[Federal Register Volume 89, Number 42 (Friday, March 1, 2024)]
[Rules and Regulations]
[Pages 15366-15417]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-04139]



[[Page 15365]]

Vol. 89

Friday,

No. 42

March 1, 2024

Part IV





 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); Final Rule

Federal Register / Vol. 89 , No. 42 / Friday, March 1, 2024 / Rules 
and Regulations

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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: Final rule.

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SUMMARY: This final rule makes regulatory changes to the Child Care and 
Development Fund (CCDF). These changes lower child care costs for 
families participating in CCDF, improve the program's child care 
provider payment rates and practices, and simplify enrollment in the 
child care subsidy program. The final rule also includes technical and 
other changes to improve clarity and program implementation.

DATES: Effective: April 30, 2024.
    Temporary Waivers: States and Territories that are not in 
compliance with the provisions of this final rule on the effective date 
may request a temporary waiver for an extension of up to two years if 
needed to come into compliance. For Tribal Lead Agencies, ACF will 
determine compliance through review and approval of the FY 2026-2028 
Tribal CCDF Plans that become effective October 1, 2025.

FOR FURTHER INFORMATION CONTACT: Megan Campbell, Office of Child Care, 
202-690-6499 or <a href="/cdn-cgi/l/email-protection#2a474f4d4b4404494b475a484f46466a4b494c04424259044d455c"><span class="__cf_email__" data-cfemail="89e4eceee8e7a7eae8e4f9ebece5e5c9e8eaefa7e1e1faa7eee6ff">[email protected]</span></a>.

SUPPLEMENTARY INFORMATION: 
I. Statutory Authority
II. Background
III. Executive Summary
    Effective Dates
    Costs, benefits, and transfer impacts
    Severability
IV. Development of Regulation
V. General Comments and Cross-Cutting Issues
VI. Section-by-Section Discussion of Comments and Regulatory Provisions
    Subpart A--Goals, Purposes, and Definitions
    Subpart B--General Application Procedures
    Subpart C--Eligibility for Services
    Subpart D--Program Operations (Child Care Services) Parental Rights 
and Responsibilities
    Subpart E--Program Operations (Child Care Services) Lead Agency and 
Provider Requirements
    Subpart F--Use of Child Care and Development Funds
    Subpart G--Financial Management
    Subpart H--Program Reporting Requirements
    Subpart I--Indian Tribes
    Subpart K--Error Rate Reporting
VII. 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
VIII. Regulatory Impact Analysis
    List of Subjects in 45 CFR Part 98

I. Statutory Authority

    This final rule 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).

II. Background

    The Child Care and Development Block Grant Act (CCDBG), hereafter 
referred to as the ``Act'' (42 U.S.C. 9857 et seq.), together with 
section 418 of the Social Security Act (42 U.S.C. 618), authorize the 
Child Care and Development Fund (CCDF), which is the primary federal 
funding source devoted to supporting families with low incomes afford 
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 parents' employment, training, and 
education, and improving the economic well-being of participating 
families. Families with children under age 5 and incomes below the 
federal poverty line 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.\1\ Households with incomes just 
above the federal poverty level spend more than 20 percent of their 
income on child care, on average.\2\ Even school-age care can amount to 
8 to 11.5 percent of family income.\3\ Without help paying for child 
care, the cost can drive parents to exit the workforce or seek out less 
expensive care, which may be unlicensed or unregulated, have less 
rigorous quality or safety standards, and be less reliable.\4\ In 
fiscal year (FY) 2021, the most current available data, CCDF helped 
nearly 800,000 families and more than 1.3 million children under age 13 
with financial assistance for child care each month.\5\ CCDF also 
promotes the quality of child care for all children, requiring CCDF 
Lead Agencies to spend at least 12 percent of their CCDF funding each 
year on activities to improve child care quality for all children in 
care.
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    \1\ Madowitz, M. 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/.
    \2\ National Survey of Early Care and Education Project Team 
(2022): E. Hardy, J.E. 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.
    \3\ Landivar, L.C., Graf, N.L., & Rayo, G.A. (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, Washington, DC. Issued January.
    \4\ 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.
    \5\ Unpublished FY 2021 ACF administrative data.
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    Access to affordable high-quality child care has numerous short- 
and long-term benefits for children, families, and society, supporting 
child and family well-being in a manner that fuels prosperity and 
strengths communities and the economy. Child care is a necessity for 
most families with young children and reliable access leads to better 
parental earnings and employment and supports parents' educational 
attainment.\6\ Specifically, maternal employment increases in response 
to more available and more affordable child care \7\ and drops when 
child care becomes more expensive for families.\8\ Moreover, children 
with stably employed parents are far less likely to experience poverty 
than

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children whose parents have less consistent employment.\9\ The positive 
effects of high-quality child care are especially pronounced for 
families with low incomes and families experiencing adversity.\10\ 
High-quality child care environments can also be important for 
children's cognitive, behavioral, and socio-emotional development, 
helping chart a pathway to success in school and beyond.\11\
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    \6\ 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/.
    \7\ 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.; 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.
    \8\ Landivar, L.C., Graf, N.L., and Altamirano Rayo, G. (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.
    \9\ 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.
    \10\ 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.; Davis Schoch, 
A., Simons Gerson, C., Halle, T., & Bredeson, M. (2023). Children's 
learning and development benefits from high-quality early care and 
education: A summary of the evidence. OPRE Report #2023-226. Office 
of Planning, Research, and Evaluation, Administration for Children 
and Families, U.S. Department of Health and Human Services.
    \11\ 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 our country's economic growth, 
child care remains a fundamentally broken system due to chronic 
underinvestment. As a result of this underinvestment, the child care 
system relies on a very poorly compensated workforce and unaffordable 
parent fees, causing most families to struggle to find or afford high-
quality child care that meets their needs.\12\ There are not enough 
child care programs to serve families who need care and many programs 
do not offer care during the hours or days families require.\13\ 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.\14\ In the 2019 National Household Education Survey on Early 
Childhood Program Participation, parents of children under the age of 6 
reported the lack of available child care as the second biggest barrier 
to finding child care, with cost being the first.\15\
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    \12\ 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.
    \13\ Federal Reserve Bank of St. Louis. The Economic Impact of 
Child Care by State. https://www.stlouisfed.org/community-development/child-care-economic-impact.
    \14\ 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/.
    \15\ 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. http://nces.ed.gov/pubsearch/pubsinfo.asp?pubid=2020075REV.
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    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 the broader economy.\16\ Numerous 
child care programs closed their doors permanently between the 
widespread onset of COVID-19 in March 2020 and the federal supports in 
the American Rescue Plan (ARP) in 2021. With ARP Child Care 
Stabilization funding, HHS invested $24 billion in the child care 
sector to help child care providers keep their doors open and to 
provide child care workers with higher pay, bonuses, and other 
benefits. These efforts helped over 225,000 child care programs serving 
as many as 10 million children across the country; saved families with 
young children who rely on paid child care approximately $1,250 per 
child per year; and helped hundreds of thousands of women with young 
children enter or re-enter the workforce more quickly, increasing the 
labor force participation and employment of mothers of young children 
by an additional 3 percentage points.\17\
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    \16\ 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.; 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.
    \17\ https://www.whitehouse.gov/briefing-room/statements-releases/2023/11/07/fact-sheet-historic-biden-harris-administration-investments-in-child-care-recovery-lowered-costs-for-millions-of-families-helped-speed-the-return-to-work-of-hundreds-of-thousands-mothers-and-grew-t/.
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    Despite these investments, workforce shortages resulting in part 
from a tight labor market and a fundamentally broken child care market 
that forces low wages continue to put additional strains on child care 
supply across the country.\18\
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    \18\ ASPE unpublished analyses using U.S. Bureau of Labor 
Statistics, Current Employment Statistics--CES.
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    In the years since the 2014 reauthorization of the Act (P.L. 113-
186) and the accompanying regulations in 2016 (81 FR 67438, Sept. 30, 
2016), CCDF Lead Agencies have worked hard to strengthen child care 
policies and practices to make the child care subsidy system more 
affordable and accessible to families and to support the continuity of 
care for children and working families. However, regulatory changes to 
the CCDF program are needed to address some of the programmatic and 
systemic challenges described here and to ensure the program properly 
addresses the needs of children and families it serves. Though 
significant new investments and fundamental system reform are needed to 
fully realize affordable high-quality child care for all who need it, 
it is clear more must be done now within the federal child care program 
to help parents with low incomes that participate in the CCDF program 
access affordable high-quality child care that meets their families' 
needs.

III. Executive Summary

    The final rule amends the CCDF regulations to: (1) lower families' 
costs for child care, to increase access to child care and improve 
family well-being; (2) strengthen CCDF payment practices to child care 
providers, to expand parents' child care options and better support 
child care operations; and (3) reduce program bureaucracy for families, 
to make it easier for families to enroll in CCDF. The rule also makes 
some technical and other changes for improved clarity.
    Currently, some families participating in CCDF have co-payments 
that are a significant and destabilizing financial strain on family 
budgets and a barrier to participating in the CCDF program and 
maintaining employment.\19\ Many current CCDF provider payment rates 
and practices limit parent choice in child care arrangements, 
destabilize provider operations, contribute to supply issues, 
disincentivize provider participation in CCDF, and do not adequately 
cover the cost of care. This final rule includes important changes to 
the CCDF program to help participating families access the child care 
they need and better support child care providers in the essential work 
they do.
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    \19\ 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.; 81 FR 67515 (https://www.govinfo.gov/content/pkg/FR-2016-09-30/pdf/2016-22986.pdf).
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Lowering Families' Costs for Child Care

    Once implemented, HHS projects that the rule will lower the cost of 
child care for over 100,000 families participating in CCDF, improving 
family well-being and economic stability and better supporting parent 
employment. First, this final rule requires States and Territories to 
establish co-payment policies for families receiving CCDF assistance to 
be no more than 7 percent of family income to help ensure family

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co-payments are not a barrier to accessing child care. HHS established 
7 percent of a family's income as the benchmark for an affordable co-
payments in 2016 \20\ based on data from the U.S. Census Bureau that 
showed on average families spent 7 percent of income on child care, but 
that poor families on average spent approximately four times the share 
of their income on child care compared to higher income families.\21\ 
According to ACF data, average CCDF co-payments in 11 States exceed 7 
percent of family income,\22\ 20 States have policies that allow some 
family co-payments above 7 percent (which can even rise as high as 27 
percent of family income),\23\ and 16 States do not have clear policies 
in place to restrict co-payments to any percentage of family 
income.\24\ CCDF family co-payments increased at a rate higher than 
inflation between 2005-2021, with an average 18 percent increase (after 
adjusting for inflation) for families during this period.\25\
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    \20\ 81 FR 67515.
    \21\ Laughlin, Lynda. 2013. Who's Minding the Kids? Child Care 
Arrangements: Spring 2011. Current Population Reports, P70-135. U.S. 
Census Bureau, Washington, DC. https://www2.census.gov/library/publications/2013/demo/p70-135.pdf.
    \22\ FFY 2021 ACF-801 data report.
    \23\ FFY 2022-2024 CCDF State Plans.
    \24\ Ibid.
    \25\ 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.
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    The Act requires States and Territories to establish and 
periodically revise co-payment policies that are ``not a barrier to 
families receiving'' CCDF assistance. (42 U.S.C. 9858c(5)). High co-
payments can be a significant and destabilizing financial strain on 
family budgets, a barrier to families participating in the CCDF 
program, and a barrier to parent employment.\26\ Unaffordable co-
payments can limit family participation in the CCDF program, cause 
parents to cut work hours or exit the workforce entirely, and may lead 
families to patch together informal, unregulated care that is less 
expensive, less reliable, and less likely to meet children's 
developmental needs. Even families receiving child care subsidies 
continue to experience substantial financial burden in meeting their 
portion of child care costs.\27\ According to a 2023 survey of families 
that participated in CCDF without a co-pay, 56 percent of parents 
reported that they would disenroll their children from the subsidized 
child care program if co-payments were required.\28\ Surveyed parents 
explained that needing to pay a co-payment would cause strain on their 
family budget, with one parent explaining, ``I would have to choose 
which minimum necessities to afford that month--rent, utilities, or 
food . . . the choice is impossible,'' and another sharing, ``I would 
not be able to work.'' \29\ We retain the 7 percent cap in this final 
rule because we believe amounts in excess of this threshold pose a 
barrier to child care access in the CCDF program. ACF notes that 7 
percent of family income is not affordable for many families 
participating in CCDF. ACF encourages Lead Agencies to adopt lower co-
payment caps and minimize or waive co-payments when possible and this 
rule makes it easier to do so.
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    \26\ 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.; 81 
FR 67515 (https://www.govinfo.gov/content/pkg/FR-2016-09-30/pdf/2016-22986.pdf).; National Survey of Early Care and Education 
Project Team (2022): Hardy, E. Park, J.E. 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.; 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.; Grobe, D., Weber, R., Davis, E. & Scott, E. (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.; 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.
    \27\ 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.; Grobe, 
D.,Weber, R., & Davis, E. & Scott, E. (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.
    \28\ EveryChild California. (April 2, 2023). EveryChild CA 
Family Fee Survey Results.
    \29\ Ibid.
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    The rule makes it easier for Lead Agencies to waive co-payments for 
additional families, specifically for families living at or below 150 
percent of the federal poverty level, families with children in foster 
and kinship care, families with children with disabilities, families 
experiencing homelessness, and children enrolled in Head Start or Early 
Head Start. ACF believes making it easier for Lead Agencies to waive 
parent co-payments for these populations will increase uptake of an 
existing program flexibility and lower child care costs for more 
families participating in CCDF, especially those with lower incomes and 
vulnerable children, as well as making it easier to coordinate with 
Head Start and Early Head Start. Lead Agencies report that families 
with low incomes in their jurisdictions are still struggling to afford 
child care, even when they receive child care subsidies.\30\ 
Eliminating child care costs for additional families will better 
support parents' education, training, and work opportunities and 
families' financial stability and well-being. As just noted, co-
payments, even very low co-payments, remain a barrier for some families 
to make ends meet, especially families struggling to afford housing 
costs.\31\ This policy will shift costs that currently burden 
participating families to Lead Agencies and does not impact the total 
payment made to the child care provider.
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    \30\ Rohacek, M., & Adams, G. (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.
    \31\ 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.; Grobe, 
D.,Weber, R., & Davis, E. & Scott, E.. (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.; 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.
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    These new flexibilities should not discourage States and 
Territories from taking steps to eliminate or significantly reduce co-
payments for additional families who do not fall within one of the 
categories listed in this rule for pre-approved waiving of co-payments. 
Lead Agencies may still propose a higher income threshold for waiving 
co-payments, at their discretion, utilizing existing authority in the 
statute.

[[Page 15369]]

Strengthening CCDF Payment Practices to Child Care Providers and 
Increasing Families' Options

    This final rule will strengthen Lead Agency payment rates and 
practices to more than 150,000 child care providers to better cover the 
cost of care, increase the financial stability of child care providers 
that accept CCDF subsidies, and encourage more providers to accept 
subsidies. These policies will expand available child care options to 
parents participating in CCDF so they can find child care that meets 
their families' needs. Despite the importance of access to high-quality 
child care to children, families, and communities, there is not enough 
child care to serve families who need it.\32\ A 2018 analysis found 
that 51 percent of families with children under age 5 lived in a 
``child care desert''--an area where there are three times as many 
children under age 5 than there are spaces in licensed settings.\33\ A 
2019 analysis of 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\ 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 
\35\ without a complementary increase in center-based programs.\36\
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    \32\ Federal Reserve Bank of St. Louis. The Economic Impact of 
Child Care by State. https://www.stlouisfed.org/community-development/child-care-economic-impact.
    \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.
    \35\ Datta, A.R., Milesi, C., Srivastava, S., Zapata-Gietl, C. 
(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.
    \36\ Datta, A.R., Gebhardt, Z., Zapata-Gietl, C. (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.
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    A key contributor to this lack of supply is that child care 
providers usually operate with profit margins of less than 1 
percent.\37\ To remain open, child care providers must keep costs low 
enough so families are not priced out of care, but because labor is the 
main business expense, most providers can only remain operational if 
they pay low wages and offer minimal benefits for this essential and 
skilled work overwhelmingly done by women and disproportionately by 
women of color.\38\ These working conditions lead to high turnover, 
with an estimated 26 to 40 percent of the child care workforce leaving 
their job each year.\39\ Children in underserved geographic areas 
especially have less access to high-quality child care options and 
parents struggle to find high-quality child care that is reliably 
available and affordable.\40\
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    \37\ 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.
    \38\ Ibid.
    \39\ Ibid.
    \40\ Ibid.
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    CCDF must do more to help address supply challenges and ensure 
parents have a wide range of child care choices that meet their needs, 
a core purpose of the program. The final rule includes key changes to 
address some of the challenges experienced by families and providers 
participating in CCDF. The rule: (1) requires Lead Agencies to pay 
providers prospectively and based on child enrollment to align with 
generally accepted payment practices in the private market and better 
reflect the fixed costs of child care; (2) requires Lead Agencies to 
use some grants and contracts for direct services, at a minimum for 
children in underserved geographic areas, infants and toddlers, and 
children with disabilities; and (3) clarifies that Lead Agencies are 
allowed and encouraged to pay child care providers the full established 
payment rate, even if it is higher than the price the provider charges 
privately paying families.
    First, the rule requires Lead Agencies use timely and enrollment-
based payment practices for child care providers to align with 
generally accepted payment practices in the private sector. The Act 
requires States and Territories to certify that ``the payment practices 
of child care providers in the State that serve children who receive 
[CCDF] assistance . . . reflect generally accepted payment practices of 
child care providers in the State that serve children who do not 
receive [CCDF] assistance . . ., so as to provide stability of funding 
and encourage more child care providers to serve children who receive 
[CCDF] assistance . . .'' (42 U.S.C. 9858c(c)(2)(S)). The Act also 
requires States and Territories to show how they ``provide for timely 
payment for child care services provided under [CCDF]'' (42 U.S.C. 
9858c(c)(4)(B)(iv)). The revisions promulgated by this rule will help 
account for some of the fixed costs of providing child care, support 
better provider stability, and increase child care options for families 
participating in CCDF. Generally accepted payment practices for parents 
who do not receive subsidies (which are most parents) require a set 
fee, are based on a child's enrollment, and are paid in advance of when 
services are provided. This is necessary because the fixed costs of 
providing child care, including staff wages, rent, and utilities do not 
decrease when a child is absent and must be budgeted prior to service 
delivery. The Act requires Lead Agencies to use generally accepted 
payment practices, because it makes it easier for child care providers 
to serve children receiving assistance from CCDF and fosters equal 
access to child care for participating parents, which is a central 
purpose of the CCDF program. Providers often mention delayed payments 
and their destabilizing effect on child care operations as a key reason 
why they do not participate in the CCDF program.\41\ But according to 
FY 2022-2024 CCDF State and Territory Plans, only eight States and 
Territories pay prospectively and only 36 pay providers based on 
enrollment. 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, which limits parent 
choices. An August 2023 survey of child care providers found 80 percent 
of child care center directors/administrators and family child care 
owners/operators who responded to the survey would be more likely to 
serve families using subsidies if the State paid based on enrollment 
rather than attendance, and 73 percent said they would be more likely 
if the State paid prospectively.\42\
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    \41\ 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.
    \42\ https://www.naeyc.org/sites/default/files/wysiwyg/user-73607/naeyc_nprm_comments.final.pdf.
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    Second, the rule requires Lead Agencies to use some grants and 
contracts for direct child care services to enable CCDF to better 
address child care

[[Page 15370]]

supply issues for participating families. The Act requires States and 
Territories to offer parents of eligible children the option to either 
``enroll such child with a child care provider that has a grant or 
contract for the provision of such services; or to receive a child care 
certificate'' (42 U.S.C. 9858c(c)(2)(A)). Grants and contracts 
represent agreements between the subsidy program and child care 
providers to designate slots for subsidy-eligible children and are an 
important tool for building child care supply.\43\ 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.\44\ 
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.\45\ One survey of providers 
found 80 percent of center-based directors and administrators and 
family child care owner/operators would be interested in applying for 
grants or contracts to serve populations identified in the final 
rule.\46\ An evaluation of an infant and toddler contracted slot pilot 
in Pennsylvania found that participating programs experienced increased 
classroom quality and had greater financial stability than providers 
solely paid through certificates. Contracts led to more stable 
enrollment for infants and toddlers receiving child care subsidies.\47\ 
They also found evidence that providers were better able 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. Providers reported an increase 
in enrollment of children from families who would have normally 
struggled to pay for care because the program was better able to 
connect the families with a contract-funded subsidy.\48\ 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.
---------------------------------------------------------------------------

    \43\ Child Care Technical Assistance Network. (October 2021). 
Implementation Guide: Strategies to Support Use of Contracts and 
Grants for Child Care Slots. U.S. Department of Health and Human 
Services, Administration for Children and Families, Office of Child 
Care. https://childcareta.acf.hhs.gov/sites/default/files/new-occ/resource/files/implementation_guide_use_of_contracts_508.pdf; 
Morrissey, T. and Workman, S. (August 4, 2020). Grants and 
Contracts: A Strategy for Building the Supply of Subsidized Infant 
and Toddler Child Care. Washington, DC: Center for American 
Progress. https://cdn.americanprogress.org/content/uploads/2020/08/03112628/Grants-and-Contracts.pdf.
    \44\ https://www.acf.hhs.gov/occ/data/fy-2020-preliminary-data-table-2.
    \45\ Slicker, G., Barbieri, C.A., and Hustedt, J.T. (2023) The 
role of state subsidy policies in early education programs' 
decisions to accept subsidies: evidence from nationally 
representative data. Early Education and Development, DOI: 10.1080/
10409289.2023.2244859. https://www.tandfonline.com/doi/full/10.1080/10409289.2023.2244859.; Weber, R.B. and Grobe, D. (2015), Contracted 
slots pilot program evaluation. https://health.oregonstate.edu/sites/health.oregonstate.edu/files/early-learners/pdf/research/contracted_slots_pilot_evaluation_-_executive_summary.pdf; 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.
    \46\ https://www.naeyc.org/sites/default/files/wysiwyg/user-73607/naeyc_nprm_comments.final.pdf.
    \47\ Dorn, C. (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.
    \48\ 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.
---------------------------------------------------------------------------

    The rule specifically requires Lead Agencies to use some grants and 
contracts for children in underserved geographic areas, infants and 
toddlers, and children with disabilities--populations that the statute 
identifies Lead Agencies must develop and implement strategies to 
increase the supply and quality of care. 42 U.S.C. 9858c(c)(2)(M). 
Finding care for infants and toddlers and children with disabilities is 
particularly difficult for parents. Higher operational costs per child, 
the need for specialized training, and physical space needs generally 
require additional funding and planning and make supply issues 
particularly acute. At the same time, these populations constitute a 
sizable portion of the population of children potentially eligible for 
CCDF: infants and toddlers constitute about one-third of children 
receiving CCDF,\49\ and 17 percent of children have a developmental 
disability.\50\ 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 there were at least three infants or toddlers for 
every child care slot for children under three in 80 percent of the 
counties analyzed.\51\ 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.\52\ Despite Lead Agencies' obligation to 
develop strategies to serve this population, approximately twenty 
states report serving no children with disabilities.\53\
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    \49\ Unpublished FY 2021 ACF Administrative Data.
    \50\ Cogswell, M.E., Coil, E., Tian, L.H., Tinker, S.C., 
Ryerson, A.B., Maenner, M.J, Rice, C.E., Peacock, G. (2022). Health 
Needs and Use of Services Among Children with Developmental 
Disabilities--United States, 2014-2018. Morbidity and Mortality 
Weekly Report. 71(12):453-458.
    \51\ The White House (March 2023). Economic Report of the 
President. https://www.whitehouse.gov/wp-content/uploads/2023/03/ERP-2023.pdf.
    \52\ 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.
    \53\ https://www.acf.hhs.gov/occ/data/fy-2020-preliminary-data-table-21.
---------------------------------------------------------------------------

    Third, the rule clarifies that Lead Agencies are allowed and 
encouraged to pay child care providers the full agency-established 
payment rate to account for the actual cost of care, even if it is 
higher than the price the provider charges private pay families. The 
Act requires States and Territories to ``certify that payment rates for 
the provision of child care services for which [CCDF] assistance is 
provided . . . are sufficient to ensure equal access for eligible 
children to child care services that are comparable to child care 
services in the State or substate area involved that are provided to 
children whose parents are not eligible to receive [CCDF] assistance.'' 
(42 U.S.C. 9858c(c)(4)). States and Territories must also set rates in 
accordance with market rate surveys that reflect ``variations in the 
cost of child care services by geographic area, type of provider and 
age of child,'' and take into consideration ``the cost of providing 
higher quality child care services that were provided . . . before 
November 19, 2014.'' (42 U.S.C. 9858c(c)(4)(B)).
    Because child care providers' price for services reflects what 
private-pay families enrolling in their programs can afford and not 
necessarily the (higher) cost of providing services, payment rates are 
artificially constrained by affordability, particularly in low-income 
neighborhoods. Under CCDF, Lead Agencies set payment rates using a 
market rates survey or a cost-based alternative methodology, but some 
Lead Agencies pay below their established rate to match the constrained 
price a

[[Page 15371]]

provider charges parents paying privately. Not only does this practice 
contribute to instability in the child care sector, it also creates 
pressure on providers to raise rates on private pay families. The rule 
codifies this existing flexibility to pay above the private rate to 
encourage more Lead Agencies to adopt this practice, which will promote 
equal access for participating families, 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, all central purposes of the Act.

Easier Enrollment for Families Through Reduced Bureaucracy

    Finally, this rule includes changes to encourage easier enrollment 
and re-enrollment processes for families applying for child care 
subsidies. First, this rule establishes parameters for Lead Agencies 
that choose to implement presumptive eligibility with the goal of 
reducing barriers for Lead Agency uptake for this existing program 
flexibility and helping more families receive child care assistance 
faster. The rule also requires Lead Agencies to implement eligibility 
policies and procedures that minimize disruptions to parent employment, 
education, or training opportunities. These rules align with section 
658E(c)(2)(N) the Act, requiring States and Territories to develop 
procedures and policies that ``ensure that working parents. . .are not 
required to unduly disrupt their employment in order to comply with the 
State's or designated local entity's requirements for redetermination 
of eligibility for [CCDF] assistance.'' (42 U.S.C. 9858c(c)(2)(N)).
    These changes will help address what can be a slow and difficult 
process for initial CCDF eligibility determination.\54\ Burdensome 
application processes discourage families from applying for child care 
assistance, delay access to child care, and cause substantial stress to 
parents.\55\ They can also derail or delay employment, education, or 
training, harm family economic well-being, and lead parents to pay for 
care that is either unaffordable, unregulated, or lower quality.\56\ 
Evidence suggests presumptive eligibility can be implemented with 
relatively low levels of financial risk for Lead Agencies, and the 
potential benefits for families are substantial.\57\ Families reported 
it helped them obtain full verification documents more easily and that 
providers were more willing to enroll children because payments were 
already guaranteed.
---------------------------------------------------------------------------

    \54\ 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.
    \55\ 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.
    \56\ Ibid.
    \57\ Ibid.
---------------------------------------------------------------------------

Flexibility for Tribal Lead Agencies

    For the most part, Tribal Lead Agencies are exempt from the new 
requirements included in this final rule, but the rule includes two 
important new flexibilities for Tribes. First, it updates the 
definition for major renovation in a manner that will reduce the types 
of projects for which Tribal Lead Agencies must submit applications. 
Second, it provides all CCDF Tribal Lead Agencies the flexibility to 
waive parent co-payments for all parents receiving CCDF assistance. 
These exemptions and flexibilities are discussed in Subpart I.
    On July 27, 2023, ACF released a Request for Information (RFI) to 
seek extensive input on whether existing CCDF requirements, 
regulations, and processes are appropriate for Tribal Nations to 
implement CCDF in a manner that best meets the needs of the children, 
families, and child care providers in their Nations and communities and 
that properly recognizes the principals of strong government-to-
government relationships and Tribal sovereignty. The public comment 
period ended January 2, 2024, and ACF hosted multiple listening 
sessions and two Tribal consultations to solicit comments. ACF will 
consider the need for potential further regulatory changes as part of 
this broader RFI effort.

Effective Dates

    This final rule will become effective 60 days from the date of its 
publication. Compliance with provisions in the rule will be determined 
through ACF review and approval of CCDF Plans, including CCDF Plan 
amendments, as well as through federal monitoring, including on-site 
monitoring visits as necessary.
    We recognize that at the time of publication of this final rule, 
States and Territories are in the process of completing their FFY 2025-
2027 CCDF Plans, which are due July 1, 2024. With the issuance of this 
final rule, any State or Territory that does not fully meet the 
requirements of these regulations, will need to revise its policies and 
procedures to come into compliance. We are allowing Lead Agencies to 
request temporary transitional waivers for up to two years to ensure 
there is enough time to execute the steps necessary to be in compliance 
with this final rule. This final rule revises the process to request 
temporary transitional waivers on the updated provisions in this final 
rule as described at Sec.  98.19. This waiver authority does not extend 
past two years. We also note that requests for extensions through 
legislative or transitional waivers will only be considered for 
provisions substantively updated in this final rule. ACF will use 
federal monitoring in accordance with Sec.  98.90.
    Tribal Lead Agencies will describe any changes made in response to 
this final rule in new triennial Plans for FFY 2026-2028, with an 
effective date of October 1, 2025. Tribes that have consolidated CCDF 
with other employment, training, and related programs under Public Law 
102-477, are not required to submit separate CCDF Plans, but will be 
required to demonstrate compliance with this final rule in their next 
Public Law 102-477 Plan submission, along with associated 
documentation.

Costs, Benefits, and Transfer Impacts

    Changes made by this final rule will have the most direct benefit 
for the nearly 800,000 families and 1.3 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, and simplified eligibility determination processes, which 
will increase child care access and affordability. Greater access and 
affordability will improve the ability of families to participate in 
the labor market and benefit the overall economy. Research has 
demonstrated that increased access to child care increases maternal 
labor force participation.\58\ In particular, child care subsidies have 
been found to increase employment among single mothers.\59\
---------------------------------------------------------------------------

    \58\ 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.
    \59\ 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.; 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.; Shonkoff, J. P., & Phillips, D. 
A. (Eds.). (2000). From neurons to neighborhoods: The science of 
early childhood development. National Academy Press.; 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.

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[[Page 15372]]

    Providers will benefit from this rule's payment practice 
requirements that support providers' 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.\60\ This rule will also 
yield benefits in terms of child development outcomes. The provisions 
in this rule expand child care access and some children who might have 
not received subsidized care under the current rule (e.g., those whose 
parents could not pay the co-pay) would receive subsidized care under 
this new final rule. For these children, they are likely to receive 
higher quality care than they otherwise would have. Research 
demonstrates clear linkages between high quality child care and 
positive child outcomes, including school readiness, social-emotional 
outcomes, educational attainment, employment, and earnings.\61\
---------------------------------------------------------------------------

    \60\ Borowsky, J., et al (2022). An equilibrium model of the 
impact of increased public investment in early childhood education. 
Working Paper 30140. http://www.nber.org/papers/w30140.
    \61\ Deming, D. 2009. ``Early Childhood Intervention and Life-
Cycle Skill Development: Evidence from Head Start.'' American 
Economic Journal: Applied Economics, 1 (3): 111-34.; Duncan, G.J., 
and Magnuson, K. 2013. ``Investing in Preschool Programs.'' Journal 
of Economic Perspectives, 27 (2): 109-132; Heckman, J., and Kautz, 
T. ``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.; 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.
---------------------------------------------------------------------------

    The cost of implementing changes made by this 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 this final 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 policy change, including reduced parent co-
payments, paying providers based on enrollment, paying providers 
prospectively, paying providers the full subsidy rate, presumptive 
eligibility for families, and streamlined family eligibility processes. 
In response to feedback received during the public comment period, we 
have further refined these estimates for the final rule, making key 
changes including adding a systems' cost to account for necessary 
information technology changes and updating calculations to use the 
most recent CCDF administrative data. 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 the RIA, we estimate the quantified 
annualized impact of the rule to be about $206.6 million in transfers, 
$13.1 million in costs, and $15.3 million in benefits. Further detail 
and explanation can be found in the RIA.

Severability

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

IV. Development of Regulation

    Throughout the period since 2016 when the last CCDF Rule was 
published, HHS has learned from Lead Agencies, families, and child care 
providers; assessed the evolving child care landscape; examined the 
successes and challenges in the reauthorized Act's implementation; and 
tracked the impact and implications of the COVID-19 public health 
emergency on the child care sector. The policies in this final rule are 
informed by these lessons and are designed to improve on the work of 
the past and build a stronger CCDF program that more effectively 
supports the development of children, the economic well-being of 
families, and the stability of child care providers.
    ACF published a notice of proposed rulemaking (NPRM) in the Federal 
Register on July 13, 2023, (88 FR 45022) proposing revisions to CCDF 
regulations. We provided a 45-day comment period during which 
interested parties could submit comments in writing electronically.
    ACF received 1,796 comments, of which 1,639 were unique comments, 
on the proposed rule (public comments on the proposed rule are 
available for review on www.regulations.gov), including comments from 
state human services and educational agencies, Tribal Nations and 
Tribal organizations, national, state, and local early childhood and 
family-focused organizations, including, child care resource and 
referral agencies, faith-based organizations, provider organizations, 
as well as labor unions, child care providers, parents, individual 
members of the public, and members of the U.S. Congress. We were 
pleased to receive comments from 29 State and local governments and 13 
Tribes and Tribal organizations. Some commenters coordinated comments 
and policy recommendations so that their comments were signed by 
multiple entities, and there were some member organizations that each 
submitted the same comments separately. We also processed form comments 
from hundreds of individuals, including parents and child care staff. 
Public comments informed the development of content for this final 
rule.
    Changes in this final rule affect the State, Territory, and Tribal 
agencies that administer the CCDF. ACF has and will continue to consult 
with State, Territory, and Tribal agencies and provide technical 
assistance throughout implementation.
    This final rule maintains the structure and organization of the 
current CCDF regulations. The preamble in this final rule discusses the 
changes to current regulations and contains certain clarifications 
based on ACF's experience in implementing the prior final rules. Where 
language of previous regulations remains unchanged, the preamble 
explanation and interpretation of that language published with all 
prior final rules also is retained, unless specifically modified in the 
preamble to this rule. (See 57 FR 34352, Aug. 4, 1992; 63 FR 39936, 
Jul. 24, 1998; 72 FR 27972, May 18, 2007; 72 FR 50889, Sep. 5, 2007; 81 
FR 67438, Sept. 30, 2016).

V. General Comments and Cross-Cutting Issues

    This final rule includes substantive changes in several key policy 
areas in the CCDF regulations. We received comments on all the 
significant proposed changes and made some revisions in this final rule 
in response to these comments. We discuss specific comments in the 
section-by-section analysis later in this final rule.
    The vast majority of the 1,639 unique public comments were 
supportive of the proposals and validated their future benefits to 
children, families, and child care providers. Each major proposal 
received much more support than opposition. Commenters strongly 
supported the need to lower child care

[[Page 15373]]

costs for families, noting the importance of ensuring co-payments are 
not a barrier to child care access. Commenters also strongly supported 
the need for CCDF payment practices to providers that would better 
cover the cost of care, help stabilize operations, and incentivize 
child care providers to accept families with child care subsidies.
    Some supporters also expressed concerns about potential unintended 
consequences of the rule without additional resources, called for 
additional guidance and technical assistance on the proposed changes, 
recommended consideration of the implementation timeline, and stressed 
the need for major long-term funding increases for child care beyond 
regulatory changes. Some supporters expressed concerns that without 
additional investments to accompany a final rule, the costs of the 
proposal inadvertently could be passed on to child care providers or 
result in fewer families receiving subsidies, particularly in the 
context of supplemental COVID-19 funding coming to a close.
    We seriously considered concerns about cost and recognize that the 
final rule contains provisions that will require some States and 
Territories to direct CCDF funds to implement specific provisions. Many 
Lead Agencies have already implemented some of the provisions in this 
final rule. In addition, each year, approximately $11.6 billion in 
federal funding is allocated for CCDF. The activities to implement 
requirements in this final rule are all allowable costs in the CCDF 
program. Changes made by this final rule represent a commitment to 
ensuring the goals of the 2014 reauthorization of the Act are realized, 
including making child care more affordable and accessible to families 
and improving stability for child care providers. ACF will continue our 
regular work of supporting CCDF Lead Agencies through guidance and 
technical assistance in partnership with the CCDF-funded Child Care 
Technical Assistance Network.
    Several commenters noted that Lead Agencies will need time to 
implement the requirements included in this final rule, including time 
to take administrative or legislative actions, and some commenters 
noted the potential misalignment between the timing of publication of 
this final rule and submission to OCC of the FFY 2025-2027 CCDF State 
and Territory Plans. Some commenters suggested delaying the FFY 2025-
2027 CCDF Plans or having an additional comment period to cover an 
amendment process for the rule's requirements. ACF is aware that some 
provisions in the final rule will require a range of internal processes 
for Lead Agencies before full implementation and that other provisions 
will require IT and data system changes that can take some time. 
Therefore, we are allowing Lead Agencies to request temporary 
transitional waivers for extensions of up two years if needed to 
implement provisions of the rule. The waivers are discussed in greater 
detail elsewhere in this preamble.
    We considered several options to align the timing of the FFY 2025-
2027 State and Territory Plans and the effective and compliance dates 
of this final rule. We have chosen not to adjust the CCDF Plan timeline 
because all changes included in this final rule have been incorporated 
into the forthcoming final FFY 2025-2027 CCDF State and Territory Plan 
Preprint--which outlines the required elements of a plan submission. 
The FFY 2025-2027 CCDF State and Territory Plans must be submitted to 
ACF by July 1, 2024 and will be effective October 1, 2024.
    Finally, we received comments from several national organizations 
focused on school-age and out-of-school time care, requesting we 
include additional data related to school-age care. We have 
incorporated this data in the preamble.

VI. Section-by-Section Discussion of Comments and Regulatory Provisions

    We received comments about changes we proposed to specific subparts 
of the regulation. Below, we identify each subpart, summarize the 
comments, and respond to them accordingly.

Subpart A--Goals, Purposes, and Definitions

Sec.  98.2 Definitions
    The final rule includes three technical changes to definitions at 
Sec.  98.2 and the addition of two new definitions. In this section, 
italics indicate defined terms.
Major Renovation
    This final rule defines major renovation as any renovation with a 
cost equal to or exceeding $350,000 in federal CCDF funds for child 
care centers and $50,000 in federal CCDF funds for family child care 
homes, with annual adjustments for inflation posted on the OCC website. 
Renovations that exceed these thresholds but do not make significant 
changes to the structure, function, or purpose of the child care 
facility while improving the health, safety and/or quality of child 
care services are considered minor renovation. This definition applies 
to all CCDF Lead Agencies and will be used to determine which projects 
are considered major renovation and which are therefore not permitted 
with State or Territorial CCDF or may be permitted for Tribal Lead 
Agencies with prior approval from ACF in accordance with Sec.  
98.84(b). As before, CCDF prohibits States and Territories from using 
CCDF funds for major renovation. 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)). In response to comments described 
below, this definition provides greater flexibility to Lead Agencies 
than the definition proposed in the NPRM.
    Comment: A few commenters were fully supportive of the original 
proposal and noted it would provide a more informative definition, but 
most commenters on this proposal expressed support while also 
requesting more clarity and raising significant concerns about regional 
variations in construction costs, focusing on the impact of the change 
on Tribal Lead Agencies. They noted that the previous definition 
provided needed flexibility for Tribal programs to address their 
facility needs.
    Response: We retain the proposed change to the definition of major 
renovation to be based on the cost of renovations for better clarity 
and consistent implementation but have incorporated components from the 
prior definition to better distinguish between minor and major 
renovations. The previous definition for major renovation, established 
in the 1998 CCDF regulation, focused exclusively on the type of change 
to the facility.\62\ The definition from the 1998 CCDF rule has led to 
confusion in the field, insufficient flexibility and inconsistent 
guidance for Lead Agencies and child care providers.
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    \62\ 63 FR 39980 (https://www.govinfo.gov/content/pkg/FR-1998-07-24/pdf/98-19418.pdf).
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    The final rule accounts for Tribal comments on the benefits of 
keeping the description of structural change from the previous 
definition by taking a combined approach for the definition, such that 
renovations exceeding the cost threshold that do not make changes to 
the structure, function, or purpose of the child care facility while 
improving the health, safety and/or quality of child care services are 
still considered minor renovations. This will provide greater 
flexibility than what we originally proposed to properly address 
geographical differences among Tribal Lead Agencies and to help avoid 
increased burden for Tribal Lead Agencies making minor renovations that 
are costly due to higher-than-average

[[Page 15374]]

construction prices in their region.\63\ Moreover, in general, this 
rule provides greater flexibility for Tribal Lead Agencies to make 
needed renovations by eliminating the need for construction 
applications in some instances.
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    \63\ https://www.cbre.com/insights/reports/united-states-construction-market-trends.
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    This final rule also provides more flexibility for States and 
Territories to use CCDF funds for allowable minor renovations. This 
clarification may be particularly helpful for Territories who only 
recently started receiving mandatory funds and may be looking for 
opportunities to use those funds to increase and improve the supply of 
child care in their areas.
    Comment: Some commenters noted that the proposed threshold for 
major renovation of $250,000 for child care centers and $25,000 for 
family child care homes was too low and did not account for geographic 
variations in construction and materials costs, suggesting specific 
higher thresholds, including $350,000 for centers and $50,000 for 
family child care homes. While commenters expressed concerns about 
relying on a specific threshold, they were generally supportive of the 
proposal for annual adjustments to the threshold based on economic 
indicators.
    Response: In response to comments, we increased the thresholds from 
the levels proposed in the NPRM ($250,000 for centers and $25,000 for 
family child care providers) to $350,000 for centers and $50,000 family 
child care providers in the final rule. We retained the proposal to 
adjust the thresholds annually based on inflation and post that 
information on the OCC website.
    Comment: A few commenters expressed concern about the proposed 
definition of collective renovation proposed in the NPRM, which stated, 
``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.'' 
These commenters argued that applying the proposed renovation 
thresholds to collective renovations could undermine development and 
financial planning and needed a more nuanced approach.
    Response: We appreciate commenters providing additional information 
and input on defining collective renovations in the regulatory 
language. Given the complexity of defining collective renovations and 
the potential unintended consequences, the final rule does not include 
a definition of collective renovation.
State
    The final rule amends the definition of State to mean ``any of the 
States and the District of Columbia and includes Territories and Tribes 
unless otherwise specified.'' The change conforms this definition with 
the new definition of Territory included in this final rule. This 
change is technical and does not make substantive changes to 
requirements for States, Territories, or Tribes.
    Comment: A commenter noted that Tribes should not be included in 
the definition of State.
    Response: We share the commenter's concern with including Tribes in 
the definition of State. However, we are declining to remove Tribes 
from the definition of State at this time. Removing Tribes from the 
definition of State may impact the requirements for Tribal Nations, and 
we do not want to make such policy changes without the opportunity for 
public comment. As discussed earlier, ACF released a Tribal RFI on July 
27, 2023 to solicit extensive feedback on the regulations and processes 
for Tribal CCDF programs. As ACF considers the information gathered 
through the RFI process, we may consider potential regulatory changes, 
including revising the definition of State.
Territory
    This final rule adds 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 new definition aims to streamline the CCDF regulations, 
particularly where Territory funding and allocations are discussed but 
does not change policy requirements for Territories. We did not receive 
comments on this change and have retained the definition as proposed.
Territory and Tribal Mandatory Funds
    This final rule updates definitions to include the terms Territory 
mandatory funds and Tribal mandatory funds to reflect changes made to 
CCDF mandatory and matching funds in the 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), 
changing the tribal set-aside for mandatory funds from between 1 and 2 
percent of funds to a flat $100 million each fiscal year, and 
appropriating CCDF mandatory funds ($75 million) to Territories for the 
first time.\64\ To align the CCDF regulation with the new Territory 
mandatory funding statute, the final rule adds 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 revises 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.'' 
We did not receive comments on this technical change and have retained 
the definition as proposed.
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    \64\ For additional information about changes made to CCDF 
mandatory and matching funds in the ARP Act of 2021, see CCDF-ACF-
IM-2021-04 https://www.acf.hhs.gov/occ/policy-guidance/arp-act-increased-mandatory-and-matching-funds.
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Subpart B--General Application Procedures

    Subpart B of the regulations describes some of the basic 
responsibilities of a Lead Agency as defined in the Act. A Lead Agency 
serves as the single point of contact for the child care subsidy 
program, determines the basic use of CCDF funds and priorities for 
spending CCDF funds, and promulgates the rules governing overall 
administration and oversight.
    Under Subpart B, this final rule makes changes to CCDF Plan 
provisions, including related to assessing child care supply and 
parameters for requesting temporary extensions for certain provisions.
Sec.  98.13--Applying for Funds
    This final rule includes a technical change to the regulatory 
citation at Sec.  98.13(b)(4) from 45 CFR 76.500 to 2 CFR 180.300 to 
accurately reflect current regulations at 2 CFR 180.300 governing 
grants management. We did not receive comments on this change.
Sec.  98.16 Plan Provisions
    Submission and approval of the CCDF Plan is the primary mechanism 
by which ACF works with Lead Agencies to ensure program implementation 
meets federal regulatory requirements. All provisions required to be 
included in the CCDF Plan are outlined in Sec.  98.16. The additions 
and changes to this section correspond to changes throughout the 
regulations, which provide explanation and responses to comment for 
later in this rule.
    Technical Change. This final rule includes a technical change at 
Sec.  98.16(ee) as redesignated. The previous regulatory language 
incorrectly said, ``verity eligibility.'' This was an

[[Page 15375]]

error, and the final rule is corrected to read ``verify eligibility.'' 
We did not receive comments on this change.
    Presumptive Eligibility. The final rule adds a provision at new 
paragraph Sec.  98.16(h)(5) to require Lead Agencies to describe if 
they have implemented presumptive eligibility and, if applicable, to 
describe their presumptive eligibility policies and procedures, and how 
they ensure minimal barriers for families and safeguard funds for 
eligible children. The NPRM proposed additional reporting components at 
Sec.  98.16(h)(5). This final rule keeps the reporting requirement but 
includes it as part of the ACF-800 annual administrative data report at 
Sec.  98.71 instead of under the CCDF Plan. Comments are addressed 
later under the related requirement at Sec.  98.21(e).
    Supply of Child Care. The final rule amends Sec.  98.16(x) and adds 
new paragraphs at (y) and (z) to clarify section 658E(c)(2)(M) of the 
Act (42 U.S.C. 9858c(c)(2)(M)), which addresses the lack of supply of 
child care for certain populations, how Lead Agencies will identify 
shortages, and how grants or contracts will be used. The final rule 
separates former paragraph (x) into three provisions to better convey 
data requirements and strategies to meet the statutory requirement for 
Lead Agencies to take steps to increase the supply of child care 
services for children in underserved geographic areas, infants and 
toddlers, children with disabilities, and children who receive care 
during nontraditional hours. At revised paragraph (x), we continue to 
require Lead Agencies to include in their CCDF Plans a description of 
the supply of care relative to the population of children requiring 
care regardless of subsidy participation, including specifically care 
for infants and toddlers, children with disabilities as defined by the 
Lead Agency, children who receive care during nontraditional hours, and 
underserved geographic areas. Lead Agencies must also list the data 
sources used to identify the shortages.
    At new paragraph (y), the final rule requires Lead Agencies to 
describe their strategies and actions to address supply shortages 
identified in paragraph (x) and specifically to improve parent choice 
for families eligible to participate in CCDF, including for care during 
nontraditional hours (y)(1), infant and toddler care (y)(2), and care 
for children with disabilities (y)(3), and in underserved geographic 
areas (y)(4). This description must include the Lead Agency's method 
for tracking progress to increase the supply and support parental 
choice for families eligible for CCDF. Supply building for each of 
these types of care is specifically required by the statute because of 
the high need and, as the final rule reinforces, states must take steps 
to ensure these populations have access to child care.
    At new paragraph (z), the final rule requires Lead Agencies to 
describe how they will use grants or contracts to build supply for 
children participating in CCDF in underserved geographic areas, for 
infants and toddlers, and for children with disabilities. The final 
rule makes clear in paragraph (y)(1) that Lead Agencies must increase 
the supply of nontraditional hour care for children participating in 
CCDF, but paragraph (z) of this section and Sec.  98.30(b) do not 
require Lead Agencies to use grants or contracts as a mechanism for 
building supply for this type of care.
    This final rule also adds paragraph (aa) to require Lead Agencies 
to provide a description of their activities to improve the quality of 
child care services for children in underserved geographic areas, 
infants and toddlers, children with disabilities as defined by the Lead 
Agency, and children who receive care during nontraditional hours. This 
is an existing requirement that was previously included in paragraph 
(x) of this section.
    Comments: Commenters were supportive of collecting additional 
information and data on the supply of available child care, especially 
to identify the supply shortages that will inform the use of grants or 
contracts to increase supply.
    Response: Lead agencies need clear data and strategies to address 
gaps in the supply of child care. Therefore, we have revised (x) and 
(y) to collect additional information about the data States and 
Territories use to identify supply shortages and the strategies used to 
address them and added (z) to specifically address how some of these 
supply shortages will be addressed through grants and contracts. This 
final rule will allow Lead Agencies and ACF to better identify supply 
shortages and determine how Lead Agencies are addressing them through 
various methods, including with grants or contracts. In agreement with 
commenters, we revised the proposed provisions to require that Lead 
Agencies assess the need for care among the subgroups identified (i.e., 
children in underserved geographic areas, infants and toddlers, 
children with disabilities as defined by the Lead Agency, and those 
needing care during nontraditional hours) and then determine what 
proportion of that need for children in underserved geographic areas, 
infants and toddlers, and children with disabilities would be served 
with grants or contracts. As stated, Lead Agencies may also use this 
data to use contracts or grants for those families who would benefit 
from nontraditional hour care.
    Comments: Some commenters were concerned the proposed removal of 
``If the Lead Agency chooses to employ grants and contracts to meet the 
purposes of this section, the Lead Agency must provide CCDF families 
the option to choose a certificate for the purposes of acquiring care'' 
at Sec.  98.16(x) meant that ACF intended to give preference to the use 
of grants or contracts over certificates.
    Response: We appreciate commenters noting the sentence was removed 
in the NPRM. This omission was an error, and in response to these 
comments, ACF has added language at Sec.  98.16(z). The regulations do 
not give preference to the use of grants or contracts over 
certificates. The final rule expands parents' options by requiring some 
usage of grants or contracts for direct services.
Sec.  98.19 Requests for Temporary Waivers
    In response to comments expressing concerns Lead Agencies would not 
be able to implement this rule's changes within the 60-day effective 
date, this final rule amends the temporary transitional and legislative 
waivers at Sec.  98.19(b)(1), which are authorized by section 658I(c) 
of the Act (42 U.S.C. 9858g(c)). The rule extends the waivers at (i) 
from a one-year initial period to up to a two-year period and amends 
(ii) to specify that the transitional and legislative waivers cannot be 
extended and are limited to two years. The final rule also revises 
Sec.  98.19(f) to clarify that waiver extensions only apply where 
permitted. These revisions do not change the existing parameters 
associated with the transitional and legislative waivers, including 
that waivers must be approved by the Secretary and are conditional and 
dependent on progress towards implementation of the changes included in 
this final rule and should be narrowly targeted to those provisions 
with a specific legislative or administrative barrier. ACF expects that 
such requests will be limited in scope and tied to a specific timeline 
for implementation. Lead Agencies will be expected to demonstrate they 
have a plan to implement the requirement for which they are granted a 
waiver and must provide regular progress updates.
    We emphasize that Lead Agencies are expected to move quickly to 
implement the critical policy changes included in

[[Page 15376]]

this final rule. Parents urgently need relief from high co-payments and 
more child care options and child care providers urgently need more 
stabilizing payments and practices. However, we are allowing for the 
use of transitional and legislative waivers for the new provisions 
because we recognize that some changes will require legislative, 
regulatory changes, and/or IT systems investments that can delay full 
implementation. As noted above, transitional and legislative waivers 
will only be considered for changes made in this final rule.

Subpart C--Eligibility for Services

    This subpart establishes parameters for Lead Agency child 
eligibility determination and re-determination procedures. This final 
rule includes changes related to incorporating additional children into 
the family, presumptive eligibility, subsidy enrollment and 
applications, and verifying CCDF eligibility using other programs.
Sec.  98.21 Eligibility Determination Processes
    Additional Siblings. This final rule clarifies at Sec.  98.21(d) 
that the minimum 12-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 is not a new policy: 
Section 658E(c)(2)(N) (42 U.S.C. 9858c(c)(2)(N)) of the Act and Sec.  
98.21(a) do not provide exceptions to the 12-month minimum eligibility 
requirement. However, the lack of clarity in the 2016 final rule 
created confusion for Lead Agencies and inconsistent implementation 
leading to additional children (e.g., newborn or school age child 
needing after school care) in the family sometimes receiving less than 
12 months of care before redetermination. The final rule addresses the 
confusion around the policy. A conforming change at Sec.  98.16(h)(4) 
requires Lead Agencies to describe their policy related to additional 
children in the CCDF Plan.
    In cases where multiple children in the same family have initial 
eligibility determined at different points in time, we 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 alignment can be done by extending the eligibility period for the 
existing child or children beyond 12 months. Lead Agencies are not 
required to conduct a full eligibility determination when adding an 
additional child to the family's case and recommends the Lead Agency 
leverage existing eligibility verification about the family and require 
only necessary information about the additional child (e.g., proof of 
relationship, provider payment information).
    Comment: Most commenters on this provision endorsed ACF's 
recommendation to align the eligibility periods of all the family's 
children to the additional child's eligibility period so re-
determinations can occur at the same point in time. A few expressed 
concerns about logistical barriers and technical changes required for 
systems to track eligibility at the child-level rather than the family-
level. In addition, one Lead Agency asked for clarification of the 
expectations of this policy.
    Response: We are encouraged that most commenters on this proposed 
change endorsed extending the eligibility period for children in a 
family already receiving child care subsidies to align with an 
additional child's eligibility period. Under the Act in Section 
658E(c)(2)(N)(i), once determined eligible, children must receive a 
minimum of 12 months of child care services, unless family income rises 
above 85 percent of state median income (SMI) or, at Lead Agency 
option, the family experiences a non-temporary cessation of work, 
education, or training. Lead Agencies that implement policies that 
result in eligibility periods of less than 12 months for additional 
children would be out of compliance with the minimum 12-month 
eligibility requirement. We have made no change to the proposed 
language.
    Lead Agencies have the flexibility to establish eligibility periods 
longer than 12 months, a flexibility that allows the eligibility period 
for existing children to align with an additional child's eligibility 
period. Alternatively, Lead Agencies may track separate eligibility 
periods for each individual child in the family receiving child care 
subsidies, though ACF discourages this approach because it can confuse 
families and be administratively burdensome for families, providers, 
and Lead Agencies.
    Comment: Commenters supported our recommendation to leverage 
existing family information to verify an additional child's eligibility 
for child care subsidies.
    Response: As we described in the proposal, our intention is to 
reduce the administrative burden for families and Lead Agencies. We 
encourage Lead Agencies to implement additional policies that require 
only the minimum amount of information from families to verify an 
additional child's eligibility. Lead Agencies may assume that family 
information collected at the time of an existing child's eligibility 
determination (e.g., family income, working or attending job training 
or educational program) applies to an additional child's eligibility.
    Comment: Commenters supported adding the requirement for Lead 
Agencies to describe their additional child policies in their triennial 
CCDF Plans.
    Response: We agree that including a description of additional 
children or sibling policies in the CCDF Plans will lead to more 
transparency, more consistent implementation, and reduce confusion 
among families, providers, and Lead Agencies. No changes were made to 
the proposed language.
    Presumptive Eligibility. This final rule adds a provision at Sec.  
98.21(e) 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. Presumptive eligibility is an 
important tool Lead Agencies can use to reduce burden on families and 
ensure timely access to reliable child care assistance. At least six 
CCDF Lead Agencies currently allow presumptive eligibility. The rule 
makes changes to encourage more Lead Agencies to implement presumptive 
eligibility by improving clarity about CCDF rules, including that 
payments made with CCDF funds are allowable for any child ultimately 
determined eligible except in cases of fraud or intentional program 
violations.
    Therefore, this final rule 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 requirements 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 at the time of presumptive eligibility 
determination.
    The final rule further specifies that federal CCDF payments may be 
made

[[Page 15377]]

for presumptively eligible children and those payments, up to the point 
of final eligibility determination, 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 so long as the payment was not for a 
service period longer than the period of presumptive eligibility. Lead 
Agencies adopting presumptive eligibility are required to implement a 
minimum verification process that incorporates criteria that reduces 
the likelihood of error and fraud. A conforming change at Sec.  
98.71(b)(5) requires Lead Agencies implementing presumptive eligibility 
to track and report in their annual aggregate administrative report the 
number of presumptively eligible children ultimately determined to be 
fully eligible, the number for whom the family does not complete the 
documentation for full eligibility verification, and the number who 
turn out to be ineligible. We recommend Lead Agencies use these and 
other sources of data to ensure funds are safeguarded for eligible 
children and negative impacts on providers are minimized. In addition, 
the final rule includes a conforming change at Sec.  98.16(h)(5) 
requiring Lead Agencies to describe their presumptive eligibility 
policies and procedures in their CCDF Plans, including information on 
how they ensure minimal barriers for families and safeguard funds for 
eligible children.
    The change at Sec.  98.21(e) allows Lead Agencies to use 
presumptive eligibility to provide quicker access to child care 
assistance for families, while reducing perceived financial risk and 
administrative burden for the Lead Agency by clarifying that CCDF funds 
may be used to cover presumptive eligibility payments if appropriate 
safeguards are in place. This 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 the number of families who do not submit documentation and 
both the number of children ultimately determined eligible and 
ineligible. We note that the three-month period is a maximum 
presumptive eligibility period. Lead Agencies may establish presumptive 
eligibility policies for shorter periods and establish distinct periods 
for families to submit documentation and for Lead Agencies to process 
applications, provided that the combined duration does not exceed three 
months. Lead Agencies must end assistance for families once they are 
determined to be ineligible, even if that determination is completed in 
under three months.
    As part of the proposed changes associated with implementing 
presumptive eligibility, the NPRM proposed adding a new paragraph at 
Sec.  98.21(a)(5)(iv) that included a final determination of 
ineligibility after an initial determination of presumptive eligibility 
as one of the limited reasons a Lead Agency may choose to end 
assistance before the end of the 12-month eligibility period. We have 
not included this change in the final rule. As proposed, this language 
suggested that it was Lead Agency option whether to terminate 
assistance for a child once they were found ineligible. Rather, as 
stated above, Lead Agencies must end federal CCDF assistance once a 
child is determined to be federally ineligible according to Sec.  
98.21(a).
    Effective internal controls around presumptive eligibility 
processes are important to safeguard funds for CCDF eligible children. 
As described in Sec.  98.21(e)(5), when a Lead Agency is under a 
corrective action plan for error rate reporting, ACF will consider 
contextual factors around the error rate findings and other sources of 
information to determine if the Lead Agency can continue to use CCDF 
funds for direct services under presumptive eligibility. ACF recommends 
that Lead Agencies have a continuous quality assurance process to 
ensure their presumptive eligibility policies meet the needs of their 
eligible population while also ensuring effective internal controls.
    When children are newly added to the case of a family already 
participating in the subsidy program (e.g., new siblings) as discussed 
at Sec.  98.21(d), Lead Agencies may implement presumptive eligibility 
for the additional child while waiting for necessary additional 
information (e.g., proof of relationship, provider payment 
information), but, as discussed earlier, ACF recommends that Lead 
Agencies leverage existing family eligibility verification as much as 
possible to determine the additional child's presumptive and full 
eligibility and add the additional children to the program.
    Comment: Most comments received on this proposal supported the 
presumptive eligibility provisions. Some commenters requested ACF 
clarify if the intent of presumptive eligibility is a strategy to 
reduce stress for families already enrolled or to increase the number 
of families entering the subsidy system. A few commenters opposed the 
proposal due to concerns about limited funding and supply, as well as 
increased work for eligibility staff.
    Response: We are pleased by the support for the presumptive 
eligibility provisions. The primary intention of presumptive 
eligibility policies is to minimize family burden to quickly access 
child care services for children who are feasibly federally eligible 
for CCDF. We understand that Lead Agencies will need to consider 
potential benefits and costs when deciding whether to institute a 
presumptive eligibility policy and when crafting such policies. As a 
reminder, Lead Agencies are not required to adopt presumptive 
eligibility, and, for those who do, there are significant flexibilities 
to establish specific policies and procedures, as discussed in more 
detail below. As stated before, there is evidence of the substantial 
benefit to families if Lead Agencies implement presumptive eligibility, 
and the modifications to this policy in the final rule are meant to 
ensure that the level of risk to the Lead Agency is minimal in doing 
so. Therefore, Lead Agencies are encouraged to consider presumptive 
eligibility policies among other strategies to reduce barriers to 
enrollment, particularly for vulnerable populations, including families 
experiencing homelessness.
    Comment: We requested comment on whether three months was an 
appropriate length of time for presumptive eligibility. We also asked 
for data on the average amount of time it currently takes to process 
applications. We received many comments endorsing three months as an 
appropriate length of time. One commenter indicated that 90 days for 
verification seemed too long and recommended 60 days as a more 
reasonable timeframe, but also acknowledged that some situations 
including self-employment and homelessness may warrant more time for 
verifications. One State Lead Agency recommended flexibility to 
determine an appropriate length up to three months. Two commenters 
recommended a timeline for families to submit documentation to be 
separate from a timeline for Lead Agencies to process applications. 
Data received around the average amount of time taken to process 
applications was varied: estimates ranged from one

[[Page 15378]]

month, two months, or more to process applications.
    Response: We appreciate commenters providing data and support for 
the proposed timeframe and have decided to retain the three-month 
presumptive eligibility period. If a Lead Agency chooses to allow 
presumptive eligibility, they may establish shorter timeframes, but 
cannot exceed three months. ACF encourages Lead Agencies to consider 
the timing for the families they serve to submit documentation and for 
application processing when making decisions about the total length of 
time within a three-month period they would like to establish for their 
presumptive eligibility policies and processes.
    Comment: Multiple commenters endorsed allowing Lead Agencies 
flexibilities for implementing presumptive eligibility, including 
defining criteria for awarding presumptive eligibility and setting a 
period shorter than three months. Other commenters argued that 
presumptive eligibility should be a requirement, not a state option. 
Other commenters expressed concerns about unintended consequences on 
other policies or processes, including concerns about existing wait 
times that approach the three-month limit for presumptive eligibility 
and enrollment in other benefits programs.
    Response: We agree with commenters that Lead Agencies should have 
flexibility in whether and how they implement presumptive eligibility 
and have kept these flexibilities in the final rule. While the 
potential benefit to families could be substantial with its adoption, 
Lead Agencies are not required to use presumptive eligibility and will 
not be subject to penalties if they do not offer it. Lead Agencies also 
have the flexibility to define the documentation and verification 
necessary to determine a child's presumptive eligibility in such a way 
to increase the likelihood that eligible families are receiving 
presumptive eligibility. For example, Lead Agencies may choose to use 
eligibility criteria for a family's enrollment in another benefits 
program as verification for presumptive eligibility for CCDF benefits 
(see a discussion of how enrollment in other benefits programs applies 
to full eligibility verification below).
    Lead Agencies also have flexibility to establish the duration of 
presumptive eligibility, provided it does not extend beyond 3 months, 
or how frequently a family could be approved for presumptive 
eligibility. Much like the flexibilities for full eligibility 
determination, Lead Agencies have the flexibility of defining when 
presumptive eligibility begins, such as allowing presumptive 
eligibility on the date it is determined or on the date that the child 
care services begin. Lead Agencies also have flexibility on for whom 
they allow it (e.g., children with disabilities, children receiving or 
needing to receive protective services, other priority populations), 
though we would recommend that Lead Agencies thoughtfully consider why 
presumptive eligibility would be allowed for some groups and not 
others.
    We understand several Lead Agencies already use presumptive 
eligibility, and our intention is not to require burdensome changes to 
existing presumptive eligibility policies. However, we do expect that 
Lead Agencies implementing presumptive eligibility, both those with new 
and existing policies, regularly evaluate the effectiveness of their 
presumptive eligibility policies and employ the flexibilities in such a 
way to ensure that CCDF funding is safeguarded for eligible children.
    Comment: Multiple commenters endorsed the requirement to track and 
assess the number of presumptively eligible children who are ultimately 
determined ineligible as a commitment to accountability and continuous 
improvement. A few commenters recommended also requiring Lead Agencies 
to track the number of presumptively-eligible families who do not 
submit paperwork to prove their eligibility. Another commenter 
recommended gathering disaggregated demographic data related to 
tracking presumptive eligibility to reveal equity gaps in access and 
requiring Lead Agencies to report the child care supply by specific 
demographic variables (e.g., race and ethnicity, geographic location, 
disability).
    Response: In response to these comments, the final rule adds a 
requirement at Sec.  98.71(b)(5) for Lead Agencies that choose to offer 
presumptive eligibility in their CCDF program to report in the ACF-800 
(annual aggregate report) the number of presumptively eligible children 
ultimately determined eligible, the number for whom the family does not 
complete documentation, and the number who are determined ineligible. 
This was initially proposed as an addition to the CCDF Plan Preprint at 
Sec.  98.16(h)(5), but we have determined the ACF-800 is a more 
appropriate reporting mechanism for this information. Although we 
considered requiring additional disaggregated demographic and supply 
data to evaluate equity in presumptive eligibility, we are not making 
other changes so as to minimize administrative burden and encourage 
Lead Agency uptake. Nonetheless, we encourage Lead Agencies to collect 
these types of data to better assess whether their presumptive 
eligibility policies and procedures support equitable access to child 
care across the populations of eligible children they serve.
    Comment: Multiple commenters expressed concerns about disruptions 
in care if a presumptively-eligible family is found ineligible, and the 
potential harm to children, families, and providers. One commenter 
questioned if Lead Agencies could use full eligibility determination 
processes with multiple sets of criteria when determining eligibility 
for children receiving child care services under presumptive 
eligibility. Another commenter asked how presumptive eligibility would 
interact with paying providers in advance of delivery of care if a 
final ineligibility determination were made after a payment was issued 
but before the period of service closes.
    Response: Presumptive eligibility is intended to support feasibly 
eligible children to receive child care benefits more quickly than 
waiting for a complete review of full eligibility, but Lead Agencies 
are expected to execute full eligibility determination and use the same 
opportunities for verification for families who do not enter the 
program with presumptive eligibility. We understand concerns about the 
potential negative impact on families and providers if a child is 
ultimately found to be ineligible after receiving benefits under a 
presumptive eligibility period or if the presumptive eligibility period 
ends prior to a final determination, but the benefits of presumptive 
eligibility benefits to families are considerable.
    If a child is found to be ineligible due to eligibility 
requirements established by the Lead Agency, but still qualifies under 
federal requirements (i.e., if the Lead Agency sets income eligibility 
below 85 percent of SMI, but the family income is still lower than the 
federal threshold), the Lead Agency could implement a policy allowing 
CCDF funds to be used to provide child care benefits for the remainder 
of the presumptive eligibility period for up to three months. The 
prohibition on using CCDF funds to provide child care assistance to 
children who are not eligible under federal limits does not preclude 
the Lead Agency from using other funds, such as State general revenue 
funds or federal funds like Social Services Block Grant funds, to 
provide a grace period of care for families to make other arrangements 
before their child care benefits end. We

[[Page 15379]]

note that State funds used to provide subsidies for children who do not 
meet federal eligibility requirements cannot be used to meet the 
required maintenance of effort or State portion of the CCDF match.
    Regarding interactions between presumptive eligibility and provider 
payment policies, the requirement for provider payment policies to 
reflect generally-accepted payment policies at Sec.  98.45(m) applies 
to payments for children receiving care during a period of presumptive 
eligibility. This includes being paid prospectively and based on 
enrollment not attendance. If a child is ultimately determined to be 
federally ineligible for CCDF, the Lead Agency cannot require the child 
care provider to return funds if the child was properly enrolled, 
except for in cases of fraud.
    Comment: One commenter expressed concerns that a corrective action 
finding for improper payments would preclude a Lead Agency from 
adopting presumptive eligibility unless the cause of the errors is 
related to the Lead Agency's ability to perform presumptive eligibility 
for purposes of CCDF.
    Response: Our intent was to use error rate findings as a proxy for 
sufficient internal controls to adequately execute the increased 
complexity of incorporating presumptive eligibility, not abruptly deny 
a Lead Agency's ability to offer presumptive eligibility because of 
unrelated error rate findings. As a result of this comment, we revised 
this language in the final rule to allow for a more considered approach 
to determining if a Lead Agency has effective internal controls to 
justify a more complex eligibility policy that includes presumptive 
eligibility. While we retain the authority to deny a Lead Agency with a 
corrective action finding for improper payments the option to implement 
presumptive eligibility if warranted by an analysis of the Lead 
Agency's internal controls, the revised language allows flexibility for 
ACF to evaluate the contextual factors around the error rate reporting 
as well as other sources of data to approve the use of presumptive 
eligibility policies and develop a robust corrective action plan in 
partnership with the Lead Agency that will ensure funds are safeguarded 
for CCDF eligible children.
    Comment: Several commenters endorsed the proposal that payments to 
providers would not be deemed improper payments if a child is 
ultimately determined to be ineligible after the full determination 
process. During our consultation with Tribal Leaders and Tribal 
communities, one Tribal Leader expressed concern about whether Tribal 
Lead Agencies would be responsible for funds determined to be spent in 
cases of fraud and intentional program violations.
    Response: We agree with the commenters and retained this language 
in the final rule to be explicit that if a child meets the Lead Agency 
defined policies for presumptive eligibility enrollment and 
verification, then the child is considered eligible for CCDF during the 
period of presumptive eligibility. A final determination of 
ineligibility for CCDF would not retroactively alter this initial 
period of eligibility or require the Lead Agency to return CCDF funds 
to ACF, nor would a family or provider who acted in good faith be 
responsible for these payments. CCDF funds are allowed to be used to 
pay for provider payments as long as the child meets the requirements 
for presumptive eligibility, has not been determined ineligible to 
receive CCDF benefits from the Lead Agency, and has not been receiving 
CCDF benefits under presumptive eligibility for more than three months. 
The final rule adds a clarification that these flexibilities apply so 
long as the payment for services for a presumptively eligible child was 
not for a period longer than the period of presumptive eligibility.
    In cases of fraud or intentional program violation, the 
requirements for presumptive eligibility remain the same as for full 
eligibility. Regulations at Sec.  98.60(i) require Lead Agencies to 
recover child care payments that are the result of fraud. The payments 
shall be recovered from the party responsible for committing the fraud. 
For other overpayments that do not result from fraud, the Lead Agency 
has flexibility under federal rules regarding whether to recoup the 
funds.
    Comment: We received a few comments related to best practices for 
communicating with and supporting families navigating the presumptive 
eligibility process to avoid unwarranted findings of being ineligible.
    Response: The commenters' suggestions align with the consumer 
education goals of CCDF as well as with the newly amended redesignated 
provision at Sec.  98.21(f), aimed to reduce family burden around 
application processes. Lead Agency requirements for consumer education 
at Sec.  98.33 and application processes are applicable to presumptive 
eligibility child care services. Therefore, we did not make any 
additional changes based on these comments.
    Comment: A commenter requested clarification about whether the 
intent is to allow presumptive eligibility when adding a child to an 
existing family receiving subsidy or only during the initial 
application period for the household.
    Response: Our primary intent is for Lead Agencies to implement 
presumptive eligibility for a family's initial application for child 
care subsidies to hasten their access to child care benefits. As 
discussed above, we encourage Lead Agencies to implement additional 
child policies that require the minimum amount of information to verify 
an additional child's eligibility. However, incorporating presumptive 
eligibility policies while waiting to verify that minimum information 
(i.e., proof of relationship, provider payment information) is 
consistent with our goals of reducing bureaucratic hurdles for 
families.
    Reducing Family Burden in Application Processes: To make it easier 
for eligible families to access child care services, and in alignment 
with provisions of the Act requiring States and Territories to develop 
procedures and policies that ``ensure that working parents . . . are 
not required to unduly disrupt their employment in order to comply with 
the State's or designated local entity's requirements for 
redetermination of eligibility for [CCDF] assistance,'' (42 U.S.C. 
9858c(c)(2)(N)) the final rule at Sec.  98.21(f) as redesignated, 
requires Lead Agencies to 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 increase access to child care and can improve 
families' economic well-being. 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.\65\ Not surprisingly, 
parents also report online application options can be more convenient, 
less stressful, and prove especially useful in reducing the burden of 
document submission.
---------------------------------------------------------------------------

    \65\ 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.
---------------------------------------------------------------------------

    Thus, the final rule provides that Lead Agencies seek strategies to 
reduce these administrative burdens on families, including, to the 
extent practicable, by offering an online subsidy application option. 
Currently, only 33 States offer online subsidy applications. OCC 
released a CCDF model application in 2022, which includes practices for

[[Page 15380]]

defining, collecting, and verifying eligibility information, using best 
practices that limit burden on families.\66\ Lead Agencies without 
online subsidy applications will be expected to demonstrate in their 
CCDF Plans why implementation of an online subsidy application is 
impracticable. Nevertheless, OCC urges Lead Agencies that do not yet 
offer online applications to consider doing so given the substantial 
benefit to families and the Lead Agencies' ability to benefit from the 
model application developed by OCC.
---------------------------------------------------------------------------

    \66\ https://childcareta.acf.hhs.gov/full-model-application.
---------------------------------------------------------------------------

    Additionally, as Lead Agencies consider ways to lessen the burden 
on families seeking assistance from 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., Temporary Assistance for Needy Families (TANF) or Supplemental 
Nutrition Assistance Program (SNAP)) and then link directly to 
applications for these programs.\67\
---------------------------------------------------------------------------

    \67\ Meade, E., Gillibrand, S., & Weeden, J. (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/.
---------------------------------------------------------------------------

    Comment: Most commenters supported the proposal related to 
simplified enrollment and easing burden of application processes and 
offered additional proposals to support the goal. Several commenters 
who supported the proposal also urged ACF to require all Lead Agencies 
offer, at a minimum, both paper and online applications. In addition, 
commenters offered suggestions about how to increase accessibility and 
availability of applications for families seeking child care subsidies. 
Some commenters recommended that online applications be accessible via 
mobile devices given families' reliance on mobile phones to access 
online content. Some commenters also recommended that applications be 
available in multiple languages and through verbal and case note 
documentation for non-English speaking applicants, accessible for 
individuals with disabilities, in plain language or at an appropriate 
literacy level, and subject to usability testing where feasible. We 
received several comments calling for in-person or individualized 
support to help parents through the application process and one 
commenter mentioned the importance of customer service training. 
Several commenters offered suggestions to cross-link the application 
with other resources so that prospective families can have access to 
information on additional resources as well. These suggestions included 
linking the application to the consumer education and provider search 
websites and making information about services for families 
experiencing homelessness more prominent in the materials. Commenters 
also suggested making more flexible documentation requirements for 
income verification for people with informal employment or gig workers 
and for grandfamilies and the use of documents like tax returns and pay 
stubs to verify eligibility.
    Response: We recognize burdensome application processes discourage 
families from applying for child care assistance, delay access to child 
care, and can cause substantial stress to parents. While we decline to 
require Lead Agencies use mobile-friendly or linked applications, we 
strongly encourage Lead Agencies to carefully consider implementing 
processes that make it easier for families to access and navigate 
enrolling in CCDF, including mobile-friendly applications. As 
previously noted, States and Territories that do not use online 
applications will be required to describe why it is impracticable in 
their CCDF Plans.
    We also remind Lead Agencies that CCDF expenditures for the 
establishment and maintenance of child care information systems, 
including the development of an online application, are an allowable 
CCDF expenditure and are not considered child care administrative 
activities and thus do not apply to the administrative activities cap 
for CCDF funds. Likewise, activities that provide one-on-one support 
for families in submitting applications and providing access to 
transparent and easy to understand consumer education resources are 
considered quality expenditures. We also recommend Lead Agencies 
consider flexibilities for families that may have difficulties 
obtaining standard documentation. Lead Agencies have considerable 
flexibility in establishing the eligibility and verification 
requirements for families. We recommend Lead Agencies consider a wide 
range of circumstances in which families may be able to verify their 
eligibility.
    Comment: Several commenters requested that we reiterate existing 
flexibilities meant to ease administrative burdens and support 
continuity of care that were not addressed in the NPRM. Some commenters 
specifically called for the final rule to clarify that hours of care do 
not have to match the hours of the eligible activity.
    Response: We appreciate the recommendations to remind Lead Agencies 
of their considerable flexibilities in implementing their CCDF programs 
but did not make additional changes to the rule. Section 98.21(g) of 
the rule remains unchanged from current regulations and explicitly 
states that Lead Agencies are not required to limit authorized child 
care services strictly based on the work, training, or educational 
schedule of the parent(s) or the number of hours the parent(s) spend in 
qualifying activities. We therefore reiterate that Lead Agencies do not 
have to match the hours of care for a child participating in CCDF with 
the parent's work, training, or education schedule, which may limit 
participating children's access to high-quality settings and does not 
support the fixed costs of providing care so it can contribute to 
provider instability and reluctance to serve families with subsidies.
    Eligibility Verification through Other Programs: This final rule 
describes at Sec.  98.21(g), as redesignated, some Lead Agency options 
to simplify eligibility verification. Families receiving child care 
assistance are likely to be receiving or eligible to receive services 
from other benefits programs and coordination with other benefit 
programs can simplify eligibility determinations, ensure families can 
access all available benefits, and better support family well-being. 
Using enrollment in other benefit programs to verify CCDF eligibility 
reduces duplication of effort on the part of families and streamlines 
the eligibility determination process for Lead Agencies, thereby 
reducing burden on both sides. Such policies can also reduce the amount 
of time families have to wait to access child care services while Lead 
Agencies process eligibility determinations that are redundant to 
determinations made by other benefit programs. This policy is also a 
logical next step if Lead Agencies act on the encouragement in this 
final rule 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)). 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 FFY 2022-2024 CCDF State and Territory Plan.
    This final rule clarifies in Sec.  98.21(g)(1) and (2), as 
redesignated, that Lead Agencies have flexibility to use enrollment in 
other benefit programs to satisfy specific components of CCDF

[[Page 15381]]

eligibility without additional documentation (e.g., income eligibility, 
work, participation in education or training activities, or residency) 
or to satisfy CCDF eligibility requirements in full if eligibility 
criteria for other benefit programs is completely aligned with CCDF 
requirements. In Sec.  98.21(g)(2), Lead Agencies are expressly 
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 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) or to limit the documentation required to fulfill CCDF 
eligibility if the programs are not in complete alignment. For example, 
income eligibility for TANF cash assistance (42 U.S.C. 601 et seq.) 
meets 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 variation 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.
    Comment: Commenters were generally supportive of encouraging Lead 
Agencies to verify eligibility through families' enrollment in other 
benefits programs, noting several Lead Agencies were already 
implementing or preparing to use this flexibility to varying degrees. 
Some commenters appreciated the flexibility for Lead Agencies to self-
identify which verification requirements aligned between CCDF and other 
benefits programs. Many commenters supported the flexibility that if 
the eligibility criteria for other benefit programs within the Lead 
Agency's jurisdiction are completely aligned with CCDF requirements, 
this can satisfy CCDF eligibility requirements in full for those 
families or establish CCDF eligibility policies using the criteria of 
other public benefits programs.
    Response: We are encouraged by support for reducing bureaucratic 
barriers for families and Lead Agencies and the benefits that 
streamlining program will have for families. In response, we retained 
the proposed language.
    Comment: One commenter cautioned against adding requirements to 
CCDF eligibility verification that increase the bureaucratic burden for 
families and providers.
    Response: We agree with the commenter, which is why this rule seeks 
to reduce bureaucratic and paperwork burdens for families and Lead 
Agencies in determining a child's eligibility to receive child care 
subsidies. CCDF regulations at Sec.  98.20(b)(4) allow the Lead Agency 
to establish additional eligibility conditions or priority rules so 
long as they do not ``impact eligibility other than at the time of 
eligibility determination or re-determination.'' We recommend Lead 
Agencies reconsider families' engagement with other benefits programs, 
such as child support, as preconditions for CCDF eligibility as this 
likely increases the bureaucratic burden for families and Lead 
Agencies. Moreover, when Lead Agencies use data from other benefits 
programs to verify CCDF eligibility requirements, Lead Agencies must 
ensure that the information is only acted upon at eligibility 
determination or re-determination and cannot be used to discontinue 
child care subsidies during the eligibility period. For example, a Lead 
Agency that requires child support cooperation as an additional CCDF 
eligibility requirement, can only assess cooperation at the time of 
CCDF eligibility determination or re-determination and cannot use 
failure to cooperate as a reason to discontinue child care subsidies 
between eligibility determination or re-determination.
    Technical Change: This final rule corrects a grammatical error by 
adding the word ``on'' at Sec.  98.21(a)(2)(iii). The revised language 
now reads, ``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). We did not receive comments 
on this correction.

Subpart D--Program Operations (Child Care Services) Parental Rights and 
Responsibilities

    Subpart D of the regulations describes parental rights and 
responsibilities and provisions related to parental choice, including 
parental access to their children, requirements that Lead Agencies 
maintain a record of parental complaints, and consumer education 
activities carried out by Lead Agencies to increase parental awareness 
about the range of available child care options. This final rule amends 
this subpart to require Lead Agencies use some grants or contracts for 
direct services, post information about sliding fee scales on consumer 
education websites, and it clarifies requirements on posting full 
monitoring reports and aggregate data.
Sec.  98.30 Parental Choice
    Section 98.30(b) clarifies section 658E(c)(2)(A) of the Act (42 
U.S.C. 9858c(c)(2)(A)), which identifies the use of grants or contracts 
as a key element of parental choice of child care providers. This 
statutory provision states that a parent shall have the option ``to 
enroll such child with a child care provider that has a grant or 
contract for the provision of such services,'' or to receive a child 
care certificate. As well, section 658E(c)(2)(M) (42 U.S.C. 
9858c(c)(2)(M)) requires Lead Agencies to ``develop and implement 
strategies (which may include . . . the provision of direct contracts 
or grants to community-based organizations . . .) to increase the 
supply and improve the quality of child care services'' for certain 
underserved populations. Only 10 States and Territories report using 
any grants and contracts for direct services, and only six States and 
Territories report supporting more than 5 percent of children receiving 
subsidy via a grant or contract even though they are required by the 
Act and can be one of the most effective tools to build supply in 
underserved geographic areas and for underserved populations.\68\ 
Therefore, the final rule at Sec.  98.30(b) clarifies the statutory 
requirement by stating that States and Territories are required to 
provide some direct child care services through grants or contracts, 
including at a minimum, using some grants or contracts for children in 
underserved geographic areas, infants and toddlers, and children with 
disabilities. The final rule requires some use of grants or contracts 
for each of these populations because of the particularly stark supply 
issues that lead to minimal parent choice. ACF encourages Lead Agencies 
to also consider other populations that may benefit from grants or 
contracts, including care for children during nontraditional hours.
---------------------------------------------------------------------------

    \68\ https://www.acf.hhs.gov/occ/data/fy-2020-preliminary-data-table-2.
---------------------------------------------------------------------------

    Comment: Commenters strongly supported the proposal to require Lead 
Agencies use some grants and contracts for direct services, noting they 
support a more stable and equitable child care system, and many 
requested additional clarifications and suggested revisions. A 
bicameral Congressional comment also supported this provision and 
specifically noted ACF's authority to require some use of grants or 
contracts.

[[Page 15382]]

    Response: We appreciate the validation of the importance of this 
policy and have retained the requirement for Lead Agencies to use some 
grants or contracts for direct services and have made some changes 
based on commenter suggestions described below. Grants and contracts 
for direct services can play a critical role in increasing parent 
options for child care, particularly in underserved geographic areas 
and for underserved populations like infants and toddlers and children 
with disabilities. They increase stability for child care providers and 
encourage them to participate in the subsidy program. Since 
insufficient child care supply greatly limits parents' choices in child 
care arrangements, requiring some use of grants or contracts to help 
more parents find the child care they need.
    Comment: The NPRM proposed to require the use of grants and 
contracts at least to provide some child care services for infants and 
toddlers, children with disabilities, and children who need care during 
nontraditional hours. Some commenters recommended requiring Lead 
Agencies to use grants or contracts for additional underserved or 
under-resourced communities and populations, and several commenters 
recommended removing the requirement to use grants or contracts for 
nontraditional hour care because families may use license-exempt home-
based care for nontraditional hours either because they prefer it or 
because few child care centers and family child care providers operate 
outside of traditional business hours. Commenters indicated grants or 
contracts are less appropriate for license-exempt home-based child 
care.
    Response: Based on these comments, the final rule adds ``children 
in underserved geographic areas'' to the list of groups required to be 
served with grants or contracts and removes the requirement to use 
grants or contracts for nontraditional hour care. Some parents prefer 
informal care by family or friends, often in the child's home, during 
nontraditional hours of care.\69\ While it is important to address the 
stark supply issues for this type of care, commenter feedback and 
additional review of existing State policies leads us to believe 
mechanisms other than grants or contracts, such as higher payment 
rates, engaging with home-based child care networks, and partnering 
with employers that have employees working nontraditional hours, may 
also be effective for increasing the availability of care during 
nontraditional hours. As delineated in Sec.  98.16(y), Lead Agencies 
must take action to build availability of nontraditional hour care for 
families participating in CCDF. Though the rule does not require it, we 
encourage Lead Agencies to consider whether contracted slots for 
extended hour care in the morning and evening would be a useful 
strategy for improving parent choice in care that meets their needs.
---------------------------------------------------------------------------

    \69\ Adams, G. et al., ``Executive Summary: What Child Care 
Arrangements Do Parents Want during Nontraditional Hours? '': 
https://www.urban.org/projects/informing-policy-decisions-about-nontraditional-hour-child-care.
---------------------------------------------------------------------------

    Comment: Some commenters requested clarification as to whether each 
group listed needed to be served with grants or contracts or if serving 
only one of the listed groups would satisfy the requirement.
    Response: The final rule leaves in place the language to require 
each of three identified groups (i.e., children in underserved 
geographic areas, infants and toddlers, and children with disabilities) 
be served with grants or contracts. The significant supply shortages in 
each of these types of care limit parents' child care options and would 
benefit from grants or contracts.
    Comments: Some commenters wanted clarification as to what is meant 
by ``some'' grants or contracts and if ACF has a specific threshold in 
mind, stressing the importance of using data to determine the number of 
grants or contracts for direct services. Some of these commenters 
thought we should set a minimum threshold and others recommended 
against setting a minimum or maximum threshold or a formula for 
calculating the appropriate percentage of grant or contracts slots.
    Response: ACF declines to set thresholds for ``some'' grants or 
contracts in this rule and encourages Lead Agencies to implement the 
provision sufficiently to improve supply for these types of care. 
However, in response to comments requesting clarification about the 
number of grants or contracts, we revised the language in paragraphs 
Sec.  98.16 (x) and (y) to improve transparency around Lead Agency 
policies and require Lead Agencies to provide data on the extent to 
which they are serving subsidy-eligible children across the identified 
groups. Additionally, ACF revised the language in paragraph (y) to 
clarify that Lead Agencies should describe in their CCDF Plan what 
proportion of shortages identified in Sec.  98.16(x) would be filled 
with grant or contracted slots.
    Comment: Commenters recommended ACF include additional populations 
of children and families to be served by grants or contracts while 
others noted new requirement should not shift attention from one 
underserved group to another.
    Response: ACF strongly encourages Lead Agencies to use grants or 
contracts for additional groups recommended by commenters, but declines 
to require Lead Agencies use this strategy to serve additional 
populations. Additional groups recommended by commenters include 
children experiencing homelessness, children involved with the child 
welfare system (including those in foster care and kinship care), 
adolescent parents, out-of-school time care/school age, dual language 
learners, 2-generation programs, children whose parents have been 
incarcerated, providers in rural or remote communities, and areas with 
an insufficient supply of licensed child care. ACF further encourages 
Lead Agencies use data collected through supply analysis to direct 
grants or contracts towards identified areas of need.
    Comment: Commenters recommended that ACF specify Lead Agencies use 
grants or contracts across different child care settings, including 
family child care and networks of home-based care providers.
    Response: ACF strongly encourages Lead Agencies to define and use 
an equity-focused distribution process for grants or contracts that 
includes family child care and small child care centers to support 
parents having a range of child care options. Many Lead Agencies 
successfully used such a process to target and distribute ARP Act 
Stabilization Grant funds. While grants or contracts are traditionally 
seen as a strategy for center-based care, some Lead Agencies have 
effective grants or contracts with family child care providers and 
home-based provider networks.\70\Additionally, research shows that 
families utilize family child care settings for infants and toddlers at 
higher rates than older children.\71\
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    \70\ Bipartisan Policy Center. (January 2021). Payment Practices 
to Stabilize Child Care. https://bipartisanpolicy.org/download/?file=/wp-content/uploads/2021/01/BPC-ECH_Payment-practices_RV5.pdf.; Bromer, J., Ragonese-Barnes, M. & Porter, T. 
(2020). Inside family child care networks: Supporting quality and 
sustainability. Chicago, IL: Herr Research Center, Erikson 
Institute. https://www.erikson.edu/wp-content/uploads/2020/12/Inside-FCC-networks-Case-Studies-2020.pdf.
    \71\ Datta, A.R., Milesi, C., Srivastava, S., & Zapata-Gietl, C. 
(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/home-based-early-care-and-education-providers-2012-and-2019-counts-and-characteristics.

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[[Page 15383]]

    Comment: Some commenters wanted clarification about the intended 
definition of ``grants and contracts,'' if the requirement was specific 
to direct services, and if best practices for contracting and equity 
could be included in a definition.
    Response: We provide clarification on the definition of grants or 
contracts and direct services at Sec.  98.50. We agree with commenters 
that grants or contracts for direct service slots should at a minimum 
adhere to the same requirements as certificates, including paying 
providers prospectively. While the final rule does not include 
additional regulatory language to this effect, new and existing 
regulations at Sec.  98.45(m) apply to both grant or contracted slots 
and certificates, and therefore reaffirms these expectations. In 
addition, we strongly encourage Lead Agencies to design their grants or 
contracts with best practices in mind. Specifically, we strongly 
encourage Lead Agencies to pay a rate based on cost of care, offer 
higher rates for grant or contracted slots, and provide opportunities 
for additional technical assistance, coaching, mentoring, and other 
supports to child care programs.
    Comment: A few commenters, including one member of Congress, 
opposed this requirement and expressed concerns that any requirement 
for grants or contracted slots reduced parent choice, specifically 
because faith-based providers may not be able to receive grants or 
contracts.
    Response: ACF disagrees with the contention that requiring grants 
or contracts for populations that the statute itself requires Lead 
Agencies to prioritize would reduce parent choice. Section 
658E(c)(2)(M) of the Act clearly states that direct contracts or grants 
are a strategy to increase the supply and quality of child care for 
underserved populations, including infants and toddlers, children with 
disabilities, and children who need child care during nontraditional 
hours. Some parents do not have meaningful choice currently,\72\ and 
integrating some grants and contracts into direct service options will 
expand parents' choices. Nothing in federal law prohibits faith-based 
child care providers from receiving grants or contracts to provide 
direct child care services. Faith-based providers receiving grants or 
contracts are restricted from using the funds for sectarian purposes or 
activities, including sectarian worship or instruction (42 U.S.C. 
9858k(a). Further, because families must still be offered the option of 
a certificate or voucher, this rule will not limit a family's ability 
to choose a faith-based provider and we do not expect the requirement 
to materially reduce the amount of funding available to faith-based 
child care providers through certificates or vouchers.
---------------------------------------------------------------------------

    \72\ RAPID, (2022) ``Overdue: A new child care system that 
supports children, families and providers,'' https://static1.squarespace.com/static/5e7cf2f62c45da32f3c6065e/t/63a1d9582916181ff4b729be/1671551320275/overdue_new_child_care_system_factsheet_dec2022.pdf.
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    Comment: Some commenters suggested ACF allow Lead Agencies to opt-
out of the requirement for grants or contracts if they could 
demonstrate there was no need or desire for grants or contracts.
    Response: For the reasons listed above, including limitations in 
parents' choice in child care arrangements for some parents 
participating in CCDF, significant supply shortages, and research 
demonstrating the benefits of grants or contracts on supply and for 
providers, we decline to accept this recommendation.
Sec.  98.33 Consumer and Provider Education
    Clarifying full monitoring reports and aggregate data. This final 
rule adds Sec.  98.33(a)(4)(ii) to clarify what information Lead 
Agencies must post on consumer education websites. 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. Previous 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 did not define a ``full monitoring and inspection report.'' 
This lack of clarity has led to varied implementation, 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 useful for parents to understand the full scope 
of a monitoring inspection, so they have the information needed to make 
informed child care decisions. Section 98.33(a)(4)(ii) through (iv) are 
redesignated accordingly without changes.
    The final rule also amends paragraph (a)(5) to require the CCDF 
consumer education websites include the total number of children in 
care each year disaggregated by the type of child care provider because 
it provides necessary context for parents and the public to understand 
the aggregate data on serious injuries and fatalities in child care 
settings. Sec.  98.33(a)(5) requires Lead Agencies to post the annual 
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 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 and 
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 confusion and unclear expectations for Lead Agency 
compliance. We also separate the existing requirements in paragraph 
(a)(5) without change into multiple subprovisions to improve clarity.
    Comment: Commenters supported the proposed clarification to the 
definition of ``full monitoring and inspection report'' at Sec.  
98.33(a)(4)(ii).
    Response: We received no other comments on Sec.  98.33(a)(4)(ii) 
and have retained the language as proposed in the NPRM.
    Comment: Commenters supported the requirement for States to post 
the total number of children in care to their consumer education 
websites. Several commenters proposed that States be required to post 
the number of children in care by child age, licensing status, and 
quality rating, noting these data are needed to understand the supply 
of care available to families.
    Response: Though we agree this disaggregated data would provide 
useful information about child care supply and could help parent 
decision-making, we understand some States may not have the capacity to 
publish this information. Therefore, we retained the language as 
proposed to ensure this new requirement does not add additional burden 
to States.
    Comment: A few Lead Agencies commented that posting the total 
number of children in care would be burdensome for States. These 
commenters had concerns about how often Lead Agencies would be expected 
to collect this data and from which types of providers they would need 
to collect these counts. Additionally, commenters noted that collecting 
this data could necessitate changes to State computer tracking systems.
    Response: States are already required to post this data under CCDF 
and ACF has created multiple technical resources to help States publish 
these counts on

[[Page 15384]]

their websites.\73\ Lead Agencies already must post the total number of 
children in care by provider category and licensing status on their 
consumer education websites and the language changes at Sec.  
98.33(a)(5) only clarify that these data, along with the counts of 
deaths or serious injuries, are posted annually for all eligible 
providers. For licensed care, States and Territories can provide an 
estimated number of children in care based on the capacity of licensed 
program, rather than actual enrollment or attendance numbers. ACF will 
continue to offer flexibilities if States do not have a way to estimate 
the number of children in license-exempt care. The language was 
retained as proposed.
---------------------------------------------------------------------------

    \73\ Child Care State Capacity Building Center. (September 29, 
2023). Consumer Education website Requirements Infographic. U.S. 
Department of Health and Human Services, Administration for Children 
and Families. Office of Child Care. https://childcareta.acf.hhs.gov/sites/default/files/new-occ/resource/files/consumer_education_website_requirements.pdf.; Child Care State 
Capacity Building Center. (August 2021). Template for Displaying 
Serious Injuries, Deaths, and Instances of Substantiated Child Abuse 
in Child Care. U.S. Department of Health and Human Services, 
Administration for Children and Families, Office of Child Care. 
https://childcareta.acf.hhs.gov/sites/default/files/new-occ/resource/files/aggregate_data_template_for_posting_serious_injuries.pdf.
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    Posting sliding fees scales. To help ensure families are aware of 
co-payment policies, the final rule retains a new requirement at Sec.  
98.33(a)(8) that States and Territories 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 for 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 Act's focus on consumer education in 2014, 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 about child care 
and applying for child care subsidies. For example, it remains 
difficult for parents in many communities to learn about co-payment 
rates in the subsidy program and what their family might expect to pay. 
Therefore, the final rule requires Lead Agencies to post current 
information about their system of cost-sharing (co-payments) based on 
family size and income. Under this new requirement, Lead Agencies are 
required to post about their 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).
    Comment: Commenters recognized and supported the need for the 
proposed consumer education requirement at Sec.  98.33(a)(8). In 
general, they expressed that requiring Lead Agencies to post clear 
information about their co-payment policies improves access to 
information that is useful for families making decisions about child 
care.
    In response to our request for comments on the type of information 
related to co-payments that should be included on consumer education 
websites, the majority of commenters on this proposal stated that 
consumer education websites should explain how co-payments are 
calculated and how co-payments might differ based on the type of 
provider a family chooses. Other commenters proposed that websites 
should include information about weekly or monthly amounts that 
families might pay, as well as details about co-payments when enrolling 
multiple children, changing a co-payment amount, and populations for 
which co-payments are waived entirely.
    Response: This new provision at Sec.  98.33(a)(8) clarifies that 
consumer education websites must help families determine the co-payment 
amount that they can expect to pay. We agree that it may be valuable 
for parents to see this information broken into weekly and/or monthly 
amounts, and States have the flexibility to use this approach. It may 
also be helpful for consumer education websites to include details 
about how co-payment amounts are impacted when multiple children are 
enrolled and outline the State-specific process for requesting a change 
to a co-payment amount. We appreciate these recommendations and 
reiterate that Lead Agencies have flexibility to inform parents about 
what they should expect to pay in the way that best makes sense within 
the context of their policies and processes. The final rule clarified 
with the added requirement at Sec.  98.33(a)(8) that State websites 
must provide information about waiving co-payments, and we agree with 
commenters that posted information about populations for which co-
payments are waived (e.g., incomes are at or below 150 percent of the 
poverty level, children with disabilities) is necessary to meet this 
requirement.
    Comment: We requested comments specifically on the type of 
information related to eligibility that should be included on the 
consumer education websites. One commenter recommended that additional 
eligibility information should be included on websites, specifically 
information about the hours required for full-time care and about the 
education and/or work requirements for parents participating in CCDF.
    We also received recommendations for consumer education websites 
that were unrelated to co-payment or eligibility policies. Several 
commenters suggested that websites should provide information about 
child care waitlists, license-exempt care, Head Start eligibility, 
program contact information, and the language proficiency of child care 
staff.
    Response: We appreciate the consumer education proposals related to 
eligibility and agree that posting about the hours required for full-
time care and about the education and/or work requirements for CCDF are 
examples of best practices. To ensure that Lead Agencies continue to 
have flexibility, we opted not to make any regulatory changes to the 
consumer education section related to eligibility.
    Comment: Some commenters recommended co-payment information posted 
as part of the new requirement at Sec.  98.33(a)(8) be available to 
families in multiple languages. Several commenters recommended we 
require Lead Agencies post sliding fee scale information in multiple 
languages or for websites to have a translation option. Some commenters 
also suggested that consumer education websites should include co-
payment calculators.
    Response: The regulation already requires at Sec.  98.33(a) that 
consumer education websites are ``easily accessible websites that 
ensures the widest possible access to services for families who speak 
languages other than English and persons with disabilities.'' 
Therefore, the information posted on the website, including the 
information about sliding fee scales, must be easily accessible and 
ensure the widest possible access to services for families who speak 
languages other than English. We agree that online co-payment 
calculators can be a helpful tool for families to access child care 
information, and we encourage Lead Agencies to follow the example of 
the States that have already implemented these tools on their websites. 
However, we declined to add a regulatory requirement for States to add 
co-payment calculators, as to maintain flexibility for States.

[[Page 15385]]

    Comment: Commenters also suggested other information dissemination 
strategies in addition to the new website requirement at Sec.  
98.33(a)(8). Several commenters suggested we require States provide 
families a copy of the sliding fee scale that includes a plain-language 
explanation of how co-payments are calculated in their home language. 
Some commenters wanted Lead Agencies to require providers post the 
sliding fee scale prominently in child care facilities. They also 
supported the effort to expand information dissemination strategies but 
wanted to go further and encourage States to adopt additional forms of 
communication (e.g., pamphlets at community-based spaces) and to 
utilize search engine optimization. Commenters focused on increasing 
access to people with low literacy and encouraged the adoption of 
mobile-friendly information as much as possible.
    Response: We appreciated commenters providing additional 
suggestions for information dissemination strategies. While we opted 
not to add additional requirements to provide copies of the sliding fee 
scale to families, to post sliding fee scale information in child care 
facilities, to utilize search engine optimization, or to adopt 
additional forms of communication beyond websites, we encourage all 
Lead Agencies to utilize various communication methods to reach 
families with low-literacy or without access to computers. We encourage 
states to create websites that are mobile-friendly. It is essential for 
child care information to be accessible to all families, and we 
recognize that no single information dissemination strategy will work 
for all Lead Agencies.

Subpart E--Program Operations (Child Care Services) Lead Agency and 
Provider Requirements

    Subpart E of the regulations describes Lead Agency and provider 
requirements related to applicable health and safety requirements, 
monitoring and inspections, and criminal background checks. It also 
includes provisions requiring the Lead Agency to set payment rates for 
providers serving children receiving subsidies that ensure equal access 
to the child care market and to establish a sliding fee scale that 
provides for affordable cost-sharing for families receiving child care 
assistance.
    This final rule includes changes to this subpart related to family 
co-payments and Lead Agency payment rates and practices to providers, 
as well as technical changes to criminal background checks.
Sec.  98.43 Criminal Background Checks
    Section 658H(b) of the Act (42 U.S.C. 9858f(b)) and Sec.  98.43(b) 
require a child care staff member to complete a comprehensive 
background check to be eligible for employment by a child care provider 
that is licensed, regulated, or registered or eligible to participate 
in CCDF. The comprehensive check must include a Federal Bureau of 
Investigation (FBI) fingerprint check, a search of the National Crime 
Information Center's National Sex Offender Registry (NCIC NSOR), a 
fingerprint-based search of the state criminal registry, a search of 
the state sex offender registry, and a search of the state-based child 
abuse and neglect registry in the state where the child care staff 
member resides and each state where such staff member resided during 
the preceding 5 years.
    Section Sec.  98.43(d)(4) allows prospective child care staff to 
begin working for a child care provider after receiving results from 
either the FBI fingerprint check or a fingerprint check of the state 
criminal registry or repository in the state where the staff member 
resides. Staff members that are hired before all background check 
components required at Sec.  98.43(b) are completed must be supervised 
at all times by an individual who has already received qualifying 
results. This process is often referred to as ``provisional 
employment.'' The intent in establishing the provisional employment 
requirement in the 2016 Final Rule was to help staff begin work quickly 
while ensuring child safety by prohibiting prospective staff who have 
not completed the FBI or the fingerprint in-state criminal background 
checks from working directly with children.
    Since its inclusion in the 2016 CCDF Final Rule, States, 
Territories, Tribes, and child care providers have expressed concerns 
with the background check requirements, including those related to the 
provisional employment requirement, stating that they cause hiring 
delays and exacerbate staffing challenges. Many states continue to be 
out of compliance with one or more of the background check 
requirements, including provisional hiring.
    While we acknowledge the operational challenges associated with the 
Act's background check provisions, the vast majority of the 
requirements are established in the Act and cannot be changed through 
regulations. This final rule makes a few technical changes to sections 
of the regulation that were previously unclear.
    Responsibility for eligibility determination. This final rule makes 
a technical change at Sec.  98.43(a)(1)(i) to clarify that States, 
Territories, and Tribes must have requirements, policies, and 
procedures that require the entity to make a determination of 
eligibility for child care staff based on the background check and 
cannot simply provide results to the child care provider to make the 
determination. This is consistent with the statutory requirement at 
section 658H(e)(2)(A) (42 U.S.C. 9858f(e)(2)(A)) that ``[t]he State 
shall provide the results of the criminal background check to the 
provider in a statement that indicates whether a child care staff 
member (including a prospective child care staff member) is eligible or 
ineligible for employment described in subsection (c), without 
revealing any disqualifying crime or other related information 
regarding the individual.'' Previously there has been some confusion as 
to whether the Lead Agency should simply give the results to child care 
providers to then make the determination. Relatedly, the final rule 
amends Sec.  98.43(c)(1) to clarify that it is the State, Territory, 
Tribe, and Lead Agency's responsibility to determine a prospective 
staff member's eligibility for employment as a result of the background 
check requirements and that a child care provider does not have a role 
in reviewing background check results and determining a staff member's 
employment eligibility. This does not preclude child care providers 
from using additional discretion for hiring after the State, Territory, 
or Tribe's determination of eligibility based on the comprehensive 
background check.
    Comment: Commenters supported these proposed clarifications. Some 
expressed concerns that the change at Sec.  98.43(a)(1)(i) when 
combined with the proposed change related to qualifying results at 
Sec.  98.43(d)(3)(i) would change policies related to provisional 
employment.
    Response: As discussed in more detail below, we are not making any 
substantive changes to requirements related to provisional hiring. 
Rather, this change is meant to clarify that States, Territories, and 
Tribes must have processes related to determining a staff member's 
eligibility. Previous regulatory language did not include that 
requirement and led to confusion about who was responsible for 
determining eligibility. Therefore, we kept the change as proposed.
    Comment: One commenter requested clarification on whether this 
provision would impact existing State hiring practices, especially 
those that allow child care providers to make a final hiring decision 
after the State has made

[[Page 15386]]

an employment eligibility determination based on State and federal 
regulations.
    Response: Our intention is to clarify the role of the State, 
Territory, Tribe, and Lead Agency as it relates to making 
determinations of employment eligibility. Previous regulatory language 
made it unclear whether child care providers could make determinations 
of eligibility, and Lead Agencies had varying interpretations of this 
requirement. In response to comments, we revised the proposed change to 
also remove reference to child care providers in the introductory 
language at Sec.  98.43(c)(1) to reinforce that child care providers do 
not have a role in the employment eligibility determination process.
    State, Territory, and Tribal regulations and procedures may allow a 
child care provider to establish its own criteria for unsuitability 
even after the State, Territory, or Tribe determines that the 
individual is eligible for employment based on CCDF regulations and 
State Code. This means that it is possible for a child care provider to 
decide not to hire an individual, even when that individual has been 
deemed eligible for employment by the state, territory, or Tribe. 
However, as mentioned in the 2016 Final Rule Preamble, we continue to 
strongly encourage States, Territories, and Tribes and child care 
providers to ensure that hiring practices meet the recommendations of 
the U.S. Equal Employment Opportunity Commission for any additional 
disqualifying crimes.\74\
---------------------------------------------------------------------------

    \74\ U.S. Equal Employment Opportunity Commission, Enforcement 
Guidance on the Consideration of Arrest and Conviction Records in 
Employment Decisions under Title VII of the Civil Rights Act of 
1964, https://www.eeoc.gov/laws/guidance/upload.
---------------------------------------------------------------------------

    Disqualifying Crimes. Section 658H(c) of the Act (42 U.S.C. 
9858f(c)) and Sec.  98.43(c)(1) of the regulations specify 
disqualifying crimes for child care staff members of providers serving 
children receiving CCDF assistance. The disqualification at Sec.  
98.43(c)(1)(v) is for a conviction of a violent misdemeanor as an adult 
against a child, including a misdemeanor involving child pornography. 
There has been some confusion as to whether a misdemeanor involving 
child pornography needed to be classified as violent or non-violent to 
be a considered a background check disqualifier. To address these 
questions, the final rule amends Sec.  98.43(c)(1)(v) to classify any 
misdemeanor involving child pornography as a disqualifier under CCDF, 
regardless of whether the crime is classified as violent or non-
violent.
    Comment: Commenters requested additional clarification about which 
misdemeanors involving child pornography must be considered 
disqualifying offenses under CCDF.
    Response: To address comments, we revised the proposed change at 
Sec.  98.43(c)(1)(v) to further clarify that any misdemeanor conviction 
involving child pornography must be considered a disqualifying crime 
whether considered violent or not.
    Comments: One commenter requested we define the term ``violent.''
    Response: We decline to define the term ``violent'' in the 
regulation. Section 658H(c) of the Act separately defines felonies 
involving child pornography as being a disqualifying ``crime against 
children'' (42 U.S.C. 9858f(c)(1)(D)(iii) and (E)). Felonies are listed 
at subparagraph (D) and misdemeanors are listed at subparagraph (E). 
Lead Agencies should define ``violent'' in accordance with their own 
State, Territory, or Tribal law.
    Receiving Qualifying Results. Section 658H(d) of the Act (42 U.S.C. 
9858f(d)) and Sec.  98.43(d) of the regulations require child care 
providers to submit requests for background checks prior to when an 
individual becomes a staff member and at least once every five years. 
Sec.  98.43(d)(3)(i) makes an exception if a staff member already 
received a background check within the past five years. The final rule 
amends Sec.  98.43(d)(3)(i) to clarify those results must be qualifying 
results. This is consistent with how OCC has supported and overseen 
this provision since 2016.
    In response to comments, the final rule also clarifies at Sec.  
98.43(d)(4) that a prospective staff member may begin working with 
children only after they receive qualifying results for either the FBI 
fingerprint check or the in-state fingerprint check (as long as their 
work with children is supervised by a staff member whose background 
check is complete). Simply submitting the fingerprint for the FBI check 
or the in-state check is not sufficient for a prospective staff member 
to be provisionally employed to work with children. This is consistent 
with how OCC has enforced and provided guidance for the provisional 
hire requirement since 2016, but the underlying regulation wording has 
caused some confusion. In both these instances, submitting background 
checks is insufficient for working with children because it is 
necessary to first receive qualifying results.
    Comment: Commenters were generally supportive of the clarification 
in Sec.  98.43(d)(3)(i), but some raised concerns about whether this 
technical change would impact the existing provisional hire flexibility 
at Sec.  98.43(d)(4), which commenters noted was a critical 
flexibility.
    Response: In this final rule, the provisional hire flexibility 
remains unchanged from the 2016 Final Rule: States, Territories, and 
Tribes may permit child care providers to provisionally hire 
individuals for whom there are qualifying results on either the FBI 
fingerprint check or the in-state fingerprint check as long as their 
work with children is supervised by a staff member whose background 
check is complete. We amended Sec.  98.43(d)(4) for clarity in response 
to comments and make no substantive changes to the provisional hire 
rule.
Sec.  98.45 Equal Access
    Demonstrating Equal Access. Section 98.45(b) requires Lead Agencies 
to summarize in their CCDF Plans the data and evidence relied on to 
ensure that families participating in CCDF have equal access to child 
care services comparable to those provided to families not eligible to 
receive child care assistance. The final rule amends (b)(5) to require 
Lead Agencies describe how co-payments ``do not exceed 7 percent of 
income for all families.'' This change aligns with the new requirement 
at redesignated Sec.  98.45(l)(3) to limit family co-payments to 7 
percent of family income. Fuller discussion of this change, including 
comments and responses, are later in this preamble at Sec.  98.45(l).
    Market Rate Survey Reports. This final rule requires at new Sec.  
98.45(f)(1)(iv) that States and Territories include data on the extent 
to which CCDF child care providers charge amounts to families more than 
the required family co-payment in instances where the provider's price 
exceeds the subsidy payment, including data on the size and frequency 
of any such amounts. States and Territories have the discretion to 
determine how they present this data in their reports. As States and 
Territories have already been required to examine this data as part of 
their market rate survey or approved alternative methodology, we do not 
expect this requirement to create new burdens for the Lead Agencies.
    This requirement was not proposed in the NPRM but is being added in 
this final rule in response to comments noting that the new requirement 
capping family co-payments made it more important to have transparent 
and timely data about the true out of pocket costs for families 
receiving subsidies. The comments received are discussed at Sec.  
98.71.

[[Page 15387]]

    Paying the Established Subsidy Rate. This final rule codifies at 
Sec.  98.45(g) existing policy that allows Lead Agencies to pay 
eligible child care providers caring for children receiving CCDF 
subsidies the Lead Agency's established subsidy payment rate 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. The 
preamble to the 2016 CCDF Final Rule states that Lead Agencies may pay 
amounts above the provider's private pay rate 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). However, this language was not 
included in the regulation, which has led to misunderstanding in the 
field and led some Lead Agencies to prohibit paying child care 
providers the full established payment rate.
    Section 658E(c)(4) of the Act (42 U.S.C. 9858c(c)(4) and Sec.  
98.45 require Lead Agencies to set child care provider payment rates 
based on findings from a market rate survey or an approved 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. Lead Agencies must also complete a 
narrow cost analysis, regardless of whether they used a market rate 
survey or approved alternative methodology to set rates. 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 subsidy rates to meet health, safety, and 
staffing requirements and meeting these standards relies on child care 
providers receiving the full established payment rate. ACF strongly 
encourages 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 restated the importance of setting higher payment 
rates and recommended the 75th percentile as a benchmark to gauge equal 
access for Lead Agencies, stating ``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)
    ACF has prioritized the importance of setting higher payment rates 
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. ACF 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. But the value of setting higher payment rates is 
undermined if a Lead Agency does not pay the full established rate. 
Though allowable under CCDF, it undermines parent choice and likely 
limits the number of participating children in higher quality care.
    Paying all CCDF providers at the Lead Agency-established rate is a 
key payment practice that reflects the actual cost of child care, 
fosters parent choice, increases child care quality, and supports 
better child care supply. This is existing policy under CCDF but 
because of its importance to achieving the main purposes of the Act, 
this Final Rule codifies the policy in the regulatory language to 
reduce confusion.
    Comment: Comments on this proposal were overwhelmingly positive in 
support of the codification and clarification on paying the established 
rate, although a few commenters offered suggestions for implementation 
support or some reasons for caution. Commenters stated that paying the 
full established payment rate will increase provider stability, 
encourage provider participation in the subsidy program, and encourage 
Lead Agencies to pursue cost-based alternative methodologies and set 
payment rates closer to the true cost of care. Several commenters 
supported our assessment that paying the full established rate will 
help address inequities that arise when providers in low-income 
communities cannot raise fees because families who do not receive CCDF 
are not able to pay more for child care. Additionally, several comments 
noted that paying the established rate will also benefit middle-income 
families who are not eligible for CCDF because program income would 
increase without passing costs to parents. Moreover, commenters 
provided evidence from States that pay the full rate, including showing 
that in one State following the repeal of the law prohibiting payment 
above the private rate in 2019 improved access to quality child care, 
reduced bureaucratic requirements for the state, and removed one 
incentive for providers to raise rates for private pay families.
    Response: We appreciate commenters' strong support for this 
critical policy clarification, especially related to the role it can 
play in addressing inequities in the child care system and its benefit 
to families that do not receive subsidies and have not made changes to 
the proposed language. While the 2016 CCDF Final Rule stated in the 
preamble that Lead Agencies had the ability to pay child care providers 
above their established private-pay tuition, it is clear from comments 
that this clarification in the rule is necessary to ensure Lead 
Agencies are aware of this option and encouraged to implement this 
practice.
    Comment: A few commenters requested ACF articulate clearly that 
paying the established rate is encouraged, but not required. In 
addition, one commenter noted that obtaining legislative approval to 
pay the established rate could be challenging for Lead Agencies in 
States that prohibit this practice. On the other hand, a few commenters 
recommended ACF require Lead Agencies to pay child care providers the 
full rate established rate.
    Response: ACF reiterates this policy is encouraged but not required 
and acknowledges States will have different internal processes should 
they decide to newly implement this policy.
    Comment: Additionally, commenters emphasized paying the established 
rate for children receiving subsidy does not address the funding 
limitations faced by child care providers who serve families with 
different levels of income.
    Response: ACF acknowledges this provision does not fully address 
the broader issues about the funding and stability of the child care 
system.
    Capping Family Co-payments. Section 658E(c)(5) of the Act (42 
U.S.C. 9858c(c)(5)) establishes that Lead Agencies cost-sharing and 
sliding fee policies cannot be a ``barrier to families receiving 
assistance.'' This final rule clarifies at Sec. Sec.  98.45(b)(5) and 
98.45(l)(3) as redesignated that co-payments cannot exceed 7 percent of 
a family's income because ACF considers co-payments above that rate to 
be an impermissible barrier to a family receiving assistance and 
therefore not permissible under CCDF. If a family receives CCDF for 
multiple children, their total co-payment amount also could not exceed 
7 percent of the family's income. We anticipate these changes will 
lower child care costs for many families, reduce a barrier to child 
care access, and improve family well-being and economic stability.
    The preamble (81 FR 67515) of the 2016 CCDF Final Rule established 
7 percent as the federal benchmark for an

[[Page 15388]]

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 and Territory Plans, 15 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. In limiting 
family co-payments to no more than 7 percent of household income, the 
child care costs for families with low incomes will better align with 
cost burdens for higher income families. Families with lower incomes 
pay a higher portion of income for child care than those with higher 
incomes. For example, the President's Council of Economic Advisers 
found that households with annual incomes below $25,000 pay between 9 
and 31 percent of their income for child care, while households with 
annual incomes above $150,000 pay between 6 and 8 percent of their 
annual income for child care.\75\
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    \75\ https://www.whitehouse.gov/cea/written-materials/2023/07/18/improving-access-affordability-and-quality-in-the-early-care-and-education-ece-market/.
---------------------------------------------------------------------------

    In response to comments, the final rule includes a clarification at 
newly designated Sec.  98.45(n)(5) to require Lead Agencies to 
demonstrate in their CCDF Plan that the total payment to a provider 
(subsidy payment amount and family co-payment) is not impacted by cost-
sharing policies. Lead Agencies must continue to set payment rates at 
levels that provide equal access to care for families receiving child 
care subsidies, and ACF expects to closely monitor Lead Agency payment 
rates to ensure reductions in family co-payments transfer the cost to 
Lead Agencies and not providers.
    Comment: Most commenters on this proposal supported the 7 percent 
limit, with many comments validating that child care co-payments can 
act as a barrier to child care access. Commenters, including a 
bicameral letter from members of Congress, reaffirmed the need to 
require the 7 percent cap to meet statutory equal access requirements 
rather than continuing to defer to Lead Agency discretion.
    In general, many commenters acknowledged the negative consequences 
high co-payments can pose for CCDF families and providers, citing 
research that the cost of child care is a barrier to access at any co-
payment level.\76\ One commenter shared how they have witnessed how 
waived co-payments under COVID-19 supplemental funds benefited 
families, including helping them cover other bills and pay off debt. 
Other commenters acknowledged the importance of supporting affordable 
co-payments for families, and the importance of removing barriers that 
undermine parental choice.
---------------------------------------------------------------------------

    \76\ Adams, G., & Pratt, E. ``Assessing child care subsidies 
through an equity lens.'' (2021). Urban Institute.
---------------------------------------------------------------------------

    Some commenters provided data on the negative economic impact that 
the lack of affordable child care poses for their State and the 
country. According to a 2023 statewide survey of 800 registered voters 
in Ohio, 70 percent of nonworking or part-time working mothers 
indicated that they would reenter the workforce or work more hours if 
they had access to affordable child care.\77\ The same survey found 83 
percent of Ohio small business owners citing child care as a barrier to 
hiring.\78\ Similar concerns regarding child care affordability were 
found in Maine from a 2021 Statewide Community Needs Assessment 
conducted by the Maine Community Action Partnership,\79\ and multiple 
Portland Regional Chamber of Commerce member surveys showed that lack 
of child care was a significant barrier to hiring, training, and 
retaining employees for small and large employers throughout the 
State.\80\ Speaking to national trends, another comment highlighted 
data from the U.S. Chamber of Commerce showing that half of all workers 
and nearly 60 percent of parents cite lack of child care as their 
reason for leaving the workforce, and research shows that once women 
leave the workforce, it is challenging for them to return.\81\
---------------------------------------------------------------------------

    \77\ Slideshow summarizing study findings retrieved from https://www.groundworkohio.org/_files/ugd/d114b9_956a4a95f16d44819696f1594fe98ce0.pptx?dn=POS_Groundwork%20Ohio%20Presentation%20Deck_Final.pptx.
    \78\ Ibid.
    \79\ 2021 Statewide Community Needs Assessment, Maine Community 
Action Partnership, December 2021. Retrieved from https://mecap.org/wp-content/uploads/2022/01/MeCAP-Statewide-Community-Needs-Assessment-Report-with-Appendices-FINAL-12032021-2.pdf.
    \80\ Portland Regional Chamber of Commerce, December 2021. 
Retrieved from https://legislature.maine.gov/testimony/resources/AFA20220303Dundon132906387075472062.pdf.
    \81\ Ferguson, S. & Lucy, I. ``Data Deep Dive: A Decline of 
Women in the Workforce.'' U.S. Chamber of Commerce, April 27, 2022. 
Retrieved from https://www.uschamber.com/workforce/data-deep-dive-a-decline-of-women-in-the-workforce.
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    Response: We have retained the prohibition on Lead Agencies setting 
co-payments above 7 percent of family income because such co-payments 
would be a barrier to child care access for families and appreciate 
commenters' support.
    Comment: In the NPRM, we requested comment on whether 7 percent is 
the correct threshold for determining a barrier to child care access, 
including data on child care affordability. Some organizations noted 
that 7 percent of family income would not be affordable for many 
families and recommended a lower cap, while others supported the 7 
percent proposal but preferred we set a lower cap. Commenters also 
noted that some States have already taken steps to significantly limit 
family co-payments, including one State that plans to implement a 
policy that would cap co-payments to a lower standard of 1 percent of a 
family's income. We also received a small number of comments 
questioning whether 7 percent is the correct benchmark for 
affordability and recommending further study of affordability, and/or 
funding a commission of experts or creating an advisory board with 
parents and providers before establishing the requirement. Others 
supported the requirement to limit co-payments but recommended that we 
continue to conduct research on an appropriate affordability threshold 
to update the cap in the future.
    Response: We retain the 7 percent cap in this final rule because we 
believe amounts above this threshold pose a barrier to child care 
access in the CCDF program. We further note that 7 percent of family 
income is not affordable for many families participating in CCDF and 
encourage Lead Agencies to adopt lower co-payment caps and minimize or 
waive co-payments for more families. As discussed above, families with 
low incomes on average pay 31 percent of their incomes for child care, 
while families with higher incomes pay between 6 and 8 percent. As CCDF 
assistance is intended to offset the disproportionate share of income 
that families with low incomes pay for child care, families 
participating in CCDF should not be required to pay a greater share of 
their income than higher income families.
    Finally, we agree that supporting research to better understand 
child care cost burden and affordability for families is important. The 
National Academies of Sciences, Engineering, and Medicine published a 
consensus report in 2018 that included discussion of affordability for 
families that detailed the inherent complexity in defining what is 
affordable for families.\82\ The ACF Office of Planning, Research, and 
Evaluation supports ongoing research on child care affordability. 
However, the

[[Page 15389]]

need to lower family child care costs is urgent for those with children 
in child care now. The final rule does not alter Lead Agency 
flexibility to set co-payment caps lower than 7 percent of family 
income, and we encourage Lead Agencies to ensure co-payments support 
affordability with lower co-payments.
---------------------------------------------------------------------------

    \82\ National Academies of Sciences, Engineering, and Medicine. 
(2018). Transforming the Financing of Early Care and Education. 
Washington, DC: The National Academies Press. https://doi.org/10.17226/24984.
---------------------------------------------------------------------------

    Comment: We received four comments, including one from a member of 
Congress, opposing our proposal to lower co-payments and questioning 
our regulatory authority to do so.
    Response: Section 658E(c)(5) of the Act requires Lead Agencies to 
establish and periodically revise a sliding fee scale that provides for 
cost-sharing for families receiving CCDF funds. The 2014 
reauthorization of the Act newly clarified that CCDF cost-sharing 
policies should not be ``a barrier to families receiving assistance'' 
under CCDF, and as noted above, high co-payments above 7 percent are a 
barrier to families accessing child care assistance. Twenty-two members 
of Congress wrote in support of the proposal and indicated this 
regulatory change reflected statutory requirements.
    Comment: A few commenters shared concerns that limiting co-payments 
for CCDF families would increase child care costs for the middle class.
    Response: We anticipate that limiting co-payments for CCDF families 
will not change the amount the provider will receive for that child. 
Rather, it will transfer costs from parents who receive CCDF assistance 
to Lead Agencies so there is no reason to anticipate this will increase 
child care costs for families without subsidies, the middle class, or 
other families. Moreover, a recent study of child care subsidies in 
Minnesota demonstrated that child care subsidies increased the supply 
of child care while having a de minimis impact on child care costs.\83\ 
When the supply of child care increases in a community, all families 
benefit because they have more options and can more easily access child 
care.
---------------------------------------------------------------------------

    \83\ Lee, Won Fy, Aaron Sojourner, Elizabeth E. Davis, and 
Jonathan Borowsky. 2024. ``Effects of Child Care Vouchers on Price, 
Quantity, and Provider Turnover in Private Care Markets.'' Upjohn 
Institute Working Paper 24-394. Kalamazoo, MI: W.E. Upjohn Institute 
for Employment Research. https://doi.org/10.17848/ wp24-394.
---------------------------------------------------------------------------

    Comment: We received a few comments requesting clarity on the 
definition of family income used to implement the requirement.
    Response: We decline to provide a definition of family income in 
this final rule and continue to allow Lead Agencies the flexibility to 
specify how to define family income, which has implications for both a 
family's eligibility for CCDF assistance and the family's required co-
payment amount. This flexibility allows Lead Agencies to determine how 
they want to define family unit and income.
    Comment: A few commenters requested flexibility to set co-payments 
above the 7 percent requirement for CCDF families with higher incomes 
or with multiple children in care.
    Response: We decline to permit family co-payments higher than 7 
percent of family income. The 7 percent of family income co-payment cap 
applies regardless of the number of children in a family in need of 
care to minimize the likelihood that cost is a barrier to child care 
access for that family. In addition, families participating in CCDF 
have low incomes, even those with incomes on the higher end of the 
eligibility threshold, making 7 percent of family income a substantial 
financial burden. If we were to allow the requested flexibility, 
families at the higher end of the CCDF eligibility threshold could be 
faced with child care costs well above the 7 percent threshold. For 
example, analyses show that the average household with income between 
$35,000 and $49,000 spends approximately 18 percent of their income on 
child care for their young children. This estimate excludes households 
that use child care but do not pay for it. When including all 
households (those paying for child care and those who do not pay), the 
average household in this income bracket still spends 8 percent of 
their income on child care.\84\
---------------------------------------------------------------------------

    \84\ Council of Economic Advisors (CEA) analysis of the 2019 
National Survey of Early Care and Education (NSECE). https://www.whitehouse.gov/cea/written-materials/2023/07/18/improving-access-affordability-and-quality-in-the-early-care-and-education-ece-market/#_ftn2.
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    Comment: We received some comments expressing concern about 
tradeoffs to caseload while still acknowledging the value of lowering 
co-payments, and we received a few comments requesting the ability to 
delay implementation of the requirement when a Lead Agency faces 
tradeoffs, such as reducing access to subsidies.
    Response: The Act prohibits cost-sharing policies that would be a 
barrier to child care access, and it is imperative that parent co-
payments are not a barrier to child care access for families 
participating in CCDF so we are retaining the 7 percent co-payment cap.
    Comment: One comment requested that we require the Lead Agency to 
collect co-payments instead of providers.
    Response: The Act and regulation have never specified whether the 
Lead Agency or child care provider should be responsible for collecting 
co-payments from families, and we retained this approach so Lead 
Agencies retain the flexibility to determine their own policies on 
collecting co-payments. We encourage Lead Agencies to adopt policies 
that support child care provider operations.
    Comment: Some commenters were concerned the 7 percent cap would 
result in reduced payment rates to child care providers and requested 
additional safeguards above our commitment to ongoing monitoring of 
Lead Agency payment rates.
    Response: As explained in the NPRM, we strongly agree that the 7 
percent co-payment cap should not decrease the amount paid to the child 
care provider, but rather shift some of the cost from families to Lead 
Agencies. Under CCDF, payments to providers are a combination of the 
Lead Agency share and the parent share. Capping the amount of the 
parents' share should result in a comparable increase to the Lead 
Agency's share and thus has no impact on the total amount providers 
receive. To ensure clarity on this point, the final rule includes a new 
change at Sec.  98.45(n)(5) to require Lead Agencies to demonstrate in 
their CCDF Plan how they ensure that they are not reducing the total 
payment (subsidy payment amount and co-payment) given to child care 
providers when implementing this requirement. ACF expects to closely 
monitor Lead Agency payment rates to ensure reductions in family co-
payments do not shift to providers. As will be discussed later, this 
also applies when Lead Agencies exercise their flexibility to waive co-
payments for preapproved populations of families and any additional 
populations proposed in the CCDF Plan.
    Comment: We received mixed comments on state flexibility to allow 
child care providers to charge parents more than the established co-
payment to cover the difference between the subsidy payment and the 
child care provider's private pay rate, with some comments in support 
of allowing additional charges, while others opposed such charges.
    Response: This rule does not make any changes to the existing 
policies at Sec.  98.45(b)(5) that permit child care providers to 
charge parents additional amounts to cover the difference between the 
subsidy payment and the child care provider's private pay rate, as long 
as the Lead Agency has demonstrated that

[[Page 15390]]

the policy promotes affordability and access, though we agree this 
flexibility may present a barrier to access for some families. We 
strongly encourage Lead Agencies to set child care provider payment 
rates to cover the cost of care to minimize providers' need for such 
policies.
    Waiving Co-payments. In the NPRM, we proposed to amend Sec.  
98.45(l)(4), as redesignated, to make it easier for Lead Agencies 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. We 
requested public comment on whether States would benefit from having 
the option to waive co-payments for other populations, as well as 
requesting commenters share potential additional categories of families 
for which co-payments could be waived.
    This final rule amends Sec.  98.45(l)(4), as redesignated, to allow 
Lead Agencies the discretion to more easily waive co-payments for 
specifically eligible families with incomes up to 150 percent of the 
federal poverty level, children who are in foster and kinship care, 
those experiencing homelessness, those with a child with a disability 
as defined at Sec.  98.2, and those enrolled in Head Start or Early 
Head Start (42 U.S.C. 9831 et seq.). Previous CCDF regulations allowed 
Lead Agencies to waive co-payments for families with incomes up to 100 
percent of the federal poverty level and this final rule increases that 
threshold to 150 percent. This rule does 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 have authority to define ``other factors''--
such as family income above 150 percent of the federal poverty level or 
any of the additional populations recommended in public comment but not 
included as part of this final rule (e.g., families who benefit from 
Temporary Assistance for Needy Families (TANF), adolescent parents, and 
the child care and Head Start workforce).
    Comment: There was strong support for allowing Lead Agencies the 
flexibility to waive co-payments for the proposed populations and only 
one comment in opposition. Supporters noted the importance of lowering 
child care costs for families and the one comment in opposition to the 
policy argued that families should be responsible for some of their 
child care expenses. Many comments in favor of the proposed changes 
also recommended we include additional populations of families for 
which co-payments could be waived.
    Response: The final rule at Sec.  98.45(l)(4) as redesignated, 
retains the proposal and includes three additional populations in 
response to comments: families with children in foster and kinship 
care, families experiencing homelessness, and families with children 
enrolled in Head Start or Early Head Start (42 U.S.C. 9831 et seq.). 
According to the FFY 2022-2024 CCDF State and Territory Plans, 28 Lead 
Agencies currently waive co-payments for children in foster care, and 
16 Lead Agencies currently waive co-payments for families experiencing 
homelessness either by defining the group as part of their definition 
of families in need of protective services or as an ``other factor'' 
determined by the Lead Agency. For children enrolled in Head Start or 
Early Head Start (42 U.S.C. 9831 et seq.), seven Lead Agencies are 
currently waiving co-payments for this group. Changes in this final 
rule will allow Lead Agencies to waive co-payments for families with 
children in foster and kinship care, families experiencing 
homelessness, and families with children enrolled in Head Start or 
Early Head Start (42 U.S.C. 9831 et seq.) without needing to define 
criteria for waiving co-payments and requesting approval for these 
groups in the CCDF Plan.
    As noted in the preamble of the 2016 Final Rule, waiving CCDF co-
payments for families in Head Start and Early Head Start, including 
children served by ACF-funded Early Head Start-Child Care partnerships, 
is an important alignment strategy. Head Start and Early Head Start are 
provided at no cost to eligible families, who cannot be required to pay 
any fees for Head Start services. By including children enrolled in 
Head Start or Early Head Start (42 U.S.C. 9831 et seq.) as an 
additional population for waiving co-payments in this final rule, we 
are making it easier for Lead Agencies to support continuity of care 
for families.
    The 2014 reauthorization of the Act included several provisions to 
improve access to high-quality child care for children and families 
experiencing homelessness. Co-payments could serve as an additional 
barrier for families experiencing homelessness to access high-quality 
child care for their children. Therefore, this final rule makes it 
easier for Lead Agencies to waive co-payments for this population 
without needing to define criteria for waiving co-payments and 
requesting approval in the CCDF Plan. This change is consistent with 
the statute's focus on improving CCDF services for children 
experiencing homelessness.
    While we acknowledge the benefits of including additional 
categories of families, we decline to include an exhaustive list of 
family categories for waiving co-payments, but this should not be 
interpreted as discouraging States and Territories from taking steps to 
reduce co-payments for families who do not fall within one of the 
preapproved categories included in this final rule. We strongly 
encourage Lead Agencies to take full advantage of the flexibility 
retained in this final rule to tailor co-payment policy to reduce or 
eliminate financial barriers for families utilizing the CCDF program. 
According to FFY 2022-2024 CCDF State and Territory Plan data, Lead 
Agencies are utilizing existing flexibilities to waive co-payments 
through CCDF Plan approval for many of the populations recommended by 
commenters. For example, 20 Lead Agencies have CCDF Plan approval to 
waive co-payments for families who benefit from Temporary Assistance 
for Needy Families (TANF) and 9 Lead Agencies are approved to waive co-
payments for adolescent parents. Notably, many commenters recommended 
waiving co-payments for members of the child care workforce. Some Lead 
Agencies waive or are considering waiving co-payments for child care 
workers, and we encourage Lead Agencies to consider whether proposing 
to waive co-payments for child care workers might be a helpful 
workforce strategy.
    Comment: We received some comments that supported allowing Lead 
Agencies to waive co-payments for family income thresholds higher than 
the proposed 150 percent federal poverty level. Some comments 
recommended providing the ability to waive co-payments for all 
families.
    Response: We support Lead Agencies minimizing co-payments for all 
families participating in CCDF and waiving co-payments for many 
families. We strongly encourage Lead Agencies to significantly reduce 
co-payments for families, including waiving co-payments for families 
with incomes higher than 150 percent of the federal poverty level. Lead 
Agencies are permitted to establish other criteria for waiving co-
payments at a higher threshold in the CCDF Plan, at their discretion. 
Since section 658E(c)(5) of the Act (42 U.S.C. 9858c(c)(5)) requires 
that Lead Agencies establish a cost-sharing arrangement for families 
benefiting from assistance, we do not have the authority to allow Lead 
Agencies to eliminate the co-payment

[[Page 15391]]

requirement for all families receiving CCDF assistance.
    Comment: Some comments requested we require Lead Agencies to waive 
co-payments for certain populations instead of maintaining it as an 
option for CCDF Lead Agencies.
    Response: We strongly encourage Lead Agencies to take advantage of 
the Act's flexibility to waive co-payments for the preapproved 
populations included in the final rule, as well as any populations Lead 
Agencies choose to describe and propose in the CCDF Plan as part of 
their waiving policy.
    Comment: One commenter requested that we require co-payments be 
waived for siblings as part of the option to waive co-payments for 
families with children with disabilities.
    Response: As was proposed in the NPRM and retained in this final 
rule, the option to waive co-payments for eligible families with 
children with disabilities applies to the entire family (including 
siblings). Therefore, Lead Agencies have the flexibility to waive co-
payments for all children within eligible families and not just for the 
child with a disability. While we agree with the commenter's concerns, 
and we encourage Lead Agencies to take advantage of this flexibility 
and serve eligible families in the manner outlined in this final rule.
    Comment: Some comments raised concerns about possible reductions in 
provider payments if co-payments are waived.
    Response: Lead Agencies retain the flexibility to determine their 
own policies on waiving co-payments. If a Lead Agency chooses to waive 
co-payments for preapproved populations outlined in this final rule or 
propose their own populations to waive in the CCDF Plan, we expect Lead 
Agencies not to decrease the amount paid to child care providers as a 
fiscal tradeoff. To ensure clarity on this point and be responsive to 
commenters' concerns that costs could be shifted from families to 
providers, we added a requirement at Sec.  98.45(n)(5) that Lead 
Agencies demonstrate in their CCDF Plan how they will ensure they are 
not reducing the total payment (subsidy payment and co-payment) given 
to child care providers when establishing their sliding fee scale. This 
change applies to both the 7 percent requirement described earlier and 
any co-payments waived at the option of the Lead Agency. We encourage 
Lead Agencies to adopt policies that support child care provider 
operations that ensure providers do not experience a reduction in 
resources when serving families participating in the CCDF program.
    Comment: One commenter recommended that we allow co-payments to be 
waived for families who are a member of a Tribe or Tribal consortium 
being served by a State or Territory CCDF Lead Agency.
    Response: We acknowledge the potential benefits of this 
recommendation and note a State or Territory CCDF Lead Agency is 
allowed to propose in their CCDF Plan to waive co-payments for families 
who are a member of a Tribe or Tribal consortium.
    Payment Practices. This final rule makes key changes at Sec.  
98.45(m) as redesignated, to improve CCDF payment practices in ways 
that will make it easier for child care providers to serve children 
with subsidies and increase parent choices in care. Lead Agency payment 
practices to providers are an important aspect of equal access and 
support the ability of providers to participate in CCDF, better cover 
the cost of care, and deliver high-quality care. This is consistent 
with section 658E(c)(2)(S) (42 U.S.C. 9858c(c)(2)(S)) of the Act, which 
requires Lead Agencies to establish ``payment practices of child care 
providers in the State that serve children who receive assistance under 
this subchapter [that] reflect generally accepted payment practices of 
child care providers in the State that serve children who do not 
receive assistance under this subchapter, so as to provide stability of 
funding and encourage more child care providers to serve children who 
receive assistance under this subchapter.'' The same provision also 
requires Lead Agencies, ``to the extent practicable, implement 
enrollment and eligibility policies that support the fixed costs of 
providing child care services by delinking provider reimbursement rates 
from an eligible child's occasional absences due to holidays or 
unforeseen circumstances such as illness.''
    First, the final rule amends the language at Sec.  98.45(m) as 
redesignated to require provider payment practices meet generally 
accepted payment practices used for families not participating in the 
CCDF program, unless the State or Territory can demonstrate that 
certain policies are not considered generally accepted payment 
practices in the private child care market for certain types of care. 
Previously, this language was only included in the regulatory text at 
(l)(3) when describing the requirement to pay providers based on a 
part-time or full-time basis and to pay for reasonable mandatory 
registration fees. Previous (l)(3)(i) and (l)(3)(ii) are now 
redesignated as (m)(3) and (m)(4). This is slightly restructured from 
the NPRM in response to comments that reinforced the multiple types of 
payment practices reflected in generally accepted payment practices for 
the private child care market. The rule allows narrow exceptions for 
different payment practices for certain types of providers, such as 
relative providers, because it is more typical for a private pay family 
to pay a relative provider on an hourly basis, or out-of-school time 
programs that do not typically charge private pay families for absence 
days. In those cases, the Lead Agency must justify that they are not 
generally accepted payment practices in the private child care market 
in the CCDF Plan as required at Sec.  98.16(cc). However, though the 
rule allows Lead Agencies the option to demonstrate that in certain 
limited cases the policies included at (m) are not generally accepted 
payment practices in the private child care market, we do not expect to 
approve CCDF Plans that propose more than limited exceptions.
    Second, the final rule amends Sec.  98.45(m)(1) to require States 
and Territories ensure timely provider payments by paying providers 
participating in CCDF in advance of or at the beginning of the delivery 
of child care services to align with the Act's requirement that Lead 
Agencies use generally-accepted payment practices. Paying child care 
providers in advance or at the beginning of service provision, also 
known as prospective payment, is the norm for families paying privately 
(e.g., payment for child care for month of February is due February 
1st) because providers need to receive payment before services are 
delivered to meet payroll and pay rent. States and territories may meet 
this requirement at (m)(1) by paying child care providers in advance of 
providing child care services, (e.g., paying the provider on the 27th 
day of the month prior to the upcoming month of service), or by paying 
providers on the first day of service, (e.g., on Monday for that week 
of service).
    The final rule removes the current option at previous Sec.  
98.45(l)(1) for Lead Agencies to reimburse child care providers within 
21 days of receiving a completed invoice. Paying providers on a 
reimbursement basis places an upfront burden on providers serving 
families participating in CCDF and makes it difficult for providers to 
accept child care subsidies.
    Lead Agencies have the flexibility to determine the length of the 
service period, and may choose to pay providers on a weekly, bi-weekly, 
or monthly basis, or another period as appropriate. As some families 
may choose to change child care providers in

[[Page 15392]]

the middle of a service period, Lead Agencies may delay the first 
payment to a new provider until the start of the next service period or 
adjust payments to providers following the change in a child's 
enrollment. This flexibility helps Lead Agencies avoid paying two child 
care providers for the same hours of care for the same child, which is 
prohibited by CCDF. However, if a child was enrolled with a provider, 
the Lead Agency cannot require, except in cases of fraud or intentional 
program violation by the provider, that child care provider to return 
the subsidy funds they received, and these funds are not considered 
overpayments for purposes of error rate calculations.
    Some children may need to start receiving care during a service 
delivery period. We do not intend to limit when a child can begin 
receiving child care services, and States may pay child care providers 
retroactively for services that began in the middle of a service 
delivery period. Some children may need to start receiving care during 
a service delivery period. For the next complete service period, States 
must begin paying in advance or on the first day of the service period. 
States may also reimburse the child care provider a pro-rated amount 
that covers the partial time the child was enrolled.
    Third, the final rule at (m)(2) as amended, requires States and 
territories to pay child care providers based on a child's authorized 
enrollment, to the extent practicable. Further, the final rule revises 
(m)(2) to require Lead Agencies who determine they cannot pay based on 
enrollment, to describe their alternative approach in the CCDF Plan, 
provide evidence that the proposed alternative reflects private pay 
practices for most child care providers in the State or Territory, and 
does not undermine the stability of child care providers participating 
the CCDF program. ACF only expects to approve alternative approaches in 
limited cases where a distinct need is shown.
    The final rule deletes the previous options at former paragraph 
(l)(2)(ii) that allowed for full payment if a child attended at least 
85 percent of authorized time, and paragraph (l)(2)(iii), which allowed 
for full payment if a child was absent five or fewer days a month. The 
Act requires States and Territories, 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. 
Neither of the two now-deleted options supported a provider's fixed 
operational costs, continuity of care for children, or reflect the norm 
for families paying privately, and going forward, ACF will not approve 
either option as an alternative approach to the requirement to pay 
providers based on enrollment.
    While States and Territories must base provider payments on a 
child's enrollment under the final rule, Lead Agencies may continue to 
require child care providers submit attendance records to ensure 
children participating in CCDF are utilizing their subsidy. Moreover, 
this policy change does not affect the policy at Sec.  98.21(a)(5)(i) 
that allows Lead Agencies to discontinue child care assistance prior to 
the next re-determination when there have been excessive unexplained 
absences despite multiple attempts to contact the family and provider, 
including prior notification of possible discontinuation of assistance.
    Comment: Most commenters strongly supported the proposed changes to 
move to paying prospectively and based on enrollment, noting that the 
changes were long overdue and will have a significant impact on child 
care providers. We received many comments sharing the positive impact 
of prospective payments based on enrollment, and the negative financial 
impacts of late payments from States and the lost revenue from not 
being paid when a child is absent. Commenters also noted the proposed 
changes can help move closer to financing the true cost of providing 
high-quality care. Others reinforced the fact that current practices of 
paying after provision of services or paying based on attendance have 
led some child care providers to choose not to participate in the 
subsidy program or to limit the number of children receiving subsidies 
that they will serve at any given time.
    A few commenters opposed the proposed changes and expressed 
concerns about the costs and systems changes that would be necessary to 
implement these changes, especially prospective payments. Others argued 
that Lead Agencies should maintain the flexibility to pay child care 
providers on a reimbursement basis and not cover all absence days.
    Response: The rule will increase parents' options, make it easier 
for providers to accept subsidies, improve stability among child care 
providers serving children participating in CCDF, and aligns with 
generally accepted payment practices for private pay families. 
Therefore, we kept the changes mostly as proposed. In addition to 
requiring payment practices that meet generally accepted practices, the 
Act requires at section 658E(c)(4)(B)(iv) (42 U.S.C. 
9858c(c)(4)(B)(iv)) that payments be made to child care providers in a 
timely manner. Paying child care providers after they have provided 
services is not timely and instead is destabilizing and overlooks the 
fact that providers have many bills that must be paid at the beginning 
of the month. As noted above, States and Territories will have the 
option to justify if paying certain types of providers in advance of 
services is not a generally accepted private pay practice in their CCDF 
Plans.
    Comment: Some supporters noted these regulations will require many 
Lead Agencies to make IT and system updates that will take time and 
introduce new costs and questioned how the 60-day effective date would 
intersect with the likely timeline for these requirements.
    Response: We recognize that many States and Territories will have 
to make regulatory and systems changes to implement these requirements. 
To address these concerns, this rule includes the opportunity for 
implementation extensions via temporary waivers for up to two years.
    Comment: Some commenters asked for clarification related to the 
change at (m)(1) that requires Lead Agencies to pay providers in 
advance or at the beginning of services.
    Response: The NPRM proposed to require ``prospective payments'' at 
(m)(1) but based on the comments received and further review of State 
prospective payment policies, we revised the regulatory language to 
better reflect what we meant by ``prospective payments'' and replaced 
that term with more descriptive language. The central meaning of the 
proposal remains unchanged. We have also clarified earlier that 
payments may be made up until the first day of providing care. This 
language is based off suggestions from commenters, review of state 
regulations in States that already pay child care providers in advance, 
and language included in agreements between private pay parents and 
child care providers. As noted above, this does not limit Lead Agencies 
in the start date for a child to receive child care services.
    Comment: Some commenters asked us to define ``enrollment'' related 
to the proposed change at (m)(2)(i). This included asking us to state 
how many absences must be covered to consider a policy compliant with 
meeting payment based on enrollment.
    Response: We decline to include a definition of ``enrollment'' in 
the

[[Page 15393]]

regulatory language. However, in response to comments, we revised the 
regulatory language to say payment must be based on ``authorized 
enrollment'' (italics denote language added in final rule). We also 
decline to enumerate the number of absences that would be covered 
because that is contradictory to the requirement to delink payment from 
absences and pay based on authorized enrollment. As noted earlier, 
Sec.  98.21(a)(5)(i) allows Lead Agencies to discontinue child care 
assistance prior to the next re-determination when there have been 
excessive unexplained absences despite multiple attempts to contact the 
family and provider, including prior notification of possible 
discontinuation of assistance.
    Comment: Some commenters requested we provide specific examples of 
policies that would be acceptable alternatives to paying based on 
enrollment.
    Response: We decline to specify what alternatives would be 
allowable. It is the Lead Agency's responsibility to explain and 
justify how their alternative approach would not destabilize child care 
providers. ACF will review individual justifications, including data 
and other evidence, during CCDF Plan approval. As noted above, ACF will 
not approve alternatives that mirror the two now removed options (i.e., 
paying the full amount if a child attends at least 85 percent of 
authorized time or if a child has five or fewer absences).
    Comment: A few commenters requested clarification as to whether 
child care providers must be paid for days providers are closed for in-
service or professional development activities.
    Response: Parents that pay privately for child care are usually 
required to pay for days when providers are closed for holidays, in-
service, or professional development activities. Lead Agencies are 
expected to cover the days providers are closed for holidays and other 
training and in-service days as part of paying a provider based on the 
child's authorized enrollment, unless the Lead Agency can provide 
evidence this would not be considered a generally-accepted payment 
practice for the private child care market.
    Comment: We requested comments and data about generally accepted 
payment practices and whether those proposed in the NPRM truly 
reflected generally accepted payment practices. Commenters widely 
agreed that paying in advance and based on enrollment reflected 
generally accepted payment practices in their areas, including child 
care providers, national organizations, and Lead Agencies. The National 
Association for the Education of Young Children (NAEYC) provided data 
from a survey conducted during the comment period that found 88 percent 
of providers stated that private pay families in their care pay 
prospectively for care. A survey of family child care providers found 
that 59 percent of programs received payment prospectively.
    Response: We appreciate commenters providing data and support for 
these policies, which reinforce that prospective payment and 
enrollment-based payment are generally-accepted payment practices for 
family child care and center-based care in the private pay market. We 
have retained the proposals with minor adjustments to the regulatory 
language.
    Comment: We requested comments on other policies that may help 
build supply and stabilize the child care market. Commenters suggested 
a range of policies, including paying a child care provider by 
classroom or licensed capacity not by individual slots, setting 
different requirements for providers depending on the age of children 
in their care, and investing in child care facilities.
    Response: We appreciate these suggestions and encourage Lead 
Agencies to consider them as they continue to address inadequate child 
care supply. Some changes in other parts of this final rule, including 
revising the definition of major renovation to make it easier to invest 
in facilities improvements, reflect the goals of these comments. 
However, we have chosen not to make additional specific regulatory 
changes in this section.
    Comment: Some commenters noted that prospective payment and paying 
based on enrollment may not reflect generally accepted payment 
practices for certain types of care for providers, such as for school-
age care or child care provided by relatives.
    Response: We acknowledge there may be some variation in how some 
types of providers are paid by private pay families, and therefore, we 
have clarified that Lead Agencies may propose limited exceptions to the 
requirements at Sec.  98.45(m), if they can justify those exceptions 
reflect generally accepted payment practices for specific provider 
types or categories in the private pay market.
    Comment: Some commenters were concerned about the administrative 
burden associated with recoupment of funds in cases of payments for 
absence days.
    Response: When paying based on enrollment, payment for absences is 
not considered overpayment and does not get recouped, thus 
administrative burden should not increase because of this policy. 
Because Lead Agencies will not have to closely align attendance records 
with payments, we expect a decrease in administrative burden for Lead 
Agencies and child care providers. Lead agencies are expected to follow 
their own processes to ensure providers are paid appropriately.
    Comment: Some commenters expressed concerns about double paying 
child care providers for the same period if a child switches providers 
partway through the service period.
    Response: Lead Agencies are expected to implement processes to 
address if a child changes providers during a service period. Lead 
Agencies may choose to require providers to certify their expected 
enrollment prior to receiving their payment in advance and to submit 
documentation within a certain period to allow for adjustments for 
children who are newly enrolled or disenrolled in a program.
    Additional Payment Practices. This final rule newly adds Sec.  
98.45(n) to address Lead Agency payment practices that are only 
applicable to the child care subsidy system and do not have private pay 
equivalents. In such instances, a requirement to meet generally 
accepted payment practices under (m) is inappropriate.
    The final rule moves three existing provisions from (m) as 
redesignated to new paragraph (n). Paragraph (n)(1), redesignated from 
(l)(4), requires Lead Agencies to ensure that child care providers 
receive payment for services in accordance with a written agreement or 
authorization for services; (n)(2), redesignated from (l)(5), requires 
child care providers receive prompt notice of changes to a family's 
eligibility status that may impact provider payments; and (n)(3), 
redesignated from (l)(6), requires that provider payment practices 
include timely appeal and resolution processes for any payment 
inaccuracies or disputes.
    The final rule adds at Sec.  98.45(n)(4) 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.
    Comment: Commenters expressed support for this allowance.
    Response: We agree Lead Agencies need to have the flexibility to 
adjust policies when providers may be suspected of fraud and have kept 
the regulatory language as proposed.

[[Page 15394]]

    This final rule adds Sec.  98.45(n)(5) to require States and 
Territories demonstrate in their CCDF Plan how they are ensuring they 
are not reducing the total payment (subsidy payment amount and co-
payment) given to child care providers when implementing the 
requirement at Sec.  98.45(l) to limit co-payments to 7 percent of 
family income and waiving co-payments for additional families. A more 
detailed discussion of this addition, including related comments and 
responses, is earlier in this preamble at Sec.  98.45(l).

Subpart F--Use of Child Care and Development Funds

    Subpart F of the CCDF regulations establishes allowable uses of 
CCDF funds related to the provision of child care services, activities 
to improve the quality of child care, administrative costs, matching 
fund requirements, restrictions on the use of funds, and cost 
allocation. This final rule includes several changes in Subpart F, 
including requiring some use of grants or contracts for direct services 
and removing the obsolete phase-in of the quality set-aside.
Sec.  98.50 Child Care Services
    This final rule adds clarifying language at Sec.  98.50(a)(3) that 
some grants or contracts must be used for slots for children in 
underserved geographic areas, infants and toddlers, and children with 
disabilities. Additionally, the final rule further clarifies that 
grants solely to improve the quality of child care services would not 
satisfy the requirement at Sec.  98.30(b). This clarifying language is 
also added to the final rule at new paragraph Sec.  98.50(b)(4).
    Comment: As discussed in Subpart D, some commenters wanted 
clarification as to the definition of ``grants and contracts'' and 
whether the requirement is specific to direct services.
    Response: The final rule clarifies across sections Sec. Sec. Sec.  
98.16(z), 98.30(b), and 98.50(a) that the requirement is for grants 
``or'' contracts and is in reference to direct services. This 
clarification responds to some Lead Agencies and other commenters 
noting the appropriate mechanism for grants or contracts is different 
in each jurisdiction. All Lead Agencies define the terms ``grants'' and 
``contracts'' differently, with each term carrying different 
requirements and processes. Due to the varying nature of how Lead 
Agencies define these terms, it would be impractical to provide a 
federal definition. Additionally, in response to comments asking for 
clarification about what counts as a direct service and if quality set-
aside investments could count toward the grant or contract requirement, 
the final rule clarifies the definition of direct services to 
explicitly include grant or contracted slots. Specifically, additional 
language at Sec.  98.50(a)(3) adds the term ``for slots'' after 
``grants or contracts'' and excludes grants solely to improve the 
quality of child care services like those in Sec.  98.50(b) from 
meeting the requirement set out in Sec.  98.30(b). New paragraph Sec.  
98.50(b)(4) clarifies these quality amounts cannot be used to satisfy 
the requirement at Sec.  98.30(b) for grant or contracted slots. A 
final change was made to the financial reporting requirement at Sec.  
98.65(h)(3) to clarify that ``direct services'' can be for ``both grant 
or contracted slots and certificates.''
    Comment: Some commenters expressed concerns about program integrity 
implications of requiring grants or contracts and asked specifically 
for ACF to clarify how provider changes should be handled.
    Response: We share commenters' interest in strong program integrity 
and defer to Lead Agencies to define these parameters under their 
already existing systems. ACF is committed to providing technical 
assistance to Lead Agencies related to best practices in grants or 
contracting and in monitoring grants or contracts.
    Comment: Several comments noted that implementation of policies 
described (e.g., cost estimation model, presumptive eligibility) would 
necessitate feedback from people with direct experience and need to be 
adjusted to ensure that they work for families and providers. In 
addition, many parents, providers, and organizations representing 
parents and providers who participate in child care subsidy programs 
commented on how proposed policies would impact their experience, 
including expressing the need to be directly engaged to support 
successful implementation.
    Response: We agree that people with direct experience in the child 
care subsidy system, quality initiatives, and the child care market are 
critical stakeholders in successful implementation of CCDF policies and 
practices. We have added language to clarify that quality set-aside 
funds may be used to engage families and providers with direct 
experience, including compensation for time and related expenses.
    Quality Set-aside. 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, with the statute 
maintaining a minimum 9 percent quality set-aside thereafter. The final 
rule removes the phase-in schedule for the quality set-aside at Sec.  
98.50(b)(1) because it is outdated. This update 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. The final rule adds clarifying 
language to affirm that Lead Agencies are encouraged to engage parents 
and providers with direct experience in the child care subsidy system 
and with quality initiatives because successful implementation of this 
rule and other CCDF provisions depends on user feedback. The final rule 
also affirms that quality funds can be used for expenses related to 
such engagement.
    Similarly, the final rule strikes the outdated language at Sec.  
98.50(b)(2) that stemmed from Section 658G(a)(2)(B) of the Act (42 
U.S.C. 9858e(a)(2)(B)) and 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 effective date is no longer necessary in the regulatory 
language and is now deleted. This update 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.
    Mandatory Funds. The final rule also amends Sec.  98.50(e) to 
update regulations to align with policies implemented as part of the 
ARP Act of 2021 (Pub. L. 117-2). In accordance with subtitle I, section 
9801 of the ARP Act, Territories received permanent CCDF mandatory 
funds for the first time in FY 2021. Since CCDF did not provide 
Territories with CCDF mandatory funds prior to FY 2021, the CCDF 
regulations did not include requirements of how Territories must spend 
CCDF mandatory funds. We made 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 
\85\ that

[[Page 15395]]

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.
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    \85\ 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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    Comment: While one commenter incorrectly stated OCC proposed an 
increase in quality spending at Sec.  98.50(b)(1) or Sec.  98.50(b)(2), 
other commenters affirmed these updates helped clarify and did not 
change existing requirements. Additionally, we received several 
comments in support of updating the regulation at Sec.  98.50(e) to 
reflect mandatory funding that has been available to Territories since 
2021.
    Response: As the regulatory language simply removes obsolete 
language, we have retained the language as proposed.

Subpart G--Financial Management

    The focus of Subpart G is to ensure proper fiscal management of the 
CCDF program, both at the federal level by ACF and the Lead Agency 
level. The final rule changes to this section include adding recent 
statutory changes to the CCDF mandatory funds and revising CCDF 
expenditure reporting requirements.
Sec.  98.60 Availability of Funds
    To reflect that Territories began receiving annual mandatory funds 
in FY 2021 due to provisions in the ARP Act, this final rule makes 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.
    This final rule also includes a conforming change at paragraph 
Sec.  98.60(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 provisions at paragraphs (d)(4) through (8) have been 
renumbered accordingly. We did not receive comments on these proposed 
changes.
Sec.  98.62 Allotments From the Mandatory Fund
    This final rule includes 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 updated the statutory reference 
to the Social Security Act to specify the provision referenced section 
418(a)(3)(A) (42 U.S.C. 618(a)(3)(A)), and we deleted 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 (42 U.S.C. 
618(a)(3)(B)) and no longer a percent of the total allocation.
    Finally, we added 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 (42 U.S.C. 618(a)(3)(C)) 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). This final rule 
codifies that reallotment formula in the regulations. The regulation 
specifies that the amount of each Territory's mandatory allocation is 
based on (1) a Young Child factor--the 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; 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. Paragraph 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.
    Comment: We received several comments on the proposed additions to 
Sec.  98.62 on allotments from the mandatory fund to Indian Tribes and 
Tribal organizations. All comments on this proposed change expressed 
concerns about funding levels for Tribal CCDF programs. Some commenters 
acknowledged that the mandatory set-aside was put forth by Congress in 
the ARP Act but wished to express disagreement with this change.
    Response: This rule makes no changes to funding levels for Tribal 
Nations. The rule simply reflects the permanent changes made in the ARP 
Act, such that the allocation of mandatory funds for Tribes be based on 
the amount set at section 418(a)(3)(B) of the Social Security Act, 
rather than a percent of the total allocated funds. This change was 
made by Congress in 2021 and reflected a 71 percent increase in 
mandatory CCDF funds for Tribes.
Sec.  98.64 Reallotment and Redistribution of Funds
    This final rule updates Sec.  98.64(a) to reflect that Territories 
began receiving mandatory funds in FY2021 due to the ARP Act. The 
regulation specifies that Territory mandatory funds are subject to 
redistribution and that mandatory funds granted to Territories must be 
redistributed to Territories. It further clarifies 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. This final rule adds a new paragraph (e) to codify these 
procedures for redistributing Territory mandatory funds. We did not 
receive comments on these proposals.
Sec.  98.65 Audits and Financial Reporting
    This final rule adds clarifying language at Sec.  98.65(h)(3) that 
grants or contracts for child care services are considered a direct 
service expenditure.
    Comments: As discussed in Subpart F, many commenters wanted 
clarification about the definition of grant or contract for direct 
service and raised confusion about whether this definition of direct 
service includes grant or contracted slots.
    Response: In response to comments, the final rule clarifies at 
Sec.  98.65(h)(3) that grant or contracted slots are considered a 
direct service. ACF will also make changes to the ACF-696 instructions 
to further clarify this reporting requirement and how Lead Agencies 
should account for grant or contracted slots in financial reporting.

Subpart H--Program Reporting Requirements

    Subpart H of the regulations includes administrative reporting 
requirements for Lead Agencies.
Sec.  98.71 Content of Reports
    Data Amounts Charged Above Co-payment. This final rule deletes the 
data element at Sec.  98.71(a)(11) that required 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. This data element created a burden on Lead Agencies and child 
care providers and was never implemented. Instead, we have revised

[[Page 15396]]

Sec.  98.45(f)(1) to include this information in what States and 
Territories must report in their market rate survey or alternative 
methodology reports related to providers charging families above the 
State set co-payment. In addition, States must continue to track 
through their market rate survey or approved alternative methodology or 
through a separate source how much CCDF child care providers charge 
amounts to families more than the required co-payment as required at 
Sec.  98.45(d)(2)(ii) and report on this data in their CCDF Plans as 
required at Sec.  98.45(b)(5).
    This reporting requirement at Sec.  98.71(a)(11) 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 element would create a reporting burden for 
families and/or providers, and that it would be challenging to collect 
and report accurate data. A State also argued that the new element was 
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 requested comment on whether the data element should be removed, 
including potential implications of either instituting or removing the 
requirement.
    Comment: Most commenters on this proposal opposed deleting the 
element. They noted that with the proposal to cap family co-payments 
and included in this final rule at Sec.  98.45(l) that it was critical 
to collect data about how much providers are charging families above 
the co-payment.
    A few commenters expressed support for the proposal to delete the 
data element, with one Lead Agency stating, ``it is very difficult to 
collect and extract the referenced data due to the wide variation in 
provider price points and co-payments.''
    Response: We agree with commenters the data intended to be captured 
by the original regulation is important to understand how much families 
receiving subsidies must pay out of pocket for child care. However, the 
ACF-801 is not the best data collection form to collect this 
information because it provides monthly case records for all children 
participating in CCDF. The information for the ACF-801 is mostly 
collected during a child's eligibility determination and through state 
data systems. To collect the information for this data element, the 
State would have to create new reporting for child care providers, 
adding new burdens on child care providers. Further, these data do not 
need to be monthly to be useful. Therefore, this rule revises Sec.  
98.45(f)(1) to ensure such data is collected in a more appropriate 
manner. OCC will continue to collect and review State and Territory 
policies regarding allowing child care providers to charge the 
difference between the state subsidy rate and the provider's private 
pay rate through the CCDF Plan pursuant to Sec.  98.45(b)(5).
    The final rule makes conforming renumbering changes to (a)(12) 
through (22).
    Presumptive Eligibility. This final rule adds a data element at 
Sec.  98.71(b)(5) to require Lead Agencies implementing presumptive 
eligibility to report in the annual aggregate report (ACF-800) the 
number of presumptively eligible children ultimately determined fully 
eligible, the number who fail to complete documentation for full 
eligibility and the number who are determined ineligible after full 
verification. Comments and responses were discussed earlier under the 
related requirement at Sec.  98.21(e).
    The final rule makes conforming renumbering changes to (b)(6) 
through (7).

Subpart I--Indian Tribes

    This subpart addresses requirements and procedures for Indian 
Tribes and Tribal organizations applying for or receiving CCDF funds 
and serves as the Tribal summary impact statement as required by 
Executive Order 13175.\86\ CCDF currently provides funding of about 
$557 million annually \87\ to approximately 265 Tribes and Tribal 
organizations directly or through consortia arrangements that 
administer child care programs for approximately 520 federally 
recognized Indian Tribes. Tribal CCDF programs are intended for the 
benefit of Indian children, and these programs serve only Indian 
children. The Tribal CCDF program plays a crucial role in child care 
access and affordability. Below we discuss the Tribal CCDF program, 
Tribal consultation, and regulatory changes impacting this Subpart.
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    \86\ https://www.federalregister.gov/documents/2000/11/09/00-29003/consultation-and-coordination-with-indian-tribal-governments.
    \87\ FY23 allocation https://www.acf.hhs.gov/occ/data/gy-2023-ccdf-tribal-allocations-estimated-pending-final-child-count.
---------------------------------------------------------------------------

    The Act is not explicit in how many of its provisions apply to 
Tribes so ACF traditionally applies requirements of the Act to Tribes 
through regulation. In the years since the 2016 final rule, Tribal Lead 
Agencies have taken great efforts to implement CCDF programs in 
accordance with the regulations. Most CCDF Tribal Lead Agencies receive 
relatively small award sizes of less than $250,000 and have 
infrastructure and internal capacity that varies greatly from CCDF 
State Lead Agencies. ACF continues to hear from Tribes about needing 
additional program flexibilities to provide high quality child care to 
Indian children and families. The changes in this final rule as they 
apply to Tribal Lead Agencies are heavily informed by this feedback as 
well as the formal consultation conducted during the NPRM comment 
period. In addition, to provide a more in-depth and long-term 
opportunity for feedback on the Tribal CCDF program, ACF issued a 
Tribal Request for Information (RFI) that was open for comment from 
July 27, 2023 to January 2, 2024.\88\
---------------------------------------------------------------------------

    \88\ https://www.federalregister.gov/documents/2023/07/27/2023-15930/request-for-information-meeting-the-child-care-needs-in-tribal-nations.
---------------------------------------------------------------------------

    Tribal consultation and comments. ACF is committed to consulting 
with Tribal Nations prior to promulgating any regulation that has 
Tribal implications. Immediately following publication of the NPRM, ACF 
hosted a national webinar specifically for Tribal Lead Agencies to 
outline and discuss the proposed changes during the comment period. ACF 
held a formal consultation session virtually in July 2023 with Tribal 
leaders and Tribal CCDF staff to discuss the impact of the proposed 
regulations on Tribes. Tribes and Tribal organizations were informed of 
these events through letters to Tribal leaders and announcements to 
Tribal CCDF administrators. ACF also distributed materials specifically 
addressing the impact of the proposed rule on Tribes. ACF published a 
consultation report on September 5, 2023, which was posted as a 
supplemental document in the Federal Register on August 20, 2023 and 
includes information on consultation attendees as well as their 
specific comments.\89\ This final rule was informed by these 
conversations and comments. Most of the testimony and dialogue included 
support for the NPRM proposals, with some concerns raised related to 
fraud determinations, implementation timelines, technical and financial 
resources to implement the proposed changes. Comments related to fraud 
and intentional program

[[Page 15397]]

violations can be found earlier in this preamble as part of the 
discussion about presumptive eligibility at Sec.  98.21.
---------------------------------------------------------------------------

    \89\ https://www.regulations.gov/document/ACF-2023-0003-1665.
---------------------------------------------------------------------------

    Unless explicitly stated in this Subpart, regulations in the 2016 
final rule remain in effect for Tribal Lead Agencies. Below we discuss 
implications for 102-477 programs followed by a discussion of the 
changes to Sec. Sec.  98.81, 98.83, and 98.84 in this final rule.
    102-477 programs. We note that Tribes continue to have the option 
to consolidate their CCDF funds under a plan authorized by the Indian 
Employment, Training and Related Services Consolidation Act of 2017 
(Pub. L. 115-93), originally established in 1992 (Pub. L. 102-477).\90\ 
This law allows federally recognized Tribes and Alaska Native entities 
to integrate federal grant programs for employment, training, and 
related services they provide to their communities into a single 
program plan, budget, and reporting system to address Tribal 
priorities. ACF publishes guidance for Tribes wishing to consolidate 
CCDF under the authority created in Public Law 102-477.\91\ However, 
the Bureau of Indian Affairs (BIA) within the Department of Interior 
(DOI) is the lead federal agency for implementing this program.
---------------------------------------------------------------------------

    \90\ https://congress.gov/115/plaws/publ93/PLAW-115publ93.pdf.
    \91\ https://www.acf.hhs.gov/occ/policy-guidance/consolidate-ccdf-under-indian-employment-training-and-related-services.
---------------------------------------------------------------------------

Sec.  98.81 Application and Plan Procedures and Sec.  98.83 
Requirements for Tribal Programs
    Sliding fee scale. This final rule retains the proposed revision at 
Sec. Sec.  98.81(b)(6)(vii) and 98.83(d)(1)(vi) to exempt all Tribal 
Lead Agencies from the requirement to establish a sliding fee scale and 
from the provision at Sec.  98.45(l) as redesignated to require parents 
to pay a co-payment. Therefore, all Tribal Lead Agencies newly have the 
flexibility to provide CCDF assistance to eligible families without any 
co-payment. Previously, Tribes with medium and large allocations were 
subject to the requirements at Sec.  98.45(l) while Tribes with small 
allocations had the flexibility to exempt all families from co-
payments.
    Comment: Commenters supported this exemption. Some commenters were 
supportive of the exemption but were concerned with their ability to 
implement the change without new resources.
    Response: Eliminating co-payments for parents participating in CCDF 
is an option for Tribal Lead Agencies but not a requirement. Tribes 
concerned by funding constraints or other matters will have the 
flexibility to require co-payments if they choose and their established 
sliding fee scale will not be subject to any requirements outlined in 
this final rule. If a Tribe chooses to require a parent co-payment, we 
encourage the required amount from families to be as minimal as 
possible and under 7 percent of a family's income.
    Grants and contracts. This final rule maintains the proposed 
revisions at Sec. Sec.  98.81(b)(6)(x) and 98.83(d)(1)(i) to exempt all 
Tribal Lead Agencies from the requirement to use some grants or 
contracts to provide direct services for underserved geographic areas, 
infants and toddlers, and children with disabilities as required for 
States and territories at Sec. Sec.  98.16(z), 98.30(b)(1), and 
98.50(a)(3). Tribal Lead Agencies vary significantly in how they 
administer the CCDF subsidy program and a requirement to use grants or 
contracts is not feasible. Tribal Lead Agencies continue to have the 
option to use this funding mechanism for direct services. We did not 
receive comments on this area and have retained the language as 
proposed.
    Provider Payment Practices. The final rule at Sec.  
98.81(b)(6)(xii) exempts all Tribal Lead Agencies from the requirement 
to implement provider payment practices in accordance with Sec.  
98.16(cc).
    Comment: While commenters were supportive of proposed changes to 
provider payment practices at Sec.  98.45(m), they also expressed 
concern about Tribal Lead Agencies' ability to implement the changes, 
especially considering the variability in Tribal Lead Agencies 
infrastructure to make the necessary systems changes for these 
policies.
    Response: Based on these comments and our focus on providing 
additional flexibility for Tribal Lead Agencies given the range of 
infrastructure and capacities, we have chosen to exempt all Tribal Lead 
Agencies from the requirement to have provider payment practices that 
reflect generally accepted payment practices, including prospective 
payments based on enrollment. It is not clear whether these are 
generally accepted practices across Tribal communities, and the changes 
included in this final rule remain at the discretion of the Tribal Lead 
Agency. However, ACF strongly encourages Tribal Lead Agencies to ensure 
providers are paid in a timely manner and for children's occasional 
absences.
    Quality Funds. Section 98.83(g)(1) previously included a phased-in 
increase to the percent of expenditures Tribal Lead Agencies must spend 
on activities to improve the quality of child care. The phase-in ended 
on September 30, 2020. The final rule removes the phase-in schedule for 
the quality set-aside at Sec.  98.50(b)(1) because it is outdated. This 
update does not impact the current requirement for all Tribes to spend 
at least nine percent of their total expenditures on quality 
activities. Similarly, the final rule strikes the outdated language at 
Sec.  98.83(g)(2), which included a new permanent requirement for 
Tribes with medium and large CCDF allocations to spend at least three 
percent of total expenditures on activities to improve the quality and 
supply of child care for infants and toddlers and delayed the effective 
date of this requirement until FY 2017. This date is no longer 
necessary in the regulatory language and is now deleted. This update 
does not impact the current requirement for Tribes with medium and 
large allocations to spend at least three percent of their total 
expenditures on activities to improve the quality and supply of child 
care for infants and toddlers. We did not receive comments on these 
technical changes.
Sec.  98.84 Construction and Renovation of Child Care Facilities
    Section 98.84 describes the procedures and requirements for Tribal 
construction or renovation of child care facilities. This final rule 
extends the deadline for liquidating construction and major renovation 
funds, specifically by establishing a three-year obligation period and 
subsequent two-year liquidation period for construction and major 
renovation funds.
    Comment: We received a few comments on this proposal, all of which 
were supportive. Commenters emphasized that construction and major 
renovation projects can often take many years to plan and execute and 
the additional time would help to ensure that facilities are 
successfully built on Tribal lands.
    Response: We appreciate the feedback on this proposed change and 
are glad to see support for this proposal. We understand that 
construction and renovation of facilities can be vital to maintaining 
and increasing high quality child care for children and families. We 
also recognize that construction projects are complex, expensive, and 
often long-term, and can therefore take extended time to spend allotted 
funds. Therefore, we have maintained the proposed change to allow 
Tribal Lead Agencies up to 5 years to liquidate construction and major 
renovation funds, which

[[Page 15398]]

includes three years to obligate funds and an addition two years to 
liquidate.
    Previously, Tribal construction and major renovation funds did not 
have an obligation deadline. This final rule establishes a three-year 
obligation period to meet the statutory provision that limits grants to 
Tribal Lead Agencies to three years. As a Lead Agency cannot change the 
purposes of the funds after the obligation period, we have determined 
that we can allow additional time beyond the three years for 
liquidation.
    Comment: We asked for feedback on the potential establishment of 
guardrails to prevent circumvention of the obligation and liquidation 
requirements. Some commenters expressed a mix of support for increased 
flexibility with concerns about unnecessary proposed guardrails.
    Response: We appreciate the comments in response to this request. 
The final rule does not include additional limits related to major 
renovation and construction.

Subpart J--Monitoring, Non-Compliance, and Complaints

    This final rule does not make any changes to Subpart J.

Subpart K--Error Rate Reporting

    Subpart K details requirements for the reporting of error rates in 
the expenditure of CCDF grant funds by the 50 States, the District of 
Columbia, and Puerto Rico. In addition to the regulatory requirements 
at subpart K, details regarding error rate reporting requirements are 
contained in forms and instructions that are established through the 
Office of Management and Budget's (OMB) information collection process. 
Under subpart K, this final rule makes changes to the content of error 
rate reports.
Sec.  98.102 Content of Error Rate Reports
    To strengthen oversight and monitoring of program integrity risks, 
this final rule clarifies requirements at Sec.  98.102 for the State 
Improper Payments Corrective Action Plan (ACF-405). The final rule 
amends Sec.  98.102(c)(2) to expand the required components of error 
rate corrective action plans. Specifically, it requires 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 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. The final rule also separates previous 
provision at (c)(2)(ii) into two provisions, with amended paragraph 
(c)(2)(iii) requiring detailed descriptions of actions to reduce 
improper payments and the name and/or title of the individual 
responsible for actions being completed and amended paragraph 
(c)(2)(iv) requiring milestones to indicate progress towards action 
completion and error rate reduction. Additionally, we revised 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.
    The final rule also adds 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 added 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.'' The final rule specifies it 
will be at ACF's discretion to impose a penalty for not following them 
``as described.''
    Comment: One commenter expressed support for the proposed change 
and recommended that OCC include the title, as opposed to the 
individual's name, of the person responsible for the action to be 
included because of staffing changes that occur over time.
    Response: We appreciate the commenter's recommendation and 
recognize that staff changes often happen during the corrective action 
period. Therefore, we have revised the proposed language to specify 
that the corrective action plan must identify the name and/or title of 
the individual responsible at Sec.  98.102(c)(2)(iii).
    Comment: One commenter noted that this would be unnecessarily 
burdensome for Lead Agencies because the ACF-404 reports already allows 
for states to detail the root causes of errors.
    Response: OCC is not expanding the ACF-404, but rather, we are 
providing a clarification around the requirements for the ACF-405. The 
updated ACF-405 provides a way for states to connect the root causes of 
error already identified in the ACF-404 with the action steps in the 
ACF-405. We do not expect this additional component to create a 
significant burden and that the value of the addition outweighs the 
burden.

VII. Regulatory Process Matters

Paperwork Reduction Act

    Under the Paperwork Reduction Act (44 U.S.C. 3501 et seq., as 
amended) (PRA), all Departments are required to submit to the Office of 
Management and Budget (OMB) for review and approval any reporting or 
recordkeeping requirements inherent in a proposed or final rule. As 
required by this Act, we will submit any proposed revised data 
collection requirements to OMB for review and approval.
    The final 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.

----------------------------------------------------------------------------------------------------------------
                                     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 final rule adds
 Plan).                              98.15, and 98.16                                       new requirements
                                     (and related                                           which States and
                                     provisions).                                           Territories are
                                                                                            required to report
                                                                                            in the CCDF Plans.

[[Page 15399]]

 
ACF-118-A (CCDF Tribal Plan) Part   Sec.  Sec.   98.14,         0970-0198       4/30/2025  The final rule adds
 I and Part II.                      98.16, 98.18, 98.81,                                   new requirements
                                     and 98.83 (and                                         which Tribal lead
                                     related sections).                                     agencies with medium
                                                                                            and large
                                                                                            allocations are
                                                                                            required to report
                                                                                            in the CCDF Plans.
ACF-405...........................  Sec.   98.102........       0970-0323      01/31/2025  The final rule
(Error Rate Corrective Action                                                               modifies this
 Plan).                                                                                     information
                                                                                            collection to add
                                                                                            new components to
                                                                                            the corrective
                                                                                            action plans.
ACF-800 (CCDF Annual Aggregate      Sec.   98.71.........       0970-0150      03/31/2025  The final rule
 Child Care Data Report- States                                                             modifies this
 and Territories).                                                                          existing information
                                                                                            collection to
                                                                                            require States and
                                                                                            Territories report
                                                                                            on data related to
                                                                                            presumptive
                                                                                            eligibility.
ACF-801 (CCDF Monthly Child Care    Sec.   98.71.........       0970-0167      04/30/2025  The final rule
 Report--States and Territories).                                                           removes the
                                                                                            regulatory
                                                                                            requirement to
                                                                                            report information
                                                                                            on additional fees
                                                                                            charged to families,
                                                                                            where applicable.
                                                                                            This data element
                                                                                            has never been added
                                                                                            to the ACF-801 form.
Consumer Education Website and      Sec.  Sec.   98.33,         0970-0473      05/31/2026  The final rule
 Reports of Serious Injuries and     98.42.                                                 modifies 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 final rule.

                                                                 Annual Burden Estimates
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                             Estimated
                                                                           Total number       Current                         average        Estimated
                                                           Total number    of responses      approved     Current annual   burden hours   annual  burden
                       Instrument                         of respondents        per           average      burden hours    per response   hours based on
                                                                            respondent     burden  hours                  based on final     final rule
                                                                                           per  response                       rule
--------------------------------------------------------------------------------------------------------------------------------------------------------
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-405 (Error Rate Corrective Action Plan).............               5               2             156             520             156             520
ACF-800 (CCDF Annual Aggregate Child Care Data Report-                56               1              40           2,240              40           2,240
 States and Territories)................................
ACF-801 (CCDF Monthly Child Care Report--States and                   56               4              25           5,600              25           5,600
 Territories)...........................................
Consumer Education Website..............................              56               1             300          16,800             315          17,640
--------------------------------------------------------------------------------------------------------------------------------------------------------

    We did not receive any public comments on these burden estimates, 
which were included in the NPRM.

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 certifies, under 5 U.S.C. 605(b), as enacted by 
the RFA (Pub. L. 96-354), that this rule does 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

[[Page 15400]]

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 
final regulation. As described in the preamble to this final rule, 
several of the 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 does not have substantial direct impact on the 
states, on the relationship between the federal government and the 
states, or on the distribution of power and responsibilities among the 
various levels of government. This rule does not pre-empt state law. In 
large part, the changes included in the final rule are adopting 
practices already implemented by many states or are increasing 
flexibilities in administering the CCDF program. Therefore, in 
accordance with section 6 of Executive Order 13132, it is determined 
that this action does not have sufficient federalism implications to 
warrant the preparation of a federalism summary impact statement.

Assessment of Federal Regulations and Policies on Families

    Assessment of Federal Regulations and Policies on Families Section 
654 of the Treasury and General Government Appropriations Act of 2000 
requires federal agencies to determine whether a policy or regulation 
may negatively affect family well-being. If the agency determines a 
policy or regulation negatively affects family well-being, then the 
agency must prepare an impact assessment addressing seven criteria 
specified in the law. ACF believes it is not necessary to prepare a 
family policymaking assessment (see Pub. L. 105-277) because the action 
it takes in this final rule will not have any impact on the autonomy or 
integrity of the family as an institution.

VIII. Regulatory Impact Analysis

    We have examined the impacts of the 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 conducted an initial Regulatory Impact Analysis (RIA) in the 
Notice of Proposed Rulemaking to estimate and describe the expected 
costs, transfers, and benefits resulting from the 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 did not include Tribal 
policies in our analysis.
    Based on feedback received during the public comment period, we 
have further refined these estimates for the final rule. Some of the 
more substantial changes made in this version of the RIA include:
    <bullet> Systems Costs: This RIA now includes a systems cost 
estimate to account for possible IT changes needed to implement 
requirements in the final rule;
    <bullet> Administrative Data: All the calculations in this RIA have 
been updated to use FY 2021 Preliminary ACF-801 data, which was not 
available when writing the NPRM; and
    <bullet> Delineating between Required and Optional Policies: The 
RIA includes projections for both policies required by the rule and for 
those that are at Lead Agency option. This version of the RIA has been 
restructured to better clarify which policies are required and which 
are optional.

A. Context and Assumptions

    All changes in this rule are allowable costs within the CCDF 
program and we expect activities to be paid for using CCDF funding. 
Each year, approximately $11.6 billion in federal funding is allocated 
for CCDF.\92\ In addition to the federal funding, States may contribute 
their own funds to access additional federal funds, increasing total FY 
2023 CCDF funding to about $13.7 billion. At the same time, Federal 
funding for child care has never been sufficient to serve all eligible 
children and support consistent access to high quality programs. Some 
States have also been increasing state investment in child care beyond 
the required levels, but even with combined federal and state 
resources, states have to make difficult trade offs. Without additional 
funding, these trade offs will continue as Lead Agencies implement 
provisions in this rule, including balancing quality improvements, 
enrolling additional children, and investing in polices that promote 
stability for enrolled families. However, Lead Agencies have 
flexibility in how they implement many of the provisions and may adjust 
other policies to offset or account for additional costs associated 
with 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.
---------------------------------------------------------------------------

    \92\ https://www.acf.hhs.gov/occ/data/gy-2023-ccdf-allocations-based-appropriations.
---------------------------------------------------------------------------

1. Baseline
    To get an accurate account of the costs, transfers, and benefits of 
this rule, we first established a baseline for current CCDF State 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 final rule was published. The Lead Agency 
data and policies described in this RIA are gathered primarily from:
    <bullet> ACF-801 (2021, preliminary): \93\ This is case-level data 
that are collected monthly. The preliminary 2021 data are the most 
recent data available.
---------------------------------------------------------------------------

    \93\ Unpublished ACF-801 Preliminary Administrative Data.
---------------------------------------------------------------------------

    <bullet> ACF-118 (State and Territory Plan, 2022-2024): \94\ 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 State and 
Territory Plans were the most current data available.
---------------------------------------------------------------------------

    \94\ https://www.acf.hhs.gov/occ/report/acf-118-overview-state-territorial-plan-reporting.
---------------------------------------------------------------------------

    <bullet> CCDF Policies Database (2020): \95\ The CCDF Policies 
Database, managed by the Office of Planning, Research, and

[[Page 15401]]

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

    \95\ CCDF Policies Database, 2020 data. https://ccdf.urban.org/.
---------------------------------------------------------------------------

    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 2021] \96\
------------------------------------------------------------------------
                                                       Average number of
             Average number of  families                   children
------------------------------------------------------------------------
797,200.............................................          1,313,700
------------------------------------------------------------------------


                                                                  Table 2--Number of Child Care Providers Receiving CCDF Funds
                                                                                         [FY 2021] \97\
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                      Licensed or regulated                                                            Legally operating without regulation \98\
-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                       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
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
114.........................................................     44,510      20,289      70,204      11,213       4,266      46,791      12,172           0           0       5,310     214,861
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

2. Implementation Timeline
---------------------------------------------------------------------------

    \96\ Unpublished ACF-801 Preliminary Administrative Data.
    \97\ Ibid.
    \98\ For ACF-801 reporting purposes, ``legally operating without 
regulation'' means a legally operating, unregulated child care 
provider that, if not participating in the CCDF program, would not 
be subject to any state or local child care regulations. https://www.acf.hhs.gov/sites/default/files/documents/occ/ACF-801_Form_and_Instructions_for_federal_fiscal_years_FY2023_and_later.pdf.
---------------------------------------------------------------------------

    Provisions included in the final rule are 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.
    While this rule does not have specific implementation dates for 
individual provisions, we acknowledge that it may take Lead Agencies 
some time to implement the policies included in this final rule 
particularly since some of these are at the Lead Agency's option and 
some of the changes in this final rule may require State, Territory, or 
Tribal legislative or regulatory action in order to implement. During 
the public comment period, we received a number of comments about the 
one year implementation period. Commenters pointed out that 
implementing these changes would require a significant amount of time, 
especially when factoring in the changes that require legislative 
approval. Therefore, in response to comments received during the public 
comment period, we are allowing Lead Agencies the option to request 
transitional and legislative waivers for 2 years, which will allow up 
to two years of implementation instead of one.
    This revised cost estimate assumes a two year ramp up period. Our 
projections assume a third of the full costs/transfers/benefits in year 
1, two-thirds in year 2, with full implementation in year 3 and the 
following years. The exception to this is the systems-related cost 
estimate. Since this represents the upfront cost of changing IT 
systems, those will be split evenly across the implementation period 
and will not have an ongoing cost in year 3 and beyond. The costs, 
transfers, and benefits in this estimate are phased-in as follows:
    <bullet> Year 1: One third of the full costs/transfers/benefits 
estimate, with half of the cost of the systems-related estimate.
    <bullet> Year 2: Two-thirds of the full costs/transfers/benefits 
estimate, with half of the cost of the systems-related estimate.
    <bullet> Years 3 through 5: Full costs/transfer/benefits estimate, 
with no systems-related cost since that would no longer apply.
    The RIA examines the potential costs, transfers and benefits over a 
5 year window. During the public comment period, it was clear that some 
commenters were confusing the 5 year window with the implementation 
timeline. To clarify, the 5 year examination window is not the 
implementation timeline. The purpose of the 5 year window is to examine 
the impact of the regulation over time. Since the projected costs, 
transfers, and benefits stabilize by the beginning of year 3, we chose 
a 5 year window for our projections.
3. Need for Regulatory Action
    Congress last authorized the 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, HHS has carefully explored 
the successes and challenges in the Act's implementation, learned from 
the experiences of Lead Agencies, providers, families, and early 
educators, and assessed the impact and implications of the COVID-19 
public health emergency.
    The revisions in this final rule are designed to build on the work 
of the past, creating a program that effectively supports child 
development and family economic well-being.
    These policies will help families access high-quality child care 
and mitigate myriad negative consequences of inadequate access to care. 
Specifically, the revisions:
    <bullet> Lower child care costs for families,
    <bullet> Improve parent choice and strengthen child care payment 
practices, and
    <bullet> Streamline the process to access child care subsidies.
    CCDF plays a vital role in helping families with low incomes afford 
child care and go to work, but some current regulations do not 
adequately support families or further CCDF's purpose and goals. This 
regulatory action provides much needed direction to improve access to 
affordable child care by lowering parents' costs and increasing 
parents' child care options. Further, this regulatory action provides 
additional 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

[[Page 15402]]

Agencies, from a society-wide perspective, they mostly redistribute 
costs from one portion of the population to another.
    Most of the impacts from these provisions are categorized as 
transfers. These transfers between entities are discussed in more 
detail later in this regulatory analysis. The exceptions are:
    <bullet> Administrative costs associated with grants and contracts;
    <bullet> IT systems-related costs associated with prospective 
payment, enrollment-based payment, and grants and contracts; and
    <bullet> Benefits associated with encouraging an online component 
to the initial eligibility application process.
    During the public comment period, we requested comment about 
potential systems needs to get a better understanding of the potential 
need in this area. We received comments about the cost to updating IT 
systems in order to comply with the requirements in the final rule and 
received some examples from Lead Agencies about the scope of the 
changes that would need to be made. The systems estimate was not 
included in the version of RIA in the NPRM, since the public comment 
period sought additional information on this matter. Based on the 
information we received, we are adding this systems cost to this 
version of the RIA. The discussion of this estimate is included in 
Systems (Cost) section below.
    The RIA examines the impact of both required and recommended 
policies, which our calculations estimate the annualized impact to be 
$206.6 million in transfers, $13.1 million in costs, and $15.3 million 
in benefits. However, it is important to distinguish between the 
policies that Lead Agencies are required to implement and the policy 
options which Lead Agencies are allowed to choose whether or not to 
adopt. To make this distinction as clear as possible, we are organizing 
our analysis by required and optional policies in the final rule. Based 
on the calculations in this RIA, we estimate the quantified impact of 
the required policies in the final rule to be an annualized amount of 
$57.2 million in transfers and $9.0 million in costs. We estimate the 
quantified impact of the optional policies in the final rule to be an 
annualized amount of $149.4 million in transfers, $4.1 million in 
costs, and $15.3 million in benefits.
1. Transfers and Costs To Implement Requirements in the Final Rule
    In this RIA, we examine all the components of the final rule that 
project to have an economic impact. Of those that are required, we have 
identified Additional Child Eligibility, Enrollment-based Payment, and 
the Permissible Co-payments as transfers, while Grants and Contracts 
and Systems-related costs are designated as costs. When we isolate just 
those policies that are required in the final rule, we project an 
annualized total of $57.2 million in transfers and an annualized total 
of $7.9 million in costs.
    Additional Child Eligibility (Transfer): 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 clarification benefits children currently 
participating in CCDF because it increases the length of time they 
would receive child care subsidies, but for this estimate, 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:
    <bullet> Number of Additional Children: We do not currently have 
data on the birth 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.\99\ 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.
---------------------------------------------------------------------------

    \99\ https://www.cdc.gov/nchs/fastats/births.htm.
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    <bullet> 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 specific 
data in this area, taking the middle between the maximum and the 
minimum amount of possible assistance was the most reasonable estimate 
and one that would minimize a misestimate.
    <bullet> 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, examining the range of 
transfer amounts if 5 percent and 45 percent of Lead Agencies needed to 
come into compliance. However, based on policy questions received since 
the 2016 final rule, for this estimate we calculate that a quarter of 
Lead Agencies will have to update their policies, 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 $31.4 million.
    Enrollment-based Payment (Transfer): This policy requires Lead 
Agencies to pay providers based on enrollment instead of attendance. 
During the comment period, we received comments in support of this 
policy including one that cited a survey that showed 80 percent of 
child care center directors, administrators and family child care 
owners, and operators who responded to the survey would be more likely 
to serve CCDF families if the Lead Agency paid 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 and 
Territory Plans to determine (1) which Lead Agencies would need to 
change their policy, (2) how many absence days those Lead Agencies are 
currently allowing, and (3) how many additional days of care they would 
have to pay for under this new policy.
    To begin, we had to identify an average absence rate for children 
in child care. According to a 2015 study of Washington DC's Head Start 
program,\100\ 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).\101\ 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

[[Page 15403]]

(out of the entire school year); that works out to about 1 day per 
month.\102\
---------------------------------------------------------------------------

    \100\ https://www.urban.org/sites/default/files/publication/39156/2000082-absenteeism-in-dc-public-schools-early-education-program_0.pdf.
    \101\ Ansari, A., and Purtell, K.M. (2018). Absenteeism in Head 
Start and Children's Academic Learning. Child Development, 89(4): 
1088-1098.
    \102\ Ansari, A. (2021). Does the Timing of Kindergarten 
Absences Matter for Children's Early School Success? School 
Psychology, 36(3): 131-141.
---------------------------------------------------------------------------

    During the public comment process, a commenter referenced an 
American Academy of Pediatrics study \103\ on child illness, saying 
that the data in this study suggests that the RIA may have been 
underestimating the rate of absences. However, upon closer examination 
of the data in that study, it showed that children are sick an average 
of 14 times over the first 3 years of life, for a median of 94 days 
over those 3 years. This works out to 31 days per year or 2.6 days per 
month. When we adjust to account for weekdays vs. weekends, this comes 
to an average estimate of 1.8 sick weekdays per month, which is 
consistent with the Head Start estimates referenced above.
---------------------------------------------------------------------------

    \103\ Morrison, J. (May 23, 2018). Are Young Children Really 
Sick All The Time? AAP Journals Blog. https://publications.aap.org/journal-blogs/blog/1994/Are-Young-Children-Really-Sick-All-The-Time?
---------------------------------------------------------------------------

    Taking the literature into consideration, this estimate assumes 
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 $13.2 million.
    Permissible Co-payments (Transfer): This policy determines co-
payments above 7 percent of a family's income to be an impermissible 
barrier to child care access and prohibits them. We categorize 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 and Territory 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 and how many of the reported co-
payments were above that threshold. There were 22 Lead Agencies that 
reported co-payment levels above 7 percent of the family's income. This 
impacts over sixty thousand CCDF families. Since CCDF State and 
Territory Plan data includes the exact amount of the co-payment, we 
were able to calculate precisely how much of each co-payment was above 
the 7 percent threshold. Using CCDF data on the number of families, we 
estimated 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 federal poverty line (FPL)).\104\ When we apply the current 
amount of co-pay over 7 percent to these families, we get an annualized 
transfer amount of $12.6 million.
---------------------------------------------------------------------------

    \104\ https://www.acf.hhs.gov/sites/default/files/documents/occ/Characteristics_of_Families_and_Children_FY2020.pdf.
---------------------------------------------------------------------------

    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 federally 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.
    We received comments in this area from Lead Agencies stating that 
while they understand the intent of this requirement, it would take 
some time and changes to their current subsidy IT system. In 
recognition of comments in this area, we have adjusted the 
implementation timeline (through transitional waivers) and added a 
systems-related estimate to this RIA.
    Grants and Contracts (Cost): To address lack of supply for certain 
types of care, the final rule also requires the use of some grants and 
contracts for direct services. Grants or contracts can be one of the 
most effective tools to build supply in underserved geographic 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 based on FFY 2021 CCDF caseload that include staff to 
manage grants and contracts (program manager, fiscal office staff, 
monitoring staff), travel, and administrative costs. For staff costs, 
we identified staff positions necessary to accomplish the kind of 
changes that would be necessary to implement these policies and used 
national BLS wage data \105\ to estimate the amount of salary needed 
for implementation. This included program managers ($92,720 annual 
salary), fiscal office staff ($49,710 annual salary), and monitoring 
staff ($59,650 annual salary). As with other cost estimates, we 
multiplied salary data by two to account for benefits. 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. For staffing, the 
estimate included a range of staffing expectations depending on the 
size of the state. For the high-end estimates, this ranged from 
approximately one and a half FTEs for small States to over three 
designated FTEs in the larger States. The low-end estimates assume that 
States already have infrastructure and personnel for grants and 
contracts in place so the estimates assign part time duties to handle 
the new requirement. 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 requirement.
---------------------------------------------------------------------------

    \105\ https://www.bls.gov/oes/current/oes_nat.htm.
---------------------------------------------------------------------------

    We averaged these costs over the 5-year window used for this 
analysis, taking into account the 2-year phase-in period, and came to 
an estimated annualized amount of $4.9 million to implement this 
policy.
    Systems (Costs): During the public comment period, we asked for 
comment in this area and received comments stating that there would be 
a cost to updating IT systems in order to comply with the requirements 
in the final rule. This estimate was not included in the RIA of the 
NPRM, but now that we have received additional information and context, 
we are adding this to this version. One commenter mentioned the 
delinking provider payments from child attendance required 6 months to 
make the required changes to their existing systems. In another 
example, the commenter mentioned that it took over a year to revise 
their procurement system in order to implement prospective payments. 
Another commenter said that the proposed changes would take a minimum 
of one year to implement and requested a two-year delay in 
implementation to ensure successful rollout. In response to these and 
related comments, we have

[[Page 15404]]

expanded the implementation timeline to two years (through transitional 
and legislative waivers) and added this systems cost estimate to the 
RIA.
    Lead Agency IT systems needs will vary widely depending on a number 
of factors, including but not limited to the current state of the IT 
system and which Lead Agencies have already implemented some of these 
policies (particularly those Lead Agencies who utilized COVID-related 
funding to implement policies now covered by the final rule). Rather 
than trying to estimate the individual systems cost of individual 
provisions, we used a method based on projected FTEs, including costs 
associated with contractors and procurement, needed to make these 
changes. This estimate is meant to cover a number of provisions in the 
final rule, some of which are required and some that are optional. 
Since the allocation of expenses to required versus optional policies 
will depend on each state's needs, for the purposes of this estimate we 
are evenly distributing the costs, with 50 percent of this systems 
estimate assigned to required policies and 50 percent of the systems 
estimate assigned to optional policies.
    First, we identified staff positions necessary to accomplish the 
kind of changes that would be necessary to implement these policies. 
The staff that we identified from the BLS database \106\ were: Project 
Manager (Computer Systems Design and Related Services) with an annual 
salary of $113,950, Computer and Information Systems Managers (which 
includes the duties of a business and systems analyst) with an salary 
of $173,670, Database Architects at an annual salary of $136,540, and 
Database Administrators with an annual salary of $102,530. For the 
purposes of these calculations, we took wage data from the BLS database 
and multiplied the average salary for each position by two to account 
for employee benefits.
---------------------------------------------------------------------------

    \106\ BLS Database https://www.bls.gov/oes/current/oes_nat.htm.
---------------------------------------------------------------------------

    To develop our range of estimates, we came up with three scenarios: 
a low, medium, and high estimate to represent three different potential 
levels of need. For each tier, we estimated the number of employees 
(and the percentage of their time) necessary to handle a volume of 
changes. The tiers are as follows:
    <bullet> Low Need (equivalent to 1.25 FTEs or 2,600 project hours): 
1 Project Manager (25 percent), 1 Computer and Information Systems 
Manager (25 percent), 1 Database Architect (25 percent), and 1 Database 
Administrator (50 percent). Cost per Lead Agency: $315,000 for the full 
two-year implementation period.
    <bullet> Medium Need (equivalent to 2.5 FTEs or 5,200 hours): 1 
Project Manager (50 percent), Computer and Information Systems Manager 
(50 percent), 1 Database Architect (50 percent), and 1 Database 
Administrator (100 percent). Cost per Lead Agency: $630,000 for the 
full two-year implementation period.
    <bullet> High Need (equivalent to 5 FTEs or 10,400 hours): 1 
Project Manager (100 percent), 1 Computer and Information Systems 
Manager (100 percent), 1 Database Architect (100 percent), and 2 
Database Administrators (100 percent). Cost per Lead Agency: $1.3 
million for the full two-year implementation period.
    Since each State's need will vary depending on the current state of 
their IT system and the particular policies they are attempting to 
implement, for the purposes of this RIA, we assume an even distribution 
of one third of the States at each tier of need. Based on this 
analysis, we estimated the total systems cost for the implementation 
window would be $41.0 million. When distributed across the 
implementation window, that comes to approximately $20.6 million per 
year for the first two years, half of which would be to implement the 
required policies in the rule. Since this is the cost of an upfront IT 
systems change, once those changes are complete, our estimate does not 
include an ongoing cost in years 3 through 5. The projected cost of 
this would be $10.3 million per year to implement required policies 
over the 2 year implementation period. When projected out over the 5 
year examination window (which is the timeframe we are using to analyze 
all other policies in the RIA), the annualized cost is $4.1 million for 
implementing required policies in the final rule.

                                              Table 3--Requirements in the Final Rule, Transfers and Costs
                                                                     [$ in millions]
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                               Annualized transfer amount (over 5    Total present value (over 5 years)
                                                                                             years)                -------------------------------------
                                          Implementation     Ongoing annual  --------------------------------------                      Discounted
                                         period (years 1-  average (years 3-                       Discounted                      ---------------------
                                                2)                 5)          Undiscounted  ----------------------  Undiscounted
                                                                                                  3%         7%                         3%         7%
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                Transfers ($ in millions)
--------------------------------------------------------------------------------------------------------------------------------------------------------
Additional Child Eligibility..........              $19.6              $39.2           $31.4      $31.0      $30.5          $156.9     $146.2     $133.7
Enrollment-based Payment..............                8.3               16.5            13.2       13.1       12.9            66.2       61.6       56.4
Permissible Co-payments...............                7.9               15.7            12.6       12.4       12.2            62.9       58.6       53.6
                                       -----------------------------------------------------------------------------------------------------------------
    Total.............................               35.7               71.5            57.2       56.5       55.5           285.9      266.4      243.7
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                  Costs ($ in millions)
--------------------------------------------------------------------------------------------------------------------------------------------------------
Grants and Contracts..................                3.1                6.1             4.9        4.8        4.8            24.5       22.8       20.9
Systems...............................               10.3                  0             4.1        4.3        4.5            20.6       20.3       19.9
                                       -----------------------------------------------------------------------------------------------------------------
    Total.............................               13.3                5.1             9.0        9.1        9.3             450       43.1       40.7
--------------------------------------------------------------------------------------------------------------------------------------------------------

2. Transfers and Costs To Implement Optional Policies in the Final Rule
    In addition to the above requirements, this rule makes new 
clarifications that show a range of policy options that Lead Agencies 
have at their disposal. While these are not required, we do encourage 
Lead Agencies to adopt these policies when possible and are therefore 
accounting for the potential impacts in this RIA. For these optional 
policies, we have identified Presumptive Eligibility, Paying Full Rate, 
Waiving Co-payments as transfers. For costs in this area, we

[[Page 15405]]

are allocating the remaining 50 percent of the overall Systems cost 
estimate to the implementation of optional policies. When we isolate 
the transfer and cost impact of optional policies in the final rule, we 
project an annualized total of $149.4 million in transfers and an 
annualized total of $4.1 million in costs.
    Presumptive Eligibility (Transfer): This policy permits, but does 
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, to Lead Agencies. 
More specifically, if some families who receive presumptive assistance 
are found to be ineligible once full documentation is received, that 
would be considered a transfer of resources between certain populations 
of families.
    Based on other programs that have used presumptive eligibility, 
such as Medicaid and the Children's Health Insurance Program (CHIP), we 
do not anticipate 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 
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:
    <bullet> Estimated Number of Children: Not all families would need 
to use presumptive eligibility. Given that this is a new policy and 
there is not data to support some of the variables in this estimate, 
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.
    <bullet> 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 21 States currently use presumptive eligibility for Medicaid 
and CHIP \107\ (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 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.
---------------------------------------------------------------------------

    \107\ https://www.medicaid.gov/medicaid/enrollment-strategies/presumptive-eligibility/index.html.
---------------------------------------------------------------------------

    <bullet> Percentage of Children Eventually Determined Ineligible: 
An Urban Institute study on presumptive eligibility found a small 
number of families receiving presumptive eligibility were eventually 
found to be ineligible.\108\ 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.
---------------------------------------------------------------------------

    \108\ 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.
---------------------------------------------------------------------------

    <bullet> 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 approximately $8,400 per 
year \109\ (which has been adjusted for inflation to 2023 dollars) to 
the above assumptions, we calculated an annualized transfer of $16.4 
million for this policy.
---------------------------------------------------------------------------

    \109\ Unpublished Preliminary FY 2021 CCDF Administrative Data.
---------------------------------------------------------------------------

    Paying Established Payment Rate (Transfer): This policy codifies 
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 in the data that are discussed below. 
Given these limitations we initially used two different methods to 
assess the cost burden in the NPRM, which were used to validate each 
other. While the two approaches used very distinct methodologies, they 
arrived at similar estimates. However, data limitations preclude us 
from using both methodologies for the final rule. In the final rule, we 
updated our estimates throughout the RIA to reflect the most recent 
FY21 data, but do not have FY21 microlevel data. However, since the two 
analyses validated each other for the FY20 data set in the NPRM, we 
feel confident using our updated FY21 projection from Approach 1, 
described below.
    <bullet> Base Subsidy Rates vs. Actual Payments (Approach 1): For 
this approach, we examined the following factors:
    [cir] Base Subsidy Rates versus Actual Subsidy Payments: We 
examined the difference between the (1) Base Subsidy Rate as reported 
in the CCDF State and Territory Plans \110\ and (2) the Average Subsidy 
Rate (the government portion of actual payments, excluding parent co-
payment) as reported in the ACF-801 data.\111\ 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 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.
---------------------------------------------------------------------------

    \110\ https://www.acf.hhs.gov/occ/report/acf-118-overview-state/territorial-plan-reporting.
    \111\ Unpublished Preliminary FY 2021 CCDF Administrative Data.

    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 applied a factor of two to increase our 
estimate, simulating the removal of such payments (those paying 
---------------------------------------------------------------------------
above the base rate) from our sample.


[[Page 15406]]


    [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 $394 million if 25 percent of States adopted this policy and as 
low as $79 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 $157.4 million when fully implemented and using the most 
recent FY 21 CCDF Administrative Data.
    Once we take into account the 2-year implementation period, we have 
a final annualized transfer estimate of $126.0 million per year to 
implement this provision.
    Waiving Co-payments for Additional Populations (Transfer): This 
policy allows Lead Agencies to choose to more easily waive co-payments 
for families with incomes up to 150 percent of FPL, families with 
children in foster and kinship care, and for eligible families with 
children with disabilities. Lead Agencies currently are automatically 
allowed this flexibility for families up to 100 percent of FPL and for 
vulnerable populations (and may propose to waive co-payments beyond 100 
percent of FPL so long as they have a sliding scale). One Lead Agency 
submitted a comment highlighting an internal survey of participating 
families that showed the positive impact of waiving co-payments, which 
allowed families to continue to work or go back to work, explore 
educational opportunities, and achieve better financial security. To 
calculate the financial impact of this policy, we used state-by-state 
data (ACF-801) to determine how many CCDF families currently have a co-
payment. This eliminates families from the estimate that already have 
their co-pays waived. We then look at the low and high co-pay amounts 
(as reported in the CCDF State and Territory Plans) and apply it to the 
remaining CCDF families based on the income distribution of CCDF 
families (ACF-801 data). We did not conduct separate estimates for 
children in foster and kinship care and children with disabilities 
because we have limited data on current co-payments for these 
populations.
    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 $7.1 million to implement this policy.
    Systems (Costs): We explain our methodology for the systems 
estimate above. When distributed across the two year implementation 
window, we estimate approximately $20.6 million per year for the first 
two years. Since this is the cost of an upfront IT systems change, once 
those changes are complete, our estimate does not include an ongoing 
cost in years 3 through 5. The projected cost of this would be $10.3 
million per year to implement the optional policies over the 2 year 
implementation period. When projected out over the 5 year examination 
window (which is the timeframe we are using to analyze all other 
policies in the RIA), the annualized cost is $4.1 million for 
implementing optional policies in the final rule.

                                            Table 4--Optional Policies in the Final Rule, Transfers and Costs
                                                                     [$ in millions]
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                               Annualized transfer amount (over 5    Total present value (over 5 years)
                                                                                             years)                -------------------------------------
                                          Implementation     Ongoing annual  --------------------------------------                      Discounted
                                         period (years 1-  average (years 3-                       Discounted                      ---------------------
                                                2)                 5)          Undiscounted  ----------------------  Undiscounted
                                                                                                  3%         7%                         3%         7%
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                Transfers ($ in millions)
--------------------------------------------------------------------------------------------------------------------------------------------------------
Presumptive Eligibility...............              $10.2              $20.4           $16.4      $16.2      $15.9           $81.8      $76.2      $69.7
Paying Established Payment Rate.......               78.7              157.4           126.0      124.4      122.3           629.8      586.8      536.7
Waiving Co-payments for Additional                    4.5                8.9             7.1        7.1        6.9            35.7       33.3       30.4
 Populations..........................
                                       -----------------------------------------------------------------------------------------------------------------
    Total.............................               93.4              186.8           149.5      147.6      145.2           747.2      696.2      636.8
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                  Costs ($ in millions)
--------------------------------------------------------------------------------------------------------------------------------------------------------
Systems...............................               10.3                  0             4.1        4.3        4.5            20.6       20.3       19.9
                                       -----------------------------------------------------------------------------------------------------------------
    Total.............................               10.3                  0             4.1        4.3        4.5            20.6       20.3       19.9
--------------------------------------------------------------------------------------------------------------------------------------------------------


[[Page 15407]]

C. Analysis of Benefits

    The changes made by this regulation have the following primary 
benefits:
    <bullet> Lowering parents' cost of care;
    <bullet> Expanding parents' options for child care;
    <bullet> Strengthening payment practices to child care providers;
    <bullet> Making it possible for more providers to accept families 
with subsidy; and
    <bullet> Easing family enrollment into the subsidy program.
    Implementation of this rule 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 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 policies, we offer qualitative analysis 
on the benefit that the regulation will 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.\112\ 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.\113\ In 
response, families often seek out less expensive care--which may have 
less rigorous quality or safety standards--or parents, particularly 
women, exit the workforce entirely.\114\
---------------------------------------------------------------------------

    \112\ 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.
    \113\ 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.
    \114\ 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 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 surveyed 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.\115\ Receiving child care subsidies 
alone is not enough for parents to feel secure in making ends meet. 
Multiple studies found that parents receiving subsidy continue to 
experience substantial financial burden in meeting their portion of 
child care costs.\116\ 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.\117\ 
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 is 
changing Sec.  98.45 to reduce parent co-payments.
---------------------------------------------------------------------------

    \115\ National Center for Education Statistics. 2019. National 
Household Education Surveys Program 2019. https://nces.ed.gov/nhes/young_children.asp.
    \116\ 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.
    \117\ 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 make family co-payments above 7 percent of family income 
impermissible because they are a barrier to accessing care. The 
revisions also make it easier for Lead Agencies to waive co-payments 
for additional families.
    Increase parent choice and strengthen and stabilize the child care 
sector: The revisions in this regulation require and encourage 
generally accepted payment rates and practices for providers that 
better account for the cost of care, and when 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. This regulation 
requires Lead Agencies to pay providers prospectively based on 
enrollment. To address lack of supply for certain types of care for 
populations prioritized in the Act, the rule also requires the use of 
some grants and contracts for direct services. Additionally, the 
regulation clarifies 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 
\118\ and through grants and contracts \119\ helped providers remain 
financially stable during the peak of the COVID-19 public health 
emergency. The revisions to payment practices and higher subsidy rates 
are also linked to higher-quality care and increases in the supply of 
child care.<SUP>120 121 122</SUP>
---------------------------------------------------------------------------

    \118\ Lieberman, A. et al. (2021). Make Child Care More Stable: 
Pay by Enrollment. New America.
    \119\ Workman, S. (2020). Grants and Contracts: A Strategy for 
Building the Supply of Subsidized Infant and Toddler Child Care. 
Center for American Progress.
    \120\ Lieberman, A. et al. (2021). Make Child Care More Stable: 
Pay by Enrollment. New America.
    \121\ Workman, S. (2020). Grants and Contracts: A Strategy for 
Building the Supply of Subsidized Infant and Toddler Child Care. 
Center for American Progress.
    \122\ Greenberg, E. et all (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 
revisions in this regulation 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 \123\ and how fast.
---------------------------------------------------------------------------

    \123\ 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

[[Page 15408]]

and continued access to care, both of which are detrimental to 
children's development and families' employment security.\124\ 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.\125\ Workers with unexpected hours or limited control over 
their schedule are significantly more likely to lose child care 
subsidies.\126\ Further, families who electively exit the program are 
three times more likely to do so during their redetermination month 
than any other time.\127\ These studies suggest that these families 
missed out on benefits because of administrative challenges rather than 
issues with eligibility.
---------------------------------------------------------------------------

    \124\ Adams, G., & Rohacek, M. (2010). Child care instability: 
Definitions, context, and policy implications. Urban Institute.
    \125\ 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.
    \126\ Henly, J. et al. (2015). Determinants of Subsidy Stability 
and Child Care Continuity. Urban Institute.
    \127\ 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:
    <bullet> 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, families equal to 60 percent of the current caseload 
are 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.
    <bullet> 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.
    <bullet> 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.'' 
\128\ We start with a measurement of the usual weekly earnings of wage 
and salary workers of $1,059.\129\ 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 over $30 million. However, for the accounting 
statement, we use the post-tax hourly wage of $21.97.
---------------------------------------------------------------------------

    \128\ 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.
    \129\ 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 $15.3 million related to this policy.

                                                          Table 5--Optional Policies, Benefits
                                                                     [$ in millions]
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                Annualized benefit amount (over 5    Total present value (over 5 years)
                                                                                             years)                -------------------------------------
                                          Implementation     Ongoing annual  --------------------------------------                      Discounted
                                         period (years 1-  average (years 3-                       Discounted                      ---------------------
                                                2)                 5)          Undiscounted  ----------------------  Undiscounted
                                                                                                  3%         7%                         3%         7%
--------------------------------------------------------------------------------------------------------------------------------------------------------
Streamlining the Process to Access                   $9.6              $19.2           $15.3      $15.1      $14.9           $76.6      $71.4      $65.3
 Child Care Subsidies.................
                                       -----------------------------------------------------------------------------------------------------------------
    Total.............................                9.6               19.2            15.3       15.1       14.9            76.6       71.4       65.3
--------------------------------------------------------------------------------------------------------------------------------------------------------

    Research clearly points to the benefits of access to high-quality 
child care, including immediate benefits for improved parenting 
earnings and employment.\130\ 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

[[Page 15409]]

families report are the circumstances that bring them to first apply 
for CCDF subsidies.\131\ These are also circumstances under which CCDF 
has the potential to substantially impact family earnings, economic 
stability, and well-being.
---------------------------------------------------------------------------

    \130\ 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; 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.; Shonkoff, J.P., & Phillips, D.A. (Eds.). 
(2000). From neurons to neighborhoods: The science of early 
childhood development. National Academy Press.; 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.
    \131\ 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 for children who participate in CCDF as a 
result of this regulation. The provisions in this rule improve access 
and some children who might not have received subsidized care under the 
current rule (e.g., those whose parents could not pay the co-pay) would 
receive subsidized care under these regulations. 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.\132\
---------------------------------------------------------------------------

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

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 regulation 
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 policies. While the 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 because families that participate in 
CCDF receive higher subsidies for a longer period of time and for more 
children.
    Similarly, the 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 could decrease the amount of funding 
allocated by the Lead Agency for direct services, and therefore, could 
result in a decrease in the number of children served. Based on our 
estimated amount of combined required transfers (at full 
implementation; from enrollment-based payment, permissible co-payments, 
grants or contracts, and systems investments) and the average subsidy 
payment amount, we estimate that the transfers for these required 
policies could lead to a reduction in caseload of approximately 4,570 
children per year, or about a third of 1 percent of the FY 2021 
caseload, without additional resources.
    For the eligibility policies, we are not projecting a direct 
reduction in caseload. 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 previous rule, but do not receive subsidies under this final 
rule, it is possible that they would receive unregulated care which 
tends to be lower quality and less stable. However, we expect that, 
overall, these policies will improve quality and stability of care for 
children who continue to participate in CCDF.
    While we do not anticipate a direct reduction in caseload from the 
eligibility policies themselves, we do acknowledge that there will be 
IT systems changes required to implement these policies. In response to 
comments received, this version of the RIA now includes an estimate of 
the systems-related costs necessary for compliance with the final rule. 
These are upfront costs that would be incurred during the 
implementation period, so these changes could result in a potential 
reduction in caseload during the first two years. Based on the 
projected costs, we estimate that updating systems to implement 
requirements in this rule could lead to a reduction in the caseload of 
approximately 1,225 per year for the first two years. This caseload 
reduction would not apply in subsequent years.
    The total projected caseload reduction per year for the final rule 
will increase at an irregular rate because it simultaneously takes into 
account the upfront cost of the systems-related changes (which only 
applies during years 1 and 2) and the phased-in impact of other 
requirements during the implementation period, which gradually 
increases during years 1 and 2. Using the 2-year implementation window, 
the potential caseload reduction is represented in Table 6 below. The 
total projected reduction to the caseload could be 2,750 in Year 1 and 
4,570 in year 3. The potential reduction to the caseload of 4,570 would 
remain the same in year 3 and beyond because the transfers and costs 
are projected to stabilize once the implementation window has ended.

                         Table 6--Potential Annual Caseload Reduction in the Final Rule
----------------------------------------------------------------------------------------------------------------
                                                                      Year 1          Year 2         Years 3-5
----------------------------------------------------------------------------------------------------------------
Final Rule Requirements (enrollment-based payment,+permissible             1,525           3,050           4,570
 co-payments+grants/contracts)..................................

[[Page 15410]]

 
Systems-Related Costs...........................................           1,225           1,225               0
                                                                 -----------------------------------------------
    Total.......................................................           2,750           4,275           4,570
----------------------------------------------------------------------------------------------------------------

    Breakeven Analysis: While we acknowledge the costs of updating 
systems, several commenters stated that we should also acknowledge the 
potential cost savings of these policies. In particular, commenters 
noted that streamlining eligibility processes will reduce 
administrative burden for Lead Agencies and therefore offset the 
potential costs.
    In response to these comments, we conducted a breakeven analysis to 
determine by how much the Lead Agencies' administrative burden would 
need to be reduced in order to offset the projected costs of systems-
related IT changes. To do this, we used BLS data which lists the 
average salary for ``Eligibility Interviewers, Government Programs'' as 
$50,020, which equals 2,080 labor hours. We then multiplied that by two 
to account for benefits, giving us $100,040 per FTE.
    Using a 5-year window, to offset the systems cost of $41.1 million 
which is incurred over the first two years ($10.3 million per year from 
required policies and $10.3 million per year from optional policies), 
Lead Agencies would collectively have to save an average of $8.2 
million per year over the 5 years. When distributed across 56 Lead 
Agencies, this comes out to approximately $150,000 per Lead Agency. 
This means that if for each year, Lead Agencies were able to reduce 
their administrative burden by the equivalent 1.5 FTE across the entire 
state or territory, the cost of updating systems would be offset by the 
end of the 5-year window.

E. Analysis of Regulatory Alternatives

    In developing this rule, we considered a wide range of policy 
options before settling on these final versions of the policies. Among 
these alternatives, we considered:
    <bullet> Presumptive eligibility: The policy 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 $13.6 million. When compared to the 
estimated transfer of $20.4 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.
    <bullet> 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 
final rule. This table includes both required and optional policies.

                                                    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 3-                       Discounted                            Discounted
                                        period (year 1-2)          5)          Undiscounted  ----------------------  Undiscounted  ---------------------
                                                                                                  3%         7%                         3%         7%
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                Transfers ($ in millions)
--------------------------------------------------------------------------------------------------------------------------------------------------------
Required Policies:
    Additional Child Eligibility \133\              $19.6              $39.2           $31.4      $31.0      $30.5          $156.9     $146.2     $133.7
    Enrollment-based Payment \134\....                8.3               16.5            13.2       13.1       12.9            66.2       61.6       56.4
    Permissible Co-payments \135\.....                7.9               15.7            12.6       12.4       12.2            62.9       58.6       53.6
    Transfers Subtotal (Required                     35.7               71.5            57.2       56.5       55.5           285.9      266.4      243.7
     Policies)........................
Optional Policies:
    Presumptive Eligibility \136\.....               10.2               20.4            16.4       16.2       15.9            81.8       76.2       69.7
    Paying Established Payment Rate                  78.7              157.4           126.0      124.4      122.3           629.8      586.8      536.7
     \137\............................
    Waiving Co-payments for Additional                4.5                8.9             7.1        7.1        6.9            35.7       33.3       30.4
     Populations \138\................
Transfers Subtotal (Optional Policies)               93.4              186.8           149.4      147.6      145.2           747.2      696.2      636.8
                                       -----------------------------------------------------------------------------------------------------------------
        Total Transfers...............              129.1              258.3           206.6      204.1      200.7         1,033.2      962.6      880.5
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                  Costs ($ in millions)
--------------------------------------------------------------------------------------------------------------------------------------------------------
Required Policies:
    Grants and Contracts..............                3.1                6.1             4.9        4.8        4.8            24.5       22.8       20.9
    Systems...........................               10.3                  0             4.1        4.3        4.5            20.6       20.3       19.9
    Costs Subtotal (Required Policies)               13.3                6.1             9.0        9.1        9.3            45.0       43.1       40.7
Optional Policies:
    Systems...........................               10.3                  0             4.1        4.3        4.5            20.6       20.3       19.9
    Costs Subtotal (Optional Policies)               10.3                  0             4.1        4.3        4.5            20.6       20.3       19.9
                                       -----------------------------------------------------------------------------------------------------------------

[[Page 15411]]

 
        Total Costs...................               23.6                6.1            13.1       13.4       13.8            65.6       63.3       60.6
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                Benefits ($ in millions)
--------------------------------------------------------------------------------------------------------------------------------------------------------
Optional Policies:
    Streamlining the Process to Access                9.6               19.2            15.3       15.1       14.9            76.6       71.4       65.3
     Child Care Subsidies.............
    Benefits Subtotal (Optional                       9.6               19.2            15.3       15.1       14.9            76.6       71.4       65.3
     Policies)........................
                                       -----------------------------------------------------------------------------------------------------------------
        Total Benefits................                9.6               19.2            15.3       15.1       14.9            76.6       71.4       65.3
--------------------------------------------------------------------------------------------------------------------------------------------------------

F. Impact of Final Rule

    Based on the calculations in this RIA, we estimate the quantified 
impact of the required policies in the final rule to be an annualized 
amount of $57.2 million in transfers and $9.0 million in costs.
---------------------------------------------------------------------------

    \133\ Transfer from families applying to enter the CCDF program 
to families that already have children receiving CCDF assistance.
    \134\ Transfer to some combination of child care providers and 
CCDF families from some combination of other CCDF families and CCDF 
Lead Agencies.
    \135\ Transfer to CCDF families from some combination of other 
CCDF families and CCDF Lead Agencies.
    \136\ Transfer from CCDF-eligible families to non-CCDF eligible 
families.
    \137\ Transfer to some combination of child care providers and 
CCDF families from some combination of other CCDF families and CCDF 
Lead Agencies.
    \138\ Transfer to CCDF families from some combination of other 
CCDF families and CCDF Lead Agencies.
---------------------------------------------------------------------------

    We estimate the quantified impact of the optional policies in the 
final rule to be an annualized amount of $149.4 million in transfers, 
$4.1 million in costs, and $15.3 million in benefits.
    When we combine the projections for required and optional policies, 
the annualized totals are $206.6 million in transfers, $13.1 million in 
costs, and $15.3 million in benefits.
    However, the RIA only quantifies the estimated impact of the final 
rule on the Lead Agencies, parents, and child care 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.\139\
---------------------------------------------------------------------------

    \139\ 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.
---------------------------------------------------------------------------

IX. Tribal Consultation Statement

    Executive Order 13175, Consultation and Coordination with Indian 
Tribal Governments, requires agencies to consult with Indian Tribes 
when regulations have substantial direct effects on one or more Indian 
tribes, on the relationship between the federal government and Indian 
tribes, or on the distribution of power and responsibilities between 
the federal government and Indian tribes. The discussion in subpart I 
in section V of the preamble serves as the Tribal impact statement and 
contains a detailed description of the consultation and outreach in 
this final rule.
    Jeff Hild, Acting Assistant Secretary of the Administration for 
Children and Families, approved this document on February 8, 2024.
(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.

Xavier Becerra,
Secretary, Department of Health and Human Services.

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

PART 98--CHILD CARE AND DEVELOPMENT FUND

0
1. The authority citation for part 98 is revised to read:

    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. Revising the definition of Tribal mandatory funds.
    The revisions and additions read as follows:


Sec.  98.2  Definitions.

* * * * *
    Major renovation means any renovation that has a cost equal to or 
exceeding $350,000 in CCDF funds for child care centers and $50,000 in 
CCDF funds for family child care homes, which amount shall be adjusted 
annually for inflation and published on the Office of Child Care 
website. If renovation costs exceed these thresholds and do not 
include:
    (1) Structural changes to the foundation, roof, floor, exterior or 
load-bearing walls of a facility, or the extension of a facility to 
increase its floor area; or
    (2) Extensive alteration of a facility such as to significantly 
change its function and purpose for direct child care services, even if 
such renovation does not include any structural change; and improve the 
health, safety, and/or quality of child care, then it shall not be 
considered major renovation;
* * * * *
    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;
    Tribal mandatory funds means the child care funds set aside at 
section 418(a)(3)(B) of the Social Security Act

[[Page 15412]]

(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 and republishing paragraph (h) and revising paragraph (k);
0
b. Redesignating paragraphs (x) through (ii) as paragraphs (bb) through 
(ll);
0
c. Adding new paragraphs (x) through (aa); and
0
d. Revising newly redesignated paragraphs (ee) and (ff).
    The revisions and additions read as follows:


Sec.  98.16  Plan provisions.

* * * * *
    (h) A description and demonstration of eligibility determination 
and redetermination processes to promote continuity of care for 
children and stability for families receiving CCDF services, including:
    (1) An eligibility redetermination period of no less than 12 months 
in accordance with Sec.  98.21(a);
    (2) A graduated phase-out for families whose income exceeds the 
Lead Agency's threshold to initially qualify for CCDF assistance, but 
does not exceed 85 percent of State median income, pursuant to Sec.  
98.21(b);
    (3) Processes that take into account irregular fluctuation in 
earnings, pursuant to Sec.  98.21(c);
    (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;
    (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 available regardless 
of subsidy participation relative to the population of children 
requiring child care, including care for infants and toddlers, children 
with disabilities as defined by the Lead Agency, children who receive 
care during nontraditional hours, and children in underserved 
geographic areas, including the data sources used to identify shortages 
in the supply of child care providers.
    (y) A description of the Lead Agency's strategies and the actions 
it will take to address the supply shortages identified in paragraph 
(x) of this section and improve parent choice specifically for families 
eligible to participate in CCDF, including:
    (1) For families needing care during nontraditional hours, which 
may include strategies such as higher payment rates, engaging with 
home-based child care networks, partnering with employers that have 
employees working nontraditional hours, and grants or contracts for 
direct services;
    (2) For families needing infant and toddler care, which must 
include grants or contracts for direct services pursuant to Sec.  
98.30(b) and described further in paragraph (z) of this section and may 
include additional strategies such as enhanced payment rates, training 
and professional development opportunities for the child care 
workforce, and engaging with staffed family child care networks and/or 
child care provider membership organizations;
    (3) For families needing care for children with disabilities, which 
must include grants or contracts for direct services pursuant to Sec.  
98.30(b) and described further in paragraph (z) of this section and may 
include additional strategies such as enhanced payment rates, training 
and professional development opportunities for the child care 
workforce, and engaging with staffed family child care networks and/or 
child care provider membership organizations;
    (4) For families in underserved geographic areas, which must 
include grants and contracts for direct services pursuant to Sec.  
98.30(b) and described further in paragraph (z) of this section and may 
include additional strategies such as enhanced payment rates, training 
and professional development opportunities for the child care 
workforce, and engaging with staffed family child care networks and/or 
child care provider membership organizations; and,
    (5) A method of tracking progress toward goals to increase supply 
and support equal access and parental choice.
    (z) A description of how the Lead Agency will use grants or 
contracts for direct services to achieve supply building goals for 
children in underserved geographic areas, infants and toddlers, 
children with disabilities as defined by the Lead Agency, and, at Lead 
Agency option, children who receive care during nontraditional hours. 
This must include a description of the proportion of the shortages for 
these groups would be filled by contracted or grant funded slots Lead 
Agencies must continue to provide CCDF families the option to choose a 
certificate for the purposes of acquiring care.
    (aa) A description of how the Lead Agency will improve the quality 
of child care services for children in underserved geographic areas, 
infants and toddlers, children with disabilities as defined by the Lead 
Agency, and

[[Page 15413]]

children who receive care during nontraditional hours.
* * * * *
    (ee) A description of generally accepted payment practices 
applicable to providers of child care services for which assistance is 
provided under this part, pursuant to Sec.  98.45(m), including 
practices to ensure timely payment for services, to delink provider 
payments from children's occasional absences to the extent practicable, 
cover mandatory fees, and pay based on a full or part-time basis;
    (ff) A description of internal controls to ensure integrity and 
accountability, processes in place to investigate and recover 
fraudulent payments and to impose sanctions on clients or providers in 
response to fraud, and procedures in place to document and verify 
eligibility, pursuant to Sec.  98.68;
* * * * *

0
6. Amend Sec.  98.19 by revising the section heading and paragraphs 
(b)(1) and (f) to read as follows:


Sec.  98.19  Requests for Temporary Waivers

* * * * *
    (b) Types. Types of waivers include:
    (1) Transitional and legislative waivers. Lead Agencies may apply 
for temporary waivers meeting the requirements described in paragraph 
(a) of this section that would provide transitional relief from 
conflicting or duplicative requirements preventing implementation, or 
an extended period of time in order for a State, territorial or tribal 
legislature to enact legislation to implement the provisions of this 
subchapter. Such waivers are:
    (i) Limited to a two-year period;
    (ii) May not be extended, notwithstanding paragraph (f) of this 
section;
    (iii) Are designed to provide States, Territories and Tribes at 
most one full legislative session to enact legislation to implement the 
provisions of the Act or this part, and;
    (iv) Are conditional, dependent on progress towards implementation, 
and may be terminated by the Secretary at any time in accordance with 
paragraph (e) of this section.
* * * * *
    (f) Renewal. Where permitted, the Secretary may approve or 
disapprove a request from a State, Territory or Tribe for renewal of an 
existing waiver under the Act or this section for a period no longer 
than one year. A State, Territory or Tribe seeking to renew their 
waiver approval must inform the Secretary of this intent no later than 
30 days prior to the expiration date of the waiver. The State, 
Territory or Tribe shall re-certify in its extension request the 
provisions in paragraph (a) of this section, and shall also explain the 
need for additional time of relief from such sanction(s) or provisions.
* * * * *

0
7. Amend Sec.  98.21 by:
0
a. Revising paragraph (a)(2)(iii);
0
b. Redesignating paragraphs (d) through (g) as paragraphs (h) through 
(k); and
0
c. Adding new paragraphs (d) through (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 must continue if the parent 
becomes employed during the job search period.
* * * * *
    (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, 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:
    (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 ensure that a child care 
provider is paid and 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 on behalf of a presumptively eligible 
child 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 so long as the payment was not 
for a service period longer than the period of presumptive eligibility.
    (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.
    (5) The Secretary may deny the use of federal funds for direct 
services under presumptive eligibility for Lead Agencies under a 
corrective action plan for error rate reporting pursuant to Sec.  
98.102(c).
    (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 are not required 
to unduly disrupt their education, training, or employment in order to 
complete the eligibility determination or re-determination process, 
including the use of online applications and other measures, to the 
extent practicable.
    (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, such as:
    (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
8. 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 children in underserved geographic areas, 
infants and toddlers, and children with disabilities.
    (2) When a parent elects to enroll the child with a provider that 
has a grant or contract for the provision of child care

[[Page 15414]]

services, the child will be enrolled with the provider selected by the 
parent to the maximum extent practicable.
* * * * *

0
9. Amend Sec.  98.33 by:
0
a. Redesignating paragraphs (a)(4)(ii) through (a)(4)(iv) as (iii) 
through (v) and adding a new paragraph (a)(4)(ii);
0
c. Revising (a)(5); and,
0
d. Adding paragraph (a)(8).
    The revision and additions 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 (for each 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
10. Amend Sec.  98.43 by revising paragraphs (a)(1)(i), (c)(1) 
introductory text, (c)(1)(v), (d)(3)(i) introductory text, and (d)(4) 
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 
for 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 any misdemeanor involving 
child pornography.
* * * * *
    (d) * * *
    (3) * * *
    (i) The staff member received qualifying results from a background 
check described in paragraph (b) of this section;
* * * * *
    (4) A prospective staff member may begin work for a child care 
provider described in paragraph (a)(2)(i) of this section after 
receiving qualifying results for either the check described at 
paragraph (b)(1) or (b)(3)(i) of this section in the State where the 
prospective staff member resides. Pending completion of all background 
check components in paragraph (b) of this section, the staff member 
must be supervised at all times by an individual who received a 
qualifying result on a background check described in paragraph (b) of 
this section within the past five years.
* * * * *

0
11. Amend Sec.  98.45 by:
0
a. Revising paragraphs (b)(5) and (6) and (d)(2)(ii);
0
b. Revising paragraphs (f)(1)(ii)(B) and (iii);
0
c. Adding new paragraph (f)(1)(iv);
0
d. Redesignating paragraphs (g) through (l) as paragraphs (h) through 
(m);
0
e. Adding a new paragraph (g);
0
f. Revising newly redesignated paragraphs (l)(3) and (4) and (m); and,
0
g. Adding a new paragraph (n).
    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 
(based on information obtained in accordance with paragraph (d)(2) of 
this section);
    (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.
* * * * *
    (f) * * *
    (1) * * *
    (ii) * * *
    (B) Higher-quality care, as defined by the Lead Agency using a 
quality rating and improvement system or other system of quality 
indicators, at each level;
    (iii) The Lead Agency's response to stakeholder views and comments; 
and,
    (iv) The data and summary required at paragraph (d)(2)(ii) of this 
section.
* * * * *
    (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 that are not a 
barrier to families receiving assistance under this part, not to exceed 
7 percent of income for all families, regardless of the number of 
children in care who may be receiving CCDF assistance; 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 are in 
foster or kinship care or otherwise receive or need to receive 
protective services, that are experiencing homelessness, that have 
children who have a disability as defined at Sec.  98.2, that are 
enrolled in Head Start or Early Head Start (42 U.S.C. 9831 et seq.), or 
that meet other criteria established by the Lead Agency.

[[Page 15415]]

    (m) The Lead Agency shall demonstrate in the Plan that it has 
established payment practices applicable to all CCDF child care 
providers that reflect generally accepted payment practices of child 
care providers that serve children who do not receive CCDF subsidies, 
which must include (unless the Lead Agency can demonstrate that such 
practices are not generally-accepted for a type of child care setting):
    (1) Ensure timeliness of payment to child care providers by paying 
in advance of or at the beginning of the delivery of child care 
services to children receiving assistance under this part;
    (2) Support the fixed costs of providing child care services by 
delinking provider payments from a child's occasional absences by:
    (i) Basing payment on a child's authorized enrollment; or,
    (ii) An alternative approach for which the Lead Agency provides a 
justification in its Plan that the requirements at paragraph (m)(2)(i) 
of this section are not practicable, including evidence that the 
alternative approach will not undermine the stability of child care 
programs.
    (3) Pay providers on a part-time or full-time basis (rather than 
paying for hours of service or smaller increments of time); and
    (4) Pay for reasonable mandatory registration fees that the 
provider charges to private-paying parents.
    (n) The Lead Agency shall demonstrate in the Plan that it has 
established payment practices applicable to all CCDF providers that:
    (1) Ensure child care providers receive payment for any services in 
accordance with a written payment agreement or authorization for 
services that includes, at a minimum, information regarding payment 
policies, including rates, schedules, any fees charged to providers, 
and the dispute resolution process required by paragraph (n)(3);
    (2) Ensure child care providers receive prompt notice of changes to 
a family's eligibility status that may impact payment, and that such 
notice is sent to providers no later than the day the Lead Agency 
becomes aware that such a change will occur;
    (3) Include timely appeal and resolution processes for any payment 
inaccuracies and disputes;
    (4) May include taking precautionary measures when a provider is 
suspected of fiscal mismanagement; and
    (5) Ensure the total payment received by CCDF child care providers 
is not reduced by the determination of affordable family co-payment as 
described in the sliding fee scale at Sec.  98.45(l).

0
12. Amend Sec.  98.50 by:
0
a. Revising paragraphs (a)(3) and (b)(1) and (2);
0
b. Adding paragraph (b)(4); and
0
c. Revising paragraph (e) introductory text.
    The revisions and addition read as follows:


Sec.  98.50  Child care services.

    (a) * * *
    (3) Using funding methods provided for in Sec.  98.30 including 
grants or contracts for slots for children in underserved geographic 
areas, for infants and toddlers, and children with disabilities. Grants 
solely to improve the quality of child care services like those in (b) 
of this section would not satisfy the requirements at Sec.  98.30(b); 
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.
* * * * *
    (4) Amounts reserved pursuant to this subsection may not be used to 
satisfy requirements at Sec.  98.30(b).
* * * * *
    (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
13. Amend Sec.  98.53 by redesignating (b) through (f) as (c) through 
(g) and adding a new paragraph (b) to read as follows:


Sec.  98.53  Activities to improve the quality of child care.

* * * * *
    (b) Lead Agencies are strongly encouraged to engage families and 
providers with direct experience in the child care subsidy system to 
improve the quality of child care and child care subsidy policy. Lead 
Agencies may expend quality funds to support such engagement including:
    (1) Planning and implementing an engagement strategy to solicit and 
implement feedback from families, child care providers, and staff who 
have direct experience with the child care subsidy program and/or 
quality improvement activities;
    (2) Compensating participating parents, child care providers, and 
child care staff for their time and for expenses incurred as a result 
of their participation (i.e. transportation, child care); and
    (3) Hiring parents, child care providers, or child care staff to 
serve as subject matter experts in the development or refinement of 
subsidy policy and quality initiatives.
* * * * *

0
14. Amend Sec.  98.60 by:
0
a. Revising and republishing paragraph (a);
0
b. Redesignating paragraphs (d)(3) through (d)(8) to (d)(4) through 
(d)(9); and
0
c. Adding a new paragraph (d)(3).
    The revisions and additions read as follows:


Sec.  98.60   Availability of funds.

    (a) The CCDF is available, subject to the availability of 
appropriations, in accordance with the apportionment of funds from the 
Office of Management and Budget as follows:
    (1) Discretionary Funds are available to States, Territories, and 
Tribes;
    (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
15. 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

[[Page 15416]]

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
16. 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.
* * * * *
    (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.

0
17. Amend Sec.  98.65 by revising paragraph (h)(3) to read as follows:


Sec.  98.65  Audits and financial reporting

* * * * *
    (h) * * *
    (3) Direct services for both grant or contracted slots and 
certificates; * * *
* * * * *

0
18. Amend Sec.  98.71 by;
0
a. Removing paragraph (a)(11);
0
b. Redesignating paragraphs (b)(5) and (6) as (b)(6) and (7); and
0
c. Adding a new paragraph (b)(5).
    The addition reads as follows:


Sec.  98.71   Content of reports.

    (b) * * *
    (5) For Lead Agencies implementing presumptive eligibility in 
accordance with Sec.  98.21(e):
    (i) The number of presumptively eligible children ultimately 
determined fully eligible;
    (ii) The number of presumptively eligible children for whom the 
family does not complete the documentation for full eligibility 
verification; and,
    (iii) The number of presumptively eligible children who are 
determined not to be eligible after full verification;
* * * * *

0
19. Amend Sec.  98.81 by revising paragraphs (b)(6)(vii) through (ix) 
and adding paragraphs (b)(6)(x) through (xii) to read as follows:


Sec.  98.81  Application and Plan procedures.

* * * * *
    (b) * * *
    (6) * * *
    (vii) The description of the sliding fee scale at Sec.  98.16(k);
    (viii) The description of the market rate survey or alternative 
methodology at Sec.  98.16(r);
    (ix) The description relating to Matching Funds at Sec.  98.16(w);
    (x) The description of how the Lead Agency uses grants or contracts 
for supply building at Sec.  98.16(z);
    (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(aa); and
    (xii) The description of provider payment practices at Sec.  
98.16(ee).
* * * * *

0
20. Amend Sec.  98.83 by revising and publishing paragraph (d)(1) and 
revising paragraphs (g) introductory text and (g)(1) and (2) to read as 
follows:


Sec.  98.83  Requirements for tribal programs.

* * * * *
    (d)(1) Tribal Lead Agencies shall not be subject to:
    (i) The requirements to use grants or contracts to build supply for 
certain populations at Sec.  98.30(b);
    (ii) The requirement to produce a consumer education website at 
Sec.  98.33(a). Tribal Lead Agencies still must collect and disseminate 
the provider-specific consumer education information described at Sec.  
98.33(a) through (d), but may do so using methods other than a website;
    (iii) The requirement to have licensing applicable to child care 
services at Sec.  98.40;
    (iv) The requirement for a training and professional development 
framework at Sec.  98.44(a);
    (v) The market rate survey or alternative methodology described at 
Sec.  98.45(b)(2) and the related requirements at Sec.  98.45(c), (d), 
(e), and (f);
    (vi) The requirement for a sliding fee scale at Sec.  98.45(l);
    (vii) The requirement to have provider payment practices that 
reflect generally accepted payment practices at Sec.  98.45(m);
    (viii) The requirement that Lead Agencies shall give priority for 
services to children of families with very low family income at Sec.  
98.46(a)(1);
    (ix) The requirement that Lead Agencies shall prioritize increasing 
access to high-quality child care in areas with significant 
concentrations of poverty and unemployment at Sec.  98.46(b);
    (x) The requirements to use grants or contracts at Sec.  
98.50(a)(3);
    (xi) The requirements about Mandatory and Matching Funds at Sec.  
98.50(e);
    (xii) The requirement to complete the quality progress report at 
Sec.  98.53(f);
    (xiii) The requirement that Lead Agencies shall expend no more than 
five percent from each year's allotment on administrative costs at 
Sec.  98.54(a); and
    (xiv) The Matching fund requirements at Sec. Sec.  98.55 and 98.63.
* * * * *
    (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

[[Page 15417]]

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
21. 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 obligate CCDF funds used for 
construction or major renovation by the end of the second fiscal year 
following the fiscal year for which the grant is awarded. Tribal 
construction and major renovation funds must be liquidated at the end 
of the second succeeding fiscal year following this obligation 
deadline. Any Tribal construction and major renovation funds that 
remain unliquidated by the end of this period will revert to the 
Federal government.
* * * * *

0
22. Amend Sec.  98.102 by revising and republishing paragraph (c) to 
read as follows:


Sec.  98.102  Content of Error Rate Reports.

* * * * *
    (c) Any Lead Agency with an improper payment rate that exceeds a 
threshold established by the Secretary must submit to the Assistant 
Secretary for approval a comprehensive corrective action plan, as well 
as subsequent reports describing progress in implementing the plan.
    (1) The corrective action plan must be submitted within 60 days of 
the deadline for submitting the Lead Agency's standard error rate 
report required by paragraph (b) of this section.
    (2) The corrective action plan must include the following:
    (i) Identification of a senior accountable official;
    (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 name and/or title of 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. 2024-04139 Filed 2-29-24; 8:45 am]
BILLING CODE 4184-87-P


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