Rule2026-09382
Restoring Flexibility in the Child Care and Development Fund (CCDF)
Primary source
Metadata and text below are from the Federal Register, a public-domain U.S. government work. Always verify the official published version before relying on it for any legal matter.
Published
May 12, 2026
Effective
July 13, 2026
Issuing agencies
Health and Human Services Department
Abstract
This final rule amends the Child Care and Development Fund (CCDF) regulations to reduce costs and burden for States and Territories administering the CCDF program. It rescinds the requirements to limit family co-payments to 7 percent of family income, to provide some direct services through grants or contracts, to pay providers prospectively, and to pay providers based on enrollment. A plain language summary of this final rule is posted at https:// www.regulations.gov/document/ACF-2026-0001-0002.
Full Text
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<title>Federal Register, Volume 91 Issue 91 (Tuesday, May 12, 2026)</title>
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[Federal Register Volume 91, Number 91 (Tuesday, May 12, 2026)]
[Rules and Regulations]
[Pages 25796-25808]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2026-09382]
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DEPARTMENT OF HEALTH AND HUMAN SERVICES
45 CFR Part 98
RIN 0970-AD20
Restoring Flexibility 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: Final rule.
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SUMMARY: This final rule amends the Child Care and Development Fund
(CCDF) regulations to reduce costs and burden for States and
Territories administering the CCDF program. It rescinds the
requirements to limit family co-payments to 7 percent of family income,
to provide some direct services through grants or contracts, to pay
providers prospectively, and to pay providers based on enrollment. A
plain language summary of this final rule is posted at <a href="https://www.regulations.gov/document/ACF-2026-0001-0002">https://www.regulations.gov/document/ACF-2026-0001-0002</a>.
DATES: Effective: July 13, 2026.
FOR FURTHER INFORMATION CONTACT: Megan Campbell, Supervisory Child Care
Program Specialist, Policy, Data, and Planning Division, Office of
Child Care, Administration for Children and Families, Department of
Health and Human Services, Washington, DC 202-690-6499 or
<a href="/cdn-cgi/l/email-protection#d9969a9a89b6b5b0baa090b7bfb699b8babff7b1b1aaf7beb6af"><span class="__cf_email__" data-cfemail="420d0101122d2e2b213b0b2c242d022321246c2a2a316c252d34">[email protected]</span></a>.
SUPPLEMENTARY INFORMATION:
Table of Contents
I. Statutory Authority
II. Background
III. Executive Summary
Effective Dates
Costs, Benefits, and Transfer Impacts
Severability
IV. Development of Regulation
V. General Comments and Cross-Cutting Issues
VI. Section-by-Section Discussion of Comments and Regulatory
Provisions
Subpart B--General Application Procedures
[[Page 25797]]
Subpart D--Program Operations (Child Care Services) Parental
Rights and Responsibilities
Subpart E--Program Operations (Child Care Services) Lead Agency
and Provider Requirements
Subpart F--Use of Child Care and Development Funds
Subpart I--Indian Tribes
VII. Regulatory Process Matters
Paperwork Reduction Act
Executive Order 13132
Assessment of Federal Regulations and Policies on Families
VIII. Regulatory Impact Analysis
IX. Tribal Consultation Statement
I. Statutory Authority
This final rule is being issued under the authority granted to the
Secretary of Health and Human Services by the Child Care and
Development Block Grant (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).
II. Background
The CCDBG Act, hereafter referred to as the ``Act'' (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 dedicated to supporting
working families with low incomes to afford child care and to increase
the quality of child care for all children. CCDF funds child care
services in the 50 States, the District of Columbia, 5 Territories, and
264 Tribal organizations. Federal Fiscal year (FFY) 2026 enacted CCDF
funding is $12.381 billion awarded by formula to States, Territories,
and Tribes. CCDF child care subsidies, primarily administered through
vouchers, help working families with low incomes access child care that
best meets their needs. In FFY 2023, the most recent year for which
data is available, CCDF provided subsidies to more than 1.6 million
children from 994,000 families each month.\1\ CCDF also promotes the
quality of child care for all children in care by requiring CCDF Lead
Agencies to spend at least 12 percent of their CCDF funding each year
on activities to improve child care quality. In FFY 2022, States spent
$2.9 billion on activities to improve the quality of child care and an
additional $477 million on improving the quality and supply of infant
and toddler care.\2\
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\1\ <a href="https://acf.gov/occ/data/fy-2023-preliminary-data-table-1">https://acf.gov/occ/data/fy-2023-preliminary-data-table-1</a>.
\2\ <a href="https://acf.gov/occ/data/ccdf-expenditures-overview-fy-2022-all-appropriation-years">https://acf.gov/occ/data/ccdf-expenditures-overview-fy-2022-all-appropriation-years</a>.
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Congress last reauthorized the CCDBG Act in 2014 (Pub. L. 113-186),
and HHS published regulations implementing the new provisions of the
Act in September 2016 (81 FR 67438). The 2016 regulations built on the
priorities Congress included in the 2014 reauthorization. In July 2023,
HHS proposed changes to a limited number of provisions in the CCDF
regulations (88 FR 45022). The changes were codified in a final rule
published by HHS in March 2024 (89 FR 15366).
Since publication of the March 2024 final rule, 55 of 56 States and
Territories have requested and received two-year transitional and
legislative waivers because they all needed additional time to
implement at least one of the new requirements. Several States and
Territories have shared with HHS that some of the requirements added in
the March 2024 final rule are more costly and difficult to implement
than HHS had estimated. More recently, 19 States have requested new
transitional and legislative waivers for two additional years to
implement the changes because of the high cost and extensive systems
changes necessary to come into compliance.
In addition, States have expressed concerns about the increased
potential for fraudulent payments associated with the requirements
added in the March 2024 final rule. This concern is magnified by the
fact that CCDF funding has risen significantly in recent years, from
$8.1 billion in FFY 2019 to $12.4 billion in FFY 2026. This 50 percent
increase in funding warrants appropriate accountability measures,
including the prevention of any fraudulent payments. The 2020
Government Accountability Office (GAO) report Child Care and
Development Fund: Office of Child Care Should Strengthen Its Oversight
and Monitoring of Program-Integrity Risks (GAO-20-227) identified
program integrity risks for CCDF, including the need to fully assess
fraud risks.\3\ Every year, single audits identify findings for the
CCDF program across the range of compliance requirements, including
findings related to insufficient internal controls. To address
increased focus on allegations of fraud, the President issued an
Executive Order 14395 ``Establishing the Task Force to Eliminate
Fraud'' to coordinate and accelerate a comprehensive national strategy
to stop fraud, waste, and abuse within Federal benefit programs,
including programs administered jointly with State, local, tribal, and
territorial partners.\4\
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\3\ <a href="https://www.gao.gov/products/gao-20-227#summary_recommend">https://www.gao.gov/products/gao-20-227#summary_recommend</a>.
\4\ <a href="https://www.federalregister.gov/documents/2026/03/19/2026-05497/establishing-the-task-force-to-eliminate-fraud">https://www.federalregister.gov/documents/2026/03/19/2026-05497/establishing-the-task-force-to-eliminate-fraud</a>.
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In January 2026, HHS proposed to rescind the four most onerous
requirements from the March 2024 final rule, including requirements to
limit family co-payments to 7 percent of family income, to provide some
direct services through grants or contracts, to pay child care
providers prospectively, and to pay providers based on a child's
authorized enrollment. This final rule codifies those recissions. These
changes prioritize Lead Agency flexibility and align with the purposes
of the Act. This final rule continues to allow States, Territories, and
Tribes the option to implement these policies based on their own
assessment of what works best for children, families, and child care
providers in their communities and what best supports their ability to
prevent fraud within the CCDF program.
By removing four overly prescriptive requirements, this final rule
responds to Executive Order 14192, Unleashing Prosperity through
Deregulation and restores State, Territory, and Tribal flexibility for
designing and operating their CCDF programs as they deem most
appropriate. Under this Executive Order, ``It is the policy of the
executive branch to be prudent and financially responsible in the
expenditure of funds, from both public and private sources, and to
alleviate unnecessary regulatory burdens placed on the American
people.''
The final rule also responds to Secretary Robert F. Kennedy Jr.'s
directive to ``launch the most sweeping deregulatory initiative in the
history of the Department'' of Health and Human Services by
``eliminating bureaucratic red tape and ``aggressively deregulating to
return the freedoms eroded over decades by unnecessary and burdensome
regulations.'' 90 FR 20394.
III. Executive Summary
This final rule rescinds four requirements added in the March 2024
final rule that are costly, burdensome, and overly prescriptive,
especially compared to other block grant programs. As is standard with
block grant programs, Lead Agencies continue to have the flexibility to
implement the policies formerly required by the March 2024 final rule.
All four rescissions apply to States and Territories. Only the repeal
of the family co-payment limit applies to Tribal Lead Agencies, as
Tribal Lead Agencies are already exempt from the requirements related
to payment practices. Once this final rule takes effect, HHS will no
longer require implementation of all rescinded requirements.
Forthcoming guidance will outline the process HHS will follow to
terminate existing transitional and
[[Page 25798]]
legislative waivers for rescinded requirements.
<bullet> Repeal the federally mandated cap on family co-payments at
Sec. 98.45(l)(3). This final rule removes the mandatory 7 percent cap
that was imposed in the March 2024 final rule, and reverts to the
previous requirement that matches the statutory language that co-
payments cannot be a barrier to families receiving child care
assistance. This change restores Lead Agency flexibility to decide how
best to balance the trade-offs between reducing child care costs for
families participating in CCDF and serving additional families with
higher co-payments. According to FFY 2025-2027 CCDF State and Territory
Plan data, as of March 2026, 31 states, the District of Columbia, and 5
territories currently limit co-payments to 7 percent or less of family
income. Under this final rule, Lead Agencies may continue to set family
co-payments to align with community needs.
<bullet> Repeal the requirement to use some grants or contracts for
direct services at Sec. 98.30(b)(1). The March 2024 final rule
mandated States and Territories to use some grants or contracts to
provide direct services for infants and toddlers, children with
disabilities, and children in underserved geographic areas. This
requirement is excessively prescriptive by mandating grants or
contracts for particular populations and is difficult to implement. The
stringent requirements mean that even some States that have a long
history of using grants or contracts for direct services for the
identified populations would have to make significant changes to meet
the requirements of the March 2024 final rule. By repealing this
requirement, HHS is ensuring that parents can use federal funding
through vouchers or certificates to access the providers of their
choice that will meet their unique needs.
<bullet> Repeal the requirement to pay child care providers
prospectively at Sec. 98.45(m)(1). The March 2024 final rule required
provider payment in advance of or at the beginning of the delivery of
service (i.e., prospectively) with limited exceptions. This final rule
rescinds this requirement and reverts to the option established in the
2016 final rule for States and Territories to pay providers
prospectively or on a reimbursement basis. This change increases Lead
Agency flexibility to develop payment policies that they believe best
support program integrity and combat potential fraud in their CCDF
programs. As required by the Act at Section 658E(c)(4)(B)(iv) (42
U.S.C. 9858c(c)(4)(B)(iv)), States and Territories must still ensure
that child care providers are paid in a timely manner, which is
critical for providers to participate in CCDF and increases the options
available to parents.
<bullet> Repeal the requirement to pay child care providers based
on a child's enrollment rather than attendance at Sec. 98.45(m)(2).
The March 2024 final rule required States and Territories, with limited
exceptions, to pay providers based on a child's authorized enrollment.
This policy, once fully implemented, was estimated to cost $16.5
million per year. With its repeal, States and Territories will have the
opportunity to use more of their CCDF budget to provide direct services
for eligible children. The change provides greater flexibility and
multiple allowable options to meet the statutory requirement to delink
provider payments from a child's occasional absences. States and
Territories will also have increased flexibility to support program
integrity and combat potential fraud in their CCDF programs.
Effective Dates
This final rule will become effective 60 days from the date of its
publication.
Costs, Benefits, and Transfer Impacts
By rescinding four of the mandatory provisions added by the March
2024 final rule, this final rule will prevent the occurrence of the
estimated transfers and costs reported in the 2024 Regulatory Impact
Analysis (RIA), with the exception of the anticipated economic impacts
in the first year. 89 FR 15400-11.
Over a 5-year time horizon covering 2025 through 2029, HHS
estimates annualized transfers of $23.4 million using a 3-percent
discount rate and $22.8 using a 7-percent discount rate; and annualized
costs of $6.7 million using a 3-percent discount rate and $6.6 million
using a 7-percent discount rate. Negative costs represent cost savings
and negative transfers represent a reversal of the direction of
transfers compared to the 2024 RIA. Transfers represent a shift in
payments from one party to another but do not affect the total
resources available to society. In this context, transfers under the
March 2024 final rule represented a transfer of payments from parents
and child care providers to Lead Agencies. By rescinding the policies
from the March 2024 final rule, the transfers in this final rule now
represent the transfer of payments from Lead Agencies to parents and
child care providers.
To produce an estimate of cost savings under Executive Order 14192,
HHS assumes the impacts of the proposed changes on costs in 2029 will
extend in perpetuity. HHS estimates that this final rule will generate
$6.1 million in annualized cost savings at a 7-percent discount rate,
discounted relative to year 2024, in perpetuity.
Severability
The provisions of this final rule 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 provisions in the final rule
contained herein are central to an overall intent of the final rule,
nor are any provisions dependent on the validity of other, separate
provisions.
IV. Development of Regulation
Since publication of the March 2024 final rule, several States and
Territories have reiterated to HHS that some of the requirements added
in the March 2024 final rule are more costly and difficult to implement
than HHS had estimated. This feedback has been shared through State and
Territory CCDF plan appendices, in-person meetings and focus groups
with CCDF administrators, and technical assistance inquiries. The
changes in this final rule are informed by these concerns and designed
to provide CCDF Lead Agencies with additional flexibility in
administering their CCDF program.
HHS published a notice of proposed rulemaking (NPRM) in the Federal
Register on January 5, 2026, (91 FR 207) proposing revisions to CCDF
regulations. HHS provided a 30-day comment period during which
interested parties could submit comments in writing electronically
through <a href="http://Regulations.gov">Regulations.gov</a> or via email to the Office of Child Care.
During the 30-day comment period, HHS received 1,244 comments from
State human services and educational agencies; members of the U.S.
Congress; national, State, and local early childhood and family-focused
advocacy organizations, including research and policy organizations;
labor unions; child care resource and referral agencies; and provider
organizations. Child care providers, parents, and individual members of
the public also submitted comments. Of the comments received, 1,138
were posted on <a href="http://www.regulations.gov">www.regulations.gov</a> and 106 were not posted because they
contained inappropriate language or were not submitted in the English
language. HHS also received several comments that are not addressed
below because they were beyond the scope of the proposed
[[Page 25799]]
regulatory changes or were vague or incomplete.
Of the 1,138 comments posted on <a href="http://www.regulations.gov">www.regulations.gov</a>, 998 comments
were unique and 246 comments were duplicate comments. Some national,
State and local organizations and groups of child care providers
coordinated to submit the same comment separately. Others submitted one
comment signed by or on behalf of hundreds of individuals.
HHS received comments from seven State CCDF Lead Agencies: Georgia,
Missouri, New Mexico, North Dakota, Ohio, Tennessee, and Texas.
Individuals submitted 787 comments. Child care providers submitted 276
comments. Of the remaining comments, 57 comments came from national
organizations, and 80 comments came from State and local organizations.
HHS also received 3 comments from Congressional members or groups of
members. A comment from Senator Jon Husted supported rescinding the
requirement to pay providers based on enrollment. Comments from the
Democratic Women's Caucus and a bicameral group of 74 Democratic
Senators and Representatives were in opposition to the proposed
changes.
At the conclusion of the public comment period, HHS analyzed the
content of the comments to inform the development of this final rule.
To support the analysis of public comments, HHS staff used a large
language model, a type of artificial intelligence (AI), as a tool to
conduct an initial scan of comment content, sentiment, and language.
The AI output was thoroughly analyzed and refined by content experts.
All comments were reviewed by content experts to determine each
commenter's support or opposition towards the policies proposed in the
NPRM.
Public comments reflected a range of perspectives, with commenters
expressing support and opposition for the proposed rescissions. All
comments were reviewed and informed the Department's consideration of
the final rule.
Changes in this final rule affect the State, Territory, and Tribal
agencies that administer the CCDF. HHS has and will continue to consult
with State, Territory, and Tribal agencies and provide technical
assistance throughout implementation.
This final rule maintains the structure and organization of the
current CCDF regulations. The preamble in this final rule discusses the
changes to current regulations. Where language of previous regulations
remains unchanged, the preamble explanation and interpretation of that
language published with all prior final rules are also retained, unless
specifically modified in the preamble to this rule. (See 57 FR 34352,
Aug. 4, 1992; 63 FR 39936, Jul. 24, 1998; 72 FR 27972, May 18, 2007; 72
FR 50889, Sep. 5, 2007; 81 FR 67438, Sept. 30, 2016; 89 FR 15366 March
1, 2024).
V. General Comments and Cross-Cutting Issues
This final rule includes substantive changes in four key policy
areas in the CCDF regulations. HHS received and reviewed comments on
all the significant proposed changes. Following review of all comments,
HHS has maintained all proposed changes from the NPRM. Specific
comments are discussed in the section-by-section analysis later in this
final rule.
Most of the State commenters and organizations that represent State
and local human services agencies expressed overall support for the
proposed recissions, noting that the proposals would remove costly
requirements and increase flexibility for Lead Agencies. One State
expressed overall opposition to the NPRM, and a different State did not
express support or opposition but requested clarification about whether
States would continue to have the option to implement the policies
proposed for rescission.
The majority of unique public comments opposed the changes proposed
in the NPRM. Commenters who opposed the NPRM argued that the changes
may make child care more costly for families, noting the importance of
ensuring co-payments are not a barrier to child care access. Commenters
also opposed the NPRM because they argued that the proposed changes to
provider payment practices may not be consistent with private pay
practices which could potentially hurt child care provider operations
and lead providers to stop participating in the CCDF program.
Commenters also noted that many States and Territories had already
started making policy and systems changes to implement the requirements
included in the March 2024 final rule, including making costly systems
investments that may not be easily undone. These commenters expressed
concerns that the time and funding used for these changes would be
wasted if the proposed changes were finalized.
HHS acknowledges concerns raised by commenters who opposed the NPRM
but moves forward with rescinding the four requirements as proposed.
This final rule does not prohibit any State or Territory from
implementing the four rescinded requirements. Lead Agencies that have
already dedicated resources and made system changes to implement may
continue to do so. The flexibility this final rule allows Lead Agencies
to pause and reassess whether formerly required policies are the best
way to meet the unique needs of the families, children, and providers
in their State or Territory and not simply to meet federal
requirements. HHS reiterates the importance for Lead Agency flexibility
in developing CCDF policies that support child care affordability and
provider payment practices that promote parental choice for CCDF-
eligible families. HHS will continue its regular work of supporting
CCDF Lead Agencies through guidance and technical assistance in
partnership with the CCDF-funded Child Care Technical Assistance
Network.
VI. Section-by-Section Discussion of Comments and Regulatory Provisions
HHS received comments about changes proposed to specific subparts
of the regulation. Below, HHS identifies each subpart, summarizes the
comments, and responds to them accordingly.
Subpart B--General Application Procedures
Sec. 98.16 Plan Provisions
Supply of child care. The final rule amends Sec. 98.16(x), removes
paragraphs (y) and (z), and redesignates Sec. 98.16(aa) through (ll)
to (y) through (jj) to conform with the changes described below in
Sec. Sec. 98.30 and 98.50 removing the requirement to use some grants
or contracts for direct child care services. The change to Sec.
98.16(x) restores language from the 2016 final rule that the CCDF Plan
must: Identify shortages in the supply of high-quality child care
providers; list the data sources used to identify supply shortages; and
describe the method of tracking progress to support equal access and
parental choice.
The amended language at Sec. 98.16(x) is based on statutory
language at Section 658E(c)(2)(M) of the Act (42 U.S.C.
9858c(c)(2)(M)), which requires the Lead Agency to describe strategies
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. As described in the Act, the strategies may include alternative
payments rates to child care providers, the provision of direct
contracts or grants to community-based organizations, offering child
care certificates to parents, or other means
[[Page 25800]]
determined by the Lead Agency. In addition to alternative payment rates
and contracts, Lead Agencies may consider other strategies, including
training and technical assistance to child care providers to increase
quality for these types of care.
Comment: HHS received comments supporting removal of the underlying
requirement that Lead Agencies must use grants or contracts for some
direct services. Commenters suggested options for descriptions and data
points that should be required within the State and Territory CCDF
Plans to demonstrate a Lead Agency's efforts 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, as required by the Act.
Commenters also provided suggestions of data points that Lead Agencies
should be required to provide in the CCDF Plan related to the supply of
child care services for these specific populations of children.
Response: Prior to final publication of the CCDF Plan, draft
versions of the document are published in the Federal Register with a
request for public comment. Through those public comment periods,
commenters can provide input on the draft Plan document, including any
suggestions for additional information that should be collected from
Lead Agencies.
Subpart D--Program Operations (Child Care Services) Parental Rights and
Responsibilities
Sec. 98.30 Parental Choice
The final rule rescinds the requirement at Sec. 98.30(b)(1) for
States and Territories to provide some portion of the delivery of
direct services via grants or contracts, including at a minimum for
children in underserved geographic areas, infants and toddlers, and
children with disabilities. This change restores State and Territory
flexibility and does not impact a Lead Agency's ability to utilize
grants or contracts for some direct child care services if they choose
to do so. From the publication of the first CCDBG rules in 1992 until
the March 2024 final rule, CCDF regulations provided for the option for
Lead Agencies to provide some direct child care services through grants
or contracts, while ensuring that all families must be offered the
option to receive a child care certificate. The March 2024 final rule
placed new and difficult mandates on State and Territory Lead Agencies
to establish grants or contracts for some direct services for
particular populations. This final rule restores the flexibility for
Lead Agencies that existed prior to the March 2024 final rule by
removing the mandate for State and Territory Lead Agencies to provide
at least some direct child care services through grants and contracts.
The Act requires that a State or Territory CCDF Plan provide assurances
that parents participating in CCDF be offered ``the option either- to
enroll such child with a child care provider that has a grant or
contract for the provision of such services; or to receive a child care
certificate.'' 42 U.S.C. 9858c(c)(2)(A)(i). If a Lead Agency chooses to
utilize grants or contracts for some direct child care services, the
Lead Agency must continue to offer all families the option to receive a
child care certificate for all CCDF-eligible children.
Comment: Commenters supporting the proposed changes argued that the
requirement for Lead Agencies to use some grants or contracts for
direct services would negatively impact parental choice, noting that
child care vouchers or certificates provide the greatest amount of
flexibility for families to locate and enroll their child with a child
care provider that aligns with their child and family's needs. Those
opposing the proposed changes raised concerns that the recission of the
requirement would limit parental choice to locate and enroll their
child in a child care provider of their choosing due to child care
supply constraints.
Response: HHS rescinds the requirement to use some grants or
contracts for direct services for infants and toddlers, children with
disabilities, and children in underserved geographic areas. Lead
Agencies may continue, at their option, to contract for the provision
of some direct child care services; however, parents must always be
offered the option to receive CCDF child care through a child care
certificate they can use for an eligible provider of their choosing.
Parental choice is a central tenant of the Act and CCDF regulations.
Within CCDF programs, the funding mechanism that allows the greatest
degree of flexibility and parental choice is the use of child care
vouchers or certificates. These certificates allow parents to select
from any child care provider that accepts the Lead Agency's vouchers or
certificates, allowing families to choose from a wider range of child
care providers than just those with which the Lead Agency may have
direct service grants or contracts. It is important for parents,
especially parents of children of the identified populations who may
need specialized care, to have maximum flexibility to choose a provider
that matches their unique needs and values.
Comment: Commenters also expressed support for the proposed
rescission because the requirement to use some grants or contracts for
direct services was overly prescriptive and difficult for States and
Territories to implement.
Response: According to FFY 2025-2027 CCDF State and Territory Plan
data, as of March 2026, only 7 States and 1 Territory have implemented
grants or contracts for children with disabilities, 11 States and 1
Territory have implemented grants or contracts for infants and
toddlers, and 10 States have implemented grants or contracts for
children in underserved geographic regions. HHS is dedicated to
ensuring maximum State flexibility in implementing CCDF, this final
rule rescinds this burdensome requirement.
Comment: Those opposing the proposed changes raised concerns that
the recission of the requirement to use some grants or contracts for
direct child care services for children in underserved geographic
areas, infants and toddlers, and children with disabilities would limit
parental choice because there may be a lack of the type of child care
they need in their area, particularly for children with disabilities or
in rural areas. Commenters noted that grants or contracts for direct
services can be a useful tool in addressing these supply gaps.
Response: This final rule does not prohibit a State or Territory's
from providing direct child care services through grants or contracts
if the Lead Agency finds this funding mechanism a useful tool to
address supply gaps. However, the requirement for providing some grants
or contracts for direct child care services has thus far shown to be an
expensive and complicated process for Lead Agencies to adopt, and
inhibits their ability to provide direct child care services in the
manner they determine to be best for their State or Territory's CCDF
program.
Subpart E--Program Operations (Child Care Services) Lead Agency and
Provider Requirements
Sec. 98.45 Equal Access
Demonstrating Affordable Co-Payments. The final rule makes a
conforming change at Sec. 98.45(b)(5) and removes the requirement for
Lead Agencies to describe in their CCDF Plans how co-payments ``do not
exceed 7 percent of income for all families.'' Lead Agencies are still
required to demonstrate in their CCDF Plan how
[[Page 25801]]
their co-payments are based on a sliding fee scale and are not a
barrier to families receiving CCDF assistance. The final rule
conforming change aligns with the final rule rescission of the
requirement at Sec. 98.45(l)(3) to limit family co-payments to 7
percent of family income.
Comment: Commenters requested that States demonstrate that they
considered the previous 7 percent benchmark or other regional economic
data when establishing their sliding fee scales.
Response: CCDF regulations at Sec. 98.45(b)(5) continue to require
Lead Agencies to provide a summary of data and facts in their CCDF
Plans describing how co-payments based on a sliding fee scale are
affordable. The final rule restores flexibility to States to define
affordability in a manner consistent with their State context,
including using local or regional economic data to understand when co-
payment amounts become barriers to families receiving CCDF assistance.
Family Co-payments. The final rule at Sec. 98.45(l)(3) rescinds
the requirement for States, Territories, and Tribes to establish co-
payment policies for families that are ``not to exceed 7 percent of
income for all families, regardless of the number of children in care
who may be receiving CCDF assistance.'' Section 658E(c)(5) of the Act
requires Lead Agencies to establish and periodically revise a sliding
fee scale that provides for cost sharing (i.e., co-payment) that is
``not a barrier to families receiving'' CCDF assistance. 42 U.S.C.
9858c(c)(5). The Act does not specify what constitutes ``a barrier.''
The final rule restores Lead Agency flexibility to decide how best to
balance limited resources by having lower family co-payments and
serving fewer families or having higher family co-payments and serving
more families. According to FFY 2025-2027 CCDF State and Territory Plan
data, as of March 2026, 37 Lead Agencies currently limit co-payments to
7 percent or less of a family's income. These Lead Agencies have the
flexibility to continue their established co-payment policies.
Comment: Commenters who supported this proposal emphasized State
flexibility in establishing co-payment policies and agreed that
Congress provided more flexibility in the statutory co-payment
requirement than allowed under the 7 percent cap.
Response: Section 658E(c)(5) of the Act provides Lead Agencies
flexibility in defining what constitutes ``a barrier to families.'' HHS
has rescinded the requirement to cap family co-payments at 7 percent of
a family's income.
Comment: Commenters who supported the recission noted that the 7
percent cap requirement posed fiscal and operational challenges for
many States in absence of additional funding. Commenters also noted
that repealing the federally mandated 7 percent cap would support the
flexibility for States to manage their child care programs while
adapting to changing budget limitations. Commenters also noted the
implications of balancing affordable co-payments with available CCDF
funding, especially given many States already face long child care
waitlists.
Response: Implementing the 7 percent cap on family co-payments may
cause difficult financial decisions for Lead Agencies. The final rule
rescinds the requirement to cap family co-payments at 7 percent of
family income and restores Lead Agency flexibility to determine a
sliding fee scale that meets the CCDF requirement of not being ``a
barrier'' to families receiving assistance within budget constraints.
Comment: Commenters who opposed this proposal to rescind the co-
payment cap requested HHS retain the 7 percent cap requirement.
Commenters noted that States are already implementing the 7 percent cap
with a positive impact on families and child care. Commenters shared
research and anecdotal information about the impact of reduced co-
payments for families in their States.
Response: Lead Agencies continue to have the flexibility to limit
co-payments to a percentage of family income. States currently
implementing the 7 percent cap have the flexibility to continue to
limit co-payments in this way. States also have the flexibility to
limit co-payments based on a lower threshold to support affordability.
Based on the FFY 2025-2027 CCDF State and Territory Plans, as of March
2026, 15 states and the District of Columbia currently limit family co-
payments to 7 percent of family income and 16 States and 5 Territories
cap co-payments at a level less than 7 percent (e.g., limit co-payments
to 1 percent of family income).
Comment: Commenters who opposed the proposal argued that removing
the 7 percent cap would be detrimental for families due to child care
affordability and access concerns, especially coupled with general
rising cost of living. Commenters noted that eliminating affordability
parameters for families receiving CCDF subsidies may open the door to
increased co-payments that can impede the intended purpose of the law
to best meet the needs of children and parents, (42 U.S.C. 9857(b)(1)).
Response: Lead Agencies continue to be required to establish
sliding fee scales that are not a ``barrier to families receiving
assistance.'' Lead Agencies have the flexibility to take into account
general rising cost of living for families receiving CCDF when
developing their cost sharing and sliding fee scale policies.
Comment: Commenters who opposed the proposal highlighted the
implications rescinding the 7 percent cap may have on provider
stability and parental choice for CCDF families if high co-payments
result in families needing to disenroll children from providers.
Response: Lead Agencies continue to have the flexibility to develop
cost-sharing and sliding fee policies that support affordability and
allow families to choose providers that best meet their preferences and
child care needs. HHS encourages Lead Agencies to exercise their
flexibility to ensure any changes in family co-payments does not impact
the availability of providers and parent choice.
Comments: Commenters noted that the NPRM did not address whether
HHS would be recommending a benchmark for co-payments. Both those who
supported and opposed the proposal expressed concerns about how Lead
Agencies would ensure that co-payments were not a barrier to accessing
child care assistance without a required or recommended level.
Commenters suggested that HHS reinstate the 7 percent recommended
benchmark established in the preamble to the 2016 final rule.
Commenters noted the benefit of HHS conducting a comprehensive
study to better understand child care affordability in today's market
and questioned the validity of the 7 percent co-payment benchmark for
affordability included in the 2016 final rule. Commenters from various
States offered specific and local data on affordable co-payments and
general child care affordability.
Response: HHS will not be recommending a benchmark for co-payments
at this time. The optional Federal benchmark for family co-payments of
no more than 7 percent of family income established in the preamble to
the 2016 final rule was based on 2011 data from a U.S. Census Bureau
report that showed families, on average, spent 7 percent of income on
child care. 81 FR 67467-68. These data are outdated and therefore
cannot be used to support a new national recommendation. HHS may
conduct research on how co-payments impact a family's access and
participation in CCDF to inform potential future recommendations.
Comment: Commenters argued that States should be discouraged from
[[Page 25802]]
increasing co-payment amounts above current levels for families unless
an evidence-based benchmark is established. Commenters noted that
States should be encouraged to adopt policies that take into account
affordability for families with multiple children in care.
Response: HHS may conduct research to examine affordability in
child care and affordable co-payments. Lead Agencies have the
flexibility to develop cost-sharing policies to ensure affordability
when multiple children are in care. The recission of the 7 percent cap
restores Lead Agency flexibility to make cost sharing and sliding fees
policies that balance affordability and funding availability.
Payment Practices. This final rule makes key changes at Sec.
98.45(m) to restore Lead Agency flexibility regarding CCDF payment
practices.
Timely Payments to Providers. This final rule repeals the
requirement at Sec. 98.45(m)(1) that Lead Agencies pay CCDF child care
providers in advance of or at the beginning of delivery of services
(i.e., prospectively). This change restores Lead Agency flexibility
regarding the timing of payments to CCDF providers and provides Lead
Agencies with the option to pay providers prospectively or on a
reimbursement basis. As required by the Act at Section
658E(c)(4)(B)(iv) (42 U.S.C. 9858c(c)(4)(B)(iv)), States and
Territories must still ensure that child care providers are paid in a
timely manner. When child care providers are not paid in a timely
manner, they may choose not to participate in the CCDF program, which
can limit child care options for parents. Therefore, the final rule
requires Lead Agencies to either pay child care providers prospectively
or to reimburse child care providers within 21 days of receiving a
completed invoice.
Comments: Commenters who supported the proposed rescission
emphasized the need for increased flexibility for Lead Agencies. They
noted that timely payments were important, but that there were other
ways to ensure this while allowing some State discretion in
policymaking that balances supporting providers and families with
program integrity and accountability.
Response: This final rule rescinds the requirement to pay providers
prospectively, restoring Lead Agency flexibility to pay CCDF providers
within a timeframe that works best for families and providers in their
individual State or Territory, while also ensuring sound stewardship of
taxpayer dollars.
Comments: Commenters who opposed the proposed rescission argued
that prospective payment is more in line with the private pay child
care market and is a stabilizing practice for child care providers that
are predominantly small businesses. More specifically, commenters said
that delayed payments make it difficult to cover fixed costs, such as
payroll and other operating expenses, in a timely manner.
Response: Rescinding the requirement to pay providers prospectively
does not prohibit this payment practice. Lead Agencies continue to have
the flexibility to pay providers prospectively if the payment practice
meets the needs of their individual State or Territory. As of March
2026, nine Lead Agencies have implemented policies to pay all child
care providers prospectively, per the FFY 2025-2027 CCDF State and
Territory Plans. Ensuring timely provider payments is a statutory
requirement and is important for parent choice as it relates to the
impact on providers' businesses and the availability of child care
providers. Moving forward, HHS intends to strengthen monitoring and
oversight of the requirement to pay providers within 21 days in order
to ensure payments to providers are timely, while maintaining State
flexibility in administration of CCDF programs.
Comment: HHS requested comments in the NPRM on the appropriate
timeframe for providers to receive payment after submitting a completed
invoice. All commenters who responded voiced support for a timeframe
shorter than 21 days, but specific comments varied from general support
to more specific timeframes such as three days or 14 days.
Response: HHS considered commenters' suggestions and has decided to
maintain the proposed 21-day payment requirement as a minimum standard,
while restoring Lead Agency flexibility to pay providers prospectively
or on a reimbursement basis.
Delinking Payments from Absences. The final rule repeals the
requirement at 45 CFR 98.5(m)(2) that State and Territory Lead Agencies
pay child care providers based on a child's authorized enrollment. This
change restores Lead Agencies' flexibility to implement options to meet
the statutory 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. Under the final rule, Lead
Agencies may meet this statutory requirement by: (1) Paying providers
based on a child's enrollment, rather than attendance; (2) providing a
full payment to providers as long as a child attends for 85 percent of
the authorized time; (3) providing full payment to providers as long as
a child is absent for five or fewer days in a four week period; or (4)
establishing an alternative approach justified in the CCDF Plan.
According to FFY 2025-2027 CCDF State and Territory Plan data, as of
March 2026, 29 Lead Agencies currently pay providers based on
authorized child enrollment. These Lead Agencies have the flexibility
to continue their established payment policies.
HHS reminds Lead Agencies that regardless of the approach a Lead
Agency takes to delink payments from an eligible child's absences, Lead
Agencies are required to ensure integrity and accountability through
implementing processes to ensure sound fiscal management, identify
areas of risk, train Lead Agency staff and other agency staff about
program requirements and integrity, and regularly evaluate internal
control activities (Sec. 98.68). All Lead Agencies are strongly
encouraged to collect and review provider attendance and billing
records, conduct quality control or quality assurance reviews, and
swiftly enforce corrective actions and penalties when violations occur.
Comment: Commenters supported the proposal to rescind the
requirement to pay providers based on authorized enrollment and argued
that Lead Agencies should retain their flexibility to design and
operate their CCDF programs as they deem most appropriate. These
commenters further argued that HHS lacked the authority to restrict
Lead Agencies to only one approach.
Response: The final rule maintains the language in the NPRM that
restores additional flexibilities for States, Territories, and Tribes
to continue to have the option to adopt payment policies based on their
own assessment of what works best for children, families, and child
care providers in their communities.
Comment: HHS received comments generally opposed to the practice of
paying providers based on enrollment. These commenters described the
unintended consequences of the practice, including increasing child
care costs, program integrity concerns, and ability to combat potential
fraud. In addition, commenters recommended removing the option that
States delink absences from provider payments thereby ensuring that
payments are made only for services provided.
[[Page 25803]]
Response: It is important for Lead Agencies to have flexibility to
implement payment practices that they believe best support program
integrity and combat potential fraud within their CCDF programs. This
final rule allows Lead Agencies the option to reimburse child care
services based on attendance. Section 658E(c)(2)(S) of the Act requires
States to implement enrollment and eligibility policies that support
the fixed costs of providing child care services by delinking provider
reimbursement rates from an eligible child's occasional absences due to
holidays or unforeseen circumstances such as illness, to the extent
practicable. The final rule allows Lead Agencies to implement practices
other than paying providers based on enrollment and is consistent with
the requirement in the Act.
Comment: HHS received comments concerned with ensuring that Lead
Agencies implement provider payment practices that safeguard against
improper or fraudulent payments. While some commenters had reservations
that paying providers based on enrollment was transparent enough to
employ such safeguards, other commenters encouraged Lead Agencies to
implement robust controls regardless of their payment practices.
Response: HHS is dedicated to ensuring that CCDF funds are spent
providing child care to eligible children attending eligible child care
providers. As discussed above, Lead Agencies must take steps to address
improper payments and fraud. Lead Agencies that choose to pay child
care providers based on enrollment are strongly encouraged to collect
attendance records to ensure that the child still needs care and that
the child care provider is operating within CCDF requirements.
Comment: Commenters opposed to the proposal described enrollment-
based payment as the best approach to ensure providers' financial
stability and ability to meet the expenses of their fixed operational
costs. They argued that it is a generally accepted practice among
families paying for child care privately to pay a fixed fee to
providers based on enrollment regardless of a child's daily attendance.
Commenters maintained that providers opt out of participating in CCDF
when they are not paid based on enrollment. In addition, commenters
warned that providers who are unwilling or unable to absorb the loss of
income due to a child's absence may pass those costs to families.
Response: This final rule does not prohibit a Lead Agency's ability
to pay providers based on a child's authorized enrollment, and Lead
Agencies that currently pay providers based on enrollment may continue
to do so. Section 658E(c)(2)(S)(ii) of the Act requires Lead Agencies
to delink payments from occasional absences. This final rule reinstates
Lead Agencies' flexibility to adopt policies based on their own
assessment of what works best for children, families, and child care
providers in their communities.
Comment: HHS requested comments in the NPRM on the appropriate
number of paid absence days or attendance rates to ensure providers
participate in the CCDF program to support parental choice, while
ensuring Lead Agency flexibility. HHS received a range of
recommendations on the appropriate number of paid absence days and
attendance rates. Commenters also recommended that the paid absences be
applied at the provider level rather than the child level so that one
provider's payment would not be affected by a child's absences with a
secondary provider. In addition, commenters recommended that any
allowable absence policy be aligned with health and safety standards
that may result in a child's chronic absenteeism.
Response: This final rule maintains the options proposed in the
NPRM, including the options to provide full payment to providers as
long as a child is absent for five or fewer days in a four week period
or attends for 85 percent of the authorized time. Lead Agencies retain
the flexibility to implement more generous absence policies that pay
providers the full payment if a child has more than five absences.
Restructuring to Align with Previous Regulations. This final rule
revises Sec. 98.45 to revert to the paragraph structure of the 2016
final rule. First, the final rule moves language from the introduction
at Sec. 98.45(m) requiring provider payment practices to reflect
generally accepted payment practices to Sec. 98.45(m)(3). This change
aligns with regulatory language in the 2016 final rule, which included
this text when describing the requirement to pay providers based on a
part-time or full-time basis and to pay for reasonable mandatory fees.
This paragraph structure change does not change requirements related to
paying providers on a part-time or full-time basis or to pay for
reasonable mandatory fees.
Second, the final rule removes unnecessary language at Sec.
98.45(n)(4) that indicates Lead Agencies are able to take
``precautionary measures when a provider is suspected of fiscal
mismanagement.'' This language was added in the March 2024 rule to
reinforce that States and Territories could choose not to pay a
provider prospectively and based on enrollment if that provider was
suspected of fraud. States and Territories already had, and continue to
have, the responsibility to take actions when a provider has been
suspected of fraud. Lead Agencies have sufficient flexibility in the
revised regulatory language for payment practices to adjust payment
policies in response to suspected provider fraud. Therefore, HHS has
removed this redundant provision. Lastly, the final rule removes
paragraphs Sec. 98.45(n)(4) and (5), combine Sec. 98.45(m)(3) and (4)
under a revised Sec. 98.45(m)(3), and redesignate the provisions at
Sec. 98.45(n)(1)-(3) as Sec. 98.45(m)(4)-(6).
HHS did not receive comments on these technical changes.
Clarification on Total Payment to Providers. The final rule removes
language at Sec. 98.45(n)(5) to require States and Territories to
demonstrate in their CCDF Plan that the total payment to a provider
(subsidy payment amount and family co-payment) is not impacted by cost-
sharing policies. This clarification was included in the March 2024
final rule in response to comments on the requirement at Sec.
98.45(l)(3) to limit family co-payments to 7 percent of family income
and concerns that reductions in family co-payments could reduce the
amount received by child care providers. Given that the final rule
rescinds the requirement for States and Territories to limit family co-
payments to 7 percent of family income, this clarification is no longer
needed.
Comments: Commenters opposed the removal of language at Sec.
98.45(n)(5). Commenters argued that removing the requirement for Lead
Agencies could weaken transparency and public oversight and discourage
provider participation and ultimately reduce access for families.
Commenters also asserted that providers should not be expected to
effectively subsidize lower costs for families due to reduced payments.
Response: This final rule removes the language at Sec.
98.45(n)(5). HHS reminds Lead Agencies that the Act requires Lead
Agencies to set payment rates at levels that provide CCDF families
equal access to child care services that are comparable to care
provided to children whose parents are not eligible for CCDF. 42 U.S.C.
9858c(c)(4)(A). Under CCDF, payments to providers are a combination of
the Lead Agency share and the parent share (i.e., co-payment). HHS
encourages Lead Agencies to exercise their flexibility in setting
payment rates to ensure co-payment policies do not result in decreases
in total payment to providers.
[[Page 25804]]
Subpart F--Use of Child Care and Development Funds
Sec. 98.50 Child Care Services
The final rule makes conforming changes to Sec. 98.50(a)(3) and
(b) that align with the recission of the requirement in Sec. 98.30(b)
discussed earlier in this preamble, which required States and
Territories to use grants or contracts for some direct child care
services for children in underserved geographic areas, infants and
toddlers, and children with disabilities. This final rule revises Sec.
98.50(a)(3) by deleting ``including grants or contracts for slots for
children in underserved geographic areas, for infants and toddlers, and
children with disabilities. Grants solely to improve the quality of
child care services like those in (b) of this section would not satisfy
the requirements at Sec. 98.30(b).'' The final rule also revises Sec.
98.50 (b) by deleting (b)(4) completely. This provision is no longer
relevant due to the changes in Sec. 98.30(b) to remove the requirement
to utilize grants or contracts for some direct child care services.
Comment: HHS received comments that supported the proposed
recission of the requirement to utilize grants or contracts for some
direct child care services but requested clarification on the continued
allowability of utilizing CCDF funds to implement grants or contracts
to provide some direct services and utilization of grants for general
child care supply-building activities.
Response: Lead agencies may continue, at their option, to utilize
CCDF funding to implement grants or contracts for some direct child
care services; however, they are no longer required to do so. Lead
Agencies may also continue to use CCDF funding to provide grants to
child care providers that do not involve the provision of direct
services, such as grants to assist with start-up funds for new child
care providers.
Subpart I--Indian Tribes
This subpart addresses requirements and procedures for Indian
Tribes and Tribal organizations applying for or receiving CCDF funds
and serves as the Tribal summary impact statement as required by
Executive Order 13175.\5\ The amendments in this subpart are conforming
changes and do not change requirements for Tribal CCDF Lead Agencies.
Sec. 98.81 Application and Plan Procedures and Sec. 98.83
Requirements for Tribal Programs
Paragraphs 98.81(b)(6) and 98.83(d)(1) specify from which
provisions all Tribal Lead Agencies are exempted. All Tribal Lead
Agencies were already exempted from the previous requirement to provide
some direct services through grants or contracts. Because this final
rule rescinds the requirements for States and Territories to provide
services through grants or contracts, the provisions exempting Tribal
Lead Agencies from the requirement are no longer necessary. Therefore,
this final rule removes Sec. Sec. 98.81(b)(6)(x), 98.83(d)(1)(i), and
98.83(d)(1)(x).
HHS did not receive comments on these conforming changes.
The final rule does not amend Sec. 98.83(d)(1)(vi), which exempts
all Tribal Lead Agencies from the requirement for a sliding fee scale
at Sec. 98.45(l). However, as discussed above, the change removes the
requirement for Tribal Lead Agencies with medium and large allocations
that choose to implement cost-sharing and require family co-payments
for their CCDF programs to cap family co-payments to 7 percent of the
family's income. Tribes with small allocations were already exempt from
the requirement to limit family co-payments to 7 percent of income.
With this final rule, all Tribal Lead Agencies now have maximum
flexibility in establishing those co-payment amounts.
VII. 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, HHS will submit any proposed revised data
collection requirements to OMB for review and approval.
The final rule modifies the previously approved ACF-118 CCDF State
and Territory Plan information collection, but HHS has not yet
initiated the OMB approval process to implement these changes. HHS will
publish Federal Register notices soliciting public comment on specific
revisions to this information collection and the associated burden
estimates and will make available the proposed form and instructions
for review.
----------------------------------------------------------------------------------------------------------------
Relevant section in OMB control Expiration
CCDF title/code the proposed rule No. date Description
----------------------------------------------------------------------------------------------------------------
ACF-118 (CCDF State and Territory Sec. Sec. 98.16 0970-0114 03/31/2027 The final rule
Plan). (and related rescinds
provisions). requirements which
States and
Territories are
required to report
in the CCDF Plans.
----------------------------------------------------------------------------------------------------------------
The table below provides current approved annual burden hours and
estimated annual burden hours for the existing information collection
that is modified by this final rule.
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\5\ <a href="https://www.federalregister.gov/documents/2000/11/09/00-29003/consultation-and-coordination-with-indian-tribal-governments">https://www.federalregister.gov/documents/2000/11/09/00-29003/consultation-and-coordination-with-indian-tribal-governments</a>.
[[Page 25805]]
Annual Burden Estimates
--------------------------------------------------------------------------------------------------------------------------------------------------------
Current approved Estimated average
Total number of Total number of average burden Current annual burden hours per Estimated annual
Instrument respondents responses per hours per burden hours response based on burden hours based
respondent response final rule on final rule
--------------------------------------------------------------------------------------------------------------------------------------------------------
ACF-118 (CCDF State and Territory Plan).. 56 0.33 150 2,800 150 2,800
--------------------------------------------------------------------------------------------------------------------------------------------------------
HHS did not receive any public comments on these burden estimates,
which were included in the NPRM.
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 does 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 pre-empt State law. In
large part, the changes included in the final 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. HHS believes it is not necessary to prepare a
family policymaking assessment (see Pub. L. 105-277) because the action
taken in this final rule will not have any impact on the autonomy or
integrity of the family as an institution.
VIII. Regulatory Impact Analysis
Introduction
HHS has examined the impacts of the final rule under Executive
Order 12866, Executive Order 13563, Executive Order 14192, the
Regulatory Flexibility Act (5 U.S.C. 601 et seq.), the Unfunded
Mandates Reform Act of 1995 (2 U.S.C. 1531 et seq.), and the
Congressional Review Act (5 U.S.C. 801 et seq., Pub. L. 104-121).
Executive Orders 12866 and 13563 direct us to assess all benefits
and costs of available regulatory alternatives and, when regulation is
necessary, to select regulatory approaches that maximize net benefits.
The Office of Information and Regulatory Affairs (OIRA) has determined
that this final rule is significant under Section 3(f) of Executive
Order 12866 and that it does not meet the criteria set forth in 5
U.S.C. 804(2) under the Congressional Review Act. Executive Order 14192
requires that any new incremental costs associated with significant new
regulations ``shall, to the extent permitted by law, be offset by the
elimination of existing costs associated with at least ten prior
regulations.'' This final rule is considered an E.O. 14192 deregulatory
action. HHS estimates that this final rule will generate $6.1 million
in annualized cost savings at a 7 percent discount rate, discounted
relative to year 2024, over a perpetual time horizon.
The Regulatory Flexibility Act (RFA) requires agencies to consider
the impact of their regulatory proposals on small entities. The January
5, 2026 NPRM proposed regulatory changes that would provide additional
flexibility to States, Territories, and Tribes. The proposed changes
would not have a direct impact on small entities. However, removing the
requirement to pay child care providers based on authorized enrollment
may have an indirect impact on some small child care centers and family
child care homes that participate in CCDF. The extent of this indirect
impact would depend on whether States, Territories, and Tribes choose
to pay based on enrollment or attendance. HHS estimates this indirect
impact will be less than 1 percent of total CCDF funding that is paid
to child care providers each year. HHS calculated the impact by
comparing the $8.8 million annual transfer from child care providers to
States and Territories for enrollment-based payments (discussed in more
detail in the Summary of Economic Impacts) to the annual amount of CCDF
funding paid to child care providers for direct services, $11.408
billion in FY 2022 \6\ (the most recent year for which data are
available). Thus, our analysis concludes that the indirect impacts of
the final rule will be lower than 3 percent of the annual revenue of a
potentially impacted small entities, corresponding to HHS's default
threshold of a ``significant economic impact'' in the context of the
analytic requirements of the Regulatory Flexibility Act.
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\6\ <a href="https://acf.gov/occ/data/ccdf-expenditures-overview-fy-2022-all-appropriation-years">https://acf.gov/occ/data/ccdf-expenditures-overview-fy-2022-all-appropriation-years</a>.
---------------------------------------------------------------------------
The Secretary certified that the January 5, 2026, proposed rule
would not have a significant economic impact on a substantial number of
small entities. HHS did not receive any public comments that raised
issues with that certification, nor did we receive any comments that
would cause us to assess any additional impacts that might be relevant
to the analytical requirements of the RFA. This final rule maintains
the changes proposed in the NPRM. Thus, the Secretary certifies that
this final rule will not have a significant economic impact on a
substantial number of small entities.
The Unfunded Mandates Reform Act of 1995 (UMRA) generally requires
that each agency conduct a cost-benefit analysis; identify and consider
a reasonable number of regulatory alternatives; and select the least
costly, most cost-effective, or least burdensome alternative that
achieves the objectives of the rule before promulgating any proposed or
final rule that includes a Federal mandate that may result in
expenditures of more than $100 million (adjusted for inflation) in at
least one year by State, local, and Tribal governments, in the
aggregate, or by the private sector. Each agency issuing a rule with
relevant effects over that threshold must also seek input from State,
local, and Tribal governments. The current threshold after adjustment
for inflation is $193 million, using the most current (2025) Implicit
Price Deflator for the Gross Domestic Product.
[[Page 25806]]
This final rule will not result in an expenditure in any year that
meets or exceeds this amount.
Background and Summary of Economic Impacts
On July 13, 2023, HHS published a notice of proposed rulemaking
(NPRM) that proposed revisions to Child Care and Development Fund
(CCDF) regulations.\7\ After considering the public comments, on March
1, 2024, HHS published a final rule that made regulatory changes to
CCDF (``March 2024 final rule''),\8\ which contained a regulatory
impact analysis (2024 RIA) that reported monetary estimates of the
economic impacts. On January 5, 2026, HHS published an NPRM
(``Restoring Flexibility in the Child Care and Development Fund'') that
proposed rescinding specific provisions of the March 2024 final rule.
This NPRM included a regulatory impact analysis that detailed the
economic impact of these rescissions. Following the public comment
period HHS is publishing this final rule, which rescinds four of the
mandatory provisions of the March 2024 final rule including those
relating to enrollment-based payment, 7 percent cap on co-payments,
prospective payments, and grants or contracts for direct services. As a
starting point for analyzing the impact of this final rule, HHS adopted
the estimated economic impacts in the March 2024 final rule as
capturing the baseline scenario of no further regulatory action. This
approach follows our methodology for assessing the impacts of the
January 5, 2026 NPRM. Table 1 reports yearly transfers and costs
associated with the relevant requirements of the March 2024 final
rule.\9\ While the prospective payments policy does not appear as a
separate line item in this analysis, its impacts were accounted for in
the ``systems'' cost estimate included in the March 2024 final rule.
---------------------------------------------------------------------------
\7\ Office of Child Care, Administration for Children and
Families, Department of Health and Human Services. July 13, 2023.
``Improving Child Care Access, Affordability, and Stability in the
Child Care and Development Fund (CCDF)'' notice of proposed
rulemaking. Federal Register. 88 FR 45022.
\8\ Office of Child Care, Administration for Children and
Families, Department of Health and Human Services. March 1, 2024.
``Improving Child Care Access, Affordability, and Stability in the
Child Care and Development Fund (CCDF)'' final rule. Federal
Register. 89 FR 15366.
\9\ These estimates replicate Table 3 of the 2024 RIA, with all
dollar values adjusted to 2024 dollars using the GDP deflator.
Bureau of Economic Analysis. National Income and Product Accounts.
Table 1.1.9. Implicit Price Deflators for Gross Domestic Product.
April 30, 2025 revision.
Table 1--Relevant Requirements in the March 2024 Final Rule, Transfers and Costs
[In millions]
----------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------
Transfers by Year 2025 2026 2027 2028 2029
----------------------------------------------------------------------------------------------------------------
Enrollment-based Payment........ $8.8 $8.8 $17.5 $17.5 $17.5
7% Co-Payment Cap............... 8.4 8.4 16.7 16.7 16.7
-------------------------------------------------------------------------------
Total Transfers............. 17.2 17.2 34.2 34.2 34.2
----------------------------------------------------------------------------------------------------------------
Costs by Year 2025 2026 2027 2028 2029
----------------------------------------------------------------------------------------------------------------
Grants and Contracts............ $3.3 $3.3 $6.5 $6.5 $6.5
Systems......................... 10.9 10.9 0.0 0.0 0.0
-------------------------------------------------------------------------------
Total Costs................. 14.2 14.2 6.5 6.5 6.5
----------------------------------------------------------------------------------------------------------------
By rescinding specific regulations added by the March 2024 final
rule, this Restoring Flexibility in the Child Care and Development Fund
final rule would prevent the occurrence of the estimated transfers and
costs reported in the 2024 RIA, with the exception of the anticipated
economic impacts in the first year. For the purposes of this analysis,
HHS assumes those impacts have already occurred and cannot be recovered
or did not occur as the result of a temporary transitional waiver of
the requirements granted to some States. Thus, when considering the
economic impacts of this final rule, HHS does not report any impacts on
transfers or costs in 2025. In subsequent years, HHS reports the
inverse of the monetary estimates identified in Table 1 as the impacts
of the final rule. Table 2 reports these estimates, where negative
costs represent cost savings, and negative transfers represent a
reversal of the direction of transfers compared to the 2024 RIA. In
this context, transfers under the March 2024 final rule that
represented increases in Lead Agency payments to child care providers
represent reductions in Lead Agency payments to child care providers.
Table 2--Economic Impacts of the Final Rule Changes
[In millions]
----------------------------------------------------------------------------------------------------------------
Year 2025 2026 2027 2028 2029
----------------------------------------------------------------------------------------------------------------
Total Transfers................. $0.0 -$17.2 -$34.2 -$34.2 -$34.2
Total Costs..................... 0.0 -14.2 -6.5 -6.5 -6.5
----------------------------------------------------------------------------------------------------------------
Over a 5-year time horizon covering 2025 through 2029, HHS
estimates annualized transfers of $23.4 million using a 3-percent
discount rate and $22.8 using a 7 percent discount rate; and annualized
costs of $6.7 million using a 3-percent discount rate and $6.6 million
using a 7 percent discount rate. To produce an estimate of cost savings
under E.O. 14192, HHS assumes the impacts of the changes on costs in
2029 will extend in perpetuity. HHS estimates that this final rule will
generate $6.1 million in annualized cost savings at a 7 percent
discount rate,
[[Page 25807]]
discounted relative to year 2024, in perpetuity.
IX. Tribal Consultation Statement
Executive Order 13175, Consultation and Coordination with Indian
Tribal Governments, requires agencies to consult with Indian Tribes
when regulations have substantial direct effects on one or more Indian
tribes, on the relationship between the federal government and Indian
tribes, or on the distribution of power and responsibilities between
the federal government and Indian tribes. The discussion in subpart I
in section IV of the preamble serves as the Tribal impact statement.
(Catalog of Federal Domestic Assistance Program Number 93.575, Child
Care and Development Block Grant; 93.596, Child Care Mandatory and
Matching Funds)
List of Subjects in 45 CFR Part 98
Child care, Grant programs--social programs.
For the reasons set forth in the preamble, we amend 45 CFR part 98
as follows:
PART 98--CHILD CARE AND DEVELOPMENT FUND
0
1. The authority citation for part 98 is revised to read as follows:
Authority: 42 U.S.C. 618, 9857 et seq.
0
2. Amend Sec. 98.16 by:
0
a. Revising paragraph (x);
0
b. Removing paragraphs (y) and (z);
0
c. Redesignating paragraphs (aa) through (ll) as paragraphs (y) through
(jj); and,
0
d. Revising newly redesignated paragraph (cc).
The revisions read as follows:
Sec. 98.16 Plan provisions.
* * * * *
(x) A description of the Lead Agency's strategies (which may
include alternative payment rates to child care providers, the
provision of direct grants or contracts, offering child care
certificates, or other means) to increase the supply and improve the
quality of child care services for children in underserved areas,
infants and toddlers, children with disabilities as defined by the Lead
Agency, and children who receive care during nontraditional hours,
including whether the Lead Agency plans to use grants and contracts in
building supply and how supply-building mechanisms will address the
needs identified. The description must identify shortages in the supply
of high-quality child care providers, list the data sources used to
identify shortages, and describe the method of tracking progress to
support equal access and parental choice. If the Lead Agency chooses to
employ grants and contracts to meet the purposes of this section, the
Lead Agency must provide CCDF families the option to choose a
certificate for the purpose of acquiring care;
* * * * *
(cc) A description of payment practices applicable to providers of
child care services for which assistance is provided under this part,
pursuant to Sec. 98.45(m), including practices to ensure timely
payment for services, to delink provider payments from children's
occasional absences to the extent practicable, and to reflect
generally-accepted payment practices;
* * * * *
0
3. Amend Sec. 98.30 by revising paragraph (b) to read as follows:
Sec. 98.30 Parental choice.
* * * * *
(b) When a parent elects to enroll the child with a provider that
has a grant or contract for the provision of child care services, the
child will be enrolled with the provider selected by the parent to the
maximum extent practicable.
* * * * *
0
4. Amend Sec. 98.45 by:
0
a. Revising paragraphs (b)(5), (l)(3), and (m); and
0
b. Removing paragraph (n).
The revisions read as follows:
Sec. 98.45 Equal access.
* * * * *
(b) * * *
(5) How co-payments based on a sliding fee scale are affordable, as
stipulated at paragraph (l) of this section; if applicable, a rationale
for the Lead Agency's policy on whether child care providers may charge
additional amounts to families above the required family co-payment,
including a demonstration that the policy promotes affordability and
access; analysis of the interaction between any such additional amounts
with the required family co-payments, and of the ability of subsidy
payment rates to provide access to care without additional fees; and
data on the extent to which CCDF providers charge such additional
amounts (based on information obtained in accordance with paragraph
(d)(2) of this section);
* * * * *
(l) * * *
(3) Provides for affordable family co-payments that are not a
barrier to families receiving assistance under this part; and
* * * * *
(m) The Lead Agency shall demonstrate in the Plan that it has
established payment practices applicable to all CCDF child care
providers that:
(1) Ensure timeliness of payment by either:
(i) Paying prospectively prior to the delivery of services; or
(ii) Paying within no more than 21 calendar days of the receipt of
a complete invoice for services.
(2) To the extent practicable, support the fixed costs of providing
child care services by delinking provider payments from a child's
occasional absences by:
(i) Paying based on a child's enrollment rather than attendance;
(ii) Providing full payment if a child attends at least 85 percent
of the authorized time;
(iii) Providing full payment if a child is absent for five or fewer
days in a month; or,
(iv) An alternative approach for which the Lead Agency provides a
justification in its Plan.
(3) Reflect generally accepted payment practices of child care
providers that serve children who do not receive CCDF subsidies, which
must include (unless the Lead Agency provides evidence that such
practices are not generally-accepted in the State or service area):
(i) Paying on a part-time or full-time basis (rather than paying
for hours of service or smaller increments of time); and
(ii) Paying for reasonable mandatory registration fees that the
provider charges to private-paying parents.
(4) Ensure child care providers receive payment for any services in
accordance with a written payment agreement or authorization for
services that includes, at a minimum, information regarding payment
policies, including rates, schedules, any fees charged to providers,
and the dispute resolution process required by paragraph (m)(6) of this
section.
(5) Ensure child care providers receive prompt notice of changes to
a family's eligibility status that may impact payment, and that such
notice is sent to providers no later than the day the Lead Agency
becomes aware that such a change will occur.
(6) Include timely appeal and resolution processes for any payment
inaccuracies and disputes.
0
5. Amend Sec. 98.50 by:
0
a. Revising paragraph (a)(3);and
0
b. Removing paragraph (b)(4).
The revision reads as follows:
Sec. 98.50 Child care services.
(a) * * *
[[Page 25808]]
(3) Using funding methods provided for in Sec. 98.30; and
* * * * *
0
6. Amend Sec. 98.81 by:
0
a. Removing paragraph (b)(6)(x);
0
b. Redesignating paragraphs (b)(6)(xi) and (xii) as paragraphs
(b)(6)(x) and (xi); and,
0
c. Revising newly redesignated paragraph (b)(6)(xi).
The revision reads as follows:
Sec. 98.81 Application and Plan procedures.
* * * * *
(b) * * *
(6) * * *
(xi) The description of provider payment practices at Sec.
98.16(cc).
* * * * *
Sec. 98.83 [Amended]
0
7. Amend Sec. 98.83 by:
0
a. Removing paragraphs (d)(1)(i) and (x); and
0
b. Redesignating paragraphs (d)(1)(ii) through (xiv) as paragraphs
(d)(1)(i) through (xii).
Robert F. Kennedy, Jr.,
Secretary, Department of Health and Human Services.
[FR Doc. 2026-09382 Filed 5-11-26; 8:45 am]
BILLING CODE 4184-87-P
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