Page 8

www.prenatal5fiscal.org 6 tuition levels still leave providers struggling to cope.xxi And even fewer families can afford the full cost of quality child care, especially when it includes paying sufficient compensation to recruit and retain child care educators.xxii Not surprisingly, the current child care market has created an inequitable system and one that disincentivizes providers from serving subsidy-eligible families and investing in quality.xxiii Insufficient funding levels, from both private pay tuition and public subsidies, results in low compensation and high turnover in the child care sector, For example, in Vermont, the median wage for child care workers is $15.43 per hour, and most have no access to discretionary benefits such as health insurance, a retirement plan, or paid leave.xxiv This market failure also disproportionately affects families of infants and toddlers, low-income communities, minority groups, and communities of color.xxv Since most families cannot afford the cost of child care, programs face a disincentive to serve children for whom the gap between what families can afford and what it costs to provide care is greatest, such as infants and toddlers. For example, a provider might be able to achieve financial stability when serving preschool-age children, or in a program meeting the minimum state licensing standards. But if that same program serves infants and toddlers or meets higher quality standards (such as those set by the state Quality Rating and Improvement System or national accreditation), this will likely leave them operating at a deficit. The cost of providing infant and toddler child care is higher than for preschool-age children because of the required lower staff-child ratios for younger children.xxvi This is often not fully reflected in tuition prices because families of infants are unable to afford this cost, but under the market rate survey approach to rate setting this higher cost is also not fully reflected in subsidy rates. As a result, providers lose more money serving infants and toddlers on subsidy than they do serving preschool-age children, leading to a disincentive to serve this population, which has contributed to the higher incidences of child care deserts for children under three. xxvii While the federal Administration for Children and Families (ACF) which sets CCDF regulations, encourages but does not require CCDF Lead Agencies to set their payment rates at the 75th percentile of the market rate survey, the shift to this requirement alone would not resolve the broken nature of the child care market. Continuing to use the price of child care or the amount the market of parent consumers can bear, will not cover the actual cost of the child care services. Even in instances where Lead Agencies set their child care subsidy payment rates above the 75th percentile, they are not necessarily paying for the cost of services, and instead replicating the issues of child care tuition limited to what families can afford in given communities, not the cost of the service delivered by the program. For example, the 2021 Financing Study commissioned by the Vermont Joint Fiscal Office estimated the cost of infant care in a center-based Defining terms

PRICE OF CARE means the tuiYon prices that programs set, which are usually based on local market condiYons and what families can afford, ensuring that programs are compeYYve within their local market and can operate at as close to full enrollment as possible.

COST OF CARE means the actual expenses providers incur to operate their program, including any in-kind contribuYons such as reduced rent, and allocaYng expenses across classrooms and enrolled children based on the cost of providing service and not on what parents can afford.

TRUE COST OF CARE refers to the cost of operaYng a program with the staff and materials needed to meet regulaYons quality standards and provide a developmentally appropriate learning environment for all children. Cost of quality is another term o^en used to refer to the true cost of care. The true cost includes adequate compensaYon and an approach to staffing to recruit and retain a professional and stable workforce.