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? The initial model was developed in June 2022 and is under review as of July 1, 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. The final 2022 methodology used to inform payment rate increases in 2022 and 2023 closely matched the pre-approved methodology. VDOE chose to heavily emphasize compensation as the primary cost driver for quality in its initial model. 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: VDOE has engaged the Early Childhood Advisory Committee (ECAC) on multiple occasions over the last several years since embarking on the process for implementing an alternative methodology. The ECAC has continued to provide feedback on subsidy payment rates and related policies, which informed the data and assumptions incorporated into the model. VDOE presented the proposed approach for the alternative methodology at an Early Childhood Advisory Committee meeting to accept feedback and answer questions regarding the approach. iv. Local child care program administrators: The Virginia League of Social Service Executives (VLSSE) is a membership organization for local departments of social services leadership. VDOE regularly attends meetings of the child care committee for VLSSE to hear directly from local case workers the challenges that families and providers face in enrolling and ongoing participation in the Child Care Subsidy Program. The recurring feedback provided from local agency staff informed VDOE’s proposed methodology, data inputs, and assumptions. Updates to the rates, the model, and any adjustments to the proposed approach are shared with VLSSE members to gather feedback and answer questions. v. Local child care resource and referral agencies: VDOE partners with Child Care Aware of Virginia to aid parents in their search for child care and to provide recruitment and training for child care subsidy providers. In this partnership, it is important for Child Care Aware of Virginia to be knowledgeable of the state’s alternative methodology and how that informs subsidy payment rates and policies. VDOE engages with Child Care Aware on a monthly basis for discussion, gathering feedback, and answering questions. vi. Organizations representing child care caregivers, teachers, and directors from all settings and serving all ages: VDOE hosted 16 stakeholder engagement sessions to garner feedback on the initial methodology. Participation in the sessions represented child care caregivers, teachers, and directors from all settings and serving all ages, including private center- and home-based owners, operators, and directors, Directors of Head Start programs (the Virginia Head Start Association), the Early Childhood Education Consortium (ECEC), Virginia Child Care Association (VCCA), the Virginia Alliance for Family Child Care Associations (VAFCCA), and the provider advisory group of the Virginia Promise Partnership. The Early Childhood Advisory Committee (ECAC) membership also includes representatives spanning the diversity of child care and early education programs in the Commonwealth. vii. Other. Describe: VDOE held stakeholder engagement sessions for parents (the Virginia Promise Partnership parent advisory group), VPOST (the Virginia Partnership for Out-of-School-Time), and the general public to share information about the alternative methodology and garner feedback. 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 cost model aligns to the nine Ready Regions of the Commonwealth. The model can also run statewide results which provide an average across all nine regions. Geographic variation in cost is reflected in two primary variables that vary at the regional level: 1) personnel expenses (primarily compensation) and 2) nonpersonnel expenses. 1) Salary data from the VDOE Teacher Salary Survey Results are used to generate regional compensation targets scaled to elementary educator salaries. Salaries for elementary teachers are converted into hourly wages and calculated as a weighted average hourly wage by region. VDOE prorates these salary estimates to account for educational requirements for child care educators. 2) Nonpersonnel expenses - variations in operating cost across the Commonwealth are accounted for in the model by using a modified version of the Cost of Competing Adjustment (COCA) measure that is used by the VDOE to adjust per-child costs for K-12 school divisions in certain areas of the state with higher overall costs of living. 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). VDOE’s cost estimation model assesses the cost of meeting state licensing standards and meeting quality expectations in VQB5. The cost estimation considers center- and home-based programs of various sizes and the cost of meeting basic health and safety standards for each program type. For centers, the model assumed no significant cost differences between licensed and unlicensed providers because any program receiving public funding is required to meet basic health and safety standards and Virginia’s licensing requirements are nearly identical to basic health and safety standards for child day centers. Virginia created separate models for licensed (large) and unlicensed (small) family day homes to assess the differences in operating costs associated with meeting different requirements. 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 considers costs associated with serving age ranges defined in Virginia child care licensing standards (infants, toddlers, two-year-olds, preschoolers, and school-age children) in each setting. The model accounts for group size, ratio, and staffing requirements in Virginia’s licensing regulations. In centers, the model assumes age-based classrooms. In family day homes, the model estimates the impact of serving a mixed-age group of children. The cost- per-child calculation in family day home settings does not provide a different cost for different age groups, due to the program operating as one single group of children rather than age-defined classrooms. iv. Describe any other key variations examined by the market rate survey or ACF pre- approved alternative methodology, such as quality level: Virginia's alternative methodology examines the cost of meeting quality expectations in Virginia’s new uniform quality measurement and improvement system, VQB5. Beginning in the fall of 2023, all publicly funded programs are required to participate in VQB5. Virginia selected two nationally recognized quality standard measurements for VQB5: interactions and curriculum. All publicly-funded programs have the same quality expectations under VQB5. There are no mandatory costs associated with participating in VQB5 or achieving higher levels of quality. The model’s core assumption is that being able to attract and retain competent and competitive educators is the primary driver of quality and quality improvement. As such, the model accounts for competitive compensation, benefits, and planning time to facilitate a stable and supported workforce for providers meeting or exceeding quality expectations. 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)? VDOE used its cost estimation model to conduct the narrow cost analysis. Data used in the model include child care licensing data and VDOE salary survey data to understand variations in program types, sizes, ages of children served, and region of the state and subsequent impacts on cost. The model uses nonpersonnel default data from the Provider Cost of Quality Calculator. b. In the Lead Agency’s analysis, were there any relevant variations by geographic location, category of provider, or age of child? The model includes all aspects of program operations for center-based and family day home settings, serving children from birth to 12 years of age with full day, full year child care. Variations in geographic location, category of provider, and age of children served all were considered in the development of Virginia’s model and are embedded within the model functionality, as described below and throughout this section. Geographic location: Regional variation in personnel and nonpersonnel costs aligned to Virginia’s nine Ready Regions. Category of provider: The model incorporates differing business models and cost drivers in center and family day home settings (e.g., health and safety standards; provider compensation; and staffing patterns to meet licensing requirements, support quality improvement, and administrative needs for full program operations). Age of child: Licensing standards define ratios, group sizes, and ages of children in each category (infants, toddlers, two-year-olds, preschoolers, and school-age children). 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.)? Many factors were considered in developing the model and are embedded within the model functionality, including child care licensing regulations, core program characteristics and quality enhancements, and available data on child care expenses and revenue sources. The model is designed to incorporate the following factors that impact the cost of providing care: Licensing standards defining ratios, group sizes, and ages of children in each category; Staff and FDH provider compensation (salary and benefits); and the cost of meeting quality expectations in VQB5. 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). Throughout the process of developing the alternative methodology, VDOE engaged deeply with private stakeholders to develop and integrate the following guiding principles: 1) Virginia’s unique public-private system should offer true choice for families. 2) Rates should reflect higher quality expectations for which publicly-funded programs are now accountable under VQB5 and should support continuous quality improvement accordingly. 3) Educator compensation should be competitive. Compensation for early childhood educators should attract and help retain competent professionals. Competitive compensation, pegged to public teacher salaries, is a core component of Virginia’s model and strategy to support educators toward quality -- fostering strong teacher-child relationships, providing quality interactions on a consistent basis, and implementing effective curricula, all while reducing staff turnover. 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? Effective October 1, 2022, VDOE updated its payment rates to get subsidy payment rates closer to the true cost of quality. Full-day payment rates were set at 75% of the cost of care for centers at each age group. For Family Day Homes, the model generates a single cost for all children, assuming the program operates as one single, mixed-age group of children rather than age-defined classrooms. Based on initial stakeholder feedback from family day home providers, VDOE initially set payment rates for each age group at a graduated proportion of cost, with the highest rate for infants and lowest for school-age. Later, the Agency was able to implement rate increases. Effective August 3, 2023, full-day payment rates are set at 100% of the cost of care for Family Day Homes. The Agency prioritized setting rates at a percentage of cost that resulted in a significant increase for most localities, with an emphasis on infants and toddlers, while also prioritizing sustainability. For most localities, age groups, and program types, the daily payment rate increased substantially. Comparing the 2018 average MRR (which was set using a Market Rate Survey) to the 2023 average MRR (rates set using Virginia’s Alternative Methodology), shows that the average 2018 MRR for infants in Licensed Centers was $39/day and ranged from an average of $27/day in Region 1 to $86/day in Region 7. With the revised 2023 rates, the average MRR for infants in Licensed Centers is $72/day and ranges from $63/day in Region 1 to $94/day in Region 7. For Licensed Family Day Homes, the average 2018 MRR for infants was $31/day and ranged from an average of $22/day in Region 1 to $59/day in Region 7. With the revised 2023 rates, the average MRR for infants in Licensed FDH is $59/day and ranges from $53/day in Region 1 to $81/day in Region 7. For the small number of localities where the cost model generated a rate that was lower than the 2018 MRR, VDOE used a ￿hold harmless￿ approach and the higher rate was kept the same. 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: 9/21/2023 ii. Provide the date the report containing results was made widely available (no later than 30 days after the completion of the report): 9/21/2023 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: ChildCareVA at https://www.childcare.virginia.gov/reports-resources/research- reports-and-resource/virginia-s-cost-estimation-model and has been shared with partner organizations for broad dissemination. 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: VDOE hosted 16 stakeholder engagement sessions to garner feedback on the proposed methodology. Over 370 individuals participated in the sessions. During the sessions, VDOE provided a structured overview of the cost estimation model and answered participants’ questions about the analyses and implications for setting payment rates. VDOE also accepted feedback from participants regarding the validity of key cost drivers and assumptions. Stakeholder feedback was incorporated into the final version of the model as appropriate and informed VDOE’s approach to setting rates.