Establishing the Real Cost of Child Care: Examining States' Approaches to Determining Child Care Costs

Background and purpose

The federal Child Care and Development Fund (CCDF), the largest source of subsidy support for child care for low-income families, aims to increase equitable access to child care. The current federal benchmark for equal access is 75% of the Market Rate Survey (MRS) results. Not all states have achieved the 75th percentile rate across all child care types. The MRS has limitations including timing differences, too few states meeting the benchmark, and rates not reflecting true costs of providing care.

In 2014, CCDF introduced the Alternative Method (AM) and the Narrow Cost Analysis (NCA) to inform subsidy rates that reflect costs incurred by child care providers rather than prices that families pay. States/territories can choose to conduct the AM in lieu of the MRS or conduct the MRS with the NCA. There is little guidance on how states should build their costing model or data sources, and no identified benchmark for setting subsidy rates. The proposed presentation will review a comprehensive analysis of state plans to determine who was using AM/NCA and the methodology employed to understand how states are more innovatively addressing child care equity.

Methods

An in-depth document review of publicly available CCDF 2025-2027 plans for all states and Washington D. C. was conducted. An initial review by a team of three researchers focused on the Assess Market Rates and Analyze the Cost of Child Care and Adequate Payment Rates sections. Researchers individually reviewed and recorded data from one-third of reports, collecting data on approach and costing process details, then reviewed each state’s costing reports. A fourth researcher conducted a masked, random review of 20% of states for reliability. The results were then thematically compiled and reviewed.

Results

Of the 51 states/territory examined, 6 fully completed an AM study, 4 were in process. The remaining conducted a NCA. 28 states utilized cost models based on the Provider Cost of Quality Calculator recommended by ACF. Other types of cost models (Preschool Quality & Revenue model, ingredient method, etc.) were also used. 12 states conducted their analyses internally. The remaining states utilized external consulting firms (n=25) or academic researchers (n=14).

State/territory data sources included survey data, existing cost databases, default values from cost calculators and state averages. 9 states reporting using incentives ($25 to $100 per participant) to boost response rates. Salary represented the largest cost. 13 states used actual salaries in their cost models while other states used estimates or aspirational wages (e.g. living wage).

Implications and Conclusions

The absence of comprehensive guidance and benchmarks on constructing costing models, selecting appropriate data, and interpreting results has resulted in diverse methodologies among states, but limited conclusion on next steps. Some states have conducted highly accurate, detailed multi-year studies of provider costs, while others have relied on online calculators tailored to their specific state. Subsidy rate setting derived from a highly detailed model may yield different results than those based on an on-line calculator or estimated costs.