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www.prenatal5fiscal.org 8 esDmaDon model developed for New Mexico’s alternaDve methodology process in 2021. As shown, the average gap between the subsidy rate, based on market prices, and the cost of care as esDmated by the cost esDmaDon model is significantly higher for infants than it is for any other age group. Source: Capito, J. Rodriguez-Duggan, J. and S. Workman, Understanding the cost of quality child care in New Mexico: A cost esGmaGon model to inform subsidy rate seIng. (Prenatal to Five Fiscal Strategies, 2021). Available at: hRps://www.nmececd.org/wp-content/uploads/2021/08/P5FS_NMReport_v.3d_forWeb.pdf

Any state considering using an alternaDve methodology, instead of a market rate survey, is required to submit a descripDon of its proposed approach to its ACF Regional Child Care Program Office for pre- approval.xxx This request must provide an overview of the proposed approach (e.g., cost esDmaDon model, cost study/survey, etc.), and describe how data will be collected and used and the metrics the state will use to set rates based on the alternative methodology. The Lead Agency also must describe the estimated reporting burden and cost to conduct the alternative approach and detail how it will engage the community, including the State Advisory Council, or a similar body. As with the market rate approach, Lead Agencies must submit a report with their CCDF state plan detailing the alternative methodology process and how the results were used to inform rates.xxxi In general, developing a cost estimation model for the first time is a 6-12 month process, depending on the number of child care providers in the state, the approach to, and level of, provider engagement in the development of the cost model and in data collection, and what level of modeling and data collection has already been completed. The cost of developing a cost estimation model is also highly varied, dependent on several of the same factors. However, it is often not significantly more expensive than conducting a market rate survey. More information about the steps involved in building a cost estimation model are available in the appendix.

Considera@ons for Cost Modeling for Family Child Care Homes By its nature, family child care is a different business model to a child care center. Family child care (FCC) providers are small businesses, typically female-led sole proprietors, operaYng out of their homes. While an FCC provider is held to licensing regulaYons and quality standards, just as other care sebngs are, the way they operate their program and the way expenses are incurred, is different from school or center-based sebngs and requires an accurate cost model to guide decision-making specific to the family child care modality.

One core element of cost modeling for FCC is acknowledging the compensaYon of the provider/owner. In line with most small businesses, FCC providers/owners typically see a salary based on what is le^ at the end of the $1,031 $960 $774 $640 $1,306 $1,015 $887 $687 $- $200 $400 $600 $800 $1,000 $1,200 $1,400 Infant Toddler Preschool School Age Figure 1: Comparison of monthly market-based subsidy rates, and estimated cost of care, New Mexico Subsidy Rate Cost of Quality