The prevailing method for setting reimbursement rates for child care subsidy programs under the federal Child Care and Development Fund (
CCDF ) is through a market rate approach . This approach , which is currently used to set Working Connections Child Care ( WCCC ) subsidy rates , relies on a study of market prices for child care through a market rate survey . States are required to conduct market rate surveys every three years and are encouraged to set rates at a level that provides for
equal access to the market for families using subsidy and those paying full tuition ( see " Understanding the true cost of child care in Washington state " for more information on equal access ).
Market rate setting methodologies negatively affect communities with high concentrations of families with low incomes because rates are based on what families can afford rather than the true cost of care . They can also disincentivize licensed programs from serving children who need specialized care . For example , a provider might be able to affordably provide care for preschool-age children , but if that same program serves infants and toddlers , or meets higher program standards , it would operate at a deficit .
As explained in " Understanding the true cost of child care in Washington State ," since the 2014 reauthorization of the Child Care Development Block Grant , which funds CCDF , states can use an " alternative methodology " to set rates . This alternative methodology can take the form of a cost study or a cost estimation model :
A cost study involves collecting data from providers about their operating costs for a program that meets licensing standards and other quality standards , reflecting point-intime data about provider costs .
" Understanding the true cost of child care in Washington State " defines these terms : Price of care means the tuition prices that programs set , which are usually based on local market conditions and what families can afford , ensuring that programs are competitive 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 contributions such as reduced rent . It includes allocating expenses across classrooms and enrolled children based on the cost of providing service , not on what parents can afford .
Cost of quality care means the true cost of care . It refers to the cost of operating a highquality program with the staff and materials needed to meet quality standards and provide a developmentally appropriate learning environment for all children . It includes adequate compensation , wages and benefits to recruit and retain a professional and stable workforce .
A cost estimation model is a tool that can estimate the fiscal impact ( s ) of policy and budget changes . It can be used to inform short- and long-term fiscal planning , including revenue-generation planning . 28
Prenatal to 5 Fiscal Strategies ( P5FS ) designed and conducted a study to develop a cost estimation model for Washington . This cost of quality care study centered the experiences of providers . As indicated in Figure 1 ( cost estimation model constituent input ), P5FS used several modes of information gathering and input from providers and stakeholders , including a provider survey , interviews with providers , and focus groups . For more information on methodology for the cost model analysis , see the full technical report " Understanding the true
2022 COST OF QUALITY CHILD CARE LEGISLATIVE REPORT 17