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Proposed Rule2023-14290

Improving Child Care Access, Affordability, and Stability in the Child Care and Development Fund (CCDF)

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Published

July 13, 2023

Issuing agencies

Health and Human Services Department

Abstract

The Department of Health and Human Services, Administration for Children and Families proposes to amend the Child Care and Development Fund (CCDF) regulations. This notice of proposed rulemaking (NPRM) proposes changes to lower families' child care costs, which can be a significant financial strain for families and disincentivize work, training, and education. It proposes changes to improve child care provider payment rates and practices to increase parent choice for child care arrangements and help stabilize operations for participating providers. It also proposes ways for CCDF Lead Agencies to streamline eligibility and enrollment processes so families can receive child care assistance faster and so program bureaucracy is less likely to disrupt parent employment, training, and education and impede access to child care. The NPRM also includes technical and other changes to improve clarity and program implementation.

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[Federal Register Volume 88, Number 133 (Thursday, July 13, 2023)]
[Proposed Rules]
[Pages 45022-45053]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2023-14290]

[[Page 45021]]

Vol. 88

Thursday,

No. 133

July 13, 2023

Part III

Department of Health and Human Services

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45 CFR Part 98

Improving Child Care Access, Affordability, and Stability in the Child
Care and Development Fund (CCDF); Proposed Rule

Federal Register / Vol. 88, No. 133 / Thursday, July 13, 2023 /
Proposed Rules

[[Page 45022]]

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DEPARTMENT OF HEALTH AND HUMAN SERVICES

45 CFR Part 98

RIN 0970-AD02

Improving Child Care Access, Affordability, and Stability in the
Child Care and Development Fund (CCDF)

AGENCY: Office of Child Care (OCC), Administration for Children and
Families (ACF), Department of Health and Human Services (HHS).

ACTION: Notice of proposed rulemaking.

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SUMMARY: The Department of Health and Human Services, Administration
for Children and Families proposes to amend the Child Care and
Development Fund (CCDF) regulations. This notice of proposed rulemaking
(NPRM) proposes changes to lower families' child care costs, which can
be a significant financial strain for families and disincentivize work,
training, and education. It proposes changes to improve child care
provider payment rates and practices to increase parent choice for
child care arrangements and help stabilize operations for participating
providers. It also proposes ways for CCDF Lead Agencies to streamline
eligibility and enrollment processes so families can receive child care
assistance faster and so program bureaucracy is less likely to disrupt
parent employment, training, and education and impede access to child
care. The NPRM also includes technical and other changes to improve
clarity and program implementation.

DATES: In order to be considered, written comments on this proposed
rule must be received on or before August 28, 2023.

ADDRESSES: You may submit comments, identified by docket number ACF-
2023-0003 and/or RIN number 0970-AD02, to the Federal eRulemaking
Portal: <a href="https://www.regulations.gov">https://www.regulations.gov</a>. Follow the instructions for
submitting comments.
Instructions: All submissions received must include the agency name
and docket number or RIN number for this rulemaking. To ensure we can
effectively respond to your comment(s), clearly identify the issue(s)
on which you are commenting. Provide the page number, identify the
column, and cite the relevant paragraph/section from the Federal
Register document (e.g., On page 10999, second column, Sec.
98.20(a)(1)(i)). All comments received are a part of the public record
and will be posted for public viewing on <a href="http://www.regulations.gov">www.regulations.gov</a>, without
change. That means all personal identifying information (such as name
or address) will be publicly accessible. Please do not submit
confidential information, or otherwise sensitive or protected
information. We accept anonymous comments. If you wish to remain
anonymous, enter ``N/A'' in the required fields.

FOR FURTHER INFORMATION CONTACT: Megan Campbell, Office of Child Care,
202-690-6499 or <a href="/cdn-cgi/l/email-protection#ec81898b8d82c28f8d819c8e898080ac8d8f8ac284849fc28b839a">[email&#160;protected]</a>.

SUPPLEMENTARY INFORMATION:
I. Background
Costs, Benefits, and Transfer Impacts
Effective Dates
Severability
II. Statutory Authority
III. Discussion of Proposed Changes
Lowering Families' Costs for Child Care (Sec. Sec. 98.45,
98.33)
Prohibit Family Co-Payments That Are a Barrier to Child Care
Access
Allow Lead Agencies To Waive Co-Payments for Additional Families
Consumer Education
Improving Parent Choice in Child Care and Strengthening Payment
Practices (Sec. Sec. 98.16, 98.30, 98.45, 98.50)
Building Supply With Grants and Contracts
Sustainable Payment Practices
Paying the Established Subsidy Rate
Reducing Bureaucracy for Better Implementation (Sec. 98.21)
Presumptive Eligibility
Eligibility Verification
Application Processes
Additional Children in Families Already Receiving Subsidies
Implementing Technical and Other Changes for Improved Clarity
Definitions--Sec. 98.2
Section 98.13--Applying for Funds
Section 98.16--Plan Provisions
Section 98.21--Eligibility Determination Processes
Section 98.33--Consumer and Provider Education
Criminal Background Checks--Sec. 98.43
Child Care Services--Sec. 98.50
Availability of Funds--Sec. 98.60
Allotments From the Mandatory Fund--Sec. 98.62
Reallotment and Redistribution of Funds--Sec. 98.64
Contents of Reports--Sec. 98.71
Subpart I--Indian Tribes
Content of Error Rate Reports--Sec. 98.102
IV. Regulatory Process Matters
Paperwork Reduction Act
Regulatory Flexibility Act
Unfunded Mandates Reform Act of 1995
Executive Order 13132
Assessment of Federal Regulations and Policies on Families
V. Regulatory Impact Analysis
VI. Tribal Consultation Statement

I. Background

The Child Care and Development Block Grant Act, hereafter referred
to as the ``Act'' or (42 U.S.C. 9857 et seq.), together with section
418 of the Social Security Act (42 U.S.C. 618), authorize the Child
Care and Development Fund (CCDF), which is the primary Federal funding
source devoted to supporting families with low incomes access child
care and to increasing the quality of child care for all children. CCDF
plays a vital role in supporting child development and family well-
being, facilitating employment, training, and education, and improving
the economic well-being of participating families. In fiscal year (FY)
2020, the most current available data, more than 900,000 families and
1.5 million children benefited from financial assistance through CCDF
each month.\1\ At the same time, CCDF funding promotes the quality of
child care for the sector: CCDF Lead Agencies must spend at least 12
percent of their CCDF funding each year to increase the quality of
child care for all children.
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\1\ <a href="https://www.acf.hhs.gov/occ/data/fy-2020-preliminary-data-table-1">https://www.acf.hhs.gov/occ/data/fy-2020-preliminary-data-table-1</a>.
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In the years since the 2014 Reauthorization of the Child Care and
Development Block Grant (CCDBG) Act and the last CCDF final rule in
2016 (2016 CCDF final rule (81 FR 67438, Sept. 30, 2016)), CCDF Lead
Agencies have worked hard to strengthen child care policies and
practices, but child care remains a broken system in crisis due to
chronic underinvestment: Parents struggle to find affordable high-
quality care that meets their needs and the system relies on a very
poorly compensated workforce and unaffordable parent fees.\2\ The
COVID-19 public health emergency exacerbated these challenges,
highlighting both the fragility of the child care sector and the
central role child care plays in propping up the economy. Numerous
child care programs closed their doors permanently before sufficient
Federal supports arrived in 2021. A national analysis found that from
December 2019 to March 2021, 9 percent of licensed child care centers
and 10 percent of licensed family child care homes closed.\3\ Many
providers could not survive higher costs, labor shortages, and unstable
enrollment when operating margins are so thin even in the best of
times. In a 2022 survey of parents with children under the age of 5, 54
percent

[[Page 45023]]

of parents reported that child care was unavailable, and 41 percent
reported the location of programs was a barrier.\4\ Another 2022
national survey of parents with children under age 14 found that 43
percent of parents reported child care was much harder to find compared
to 2021,\5\ suggesting a growing need to address supply issues and the
conditions that make child care unstable. Lead Agencies leveraged
significant, one-time investments provided by the American Rescue Plan
Act and other COVID-19 relief funding packages to help mitigate the
extent of these issues.\6\ The FY 2024 President's Budget requested a
historic $424 billion over 10 years to further stabilize the child care
sector by making high-quality child care more affordable for working
families and increasing child care provider pay. As Congress
contemplates this proposal, HHS is exercising its regulatory authority
to provide additional clarity around key policies that are needed to
provide more help for families so they can find child care that meets
their families' needs and for the continued stabilization of the child
care sector.
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\2\ U.S. Department of the Treasury (September 2021). The
Economics of Child Care Supply in the United States, <a href="https://home.treasury.gov/system/files/136/The-Economics-of-Childcare-Supply-09-14-final.pdf">https://home.treasury.gov/system/files/136/The-Economics-of-Childcare-Supply-09-14-final.pdf</a>.
\3\ Child Care Aware of America. (March 2022). Demanding Change:
Repairing Our Child Care System. Arlington, VA: Child Care Aware of
America <a href="https://www.childcareaware.org/demanding-change-repairing-our-child-care-system/#supply">https://www.childcareaware.org/demanding-change-repairing-our-child-care-system/#supply</a>.
\4\ ParentsAction Together. (March 2022). New Survey Shows
Middle and Low Income Parents Struggling to Find Child Care They Can
Afford: As a Result, 62% of Respondents Had to Cut Back on Work
Hours. Washington, DC: ParentsAction Together. <a href="https://parentstogetheraction.org/2022/03/17/new-survey-shows-middle-and-low-income-parents-struggling-to-find-child-care-they-can-afford-as-a-result-62-of-respondents-had-to-cut-back-on-work-hours/">https://parentstogetheraction.org/2022/03/17/new-survey-shows-middle-and-low-income-parents-struggling-to-find-child-care-they-can-afford-as-a-result-62-of-respondents-had-to-cut-back-on-work-hours/</a>.
\5\ <a href="http://Care.com">Care.com</a>. (June 2022). This is how much child care costs in
2022. <a href="https://www.care.com/c/how-much-does-child-care-cost/">https://www.care.com/c/how-much-does-child-care-cost/</a>.
\6\ U.S. Department of Health and Human Services, Administration
for Children and Families. (May 25, 2023). COVID Investments in
Child Care: Supporting Children, Families, and Providers. <a href="https://www.acf.hhs.gov/occ/infographic/covid-investments-child-care-supporting-children-families-and-providers">https://www.acf.hhs.gov/occ/infographic/covid-investments-child-care-supporting-children-families-and-providers</a>.
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Access to affordable high-quality child care has numerous benefits
for children, families, and society as a whole, supporting child and
family wellbeing in the short-term and across the lifespan in a manner
that fuels prosperity and strengthens communities and the economy. It
is a necessity for most families with young children and improves
parental earnings and employment.7 8 9 Reliable access to
child care supports parents' educational attainment,\10\ labor force
participation, and full-time employment.\11\ Maternal employment
increases in response to more available and more affordable child
care,12 13 and conversely, maternal employment rates drop
when child care becomes more expensive for families, across income
brackets.\14\ The positive effects of high-quality child care are
especially pronounced for families with low incomes and families
experiencing adversity.\15\ Children with stably employed parents are
far less likely to experience poverty, particularly deep poverty, than
children whose parents have less consistent employment.\16\ High-
quality child care environments can also be important for children's
cognitive, behavioral, and socio-emotional development, helping chart a
pathway to succeed in school and beyond.\17\
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\7\ Council of Economic Advisors (2014). The Economics of Early
Childhood Investments. Accessed from <a href="https://obamawhitehouse.archives.gov/sites/default/files/docs/early_childhood_report_update_final_non-embargo.pdf">https://obamawhitehouse.archives.gov/sites/default/files/docs/early_childhood_report_update_final_non-embargo.pdf</a>.
\8\ Hartley, R.P., Chaudry, A., Boteach, M., Mitchell, E., &
Menefee, K. (2021). A lifetime worth of benefits: The effects of
affordable, high-quality child care on family income, the gender
earnings gap, and women's retirement security. Washington, DC:
National Women's Law Center and New York, NY: Center on Poverty and
Social Policy at Columbia University. <a href="https://nwlc.org/resource/a-lifetimes-worth-of-benefits-the-effects-of-affordable-high-quality-child-care-on-family-income-the-gender-earnings-gap-and-womens-retirement-security/">https://nwlc.org/resource/a-lifetimes-worth-of-benefits-the-effects-of-affordable-high-quality-child-care-on-family-income-the-gender-earnings-gap-and-womens-retirement-security/</a>.
\9\ Shonkoff, J.P., & Phillips, D.A. (Eds.). (2000). From
neurons to neighborhoods: The science of early childhood
development. National Academy Press.
\10\ Gault, B. and Reichlin Cruse, L. (2017). Access to Child
Care Can Improve Student Parent Graduation Rates. Washington, DC:
Institute for Women's Policy Research. <a href="https://iwpr.org/iwpr-general/access-to-child-care-can-improve-student-parent-graduation-rates/">https://iwpr.org/iwpr-general/access-to-child-care-can-improve-student-parent-graduation-rates/</a>.
\11\ Landivar, L.C. et al. (2021). Are States Created Equal?
Moving to a State with More Expensive Childcare Reduces Mothers'
Odds of Employment. Demography, 58(2), 451-470. <a href="https://read.dukeupress.edu/demography/article/58/2/451/169632/Are-States-Created-Equal-Moving-to-a-State-With">https://read.dukeupress.edu/demography/article/58/2/451/169632/Are-States-Created-Equal-Moving-to-a-State-With</a>.
\12\ Herbst, C. (2022). ``Child Care in the United States:
Markets, Policy, and Evidence.'' Journal of Policy Analysis and
Management. <a href="https://doi.org/10.1002/pam.22436">https://doi.org/10.1002/pam.22436</a>.
\13\ Herbst, C., and E. Tekin, 2011. ``Do Child Care Subsidies
Influence Single Mothers' Decision to Invest in Human Capital?''
Economics of Education Review 30, no. 5: 901-12. <a href="https://doi.org/10.1016/j.econedurev.2011.03.006">https://doi.org/10.1016/j.econedurev.2011.03.006</a>.
\14\ Landivar, Liana Christin, Nikki L. Graf, and Giorleny
Altamirano Rayo. (2023). Childcare Prices in Local Areas: Initial
Findings from the National Database of Childcare Prices. Women's
Bureau Issue Brief. U.S. Department of Labor. <a href="https://www.dol.gov/sites/dolgov/files/WB/NDCP/508_WB_IssueBrief-NDCP-20230213.pdf">https://www.dol.gov/sites/dolgov/files/WB/NDCP/508_WB_IssueBrief-NDCP-20230213.pdf</a>.
\15\ See, for example, Bustamante et al. (2022). Adult outcomes
of sustained high-quality early learning child care and education:
Do they vary by family income? Child Development, 93(2), 502-523.
<a href="https://srcd.onlinelibrary.wiley.com/doi/10.1111/cdev.13696">https://srcd.onlinelibrary.wiley.com/doi/10.1111/cdev.13696</a>.
\16\ Thomson, D., Ryberg, R., Harper, K., Fuller, J., Paschall,
K., Franklin, J., & Guzman, L. (2022). Lessons From a Historic
Decline in Child Poverty. Bethesda, MD: Child Trends. <a href="https://www.childtrends.org/publications/lessons-from-a-historic-decline-in-child-poverty">https://www.childtrends.org/publications/lessons-from-a-historic-decline-in-child-poverty</a>.
\17\ Shonkoff, J.P., & Phillips, D.A. (Eds.). (2000). From
neurons to neighborhoods: The science of early childhood
development. National Academy Press.
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Despite the importance of access to high-quality child care to
children, families, communities, and to our country's economic growth,
most families struggle to find or afford high-quality child care for
their children because of the limited supply--there are not enough
programs to serve families who need it, many programs do not offer care
the hours or days families require it, and unaffordable costs lead
parents to select lower quality care or forego it altogether.\18\ Every
year, parents, employers, and taxpayers miss out on $122 billion in
lost earnings, productivity, and tax revenue because of lack of child
care.\19\ One in four parents of children under three have been fired
from or quit a job because of challenges securing child care, and 41
percent have turned down a new job offer for this reason.\20\ Over
their lifetime, parents who pause their careers to care for children
lose three to four times their annual salary for each year out of the
workforce.\21\ A parent who remains out of the workforce for five years
reduces their overall lifetime earnings by nearly 20 percent.\22\ Not
only is child care expensive for most families, but more than half of
families in the United States live in communities where potential
demand for child care outstrips supply by at least three to one (called
child care deserts).\23\
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\18\ Federal Reserve Bank of St. Louis. The Economic Impact of
Child Care by State. <a href="https://www.stlouisfed.org/community-development/child-care-economic-impact">https://www.stlouisfed.org/community-development/child-care-economic-impact</a>.
\19\ Bishop, Sandra. (2023). $122 Billion: The growing, annual
cost of the infant-toddler child care crisis. Washington, DC:
ReadyNation. Council for a Strong America. <a href="https://www.strongnation.org/articles/2038-122-billion-the-growing-annual-cost-of-the-infant-toddler-child-care-crisis">https://www.strongnation.org/articles/2038-122-billion-the-growing-annual-cost-of-the-infant-toddler-child-care-crisis</a>.
\20\ Bishop, Sandra. (2023). $122 Billion: The growing, annual
cost of the infant-toddler child care crisis. Washington, DC:
ReadyNation. Council for a Strong America. <a href="https://www.strongnation.org/articles/2038-122-billion-the-growing-annual-cost-of-the-infant-toddler-child-care-crisis">https://www.strongnation.org/articles/2038-122-billion-the-growing-annual-cost-of-the-infant-toddler-child-care-crisis</a>.
\21\ Madowitz, M., Rowell, A., and Hamm, K. (2016). Calculating
the Hidden Costs of Interrupting a Career for Child Care.
Washington, DC: Center for American Progress. <a href="https://www.americanprogress.org/article/calculating-the-hidden-cost-of-interrupting-a-career-for-child-care/">https://www.americanprogress.org/article/calculating-the-hidden-cost-of-interrupting-a-career-for-child-care/</a>.
\22\ Ibid.
\23\ Malik, R. et al., (2018). America's Child Care Deserts in
2018. Washington, DC: Center for American Progress. <a href="https://www.americanprogress.org/article/americas-child-care-deserts-2018/">https://www.americanprogress.org/article/americas-child-care-deserts-2018/</a>.
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For many families, child care is prohibitively expensive. In 34
states and the District of Columbia, enrolling an infant in a child
care center costs more than in-state college tuition.\24\ Families with
children under age five and incomes below the Federal poverty line

[[Page 45024]]

who pay for child care spend 36 percent of their income on child care
on average, which leaves insufficient funding for food, housing, and
other basic costs.\25\ Households with incomes just above the Federal
poverty level spend more than 20 percent of their income on child care,
on average.\26\ The cost of child care can drive families to seek out
less expensive care, which may be unlicensed or unregulated and have
less rigorous quality or safety standards and be less reliable, or
forego child care entirely and exit the workforce.\27\ Even when
families receive child care subsidies, affordability, in terms of co-
payments, often remain a concern and can limit families' access to the
child care that best meets their needs.28 29 Co-payments can
be a barrier to parent employment, training, or education and are
associated with family financial stress and economic hardship. Research
finds that parents receiving subsidies continue to experience
substantial financial burden in meeting their portion of child care
costs.30 31 Other research shows that higher out-of-pocket
child care expenses, such as co-payments, reduce families' child care
use and parental (particularly maternal) employment.\32\
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\24\ Child Care Aware of America. (2022). Price of Care: 2021
child care affordability analysis. Arlington, VA: Child Care Aware
of America <a href="https://www.childcareaware.org/catalyzing-growth-using-data-to-change-child-care/#ChildCareAffordability">https://www.childcareaware.org/catalyzing-growth-using-data-to-change-child-care/#ChildCareAffordability</a>.
\25\ Madowitz et al. (2016). Calculating the Hidden Cost of
Interrupting a Career for Child Care. Washington, DC: Center for
American Progress. <a href="https://www.americanprogress.org/article/calculating-the-hidden-cost-of-interrupting-a-career-for-child-care/">https://www.americanprogress.org/article/calculating-the-hidden-cost-of-interrupting-a-career-for-child-care/</a>
.
\26\ National Survey of Early Care and Education Project Team
(2022): Erin Hardy, Ji Eun Park. 2019 NSECE Snapshot: Child Care
Cost Burden in U.S. Households with Children Under Age 5. OPRE
Report No. 2022-05, Washington DC: Office of Planning, Research and
Evaluation (OPRE), Administration for Children and Families (ACF),
U.S. Department of Health and Human Services (HHS). <a href="https://www.acf.hhs.gov/opre/report/2019-nsece-snapshot-child-care-cost-burden-us-households-children-under-age-5">https://www.acf.hhs.gov/opre/report/2019-nsece-snapshot-child-care-cost-burden-us-households-children-under-age-5</a>.
\27\ Hill, Z., Bali, D., Gebhart, T., Schaefer, C., & Halle, T.
(2021) Parents' reasons for searching for care and results of
search: An analysis using the Access Framework. OPRE Report #2021-
39. Washington, DC: Office of Planning, Research, and Evaluation,
Administration for Children and Families, U.S. Department of Health
and Human Services. <a href="https://www.acf.hhs.gov/opre/report/parents-reasons-searching-early-care-and-education-and-results-search-analysis-using">https://www.acf.hhs.gov/opre/report/parents-reasons-searching-early-care-and-education-and-results-search-analysis-using</a>.
\28\ National Survey of Early Care and Education Project Team
(2022): Erin Hardy, Ji Eun Park. 2019 NSECE Snapshot: Child Care
Cost Burden in U.S. Households with Children Under Age 5. OPRE
Report No. 2022-05, Washington DC: Office of Planning, Research and
Evaluation (OPRE), Administration for Children and Families (ACF),
U.S. Department of Health and Human Services (HHS). <a href="https://www.acf.hhs.gov/opre/report/2019-nsece-snapshot-child-care-cost-burden-us-households-children-under-age-5">https://www.acf.hhs.gov/opre/report/2019-nsece-snapshot-child-care-cost-burden-us-households-children-under-age-5</a>.
\29\ Hill, Z., Bali, D., Gebhart, T., Schaefer, C., & Halle, T.
(2021) Parents' reasons for searching for care and results of
search: An analysis using the Access Framework. OPRE Report #2021-
39. Washington, DC: Office of Planning, Research, and Evaluation,
Administration for Children and Families, U.S. Department of Health
and Human Services. <a href="https://www.acf.hhs.gov/opre/report/parents-reasons-searching-early-care-and-education-and-results-search-analysis-using">https://www.acf.hhs.gov/opre/report/parents-reasons-searching-early-care-and-education-and-results-search-analysis-using</a>.
\30\ Scott, E.K., Leymon, A.S., & Abelson M. (2011). Assessing
the Impact of Oregon's 2007 Changes to Child-Care Subsidy Policy.
Eugene, Oregon: University of Oregon. <a href="https://health.oregonstate.edu/early-learners/research/assessing-impacts-oregon%E2%80%99s-2007-changes-child-care-subsidy-policy">https://health.oregonstate.edu/early-learners/research/assessing-impacts-oregon%E2%80%99s-2007-changes-child-care-subsidy-policy</a>.
\31\ Grobe, Deana & Weber, Roberta & Davis, Elizabeth & Scott,
Ellen. (2012). Struggling to Pay the Bills: Using Mixed-Methods to
Understand Families' Financial Stress and Child Care Costs.
Contemporary Perspectives in Family Research (6), 93-121. <a href="https://health.oregonstate.edu/sites/health.oregonstate.edu/files/sbhs/pdf/struggling-to-pay-the-bills-using-mixed-methods-to-understand-families-financial-stress-and-child-care-costs.pdf">https://health.oregonstate.edu/sites/health.oregonstate.edu/files/sbhs/pdf/struggling-to-pay-the-bills-using-mixed-methods-to-understand-families-financial-stress-and-child-care-costs.pdf</a>.
\32\ Morrissey, T.W. (2017). ``Child care and parent labor force
participation: a review of the research literature.'' Review of
Economics of the Household 15.1: 1-24. <a href="https://link.springer.com/content/pdf/10.1007/s11150-016-9331-3.pdf">https://link.springer.com/content/pdf/10.1007/s11150-016-9331-3.pdf</a>.
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Moreover, an inadequate supply of child care continues to be a
significant problem nationally. A 2018 analysis found that 51 percent
of families with children under the age of 5 lived in a ``child care
desert''--an area where the availability of licensed child care is so
low that there are three times as many children under age 5 as there
are spaces in licensed settings.\33\ A 2019 analysis of supply and
demand in 35 states found only 7.8 million child care slots for the
11.1 million children under the age of 5 with the potential need for
child care.\34\ In the 2019 National Household Education Survey on
Early Childhood Program Participation, parents of children under the
age of 6 reported the lack of open child care slots as the second
biggest barrier to finding child care, with cost being the first.\35\
Parents have long struggled to find child care that meets their needs,
and the decline in child care options, especially family child care
homes, has perpetuated the problem. Between 2012 and 2019, the number
of family child care providers decreased by 25 percent \36\ without a
complementary increase in center-based programs.\37\ As previously
noted, the COVID-19 public health emergency put significant additional
strains on child care supply.38 39 40
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\33\ Malik, R. et al., (2018). America's Child Care Deserts in
2018. Washington, DC: Center for American Progress. <a href="https://www.americanprogress.org/article/americas-child-care-deserts-2018/">https://www.americanprogress.org/article/americas-child-care-deserts-2018/</a>.
\34\ Smith, L., Bagley, A., and Wolters, B. (November 2021).
Child Care in 35 States: What we know and don't know. Washington,
DC: Bipartisan Policy Center. <a href="https://childcaregap.org/assets/Child%20Care%20in%2035%20States.pdf">https://childcaregap.org/assets/Child%20Care%20in%2035%20States.pdf</a>.
\35\ Cui, J., and Natzke, L. (2021). Early Childhood Program
Participation: 2019 (NCES 2020-075REV), National Center for
Education Statistics, Institute of Education Sciences, U.S.
Department of Education. Washington, DC. <a href="http://nces.ed.gov/pubsearch/pubsinfo.asp?pubid=2020075REV">http://nces.ed.gov/pubsearch/pubsinfo.asp?pubid=2020075REV</a>.
\36\ A.R. Datta, C. Milesi, S. Srivastava, C. Zapata-Gietl,
(2021). NSECE Chartbook--Home-based Early Care and Education
Providers in 2012 and 2019: Counts and Characteristics. OPRE Report
No. 2021-85, Washington DC: Office of Planning, Research and
Evaluation, Administration for Children and Families, U.S.
Department of Health and Human Services. <a href="https://www.acf.hhs.gov/opre/report/nsece-hb-chartbook-counts-and-characteristics">https://www.acf.hhs.gov/opre/report/nsece-hb-chartbook-counts-and-characteristics</a>.
\37\ A.R. Datta, Z. Gebhardt, C. Zapata-Gietl, (2021). Center-
based Early Care and Education Providers in 2012 and 2019: Counts
and Characteristics. OPRE Report No. 2021-222, Washington DC: Office
of Planning, Research and Evaluation, Administration for Children
and Families, U.S. Department of Health and Human Services. <a href="https://www.acf.hhs.gov/sites/default/files/documents/opre/cb-counts-and-characteristics-chartbook_508_2.pdf">https://www.acf.hhs.gov/sites/default/files/documents/opre/cb-counts-and-characteristics-chartbook_508_2.pdf</a>.
\38\ Child Care Aware of America. (March 2022). Demanding
Change: Repairing Our Child Care System. <a href="https://www.childcareaware.org/demanding-change-repairing-our-child-care-system/#supply">https://www.childcareaware.org/demanding-change-repairing-our-child-care-system/#supply</a>.
\39\ Connecticut Association for Human Services. (July 2022).
Child Care at a Breaking Point: The Cost for Parents to Work <a href="https://cahs.org/pdf/child-care-survey-report7-15-22.pdf">https://cahs.org/pdf/child-care-survey-report7-15-22.pdf</a>.
\40\ Powell, L. and Kravitz, D. (August 2022). ``Michigan's
child care crisis is worse than policymakers have estimated'',
Chalkbeat Detroit. <a href="https://detroit.chalkbeat.org/2022/8/31/23329007/michigan-child-care-crisis-deserts-worse-policymakers-day-care">https://detroit.chalkbeat.org/2022/8/31/23329007/michigan-child-care-crisis-deserts-worse-policymakers-day-care</a>.
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A key contributor to this lack of supply is though child care is
often unaffordable and inaccessible for many families, child care
providers usually operate with profit margins of less than 1
percent.\41\ To remain open, child care providers must keep costs low,
and because labor is the main business expense, this translates to low
wages and minimal benefits for essential and skilled work
overwhelmingly done by women and disproportionately by women of
color.\42\ These working conditions also lead to high turnover, with an
estimated 26 to 40 percent of the child care workforce leaving their
job each year.\43\
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\41\ U.S. Department of the Treasury. (2021). The Economics of
Child Care Supply in the United States. <a href="https://home.treasury.gov/system/files/136/The-Economics-of-Childcare-Supply-09-14-final.pdf">https://home.treasury.gov/system/files/136/The-Economics-of-Childcare-Supply-09-14-final.pdf</a>.
\42\ Ibid.
\43\ Ibid.
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Unfortunately, limited funding and policies that do not adequately
support families and child care providers exacerbate systemic problems
and interfere with CCDF fully meeting its purposes and goals. Child
care subsidies only reach a small proportion of eligible families, with
only 16 percent of the 12.5 million eligible children receiving
assistance in FY 2019.\44\ Average CCDF co-payments in nine states
exceed 7 percent of family income, which can be a significant and
destabilizing financial strain on family budgets and barrier to

[[Page 45025]]

participating in the CCDF program and maintaining
employment.45 46 In addition, current CCDF payment rates and
practices used by many States, Territories, and Tribes do not
adequately cover the cost of providing high-quality care, particularly
in low-income communities, undermining child care availability and
parent choice. Some child care providers may find that relying on
federally-subsidized child care introduces significant financial
instability, which threatens their business viability. This instability
may also lead providers to avoid serving families using child care
subsidies.
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\44\ Chien, Nina. (September 2022). Factsheet: Estimates of
Child Care Eligibility & Receipt for Fiscal Year 2019. U.S.
Department of Health and Human Services, Office of the Assistant
Secretary for Planning & Evaluation. <a href="https://aspe.hhs.gov/sites/default/files/documents/1d276a590ac166214a5415bee430d5e9/cy2019-child-care-subsidy-eligibility.pdf">https://aspe.hhs.gov/sites/default/files/documents/1d276a590ac166214a5415bee430d5e9/cy2019-child-care-subsidy-eligibility.pdf</a>.
\45\ Landivar, L.C., Graf, N.L., & Rayo, G.A. (2023). Childcare
Prices in Local Areas: Initial Findings from the National Database
of Childcare Prices. U.S. Department of Labor. <a href="https://www.dol.gov/sites/dolgov/files/WB/NDCP/508_WB_IssueBrief-NDCP-20230213.pdf">https://www.dol.gov/sites/dolgov/files/WB/NDCP/508_WB_IssueBrief-NDCP-20230213.pdf</a>.
\46\ 81 FR 67515 (<a href="https://www.govinfo.gov/content/pkg/FR-2016-09-30/pdf/2016-22986.pdf">https://www.govinfo.gov/content/pkg/FR-2016-09-30/pdf/2016-22986.pdf</a>).
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This NPRM puts forth proposals to address some of the programmatic
and systemic challenges described here to build toward a better child
care system that properly addresses the needs of families across the
country. Though significant investments and bold system reform are
needed to fully realize this goal, it is clear the status quo is
untenable and that more must be done in the interim through this NPRM,
to make it easier for parents with low incomes to access affordable
high-quality child care that meets their family's needs. First, to make
child care more affordable to families participating in CCDF this NPRM
proposes to require that Lead Agencies establish co-payment policies
that ensure families receiving assistance under CCDF pay no more than 7
percent of their family income for child care. Further, the NPRM
provides Lead Agencies increased flexibility to waive co-payments for
additional families, in particular for families living at or below 150
percent of the Federal poverty level. Second, this NPRM proposes to
improve payment rates and practices to increase the financial stability
of child care providers that currently accept CCDF subsidies. This will
encourage new providers to participate in the subsidy system, improve
the quality of child care, promote continuity of care, and expand
parent choice in care arrangements.\47\ Third, the proposed revisions
in this NPRM encourage Lead Agencies to reduce the burden on families
of applying and re-applying for child care subsidies. This NPRM seeks
to make presumptive eligibility an easier process for CCDF Lead
Agencies and encourages more efficient enrollment and re-enrollment
processes. Finally, this NPRM includes technical and other proposals to
improve program clarity for Lead Agencies, parents, and providers.
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\47\ Giapponi Schneider, K., Erickson Warfield, M., Joshi, P.,
Ha, Y., & Hodgkin, D. (2017). Insights into the black box of child
care supply: Predictors of provider participation in the
Massachusetts child care subsidy system. (<a href="https://www.sciencedirect.com/science/article/abs/pii/S0190740917300750">https://www.sciencedirect.com/science/article/abs/pii/S0190740917300750</a>);
Rohacek M., & Adams, G. (2017). Providers in the child care subsidy
system. (<a href="https://www.urban.org/sites/default/files/publication/95221/providers-and-subsidies.pdf">https://www.urban.org/sites/default/files/publication/95221/providers-and-subsidies.pdf</a>). Phillips, D., Mekos, D., Scarr,
S., McCartney, K., & Abbott-Shim, M. (2000). Within and beyond the
classroom door: Assessing quality in child care centers. (<a href="https://www.sciencedirect.com/science/article/abs/pii/S0885200601000771">https://www.sciencedirect.com/science/article/abs/pii/S0885200601000771</a>).
Torquati, J.C., Raikes, H., Hudleston-Casas, C.A. (2007). Teacher
education, motivation, compensation, workplace support, and links to
quality of center-based child care and teachers' intention to stay
in the early childhood profession. (<a href="https://www.sciencedirect.com/science/article/abs/pii/S0885200607000270">https://www.sciencedirect.com/science/article/abs/pii/S0885200607000270</a>). Miller, J.A., &
Bogatova, T. (2009). Quality improvements in the early care and
education workforce: Outcomes and impact of the T.E.A.C.H early
childhood project. (<a href="https://pubmed.ncbi.nlm.nih.gov/19285728/">https://pubmed.ncbi.nlm.nih.gov/19285728/</a>).
Burroughs, N., Graber, C., Colby, A., Winans, N., & Quinn, D.
(2020). Policy change effects on subsidy approvals and utilization:
Michigan child care policy research partnership. (<a href="https://publicpolicy.com/wp-content/uploads/2021/04/Policy-Change-Effects-on-Child-Care-Subsidy-Approvals-and-Utilization.pdf">https://publicpolicy.com/wp-content/uploads/2021/04/Policy-Change-Effects-on-Child-Care-Subsidy-Approvals-and-Utilization.pdf</a>); Weber, R.B.,
Grobe, D., & Davis, E.E. (2014). Does policy matter? The effect of
increasing child care subsidy policy generosity on program outcomes.
(<a href="https://health.oregonstate.edu/sites/health.oregonstate.edu/files/occrp/pdf/the-effect-of-increasing-child-care-subsid-policy-generosity-on-program-outcomes.pdf">https://health.oregonstate.edu/sites/health.oregonstate.edu/files/occrp/pdf/the-effect-of-increasing-child-care-subsid-policy-generosity-on-program-outcomes.pdf</a>).
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Throughout the period since 2016 when the last CCDF Rule was
published, HHS has continued to learn from Lead Agencies, parents, and
child care providers; assessed the evolving early care and education
landscape; examined the successes and challenges in the Act's
implementation; and tracked the impact and implications of the COVID-19
public health emergency on the child care sector. The proposed
revisions in this NPRM are designed to build on these lessons, improve
on the work of the past, and build a stronger CCDF program that more
effectively supports the development of children, the economic
wellbeing of families, and the stability of child care providers.

Costs, Benefits, and Transfer Impacts

Changes made by this proposed rule would have the most direct
benefit for the over 900,000 families and 1.5 million children who use
CCDF assistance to pay for child care. Families who receive CCDF
assistance will benefit from lower parent co-payments, more parent
choice in care arrangements, expanded and easier access to child care
which could improve the ability of families to participate in the labor
market, and improved eligibility determination processes. Research has
demonstrated that increased access to child care increases maternal
labor force participation.\48\ In particular, child care subsidies have
been found to increase employment among single mothers.\49\
International evidence also demonstrates the link between increased
early care attendance and maternal employment.\50\
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\48\ Morrissey, T.W. (2017). ``Child care and parent labor force
participation: a review of the research literature.'' Review of
Economics of the Household 15.1: 1-24. <a href="https://link.springer.com/content/pdf/10.1007/s11150-016-9331-3.pdf">https://link.springer.com/content/pdf/10.1007/s11150-016-9331-3.pdf</a>
\49\ Blau, D., Tekin, E. (2007). The determinants and
consequences of child care subsidies for single mothers in the USA.
Journal of Population Economics 20, 719-741. <a href="https://doi.org/10.1007/s00148-005-0022-2">https://doi.org/10.1007/s00148-005-0022-2</a>.
\50\ Bauernschuster, S, and Schlotter, M. (2015). Public child
care and mothers' labor supply--Evidence from two quasi-experiments.
Journal of Public Economics, 123: 1-16. <a href="https://doi.org/10.1016/j.jpubeco.2014.12.013">https://doi.org/10.1016/j.jpubeco.2014.12.013</a>.
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Providers will benefit from payment practices that support their
financial stability, including prospective payments based on
enrollment, and payments that more closely reflect the cost of
providing high-quality care, which could lead to higher wages for
providers and their staff.\51\ This rule also yields benefits in terms
of child development outcomes. The provisions in this rule expand
access and some children who might have received subsidized care under
the current rule (e.g., those whose parents could not pay the copay)
would receive subsidized care under the proposed rule. For these
children, they are likely to receive higher quality care than they
otherwise would have. Research has demonstrated clear linkages between
high quality child care and positive child outcomes, including school
readiness, social-emotional outcomes, educational attainment,
employment, and earnings.52 53 54 55
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\51\ Borowsky, J., et al (2022). An equilibrium model of the
impact of increased public investment in early childhood education.
Working Paper 30140. <a href="http://www.nber.org/papers/w30140">http://www.nber.org/papers/w30140</a>.
\52\ Deming, David. 2009. ``Early Childhood Intervention and
Life-Cycle Skill Development: Evidence from Head Start.'' American
Economic Journal: Applied Economics, 1 (3): 111-34.
\53\ Duncan, G.J., and Magnuson, K. 2013. ``Investing in
Preschool Programs.'' Journal of Economic Perspectives, 27 (2): 109-
132
\54\ Heckman, James J., and Tim Kautz. ``Fostering and Measuring
Skills Interventions That Improve Character and Cognition.'' In The
Myth of Achievement Tests: The GED and the Role of Character in
American Life. Edited by James J. Heckman, John Eric Humphries, and
Tim Kautz (eds). University of Chicago Press, 2014. Chicago
Scholarship Online, 2014. <a href="https://doi.org/10.7208/chicago/9780226100128.003.0009">https://doi.org/10.7208/chicago/9780226100128.003.0009</a>
\55\ Weiland, C., Yoshikawa, H. 2013. ``Impacts of a
Prekindergarten Program on Children's Mathematics, Language,
Literacy, Executive Function, and Emotional Skills.'' Child
Development, 86(6), 2112-2130.

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[[Page 45026]]

The cost of implementing changes made by this proposed rule would
vary depending on a Lead Agency's specific situation and implementation
choices. ACF conducted a regulatory impact analysis (RIA) to estimate
costs, transfers, and benefits of provisions in the proposed rule,
considering current State and Territory practices. Due to limitations
in data, we did not include Tribal Lead Agency practices in the RIA. We
evaluated major areas of proposed policy change, including reduced co-
payments, paying based on enrollment, paying the full subsidy rate,
presumptive eligibility, and streamlined eligibility processes. Due to
limited data related to children with disabilities in the relevant
policy areas, for the purposes of this RIA, we did not conduct separate
cost estimates specific to children with disabilities. Based on the
calculations in this RIA, we estimate the quantified annual impact of
the proposed rule to be about $303 million in transfers, $4.2 million
in costs, and $21 million in benefits. Further detail and explanation
can be found in the regulatory impact analysis.

Effective Dates.

ACF expects all provisions included in the proposed rule, if
finalized, to become effective 60 days from the date of publication of
the final rule. Compliance with provisions in the final rule would be
determined through ACF review and approval of CCDF Plans, including
Plan amendments; through Federal monitoring, including on-site
monitoring visits as necessary; and through ongoing Federal oversight.
After the effective date of the final rule, any Lead Agency that
does not fully meet the regulatory requirements would need to revise
its policies and procedures to come into compliance, and file
appropriate Plan amendments related to those changes. We recognize that
some of the proposed changes in this NPRM may require action on the
part of a Lead Agency's legislature or require State, Territory, or
Tribal-level rulemaking to implement these changes. ACF welcomes public
comment on specific provisions included in this proposed rule that may
warrant a longer phase-in period and will take these comments into
consideration when developing the final rule.

Severability.

The provisions of this NPRM, once it becomes final, are intended to
be severable, such that, in the event a court were to invalidate any
particular provision or deem it to be unenforceable, the remaining
provisions would continue to be valid. The changes address a variety of
issues relevant to child care. None of the proposed rules contained
herein are central to an overall intent of the proposed rule, nor are
any provisions dependent on the validity of other, separate provisions.

II. Statutory Authority

This proposed regulation is being issued under the authority
granted to the Secretary of Health and Human Services by the CCDBG Act
of 1990, as amended (42 U.S.C. 9857, et seq.), and section 418 of the
Social Security Act (42 U.S.C. 618).

III. Discussion of Proposed Changes

The proposed revisions in this NPRM are organized thematically. The
four main areas of proposed changes are: lowering families' costs for
child care, improving parent choice to access care that meets their
needs, strengthening payment practices to child care providers,
reducing bureaucracy for better implementation, and implementing
technical and other changes for improved clarity.

Lowering Families' Costs for Child Care (Sec. Sec. 98.45, 98.33)

We propose changes to Sec. 98.45 to make child care more
affordable for families receiving child care subsidies under the CCDF
program. Section 658E(c)(5) of the Act (42 U.S.C. 9858c(c)(5)) and
Sec. 98.45(k) (as currently designated) require CCDF Lead Agencies to
implement a system for cost sharing for participating families,
commonly referred to as the parent or family co-payment, and the Act
requires that such cost sharing cannot be ``a barrier to families
receiving assistance,'' and regulations make clear that parent fees are
a consideration in the Act's tenet that families participating in CCDF
have equal access to child care as families that are not eligible for
CCDF. Lowering families' child care costs is central to removing
barriers and supporting equal access. High and unaffordable co-payments
undermine parental choice in care and the goal of increasing the number
and percentage of children in families with low incomes in high-quality
child care settings, the very purposes of the Act. As previously noted,
co-payments can limit families' access to child care that meets their
needs.56 57 58 59 60 Before the 2014 CCDBG reauthorization
and 2016 CCDF final rule, the average family co-payment increased by a
total of 3 percent (after adjusting for inflation) between 2005-
2015.\61\ Yet, in 2016, the average family co-payment increased by 8
percent (after adjusting for inflation) in just one year, suggesting
that Lead Agencies may be transferring some of the cost burden
associated with implementing the health, safety, and quality changes
associated with the 2016 CCDF final rule to families.\62\ From 2016-
2021, the average family co-payment continued to increase by a total of
6 percent over those five years (after adjusting for inflation).\63\ In
sum, CCDF family co-payment amounts increased at a rate higher than
inflation between 2005-2021, with an 18 percent increase (after
adjusting for inflation) in average family co-payment during this
period.\64\ Given that co-payments serve as a barrier to CCDF-
participating families, as compared to both CCDF-participating families
when a co-payment is waived and higher-income families who do not
receive CCDF, we propose to make changes to Sec. 98.45 to reduce
parent co-payments, as described below.
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\56\ National Survey of Early Care and Education Project Team
(2022): Erin Hardy, Ji Eun Park. 2019 NSECE Snapshot: Child Care
Cost Burden in U.S. Households with Children Under Age 5. OPRE
Report No. 2022-05, Washington DC: Office of Planning, Research and
Evaluation (OPRE), Administration for Children and Families (ACF),
U.S. Department of Health and Human Services (HHS). <a href="https://www.acf.hhs.gov/opre/report/2019-nsece-snapshot-child-care-cost-burden-us-households-children-under-age-5">https://www.acf.hhs.gov/opre/report/2019-nsece-snapshot-child-care-cost-burden-us-households-children-under-age-5</a>.
\57\ Hill, Z., Bali, D., Gebhart, T., Schaefer, C., & Halle, T.
(2021) Parents' reasons for searching for care and results of
search: An analysis using the Access Framework. OPRE Report #2021-
39. Washington, DC: Office of Planning, Research, and Evaluation,
Administration for Children and Families, U.S. Department of Health
and Human Services. <a href="https://www.acf.hhs.gov/opre/report/parents-reasons-searching-early-care-and-education-and-results-search-analysis-using">https://www.acf.hhs.gov/opre/report/parents-reasons-searching-early-care-and-education-and-results-search-analysis-using</a>.
\58\ Scott, E.K., Leymon, A.S., & Abelson M. (2011). Assessing
the Impact of Oregon's 2007 Changes to Child-Care Subsidy Policy.
Eugene, Oregon: University of Oregon. <a href="https://health.oregonstate.edu/early-learners/research/assessing-impacts-oregon%E2%80%99s-2007-changes-child-care-subsidy-policy">https://health.oregonstate.edu/early-learners/research/assessing-impacts-oregon%E2%80%99s-2007-changes-child-care-subsidy-policy</a>.
\59\ Grobe, Deana & Weber, Roberta & Davis, Elizabeth & Scott,
Ellen. (2012). Struggling to Pay the Bills: Using Mixed-Methods to
Understand Families' Financial Stress and Child Care Costs.
Contemporary Perspectives in Family Research (6), 93-121. <a href="https://health.oregonstate.edu/sites/health.oregonstate.edu/files/sbhs/pdf/struggling-to-pay-the-bills-using-mixed-methods-to-understand-families-financial-stress-and-child-care-costs.pdf">https://health.oregonstate.edu/sites/health.oregonstate.edu/files/sbhs/pdf/struggling-to-pay-the-bills-using-mixed-methods-to-understand-families-financial-stress-and-child-care-costs.pdf</a>.
\60\ Morrissey, Taryn W. (2017). ``Child care and parent labor
force participation: a review of the research literature.'' Review
of Economics of the Household 15.1: 1-24. <a href="https://link.springer.com/content/pdf/10.1007/s11150-016-9331-3.pdf">https://link.springer.com/content/pdf/10.1007/s11150-016-9331-3.pdf</a>.
\61\ ASPE tabulations of the ACF-801 database. FY 2005 to FY
2018 were tabulated using the public-use files. FY 2019 to FY 2021
were tabulated using the restricted-use files. FY 2021 data were
preliminary.
\62\ Ibid.
\63\ Ibid.
\64\ Ibid.

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[[Page 45027]]

Prohibit Family Co-Payments That Are a Barrier to Child Care Access
First, at Sec. 98.45(b)(5), this NPRM proposes to establish that
co-payments over 7 percent of a family's income are an impermissible
barrier to a family receiving assistance, and family co-payments must
therefore be no more than 7 percent of a family's income. Section
658E(c)(5) of the Act (42 U.S.C. 9858c(c)(5)) establishes that Lead
Agencies must not set co-payment policies that are a barrier to
families receiving assistance. If a family receives CCDF for multiple
children, the family's total co-payment amount would not exceed 7
percent of the family's income.
The preamble (81 FR 67515) of the 2016 CCDF final rule established
7 percent as the Federal benchmark as an affordable co-payment for
families receiving CCDF but did not make it a mandatory ceiling.
According to Federal fiscal year (FFY) 2022-2024 CCDF State plans, 14
Lead Agencies have set all their co-payments to 7 percent or less.
Among the rest of Lead Agencies, co-payments rise as high as 27 percent
of family income. High co-payments may mean that families cannot afford
to participate in the CCDF program, and instead have to patch together
informal, unregulated care that is less reliable and less expensive,
less likely to meet children's developmental needs and leads to
families cutting work hours or exiting the workforce entirely. We
anticipate this proposed change at paragraph (b)(5) will improve family
stability and economic well-being, better support stable parent
employment, increase the choices CCDF-eligible families have for child
care arrangements, and reduce a barrier to child care access.
It is important to note that this proposal does not decrease the
amount paid to the child care provider, but rather, shifts some of the
cost from families to Lead Agencies. Lead Agencies must continue to set
payment rates at levels that provide equal access to care for families
receiving child care subsidies, and OCC expects to closely monitor Lead
Agency payment rates to ensure reductions in family co-payments do not
lead to funding cuts for providers.
We request comment on whether 7 percent is the correct threshold,
including data on child care affordability and the impact high co-
payments may have on families' ability to access child care assistance.
Allow Lead Agencies To Waive Co-Payments for Additional Families
Second, we propose to amend Sec. 98.45(l)(4), as redesignated, to
explicitly allow Lead Agencies the discretion to waive co-payments for
two additional populations--eligible families with income up to 150
percent of the Federal poverty level and eligible families with a child
with a disability as defined at Sec. 98.2. Current regulations allow
Lead Agencies to waive co-payments for families in particular
circumstances (i.e., with incomes below the Federal poverty level,
families in need of protective services or other factors as determined
by the Lead Agency). The proposal would not alter the existing option
that allows Lead Agencies to waive co-payments for families in need of
protective services or to determine other factors for waiving co-
payments. Lead Agencies currently have authority to define ``other
factors''--such as family income between 100-150 percent of the Federal
poverty level or having a child with a disability--for waiving
copayments and will continue to have additional flexibility to define
special populations eligible for waiving co-payments, including
families who have incomes higher than 150 percent of the Federal
poverty level. Lead Agencies have chosen to use this flexibility to
categorically waive co-payments for certain vulnerable populations,
including those who benefit from Temporary Assistance for Needy
Families (TANF), children enrolled in Head Start, families experiencing
homelessness, children in foster care, and teen parents. States'
ability to waive co-payments for these children and families, and other
factors determined by Lead Agencies, remains.
By proposing to allow Lead Agencies to waive co-payments for
families with incomes up to 150 percent of the Federal poverty level,
this proposal would make it easier for Lead Agencies to eliminate
financial barriers that prevent parents with low incomes from utilizing
CCDF to access high-quality child care settings for their children, and
in turn support parents' ability to achieve economic well-being through
education, training, and work opportunities. Co-payments (even very low
co-payments) remain a barrier for some families to make ends meet,
especially families struggling to afford housing
costs.65 66 67 Recognizing that families with incomes at or
below 150 percent of the Federal poverty level are facing particular
financial stress, providing this additional co-payment flexibility to
Lead Agencies will help advance the purposes of the Act, including
child and family well-being. Lead Agencies have acknowledged that
families with low incomes in their jurisdictions are still struggling
to afford child care, even when they receive child care subsidy.\68\
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\65\ Scott, E.K., Leymon, A.S., & Abelson M. (2011). Assessing
the Impact of Oregon's 2007 Changes to Child-Care Subsidy Policy.
Eugene, Oregon: University of Oregon. <a href="https://health.oregonstate.edu/early-learners/research/assessing-impacts-oregon%E2%80%99s-2007-changes-child-care-subsidy-policy">https://health.oregonstate.edu/early-learners/research/assessing-impacts-oregon%E2%80%99s-2007-changes-child-care-subsidy-policy</a>.
\66\ Grobe, Deana & Weber, Roberta & Davis, Elizabeth & Scott,
Ellen. (2012). Struggling to Pay the Bills: Using Mixed-Methods to
Understand Families' Financial Stress and Child Care Costs.
Contemporary Perspectives in Family Research (6), 93-121. <a href="https://health.oregonstate.edu/sites/health.oregonstate.edu/files/sbhs/pdf/struggling-to-pay-the-bills-using-mixed-methods-to-understand-families-financial-stress-and-child-care-costs.pdf">https://health.oregonstate.edu/sites/health.oregonstate.edu/files/sbhs/pdf/struggling-to-pay-the-bills-using-mixed-methods-to-understand-families-financial-stress-and-child-care-costs.pdf</a>.
\67\ Anderson, T. et al. (January 2022). Balancing at the Edge
of the Cliff: Experiences and Calculations of Benefit Cliffs,
Plateaus, and Trade-Offs. Washington, DC: Urban Institute. <a href="https://www.urban.org/research/publication/balancing-edge-cliff">https://www.urban.org/research/publication/balancing-edge-cliff</a>
\68\ Rohacek & Adams. (2017). Providers in the child care
subsidy system. Washington, DC: Urban Institute. <a href="https://www.urban.org/sites/default/files/publication/95221/providers-and-subsidies.pdf">https://www.urban.org/sites/default/files/publication/95221/providers-and-subsidies.pdf</a>
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This policy should not be interpreted as discouraging states from
taking steps to significantly reduce co-payments for those families who
do not fall within one of the categories that allow for pre-approved
waiving of co-payments, including waiving co-payments for families with
incomes higher than 150 percent of the Federal poverty level. Lead
Agencies may propose a higher threshold for waiving co-payments, at
their discretion. While the statute does require that Lead Agencies
establish a cost-sharing arrangement for families benefiting from
assistance, it does not require more than a de minimis contribution
from a family if that is how the state chooses to support eligible
families. For instance, two Lead Agencies have co-payment policies in
place according to their FFY2022-2024 CCDF State plans that ensure no
CCDF family pays more than 2 percent of their income for co-payments.
States may continue striving toward significantly reducing CCDF
families' financial burden while adhering to the requirements under the
law to establish a sliding fee scale. Section 658E(c)(3)(B) of the Act
(42 U.S.C. 9858c(c)(3)(B)) requires Lead Agencies to prioritize
services for ``children with special needs,'' and the 2014
Reauthorization strengthened this focus by requiring OCC to annually
report on whether Lead Agencies use CCDF funds to prioritize serving
children with special needs. Available data suggests that CCDF is

[[Page 45028]]

serving a low percentage of children with disabilities. In FY 2020, all
states plus the District of Columbia and three territories, reported
that only an average of 2 percent of children served by CCDF were
children with disabilities.\69\ OCC believes this data is a significant
underestimate based on findings from the U.S. Department of Education
indicating 15 percent of the general population age three to 21 has a
disability.\70\
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\69\ U.S. Department of Health and Human Services,
Administration for Children and Families. (September 2022). Child
Care and Development Fund (CCDF) Report on States' and Territories'
Priorities for Child Care Services: Fiscal Year 2021. <a href="https://www.acf.hhs.gov/occ/report/priorities-report-2021.https://www.acf.hhs.gov/occ/report/priorities-report-2021">https://www.acf.hhs.gov/occ/report/priorities-report-2021.https://www.acf.hhs.gov/occ/report/priorities-report-2021</a>. To some extent,
the low percentage reflects data quality issues in the
administrative data in some states.
\70\ National Center for Education Statistics. (2022) Fast
Facts: Students with Disabilities. U.S. Department of Education.
<a href="https://nces.ed.gov/fastfacts/display.asp?id=64">https://nces.ed.gov/fastfacts/display.asp?id=64</a>.
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Families with children with disabilities experience unique
challenges to accessing appropriate child care options. According to
the 2016 Early Childhood Program Participation Survey, 34 percent of
parents with children with disabilities have trouble finding care, as
compared to 25 percent of families with nondisabled children.\71\ The
survey data showed that these barriers to finding child care include as
program costs, lack of available slots, concerns about safety and
quality, and scheduling challenges resulting in need for multiple care
arrangements at any one given time.\72\ Allowing Lead Agencies to waive
co-payments for families with children with disabilities provides Lead
Agencies an additional tool to help meet the statutory requirement to
prioritize serving children with special needs, which may include
children with disabilities, and possibly make it easier for these
families to benefit from CCDF. As proposed, the option to waive co-
payments for eligible families with a child or children with
disabilities would apply to the entire family, not just for the child
with a disability.
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\71\ Novoa, C. (2020). The child care crisis disproportionately
affects children with disabilities, Washington, DC: Center for
American Progress. <a href="https://www.americanprogress.org/article/child-care-crisis-disproportionately-affects-children-disabilities">https://www.americanprogress.org/article/child-care-crisis-disproportionately-affects-children-disabilities</a>
\72\ Ibid.
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We also propose to revise Sec. Sec. 98.81(b)(6)(x) and
98.83(d)(1)(xi) to exempt all Tribal Lead Agencies from the requirement
to establish a sliding fee scale and require parents to pay a co-
payment as required at proposed redesignated Sec. 98.45(l). Therefore,
families served by Tribal Lead Agencies would not be required to pay
co-payments. Currently, Tribes with medium and large allocations are
subject to the requirements at Sec. 98.45(l) while Tribes with small
allocations have the flexibility to exempt all families from co-
payments and implement categorical eligibility. Of the 265 Tribes
receiving CCDF funds either directly through ACF or through the Bureau
of Indian Affairs, 60 percent are tribes with small allocations.
Extending this exemption from co-payments to Tribes with medium and
large allocations would enable tribes whose traditional practices of
caring for children may not include monetary contributions, to align
their child care program with their cultural beliefs and supports
tribal sovereignty.
We request comment on whether states would benefit from
flexibilities providing the option to waive copays for other
populations. We also request comments on potential additional
categories of families for which co-payments could be waived under this
proposed rule.
Consumer Education
Finally, to help ensure families are aware of co-payment policies,
we propose to add a new requirement at Sec. 98.33(a)(8) that states
and territories must post information about their co-payment sliding
fee scales. Section 658E(c)(2)(E) of the Act (42 U.S.C. 9858c(c)(2)(E))
requires Lead Agencies to collect and disseminate consumer education
information that will promote informed child care choices to parents of
eligible children, the public, and providers. Consumer education is a
crucial part of parental choice because it helps parents better
understand their child care options and incentivizes providers to
improve the quality of their services. Since Congress expanded the
focus on consumer education in the 2014 reauthorization of the Act, all
states and territories have launched consumer education websites
providing parents and the general public with critical information
about child care in their community and improving transparency around
the use of Federal child care funds. However, many of these websites
still overlook key areas that impact family decisions around child care
and applying for child care subsidies. For example, it remains
difficult for parents in many communities to learn about co-payment
rates and what their family might expect to pay, leaving some families
unaware of the co-payment requirements. Therefore, we propose to add a
requirement at Sec. 98.33(a)(8) for Lead Agencies to post current
information about their process for setting the sliding fee scale for
parent co-payments, including policies related to waiving co-payments
and estimated co-payment amounts for families at Sec. 98.33(a)(8).
We request comment on the types of information related to co-
payments that should be included and if there are other eligibility
policies that should be added to the consumer education websites to
improve access to the information parents need to make informed
choices.

Improving Parent Choice in Child Care and Strengthening Payment
Practices (Sec. Sec. 98.16, 98.30, 98.45, 98.50)

As previously discussed, the availability of affordable high-
quality child care that meets families' needs continues to lag well
behind demand, and this inadequate supply makes it very difficult for
families to afford and access high-quality child care that meets their
needs, which subsequently harms labor force participation, family
economic wellbeing, and healthy child development. Congress recognized
the need to increase the supply of high-quality child care and included
new requirements in the 2014 reauthorization for Lead Agencies to
develop and implement strategies to increase the supply and quality of
care for children in underserved communities, infants and toddlers,
children with disabilities, and children in need of care during non-
traditional hours (section 658E(c)(2)(M), 42 U.S.C. 9858c(c)(2)(M)).
Yet Lead Agencies, providers, and parents continue to report
significant struggles to find child care, and thin operational margins,
low wages, and difficult job conditions remain significant barriers to
grow the supply.
This NPRM proposes provisions to improve payment practices to child
care providers so more providers will participate in the subsidy
program, which in turn will increase parent choice in finding care that
meets their needs. Prevalent payment practices in use in CCDF today can
be destabilizing to providers and can disincentivize them from
enrolling children who receive subsidies. Providers that do accept
children who receive subsidies are incentivized to reduce costs further
due to low or inconsistent subsidy payments, such as forgoing efforts
to maintain or increase quality and enhance staff compensation.
Correcting these detrimental payment practices is critical to the
financial stability of child care providers and for helping families
access high-quality child care that meets their needs.

[[Page 45029]]

The proposed revisions in this section of the NPRM would require
Lead Agencies to use grants and contracts to address the acute lack of
supply for certain types of care. This section also proposes to support
provider stability by requiring Lead Agencies pay providers
prospectively and based on enrollment, as is standard practice for
families who do not receive subsidies. Additionally, the proposed
revisions in this section clarify that Lead Agencies may account for
child care cost considerations and pay providers at the CCDF agency
established payment rate approved in the Lead Agency's CCDF plan, even
if it is above the providers' private pay price. These proposed
revisions to payment practices will lead to improved program financial
stability, higher-quality care, and increases in the supply of child
care, all of which are essential to promoting parent choice in
care.73 74 75
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\73\ Lieberman, A. et al. (2021). Make Child Care More Stable:
Pay by Enrollment. Washington, DC: New America. <a href="https://www.newamerica.org/education-policy/briefs/make-child-care-more-stable-pay-by-enrollment/">https://www.newamerica.org/education-policy/briefs/make-child-care-more-stable-pay-by-enrollment/</a>.
\74\ Workman, S. (2020). Grants and Contracts: A Strategy for
Building the Supply of Subsidized Infant and Toddler Child Care.
Washington, DC: Center for American Progress. <a href="https://www.americanprogress.org/article/grants-contracts-strategy-building-supply-subsidized-infant-toddler-child-care/">https://www.americanprogress.org/article/grants-contracts-strategy-building-supply-subsidized-infant-toddler-child-care/</a>.
\75\ Greenberg, E. et all (2018). Are Higher Subsidy Payment
Rates and Provider-Friendly Payment Policies Associated with Child
Care Quality? Washington, DC: Urban Institute. <a href="https://www.urban.org/sites/default/files/publication/96681/are_higher_subsidy_payment_rates_and_provider-friendly_payment_policies_associated_with_child_care_quality_2.pdf">https://www.urban.org/sites/default/files/publication/96681/are_higher_subsidy_payment_rates_and_provider-friendly_payment_policies_associated_with_child_care_quality_2.pdf</a>.
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Building Supply With Grants and Contracts
To help address the far-reaching impact the lack of high-quality
child care options has on child development, family well-being, and the
economy, this NPRM includes proposals to improve payment rates and
practices with the goals of increasing parents' choices in child care,
reducing barriers to child care providers participating in the child
care subsidy system, and ultimately increasing the supply of child care
for families receiving subsidies.
First, we propose to make changes at Sec. Sec. 98.16(y), 98.30(b),
and 98.50(a)(3) as redesignated, to address the lack of supply of child
care for underserved communities and populations that Lead Agencies
must prioritize pursuant to the directives in the statute (section
658E(c)(2)(M), 42 U.S.C. 9858c(c)(2)(M)). We propose to require states
and territories to provide some child care services through grants and
contracts as one of many strategies to increase the supply and quality
of child care, including at a minimum, using some grants or contracts
for infants and toddlers, children with disabilities, and
nontraditional hour care. We would specifically require some use of
contracts for these populations because of the particularly stark
supply issues that lead to minimal parent choice, but encourage lead
agencies to also consider other populations that may benefit from
grants or contracts.
Section 658E (c)(2)(A) of the Act (42 U.S.C. 9858c(c)(2)(A))
requires Lead Agencies to provide parents the option of enrolling with
a child care provider that has a grant or contract for the provision of
such services or to receive a certificate (also called a voucher).
Grants and contracts represent agreements between the subsidy program
and child care providers to designate slots for subsidy-eligible
children. Sufficiently funded grants and contracts for direct services
are more likely to increase stability for child care providers than
certificates, helping them remain in business, and thereby maintaining
or increasing the supply of child care. For example, an evaluation of
an infant and toddler contracted slot pilot in Pennsylvania found that
participating programs had greater financial stability than providers
solely paid through certificates, increased classroom quality, and more
stable enrollment for infants and toddlers receiving child care
subsidies.\76\ They also found evidence that providers had a greater
ability to hire and retain qualified staff and establish better
coordination between local and state systems. Georgia also used grants
and contracts to build the supply of care for infants and toddlers, and
providers reported an increase in enrollment of children from families
who would have normally struggled to pay for care because those
families could now access the child care subsidy because the program
was able to connect the families with contract-funded subsidy.\77\ They
also reported that the higher reimbursement rate paid with the
contracts was closer to the true cost of providing care and allowed
providers to invest in quality improvements. However, only 10 states
and territories report using any grants and contracts for direct
services, and only 6 states and territories report supporting more than
5 percent of children receiving subsidy via a grant or contract even
though they can be one of the most effective tools to build supply in
underserved areas and for underserved populations.\78\ As discussed
later in this NPRM, Tribal Lead Agencies are not subject to this
proposal because of differences in their CCDF programs.
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\76\ Dorn, Chad. (August 2020). Infant and Toddler Contracted
Slots Pilot Program: Evaluation Report. Pennsylvania Office of
Childhood Development and Early Learning. <a href="https://s35729.pcdn.co/wp-content/uploads/2020/11/IT-Pilot-Evaluation-Report_PA_Final.V2.pdf">https://s35729.pcdn.co/wp-content/uploads/2020/11/IT-Pilot-Evaluation-Report_PA_Final.V2.pdf</a>.
\77\ Sotolongo, J., et al. (May 2017). Voices from the Field:
Providers' Experiences with Implementing DECAL's Quality Rated
Subsidy Grant Pilot Program. Chapel Hill, NC: Child Trends. <a href="https://www.decal.ga.gov/documents/attachments/VoicesFromtheField.pdf">https://www.decal.ga.gov/documents/attachments/VoicesFromtheField.pdf</a>.
\78\ <a href="https://www.acf.hhs.gov/occ/data/fy-2020-preliminary-data-table-2">https://www.acf.hhs.gov/occ/data/fy-2020-preliminary-data-table-2</a>.
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Finding child care for infants and toddlers, children with
disabilities, and nontraditional hour care is particularly difficult
for parents. Higher operational costs per child, the need for
specialized training, and physical space needs generally make providing
care for these populations more challenging and make supply issues
particularly acute. For infants and toddlers, the potential demand far
exceeds the available supply. A 2020 analysis of 19 states and the
District of Columbia representing close to 40 percent of the U.S.
population found that in 80 percent of the counties analyzed, there
were at least three infants and toddlers for every child care slot for
children under three.\79\ For children with disabilities, data from the
2016 Early Childhood Program Participation Survey showed that 34
percent of parents of children with disabilities had at least some
difficulty finding child care compared to 25 percent of parents of
children without disabilities.\80\ About a third of children under the
age of 6 live with parents who work nontraditional hours, before 7 a.m.
or after 6 p.m. on weekdays or on weekends, though this varies
considerably by state.\81\ Further, Black or African American and
Hispanic or Latino families and families with lower incomes are
disproportionately likely to work nontraditional hours.\82\ In

[[Page 45030]]

the nationally-representative 2012 National Survey of Early Care and
Education (NSECE) study, only 8 percent of center-based providers and
only 34 percent of listed, home-based providers reported offering any
type of care during nontraditional hours.\83\ A 2020 study of six
states found that only 37 percent of child care providers in these
states offered care during nontraditional hours, with providers more
likely to provide care in the early morning hours (4:30 a.m. to 7 a.m.)
than during evening, overnight, or weekend hours.\84\ A larger
percentage of family child care providers offer nontraditional hour
care than center-based programs \85\ so the continued decrease in
family child care providers may make it even more difficult for parents
to find care during nontraditional hours.
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\79\ The White House (March 2023). Economic Report of the
President. <a href="https://www.whitehouse.gov/wp-content/uploads/2023/03/ERP-2023.pdf">https://www.whitehouse.gov/wp-content/uploads/2023/03/ERP-2023.pdf</a>.
\80\ Novoa, C. (2020). The child care crisis disproportionately
affects children with disabilities. Washington, DC: Center for
American Progress. <a href="https://www.americanprogress.org/article/child-care-crisis-disproportionately-affects-children-disabilities">https://www.americanprogress.org/article/child-care-crisis-disproportionately-affects-children-disabilities</a>.
\81\ Schilder, D., et al. (August 2021). States Can Pursue
Policies to Make Child Care More Accessible during Nontraditional
Hours. Washington, DC: Urban Institute. <a href="https://www.urban.org/urban-wire/states-can-pursue-policies-make-child-care-more-accessible-during-nontraditional-hours">https://www.urban.org/urban-wire/states-can-pursue-policies-make-child-care-more-accessible-during-nontraditional-hours</a>.
\82\ Adams, G., et al. (January 2021). To Make the Child Care
System More Equitable, Expand Options for Parents Working
Nontraditional Hours. Washington, DC: Urban Institute. <a href="https://www.urban.org/urban-wire/make-child-care-system-more-equitable-expand-options-parents-working-nontraditional-hours">https://www.urban.org/urban-wire/make-child-care-system-more-equitable-expand-options-parents-working-nontraditional-hours</a>.
\83\ National Survey of Early Care and Education Project Team
(2015). Fact Sheet: Provision of Early Care and Education during
Non-Standard Hours. (OPRE Report No. 2015-44). Washington, DC:
Office of Planning, Research and Evaluation, Administration for
Children and Families, U.S. Department of Health and Human Services.
Available at <a href="http://www.acf.hhs.gov/programs/opre/research/project/national-survey-of-early-care-andeducation-nsece-2010-2014">http://www.acf.hhs.gov/programs/opre/research/project/national-survey-of-early-care-andeducation-nsece-2010-2014</a>.
\84\ Child Care Aware of America. (March 2023). Who provides
care for nontraditional-hours? Arlington, VA: Child Care Aware of
America. <a href="https://info.childcareaware.org/blog/nontraditionalchildcare">https://info.childcareaware.org/blog/nontraditionalchildcare</a>.
\85\ Ibid.
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Lead Agencies need clear data and strategies to address gaps in the
supply of child care. However, current reporting requirements make it
difficult to understand supply assessments. Therefore, we also propose
to split the provision at Sec. 98.16(x) into two provisions to improve
reporting on strategies to meet the statutory requirement for Lead
Agencies to take steps to increase the supply and improve the quality
of child care services for children in underserved areas, infants and
toddlers, children with disabilities, and children who receive care
during nontraditional hours. At revised proposed paragraph (x), we
continue to require Lead Agencies include in their CCDF plans a
description of the supply of care, including identifying shortages in
the supply of high-quality providers and a list of the data sources
used to identify the shortages. At paragraph (y), we propose to require
Lead Agencies to describe their strategies to increase the supply and
improve the quality of child care services, which must include how the
Lead Agency will use grants and contracts to build supply, whether the
Lead Agency plans to use other mechanisms to build supply, such as
alternative payment rates, how those mechanisms will address the supply
shortage, and the method for tracking progress to increase the supply
and support parental choice.
Sustainable Payment Practices
Second, to support child care provider stability, make it easier
for providers to serve children with child care subsidies, and increase
parent choices in care, we propose to amend Sec. 98.45(m) to require
Lead Agencies to implement payment policies that are consistent with
the private-pay market. Specifically, we propose to require Lead
Agencies to pay child care providers serving CCDF families
prospectively and to either pay these child care providers based on a
child's enrollment or an alternative equally stabilizing approach
proposed by the Lead Agency and approved by the OCC in the Lead
Agency's CCDF Plan.
Section 658E6(c)(2)(S) of the Act (42 U.S.C. 9858c(c)(2)(S))
requires Lead Agencies to certify that payment practices for child care
providers receiving CCDF funds reflect generally accepted payment
practices of child care providers that serve children who do not
receive CCDF assistance to support provider stability and encourage
more child care providers to serve children receiving assistance from
CCDF. The Act also requires the Lead Agency, to the extent practicable,
to implement enrollment and eligibility policies that support the fixed
costs of providing child care services by delinking provider payment
rates from an eligible child's attendance which includes occasional
absences due to holidays or unforeseen circumstances, such as illness.
In addition to payment rates, policies governing provider payments are
an important aspect of equal access and support the ability of
providers to provide high-quality care. Generally accepted payment
practices for parents who pay privately for child care, which is most
parents, require a set fee based on a child's enrollment, generally in
advance of when services are provided.\86\ Payments by parents who pay
privately typically are not adjusted due to child absences.
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\86\ U.S. Department of Health and Human Services. Office of the
Inspector General. (August 2019). States' Payment Rates Under the
Child Care and Development Fund Program Could Limit Access to Child
Care Providers (Report in Brief OEI-03-15-00170). <a href="https://oig.hhs.gov/oei/reports/oei-03-15-00170.pdf">https://oig.hhs.gov/oei/reports/oei-03-15-00170.pdf</a>.
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This NPRM amends Sec. 98.45(m)(1), as newly proposed, to require
Lead Agencies to ensure timely provider payments by paying
prospectively prior to the delivery of services to align with the Act's
requirement that Lead Agencies use generally accepted payment
practices. Prospective payment is the norm for families paying
privately (e.g., payment for child care for the month of February is
due February 1st) because providers need to receive payment before
services are delivered to meet payroll and pay rent. But according to
the FY 2022-2024 CCDF States Plans, only eight states and territories
pay providers prospectively. Current CCDF regulations allow lead
agencies to pay providers within 21 days of receiving a completed
invoice. This practice places an up-front burden on providers in
serving CCDF families and makes it difficult for providers to accept
child care subsidies; providers often mention delayed payments as a key
reason why they do not participate in the CCDF program and that it has
a destabilizing effect on child care operations.\87\ This proposed
change would also increase parent choice, making it easier for
providers to accept subsidies and improving stability among child care
providers serving children participating in CCDF.
---------------------------------------------------------------------------

\87\ Ibid.
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At Sec. 98.45(m)(2), as proposed, the NPRM deletes two of three
current payment practice options at paragraph (m)(2)(ii), which allows
for full payment if a child attends at least 85 percent of authorized
time, and paragraph (m)(2)(iii), which allows for full payment if a
child is absent five or fewer days a month, to require that Lead
Agencies pay child care providers based on a child's enrollment rather
than attendance at paragraph (m)(2)(i). Neither of the two options we
propose to delete support a provider's fixed operational costs,
continuity of care for children, or reflect the norm for families
paying privately. This proposed change would also allow us to meet the
Act's requirement to support the fixed costs of providing child care
services by delinking provider payment rates from an eligible child's
occasional absences due to holidays or unforeseen circumstances such as
illness, to the extent practicable. All Lead Agencies would have the
option to collect attendance information to ensure children are still
enrolled in the program, but this would not impact the provider's
payment.
Thirty-six states and territories report they pay based on
enrollment not attendance. The fixed costs of providing child care,
including staff wages, rent, and utilities, do not decrease if a child
is absent, which is why private pay families are generally required to
pay for a full week or month, regardless of

[[Page 45031]]

whether their enrolled child is absent. Providers in states that pay
based on attendance either absorb the lost revenue associated with a
child's occasional absences or choose not to participate in the subsidy
system and limit parent choices.
The Act and 2016 CCDF final rule require Lead Agencies to implement
Sec. 98.45(l)(2) ``to the extent practicable'' so in continuing policy
set in the preamble of the 2016 CCDF final rule, we interpret this
language as setting a limit on the extent to which Lead Agencies must
act, rather than providing a justification for not acting at all (81 FR
67517). We propose to revise paragraph (l)(2) to require Lead Agencies
who determine they cannot pay based on enrollment, describe their
approach in the CCDF Plan, provide evidence that their proposed
alternative reflects private pay practices for most child care
providers in the state, territory, or tribe and does not undermine the
stability of child care providers participating in the CCDF program.
OCC expects to approve alternative approaches in only limited cases
where a distinct need is shown.
We recognize that Lead Agencies may need additional flexibility in
exceptional instances where a child care provider is suspected of
fiscal mismanagement so we propose to add at Sec. 98.45(m)(7) that
Lead Agency payment practices may include taking precautionary measures
when a provider is suspected of fraud. For example, it may be prudent
in such cases for the Lead Agency to pay a provider retroactively as
part of a corrective action plan or during an investigation.
These proposed changes are designed to align with generally
accepted payment practices in the private child care market. We request
comment on typical payment practices for families not receiving CCDF
assistance and if there are other practices that may increase provider
participation in the child care subsidy system.
Paying the Established Subsidy Rate
Finally, this NPRM proposes to codify at Sec. 98.45(g) that Lead
Agencies should strive to pay eligible child care providers caring for
children receiving CCDF subsidies the Lead Agency's established subsidy
rate in order to account for the actual cost of care, even if that
amount is greater than the price the provider charges parents who do
not receive subsidy. This proposal would promote equal access, increase
parent options in care arrangements, and help increase the number and
percentage of children from families with low incomes in high-quality
child care settings, which is a central purpose of the Act. Lead
Agencies may pay amounts above the provider's private pay rate to
support quality and may peg a higher payment rate to the provider's
cost of doing business at a given level of quality. Payments may exceed
private pay rates if they are designed to pay providers for additional
costs associated with offering higher-quality care or types of care
that are not produced in sufficient amounts by the market. (81 FR
67514)
CCDF requires Lead Agencies to set child care provider payment
rates based on findings from a market rate survey and narrow cost
analysis or an alternative methodology to ensure children eligible for
subsidies have equal access to child care services comparable to
children whose parents are not eligible to receive child care
assistance because their family income exceeds the eligibility limit. A
market rate survey is the collection and analysis of prices and fees
charged by child care providers for services in the priced market, and
a narrow cost analysis estimates the true cost of care, not just price.
Lead Agencies must analyze price and cost data together to determine
adequate child care provider rates to meet health, safety, and staffing
requirements and meeting these standards relies on child care providers
receiving the full payment rate. OCC has strongly encouraged Lead
Agencies to set payment rates high enough so that child care providers
can retain a skilled workforce and deliver higher-quality care to
children receiving subsidies and the policies can achieve the equal
access standard required by law. The preamble to the 2016 CCDF final
rule also restated the importance of setting higher payment rates and
using the 75th percentile as a benchmark to gauge equal access for Lead
Agencies conducting a market rate survey and says ``Established as a
benchmark for CCDF by the preamble to the 1998 Final Rule (63 FR
39959), Lead Agencies and other stakeholders are familiar with [the
75th percentile] as a proxy for equal access.''(81 FR 67512)
OCC has prioritized the importance of increasing the percentile on
which provider payment rates are based, and in April 2023 determined
that any payment rates set at less than the 50th percentile were
insufficient to meet the equal access requirements of CCDF. OCC noted
that the 50th percentile is not an equal access benchmark, nor is it a
long-term solution to gauge equal access, and thus may not be
considered sufficient for compliance in future cycles. Increased
provider payments are important for equal access, but, as stated above,
the market rate survey alone is not enough information to set payment
rates. The cost of care must be considered to set payment rates high
enough to support high-quality child care for all children.
However, some Lead Agencies dictate the provider be paid less than
the Lead Agency's established base payment rate to match the
constrained price the provider charges parents paying privately. This
policy subverts the CCDF requirement that payment rates promote parent
choice and increase the number of children from families with low
incomes in high-quality care. Particularly in low-income neighborhoods,
private-pay prices are constrained by market rate prices that local
families can afford to pay and do not reflect the true cost of
care.\88\ Because child care providers' price for services reflects
what parents enrolling in their programs can afford and not necessarily
the (higher) cost of providing services, the price is artificially
constrained by affordability. Therefore, CCDF Lead Agencies may pay
their full reimbursement rate when the unsubsidized price is lower.
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\88\ U.S. Department of the Treasury. (2021). The Economics of
Child Care Supply in the United States. <a href="https://home.treasury.gov/system/files/136/The-Economics-of-Childcare-Supply-09-14-final.pdf">https://home.treasury.gov/system/files/136/The-Economics-of-Childcare-Supply-09-14-final.pdf</a>.
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Paying all CCDF providers at the CCDF agency established rate
enables Lead Agencies to pay child care providers a rate that is closer
to the true cost of child care, fosters parent choice, increases child
care quality, and supports better child care supply. This is existing
policy under rules and regulations of CCDF but because of its
importance to achieving the main purposes of the Act, this NPRM
proposes to codify it in the regulatory language to reduce confusion.
OCC will provide additional guidance to Lead Agencies to support the
policy.

Reducing Bureaucracy for Better Implementation (Sec. 98.21)

This NPRM proposes changes to lessen the burden on families seeking
child care assistance, making it faster and easier for them to apply
for and receive child care subsidies by clarifying ways that Lead
Agencies can simplify subsidy eligibility determination,
redetermination, and enrollment processes. The proposed revisions
encourage strategies for Lead Agencies to expedite families' access to
services by facilitating presumptive enrollment and encouraging an
online application option. Additionally, the proposed revisions
identify

[[Page 45032]]

opportunities for Lead Agencies to streamline eligibility policies by
leveraging eligibility information from other programs and to align
family eligibility timelines. These provisions are designed to align
with the Act's goal of providing families with continuity of care,
which benefits child well-being and family economic security.
Too often, eligible families lose access to child care subsidies
due to paperwork issues. This is why eligible families that lose access
to child care subsidies often re-enter the program within a few
months.\89\ Parents with unpredictable work hours or limited control
over their schedule are significantly more likely to lose child care
subsidies,\90\ and parents with low incomes are more likely to have
irregular work hours than parents with higher incomes.\91\ Further,
families who chose to exit the program are three times more likely to
do so during their redetermination month than at any other time.\92\
These studies suggest that families miss out on benefits because of
administrative challenges rather than issues with eligibility. Thus, to
limit administrative burden on families, this NPRM proposes to clarify
ways that Lead Agencies can simplify subsidy eligibility determination
and enrollment processes.
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\89\ Grobe, D., Weber, R. B., & Davis, E. E. (2008). Why do they
leave? Child care subsidy use in Oregon. Journal of Family and
Economic Issues. <a href="https://health.oregonstate.edu/sites/health.oregonstate.edu/files/early-learners/pdf/research/why_do_they_leave_-_child_care_subsidy_use_in_oregon_-_published_article.pdf">https://health.oregonstate.edu/sites/health.oregonstate.edu/files/early-learners/pdf/research/why_do_they_leave_-_child_care_subsidy_use_in_oregon_-_published_article.pdf</a>.
\90\ Henly, J. et al. (August 2015). Determinants of Subsidy
Stability and Child Care Continuity: Final Report for the Illinois-
New York Child Care Research Partnership. Washington, DC: Urban
Institute. <a href="https://www.urban.org/sites/default/files/publication/65686/2000350-Determinants-of-Subsidy-Stability-and-Child-Care-Continuity.pdf">https://www.urban.org/sites/default/files/publication/65686/2000350-Determinants-of-Subsidy-Stability-and-Child-Care-Continuity.pdf</a>.
\91\ Golden, Lonnie. (April 2015). Irregular Work Scheduling and
Its Consequences. Washington, DC: Economic Policy Institute. <a href="https://www.epi.org/publication/irregular-work-scheduling-and-its-consequences/">https://www.epi.org/publication/irregular-work-scheduling-and-its-consequences/</a>.
\92\ Grobe, D., Weber, R. B., & Davis, E. E. (2008). Why do they
leave? Child care subsidy use in Oregon. Journal of Family and
Economic Issues. <a href="https://health.oregonstate.edu/sites/health.oregonstate.edu/files/early-learners/pdf/research/why_do_they_leave_-_child_care_subsidy_use_in_oregon_-_published_article.pdf">https://health.oregonstate.edu/sites/health.oregonstate.edu/files/early-learners/pdf/research/why_do_they_leave_-_child_care_subsidy_use_in_oregon_-_published_article.pdf</a>.
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Presumptive Eligibility
This NPRM proposes to amend Sec. 98.21(e) and (h)(5) to clarify
that, at a Lead Agency's option, a child may be considered
presumptively eligible for subsidy prior to full documentation and
verification of the Lead Agency's eligibility criteria and eligibility
determination. This will help ensure timely access to reliable child
care assistance and reduce burden on families. Presumptive eligibility
is currently allowable under CCDF, but this NPRM establishes parameters
for Lead Agencies that choose to implement presumptive eligibility with
the goal of reducing barriers for Lead Agency uptake. Specifically, the
proposal clarifies that Lead Agencies may define a minimum presumptive
eligibility criteria and verification requirement for considering a
child eligible for child care services for up to three months while
full eligibility verification is underway. To be determined
presumptively eligible, a child must be plausibly assumed to meet each
of the basic Federal requirements, and at the Lead Agency's option the
basic requirement defined in the Lead Agency's CCDF Plan, in accordance
with Sec. 98.20 (i.e., age; income; qualifying work, education, or
training activity or receiving or needing to receive protective
services; and child citizenship). Lead Agencies have the flexibility to
collect minimal information to determine presumptive eligibility and
are not required to fully verify the simplified eligibility
information.
The proposal further specifies that CCDF payments may be made for
presumptively eligible children and those payments will not be
considered an error or improper payment if a child is ultimately
determined to be ineligible and will not be subject to disallowance,
except in cases of fraud or intentional program violation. However,
Lead Agencies would be required to implement a minimum verification
process that incorporates criteria that reduces the likelihood of error
and fraud. Lead Agencies must track the number of presumptively
eligible children who turn out to be ineligible and adjust their
presumptive eligibility processes accordingly to ensure funds are
safeguarded for eligible children. In addition, Lead Agencies would be
required to describe their presumptive eligibility policies and
procedures in their CCDF Plans.
The application process can be slow and difficult for families to
navigate, delaying or preventing families from accessing high-quality
child care; \93\ derailing or delaying employment, education, or
training; and impeding families' economic wellbeing.\94\ As children
and families go through periods of challenge or transition, timely
access to reliable and affordable care is especially critical. This
includes when parents begin a new job or training program, experience
changes in earnings or work hours, move to a new area, or lose access
to an existing care arrangement, which some families report are the
circumstances that bring them to first apply for CCDF subsidies.\95\
Some Lead Agencies require multiple weeks or even months of pay stubs
to verify employment.\96\ For individuals just beginning a new job,
this can create a long and untenable delay in accessing affordable
child care. Even after submitting the substantial paperwork required to
apply for CCDF subsidies, families may wait another month or longer for
the Lead Agency to verify and approve eligibility.\97\ Barriers to
accessing child care assistance leave parents with difficult choices.
For example, parents may be forced to choose between delaying the start
of a new job, forgoing a job opportunity altogether, or paying for care
that is either unaffordable, unregulated, or lower quality. These
choices, in turn, may lead to disruptions in parental employment, lost
wages, financial risk, or disruptions in the continuity of care
essential for supporting young children's development,\98\ which is
antithetical to the purposes of CCDF.
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\93\ Adams, G., & Matthews, H. (2013). Confronting the child
care eligibility maze: Simplifying and Aligning with other work
supports. Washington, DC: Center for Law and Social Policy. <a href="https://www.clasp.org/sites/default/files/public/resources-and-publications/publication-1/WSS-CC-Paper.pdf">https://www.clasp.org/sites/default/files/public/resources-and-publications/publication-1/WSS-CC-Paper.pdf</a>.
\94\ Adams, G., Snyder, K., & Banghart, P. (2008). Designing
subsidy systems to meet the needs of families: An overview of policy
research findings. Washington, DC: Urban Institute. <a href="https://www.urban.org/research/publication/designing-subsidy-systems-meet-needs-families">https://www.urban.org/research/publication/designing-subsidy-systems-meet-needs-families</a>.
\95\ Lee, R., Gallo, K., Delaney, S., Hoffman, A., Panagari, Y.,
et al. (2022). Applying for child care benefits in the United
States: 27 families' experiences. US Digital Response. <a href="https://www.usdigitalresponse.org/projects/applying-for-child-care-benefits-in-the-united-states-27-families-experiences">https://www.usdigitalresponse.org/projects/applying-for-child-care-benefits-in-the-united-states-27-families-experiences</a>.
\96\ CCDF Policies Database, 2020 data. <a href="https://ccdf.urban.org/">https://ccdf.urban.org/</a>.
\97\ Lee, R., Gallo, K., Delaney, S., Hoffman, A., Panagari, Y.,
et al. (2022). Applying for child care benefits in the United
States: 27 families' experiences. US Digital Response. <a href="https://www.usdigitalresponse.org/projects/applying-for-child-care-benefits-in-the-united-states-27-families-experiences">https://www.usdigitalresponse.org/projects/applying-for-child-care-benefits-in-the-united-states-27-families-experiences</a>.
\98\ Adams, G., Snyder, K., & Banghart, P. (2008). Designing
subsidy systems to meet the needs of families: An overview of policy
research findings. Urban Institute. <a href="https://www.urban.org/research/publication/designing-subsidy-systems-meet-needs-families">https://www.urban.org/research/publication/designing-subsidy-systems-meet-needs-families</a>.
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Presumptive eligibility is an important tool Lead Agencies can use
to reduce burden on families and ensure timely access to reliable child
care assistance. Lead Agencies already have the flexibility to
implement presumptive eligibility policies. However, Lead Agencies may
have been dissuaded from implementing presumptive eligibility because
of a lack of clarity under current policy leading to concerns that
payments made with CCDF funds for any child that is ultimately
determined to be ineligible

[[Page 45033]]

for reasons other than fraud or intentional program violations may be
considered improper payments.
Evidence suggests presumptive eligibility can be implemented with
relatively low levels of financial risk, and the potential benefits for
families are substantial. For example, Montana and Delaware have
implemented presumptive eligibility in their CCDF programs. Families
reported that presumptive eligibility was important for obtaining the
required paystub for a job they had just started and that providers
were more willing to enroll children because payments were already
guaranteed. Notably, pilot tests of Montana's and Delaware's approach
to presumptive eligibility for CCDF showed that Lead Agencies can
effectively set criteria that minimize the possibility children will
later be found ineligible.\99\ For example, Delaware grants presumptive
eligibility based on available system criteria (e.g., parent work
status, income, family size) and any other available documentation that
indicates children are likely to be eligible. In addition, both states'
systems are designed to automatically close cases at the end of the
presumptive eligibility period, if eligibility is not determined, to
reduce the likelihood of improper payments--with an added benefit of
reducing administrative burden on the Lead Agency.
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\99\ Ibid.
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The proposed change at Sec. 98.21(e) allows Lead Agencies to use
presumptive eligibility to provide quicker access to child care
assistance for families with urgent needs, while reducing perceived
financial risk and administrative burden by clarifying that CCDF funds
may be used to cover presumptive eligibility payments if appropriate
safeguards are in place. The proposed policy further reduces financial
risk by requiring Lead Agencies to limit the presumptive eligibility
period to three months, to set presumptive eligibility criteria and
minimum verification requirements that ensure families receiving care
during a period of presumptive eligibility are feasibly eligible and
minimize the likelihood that they are later found to be ineligible for
CCDF, and to track number of ineligibilities and adjust their
presumptive eligibility processes accordingly. We note that the
proposed three-month period is a maximum presumptive eligibility
period. Lead Agencies are required to end assistance for families once
they are determined to be ineligible, even if that determination is
completed in under three months. As proposed in Sec. 98.21(e), Lead
Agencies must also maintain an improper payment rate that does not
exceed the threshold established by the Secretary to implement
presumptive eligibility using CCDF funds.
A related change at Sec. 98.21(a)(5)(iv) is proposed to allow Lead
Agencies to discontinue assistance prior to the end of the minimum 12-
month eligibility period in cases where a period of presumptive
eligibility ends with a failure to determine eligibility due to the
family not completing required eligibility processes, such as providing
required paperwork. Likewise, Lead Agencies have discretion to
determine the processes and documentation required for eligibility
verification and can consider ways to minimize the time to process
applications, thereby reducing the length of the presumptive
eligibility.
When children are newly added to the case of a family already
participating in the subsidy program (e.g., new siblings), Lead
Agencies may implement presumptive eligibility while waiting for
necessary additional information (e.g., proof of relationship, provider
payment information), but, as discussed below, ACF recommends that Lead
Agencies leverage existing family eligibility verification as much as
possible to determine the new siblings' full eligibility and add the
additional children to the program.
We are requesting comment on whether three months is an appropriate
length of time for presumptive eligibility. We welcome data on the
average amount of time taken to process applications.
Eligibility Verification
This NPRM proposes to clarify at Sec. 98.21(g) as redesignated,
certain options Lead Agencies have to simplify eligibility
verification. Families receiving child care assistance are likely to be
receiving services from other benefits programs \100\ and since
research finds that administrative burden reduces uptake and
continuation of services,\101\ it would be beneficial for states,
territories, and tribes to design service-delivery systems in ways that
connect families with the programs they need with the least parent and
administrative burden possible. Twenty-three states and territories
currently use documentation from and enrollment in other benefit
programs to determine CCDF eligibility for at least one eligibility
component, based on data from the FFY2022-2024 CCDF Plan.
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\100\ Ibid.
\101\ Schweitzer, J. (May 2022). How To Address the
Administrative Burdens of Accessing the Safety Net. Washington, DC:
Center for American Progress. <a href="https://www.americanprogress.org/article/how-to-address-the-administrative-burdens-of-accessing-the-safety-net/">https://www.americanprogress.org/article/how-to-address-the-administrative-burdens-of-accessing-the-safety-net/</a>.
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This NPRM proposes to clarify in Sec. 98.21(g)(1) and (2), as
redesignated, that Lead Agencies have flexibility to use a family's
enrollment in other public benefits program or documents or
verification used for other benefit programs to verify eligibility for
CCDF, where appropriate. As currently allowable under the 2016 CCDF
final rule, Lead Agencies can use enrollment in other benefit programs
to satisfy specific components of CCDBG eligibility without additional
documentation (e.g., income eligibility, work, participation in
education or training activities, or residency) or satisfy CCDBG
eligibility requirements in full if eligibility criteria for other
benefit programs is completely aligned with CCDBG requirements. For
example, income eligibility for Temporary Assistance for Needy Families
(42 U.S.C. 601 et seq.), and Head Start/Early Head Start (42 U.S.C.
9831 et seq.) meet the Federal CCDF income eligibility requirements and
enrollment in either program could demonstrate income eligibility for
CCDF without any additional documentation from a family. Due to state,
territory, and Tribal variability in eligibility thresholds by
individual benefit programs, the first step to streamlining eligibility
is for Lead Agencies to use their own jurisdiction-specific information
on income eligibility to determine if a child is eligible for subsidy
based on enrollment in that other program.
Allowing Lead Agencies to use enrollment in other benefit programs
to verify CCDF eligibility will reduce duplication of effort on the
part of families and streamline the eligibility determination process
for Lead Agencies, thereby reducing burden on both sides. The proposal
would support the well-being of children by clarifying a policy option
Lead Agencies can employ to reduce the amount of time families may have
to wait to access child care services while Lead Agencies process
eligibility determinations that are redundant to determinations made by
other benefit programs. Collaboration and coordination with other
benefit programs is one key way to simplify eligibility determinations
and ensure families can access all available benefits. This aligns with
past OCC information memoranda which have encouraged Lead Agencies to
consider cross-enrollment for multiple benefit

[[Page 45034]]

programs \102\ and streamline eligibility processes through information
sharing with other benefit programs.\103\
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\102\ CCDF-ACF-IM-2016-02: 2014 Child Care Reauthorization and
Opportunities for TANF and CCDF, <a href="https://www.acf.hhs.gov/sites/default/files/documents/occ/ccdf_acf_im_2016_02.pdf">https://www.acf.hhs.gov/sites/default/files/documents/occ/ccdf_acf_im_2016_02.pdf</a>.
\103\ CCDF-ACF-IM-2011-06: Policies and Practices that Promote
Continuity of Child Care Services and Enhance Subsidy Systems,
<a href="https://www.acf.hhs.gov/sites/default/files/documents/occ/im2011_06.pdf">https://www.acf.hhs.gov/sites/default/files/documents/occ/im2011_06.pdf</a>.
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In Sec. 98.21(g)(2), this NPRM proposes to clarify that Lead
Agencies are permitted to examine eligibility criteria of benefit
programs in their jurisdictions to predetermine which benefit programs
have eligibility criteria aligned with CCDF. Once programs are
identified as being aligned with CCDF income and other eligibility
requirements, Lead Agencies would have the option to use the family's
enrollment in such public benefit program to verify the family's CCDF
eligibility according to Sec. 98.68(c).
Application Processes
To make it easier for eligible families to access child care
services, we propose a change at Sec. 98.21(f)(1), as redesignated, to
require Lead Agencies implement eligibility policies and procedures
that minimize disruptions to parent employment, education, or training
opportunities to the extent practicable. Policies that lessen the
burden of CCDF administrative requirements on families applying for
child care assistance in turn improves access to child care and can
improve families' economic wellbeing. Evidence suggests the initial
CCDF eligibility determination process remains difficult, confusing,
and overly burdensome for some parents and poses a barrier to accessing
affordable child care for families with low incomes.\104\ Burdensome
application processes discourage families from applying for child care
assistance, delay access to child care, and can cause substantial
stress to parents.\105\ Parents report that some of the biggest
challenges are long waits at inconvenient times to apply in-person and
gathering and submitting the necessary documents.\106\ Not
surprisingly, parents also report that online application options can
be more convenient, less stressful, and prove especially useful in
reducing the burden of document submission.
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\104\ Lee, R., Gallo, K., Delaney, S., Hoffman, A., Panagari,
Y., et al. (2022). Applying for child care benefits in the United
States: 27 families' experiences. US Digital Response. <a href="https://www.usdigitalresponse.org/projects/applying-for-child-care-benefits-in-the-united-states-27-families-experiences">https://www.usdigitalresponse.org/projects/applying-for-child-care-benefits-in-the-united-states-27-families-experiences</a>.
\105\ Adams, G., Snyder, K., & Banghart, P. (2008). Designing
subsidy systems to meet the needs of families: An overview of policy
research findings. Washington, DC: Urban Institute. <a href="https://www.urban.org/research/publication/designing-subsidy-systems-meet-needs-families">https://www.urban.org/research/publication/designing-subsidy-systems-meet-needs-families</a>.
\106\ Lee, R., Gallo, K., Delaney, S., Hoffman, A., Panagari,
Y., et al. (2022). Applying for child care benefits in the United
States: 27 families' experiences. US Digital Response. <a href="https://www.usdigitalresponse.org/projects/applying-for-child-care-benefits-in-the-united-states-27-families-experiences">https://www.usdigitalresponse.org/projects/applying-for-child-care-benefits-in-the-united-states-27-families-experiences</a>.
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Thus, ACF recommends that Lead Agencies implement these strategies
to reduce the administrative burden for families and, at a minimum,
offer both paper and online applications to implement this important
strategy that can ease access to child care and strengthen family
economic wellbeing. Currently, 33 states offer online subsidy
applications.
However, as Lead Agencies assemble online applications, they must
take care to reduce the burden on families in applying for CCDF
assistance. Merely converting the paper application process to one that
is performed online will not yield benefits for families. As Lead
Agencies create online applications, they should adjust their policies
and procedures, as necessary, to address any undue burden placed on
families in seeking assistance. One method of approaching this is
documented in the model application, which includes practices for
defining, collecting and verifying eligibility information, that the
Office of Child Care developed and released in 2022.\107\
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\107\ <a href="https://childcareta.acf.hhs.gov/full-model-application">https://childcareta.acf.hhs.gov/full-model-application</a>.
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Additionally, as Lead Agencies consider easing the burden on
families in seeking assistance under CCDF, they are encouraged to
develop screening tools to help families determine whether they are
eligible for CCDF assistance, or other publicly available benefits
(e.g., TANF or Supplemental Nutrition Assistance Program (SNAP)) and
then link directly to applications for these programs.\108\
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\108\ See, e.g., Meade, E., Gillibrand, S., & Weeden (2023).
Lost in the Labyrinth: Helping Parents Navigate Early Care and
Education Programs, Washington, DC: New America Foundation. <a href="https://www.newamerica.org/new-practice-lab/briefs/lost-in-the-labyrinth-helping-parents-navigate-early-care-and-education-programs/">https://www.newamerica.org/new-practice-lab/briefs/lost-in-the-labyrinth-helping-parents-navigate-early-care-and-education-programs/</a>.
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Additional Children in Families Already Receiving Subsidies
We propose new language at Sec. 98.21(d) to clarify that the
minimum twelve-month eligibility requirement described in Sec.
98.21(a) applies when children are newly added to the case of a family
already participating in the subsidy program. This proposal does not
reflect new policy, as section 658E(c)(2)(N) (42 U.S.C. 9858c(c)(2)(N))
and Sec. 98.21(a) do not provide exceptions to the 12-month minimum
eligibility requirement. However, because the existing regulations do
not explicitly address this scenario, there has been inconsistent
implementation of the requirement in which additional children (e.g.,
newborn or school age child needing after school care) in the family
have not received 12 months of care before redetermination. Therefore,
we propose to codify the requirement to address confusion around the
policy.
In cases where multiple children in the same family have initial
eligibility determined at different points in time, we would encourage
Lead Agencies to align eligibility periods to the new child's
eligibility period so that all the children's re-determinations can
occur at the same point in time to limit burden on the family and the
Lead Agency. This can be done by extending the eligibility period for
the existing child beyond 12 months. We emphasize that 12 months is a
minimum requirement and Lead Agencies can extend eligibility periods
longer than 12 months. OCC has recommended extending eligibility
periods beyond 12 months in other cases, such as to align re-
determination with other benefit programs like the Early Head Start-
Child Care partnerships. A conforming change is proposed at Sec.
98.16(h)(4) to require Lead Agencies to describe their policy related
to additional children in the CCDF plan. It is not ACF's intention for
Lead Agencies to implement a full determination and recommends
leveraging existing family eligibility verification about the family
and requiring only necessary information (e.g., proof of relationship,
provider payment information) to add the additional child to the
program.

Implementing Technical and Other Changes for Improved Clarity

Definitions--Sec. 98.2
We propose three technical changes to definitions at Sec. 98.2 and
the addition of two new definitions. In this section, italics indicate
defined terms. First, we propose to amend the definition of major
renovation to be based on cost and not based on a description of
structural change. Section 658F(b) of the CCDBG Act (42 U.S.C.
9858d(b)) prohibits states and territories from using CCDF funds for
the purchase or improvement of land, or for the purchase, construction,
or permanent improvement (other than minor remodeling) of any building
or facility, but it does not define major or minor renovations. The
current definition for major renovation was established in the 1998
CCDF regulation and focuses on

[[Page 45035]]

the type of change, specifically whether it is a structural change or
would significantly alter the facility.\109\ The preamble to the 1998
final rule notes that the definition mirrored that used by the Head
Start program (63 FR 39980) at the time, and Head Start's definition
has since been modified to be cost-based. The definition from the 1998
child care rule has led to confusion in the field and inconsistent
guidance for Lead Agencies and child care providers. Therefore, we
propose changing the definition of major renovation to be based on the
cost of renovations for better clarity and consistent implementation.
Specifically, we propose setting the threshold at $250,000 for centers
and $25,000 for family child care homes in recognition that costs will
vary based on the size of the child care program, with annual
adjustments based on inflation that will be posted on the OCC website.
Any individual renovation or collective renovations exceeding these
amounts would be considered major renovations. We also propose
including language clarifying that renovation activities that are
intended to occur concurrently or consecutively, or altogether address
a specific part or feature of a facility, are considered a collective
group of renovation activities. This proposed change aligns with
changes being proposed to the Head Start Performance Standards. We are
specifically seeking comment on whether these are the appropriate
thresholds for defining major renovation and whether the definition
should be annually adjusted to account for inflationary growth. This
proposed definition applies to all CCDF Lead Agencies. Tribes may
continue to request to use their CCDF funds for construction and major
renovation. (Section 658O(c)(6), 42 U.S.C. 9858m(c)(6)) The proposed
definition will be used to determine which projects are considered
major renovation and require approval from ACF in accordance with Sec.
98.84(b).
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\109\ 63 FR 39980 (<a href="https://www.govinfo.gov/content/pkg/FR-1998-07-24/pdf/98-19418.pdf">https://www.govinfo.gov/content/pkg/FR-1998-07-24/pdf/98-19418.pdf</a>).
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We also propose to add a definition of Territory to mean ``the
Commonwealth of Puerto Rico, the United States Virgin Islands, Guam,
American Samoa, and the Commonwealth of the Northern Mariana Islands.''
This proposed new definition aims to streamline the CCDF regulations,
particularly where Territory funding and allocations are discussed. We
propose a conforming change to the definition of State to mean ``any of
the States and the District of Columbia and includes Territories and
Tribes unless otherwise specified''.
We also propose to update definitions associated with changes made
to CCDF mandatory and matching funds in the American Rescue Plan (ARP)
Act of 2021 (Pub. L. 117-2). Section 9801 of the ARP Act amended
section 418 of the Social Security Act ((42 U.S.C. 618(a)(3)) by
permanently increasing the matching funding for states (including the
District of Columbia) and changing the tribal set-aside for mandatory
funds from between 1 and 2 percent of funds to a flat $100 million each
fiscal year (see CCDF-ACF-IM-2021-04). In addition, the ARP Act
appropriated CCDF mandatory funds ($75 million) to territories for the
first time. To revise the CCDF regulation with the new territory
mandatory funding statute, we propose to add a new definition for
Territory mandatory funds at Sec. 98.2 to mean ``the child care funds
set aside at section 418(a)(3)(C) of the Social Security Act (42 U.S.C.
618(a)(3)(C)) for payments to the Territories'' and revising the
definition for Tribal mandatory funds to be ``the child care funds set
aside at section 418(a)(3)(B) of the Social Security Act (42 U.S.C.
618(a)(3)(B)) for payments to Indian Tribes and tribal organizations.''
Section 98.13--Applying for Funds
We propose a technical change at Sec. 98.13(b)(4) to change the
regulatory citation from 45 CFR 76.500 to 2 CFR 180.300 to accurately
reflect current regulations at 2 CFR 180.300 governing grants
management.
Section 98.16--Plan Provisions
We propose to revise Sec. 98.16(h) to align with corresponding
proposed changes at Sec. 98.21. These proposed changes require lead
agencies to describe in their CCDF plans their processes for
incorporating additional eligible children in families already
receiving subsidies, as proposed at Sec. 98.21(d); their procedures
and policies for presumptive eligibility, as proposed at Sec.
98.21(e); and their processes for using eligibility for other programs
to verify eligibility for CCDF, as proposed at Sec. 98.21(g). These
proposed policy changes are discussed earlier in this preamble.
We also propose a technical change at Sec. 98.16(dd) as
redesignated. The current regulatory language incorrectly says,
``verity eligibility.'' This is an error and should read ``verify
eligibility.''
Section 98.21--Eligibility Determination Processes
We propose to add the word ``on'' in Sec. 98.21(a)(2)(iii) to
correct a grammatical error. The revised language would read, ``If a
Lead Agency chooses to initially qualify a family for CCDF assistance
based on a parent's status of seeking employment or engaging in job
search,'' (emphasis added).
Section 98.33--Consumer and Provider Education
We propose a new provision at Sec. 98.33(a)(4)(ii) to clarify
which reports Lead Agencies must post on consumer education websites to
address Lead Agencies' confusion about existing requirements. Section
658E(c)(2)(D) of the Act (42 U.S.C. 9858c(c)(2)(D)) requires monitoring
and inspection reports of child care providers be made available
electronically to the public. Current regulations at Sec. 98.33(a)(4)
require Lead Agencies to post ``full monitoring and inspection reports,
either in plain language or with a plain language summary,'' but the
regulation does not define a ``full monitoring and inspection report.''
This lack of clarity has led to varied implementation of the
requirement, with many Lead Agencies only posting violations. While it
is critical for parents to be aware of how a provider did not meet a
health and safety requirement, it is also critical for parents to
understand the full scope of a monitoring inspection, so parents have
the information they need to make informed child care decisions. We
propose to redesignate Sec. 98.33(a)(4)(ii) through (iv) accordingly
without changes.
We also propose to amend paragraph (a)(5) to include the total
number of children in care as a required component of the CCDF consumer
education website. Current regulations at Sec. 98.33(a)(5) require
Lead Agencies to post the aggregate number of deaths and serious
injuries by provider type and licensing status, and instances of
substantiated child abuse that occurred in child care settings each
year, for eligible child care providers, on the state or territories
child care website. Lead Agencies are also required to post the total
number of children in care by provider category and licensing status.
However, the requirement to include the total number of children in
care by provider category/licensing status was only included in the
preamble to the 2016 CCDF final rule and not the regulatory language
itself (81 FR 67477). This omission has led to a lack of clarity in
monitoring Lead Agency compliance. Including the total number of
children in care by type of care provides helpful context for parents
and the public to understand the aggregate data on serious injuries and
fatalities in child care settings. Lead Agencies are already required
to include this information on their websites, so we do not expect this

[[Page 45036]]

proposed change to the regulatory text to be an additional burden. To
ensure clarity, we propose to separate the existing requirements in
paragraph (a)(5) into multiple subprovisions but without change.
Criminal Background Checks--Sec. 98.43
Section 98.43 details CCDF's comprehensive background check
requirements, policies, and procedures. We propose three changes to
clarify existing requirements regarding criminal background checks.
First, we propose a change at Sec. 98.43(a)(1)(i) and (d)(3)(i) to
clarify the requirement that employment eligibility decisions must be
made based on results of background checks and not after initiating all
checks. Second, we propose to clarify at Sec. 98.43(c)(1) it is the
role of the State, Territory, Tribe, and Lead Agency to determine a
prospective staff member's eligibility for employment, coordinating
across relevant public agencies as necessary, such as state child
welfare offices and the State Identification Bureau. Currently, some
states use procedures that allow child care providers to make
employment determinations for some parts of the background check
requirements, and this is not allowable under the 2016 CCDF final rule.
As proposed, the Lead Agency must provide the results of the background
check to the child care provider in a statement that indicates only
whether the staff member is eligible or ineligible, without revealing
specific disqualifying information.
Third, we propose a change at Sec. 98.43(c)(1)(v) to clarify that
all adjudications for child pornography are disqualifying for child
care employment. The Act requires Lead Agencies to find individuals
ineligible for employment if they have been convicted of a violent
misdemeanor committed as an adult against a child, including the
following crimes: child abuse, child endangerment, sexual assault, or
of a misdemeanor involving child pornography. Some Lead Agencies
interpreted this to mean that a misdemeanor charge of child pornography
had to be considered ``violent'' to be classified as a mandatory
disqualifying offense under the Act. The proposed change clarifies that
a standard misdemeanor involving child pornography is considered a
disqualifying crime under the Act, whether considered ``violent'' or
not.
Child Care Services--Sec. 98.50
Section 98.50(b)(1) reflects section 658G(a)(2)(A) of the Act (42
U.S.C. 9858e(a)(2)(A)), which includes a phased-in increase to the
percent of expenditures states and territories must spend on activities
to improve the quality of child care. The phase-in ended on September
30, 2020, so we propose to delete the phase-in schedule for the quality
set-aside at Sec. 98.50(b)(1) because it is outdated. This proposal
does not impact the current requirement for states and territories to
spend at least 9 percent of their total expenditures, not including
state maintenance of effort funds, on quality activities.
Similarly, we propose to strike Sec. 98.50(b)(2) because it is
outdated. Section 658G(a)(2)(B) of the Act (42 U.S.C. 9858e(a)(2)(B))
included a new permanent requirement for states and territories to
spend at least 3 percent of total expenditures (not including state
maintenance of effort funds) on activities to improve the quality and
supply of child care for infants and toddlers but delayed the effective
date of this requirement until FY 2017. This date is no longer
necessary in the regulatory language, and we propose to delete it. This
proposal does not impact the current requirement for states and
territories to spend at least 3 percent of their total expenditures
(not including state maintenance of effort funds) on activities to
improve the quality and supply of child care for infants and toddlers.
We also propose to amend Sec. 98.50(e) to update regulations to
align them with policies implemented by ACF in FY 2021 after changes
made to section 418 of the Social Security Act (42 U.S.C. 618), as part
of the American Rescue Plan Act of 2021 (Pub. L. 117-2). In accordance
with Public Law 117-2, Territories received permanent CCDF mandatory
funds for the first time in FY 2021. Given statute did not provide
Territories with CCDF mandatory funds prior to FY 2021, the current
CCDF regulations do not include requirements of how Territories must
spend CCDF mandatory funds. We propose this change to codify the
requirement included in the approved instructions for completing to the
ACF-696 Financial Reporting Form for CCDF State and Territory Lead
Agencies \110\ that Lead Agencies spend at least 70 percent of CCDF
mandatory and matching funds on specific populations related to TANF
receipt (families receiving TANF, families transitioning from TANF, and
families at-risk of becoming dependent on TANF) applies to Territories,
as well as States. This requirement is aligned with statutory
requirements and has applied to Territories since they first received
mandatory funds in FY 2021. The proposed regulatory change simply
codifies the requirement.
---------------------------------------------------------------------------

\110\ Instruction for Completion of Form ACF-696 Financial
Reporting Form for the Child Care and Development Fund (CCDF) State
and Territory Lead Agencies. Office of Management and Budget (OMB)
#0970-0510. <a href="https://www.acf.hhs.gov/sites/default/files/documents/occ/instructions_for_completion_of_form_acf-696_financial_reporting_form-for_ccdf_state_territory_lead-agencies.pdf">https://www.acf.hhs.gov/sites/default/files/documents/occ/instructions_for_completion_of_form_acf-696_financial_reporting_form-for_ccdf_state_territory_lead-agencies.pdf</a>.
---------------------------------------------------------------------------

Availability of Funds--Sec. 98.60
To reflect that Territories began receiving annual mandatory funds
in FY 2021 due to provisions in the American Rescue Plan (ARP) Act, we
propose to make two conforming changes at Sec. 98.60(a) to specify
where the regulations address mandatory funds for states and where they
address mandatory funds for Territories.
We also propose a conforming change at paragraph (d)(3) to clarify
that Territories must obligate mandatory funds in the fiscal year in
which they were granted and must liquidate no later than the end of the
next fiscal year. This aligns with CCDF State policy and is needed to
clarify new requirements added in the ARP Act. The existing provisions
at paragraphs (d)(4) through (8) would be renumbered accordingly.
Allotments From the Mandatory Fund--Sec. 98.62
We propose a conforming change at Sec. 98.62(a) to align this
regulation with previously discussed changes made to the Social
Security Act in the ARP Act. We propose to update the statutory
reference to the Social Security Act to specify the provision
referenced section 418(a)(3)(A), and we propose to delete the reference
to the amount reserved for Tribes pursuant to paragraph (b) to reflect
that the ARP Act permanently changed the allocation of mandatory funds
for Indian Tribes and Tribal organizations to be based on the amount
set at section 418(a)(3)(B) of the Social Security Act and no longer a
percent of the total allocated.
Finally, we also propose to add a new paragraph (d) to incorporate
changes made in the ARP Act allocating mandatory funds to the
Commonwealth of Puerto Rico, the United States Virgin Islands, Guam,
American Samoa, and the Commonwealth of the Marianas Islands. Section
418(a)(3)(C) of the Social Security Act requires funds to be allocated
based on the Territories' ``respective needs.'' In allotting these
funds in FY 2021, ACF used the same formula used to allocate funds from
the Discretionary funds at Sec. 98.61(b). We propose to codify that
reallotment formula in the regulations. Specifically, we propose that
the amount of each Territory's mandatory allocation be based on (1) a
Young Child factor--the

[[Page 45037]]

ratio of the number of children in the Territory under five years of
age to the number of children under five years of age in all
Territories included; and (2) an Allotment Proportion factor--
determined by dividing the per capita income of all individuals in all
the Territories by the per capita income of all individuals in the
territory. Proposed Sec. 98.62(d)(2)(i) requires per capita income to
be equal to the average of the annual per capita incomes for the most
recent period of three consecutive years for which satisfactory data
are available at the time the determination is made and determined
every two years.
Reallotment and Redistribution of Funds--Sec. 98.64
We propose to update Sec. 98.64(a) to reflect that Territories
began receiving mandatory funds in FY2021 due to the ARP Act. We
propose to specify Territory mandatory funds are subject to
redistribution and that mandatory funds granted to Territories must be
redistributed to Territories. We also propose to specify that only
Discretionary funds awarded to Territories are not subject to
reallotment and that Discretionary funds granted to the Territories
that are returned after being allotted are reverted to the Federal
Government. We also propose to add a new paragraph (e) to codify these
procedures for redistributing Territory mandatory funds.
Contents of Reports--Sec. 98.71
This NPRM proposes to delete the data element at Sec. 98.71(a)(11)
that requires Lead Agencies to report any amount charged by a child
care provider to a family receiving CCDF subsidy more than the co-
payment set by the Lead Agency in instances where the provider's price
exceeds the subsidy payment amount because it would be unreasonably
burdensome on parents and providers. We also propose conforming
renumbering changes to existing paragraphs (a)(12) through (22). This
reporting requirement was added to the CCDF regulations in 2016, but it
was never added as a data element to the ACF-801 (monthly case-level
report) because when ACF proposed adding the data element to the ACF-
801 as part of the Paperwork Reduction Act (PRA) process in 2018, five
State CCDF Lead Agencies submitted comments objecting to the proposed
new data element. Four states indicated that the elements would create
a reporting burden for families and/or providers, and that it would be
challenging to collect and report accurate data. Another state
indicated that it has legacy systems that would be unable to calculate
or report the data. A State argued that the new elements were
duplicative of information that States are required to report in their
CCDF Plans, and would involve significant costs, especially for States
with county-administered CCDF programs. We seek comment on whether this
requirement should be removed, including the potential implications of
instituting, or removing this reporting requirement.
Subpart I--Indian Tribes
In FY 2023, 265 Tribal Lead Agencies received CCDF grants totaling
$557 million.\111\ Prior to the 2016 CCDF final rule, Tribal Lead
Agencies were divided into two categories: Those with allocations of
more than $500,000 that were required to operate a certificate program
for direct services, and those with an allocation under $500,000 that
were exempt from administering a certificate program. Otherwise, prior
to 2016, Tribal Lead Agencies largely operated under the same rules as
States and territories. The 2016 CCDF final rule created three
categories of Tribal Lead Agencies based on whether they had a small
(less than $250,000), medium ($250,000 to $1 million), or large (more
than $1 million) allocation. Tribal Lead Agencies with small
allocations operate under a more limited number of CCDF requirements,
may choose not to provide direct services, and may submit an
abbreviated CCDF plan. Tribal Lead Agencies with medium and large
allocations must meet more requirements and must provide direct
services. There are some CCDF requirements from which all Tribal Lead
Agencies are exempt, such as the requirement to have a child care
consumer education website.
---------------------------------------------------------------------------

\111\ <a href="https://www.acf.hhs.gov/occ/data/gy-2023-ccdf-allocations-based-appropriations">https://www.acf.hhs.gov/occ/data/gy-2023-ccdf-allocations-based-appropriations</a>.
---------------------------------------------------------------------------

All the proposed changes in this NPRM would apply to medium and
large allocation tribes, with the exception of the requirement to use
grants and contracts to build supply, as described below. We propose a
change to the liquidation period for major renovation and construction,
which is only applicable to Tribal lead agencies because states and
territories may only use CCDF funds for minor renovations.
We recognize that some existing regulatory requirements for Tribal
lead agencies may not be appropriate for Tribal lead agencies or
provide the flexibility necessary for Tribal lead agencies to implement
CCDF programs in a way that meets the needs of the children, families,
and child care providers in their jurisdiction. We also recognize that
any significant changes made to Tribal regulations must be made with
input and consultation with the Tribal Nations and organizations that
receive CCDF funding. Therefore, we will separately release a Request
for Information to begin a consultation with Tribal Lead Agencies and
other Tribal stakeholders on areas where more flexibility would help
improve implementation of the CCDF program. We will also seek feedback
on some of the thresholds that are not regulatory but were set or
updated in the preamble to the 2016 CCDF final rule, including the
tribal allocation thresholds and discretionary base amounts.
Grants and contracts. As part of this NPRM, we propose to add new
requirements at Sec. Sec. 98.16(y)(1), 98.30(b)(1), and 98.50(a)(3),
for states and territories to use grants and contracts for direct
services to increase the supply of child care for infants and toddlers,
children with disabilities, and children who need care during
nontraditional hours, but we propose to exempt all Tribal Lead Agencies
from these requirements. Tribal Lead Agencies vary significantly in how
they administer the CCDF subsidy program, including with many tribal
lead agencies operating their own child care programs with CCDF funds.
Therefore, a requirement to use grants and contracts would not be
feasible though it remains an option for those Tribal Lead Agencies
that would like to use this funding mechanism. Tribal Lead Agencies
would still be required to take steps to address and report on supply
gaps.
Quality funds. At Sec. 98.83(g), we propose to make two technical
changes to delete the phase-in schedule for the quality spending
increase at (1) and the infant and toddler spending set-aside at (2)
because they are outdated. Current regulations included a phase-in
period for Tribes to implement the increased quality set-aside. This
phase-in was completed in FFY 2022. Therefore, the phase-in is no
longer necessary in the regulations. Going forward, all Tribal Lead
Agencies must spend at least 9 percent of their total expenditures, not
including state maintenance of effort funds, on quality activities.
Similarly, the 2016 CCDF final rule included a new permanent
requirement for Tribal Lead Agencies with large and medium allocations
to spend at least 3 percent of total expenditures on activities to
improve the quality and supply of child care for infants and toddlers.
The 2016 CCDF final rule delayed the effective date of this requirement
until FFY 2019. This date is no longer necessary in the regulatory
language, and we propose to delete it. These technical changes do not
impact

[[Page 45038]]

the requirement for tribes to meet these spending requirements.
Tribal Construction and Major Renovation Liquidation Period. We
propose to revise Sec. 98.84(e) to lengthen the liquidation period for
tribal construction and major renovation funds to give tribal lead
agencies sufficient time to carry out construction and major renovation
projects, which can take many years to plan and execute successfully.
The authority to request to use their CCDF funds for construction and
major renovation given in section 658O(c)(6)) of the Act (42 U.S.C.
9858m(c)(6)) has been an important Tribal flexibility in the CCDF
program. Between FY 2018 and FY 2023, approximately 120 Tribal Lead
Agencies set-aside a portion of their CCDF funds to construct or
renovate child care facilities in their service area, ultimately
improving child care services in tribal communities by building the
supply of child care in areas that lacked providers. Tribes have
incorporated design features that support the delivery of safe, high-
quality care and promote child development, as well as cultural
components that reflect each tribe's values and beliefs.
While many tribes have successfully used CCDF funds to build or
renovate child care facilities, other tribes have been thwarted by the
limited time available to spend the CCDF funds. Current regulations
allow tribes to liquidate or spend construction and renovation funds
during the year of the award or the two years following the year of
award. Unlike CCDF funds spent for purposes other than construction or
major renovation, there is no separate requirement to obligate (i.e.,
legally commit through a contract or other means) the funds within a
certain period. The lack of a separate obligation period was intended
to give tribes additional time to complete construction and major
renovation projects. However, despite the intention to give more
flexibility, the existing timeline is insufficient.
Planning and completing successful construction and renovation
projects requires many time-consuming steps, including engaging
community stakeholders, and hiring architects, engineers, contractors,
early learning experts, and other professionals. Project requirements
include: conducting a community needs assessment; designing a
developmentally appropriate learning environment, a detailed budget,
and an environmental assessment; developing plans and specifications;
and carrying out the actual construction and renovation work. Tribes
have experienced many unexpected delays outside of the control of the
Tribal Lead Agency that have impacted the duration of projects,
including the COVID-19 pandemic, supply chain shortages, and varying
weather conditions based on geographic location. These delays have
forced some tribes to adjust the scope of their projects, or to elect
to use funds initially set aside for construction and major renovation
projects for other CCDF purposes, to meet the liquidation deadline.
This leaves much-needed facility projects unfinished, resulting in
unmet needs related to availability of child care in tribal
communities.
Therefore, we propose to amend the language at Sec. 98.84(e) to
allow Tribal Lead Agencies until the end of the fourth year following
the year that the grant is awarded to liquidate funds for construction
and major renovation (rather than the end of the second year following
the year that the grant is awarded, as required by current
regulations).
Tribal Lead Agencies currently have the flexibility to request to
use construction and major renovation funds for other allowable CCDF
purposes if their plans for a construction or major renovation project
fall through or are delayed. We would like to establish guardrails to
ensure that this flexibility does not result in circumstances where a
Tribal Lead Agency inappropriately circumvents the obligation and
liquidation requirements for CCDF funds that are not used for
construction or major renovation purposes.
We solicit comments on how to best establish these guardrails, such
as perhaps establishing a deadline for requesting to use construction
or renovation funds for other purposes.
Content of Error Rate Reports--Sec. 98.102
OCC aims to strengthen oversight and monitoring of program
integrity risks by clarifying requirements at Sec. 98.102 for the
State Improper Payments Corrective Action Plan (ACF-405). We propose to
amend Sec. 98.102(c)(2) to expand the required components of error
rate corrective action plans. Specifically, we propose to require at
amended paragraph (c)(2)(ii) that corrective action plans include the
root causes of errors as identified in the Lead Agency's most recent
ACF-404 Improper Payment Report and other root causes. This proposed
change is based on recommendations from the Government Accountability
Office (GAO) 20-227, Office of Child Care Should Strengthen Its
Oversight and Monitoring of Program-Integrity Risks. We also propose to
separate current (c)(2)(ii) into two provisions, with proposed amended
paragraph (c)(2)(iii) to require detailed descriptions of actions to
reduce improper payments and the individual responsible for actions
being completed and proposed amended paragraph (c)(2)(iv) to require
milestones to indicate progress towards action completion and error
rate reduction. Additionally, we propose to revise paragraph (c)(2)(v),
as redesignated, to clarify that the penalty at paragraph (c)(4) is
tied to the Lead Agency's completion of their action steps within one
year as described in the timeline in their corrective action plan
approved by the Assistant Secretary.
We also propose to add language at paragraph (c)(3) to clarify that
the reference to ``subsequent progress reports'' includes State
Improper Payments Corrective Action Plans (ACF-405). Progress reports,
including the State Improper Payments Corrective Action Plan (ACF-405),
will be required until the Lead Agency's improper payment rate no
longer exceeds the error rate threshold designated by the Assistant
Secretary, which is currently 10 percent. We propose to add language at
(c)(4) to strengthen OCC's ability to assess a penalty if the state
does not take action steps ``as described.'' We added the word ``as''
to clarify that they should not only take the action steps described,
but that they should take them ``as described.'' As proposed, it will
be at OCC's discretion to impose a penalty for not following them ``as
described.''

IV. Regulatory Process Matters

Paperwork Reduction Act

Under the Paperwork Reduction Act (44 U.S.C. 3501 et seq., as
amended) (PRA), all Departments are required to submit to the Office of
Management and Budget (OMB) for review and approval any reporting or
recordkeeping requirements inherent in a proposed or final rule. As
required by this Act, we will submit any proposed revised data
collection requirements to OMB for review and approval.
The proposed rule modifies several previously approved information
collections, but ACF has not yet initiated the OMB approval process to
implement these changes. ACF will publish Federal Register notices
soliciting public comment on specific revisions to those information
collections and the associated burden estimates and will make available
the proposed forms and instructions for review.

[[Page 45039]]

----------------------------------------------------------------------------------------------------------------
Relevant section in OMB control Expiration
CCDF title/code the proposed rule No. date Description
----------------------------------------------------------------------------------------------------------------
ACF-118 (CCDF State and Territory Sec. Sec. 98.14, 0970-0114 02/29/2024 The proposed rule
Plan). 98.15, and 98.16 would add new
(and related requirements which
provisions). States and
Territories will be
required to report
in the CCDF plans.
ACF-118-A (CCDF Tribal Plan) Part Sec. Sec. 98.14, 0970-0198 4/30/2025 The proposed rule
I and Part II. 98.16, 98.18, 98.81, would add new
and 98.83 (and requirements which
related sections). Tribal lead agencies
with medium and
large allocations
will be required to
report in the CCDF
plans.
ACF-403, ACF-404, ACF-405 (Error Sec. Sec. 98.100 0970-0323 01/31/2025 The proposed rule
Rate Reporting). and 98.102. would modify this
information
collection to add
new components to
the corrective
action plans.
Consumer Education Website and Sec. Sec. 98.33, 0970-0473 04/30/2023 The proposed rule
Reports of Serious Injuries and 98.42. would modify this
Deaths. information
collection to
require posting
information about
parent co-payments.
----------------------------------------------------------------------------------------------------------------

The table below provides current approved annual burden hours and
estimated annual burden hours for these existing information
collections that are modified by this proposed rule.

Annual Burden Estimates
--------------------------------------------------------------------------------------------------------------------------------------------------------
Current Proposed
Total number approved estimated Proposed
Instrument Total number of responses average Current annual average estimated
of respondents per burden hours burden hours burden hours annual burden
respondent per response per response hours
--------------------------------------------------------------------------------------------------------------------------------------------------------
ACF-118 (CCDF State and Territory Plan)................. 56 1 200 3,733 205 3,827
ACF-118-A (CCDF Tribal Plan)............................ 265 1 144 11,448 147 12,985
ACF-403, ACF-404, ACF-405 (Error Rate Reporting)........ 52 276 907 43,716 912 43,732
Consumer Education Website.............................. 56 1 300 16,800 315 17,640
--------------------------------------------------------------------------------------------------------------------------------------------------------

Regulatory Flexibility Act
The Regulatory Flexibility Act (RFA) (see 5 U.S.C. 605(b) as
amended by the Small Business Regulatory Enforcement Fairness Act)
requires Federal agencies to determine, to the extent feasible, a
rule's impact on small entities, explore regulatory options for
reducing any significant impact on a substantial number of such
entities, and explain their regulatory approach. The term ``small
entities,'' as defined in the RFA, comprises small businesses, not-for-
profit organizations that are independently owned and operated and are
not dominant in their fields, and governmental jurisdictions with
populations of less than 50,000. HHS considers a rule to have a
significant impact on a substantial number of small entities if it has
at least a 3 percent impact on revenue on at least 5 percent of small
entities. The Secretary proposes to certify, under 5 U.S.C. 605(b), as
enacted by the RFA (Pub. L. 96-354), that this rule would not result in
a significant impact on a substantial number of small entities, as this
rule primarily impacts states, territories, and tribes receiving
Federal CCDF grants. Therefore, an initial regulatory flexibility
analysis is not required for this document.
Unfunded Mandates Reform Act of 1995
Title II of the Unfunded Mandates Reform Act of 1995 (UMRA), Public
Law 104-4, establishes requirements for Federal agencies to assess the
effects of regulatory actions on state, local, and tribal governments,
and the private sector. Under section 202 of the UMRA, the Department
generally must prepare a written statement, including a cost-benefit
analysis, for proposed and final rules with ``Federal mandates'' that
may result in expenditures by state, local or tribal governments, in
the aggregate, or the private sector, of $100 million in 1995 dollars,
updated annually for inflation. In 2023 the threshold is approximately
$177 million. When such a statement is necessary, section 205 of the
UMRA generally requires the Department to identify and consider a
reasonable number of regulatory alternatives and adopt the most cost
effective or least burdensome alternative that achieves the objectives
of the rule. The regulatory impact analysis includes information about
the costs of the proposed regulation. As described in the preamble to
this proposed rule, several of the proposed changes are at the option
of States, Territories, and Tribes. In addition, states, territories,
and tribes receive over $11 billion annually in Federal funding to
implement the program.
Executive Order 13132
Executive Order 13132 requires Federal agencies to consult with
state and local government officials if they develop regulatory
policies with federalism implications. Federalism is rooted in the
belief that issues that are not national in scope or significance are
most appropriately addressed by the level of government close to the
people. This rule would not have substantial direct impact on the
states, on the relationship between the Federal Government and the
states, or on the distribution of power and responsibilities among the
various levels of government. This rule does not

[[Page 45040]]

pre-empt state law. In large part, the changes included in the proposed
rule are adopting practices already implemented by many states or are
increasing flexibilities in administering the CCDF program. Therefore,
in accordance with section 6 of Executive Order 13132, it is determined
that this action does not have sufficient federalism implications to
warrant the preparation of a federalism summary impact statement.
Assessment of Federal Regulations and Policies on Families
Assessment of Federal Regulations and Policies on Families Section
654 of the Treasury and General Government Appropriations Act of 2000
requires Federal agencies to determine whether a policy or regulation
may negatively affect family well-being. If the agency determines a
policy or regulation negatively affects family well-being, then the
agency must prepare an impact assessment addressing seven criteria
specified in the law. ACF believes it is not necessary to prepare a
family policymaking assessment (see Pub. L. 105-277) because the action
it takes in this NPRM would not have any impact on the autonomy or
integrity of the family as an institution.

V. Regulatory Impact Analysis

We have examined the impacts of the proposed rule under Executive
Order 12866, Executive Order 13563, the Regulatory Flexibility Act (5
U.S.C. 601-612), and the Unfunded Mandates Reform Act of 1995 (Pub. L.
104-4). Executive Orders 12866 and 13563 direct us to assess all
benefits, costs, and transfers of available regulatory alternatives
and, when regulation is necessary, to select regulatory approaches that
maximize net benefits (including potential economic, environmental,
public health and safety, and other advantages; distributive impacts;
and equity). This analysis identifies economic impacts that exceed the
threshold for significance under Section 3(f)(1) of Executive Order
12866, as amended by Executive Order 14094.
We have conducted a Regulatory Impact Analysis (RIA) to estimate
and describe the expected costs, transfers, and benefits resulting from
this proposed rule. This included evaluating State and Territory
polices in the major areas of policy change: Eligibility, Payment Rates
and Practices, and Family Co-payments. Due to limitations in data, we
have not examined and included Tribal policies in our analysis.

A. Context and Assumptions

All proposed changes in this rule are allowable costs within the
CCDF program and we expect activities to be paid for using CCDF
funding. Nearly $11.5 billion in Federal funding is allocated to State,
Territory, and Tribal CCDF grantees in FY 2023.\112\ In addition to the
Federal funding, states may contribute their own funds to access
additional Federal funds, increasing FY 2023 funding for CCDF to about
$13.7 billion. Many states have also been increasing state investment
in child care beyond the required levels. Without additional funding,
it is possible that lead agencies may make difficult tradeoffs, such as
reducing the total number of children served by CCDF. However, Lead
agencies have flexibility in how they implement many of the proposed
provisions and may adjust other policies to avoid additional costs
associated with potential policy changes. They may also draw from other
Federal funding streams to support the policy changes included in this
rule, including through allowable transfers from TANF.
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\112\ <a href="https://www.acf.hhs.gov/occ/data/gy-2023-ccdf-allocations-based-appropriations">https://www.acf.hhs.gov/occ/data/gy-2023-ccdf-allocations-based-appropriations</a>.
---------------------------------------------------------------------------

The calculations in this RIA include a number of assumptions and
projections. These are variables where there was not data or research
available to support a specific figure. To move forward with cost
estimates for these provisions, ACF made what we believe to be
reasonable assumptions, including on Lead Agency responses to the
NPRM's policies. However, while we do not have data for these items, we
welcome input from commenters who may have resources that could inform
these assumptions and projections.
1. Baseline
To get an accurate account of the costs, transfers, and benefits of
this proposed rule, we first established a baseline for current CCDF
States and Territory practices. The policies described in this RIA
represent the most current information available regarding the policies
that were in place at the time that this proposed rule was published.
The Lead Agency data and policies described in this RIA is gathered
primarily from:
<bullet> ACF-801 (2020, preliminary): \113\ this is case-level data
that are collected monthly. The preliminary 2020 data are the most
recent data available.
---------------------------------------------------------------------------

\113\ <a href="https://www.acf.hhs.gov/occ/data/fy-2020-ccdf-data-tables-preliminary">https://www.acf.hhs.gov/occ/data/fy-2020-ccdf-data-tables-preliminary</a>.
---------------------------------------------------------------------------

<bullet> ACF-118 (State and Territory Plan, 2022-2024): \114\ This
is the application for CCDF funds and provides a description of, and
assurances about, the Lead Agency's child care program and all services
available to eligible families. Data from the FFY 2022-2024 Plans were
the most current data available.
---------------------------------------------------------------------------

\114\ <a href="https://www.acf.hhs.gov/occ/report/acf-118-overview-state/territorial-plan-reporting">https://www.acf.hhs.gov/occ/report/acf-118-overview-state/territorial-plan-reporting</a>.
---------------------------------------------------------------------------

<bullet> CCDF Policies Database (2020): \115\ The CCDF Policies
Database, managed by the Office of Planning, Research, and Evaluation
(OPRE) and the Urban Institute, is a single source of information on
the detailed rules for States' and Territories' CCDF child care subsidy
programs. Data was from the ``State Variations in CCDF Policies as of
October 1, 2020.''
---------------------------------------------------------------------------

\115\ CCDF Policies Database, 2020 data. <a href="https://ccdf.urban.org/">https://ccdf.urban.org/</a>.
\116\ <a href="https://www.acf.hhs.gov/occ/data/fy-2020-preliminary-data-table-1">https://www.acf.hhs.gov/occ/data/fy-2020-preliminary-data-table-1</a>.
---------------------------------------------------------------------------

Since dollar figures are collected from reports that span different
years, we adjust all dollar amounts to account for inflation. For the
purposes of this RIA, all dollar figures were converted to 2023
dollars.

Table 1--Average Monthly Adjusted Number of Families and Children Served
[FY 2020] \116\
------------------------------------------------------------------------
Average number of
Average number of families children
------------------------------------------------------------------------
900,300............................................. 1,489,200
------------------------------------------------------------------------

[[Page 45041]]

Table 2--Number of Child Care Providers Receiving CCDF Funds
[FY 2020] \117\
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Licensed or regulated Legally operating without regulation
-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Child's home Family home Group home
Family ------------------------------------------------------------------------ Total
Child's home home Group home Center Non- Non- Non- Center
Relative Relative Relative Relative Relative Relative
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
37.......................................................... 47,095 22,555 71,630 15,821 6,649 48,122 14,782 0 0 5,042 231,723
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

2. Implementation Timeline
ACF expects provisions included in the proposed rule, if finalized,
to become effective 60 days from the date of publication of the final
rule. Compliance with provisions in the final rule would be determined
through ACF review and approval of CCDF Plans, including Plan
amendments, as well as through other Federal monitoring, including on-
site monitoring visits as necessary.
---------------------------------------------------------------------------

\117\ <a href="https://www.acf.hhs.gov/occ/data/fy-2020-preliminary-data-table-7">https://www.acf.hhs.gov/occ/data/fy-2020-preliminary-data-table-7</a>.
---------------------------------------------------------------------------

While this proposed rule does not have specific implementation
dates for individual provisions, we believe it is reasonable to assume
that it will take Lead Agencies some time to implement these policies,
particularly since many of these are at the Lead Agency's option and
some of the proposed changes in this NPRM may require action on the
part of a Lead Agency's legislature or require State, Territory, or
Tribal-level rulemaking in order to implement.
For the purposes of this RIA, we are examining a 5-year timeframe
and building in one year for Lead Agencies to phase in these
provisions. The cost estimate assumes a one year ramp up period of half
of the full costs with full implementation in years three, four, and
five. The costs, transfers, and benefits in this estimate are phased-in
as follows:

Year 1: One half of the full costs/transfers/benefits estimate
Years 2, 3, 4, and 5: Full costs/transfer/benefits estimate

ACF welcomes public comment on specific provisions included in this
proposed rule that may warrant a longer phase-in period. These comments
will be taken into consideration when assessing the costs, transfers,
and benefits of the final rule.
3. Need for Regulatory Action
Congress last authorized the Child Care and Development Block Grant
Act in November 2014. In September 2016, HHS published a final
regulation, clarifying the new provisions of the Act and building on
the priorities that Congress included in reauthorization. In the years
since then, the HHS has carefully explored the successes and challenges
in the Act's implementation, learning from the experiences of Lead
Agencies, providers, families, and early educators, and assessing the
impact and implications of the COVID-19 public health emergency.
The proposed revisions in this NPRM are designed to improve on the
work of the past, creating a program that effectively supports child
development and family economic well-being.
The policies in this NPRM will help families access high-quality
child care and mitigate myriad negative consequences of inadequate
access to care. Specifically, the proposed revisions:
<bullet> Lower child care costs for families,
<bullet> Improve parent choice and strengthen child care payment
practices, and
<bullet> Streamline the process to access child care subsidies.
While ACF has provided guidance on these issues before, several
CCDF Lead Agencies have clearly stated that implementing many of these
policies with uniformity is not possible without the authority of a
regulation. For example, some changes to state-level CCDF policy
require state-level legislative action. Further, this regulatory action
provides much-needed clarity around what is and what is not allowed.

B. Analysis of Transfers and Costs

OMB Circular A-4 notes the importance of distinguishing between
costs to society as a whole and transfers of value between entities in
society. While some of these policies may represent budget impacts to
CCDF Lead Agencies, from a society-wide perspective, they mostly
redistribute costs from one portion of the population to another.
Although we acknowledge that there could be potential increases in
resource use at the Lead Agency level, for the technical purposes of
this regulatory impact analysis, most of the impacts from these
provisions are more accurately categorized as transfers. (The flow of
these transfers between entities is discussed in more detail later in
this regulatory analysis; for example, the estimation of caseload
effects shows how the cost side of the transfers might ultimately be
borne by families whose children would participate in CCDF in the
absence of the proposed rule but would no longer be able to do so upon
the rule's issuance.) The exceptions are the administrative costs
associated with grants and contracts and the potential administrative
costs associated with encouraging an online component to the initial
eligibility application process.
We welcome comment on all aspects of the analysis, but throughout
the narrative, we specifically request comment in areas where there is
uncertainty.
1. Family Co-Payments
To ensure co-payments are not a barrier to accessing care, we
propose to clarify that co-payments shall not be greater than 7 percent
of family income. The proposed revisions also give Lead Agencies more
flexibility to waive co-payments for additional families.
Permissible Co-payments: This policy would declare co-payments
above 7 percent of a family's income are an impermissible barrier to
child care and would be prohibited. We are categorizing this policy as
a transfer because it transfers the cost from families who would
otherwise pay high out of pocket costs or forgo care to Lead Agencies.
To calculate this, we took the CCDF State Plan data on family co-
payments, where Lead Agencies report their lowest and highest co-pay
amounts. Lead agencies report the family income levels associated with
those co-payment amounts, so we then calculated what the 7 percent
threshold would be, how many of the reported co-payments were above
that threshold, and by how much. Then we used CCDF data on the number
of families to estimate the cost burden that would be transferred from
families to Lead Agencies.
Since the highest co-pay amounts would only apply to CCDF families
at the highest income levels, we used ACF-801 data which shows that 19
percent of families are in the highest income category (above 150
percent of

[[Page 45042]]

Federal Poverty Line (FPL)).\118\ When we apply the current amount of
co-pay over 7 percent to these families, we get an annualized transfer
amount of $18.8 million. However, it should be noted that this is a
likely overestimate, because while families with incomes above 150
percent of FPL are the highest income category in our available data,
not all of these families would be paying the highest possible co-
payment. Families remain eligible for CCDF until their incomes reach 85
percent of State Median Income, which is significantly higher than 150
percent of FPL. Additionally, there may be families with incomes below
150 percent of FPL that are currently paying above the 7 percent co-pay
threshold, however those families would likely be more than offset by
the overestimate included in our methodology.
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\118\ <a href="https://www.acf.hhs.gov/sites/default/files/documents/occ/Characteristics_of_Families_and_Children_FY2020.pdf">https://www.acf.hhs.gov/sites/default/files/documents/occ/Characteristics_of_Families_and_Children_FY2020.pdf</a>.
---------------------------------------------------------------------------

Waiving Co-payments for Additional Populations: This policy would
allow Lead Agencies to choose more easily to waive co-payments for
families with incomes up to 150 percent of FPL and for eligible
families with children with disabilities. Lead Agencies are currently
allowed this flexibility for families up to 100 percent of FPL and for
vulnerable populations. To calculate this proposed policy, we used
state-by-state data (ACF-801) to determine how many CCDF families
currently have a co-payment. This eliminates families that already have
their co-pays waived from the estimate. We then look at the low and
high co-pay amounts (as reported in the CCDF State Plans) and apply it
to the remaining CCDF families based on the income distribution of CCDF
families (ACF-801 data). We did not do separate estimates for children
with disabilities because we have limited data on current co-payments
for children with disabilities.
For the purposes of this estimate, we applied the low co-payment
level to families with incomes between 0-100 percent of FPL and the
high co-payment levels to families with incomes between 100-150 percent
of FPL. We note that this is likely an overestimate because families
with incomes in the 100-150 percent of FPL range are not the highest
earning families in the CCDF program (which allows income up to the
higher threshold of 85 percent of State Median Income, though this
varies by state).
We then calculated the number of co-payments that would be waived
if a subset of Lead Agencies implemented this policy. We calculated the
transfer amount for a range of possibilities, including scenarios with
a low estimate of 5 percent of Lead Agencies implementing the policy
and a high estimate of 45 percent of Lead Agencies. However, based on
anecdotal evidence and policy questions that have been submitted to OCC
by Lead Agencies, we chose to use a midpoint of 25 percent
implementation for the RIA.
Then, because Lead Agencies would have the option for how widely
they chose to waive co-payments and how they apply these waivers to
families within the state or territory, we estimated this at different
tiers, showing the cost if Lead agencies waived co-pays for 25 percent,
50 percent, 75 percent, and 100 percent of families with incomes under
150 percent of FPL. For the purposes of this cost estimate, we are
assuming that the states adopting this policy will waive co-pays for 75
percent of families with incomes under 150 percent of FPL. This gave us
an annualized transfer amount of $9.5 million to implement this policy.
We also conducted a supplemental analysis using ACF-801 administrative
microdata, which validated this estimate.

Table 3--Payment Rates and Practices, Transfers
[$ in millions)]
--------------------------------------------------------------------------------------------------------------------------------------------------------
Annualized transfer amount (over 5 Total present value (over 5 years)
years) -------------------------------------
Implementation Ongoing annual -------------------------------------- Discounted
Co-pays period (year 1) average (years 2- Discounted ---------------------
5) Undiscounted ---------------------- Undiscounted
3% 7% 3% 7%
--------------------------------------------------------------------------------------------------------------------------------------------------------
7% Co-payment Cap..................... $10.4 $20.9 $18.8 $18.7 $18.5 $94.0 $88.1 $81.2
Waiving Co-payments................... 5.3 10.5 9.5 9.4 9.3 47.5 44.5 41.0
-----------------------------------------------------------------------------------------------------------------
Total............................. 15.7 31.4 28.3 28.1 27.9 141.5 132.6 122.2
--------------------------------------------------------------------------------------------------------------------------------------------------------

2. Payment Rates & Practices
The proposed revisions promote provider-friendly payment rates and
practices that, if implemented, would increase parent choice in child
care, support financial stability for child care providers that
currently accept CCDF subsidies, and encourage new providers to
participate in the subsidy system. These policies, both with effects
categorized as transfers are: Paying Full Rate and Enrollment-based
Payment.
Paying Established Payment Rate (Transfer): This policy would
codify existing policies that Lead Agencies may pay child care
providers the full published subsidy rate even if the provider's
private pay rate is lower to help cover the cost of providing care. We
are categorizing this as a transfer because it would transfer the cost
burden from the providers (who are currently providing equivalent
services at relatively low rates) to the CCDF Lead Agency.
There are several limitations of the data that are discussed below.
Given these limitations we had for this estimate, we used two different
methods. The two different approaches were used to validate each other;
while the two approaches used very distinct methodologies, they arrived
at similar estimates.
<bullet> Base Subsidy Rates vs. Actual Payments (Approach 1): For
this approach, we examined the following factors:
[cir] Base Subsidy Rates versus Actual Subsidy Payments: We
examined the difference between the (1) Base Subsidy Rate as reported
in the CCDF State Plans \119\ and (2) the Average Subsidy Rate (the
government portion of actual payments, excluding parent co-payment) as
reported in the ACF-801 data.\120\ To the extent that the average
subsidy payment is lower than the reported base subsidy rate, we are
attributing a portion of this difference to current policy limitations
(i.e., Lead Agencies currently paying providers no more than their
private pay rate). While there may be a variety of factors explaining
why the average subsidy

[[Page 45043]]

payment is lower than the base payment rate (including co-payments),
such as variation in attendance, for the purposes of this estimate we
are attributing 25 percent of this difference to current policy
limitations.
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\119\ <a href="https://www.acf.hhs.gov/occ/report/acf-118-overview-state/territorial-plan-reporting">https://www.acf.hhs.gov/occ/report/acf-118-overview-state/territorial-plan-reporting</a>.
\120\ <a href="https://www.acf.hhs.gov/occ/data/fy-2020-ccdf-data-tables-preliminary">https://www.acf.hhs.gov/occ/data/fy-2020-ccdf-data-tables-preliminary</a>.
---------------------------------------------------------------------------

Note: The average subsidy payment figures in this calculation also
include payments to providers that are above the reported base rate due
to tiered reimbursement rates for higher quality and other
characteristics. We did not have the data necessary to remove those
payments. However, we still wanted to adjust our figures to account for
these payments. Approach 2 (described below) used microdata to remove
payments above the base rate from the sample and found that the
difference between base rate and actual payments was twice as large as
the amount when those payments remained in the sample. Using this
information, we adjusted our figures by a factor of two to simulate the
removal of such payments (those paying above the base rate) from our
sample.
[cir] Setting: We looked at two sets of data: one for Family Child
Care Home providers (including Group Homes) and another for Child Care
Centers. We combined the estimates from each of these to come to the
final total.
[cir] Anticipated Take-up: Since this is not required and is an
option already available to Lead Agencies, we examined a range of
implementation rates. The annual amount for this estimate could be as
high as $586 million if 25 percent of States adopted this policy and as
low as $117 million if only 5 percent of States chose to implement.
However, actual take-up will likely depend on availability of funding
and given that this policy option is already available to Lead
Agencies, we believe that a take-up rate in the middle to lower end of
our estimated range would be the most accurate. For the purposes of
this estimate, we assume that 10 percent of Lead Agencies will take up
this policy.
Our calculation for approach #1 gave us an annual estimated
transfer of $234.7 million.
<bullet> Caseload Microdata (Approach 2): For this second approach,
we used ACF-801 caseload microdata (from FY 2018, which was the most
recent publicly available data). This allows us to compare subsidy
payments and the state's base rate for each child's provider. Doing so
allows us to include co-payments to give a more precise understanding
of the difference. Some assumptions that went into this approach:
[cir] Children in More than One Setting: In some of the case level
data, the child was associated with more than one setting. For the
purposes of this estimate, we used the setting with the higher subsidy
payment.
[cir] Households with More than One Child: Co-payments are reported
by family, so in households with two or more children receiving care,
we divided the co-pay evenly among the children. For example, if a
family with two children had a $100 co-pay, we assumed that $50 of co-
pay went to each child.
[cir] Calculating Weekly Provider Payment: The provider payment is
the subsidy payment + parent co-pay (after the co-pay has been split
among siblings) and is reported as a monthly figure. To convert this to
a weekly amount, we divided by 4.3.
[cir] Setting: Consistent with Approach 1, we used only Family
Child Care Homes (including Group Homes) and Child Care Center
settings.
[cir] Payments above the Base Rate: As discussed above, these
payments were removed from the sample.
[cir] School-age children: The base rate data used for this
analysis was for children who are not yet in school, so we removed
school-age children from the microdata sample. Including school-age
children would have likely resulted in an overestimate of costs (i.e.,
an overestimate of the amount by which providers are underpaid by
subsidies).
[cir] Anticipated Take-up: To remain consistent with Approach 1, we
are assuming that 10 percent of states take up this policy option.
For Approach 2, we had an annual transfer estimate of $222.3
million. Though, as stated above, we examined a range of take-up rates
with a transfer estimate as high as $571 million per year if 25 percent
of Lead agencies implement this policy and as low as $111 million per
year if only 5 percent of Lead Agencies choose to implement. However,
for our final estimate, we use a projected take-up rate of 10 percent
of Lead agencies and took the average of the costs generated by
Approaches 1 and 2, for a final annualized transfer estimate of $228.5
million per year.
Enrollment-based Payment: This policy would require Lead Agencies
to pay providers based on enrollment instead of attendance. To estimate
the financial impact of this policy, we used data from the CCDF Policy
Database and the CCDF State Plans to determine (1) which Lead Agencies
would need to change their policy, and (2) how many absence days those
Lead Agencies are currently allowing.
According to a 2015 study of DC's Head Start program,\121\ students
were absent for eight percent of school days on average. This works out
to 1.8 days per month (weekdays only). However, seven percent of
children missed 20 percent or more of enrolled days (equivalent to 4.4
or more weekdays per month). In another study, among a nationally
representative sample of Head Start children, children were on average
absent 5.5 percent of days (or 1.2 days per month).\122\ However, 12
percent of children were chronically absent, that is, absent for more
than ten percent of days (or more than 2.1 days per month). And in a
study of kindergarten attendance in one county in a mid-Atlantic state,
researchers found that on average, kindergartners missed 9.9 days of
school (out of the entire school year); that works out to about 1 day
per month.\123\ Taking the literature into consideration, this estimate
makes the assumption that a small number (12 percent) of children would
be absent 5 days a month; the remaining children would be absent only 2
days a month. We then calculated how many additional days per month
each state would have to pay for when they adopt this new policy. We
then applied that number of additional days to the average daily
subsidy rate (based on ACF-801 data). This gave us an annualized total
of $10.6 million.
---------------------------------------------------------------------------

\121\ <a href="https://www.urban.org/sites/default/files/publication/39156/2000082-absenteeism-in-dc-public-schools-early-education-program_0.pdf">https://www.urban.org/sites/default/files/publication/39156/2000082-absenteeism-in-dc-public-schools-early-education-program_0.pdf</a>.
\122\ Ansari, A., and Purtell, K.M. (2018). Absenteeism in Head
Start and Children's Academic Learning. Child Development, 89(4):
1088-1098.
\123\ Ansari, A (2021). Does the Timing of Kindergarten Absences
Matter for Children's Early School Success? School Psychology, 36
(3): 131-141.
---------------------------------------------------------------------------

There is limited data available on absences in child care.
Therefore, for this estimate, we relied on data from Head Start and
kindergarten to estimate student absences. We are seeking comments on
the methodology and assumptions used to develop the estimated transfer
cost associated with the payment rates and practices provisions,
including any data or evidence that would better quantify the impact of
the proposed changes or inform our assumptions on Lead Agency take-up
of optional policies.

[[Page 45044]]

Table 4--Payment Rates and Practices, Transfers
[$ in millions]
--------------------------------------------------------------------------------------------------------------------------------------------------------
Annualized transfer amount (over 5 Total present value (over 5 years)
years) -------------------------------------
Implementation Ongoing annual -------------------------------------- Discounted
Payment rates & practices period (year 1) average (years 2- Discounted ---------------------
5) Undiscounted ---------------------- Undiscounted
3% 7% 3% 7%
--------------------------------------------------------------------------------------------------------------------------------------------------------
Paying Full Rate...................... $114.2 $228.5 $205.6 $204.3 $202.4 $1,028.1 $963.5 $888.1
Enrollment-based Payment.............. 5.9 11.8 10.6 10.5 10.4 52.9 49.6 45.7
-----------------------------------------------------------------------------------------------------------------
Total............................. 120.1 240.3 216.2 214.8 212.8 1,081.0 1,013.1 933.8
--------------------------------------------------------------------------------------------------------------------------------------------------------

Grants and Contracts (Costs): To address lack of supply for certain
types of care, the NPRM also proposes requiring the use of some grants
and contracts for direct services. When grants or contracts are funded
sufficiently to meet any higher quality standards, they can be one of
the most effective tools to build supply in underserved areas and for
underserved populations. They also have the benefit of providing
greater financial stability for child care providers.
To estimate the financial impact of implementing the grants and
contracts requirement, we estimated the costs for a small, medium, and
large states that include items such as: supply analysis, staff to
manage grants and contracts (program manager, fiscal office staff,
monitoring staff), and travel and administrative costs. Since we know
that there would be a range of possible costs, we estimated a high end
and low-end estimate for each of these items. The costs were based on
information gathered by the technical assistance providers that have
worked with Lead Agencies on implementing grants and contracts. We
applied these estimated costs to those States that are not currently
using grants and contracts in a manner that is consistent with the
proposed requirement.
We averaged these costs over the 5-year window used for this
analysis, taking into account the 1-year phase-in period, and came to
an estimated annualized amount of $4.2 million to implement this
policy.

Table 5--Payment Rates and Practices, Costs
[$ in millions]
--------------------------------------------------------------------------------------------------------------------------------------------------------

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