Improving Child Care Access, Affordability, and Stability in the Child Care and Development Fund (CCDF), 45022-45053 [2023-14290]

Agencies

• DEPARTMENT OF HEALTH AND HUMAN SERVICES

[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 [www.gpo.gov]
[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: https://www.regulations.gov. 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 www.regulations.gov, 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 [email protected].

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\ https://www.acf.hhs.gov/occ/data/fy-2020-preliminary-data-table-1.
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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, https://home.treasury.gov/system/files/136/The-Economics-of-Childcare-Supply-09-14-final.pdf.
    \3\ Child Care Aware of America. (March 2022). Demanding Change: 
Repairing Our Child Care System. Arlington, VA: Child Care Aware of 
America https://www.childcareaware.org/demanding-change-repairing-our-child-care-system/#supply.
    \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. 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/.
    \5\ Care.com. (June 2022). This is how much child care costs in 
2022. https://www.care.com/c/how-much-does-child-care-cost/.
    \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. https://www.acf.hhs.gov/occ/infographic/covid-investments-child-care-supporting-children-families-and-providers.
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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 https://obamawhitehouse.archives.gov/sites/default/files/docs/early_childhood_report_update_final_non-embargo.pdf.
    \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. 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/.
    \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. https://iwpr.org/iwpr-general/access-to-child-care-can-improve-student-parent-graduation-rates/.
    \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. https://read.dukeupress.edu/demography/article/58/2/451/169632/Are-States-Created-Equal-Moving-to-a-State-With.
    \12\ Herbst, C. (2022). ``Child Care in the United States: 
Markets, Policy, and Evidence.'' Journal of Policy Analysis and 
Management. https://doi.org/10.1002/pam.22436.
    \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. https://doi.org/10.1016/j.econedurev.2011.03.006.
    \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. https://www.dol.gov/sites/dolgov/files/WB/NDCP/508_WB_IssueBrief-NDCP-20230213.pdf.
    \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. 
https://srcd.onlinelibrary.wiley.com/doi/10.1111/cdev.13696.
    \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. https://www.childtrends.org/publications/lessons-from-a-historic-decline-in-child-poverty.
    \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. https://www.stlouisfed.org/community-development/child-care-economic-impact.
    \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. https://www.strongnation.org/articles/2038-122-billion-the-growing-annual-cost-of-the-infant-toddler-child-care-crisis.
    \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. https://www.strongnation.org/articles/2038-122-billion-the-growing-annual-cost-of-the-infant-toddler-child-care-crisis.
    \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. https://www.americanprogress.org/article/calculating-the-hidden-cost-of-interrupting-a-career-for-child-care/.
    \22\ Ibid.
    \23\ Malik, R. et al., (2018). America's Child Care Deserts in 
2018. Washington, DC: Center for American Progress. https://www.americanprogress.org/article/americas-child-care-deserts-2018/.
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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 https://www.childcareaware.org/catalyzing-growth-using-data-to-change-child-care/#ChildCareAffordability.
    \25\ Madowitz et al. (2016). Calculating the Hidden Cost of 
Interrupting a Career for Child Care. Washington, DC: Center for 
American Progress. https://www.americanprogress.org/article/calculating-the-hidden-cost-of-interrupting-a-career-for-child-care/
.
    \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). https://www.acf.hhs.gov/opre/report/2019-nsece-snapshot-child-care-cost-burden-us-households-children-under-age-5.
    \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. https://www.acf.hhs.gov/opre/report/parents-reasons-searching-early-care-and-education-and-results-search-analysis-using.
    \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). https://www.acf.hhs.gov/opre/report/2019-nsece-snapshot-child-care-cost-burden-us-households-children-under-age-5.
    \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. https://www.acf.hhs.gov/opre/report/parents-reasons-searching-early-care-and-education-and-results-search-analysis-using.
    \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. https://health.oregonstate.edu/early-learners/research/assessing-impacts-oregon%E2%80%99s-2007-changes-child-care-subsidy-policy.
    \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. 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.
    \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. https://link.springer.com/content/pdf/10.1007/s11150-016-9331-3.pdf.
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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. https://www.americanprogress.org/article/americas-child-care-deserts-2018/.
    \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. https://childcaregap.org/assets/Child%20Care%20in%2035%20States.pdf.
    \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. https://nces.ed.gov/pubsearch/pubsinfo.asp?pubid=2020075REV.
    \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. https://www.acf.hhs.gov/opre/report/nsece-hb-chartbook-counts-and-characteristics.
    \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. https://www.acf.hhs.gov/sites/default/files/documents/opre/cb-counts-and-characteristics-chartbook_508_2.pdf.
    \38\ Child Care Aware of America. (March 2022). Demanding 
Change: Repairing Our Child Care System. https://www.childcareaware.org/demanding-change-repairing-our-child-care-system/#supply.
    \39\ Connecticut Association for Human Services. (July 2022). 
Child Care at a Breaking Point: The Cost for Parents to Work https://cahs.org/pdf/child-care-survey-report7-15-22.pdf.
    \40\ Powell, L. and Kravitz, D. (August 2022). ``Michigan's 
child care crisis is worse than policymakers have estimated'', 
Chalkbeat Detroit. https://detroit.chalkbeat.org/2022/8/31/23329007/michigan-child-care-crisis-deserts-worse-policymakers-day-care.
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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. https://home.treasury.gov/system/files/136/The-Economics-of-Childcare-Supply-09-14-final.pdf.
    \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. https://aspe.hhs.gov/sites/default/files/documents/1d276a590ac166214a5415bee430d5e9/cy2019-child-care-subsidy-eligibility.pdf.
    \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. https://www.dol.gov/sites/dolgov/files/WB/NDCP/508_WB_IssueBrief-NDCP-20230213.pdf.
    \46\ 81 FR 67515 (https://www.govinfo.gov/content/pkg/FR-2016-09-30/pdf/2016-22986.pdf).
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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.
---------------------------------------------------------------------------

    \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. (https://www.sciencedirect.com/science/article/abs/pii/S0190740917300750); 
Rohacek M., & Adams, G. (2017). Providers in the child care subsidy 
system. (https://www.urban.org/sites/default/files/publication/95221/providers-and-subsidies.pdf). Phillips, D., Mekos, D., Scarr, 
S., McCartney, K., & Abbott-Shim, M. (2000). Within and beyond the 
classroom door: Assessing quality in child care centers. (https://www.sciencedirect.com/science/article/abs/pii/S0885200601000771). 
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. (https://www.sciencedirect.com/science/article/abs/pii/S0885200607000270). 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. (https://pubmed.ncbi.nlm.nih.gov/19285728/). 
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. (https://publicpolicy.com/wp-content/uploads/2021/04/Policy-Change-Effects-on-Child-Care-Subsidy-Approvals-and-Utilization.pdf); Weber, R.B., 
Grobe, D., & Davis, E.E. (2014). Does policy matter? The effect of 
increasing child care subsidy policy generosity on program outcomes. 
(https://health.oregonstate.edu/sites/health.oregonstate.edu/files/occrp/pdf/the-effect-of-increasing-child-care-subsid-policy-generosity-on-program-outcomes.pdf).
---------------------------------------------------------------------------

    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\
---------------------------------------------------------------------------

    \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. https://link.springer.com/content/pdf/10.1007/s11150-016-9331-3.pdf
    \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. https://doi.org/10.1007/s00148-005-0022-2.
    \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. https://doi.org/10.1016/j.jpubeco.2014.12.013.
---------------------------------------------------------------------------

    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
---------------------------------------------------------------------------

    \51\ Borowsky, J., et al (2022). An equilibrium model of the 
impact of increased public investment in early childhood education. 
Working Paper 30140. https://www.nber.org/papers/w30140.
    \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. https://doi.org/10.7208/chicago/9780226100128.003.0009
    \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.
---------------------------------------------------------------------------

    \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). https://www.acf.hhs.gov/opre/report/2019-nsece-snapshot-child-care-cost-burden-us-households-children-under-age-5.
    \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. https://www.acf.hhs.gov/opre/report/parents-reasons-searching-early-care-and-education-and-results-search-analysis-using.
    \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. https://health.oregonstate.edu/early-learners/research/assessing-impacts-oregon%E2%80%99s-2007-changes-child-care-subsidy-policy.
    \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. 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.
    \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. https://link.springer.com/content/pdf/10.1007/s11150-016-9331-3.pdf.
    \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\
---------------------------------------------------------------------------

    \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. https://health.oregonstate.edu/early-learners/research/assessing-impacts-oregon%E2%80%99s-2007-changes-child-care-subsidy-policy.
    \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. 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.
    \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. https://www.urban.org/research/publication/balancing-edge-cliff
    \68\ Rohacek & Adams. (2017). Providers in the child care 
subsidy system. Washington, DC: Urban Institute. https://www.urban.org/sites/default/files/publication/95221/providers-and-subsidies.pdf
---------------------------------------------------------------------------

    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. https://www.acf.hhs.gov/occ/report/priorities-report-2021.https://www.acf.hhs.gov/occ/report/priorities-report-2021. 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. 
https://nces.ed.gov/fastfacts/display.asp?id=64.
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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.
---------------------------------------------------------------------------

    \71\ Novoa, C. (2020). The child care crisis disproportionately 
affects children with disabilities, Washington, DC: Center for 
American Progress. https://www.americanprogress.org/article/child-care-crisis-disproportionately-affects-children-disabilities
    \72\ Ibid.
---------------------------------------------------------------------------

    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. https://www.newamerica.org/education-policy/briefs/make-child-care-more-stable-pay-by-enrollment/.
    \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. https://www.americanprogress.org/article/grants-contracts-strategy-building-supply-subsidized-infant-toddler-child-care/.
    \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. 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.
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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. https://s35729.pcdn.co/wp-content/uploads/2020/11/IT-Pilot-Evaluation-Report_PA_Final.V2.pdf.
    \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. https://www.decal.ga.gov/documents/attachments/VoicesFromtheField.pdf.
    \78\ https://www.acf.hhs.gov/occ/data/fy-2020-preliminary-data-table-2.
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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. https://www.whitehouse.gov/wp-content/uploads/2023/03/ERP-2023.pdf.
    \80\ Novoa, C. (2020). The child care crisis disproportionately 
affects children with disabilities. Washington, DC: Center for 
American Progress. https://www.americanprogress.org/article/child-care-crisis-disproportionately-affects-children-disabilities.
    \81\ Schilder, D., et al. (August 2021). States Can Pursue 
Policies to Make Child Care More Accessible during Nontraditional 
Hours. Washington, DC: Urban Institute. https://www.urban.org/urban-wire/states-can-pursue-policies-make-child-care-more-accessible-during-nontraditional-hours.
    \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. https://www.urban.org/urban-wire/make-child-care-system-more-equitable-expand-options-parents-working-nontraditional-hours.
    \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 https://www.acf.hhs.gov/programs/opre/research/project/national-survey-of-early-care-andeducation-nsece-2010-2014.
    \84\ Child Care Aware of America. (March 2023). Who provides 
care for nontraditional-hours? Arlington, VA: Child Care Aware of 
America. https://info.childcareaware.org/blog/nontraditionalchildcare.
    \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). https://oig.hhs.gov/oei/reports/oei-03-15-00170.pdf.
---------------------------------------------------------------------------

    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.
---------------------------------------------------------------------------

    \88\ U.S. Department of the Treasury. (2021). The Economics of 
Child Care Supply in the United States. https://home.treasury.gov/system/files/136/The-Economics-of-Childcare-Supply-09-14-final.pdf.
---------------------------------------------------------------------------

    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. 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.
    \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. https://www.urban.org/sites/default/files/publication/65686/2000350-Determinants-of-Subsidy-Stability-and-Child-Care-Continuity.pdf.
    \91\ Golden, Lonnie. (April 2015). Irregular Work Scheduling and 
Its Consequences. Washington, DC: Economic Policy Institute. https://www.epi.org/publication/irregular-work-scheduling-and-its-consequences/.
    \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. 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.
---------------------------------------------------------------------------

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. https://www.clasp.org/sites/default/files/public/resources-and-publications/publication-1/WSS-CC-Paper.pdf.
    \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. https://www.urban.org/research/publication/designing-subsidy-systems-meet-needs-families.
    \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. https://www.usdigitalresponse.org/projects/applying-for-child-care-benefits-in-the-united-states-27-families-experiences.
    \96\ CCDF Policies Database, 2020 data. https://ccdf.urban.org/.
    \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. https://www.usdigitalresponse.org/projects/applying-for-child-care-benefits-in-the-united-states-27-families-experiences.
    \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. https://www.urban.org/research/publication/designing-subsidy-systems-meet-needs-families.
---------------------------------------------------------------------------

    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.
---------------------------------------------------------------------------

    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. https://www.americanprogress.org/article/how-to-address-the-administrative-burdens-of-accessing-the-safety-net/.
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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, https://www.acf.hhs.gov/sites/default/files/documents/occ/ccdf_acf_im_2016_02.pdf.
    \103\ CCDF-ACF-IM-2011-06: Policies and Practices that Promote 
Continuity of Child Care Services and Enhance Subsidy Systems, 
https://www.acf.hhs.gov/sites/default/files/documents/occ/im2011_06.pdf.
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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.
---------------------------------------------------------------------------

    \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. https://www.usdigitalresponse.org/projects/applying-for-child-care-benefits-in-the-united-states-27-families-experiences.
    \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. https://www.urban.org/research/publication/designing-subsidy-systems-meet-needs-families.
    \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. https://www.usdigitalresponse.org/projects/applying-for-child-care-benefits-in-the-united-states-27-families-experiences.
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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\ https://childcareta.acf.hhs.gov/full-model-application.
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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. https://www.newamerica.org/new-practice-lab/briefs/lost-in-the-labyrinth-helping-parents-navigate-early-care-and-education-programs/.
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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 (https://www.govinfo.gov/content/pkg/FR-1998-07-24/pdf/98-19418.pdf).
---------------------------------------------------------------------------

    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.
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    \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. 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.
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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.
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    \111\ https://www.acf.hhs.gov/occ/data/gy-2023-ccdf-allocations-based-appropriations.
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    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.
---------------------------------------------------------------------------

    \112\ https://www.acf.hhs.gov/occ/data/gy-2023-ccdf-allocations-based-appropriations.
---------------------------------------------------------------------------

    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:
     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\ https://www.acf.hhs.gov/occ/data/fy-2020-ccdf-data-tables-preliminary.
---------------------------------------------------------------------------

     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\ https://www.acf.hhs.gov/occ/report/acf-118-overview-state/territorial-plan-reporting.
---------------------------------------------------------------------------

     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. https://ccdf.urban.org/.
    \116\ https://www.acf.hhs.gov/occ/data/fy-2020-preliminary-data-table-1.
---------------------------------------------------------------------------

    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\ https://www.acf.hhs.gov/occ/data/fy-2020-preliminary-data-table-7.
---------------------------------------------------------------------------

    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:
     Lower child care costs for families,
     Improve parent choice and strengthen child care payment 
practices, and
     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.
---------------------------------------------------------------------------

    \118\ https://www.acf.hhs.gov/sites/default/files/documents/occ/Characteristics_of_Families_and_Children_FY2020.pdf.
---------------------------------------------------------------------------

    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.
     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.
---------------------------------------------------------------------------

    \119\ https://www.acf.hhs.gov/occ/report/acf-118-overview-state/territorial-plan-reporting.
    \120\ https://www.acf.hhs.gov/occ/data/fy-2020-ccdf-data-tables-preliminary.
---------------------------------------------------------------------------

    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.
     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\ https://www.urban.org/sites/default/files/publication/39156/2000082-absenteeism-in-dc-public-schools-early-education-program_0.pdf.
    \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]
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                 Annualized cost (over 5 years)      Total present value (over 5 years)
                                                             Ongoing annual  ---------------------------------------------------------------------------
  Payment rates and practices (costs)     Implementation   average (years 2-                       Discounted                            Discounted
                                         period (year 1)           5)          Undiscounted  ----------------------  Undiscounted  ---------------------
                                                                                                  3%         7%                         3%         7%
--------------------------------------------------------------------------------------------------------------------------------------------------------
Grants and Contracts..................               $2.3               $4.7            $4.2       $4.2       $4.1           $21.1      $19.7      $18.2
                                       -----------------------------------------------------------------------------------------------------------------
    Total.............................                2.3                4.7             4.2        4.2        4.1            21.1       19.7       18.2
--------------------------------------------------------------------------------------------------------------------------------------------------------

3. Eligibility and Enrollment
    This NPRM proposes changes to eligibility policies that would 
lessen the burden on families seeking child care assistance, making it 
faster and easier to apply for and receive child care subsidies. This 
is done by clarifying ways that Lead Agencies can simplify subsidy 
eligibility determination and enrollment processes. The policies 
explored in this RIA relate to presumptive eligibility and additional 
child eligibility, which are categorized as transfers. The new policy 
related to applying online, which is described as a benefit, is 
discussed in the subsequent benefits section.
    Presumptive Eligibility: This policy would permit, but not require, 
CCDF Lead Agencies to allow families to begin receiving child care 
assistance before all required documentation has been submitted.
    Presumptive eligibility primarily constitutes a transfer from 
families who would otherwise pay unsubsidized child care costs or 
forego costs while their application is under review, via Lead 
Agencies. More specifically, there is a transfer of resources between 
certain populations of families because some families who receive 
presumptive assistance could be found to be ineligible once full 
documentation is received.
    Based on other programs that have used presumptive eligibility, 
such as Medicaid and the Children's Health Insurance Program (CHIP), we 
do not anticipate that this will be a high percentage of families, 
particularly since Lead Agencies using this policy can put in place 
documentation requirements that would limit the number of families that 
are inaccurately determined to be eligible. However, to the extent that 
these cases may occur, they would represent a transfer of funds from 
CCDF-eligible children to CCDF-ineligible children. The cost in this 
estimate relies on the following assumptions:
     Estimated Number of Children: Not all families would need 
to use presumptive eligibility. There was not data available to support 
some of the variables in this estimate, so for the purposes of this 
calculation, we calculated that of the children applying for CCDF, only 
a fraction will actually utilize presumptive eligibility. This estimate 
assumes that every month, a number equal to 5 percent of the current 
CCDF population would use the presumptive eligibility option. Given the 
lack of data in this area, we welcome input from commenters who may 
have resources that could inform these assumptions.
     Anticipated Lead Agency Take-up: This policy is not 
required, and we do not anticipate that all Lead Agencies will adopt 
this policy option. For the purposes of the RIA, we used reports 
showing which Lead Agencies currently use presumptive eligibility for 
Medicaid and CHIP \124\ (as of August 31, 2021) as a proxy for those 
Lead Agencies that would also adopt it for CCDF. We are not assuming 
that these exact same

[[Page 45045]]

states will also use presumptive eligibility, but we believe that it is 
helpful in estimating the percentage of families for whom this policy 
would apply.
---------------------------------------------------------------------------

    \124\ https://www.medicaid.gov/medicaid/enrollment-strategies/presumptive-eligibility/.
---------------------------------------------------------------------------

     Percentage of Children Eventually Determined Ineligible: 
An Urban Institute study \125\ on presumptive eligibility found a small 
number of families receiving presumptive eligibility were eventually 
found to be ineligible. The study does not cite a specific figure, but 
a low estimate seems reasonable because CCDF Lead Agencies can put 
safeguards in place (e.g. requiring certain documentation before 
allowing presumptive eligibility) that would limit the number of 
families that are eventually determined ineligible. The estimate 
currently assumes that 5 percent of presumptive eligibility families--a 
small subset of families receiving CCDF--would eventually be found 
ineligible. We examined a range of possibilities for families that may 
eventually be found ineligible, with estimates as high as 10 percent 
and as low as 2.5 percent of presumptive eligibility families. However, 
lacking any specific data in this area, we believe that 5 percent is a 
reasonable estimate. If commenters have additional information on the 
rate of families that may eventually be found ineligible, we would 
encourage that information be submitted during the comment process.
---------------------------------------------------------------------------

    \125\ Adams, G. (2008). Designing Subsidy Systems to Meet the 
Needs of Families: An Overview of Policy Research Findings. 
Washington, DC: Urban Institute. https://www.urban.org/sites/default/files/publication/31461/411611-Designing-Subsidy-Systems-to-Meet-the-Needs-of-Families.PDF.
---------------------------------------------------------------------------

     Amount of Time that CCDF-Ineligible Children will Receive 
Care: The range of possible months of assistance that a family could 
receive through this policy is between zero and 3 months. Since this is 
a new policy, absent relevant data, we are estimating that families 
will receive half of the 3 months allowed by the policy (6 weeks) 
before they are found to be ineligible.
    Applying the average subsidy amount of $7,806 per year \126\ (which 
has been adjusted for inflation to 2023 dollars) to the above 
assumptions, we calculated an annualized transfer of $20.8 million for 
this policy.
---------------------------------------------------------------------------

    \126\ https://www.acf.hhs.gov/occ/data/fy-2020-preliminary-data-table-15.
---------------------------------------------------------------------------

    Additional Child Eligibility: This policy clarifies how Lead 
Agencies must comply with current regulations by offering at least a 
full 12 months of eligibility to all children receiving CCDF subsidies, 
even if they are additional children in a family already participating 
in CCDF. Currently some Lead Agencies are out of compliance with this 
requirement by limiting the eligibility period for an additional child 
until the end of the existing child's eligibility period, at which 
point all children in the family would be re-determined. This proposal 
benefits CCDF children because it increases the amount of care they 
would receive, but for this estimate it is considered a transfer 
because those funds are not being used to enroll new children into the 
CCDF program. The estimate for this is based on the following 
assumptions:
     Number of Additional Children: We do not currently have 
data on the rate of new children among CCDF families, however, 
according to the CDC, the fertility rate is 56.3 births per 1,000 women 
aged 15-22, or 5.63 percent.\127\ For the sake of this analysis, we are 
assuming that 5 percent of the current CCDF population would have a new 
child within the year. We then applied this to the number of families 
served (ACF-801 data) to estimate the number of new children per year.
---------------------------------------------------------------------------

    \127\ https://www.cdc.gov/nchs/fastats/births.htm.
---------------------------------------------------------------------------

     Average Number of Additional Months of Care: For this 
estimate, we are assuming that the new children would receive an 
average of 6 additional months of care (or half of the required minimum 
12-month eligibility) due to this policy. Since the minimum would be 
zero months and the maximum would be twelve months, absent any data in 
this area, taking the middle between the maximum and the minimum amount 
of possible assistance seemed like the most reasonable estimate and one 
that would minimize a misestimate.
     Number of Lead Agencies Currently Out of Compliance: We 
calculated the percentage of Lead agencies that would need to change 
their policies to comply with this new policy, looking at the cost if 5 
percent and 45 percent of Lead Agencies needed to come into compliance. 
However, for this estimate we calculate that a quarter of Lead Agencies 
are currently out of compliance, so we are taking 25 percent of the 
total estimate.
    Using the above assumptions and applying the average weighted 
subsidy amount (ACF-801 data), we came to an annualized transfer amount 
of $38.2 million.

                                                        Table 5--Eligibility Policies, Transfers
                                                                     [$ in millions]
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                               Annualized transfer amount (over 5    Total present value (over 5 years)
                                                                                             years)                -------------------------------------
                                          Implementation     Ongoing annual  --------------------------------------                      Discounted
   Eligibility policies (transfers)      period (year 1)   average (years 2-                       Discounted                      ---------------------
                                                                   5)          Undiscounted  ----------------------  Undiscounted
                                                                                                  3%         7%                         3%         7%
--------------------------------------------------------------------------------------------------------------------------------------------------------
Presumptive Eligibility...............              $11.5              $23.1           $20.8      $20.6      $20.4          $103.8      $97.3      $89.7
Additional Child Eligibility..........               21.2               42.4            38.2       37.9       37.6           190.8      178.8      164.8
                                       -----------------------------------------------------------------------------------------------------------------
    Total.............................               32.7               65.5            58.9       58.5       58.0           294.6      276.1      254.5
--------------------------------------------------------------------------------------------------------------------------------------------------------

C. Analysis of Benefits

    The proposed changes made by this NPRM have three primary benefits:
     Lower the cost of care;
     Improve parent choice and strengthen child care payment 
practices; and
     Streamline the process to access child care subsidies.
    Implementation of these policy changes will have direct impacts on 
two primary beneficiaries: working families with low incomes and child 
care providers serving children receiving CCDF subsidy.
    In examining the benefits of this proposed rule, there are both 
benefits that we were able to quantify (e.g., applying online) and 
other benefits that, while we were not able to quantify for this 
analysis, have very clear positive impacts on children funded by CCDF, 
their families who need assistance to work, child care providers that 
care for and educate these children, and society at large. Where we are 
unable to quantify impacts of proposed policies, we offer qualitative 
analysis, and welcome comment on ways to measure the benefit that the 
proposed rule will

[[Page 45046]]

have on children, families, child care providers, and the public.
    Lowering the cost of child care: 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.\128\ More than 1 in 4 families, across income levels, 
commits at least 10 percent of their income to child care. Households 
with incomes just above the Federal poverty level are most likely to 
commit more than 20 percent of their income to child care.\129\ The 
cost of child care drives parents--particularly women--to exit the 
workforce. In response, families often seek out less expensive care--
which may have less rigorous quality or safety standards--or exit the 
workforce to forego child care entirely.\130\
---------------------------------------------------------------------------

    \128\ Child Care Aware of America. (2022). Price of Care: 2021 
child care affordability analysis. Arlington, VA: Child Care Aware 
of America https://www.childcareaware.org/catalyzing-growth-using-data-to-change-child-care/#ChildCareAffordability.
    \129\ 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). https://www.acf.hhs.gov/opre/report/2019-nsece-snapshot-child-care-cost-burden-us-households-children-under-age-5.
    \130\ 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. https://www.acf.hhs.gov/opre/report/parents-reasons-searching-early-care-and-education-and-results-search-analysis-using.
---------------------------------------------------------------------------

    Among other purposes, Congress designated the CCDBG Act to 
``promote parental choice,'' to ``support parents trying to achieve 
independence from public assistance,'' and to ``increase the number and 
percentage of low-income children in high-quality child care settings'' 
(sec. 658A(b), 42 U.S.C. 9857(b)). High co-payments undermine these 
statutory purposes. Despite receiving child care subsidies, child care 
affordability remains a concern for families with low incomes and 
prevents families from feeling empowered to make child care decisions 
that best meet their needs. In 2019, 76 percent of households that 
searched for care for their young children had difficulty finding care 
that met their needs. Among this group, when respondents were asked the 
main reason for difficulty, the most common barrier was cost, followed 
by a lack of open slots.\131\ Receiving child care subsidies alone are 
not enough for parents to feel secure in making ends meet. Multiple 
qualitative studies found that parents receiving subsidy continue to 
experience substantial financial burden in meeting their portion of 
child care costs.\132\ Other research shows that higher out-of-pocket 
child care expenses (which may include co-payments) reduce families' 
child care use and parental (particularly maternal) employment.\133\ 
Given that co-payments have been shown to limit parents' access to 
child care among CCDF-participating families in terms of both parents' 
ability to afford particular child care settings as compared to higher-
income families (even among families eligible to receive CCDF), ACF 
proposes to make changes to Sec.  98.45 to reduce parent co-payments.
---------------------------------------------------------------------------

    \131\ National Center for Education Statistics. 2019. National 
Household Education Surveys Program 2019. https://nces.ed.gov/nhes/young_children.asp.
    \132\ 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; 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. 10.1108/S1530-3535(2012)0000006007.
    \133\ Morrissey, Taryn W. ``Child care and parent labor force 
participation: a review of the research literature.'' Review of 
Economics of the Household 15.1 (2017): 1-24. https://link.springer.com/content/pdf/10.1007/s11150-016-9331-3.pdf.
---------------------------------------------------------------------------

    To make child care more affordable to families participating in 
CCDF, we propose that family co-payments above 7 percent of family 
income are impermissible because they are a barrier to accessing care. 
The proposed revisions also give Lead Agencies more flexibility to 
waive co-payments for additional families.
    Increase parent choice and strengthen and stabilize the child care 
sector: The proposed revisions promote provider-friendly payment rates 
and practices that, if implemented, would increase parent choice in 
care, support financial stability for child care providers that 
currently accept CCDF subsidies, and encourage new providers to 
participate in the subsidy system.
    Correcting detrimental payment practices is critical for ensuring 
all families have access to high-quality child care. The proposed 
revisions in this NPRM would require Lead Agencies to pay providers 
prospectively based on enrollment. To address lack of supply for 
certain types of care for populations prioritized in the CCDBG Act, the 
NPRM also proposes requiring the use of some grants and contracts for 
direct services. Additionally, the proposed revisions clarify that Lead 
Agencies may pay providers the full established state payment rate, 
even if the rate is above the private pay price to adjust for the cost 
of care. Payments based on enrollment \134\ and through grants and 
contracts \135\ helped providers remain financially stable during the 
peak of the COVID-19 public health emergency. The proposed revisions to 
payment practices and higher subsidy rates are also linked to higher-
quality care and increases in the supply of child 
care.136 137 138
---------------------------------------------------------------------------

    \134\ Lieberman, A. et al. (2021). Make Child Care More Stable: 
Pay by Enrollment. New America.
    \135\ Workman, S. (2020). Grants and Contracts: A Strategy for 
Building the Supply of Subsidized Infant and Toddler Child Care. 
Center for American Progress.
    \136\ Lieberman, A. et al. (2021). Make Child Care More Stable: 
Pay by Enrollment. New America.
    \137\ Workman, S. (2020). Grants and Contracts: A Strategy for 
Building the Supply of Subsidized Infant and Toddler Child Care. 
Center for American Progress.
    \138\ Greenberg, E. et al. (2018). Are Higher Subsidy Payment 
Rates and Provider-Friendly Payment Policies Associated with Child 
Care Quality? Urban Institute.
---------------------------------------------------------------------------

    Streamline the process to access child care subsidies: The proposed 
revisions in this NPRM encourage Lead Agencies to reduce the burden on 
families to access child care subsidies. Current subsidy eligibility 
determination and enrollment processes create administrative burden 
that unnecessarily complicates how families access subsidies.\139\
---------------------------------------------------------------------------

    \139\ Adams, G. and Compton, J. (2011). Client-Friendly 
Strategies: What Can CCDF Learn from Research on Other Systems? 
Urban Institute.
---------------------------------------------------------------------------

    In the context of child care subsidies, administrative burden 
disrupts initial and continued access to care, both of which are 
detrimental to children's development and families' employment 
security.\140\ We see administrative burden play out, for example, when 
Lead Agencies assess family eligibility. A substantial portion of 
families who lose benefits still meet the criteria for participation. 
Within a few months, those same families can demonstrate eligibility 
and return for subsequent enrollment.\141\ Workers with unexpected 
hours or limited control over their schedule are significantly more 
likely to lose child care subsidies.\142\ Further, families who 
electively exit the program are three times more likely to do so during 
their redetermination month than any other time.\143\ These studies 
suggest that these

[[Page 45047]]

families missed out on benefits because of administrative challenges 
rather than issues with eligibility.
---------------------------------------------------------------------------

    \140\ Adams, G., & Rohacek, M. (2010). Child care instability: 
Definitions, context, and policy implications. Urban Institute.
    \141\ 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.
    \142\ Henly, J. et al. (2015). Determinants of Subsidy Stability 
and Child Care Continuity. Urban Institute.
    \143\ 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.
---------------------------------------------------------------------------

    We were able to quantify the impact of the policy to encourage CCDF 
Lead Agencies to implement policies that ease the burden of applying 
for child care assistance, including allowing online methods of 
submitting initial CCDF applications. This would be a benefit to 
families who would not have to take time off from work, job search, or 
other activities to apply for child care assistance. To estimate this 
benefit, we used the following factors:
     Number of Families That Would Benefit: As a baseline for 
the number of families that would be impacted by this policy, we 
assumed that the number of families applying every month is equal to 5 
percent of the current CCDF monthly caseload, which means that over the 
course of a year, several families equal to 60 percent of the current 
caseload is applying for child care. However, many more people apply 
for CCDF than receive assistance, so we doubled this number, assuming 
that for every family who applies to CCDF and receives assistance, 
there may be another family who applies and does not receive 
assistance.
     Estimated Time Saved: We are estimating that the online 
option would save families from missing 4 hours of time or half of a 
full day's work. This accounts for the time to actually process the 
application in person and time to travel to and from the appointment.
     Wages: We adopt an hourly value of time based on after-tax 
wages to quantify the opportunity cost of changes in time use for 
unpaid activities. This approach matches the default assumptions for 
valuing changes in time use for individuals undertaking administrative 
and other tasks on their own time, which are outlined in an ASPE report 
on ``Valuing Time in U.S. Department of Health and Human Services 
Regulatory Impact Analyses: Conceptual Framework and Best Practices.'' 
\144\ We start with a measurement of the usual weekly earnings of wage 
and salary workers of $1,059.\145\ We divide this weekly rate by 40 
hours to calculate an hourly pre-tax wage rate of $26.48. We adjust 
this hourly rate downwards by an estimate of the effective tax rate for 
median income households of about 17 percent, resulting in a post-tax 
hourly wage rate of $21.97. We adopt this as our estimate of the hourly 
value of time when calculating benefits associated with this impact. If 
we were to use a fully-loaded wage of $37.56/hour, the cost of full 
implementation would be $40.1 million. However, for the accounting 
statement, we use the post-tax hourly wage of $21.97.
---------------------------------------------------------------------------

    \144\ U.S. Department of Health and Human Services, Office of 
the Assistant Secretary for Planning and Evaluation. 2017. ``Valuing 
Time in U.S. Department of Health and Human Services Regulatory 
Impact Analyses: Conceptual Framework and Best Practices.'' https://aspe.hhs.gov/reports/valuing-time-us-department-health-human-services-regulatory-impact-analyses-conceptual-frameworkhttps://aspe.hhs.gov/reports/valuing-time-us-department-health-human-services-regulatory-impact-analyses-conceptual-framework.
    \145\ U.S. Bureau of Labor Statistics. Employed full time: 
Median usual weekly nominal earnings (second quartile): Wage and 
salary workers: 16 years and over [LEU0252881500A], retrieved from 
FRED, Federal Reserve Bank of St. Louis; https://fred.stlouisfed.org/series/LEU0252881500A.https://fred.stlouisfed.org/series/LEU0252881500A. Annual Estimate, 2022.
---------------------------------------------------------------------------

    Using the above figures and applying them to the CCDF caseload, we 
estimate an annualized benefit of $21.1 million related to this policy. 
As noted previously, the RIA, including the figures above, include a 
number of assumptions and projections, for which there was not data or 
research available to support a specific figure. We welcome input from 
commenters who have may have resources that could inform these 
assumptions and projections.

                                                         Table 6--Eligibility Policies, Benefits
                                                                     [$ in millions]
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                Annualized benefit amount (over 5    Total present value (over 5 years)
                                                                                             years)                -------------------------------------
                                             Implementation   Ongoing annual --------------------------------------                      Discounted
     Eligibility policies (benefits)        period (year 1)       average                          Discounted                      ---------------------
                                                                (years 2-5)    Undiscounted  ----------------------  Undiscounted
                                                                                                  3%         7%                         3%         7%
--------------------------------------------------------------------------------------------------------------------------------------------------------
Applying Online..........................              $11.7           $23.5           $21.1      $21.0      $20.8          $105.6      $99.0      $91.3
                                          --------------------------------------------------------------------------------------------------------------
    Total................................               11.7            23.5            21.1       21.0       20.8           105.6       99.0       91.3
--------------------------------------------------------------------------------------------------------------------------------------------------------

    Research evidence clearly points to the benefits of access to high-
quality child care, including immediate benefits for improved parenting 
earnings and employment.146 147 148 149 In turn, improved 
employment, and economic stability at home, combined with high-quality 
experiences and nurturing relationships in early childhood settings, 
reduces the impact of poverty on children's health and development. 
Evidence further shows the positive effects of high-quality child care 
are especially pronounced for families with low incomes and families 
experiencing adversity. Therefore, 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 
start 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.\150\ These are also 
circumstances under which CCDF has the potential to substantially 
impact family earnings, economic stability, and well-being.
---------------------------------------------------------------------------

    \146\ Morrissey, T.W. 2017. Child care and parent labor force 
participation: a review of the research literature. Review of 
Economics of the Household 15, 1-24. https://doi.org/10.1007/s11150-016-9331-3.
    \147\ Shonkoff, J. P., & Phillips, D. A. (Eds.). (2000). From 
neurons to neighborhoods: The science of early childhood 
development. National Academy Press.
    \148\ 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. https://doi.org/10.1007/s00148-005-0022-2.
    \149\ Herbst, C. (2017). Universal Child Care, Maternal 
Employment, and Children's Long-Run Outcomes: Evidence from the US 
Lanham Act of 1940. Journal of Labor Economics, 35 (2). https://doi.org/10.1086/689478.
    \150\ 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. https://www.usdigitalresponse.org/projects/applying-for-child-care-benefits-in-the-united-states-27-families-experiences.
---------------------------------------------------------------------------

    Improving access to assistance also yields benefits in terms of 
child development outcomes. The provisions in this rule expand access 
and some children who might not have received subsidized care under the 
current rule (e.g., those whose parents could not pay the copay) would 
receive subsidized

[[Page 45048]]

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.151 152 153 154
---------------------------------------------------------------------------

    \151\ Deming, David. 2009. ``Early Childhood Intervention and 
Life-Cycle Skill Development: Evidence from Head Start.'' American 
Economic Journal: Applied Economics, 1 (3): 111-34.
    \152\ Duncan, G. J., and Magnuson, K. 2013. ``Investing in 
Preschool Programs.'' Journal of Economic Perspectives, 27 (2): 109-
132.
    \153\ 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. https://doi.org/10.7208/chicago/9780226100128.003.0009.
    \154\ 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.
---------------------------------------------------------------------------

D. Distributional Effects

    We considered, as part of our regulatory impact analysis, whether 
changes would disproportionately benefit or harm a particular 
subpopulation. As discussed above, benefits accrue both directly and 
indirectly to society. Some of the policies included in this NPRM are 
at the Lead Agency option, so the impacts will be dependent upon (1) if 
the Lead Agency chooses to adopt the policy, and (2) how they choose to 
implement the policy given the available funding.
    When examining the potential impacts of these policies, there are 
several required policies where certain subsets of the population may 
be impacted differently by the proposed policies.
    While the proposed policies will limit the amount of family co-
payment that CCDF families will have to pay, the child care providers 
must still be compensated for that amount. That means that the burden 
of those co-payment costs shift to the CCDF Lead Agency. Given finite 
funding for CCDF, the increase in payments for which Lead Agencies are 
now responsible would mean that there are less resources for new CCDF 
families.
    Similarly, the proposed requirement to pay providers based on a 
child's enrollment rather than attendance will stabilize funding for 
providers, may increase the amount a Lead Agency pays if they were not 
previously paying for absence days in the same manner parents without 
child care subsidies by for absence days. This creates a transfer in 
resources from the child care provider, who previously had to continue 
running the program without funding on days when the child was absent, 
to the Lead Agency. This shift in funding would decrease available 
funding for the Lead Agency, and therefore, could result in a decrease 
in the number of children served. Based on our estimated amount of 
combined transfers (at full implementation) and the average subsidy 
payment amount, we estimate that the proposed transfers for these 
required policies could lead to a reduction in caseload of 
approximately 4,800 children per year, or about a third of 1 percent of 
the FY 2020 caseload.
    For the eligibility policies, we are not projecting a reduction in 
slots. This is because for both the presumptive eligibility policy and 
the new child eligibility policy, these represents transfers from one 
child to another. The result is a shift in which child is occupying a 
CCDF slot, but we do not project that these policies would lead to a 
decrease in the number of children served.
    For those children who potentially would have received subsidies 
under the current rule, but do not receive subsidies under the proposed 
rule, it is possible that they would receive unregulated care which 
tends to be lower quality and less stable. However, as noted in the 
Discussion of Proposed Changes section, we expect that, overall, the 
policies proposed will improve quality and stability of care for 
children who continue to participate in CCDF.

E. Analysis of Regulatory Alternatives

    In developing this proposed rule, we considered a wide range of 
policy options before settling on these final versions of the policies. 
Among these alternatives, we considered:
     Presumptive eligibility: The current proposal for 
presumptive eligibility allows for lead agencies to provide families 
with up to three months of subsidy while the family completes the full 
eligibility determination process. In designing this policy, we 
considered a period of two months instead of three months. Using the 
same assumptions described above, we estimated that two-month 
presumptive eligibility period would be a transfer of $15.4 million. 
When compared to the estimated transfer of $23.1 million for a three-
month presumptive eligibility period, we determined that the value of 
the additional month of stability and continuity of care for families 
outweighed the minimal savings of a two-month presumptive eligibility 
period. We are seeking comments on the proposed length of the 
presumptive eligibility period.
     Not regulating: Another alternative would be to not pursue 
a regulation and leave the existing policies as they currently stand. 
For characterization of relevant future conditions in the absence of 
regulatory changes, please see the ``Baseline'' section of this 
regulatory impact analysis.
    Accounting Statement (Table of Quantified Costs, Including 
Opportunity Costs, Transfers and Benefits): As required by OMB Circular 
A-4, we have prepared an accounting statement table showing the 
classification of the impacts associated with implementation of this 
proposed rule.

                                                    Table 7--Quantified Costs, Transfers and Benefits
                                                                     [$ in millions]
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                 Annualized cost (over 5 years)      Total present value (over 5 years)
                                                             Ongoing annual  ---------------------------------------------------------------------------
                                           Implementation   average (years 2-                      Discounted                            Discounted
                                           period (year 1)         5)          Undiscounted  ----------------------  Undiscounted  ---------------------
                                                                                                  3%         7%                         3%         7%
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                Transfers ($ in millions)
--------------------------------------------------------------------------------------------------------------------------------------------------------
Eligibility:
    Presumptive Eligibility \155\.......             $11.5             $23.1           $20.8      $20.6      $20.4          $103.8      $97.3      $89.7
    Additional Child Eligibility \156\..              21.2              42.4            38.2       37.9       37.6           190.8      178.8      164.8
Payment Rates & Practices:
    Paying Full Rate \157\..............             114.2             228.5           205.6      204.3      202.4         1,028.1      963.5      888.1
    Enrollment-based Payment \158\......               5.9              11.8            10.6       10.5       10.4            52.9       49.6       45.7

[[Page 45049]]

 
Family Co-payments: \159\
    7% Co-pay Cap.......................              10.4              20.9            18.8       18.7       18.5            94.0       88.1       81.2
    Waiving Co-pays.....................               5.2              10.5             9.5        9.4        9.3            47.5       44.5       41.0
                                         ---------------------------------------------------------------------------------------------------------------
        Total (Transfers)...............             168.4             337.1           303.4      301.4      298.8         1,517.1    1,421.8    1,310.5
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                  Costs ( in millions)
--------------------------------------------------------------------------------------------------------------------------------------------------------
Grants and Contracts....................               2.3               4.7             4.2        4.2        4.1            21.1       19.7       18.2
                                         ---------------------------------------------------------------------------------------------------------------
    Total...............................               2.3               4.7             4.2        4.2        4.1            21.1       19.7       18.2
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                 Benefits ( in millions)
--------------------------------------------------------------------------------------------------------------------------------------------------------
Eligibility:
    Applying Online.....................              11.7              23.5            21.1       21.0       20.8           105.6       99.0       91.3
                                         ---------------------------------------------------------------------------------------------------------------
        Total (Benefits)................              11.7              23.5            21.1       21.0       20.8           105.6       99.0       91.3
--------------------------------------------------------------------------------------------------------------------------------------------------------

F. Impact of Proposed Rule
---------------------------------------------------------------------------

    \155\ Transfer from CCDF-eligible families to non-CCDF eligible 
families.
    \156\ Transfer from families applying to enter the CCDF program 
to families that already have children receiving CCDF assistance.
    \157\ Transfer to some combination of child care providers and 
CCDF families from some combination of other CCDF families and CCDF 
Lead Agencies.
    \158\ Transfer to some combination of child care providers and 
CCDF families from some combination of other CCDF families and CCDF 
Lead Agencies.
    \159\ Transfer to CCDF families from some combination of other 
CCDF families and CCDF Lead Agencies.
---------------------------------------------------------------------------

    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. However, 
the RIA only quantifies the estimated impact of the NPRM on the Lead 
Agencies, parents, and providers that interact with the CCDF program, 
which is only a small portion of the child care market. Whether a 
family can access and afford child care has far reaching impacts on 
labor market participation and potential earnings, which then affects 
businesses' ability to recruit and retain a qualified workforce, 
affecting overall economic growth.\160\
---------------------------------------------------------------------------

    \160\ U.S. Department of the Treasury. (September 2021). The 
Economics of Child Care Supply in the United States. https://home.treasury.gov/system/files/136/The-Economics-of-Childcare-Supply-09-14-final.pdf.
---------------------------------------------------------------------------

VI. 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 of subpart I 
in section III of the preamble serves as the Tribal impact statement. 
We intend to notify Tribal lead agencies about the opportunity to 
provide comment on the NPRM no later than the day of publication. 
Further, shortly after publication of the NPRM, we plan to hold 
briefing sessions with tribal lead agencies and any other interested 
tribe on the contents of the NPRM.
    January Contreras, Assistant Secretary of the Administration for 
Children & Families, approved this document on June 30, 2023.

(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.

    Dated: June 30, 2023.
Xavier Becerra,
Secretary, Department of Health and Human Services.

    For the reasons set forth in the preamble, we propose to amend 45 
CFR part 98 as follows:

PART 98--CHILD CARE AND DEVELOPMENT FUND

0
1. The authority citation for part 98 continues to read as follows:

    Authority:  42 U.S.C. 618, 9858.

0
2. Amend Sec.  98.2 by:
0
a. Revising the definitions of Major renovation and State;
0
b. Adding, in alphabetical order, the definitions of Territory and 
Territory Mandatory Funds; and
0
c. Removing the definition of Tribal mandatory funds and adding the 
definition of Tribal Mandatory Funds in its place.
    The revisions and additions read as follows:


Sec.  98.2  Definitions.

* * * * *
    Major renovation means any individual or collective renovation that 
has a cost equal to or exceeding $250,000 for child care centers and 
$25,000 for family child care homes, which amount shall be adjusted 
annually for inflation and published on the Office of Child Care 
website. 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;
* * * * *
    State means any of the States and the District of Columbia, and 
includes Territories and Tribes unless otherwise specified;
* * * * *
    Territory means the Commonwealth of Puerto Rico, the United States 
Virgin Islands, Guam, American Samoa, and the Commonwealth of the 
Northern Marianas Islands;
    Territory Mandatory Funds means 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;

[[Page 45050]]

    Tribal Mandatory Funds means 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;
* * * * *
0
3. Amend Sec.  98.13 by revising paragraph (b)(4) to read as follows:


Sec.  98.13  Applying for Funds.

* * * * *
    (b) * * *
    (4) A certification that no principals have been debarred pursuant 
to 2 CFR 180.300;
* * * * *
0
4. Amend Sec.  98.15 by revising paragraphs (a)(8) and (b)(12) to read 
as follows:


Sec.  98.15  Assurances and certifications.

* * * * *
    (a) * * *
    (8) To the extent practicable, enrollment and eligibility policies 
support the fixed costs of providing child care services by delinking 
provider payment rates from an eligible child's occasional absences in 
accordance with Sec.  98.45(m);
* * * * *
    (b) * * *
    (12) Payment practices of child care providers of services for 
which assistance is provided under the CCDF reflect generally-accepted 
payment practices of child care providers that serve children who do 
not receive CCDF assistance, pursuant to Sec.  98.45(m); and
* * * * *
0
5. Amend Sec.  98.16 by:
0
a. Revising paragraphs (h)(4) through (7);
0
b. Adding paragraphs (h)(8) through (10);
0
c. Revising paragraph (k);
0
d. Redesignating paragraphs (x) through (ii) as paragraphs (y) through 
(jj);
0
e. Adding a new paragraph (x); and
0
f. Revising newly redesignated paragraph (y).
    The revisions and addition read as follows:


Sec.  98.16  Plan provisions.

* * * * *
    (h) * * *
    (4) Processes to incorporate additional eligible children in the 
family size in accordance with Sec.  98.21(d);
    (5) Procedures and policies for presumptive eligibility in 
accordance with Sec.  98.21(e), including procedures for tracking the 
number of presumptively eligible children who turn out to be ineligible 
and for adjusting presumptive eligibility processes accordingly to 
ensure funds are safeguarded for eligible children;
    (6) Procedures and policies to ensure that parents are not required 
to unduly disrupt their education, training, or employment to complete 
initial eligibility determination or re-determination, pursuant to 
Sec.  98.21(f);
    (7) Processes for using eligibility for other programs to verify 
eligibility for CCDF in accordance with Sec.  98.21(g);
    (8) Limiting any requirements to report changes in circumstances in 
accordance with Sec.  98.21(h);
    (9) Policies that take into account children's development and 
learning when authorizing child care services pursuant to Sec.  
98.21(i); and,
    (10) Other policies and practices such as timely eligibility 
determination and processing of applications;
* * * * *
    (k) A description of the sliding fee scale(s) (including any 
factors other than income and family size used in establishing the fee 
scale(s)) that provide(s) for cost-sharing by the families that receive 
child care services for which assistance is provided under the CCDF and 
how co-payments are affordable for families, pursuant to Sec.  
98.45(l). This shall include a description of the criteria established 
by the Lead Agency, if any, for waiving contributions for families;
* * * * *
    (x) A description of the supply of child care, including care 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. The description must, at a minimum:
    (1) Identify shortages in the supply of high-quality child care 
providers; and,
    (2) List the data sources used to identify shortages;
    (y) A description of the Lead Agency's strategies 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 based on the information at paragraph (x) of this 
section. The description must include, at a minimum:
    (1) How the Lead Agency will use grants and contracts in supply 
building;
    (2) Whether the Lead Agency plans to use other means for building 
supply, such as alternative payment rates to child care providers and 
offering child care certificates;
    (3) How supply-building mechanisms will address the needs 
identified in paragraph (x) of this section; and,
    (4) Describe the method of tracking progress to increase supply and 
support equal access and parental choice;
* * * * *
0
6. Amend Sec.  98.21 by:
0
a. Revising paragraphs (a)(2)(iii) and (a)(5)(ii) and (iii);
0
b. Adding paragraph (a)(5)(iv);
0
c. Revising paragraph (d);
0
d. Redesignating paragraphs (e) through (g) as paragraphs (h) through 
(j); and
0
e. Adding new paragraphs (e), (f), and (g).
    The revisions and additions read as follows:


Sec.  98.21  Eligibility determination processes.

    (a) * * *
    (2) * * *
    (iii) 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, the Lead Agency has the option to end 
assistance after a minimum of three months if the parent has still not 
found employment, although assistance should continue if the parent 
becomes employed during the job search period.
* * * * *
    (5) * * *
    (ii) A change in residency outside of the State, Territory, or 
Tribal services area;
    (iii) Substantiated fraud or intentional program violations that 
invalidate prior determinations of eligibility; or,
    (iv) A final determination of ineligibility after an initial 
determination of presumptive eligibility at paragraph (f)(1) of this 
section, in accordance with paragraph (e)(2) of this section.
* * * * *
    (d) The Lead Agency shall establish policies and processes to 
incorporate additional eligible children in the family size (e.g., 
siblings or foster siblings), including ensuring a minimum of 12 months 
of eligibility between eligibility determination and redetermination as 
described in paragraph (a) of this section for children previously 
determined eligible and for new children who are determined eligible, 
without placing undue reporting burden on families.
    (e) At a Lead Agency's option, provided the Lead Agency is not 
currently under a corrective action plan pursuant to Sec.  98.102(c), a 
child may be considered presumptively eligible for up to three months 
and begin to receive child care subsidy prior to full documentation and 
eligibility determination:

[[Page 45051]]

    (1) The Lead Agency may issue presumptive eligibility prior to full 
documentation of a child's eligibility if the Lead Agency first obtains 
a less burdensome minimum verification requirement from the family.
    (2) If, after full documentation is provided, a child is determined 
to be ineligible, the Lead Agency shall not recover funds paid or owed 
to a child care provider for services provided as a result of the 
presumptive eligibility determination except in cases of fraud or 
intentional program violation by the provider.
    (3) Any CCDF payment made prior to the final eligibility 
determination shall not be considered an error or improper payment 
under subpart K of this part and will not be subject to disallowance.
    (4) If a child is determined to be eligible, the period of 
presumptive eligibility will apply to the minimum of 12 months of 
eligibility prior to re-determination described in paragraph (a) of 
this section.
    (f) The Lead Agency shall establish procedures and policies to 
ensure parents, especially parents receiving assistance through the 
Temporary Assistance for Needy Families (TANF) program:
    (1) For eligibility that minimize disruptions to employment, 
education, or training, including the use of online applications and 
other measures, to the extent practicable; and,
    (2) Are not required to unduly disrupt their education, training, 
or employment in order to complete the eligibility determination or re-
determination process.
    (g) At the Lead Agency's option, enrollment in other benefit 
programs or documents or verification used for other benefit programs 
may be used to verify eligibility as appropriate according to Sec.  
98.68(c) for CCDF, including:
    (1) Benefit programs with income eligibility requirements aligned 
with the income eligibility at Sec.  98.20(a)(2)(i) may be used to 
verify a family's income eligibility; and
    (2) Benefit programs with other eligibility requirements aligned 
with Sec.  98.20(a)(3) may verify:
    (i) A family's work or attendance at a job training or educational 
program;
    (ii) A family's status as receiving, or need to receive, protective 
services; or
    (iii) Other information needed for eligibility.
* * * * *
0
7. Amend Sec.  98.30 by revising paragraph (b) to read as follows:


Sec.  98.30  Parental choice.

* * * * *
    (b)(1) Lead Agencies shall increase parent choice by providing some 
portion of the delivery of direct services via grants or contracts, 
including at a minimum for families receiving subsidies who need care 
for infants and toddlers, children with disabilities, and care during 
nontraditional hours.
    (2) 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
8. Amend Sec.  98.33 by revising paragraphs (a)(4)(ii) and (a)(5) and 
adding paragraph (a)(8) to read as follows:


Sec.  98.33  Consumer and provider education.

* * * * *
    (a) * * *
    (4) * * *
    (ii) Areas of compliance and non-compliance;
* * * * *
    (5) Aggregate data for each year for eligible providers including:
    (i) Number of deaths (for each provider category and licensing 
status);
    (ii) Number of serious injuries (for each provider category and 
licensing status);
    (iii) Instances of substantiated child abuse that occurred in child 
care settings; and,
    (iv) Total number of children in care by provider category and 
licensing status.
* * * * *
    (8) The sliding fee scale for parent co-payments pursuant to Sec.  
98.45(l), including the co-payment amount a family may expect to pay 
and policies for waiving co-payments.
* * * * *
0
9. Amend Sec.  98.43 by revising paragraphs (a)(1)(i), (c)(1) 
introductory text, (c)(1)(v), and (d)(3)(i) introductory text to read 
as follows:


Sec.  98.43  Criminal background checks.

    (a)(1) * * *
    (i) Requirements, policies, and procedures to require and conduct 
background checks, and make a determination of eligibility for child 
care staff members (including prospective child care staff members) of 
all licensed, regulated, or registered child care providers and all 
child care providers eligible to deliver services for which assistance 
is provided under this part as described in paragraph (a)(2) of this 
section;
* * * * *
    (c)(1) The State, Territory, or Tribe in coordination with the Lead 
Agency shall find a child care staff member ineligible for employment 
by child care providers of services for which assistance is made 
available in accordance with this part, if such individual:
* * * * *
    (v) Has been convicted of a violent misdemeanor committed as an 
adult against a child, including the following crimes: child abuse, 
child endangerment, and sexual assault, or of a misdemeanor involving 
child pornography.
* * * * *
    (d) * * *
    (3) * * *
    (i) The staff member received qualifying results from a background 
check described in paragraph (b) of this section:
* * * * *
0
10. Amend Sec.  98.45 by:
0
a. Revising paragraphs (b)(5) and (6) and (d)(2)(ii);
0
b. Redesignating paragraphs (g) through (l) as paragraphs (h) through 
(m);
0
c. Adding a new paragraph (g);
0
d. Revising newly redesignated paragraphs (l)(3) and (4) and (m)(1) and 
(2);
0
e. Removing the colon at the end of newly redesignated paragraph 
(m)(3)(ii) and add a period in its place;
0
f. Revising newly redesignated paragraph (m)(4);
0
g. Removing the semicolon at the end of newly redesignated paragraph 
(m)(5) and adding a period in its place; and
0
h. Adding paragraph (m)(7).
    The revisions and additions read as follows:


Sec.  98.45  Equal access.

* * * * *
    (b) * * *
    (5) How co-payments based on a sliding fee scale are affordable and 
do not exceed 7 percent of income for all families, 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 to 
(based on information obtained in accordance with paragraph (d)(2) of 
this section);

[[Page 45052]]

    (6) How the Lead Agency's payment practices support equal access to 
a range of providers by providing stability of funding and encouraging 
more child care providers to serve children receiving CCDF subsidies, 
in accordance with paragraph (m) of this section;
* * * * *
    (d) * * *
    (2) * * *
    (ii) CCDF child care providers charge amounts to families more than 
the required family co-payment (under paragraph (l) of this section) in 
instances where the provider's price exceeds the subsidy payment, 
including data on the size and frequency of any such amounts.
* * * * *
    (g) To facilitate parent choice, increase program quality, build 
supply, and better reflect the cost of providing care, it is 
permissible for a lead agency to pay an eligible child care provider 
the Lead Agency's established payment rate at paragraph (a) of this 
section, which may be more than the price charged to children not 
receiving CCDF subsidies.
* * * * *
    (l) * * *
    (3) Provides for affordable family co-payments not to exceed 7 
percent of income for all families, regardless of the number of 
children in care who may be receiving CCDF assistance, that are not a 
barrier to families receiving assistance under this part; and
    (4) At Lead Agency discretion, allows for co-payments to be waived 
for families whose incomes are at or below 150 percent of the poverty 
level for a family of the same size, that have children who receive or 
need to receive protective services, that have children who have a 
disability as defined at Sec.  98.2, or that meet other criteria 
established by the Lead Agency.
    (m) * * *
    (1) Ensure timeliness of payment by paying prospectively prior to 
the delivery of services.
    (2) 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; or
    (ii) An alternative approach for which the Lead Agency provides a 
justification in its Plan that it is not practicable, including 
evidence that the alternative approach will not undermine the stability 
of child care programs.
* * * * *
    (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 provider 
payment policies, including rates, schedules, any fees charged to 
providers, and the dispute resolution process required by paragraph 
(m)(6) of this section.
* * * * *
    (7) May include taking precautionary measures when a provider is 
suspected of fiscal mismanagement.
0
11. Amend Sec.  98.50 by revising paragraphs (a)(3), (b)(1) and (2), 
and (e) introductory text to read as follows:


Sec.  98.50  Child care services.

    (a) * * *
    (3) Using funding methods provided for in Sec.  98.30 including 
grants and contracts for infants and toddlers, children with 
disabilities, and nontraditional hour care; and
* * * * *
    * * * (b) (1) No less than nine percent shall be used for 
activities designed to improve the quality of child care services and 
increase parental options for, and access to, high-quality child care 
as described at Sec.  98.53; and
    (2) No less than three percent shall be used to carry out 
activities at Sec.  98.53(a)(4) as such activities relate to the 
quality of care for infants and toddlers.
* * * * *
    (e) Not less than 70 percent of the State and Territory Mandatory 
and Federal and State share of State Matching Funds shall be used to 
meet the child care needs of families who:
* * * * *
0
12. Amend Sec.  98.60 by:
0
a. Revising paragraphs (a)(2) and (3);
0
b. Adding paragraph (a)(4); and
0
c. Revising paragraph (d)(3).
    The revisions and addition read as follows:


Sec.  98.60  Availability of funds.

    (a) * * *
    (2) State Mandatory and Matching Funds are available to States;
    (3) Territory Mandatory Funds are available to Territories; and
    (4) Tribal Mandatory Funds are available to Tribes.
* * * * *
    (d) * * *
    (3) Mandatory Funds for Territories shall be obligated in the 
fiscal year in which funds are granted and liquidated no later than the 
end of the succeeding fiscal year.
* * * * *
0
13. Amend Sec.  98.62 by revising paragraphs (a) introductory text and 
(b) introductory text and adding paragraph (d) to read as follows:


Sec.  98.62  Allotments from the Mandatory Fund.

    (a) Each of the 50 States and the District of Columbia will be 
allocated from the funds appropriated under section 418(a)(3)(A) of the 
Social Security Act, less the amounts reserved for technical assistance 
pursuant to Sec.  98.60(b)(1) an amount of funds equal to the greater 
of:
* * * * *
    (b) For Indian Tribes and tribal organizations will be allocated 
from the funds appropriated under section 418(a)(3)(B) of the Social 
Security Act shall be allocated according to the formula at paragraph 
(c) of this section. In Alaska, only the following 13 entities shall 
receive allocations under this subpart, in accordance with the formula 
at paragraph (c) of this section:
* * * * *
    (d) The Territories will be allocated from the funds appropriated 
under section 418(a)(3)(C) of the Social Security Act based upon the 
following factors:
    (1) A Young Child factor--the ratio of the number of children in 
the Territory under five years of age to the number of such children in 
all Territories; 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.
    (i) Per capita income shall be:
    (A) 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 such determination is made; and
    (B) Determined every two years.
    (ii) [Reserved]
0
14. Amend Sec.  98.64 by revising paragraph (a) and adding paragraph 
(e) to read as follows:


Sec.  98.64  Reallotment and redistribution of funds.

    (a) According to the provisions of this section State and Tribal 
Discretionary Funds are subject to reallotment, and State Matching 
Funds and Territory Mandatory Funds are subject to redistribution. 
State funds are reallotted or redistributed only to States as defined 
for the original allocation. Tribal funds are reallotted only to 
Tribes. Mandatory Funds granted to Territories are redistributed only 
to Territories. Discretionary Funds granted to the Territories are not 
subject to reallotment. Any Discretionary funds granted to the 
Territories that are returned after they have been allotted will revert 
to the Federal Government.
* * * * *

[[Page 45053]]

    (e)(1) Any portion of the Mandatory Funds that are not obligated in 
the period for which the grant is made shall be redistributed. 
Territory Mandatory Funds, if any, will be redistributed on the request 
of, and only to, those other Territories that have obligated their 
entire Territory Mandatory Fund allocation in full for the period for 
which the grant was first made.
    (2) The amount of Mandatory Funds granted to a Territory that will 
be made available for redistribution will be based on the Territory's 
financial report to ACF for the Child Care and Development Fund (ACF-
696) and is subject to the monetary limits at paragraph (b)(2) of this 
section.
    (3) A Territory eligible to receive redistributed Mandatory Funds 
shall also use the ACF-696 to request its share of the redistributed 
funds, if any.
    (4) A Territory's share of redistributed Mandatory Funds is based 
on the same ratio as Sec.  98.62(d).
    (5) Redistributed funds are considered part of the grant for the 
fiscal year in which the redistribution occurs.


Sec.  98.71  [Amended]

0
15. Amend Sec.  98.71 by removing paragraph (a)(11).
0
16. Amend Sec.  98.81 by:
0
a. Removing the word ``and'' at the end of paragraph (b)(6)(viii);
0
b. Revising paragraph (b)(6)(ix); and
0
c. Adding paragraphs (b)(6)(x) and (xi).
    The revision and additions read as follows:


Sec.  98.81  Application and Plan procedures.

* * * * *
    (b) * * *
    (6) * * *
    (ix) The description of how the Lead Agency uses grants and 
contracts for supply building at Sec.  98.16(y)(1);
    (x) The description of the sliding fee scale at Sec.  98.16(k); 
and,
    (xi) The description of how the Lead Agency prioritizes increasing 
access to high-quality child care in areas with high concentration of 
poverty at Sec.  98.16(z).
* * * * *
0
17. Amend Sec.  98.83 by:
0
a. Redesignating paragraphs (d)(1)(vii) through (x) as paragraphs 
(d)(1)(x) through (xiii);
0
b. Adding a new paragraph (d)(1)(ix);
0
c. Redesignating paragraphs (d)(1)(v) and (vi) as paragraphs 
(d)(1)(vii) and (viii);
0
d. Adding a new paragraph (d)(1)(vi);
0
e. Redesignating paragraphs (d)(1)(i) through (iv) as paragraphs 
(d)(1)(ii) through (v);
0
f. Adding a new paragraph (d)(1)(i); and
0
g. Revising paragraphs (g) introductory text and (g)(1) and (2).
    The revisions and additions read as follows:


Sec.  98.83  Requirements for tribal programs.

* * * * *
    (d)(1) * * *
    (i) The requirements to use grants and contracts to build supply 
for certain populations at Sec.  98.30(b);
* * * * *
    (vi) The requirement for a sliding fee scale at Sec.  98.45(l);
* * * * *
    (ix) The requirements to use grants and contracts at Sec.  
98.50(a)(3);
* * * * *
    (g) Of the aggregate amount of funds expended (i.e., Discretionary 
and Mandatory Funds):
    (1) For Tribal Lead Agencies with large, medium, and small 
allocations, no less than nine percent shall be used for activities 
designed to improve the quality of child care services and increase 
parental options for, and access to, high-quality child care as 
described at Sec.  98.53; and
    (2) For Tribal Lead Agencies with large and medium allocations, no 
less than three percent shall be used to carry out activities at Sec.  
98.53(a)(4) as such activities relate to the quality of care for 
infants and toddlers.
* * * * *
0
18. Amend Sec.  98.84 by revising paragraph (e) to read as follows:


Sec.  98.84  Construction and renovation of child care facilities.

* * * * *
    (e) In lieu of obligation and liquidation requirements at Sec.  
98.60(e), Tribal Lead Agencies shall liquidate CCDF funds used for 
construction or major renovation by the end of the fourth fiscal year 
following the fiscal year for which the grant is awarded.
* * * * *
0
19. Amend Sec.  98.102 by:
0
a. Revising paragraphs (c)(2)(ii) through (iv);
0
b. Adding paragraphs (c)(2)(v) and (vi); and
0
c. Revising paragraphs (c)(3) and (4).
    The revisions and additions read as follows:


Sec.  98.102  Content of Error Rate Reports.

* * * * *
    (c) * * *
    (2) * * *
    (ii) Root causes of error as identified on the Lead Agency's most 
recent ACF-404 and other root causes identified;
    (iii) Detailed descriptions of actions to reduce improper payments 
and the individual responsible for ensuring actions are completed;
    (iv) Milestones to indicate progress towards action completion and 
error reduction goals;
    (v) A timeline for completing each action of the plan within 1 
year, and for reducing the improper payment rate below the threshold 
established by the Secretary; and
    (vi) Targets for future improper payment rates.
    (3) Subsequent progress reports including updated corrective action 
plans must be submitted as requested by the Assistant Secretary until 
the Lead Agency's improper payment rate no longer exceeds the 
threshold.
    (4) Failure to carry out actions as described in the approved 
corrective action plan or to fulfill requirements in this paragraph (c) 
will be grounds for a penalty or sanction under Sec.  98.92.

[FR Doc. 2023-14290 Filed 7-11-23; 11:15 am]
BILLING CODE 4184-87-P