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www.prenatal5fiscal.org 3 Introduc&on The cost of child care can be an overwhelming burden, particularly for families on low-incomes.i To help support access to child care, families meeting certain criteria may be eligible for assistance through the Child Care Development Fund (CCDF). This federal-state program helps cover some, or all, of price of child care tuition, up to a maximum level as set by the CCDF Lead agency in each state or territory.ii In Vermont, the Department for Children and Families administers CCDF funding through the Child Care Financial Assistance Program (CCFAP). Each state or territory sets the payment rates that child care programs receive when serving a child who is eligible for subsidies under CCDF. In general, states have broad authority to set these reimbursement rates.iii Historically, states were required to conduct a market rate survey, collecting data on tuition prices in the child care market, and then setting rates at a percentile of the market rate. However, since the 2014 reauthorization of CCDF, Lead Agencies have had options for the approach they use for rate setting. Lead agencies can either use the market survey-based approach, or they can use an alternative methodology, such as a cost estimation model, in which rates are informed by the costs incurred by providers in offering quality care. Vermont uses a market rate survey to inform the CCFAP rates that are set by the legislature. The market rate survey approach is the prevalent method across the country, also currently used by all but three CCDF Lead Agencies. This report will detail the current methodology used by Vermont and discuss alternatives to this approach, the programmatic and financial implications, and examples of how they have been employed in other states. Vermont’s Current Approach to CCFAP Rate SeAng Vermont’s child care subsidy system, the Child Care Financial Assistance Program (CCFAP), provides financial assistance to eligible families to help cover the cost of child care. In most circumstances, eligible families must be employed, seeking employment, or parDcipaDng in training or educaDon programs and have a monthly gross income at or below the levels established in the Vermont Child Care Financial Assistance Schedule.iv As of 2021 with the passing of Act 45, income eligibility extended to serve families earning at or below 350 percent of the federal poverty level (FPL).v Providers serving eligible families receive reimbursement from the state for the care they provide, up to a maximum amount determined by the state, known as the subsidy rate. Currently, families with incomes above 175 percent of FPL are required to pay a weekly family share, based on a sliding fee scale, with the amount the provider receives from the state reduced accordingly. As of April 1, 2024, the level at which families are required to pay the family share will increase to 185 percent of FPL. Historically, Vermont has used a Market Rate Survey (MRS) methodology to establish CCFAP provider reimbursement rates. Under this approach, the state analyzes data on provider’s tuiDon rates, and determines a base rate at a percenDle of those market rates. 1 In this way, the state CCFAP payment is intended to cover the cost of child care up to a set percenDle of the rates in the private child care market. Before July 2023 and the passing of Act 76, regulated programs in Vermont received a Dered payment rate based on the STep Ahead Recogni0on System (STARS), Vermont’s Quality RaDng Improvement System.vi This Dered rate ranges from a five to 40 percent increase over the base rate, according to the programs STARS raDng. Child care programs achieving four stars were reimbursed at the 75th percenDle of the market rate for each age group and provider type. Family contribuDons in the form

1 The market rate is reported by child care programs to the Vermont Department for Children and Families, Child Development Division and collected in the Bright Futures Informa?on System (BFIS). For more see: hEps://outside.vermont.gov/dept/DCF/Shared%20Documents/CDD/Reports/CC-MRS/CC-MRS-Report-2019.pdf