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Source: Virginia Department of EducaGon, Virginia’s Early Childhood Advisory CommiRee (ECAC) [presentaGon]. September 29, 2022. Available at: hRps://www.doe.virginia.gov/home/showpublished document/26948/638045698894600000 Programma&c and financial implica&ons Moving to a cost-based approach to rate senng can represent a significant change for state systems, with both programmaDc and financial implicaDons. It is necessary to fully analyze these implicaDons and address them alongside rate changes to ensure the changes have their intended impact. For example, in some instances, states are finding policies or regulaDons that may prohibit their implementaDon of rates informed by cost of care, when this cost-based payment rate is higher than the tuiDon rate, a provider is charging to families. Many states report a form of limitaDon on payment rates going above tuiDon charged; in these states, the limitaDon may be found in statute, regulaDon, or policy. In Vermont, Act 76 removed this limitaDon and providers can receive the statewide-determined rate even if published tuiDon is lower.xxxvi For others, making a change to rate categories – such as going from county-level rates to regional rates or a statewide rate – may require significant administraDve or technology changes that must be accounted for in both Dmelines and budgets.

Using a cost-based approach to rate senng can provide a significant increase in transparency around rate senng and can help states beFer plan future budgets. Under the market rate survey approach, states have liFle insight into how costs will increase in the future because it is market-dependent. With a cost-based approach, states can use the cost model to esDmate the fiscal impact of various future scenarios. For example, a state may use the model to esDmate how much rates would increase if compensaDon levels increased by an esDmated future inflaDon number, or by a different percentage, including one aligned with a planned increase in minimum wage or living wage values for their communiDes. Each cost driver in the model can be adjusted individually so states can model the impact on rates of increased costs across all expenses, or for individual expense items such as uDlity costs, occupancy, or compensaDon.

In addiDon, the fiscal impact of any future changes to state requirements for licensed child care programs can also be esDmated using the model. For example, if a state were to change raDo and/or group size regulaDons or require programs to offer paid planning Dme or addiDonal family engagement 75% 94% 82% 76% 70% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Centers FCC - Infant FCC - Toddler FCC - Preschool FCC - School age Figure 2: Subsidy rate as a percent of cost of care, Virginia