income . Programs must set tuition at what families in their community are able to afford , rather than what the service costs . This creates an inequitable system that perpetuates inequality between higher-income and lower-income communities . Providers in communities where families cannot afford high tuition receive lower reimbursement rates than providers in higher-income neighborhoods . This often results in lower educator compensation and higher staff turnover in lower-income communities . Setting rates based on the current market also serves to maintain the low wages that early childhood educators receive , particularly in low-income communities . The impact of this
market failure exacerbates lower-quality settings and lower wages across child care , disproportionately affecting low-income communities , minority groups and communities of color . The market , driven by tuition or the price that families are able to pay , is not representative of the cost of child care .
In a functioning market where parents as the consumer can afford the true cost of care , setting rates based on price would allow subsidy-eligible families to have access to child care equal to the access of those paying tuition . However , because 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 are greatest . For example , a provider might be able to achieve financial stability when serving preschool-age children , or in a program that meets state licensing standards , but if that same program serves infants and toddlers , or meets higher program standards , this can leave them operating at a deficit .
The ongoing impacts of the pandemic have exacerbated the broken nature of the child care market . Operating on razor-thin margins already , the
increased costs and
decreased revenue due to the
Defining 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 and not on what parents can afford .
TRUE COST OF CARE refers to the cost of operating a high-quality program with the staff and materials needed to meet quality standards and provide a developmentally appropriate learning environment for all children . Cost of quality is another term often used to refer to the true cost of care . The true cost includes adequate compensation , wages and benefits , to recruit and retain a professional and stable workforce .
pandemic have left the child care sector reeling . Policymakers are increasingly recognizing the deficiencies of the market price-based approach to rate setting and the need to better align investments to the cost of the service .
Since the 2014 reauthorization of the Child Care Development Block Grant , which funds CCDF , states have another option of setting rates , called an ‘ alternative methodology .’ This methodology is an alternative to the market rate survey approach , which was the only methodology prior to 2014 reauthorization . This alternative methodology can take the form of a cost study or a cost estimation model :
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