWC provides links to current and previous MRSs and Cost of Quality Reports on its Child Care Data, Reports & Plans webpage at https://www.twc.texas.gov/programs/child-care/data-reports-plans. The MRS and Cost of Quality Price Modeling Reports are also posted on The University of Texas at Austin, Texas Institute for Child & Family Wellbeing website at https://txicfw.socialwork.utexas.edu/research/project/child-care-market-rate- survey/. 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: As TWC developed the MRS and Cost of Quality methodology, TWC solicited feedback from focus groups, via emails to stakeholders, and public webinars. TWC engaged Boards, CCR, TEA, CLI, and multiple child care policy and advocacy groups. TWC briefs stakeholders annually on the publication of the MRS and the Cost of Quality Report. Stakeholders and the public are welcome to provide input at any time through TWC’s stakeholder input email at ccel@twc.texas.gov. Consistent and significant rate increases over the last five years reflect stakeholder voice. In Fiscal Year 2020, the base reimbursement rate was set at the 30th percentile, beginning in FY23, the base reimbursement rate is set at the 75th percentile. And, beginning in FY24, the base reimbursement rate was increased above the 75th percentile based upon the Cost of Quality report.