[Federal Register Volume 81, Number 190 (Friday, September 30, 2016)]
[Rules and Regulations]
[Pages 67438-67595]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-22986]



[[Page 67437]]

Vol. 81

Friday,

No. 190

September 30, 2016

Part II





Department of Health and Human Services





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





Administration for Children and Families





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





45 CFR Part 98





Child Care and Development Fund (CCDF) Program; Final Rule

  Federal Register / Vol. 81 , No. 190 / Friday, September 30, 2016 / 
Rules and Regulations  

[[Page 67438]]


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

DEPARTMENT OF HEALTH AND HUMAN SERVICES

Administration for Children and Families

45 CFR Part 98

RIN 0970-AC67


Child Care and Development Fund (CCDF) Program

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

ACTION: Final rule.

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

SUMMARY: This final rule makes regulatory changes to the Child Care and 
Development Fund (CCDF) based on the Child Care and Development Block 
Grant Act of 2014. These changes strengthen requirements to protect the 
health and safety of children in child care; help parents make informed 
consumer choices and access information to support child development; 
provide equal access to stable, high-quality child care for low-income 
children; and enhance the quality of child care and the early childhood 
workforce.

DATES: Effective: November 29, 2016.
    Compliance date: States and Territories are expected to be in full 
compliance by the end of the Fiscal Year (FY) 2016--2018 CCDF Plan 
period. ACF will determine compliance with provisions in this final 
rule through review and approval of the FY 2019--2021 CCDF Plans that 
become effective October 1, 2018 and through the use of federal 
monitoring of progress in accordance with section 98.90 prior to that 
date.
    For Tribal Lead Agencies, ACF will determine compliance through 
review and approval of the FY 2020--2022 Tribal CCDF Plans that become 
effective October 1, 2019. See further discussion of effective and 
compliance dates in the background section of this rule.

FOR FURTHER INFORMATION CONTACT: Andrew Williams, Office of Child Care 
at 202-401-4795 (not a toll-free call). Deaf and hearing impaired 
individuals may call the Federal Dual Party Relay Service at 1-800-877-
8339 between 8 a.m. and 7 p.m. Eastern Time.

SUPPLEMENTARY INFORMATION: 

Contents

I. Executive Summary
II. Background
    a. Child Care and Development Fund
    b. Statutory Authority
    c. Effective Dates
III. Development of the Regulation
IV. General Comments and Cross-Cutting Issues
V. 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 J--Monitoring, Non-Compliance, and Complaints
    Subpart K--Error Rate Reporting
VI. Regulatory Process Matters
    a. Regulatory Flexibility Act
    b. Executive Orders 12866 and 13563
    c. Regulatory Impact Analysis
    d. Unfunded Mandates Reform Act of 1995
    e. Executive Order 13045 on Protection of Children
    f. Executive Order 13175 on Consultation with Indian Tribes
    g. Paperwork Reduction Act of 1995
    h. Congressional Review
    i. Executive Order 13132
    j. Treasury and General Government Appropriations Act of 1999

I. Executive Summary

    Overview. On November 19, 2014, President Barack Obama signed the 
Child Care and Development Block Grant (CCDBG) Act of 2014 (Pub. L. 
113-186) into law following its passage in the 113th Congress. The 
CCDBG Act, as amended (42 U.S.C. 9858 et seq., and hereinafter referred 
to as the ``Act''), along with Section 418 of the Social Security Act 
(42 U.S.C. 618) authorizes the Child Care and Development Fund (CCDF), 
which is the primary Federal funding source devoted to providing low-
income families who are working or participating in education or 
training activities with help paying for child care and improving the 
quality of child care for all children.
    The bipartisan CCDBG Act of 2014 made sweeping statutory changes 
that require significant reforms to State and Territory CCDF programs 
to raise the health, safety, and quality of child care and provide more 
stable child care assistance to families. It expanded the purposes of 
CCDF for the first time since 1996, ushering in a new era for child 
care in this country. Since 1996, a significant body of research has 
demonstrated the importance of early childhood development and how 
stable, high-quality early experiences can positively influence that 
development and contribute to children's futures. In particular, low-
income children stand to benefit the most from a high-quality early 
childhood experience. Research has also shown the important role of 
child care financial assistance in helping parents afford reliable 
child care in order to obtain and maintain stable employment or pursue 
education. The reauthorized Act recognizes CCDF as an integral program 
to promote both the healthy development of children and parents' 
pathways to economic stability.
    In Fiscal Year (FY) 2014, CCDF provided child care assistance to 
1.4 million children from nearly 1 million low-income working families 
in an average month. The Congressional reauthorization of CCDBG made 
clear that the prior law was inadequate to protect the health and 
safety of children in care and that more needs to be done to increase 
the quality of CCDF-funded child care. It also recognized the central 
importance of access to subsidy continuity in supporting parents' 
ability to achieve financial stability and children's ability to 
develop nurturing relationships with their caregivers, which creates 
the foundation for a high-quality early learning experience.
    Purpose of this regulatory action. The majority of CCDF regulations 
at 45 CFR parts 98 and 99 were last revised in 1998 (with the exception 
of some more recent updates related to State match and error 
reporting). This regulatory action is needed to update the regulations 
to accord with the reauthorized Act and to reflect what has been 
learned since 1998 about child care quality and child development.
    Legal 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. 9858 et seq.) and Section 418 
of the Social Security Act (42 U.S.C. 618).
    Major provisions of the final rule. The final rule addresses the 
CCDBG Act of 2014, which includes provisions to: (1) Protect the health 
and safety of children in child care; (2) help parents make informed 
consumer choices and access information to support child development; 
(3) provide equal access to stable, high-quality child care for low-
income children; and (4) enhance the quality of child care and the 
early childhood workforce.

Protect Health and Safety of Children in Child Care

    This rule provides details on the health and safety standards 
established in the CCDBG Act of 2014, including health and safety 
training,

[[Page 67439]]

comprehensive background checks, and monitoring. The Act requires 
States to monitor providers receiving CCDF funds (including those that 
are license-exempt), at least annually, to determine whether health and 
safety practices and standards are being followed in the child care 
setting, including a pre-licensure visit for licensed providers. 
Regular monitoring of child care settings is necessary to ensure 
compliance with appropriate standards that protect the health and 
safety of children. However, this rule allows Lead Agencies to develop 
alternative monitoring requirements for CCDF-funded care provided in 
the child's home and exempts relative caregivers from the monitoring 
and training requirements at the option of Lead Agencies. This 
flexibility allows Lead Agencies to address the unique characteristics 
of these care arrangements.
    In this final rule, we address the Act's background check 
requirements by requiring all child care staff members (including 
prospective staff members) of all licensed, regulated, or registered 
child care providers and all child care providers eligible to deliver 
CCDF services to have a comprehensive background check, unless they are 
related to all children in their care. We extend the background check 
requirement to all adults residing in family child care homes. All 
parents, regardless of whether they receive CCDF assistance, deserve 
this basic protection of knowing that those individuals who have access 
to their children do not have prior records of behavior that could 
endanger their children.
    The Act requires Lead Agencies to establish standards and training 
in 10 topic areas related to health and safety that are fundamental for 
any child care setting, such as first aid, CPR, and safe sleep 
practices. We added recognizing and reporting child abuse and neglect 
to this list. The Act also requires Lead Agencies to maintain records 
of substantiated parental complaints about child care. The final rule 
requires Lead Agencies to designate a hotline or similar reporting 
process for parental complaints. Child care providers are required to 
report serious injuries or deaths that occur in child care settings in 
order to inform regulatory or other policy changes to improve health 
and safety.

Help Parents Make Informed Consumer Choices and Access Information To 
Support Child Development

    The Act expanded requirements for the content of consumer education 
available to parents receiving CCDF assistance, the public, and where 
applicable, child care providers. By adding providers, Congress 
recognized the positive role trusted caregivers can play in 
communicating and partnering with parents on a daily basis regarding 
their children's development and available resources in the community. 
Effective consumer education strategies are important to inform 
parental choice of child care and to engage parents in the development 
of their children in child care settings--a new purpose of the CCDF 
added by the CCDBG Act of 2014. States and territories have the 
opportunity to consider how information can be best provided to low-
income parents through their interactions with CCDF, partner agencies, 
and child care providers, as well as through electronic means such as a 
Web site. Parents face great challenges in finding reliable information 
and making informed consumer choices about child care for their 
children.
    The Act requires Lead Agencies to make available via a consumer-
friendly and easily accessible Web site, information on policies and 
procedures regarding: (1) Licensing of child care providers; (2) 
conducting background checks and the offenses that keep a provider from 
being allowed to care for children; and (3) monitoring of child care 
providers. This is done through a single Web site that is easy for 
families to navigate and provides widest possible access to individuals 
who speak languages other than English and persons with disabilities. 
This Web site must give parents receiving CCDF information about the 
quality of their chosen providers. The final rule also requires Lead 
Agencies to provide CCDF parents with a consumer statement in hard copy 
or electronically (such as referral to the consumer education Web site) 
with specific information about the child care provider they select.
    The Act requires Lead Agencies to make results of monitoring 
available in a consumer-friendly and easily accessible manner. We 
require posting a minimum of three years of results. If full reports 
are not in plain language, Lead Agencies must post a plain language 
summary for each report in addition to the full monitoring and 
inspection report. Parents should not have to parse through 
administrative code or understand advanced legal terms to determine 
whether safety violations have occurred in a child care setting.
    Congress added a number of content areas that will support parents 
in their role as their child's first and most important teacher. In 
keeping with a new purpose of the CCDF program at Section 658A(b)(3) of 
the Act to promote involvement by parents and family members in the 
development of their children in child care settings, Section 
658C(2)((E)(i) of the Act requires Lead Agencies to make available 
information related to best practices in child development and State 
policies regarding child social and emotional development, including 
any State policies relevant to preventing expulsion of children under 
age five from child care settings.
    The reauthorized Act also requires Lead Agencies to provide 
information that can help parents identify other financial benefits and 
services that may support their pathway to economic stability. Families 
eligible for child care assistance are often eligible for other 
supports, and the Act specifies that Lead Agencies provide families 
with information on several public benefit programs, including 
Temporary Assistance for Needy Families (TANF), Supplemental Nutrition 
Assistance Program (SNAP), Medicaid, and the Children's Health 
Insurance Program (CHIP). In addition, the Act requires Lead Agencies 
to provide information on the programs and services that are part of 
Individuals with Disabilities Education Act (IDEA), such as early 
intervention and special education services, and that parents are given 
information on how to obtain a developmental screening for their child. 
Low-income parents deserve to have easy access to the full range of 
information, programs, and services that can support them in their 
parenting efforts. To ensure equal access for persons with limited 
English proficiency and for persons with disabilities, the final rule 
requires Lead Agencies to provide child care program information in 
multiple languages and alternative formats.

Provide Equal Access to High-Quality Child Care for Low-Income Children

    Congress established requirements to provide more stable child care 
financial assistance to families, including extending children's 
eligibility for child care to a minimum of 12 months, regardless of 
increases in parents' earnings (as long as income remains at or below 
the Federal eligibility limit) and temporary changes in participation 
in work, training, or education. This will enable parents to maintain 
employment or complete education programs, and supports both family 
financial stability and the relationship between children and their 
caregivers. Under the reauthorized Act, Lead Agencies that choose to 
end assistance prior to 12 months, due to a non-temporary change in a 
parent's work,

[[Page 67440]]

training, or education participation, must continue assistance for a 
minimum of 3 months to allow parents to engage in job search, resume 
work, or attend an education or training program, as soon as possible.
    This final rule establishes a set of policies intended to stabilize 
families' access to child care assistance and, in turn, help stabilize 
their employment or education and their child's care arrangement. These 
policies also have the potential to stabilize the revenue of child care 
providers who receive CCDF funds, as they experience more predictable, 
reliable, and timely payments for services. This rule reduces reporting 
requirements for families and prevents them from unduly losing their 
assistance. Parents often find it difficult to navigate administrative 
processes and paperwork required to maintain their eligibility, and 
state policies can be inflexible to changes in a family's 
circumstances. These provisions also make it easier for Lead Agencies 
to align CCDF policies with other programs serving low-income children. 
For example, more than half of children receiving CCDF-funded child 
care are in families with incomes under the federal poverty line, and 
therefore qualify for Head Start. Children once found eligible for Head 
Start may remain in the program until they age out, which promotes 
stability for families and for the Head Start program. The provisions 
here promote stability of child care programs and allow for greater 
alignment between child care services and Head Start for families in 
poverty who rely on child care subsidy to participate in work or 
education/job training.
    Families may be determined to be ineligible within the minimum 12-
month eligibility period if their income exceeds 85 percent of state 
median income (SMI) (taking into account irregular fluctuations in 
income) or, at Lead Agency option, the family experiences a non-
temporary cessation in job, training, or education. We clarify that 
additional State-imposed eligibility criteria apply only at the time of 
initial eligibility determination and redetermination and provide 
examples of changes in parents' scheduling and conditions of employment 
that meet the statutory intent of stabilizing assistance for families 
through changes in circumstance. Lead Agencies that set their income 
eligibility threshold below 85 percent of SMI must allow parents who 
otherwise qualify for CCDF assistance to continue receiving assistance, 
at subsequent redeterminations, until their income exceeds a second 
tier of eligibility set at a level sufficient for the family to 
reasonably afford quality child care without assistance, based on the 
typical household budget of a low-income families. This approach 
promotes continuity of care for children while allowing for wage growth 
for families to move on a path toward economic stability.
    All too often, getting and keeping CCDF assistance is overly 
burdensome for parents, resulting in short durations of assistance and 
churning on and off CCDF as parents lose assistance and then later 
return. This instability disrupts parental employment and education, 
harms children, and runs counter to nearly all of CCDF's purposes. This 
full set of provisions that facilitates easier and sustained access to 
assistance is necessary to strengthen CCDF as a two-generation program 
that supports work, training, and education, as well as access to high-
quality child care.
    Congress reaffirmed the core principle that families receiving 
CCDF-funded child care should have equal access to child care that is 
comparable to that of non-CCDF families. The Act requires Lead Agencies 
to set provider payment rates based on a valid market rate survey or 
alternative methodology. To allow for equal access, the final rule 
requires Lead Agencies to set base payment rates at least at a level 
sufficient to cover the costs to providers of the health, safety, 
quality, and staffing requirements included in the Act and the final 
rule. The Act also requires Lead Agencies to take into account the cost 
of higher quality when setting rates. We reaffirm our long-standing 
position that setting payment rates at the 75th percentile of a recent 
market rate survey remains an important benchmark for gauging equal 
access. Below market payment rates limit access to high-quality care 
for children receiving CCDF-funded care and violate the equal access 
provision that is central to CCDF. Higher provider payment rates are 
necessary to ensure that providers receiving CCDF funds have the means 
to provide high-quality care for our country's low-income children.
    The final rule provides details on the statutory requirements for 
Lead Agencies to pay providers in a timely manner based on generally-
accepted payment practices for non-CCDF providers and that Lead 
Agencies delink provider payments from children's absences to the 
extent practicable. We establish a new Federal benchmark for affordable 
family co-payments of seven percent of family income and allow Lead 
Agencies more flexibility to waive co-payments for vulnerable families. 
Under this rule, Lead Agencies may increase family co-payments only at 
redetermination or during a period of graduated phase-out when 
families' incomes have increased above the Lead Agency's initial income 
eligibility threshold. In addition, if a Lead Agency allows providers 
to charge amounts more than the required family co-payments, the Lead 
Agency must provide a rationale for this practice, including how 
charging such additional amounts will not negatively impact a family's 
ability to receive care they might otherwise receive taking into 
consideration a family's co-payment and the provider's payment rate.
    This final rule requires Lead Agencies to take into consideration 
children's development and learning and promote continuity of care when 
authorizing child care services; offer increased flexibility for 
determining eligibility of vulnerable children; and clarify that Lead 
Agencies are not required to restrict a child's care to the hours of a 
parent's work or education. These changes are important to make the 
program more child-focused and ensure that the most vulnerable children 
have access to and benefit from high-quality care. These provisions may 
be implemented broadly in ways that best support the goals of Lead 
Agencies.

Enhance the Quality of Child Care and the Early Childhood Workforce

    The final rule provides detail on the statutory requirement to 
increase spending on initiatives that improve the quality of care. The 
Act increases the share of CCDF funds directed towards quality 
improvement activities, authorizes a new set-aside for infant-toddler 
care, and drives investments towards increasing the supply of high-
quality care for infants and toddlers, children with special needs, 
children experiencing homelessness, and other vulnerable populations 
including children in need of nontraditional hour care and children in 
poor communities. The Act requires States and Territories to submit an 
annual report on quality activities, including measures created by the 
Lead Agency to evaluate progress on quality improvement. This final 
rule requires Lead Agencies to report data on their progress on those 
measures. The Act also increases quality through more robust program 
standards, including training and professional development standards 
for caregivers, teachers, and directors to help those working with 
children promote their social, emotional, physical, and cognitive 
development.
    The final rule clarifies the Act's training requirements by 
requiring that

[[Page 67441]]

child care caregivers, teachers, and directors of CCDF providers 
receive training prior to caring for children, or during an orientation 
period not to exceed three months, and on an annual basis. In order for 
the health and safety requirements to be implemented, and because these 
are areas that the Lead Agency will monitor, this final rule requires 
that the pre-service or orientation training include the ten basic 
health and safety topics identified in the Act, as well as recognizing 
and reporting child abuse and neglect (in order to comply with child 
abuse reporting requirements) and training in child development for 
eligible children from birth to 13 years of age.
    Lead Agencies must provide for a progression of professional 
development that may include postsecondary education. The final rule 
identifies six key components of a professional development State 
framework, and we encourage, to the extent practicable, that ongoing 
training yields continuing education units or is credit-bearing. These 
components advance expert recommendations to improve the knowledge and 
competencies of those who care for young children, which is central to 
children's learning experiences and the quality of child care.
    In addition, the Act includes a number of provisions to improve 
access to high-quality child care for children experiencing 
homelessness. The Act requires Lead Agencies to establish a grace 
period that allows children experiencing homelessness (and children in 
foster care) to receive CCDF services while allowing their families 
(including foster families) a reasonable time to comply with 
immunization and other health and safety requirements. The final rule 
requires Lead Agencies to help families by coordinating with licensing 
agencies and other relevant State and local agencies to provide 
referrals and support to help families experiencing homelessness comply 
with immunization and health and safety requirements. This final rule 
also requires Lead Agencies to use the definition of homeless 
applicable to school programs from the McKinney-Vento Act to align with 
other Federal early childhood programs (42 U.S.C. 11434a).
    This final rule indicates the extent to which CCDF provisions apply 
to tribes, since this was not specified in the Act itself. Starting in 
early 2015, OCC began a series of formal consultations with Tribal 
leaders to determine how the provisions in the reauthorized Act should 
apply to Tribes and Tribal organizations. We heard from many Tribal 
leaders and CCDF Administrators asking for flexibility to implement 
child care programs that meet the individual needs of their 
communities. The final rule is intended to preserve Tribal Lead Agency 
flexibility, in a manner consistent with the CCDF dual goals of 
promoting families' financial stability and fostering healthy child 
development. We differentiate and exempt some Tribal grantees from a 
progressive series of CCDF provisions based on three categories of CCDF 
grant allocations: Large, medium and small. We are also allowing Tribes 
flexibility to consider any Indian child in the Tribe's service area to 
be eligible to receive CCDF funds, regardless of the family's income or 
work, education, or training status, if a Tribe's median income is 
below a threshold established by the Secretary. However, the Tribe's 
provision of services still must be directed to those with the highest 
need.
    Costs, benefits and transfer impacts. Changes made by the CCDBG Act 
of 2014 and this final rule have the most direct benefit for the 1.4 
million children and their parents who use CCDF assistance to pay for 
child care. Many of the Act's changes will also positively impact 
children who do not directly participate in CCDF. Many children who 
receive no direct assistance from CCDF will benefit from more rigorous 
health and safety standards, provider inspections, criminal background 
checks for child care staff, and accessible consumer information and 
education for their parents and providers. The attention to quality 
goes beyond health and safety. Caregivers, teachers, and directors of 
CCDF providers will be supported in their ongoing professional 
development. Under the Act, States and Territories must direct an 
increasingly greater share of their CCDF grant towards activities that 
improve the quality of child care, including a new share dedicated to 
improving the quality of infant and toddler care. Low-income parents 
who receive CCDF assistance will benefit from more stable financial 
assistance as they work toward economic stability and their children 
will benefit from relationships that are more continuous with their 
caregivers. Providers will benefit from improved provider payment rates 
(by certificate or grant or contract), as well as payment practices 
that support their financial stability. These include timely payments 
so that providers can sustain their operations and quality and paying 
providers for a reasonable number of absent days. The positive impacts 
of the reauthorized Act and this rule will benefit children, families, 
providers, and employers now and into the future.
    The cost of implementing changes made by the Act and this rule vary 
depending on a State's specific situation. There are a significant 
number of States, Territories, and Tribes that have already implemented 
many of these policies. ACF conducted a regulatory impact analysis to 
estimate costs and benefits of provisions in this final rule, including 
the new statutory requirements, taking into account current State 
practices. We evaluated major areas of policy change, including 
monitoring and inspections (including a hotline for parental 
complaints), background checks, training and professional development, 
consumer education (including the Web site and consumer statement), 
quality spending, minimum 12-month eligibility and related provisions, 
increased subsidies, and supply building.
    Based on our analysis, annualized costs associated with these 
provisions, averaged over a ten year window, are $235.2 million and the 
annualized amount of transfers is approximately $839.1 million (both 
estimated using a 3 percent discount rate), which amounts to a total 
annualized impact of $1.16 billion. Of that amount, approximately $1.15 
billion is directly attributable to the CCDBG Act of 2014, with an 
annualized cost of only $4 million (or 0.3% of the total estimated 
impact) directly attributable to discretionary provisions of this 
regulation. While this analysis does not attempt to fully quantify the 
many benefits of the reauthorization and this rule, we do conduct a 
breakeven analysis to compare requirements clarified through this 
regulation against a potential reduction in child fatalities and 
injuries. Further detail and explanation can be found in the regulatory 
impact analysis.

II. Background

    a. Child Care and Development Fund. Nearly 13 million young 
children, under age 5, regularly rely on child care to support their 
healthy development and school success. (Census Bureau, Who's Minding 
the Kids? Child Care Arrangements, Spring 2011). Additionally, more 
than 10 million children participate in a range of school-age programs, 
before- and after-school and during summers and school breaks. 
(Afterschool Alliance, America After 3PM: Afterschool Programs in 
Demand, 2014). CCDF is the primary Federal funding source devoted to 
providing low-income families with access to child care and before- and 
after-school care and improving the quality of care and, thus, is an 
integral part of the

[[Page 67442]]

nation's child care and early education system. Each year, more than $5 
billion in Federal CCDF funding is allocated to State, Territory and 
Tribal grantees. Combined with State funds and transfers from the 
Temporary Assistance for Needy Families (TANF) program, States and 
Territories spend nearly $9 billion annually to support child care 
services to low-income families and to improve the quality of child 
care. More than $1 billion of this spending is directed towards 
supporting child care quality improvement activities designed to create 
better learning environments and more effective caregivers and teachers 
in child care centers and family child care homes across the country.
    CCDF was created 20 years ago, upon the enactment of the Personal 
Responsibility and Work Opportunity Reconciliation Act (PRWORA) in 1996 
(Pub. L. 104-193), in which Congress replaced the former Aid to 
Families with Dependent Children with the framework of TANF block 
grants, and established a new structure of consolidated funding for 
child care. This funding, provided under section 418 of the Social 
Security Act (42 U.S.C. 618), combined with funding from the Child Care 
and Development Block Grant (CCDBG) Act of 1990 (42 U.S.C. 9858 et 
seq.), was designated by HHS as the Child Care and Development Fund 
(CCDF).
    The CCDBG Act of 2014 was the first reauthorization of CCDBG since 
1996. The reauthorized Act affirms the importance of CCDF as a two-
generation program that supports parents' financial success and 
children's healthy development. Since PRWORA, the focus of CCDF has 
shifted from one largely dedicated to the goal of enabling low-income 
parents to work to one that includes a focus on promoting positive 
child development as we have learned a great deal about the value of 
high-quality child care for young children. While low-income parents 
continue to need access to child care in order to work and gain 
economic independence, policymakers and the public now recognize that 
the quality of child care arrangements is also critically important.
    Sixteen years ago, HHS (in collaboration with other federal 
agencies and private partners) funded the National Academies of 
Sciences to evaluate and integrate the research on early childhood 
development and the role of early experiences. (National Research 
Council and Institute of Medicine, From Neurons to Neighborhoods: The 
Science of Early Childhood Development, Board on Children, Youth, and 
Families, Commission on Behavioral and Social Sciences and Education, 
2000.) An overarching conclusion was that early experiences matter for 
healthy child development. Nurturing and stimulating care given in the 
early years of life builds optimal brain architecture that allows 
children to maximize their enormous potential for learning. On the 
other hand, hardship in the early years of life can lead to later 
problems. Interventions in the first years of life are capable of 
helping to shift the odds for those at risk of poor outcomes toward 
more positive outcomes. A multi-site study conducted by the Frank 
Porter Graham Child Development Institute found that, ``. . . children 
who experienced higher quality care are more likely to have more 
advanced language, academic, and social skills,'' and, ``. . . children 
who have traditionally been at risk of not doing well in school are 
affected more by the quality of child care experiences than other 
children.'' (E. Peisner-Feinberg, M. Burchinal, et al., The Children of 
the Cost, Quality, and Outcomes Study Go to School: Executive Summary, 
University of North Carolina at Chapel Hill, Frank Porter Graham Child 
Development Center, 1999).
    Evidence continues to mount regarding the influence that children's 
earliest experiences have on their later success and the role child 
care can play in shaping those experiences. The most recent findings 
from the National Institute of Child Health and Human Development 
(NICHD) showed that the quality of child care children received in 
their preschool years had small but statistically significant 
associations with their academic success and behavior into adolescence. 
(NICHD, Study of Early Child Care and Youth Development, 2010). Recent 
follow-up studies to the well-known Abecedarian Project, which began in 
1972 and has followed participants from early childhood through young 
adulthood, found that adults who had participated in a high-quality 
early childhood education program experienced better educational, 
employment, and health outcomes. Abecedarian Project participants had 
significantly more years of education than their control group peers, 
were four times more likely to earn college degrees, and had lower risk 
of cardiovascular and metabolic diseases in their mid-30s. (Campbell, 
Pungello, Burchinal, et al., Adult Outcomes as a Function of an Early 
Childhood Educational Program: An Abecedarian Project Follow-Up, Frank 
Porter Graham Child Development Institute, Developmental Psychology, 
2012 and Campbell, Conti, Heckman et al, Early Childhood Investments 
Substantially Boost Adult Health, Science 28 March 2014, Vol. 343).
    Research also confirms that consistent time spent in afterschool 
activities during the elementary school years is linked to narrowing 
the gap in math achievement, greater gains in academic and behavioral 
outcomes, and reduced school absences. (Auger, Pierce, and Vandell, 
Participation in Out-of-School Settings and Student Academic and 
Behavioral Outcomes, presented at the Society for Research in Child 
Development Biennial Meeting, 2013). An analysis of over 70 after-
school program evaluations found that evidence-based programs designed 
to promote personal and social skills were successful in improving 
children's behavior and school performance. (Durlak, Weissberg, and 
Pachan, The Impact of Afterschool Programs that Seek to Promote 
Personal and Social Skills in Children and Adolescents, American 
Journal of Community Psychology, 2010). After-school programs also 
promote youth safety and family stability by providing supervised 
settings during hours when children are not in school. Parents with 
school-aged children in unsupervised arrangements face greater stress 
that can impact the family's well-being and successful participation in 
the workforce. (Barnett and Gareis, Parental After-School Stress and 
Psychological Well-Being, Journal of Marriage and the Family, 2006).
    CCDF often operates in conjunction with other programs including 
Head Start, Early Head Start, State pre-kindergarten, and before-and 
after-school programs. States and Territories have flexibility to use 
CCDF to provide children enrolled in these programs full-day, full-year 
care, which is essential to supporting low-income working parents. CCDF 
also funds quality improvements for settings beyond those that serve 
children receiving subsidies. CCDF has helped lay the groundwork for 
development of State early learning systems. Lead Agencies have used 
CCDF funds to make investments in professional development systems to 
ensure a well-qualified and effective early care and education 
workforce. Lead Agencies have provided scholarships for child care 
teachers and worked closely with higher education, especially community 
colleges, to increase the number of teachers with training or a degree 
in early childhood or youth development. Lead Agencies have used CCDF 
funds to build quality rating and improvement systems (QRIS) to provide 
consumer education information to parents, help providers

[[Page 67443]]

raise quality, and create a more systemic approach to child care 
quality improvement efforts and accountability. These investments have 
likely also generated benefits for children enrolled in unsubsidized 
child care programs.
    Child care is a core early learning and care program and plays an 
important role within a broad spectrum of early childhood programs 
supporting young children. The Administration has consistently sought 
to support State, Territory and Tribal efforts to improve the 
coordination and alignment of early childhood programs through multiple 
efforts, including the Race to the Top-Early Learning Challenge and the 
Early Head Start-Child Care Partnerships. Most recently, ACF published 
Caring for our Children Basics (www.acf.hhs.gov/sites/default/files/ecd/caring_for_our_children_basics.pdf), a set of recommendations 
intended to create a common framework to align basic health and safety 
efforts across all early childhood settings. This final rule builds on 
the alignment and coordination work that has been advanced by the 
Administration. For example, Lead Agencies are required to collaborate 
with multiple entities, including State Advisory Councils on Early 
Childhood Education and Care, authorized by the Head Start Act, or 
similar coordinating bodies. In addition, minimum 12-month eligibility 
periods will make it easier to align child care assistance with 
eligibility periods for other programs, such as Early Head Start, Head 
Start, and State prekindergarten. Policies that stabilize access to 
child care assistance for families and bring financial stability to 
child care providers will play an important role in supporting the 
success of Early Head Start-Child Care Partnerships.
    According to a recent report by the President's Council of Economic 
Advisors, investments in early childhood development will reap economic 
benefits now and in the future. Immediate benefits include increased 
parental earnings and employment. Future benefits come when children 
who experience high-quality early learning opportunities are prepared 
for success in school and go on to earn higher wages as adults. 
(Council of Economic Advisors, Executive Office of the President of the 
United States, The Economics of Early Childhood Investments, 2014). 
Decades of research show that the experiences babies and toddlers have 
in their earliest years shape the architecture of the brain and have 
long-term impacts on human development. At the same time, increasing 
the employability and stability of parents reduces the impact of 
poverty on children and sustains our nation's workforce and economy. 
Studies have shown that access to reliable child care contributes to 
increased employment and earnings for parents. (National Research 
Council and Institute of Medicine, From Neurons to Neighborhoods: The 
Science of Early Childhood Development, Board on Children, Youth, and 
Families, Commission on Behavioral and Social Sciences and Education, 
2000 and Council of Economic Advisors, The Economics of Early Childhood 
Investments). In short, high-quality child care is a linchpin to the 
creation of an educational system that successfully supports the 
country's workforce development, economic security, and global 
competitiveness. Successful implementation of the CCDBG Act of 2014 
will ensure that child care is not only safe, but also supports 
children's healthy development and their future academic achievement 
and success.
    b. 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. 9858 et seq.) and Section 418 
of the Social Security Act (42 U.S.C. 618).
    c. Effective dates. This final rule will become effective 60 days 
from the date of its publication, except for provisions with a later 
effective date as defined in the Act (discussed further below). 
Compliance with provisions in the Act will be determined through ACF 
review and approval of CCDF Plans, including State Plan amendments, as 
well as using Federal monitoring, including on-site monitoring visits 
as necessary. Lead Agencies must comply with the provisions of the Act, 
as revised by the CCDBG Act of 2014. Compliance with key statutorily 
required implementation dates outlined in Program Instruction CCDF-ACF-
PI-2015-02 (http://www.acf.hhs.gov/programs/occ/resource/pi-2015-02), 
dated January 9, 2015, remain in effect. In some cases, the CCDBG Act 
of 2014 specifies a particular date when a provision is effective. 
Where the Act does not specify a date, the new requirements became 
effective upon the date of enactment of the Act, and ACF guidance 
established September 30, 2016 as the deadline for States and 
Territories to implement the new statutory requirement(s). As discussed 
below, Tribes and Tribal organizations have different implementation 
and compliance timelines.
[GRAPHIC] [TIFF OMITTED] TR30SE16.002


[[Page 67444]]


    We recognize that States and Territories prepared their FY 2016-
2018 CCDF Plans, which were due in March 2016, prior to the issuance of 
this final rule. States and Territories were to comply with the Act 
based on their reasonable interpretation of the requirements in the 
revised Act. With the issuance of this final rule, any State or 
Territory that does not fully meet the requirements of the Act, as 
interpreted by these regulations, will need to revise its policies and 
procedures to come into compliance. Plan amendments for substantial 
changes must be submitted within 60 days of the effective date of the 
change, and ACF will track compliance. The Act and this final rule also 
provide guidance on the process that allows the Secretary to consider 
whether to approve requests for temporary extensions from States and 
Territories through waivers. If a State or Territory receives an 
extension via waiver, ACF still expects full compliance with the Act, 
as interpreted by this final rule, by the end of the current triennial 
Plan period (FY 2016-2018). ACF will use federal monitoring in 
accordance with section 98.90.
    Tribal Lead Agencies will submit new 3-year Plans for FY 2020-2022, 
with an effective date of October 1, 2019, and ACF will use those Plans 
to determine compliance with the Act, as interpreted by this rule. 
Tribes may also submit requests, for HHS to consider, seeking temporary 
extensions via waivers. Tribes that have consolidated CCDF with other 
employment, training and related programs under Public Law (Pub. L. 
102-477), are not required to submit separate CCDF Plans, but will be 
required to submit amendments to their Public Law 102-477 Plans, along 
with associated documentation, in accordance with this timeframe to 
demonstrate compliance with the Act, as interpreted by this final rule.
    This final rule is being published well in advance of the October 
1, 2018 deadline for States and Territories (and October 1, 2019 
deadline for Tribes) to ensure there is enough time to demonstrate 
compliance with all the statutory interpretations in this final rule. 
As a result, there is sufficient time for all States, Territories, and 
Tribes to demonstrate compliance with this rule's interpretations no 
later than these deadlines. We are not inclined to approve any requests 
for temporary extensions/waivers due to legislative or transitional 
purposes in order to comply with this rule's interpretations because 
the compliance deadlines already provide adequate time.

III. Development of Regulation

    After enactment of the CCDBG Act of 2014, the Office of Child Care 
(OCC) and the Office of the Deputy Assistant Secretary for Early 
Childhood Development in ACF conducted outreach to engage with a 
variety of stakeholders to understand better the implications of its 
provisions. OCC created a CCDF reauthorization page on its Web site to 
provide public information and an email address to receive questions. 
OCC received approximately 650 questions and comments through this 
email address. OCC leadership and staff participated in more than 21 
listening sessions with approximately 675 people representing diverse 
national, State, and local stakeholders regarding the Act, held 
webinars, and gave presentations at national conferences. Participants 
included State human services agencies, child care caregivers and 
providers, parents with children in child care, child care resource and 
referral agencies, national and State advocacy groups, national 
stakeholders including faith-based communities, after-school and 
school-age caregivers and providers, child care researchers, State and 
local early childhood organizations, provider associations, labor 
unions, and Head Start grantees. In addition, OCC held five meetings 
with State and Territory CCDF administrators and a series of 
consultations with Tribal leaders to describe the Act and to gather 
input from Federal grantees with responsibility for operating the CCDF 
program.
    ACF published a notice of proposed rulemaking (NPRM) in the Federal 
Register on December 24, 2015, (80 FR 80466) proposing revisions to 
CCDF regulations consistent with the reauthorized Act and research on 
child safety, health, and child development in child care and school-
age child care. We provided a 60-day comment period during which 
interested parties could submit comments in writing by mail or 
electronically.
    ACF received 150 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 education agencies, 
national advocacy groups, State and local early childhood 
organizations, child care resource and referral agencies, faith-based 
organizations, provider associations, Tribes and Tribal organizations, 
labor unions, child care providers, parents, individual members of the 
public, and a joint letter by two members of the U.S. Congress. We were 
pleased to receive comments from 41 State and local governments, 1 
Territory, and 15 Tribes and Tribal organizations. A number of 
stakeholders coordinated comments and policy recommendations so that 
their comments were signed by multiple entities, and there were some 
membership organizations whose comments were by signed by their 
individual members. Public comments informed the development of content 
for this final rule.
    Use of terms. Terminology used to refer to child care settings and 
the individuals who provide care for children varies throughout the 
early childhood and afterschool fields. In this rule, the terms 
caregiver, teacher, and director refer to individuals. The term 
provider refers to the entity providing child care services. This may 
be a child care program, such as a child care center, or an individual 
in the case of family child care or in-home care. Complete descriptions 
of these terms are included in Subpart A of this rule.
    Overview of changes made by CCDBG Act of 2014. The changes included 
in this final rule provide detail on major provisions of the CCDBG Act 
of 2014 to: (1) Protect the health and safety of children in child 
care; (2) help parents make informed consumer choices and access 
information to support child development; (3) provide equal access to 
stable, high-quality child care for low-income children; and (4) 
enhance the quality of child care and the early childhood workforce.
    First, Congress established minimum health and safety standards 
including mandatory criminal background checks, at least annual 
monitoring of providers, and health and safety training. Children in 
CCDF-funded child care will now be cared for by caregivers who have had 
basic training in health and safety practices and child development. 
Parents will know that individuals who care for their children do not 
have prior criminal records that indicate potential endangerment of 
their children. Health and safety is a necessary foundation for quality 
child care that supports early learning and development. Research shows 
that licensing and regulatory requirements for child care affect the 
quality of care and child development. (Adams, G., Tout, K., Zaslow, 
M., Early care and education for children in low-income families: 
Patterns of use, quality, and potential policy implications, Urban 
Institute, 2007).
    Second, Congress increased consumer education requirements for 
States and Territories and made clear that parents need transparent 
information about health and safety practices, monitoring

[[Page 67445]]

results, and the quality of child care providers. Parents will now be 
able to easily view on a Web site the standards a child care provider 
meets and their record of compliance. Most States and Territories 
administering the CCDF program have already begun building a quality 
rating and improvement system (QRIS), which make strategic investments 
to provide pathways for providers to reach higher quality standards. 
Our rule builds on the reauthorization and Lead Agency efforts to 
inform parents about the quality of providers by requiring that the 
consumer education Web site include provider-specific quality 
information, if available, such as from a QRIS, and that Lead Agencies 
provide parents receiving CCDF with information about the quality of 
their chosen provider.
    Third, low-income parents need access to stable, high-quality child 
care for their children, and the Act affirms that they should have 
equal access to settings that are comparable to those accessible to 
non-CCDF families. This final rule details the Act's continuity of care 
provisions, such as extending eligibility for child care for a minimum 
of 12 months regardless of a parent's temporary change in employment or 
participation in education or training. Continuity of services 
contributes to improved job stability and is important to a family's 
financial health. Family economic stability is undermined by policies 
that result in unnecessary disruptions to receipt of a subsidy due to 
administrative barriers or other processes that make it difficult for 
parents to maintain their eligibility and thus fully benefit from the 
support it offers. Continuity also is of vital importance to the 
healthy development of young children, particularly the most 
vulnerable. Disruptions in services can stunt or delay socio-emotional 
and cognitive development, and make it harder for children to develop 
trusting relationships with their caregivers. Safe, stable environments 
allow young children the opportunity to develop the relationships and 
trust necessary to comfortably explore and learn from their 
surroundings. Research has demonstrated a relationship between child 
care stability and social competence, behavior outcomes, cognitive 
outcomes, language development, school adjustment, and overall child 
well-being. (Adams, Rohacek, and Danziger, Child Care Instability, The 
Urban Institute, 2010.) This area includes a number of changes, 
including requirements for limiting administrative burdens on parents 
and enabling families to retain their child care assistance as their 
income increases in order to move towards economic success.
    The final rule also addresses the Act's equal access provisions by 
requiring that base payment rates be established at least at a level 
that enables child care providers to meet the health, safety, quality, 
and staffing requirements in the final rule, ensuring that co-payments 
are affordable for families, and establishing provider payment 
practices that support access to high-quality child care.
    Finally, this final rule addresses increased quality set-asides in 
the reauthorized Act, which enhance the quality of child care and the 
early childhood workforce. States and Territories will report on their 
investments in quality activities, which will now be a greater share of 
CCDF spending. They will also expand quality investments in infant-
toddler care. High-quality care for children under age 3 is the most 
expensive and hardest care to find during the most formative years. 
(National Survey of Early Care and Education, 2015, www.acf.hhs.gov/sites/default/files/opre/es_price_of_care_toopre_041715_2.pdf) The Act 
requires States and Territories to have training and professional 
development standards in effect for CCDF caregivers, and we build on 
this requirement by outlining the components of a professional 
development framework. Research shows the fundamental importance of the 
caregiver in a high-quality early learning setting, and this rule helps 
ensure that early childhood professionals have access to the knowledge 
and skills they need to best support young children and their 
development.
    In developing this rule, we were mindful of CCDF's purpose to allow 
Lead Agencies maximum flexibility in developing child care policies and 
programs. In some areas, the final rule adds flexibility to allow Lead 
Agencies to tailor policies that better meet the needs of the low-
income families they serve. For example, the rule provides more 
flexibility for Lead Agencies to determine when it is appropriate to 
waive a family's co-pay requirement. In many areas, the rule adds new 
requirements as dictated by the updated Act or because they advance the 
revised purposes of the CCDF program.
    Changes in the Act, and in this final rule, affect the State, 
Territorial, and Tribal agencies that administer the CCDF program. The 
Act requires changes across many areas: Child care licensing, subsidy, 
quality, workforce, and program integrity and requires coordination 
across State agencies. Achieving the full visions of reauthorization 
will be challenging, but this effort is necessary to improve child care 
in this country for the benefit of our children. ACF has and will 
continue to consult with State, Territorial, and Tribal agencies and 
provide technical assistance throughout implementation.
    This final rule generally 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).

IV. General Comments and Cross-Cutting Issues

    This final rule includes substantive changes in multiple areas 
spanning nearly every subpart of CCDF regulations. We received comments 
on a large majority of the proposed changes, and made significant 
revisions in this final rule in response to comments. For example, we 
deleted a proposal that would have required Lead Agencies to make some 
use of grants and contracts, revised the provision providing a 
graduated phase-out for certain families, and made a number of 
adjustments to equal access provisions. We discuss specific comments in 
the section-by-section analysis later in this final rule.
    In general, public response to the proposed rule was positive. 
There was widespread support for the recognition of the dual purposes 
of the CCDF program--to support both parental pathways to economic 
security and stability and children's development. As noted by a joint 
set of comments by State child care administrators, ``[we] share a 
common interest in increasing access to opportunities for high-quality 
early care and education for children and recognize the important 
developmental growth that occurs in early years.'' However, many of the 
commenters had concerns about costs and said more funding is needed to 
implement the changes. Developing this final rule required balancing 
both positive and negative comments, and we tried to be thoughtful 
about looking at the whole by considering the added-value of different 
provisions. Below we summarize these general comments as well other 
crosscutting issues raised by commenters.

[[Page 67446]]

General Comments

    We received a few comments arguing that we lacked authority under 
the Act to establish some of the final rule's requirements. In 
developing this final rule, ACF was careful to stay within the 
authority provided by the reauthorized Act and cognizant of areas where 
our authority was limited and further changes would require 
Congressional action. We reviewed previously-existing regulations and 
identified areas under the CCDBG Act of 2014 where we could incorporate 
the tremendous amount of recent research on early brain development and 
best policies and practices to improve access to and the quality of 
child care being implemented.
    Many commenters were concerned about the financial tensions between 
the objectives of the CCDF program--to provide access to child care for 
as many low-income families as possible so they can work and build 
financial stability, and to make sure children are in safe, quality 
child care settings. Many of these same commenters had concerns about 
costs and said more funding is needed to implement the statutory and 
regulatory changes. A letter submitted by 80 national and State 
organizations cautioned: ``We note that CCDBG has been severely 
underfunded in recent years, resulting in large numbers of eligible 
children unserved and low provider payment rates, among other 
consequences. Achieving the goals of the Act to improve the health, 
safety, and quality of child care and the stability of child care 
assistance will require additional resources. Congress made a down 
payment on funding in the recent FY 2016 omnibus budget; however, 
additional investments will be necessary to ensure the success of the 
reauthorized Act and to address the gaps that already exist in the 
system.'' Several States and local governments voiced concern about the 
costs to implement the Act and the rule. They raised concerns about 
sufficiency of funding to meet requirements within the given period, 
and that insufficient funding could necessitate serving fewer eligible 
children.
    We recognize that the CCDBG Act of 2014 makes many changes, and 
that States, Territories, and Tribes are budgeting with a limited 
amount of funding. Lead Agencies are faced with making difficult 
tradeoffs about where to direct scarce resources. Over time, some 
States have struggled to maintain the number of children and families 
served with child care subsidies, and caseloads declined to an all-time 
low in 2014. Additionally, the average CCDF subsidy per child is 
extremely low, approximately $4,800 annually in FY 2014. In inflation 
adjusted terms, the value of the child care subsidy (per child) has 
decreased in real dollars by about 20 percent since 2003, while the 
caseload has declined somewhat over that same period. This is a 
reflection of the tradeoffs that some States have had to consider due 
to limited federal and state funding under tight budget constraints, 
resulting in the erosion of the value of the subsidy and its ability to 
help families obtain high-quality care. On the other hand, there are 
States that have made different choices, such as providing an adequate 
subsidy value as they focused on serving children in settings where 
training and regulation is in place and oversight is sufficient.
    This final rule attempts to bring a basic level of safety to all 
children whose care is supported with taxpayer funds. We will continue 
to pursue the goal of preserving and expanding access to quality child 
care for the many families who are currently unable to access a subsidy 
due to lack of funding. However, we see this final rule as a critical 
opportunity to ensure that the subsidized care families' access is of 
sufficient quality. The Act supports this goal of ensuring quality of 
care by requiring that providers serving CCDF children have background 
checks, receive basic training in health and safety, and are monitored 
on a regular basis. Like Lead Agencies, we have considered these 
difficult tradeoffs, but we believe that the final rule strikes the 
appropriate balance of both supporting quality and access and not 
ensuring one at the expense of the other. We will continue to pursue 
increased federal funding to increase access to high-quality, 
affordable child care. We believe that the policies in this final rule 
appropriately balance a reasonable cost burden while still achieving 
the goals (and resulting benefits) outlined in the Act and the rule.
    We seriously considered concerns about cost, and recognize that the 
Act and final rule contain provisions that will require some State, 
Territory, and Tribal Lead Agencies to re-direct CCDF funds to 
implement specific provisions. Yet, the vast majority of the costs 
associated with this rule and outlined in the regulatory impact 
analysis are required by the law itself, and we support these critical 
investments as our guiding principle has been, and remains, that we 
cannot in good conscience continue to use any federal taxpayer dollars 
to support sub-standard child care for our nation's most vulnerable and 
disadvantaged children. The CCDBG Act of 2014 clearly spells out that 
its purpose is to improve the health, safety and quality of child care 
and to increase access to high-quality child care. Many Lead Agencies 
have already implemented some or most of the provisions in this final 
rule. In addition, each year, more than $5 billion in federal CCDF 
funding is allocated to State, Territory and Tribal grantees. The 
activities to implement requirements in this final rule are allowable 
costs in the CCDF program. Changes made by this final rule represent a 
commitment to shoring up quality and accountability in the CCDF program 
now, to provide a stronger foundation for future growth and investment.
    Several States commented on wanting more flexibility to meet some 
the requirements. Our approach was to look at the provisions of this 
final rule in their entirety and identify areas where more flexibility 
is appropriate. While many Lead Agencies have made great strides to 
fashion the program in a way that emphasizes child development and 
increasing access to high-quality care, implementation of the CCDF 
program across the country varies greatly. The previous lack of 
substantive federal requirements in areas such as health and safety, 
consumer education, and eligibility policy means there is no uniform 
national standard that families can count on. All families receiving 
CCDF assistance, regardless of where they live, should have basic 
assurances about the safety and quality of services they receive.
    This final rule provides more flexibility in areas that were not 
addressed by the reauthorized Act. For example, it allows Lead Agencies 
to establish their own criteria for waiving copays, gives flexibility 
to waive income and work requirements for vulnerable children, and 
provides the option for alternative monitoring strategies for in-home 
providers. In addition, there were several areas where we declined to 
impose a federal standard, even while some commenters asked us to go 
further. We also eliminated or revised a number of proposals from the 
NPRM in response to comments.
    In addition, we took into consideration a number of comments that 
asked for more flexibility for Tribes. We continue to balance 
flexibility for Tribes to address the unique needs of their communities 
with the need to ensure accountability and quality child care for all 
children. In response to comments received from Tribes, we have made 
changes to how this final rule applies to them, including clarifying 
implementation periods and adding in flexibility around the background 
check requirements. This

[[Page 67447]]

final rule addresses all comments from Tribes and tribal organizations 
in the preamble discussion for Subpart I.
    Finally, we received comments from some States and Tribes on the 
effective date of the final rule, indicating that time is needed to 
take administrative or legislative action, or to otherwise fully 
implement the provisions. While States should have already been 
proceeding with implementation of reauthorization requirements based on 
their reasonable interpretation of the reauthorized Act, we recognize 
that some States may need time to make adjustments to their policies 
and procedures based on this final rule. Therefore, we have provided 
delayed compliance dates, discussed in more detail earlier in this 
preamble, to allow States, Territories and Tribes time to fully 
implement this rule.

V. 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.  98.1 Purposes
    The CCDBG Act of 2014 amended and expanded the Act's previous 
``goals'' and renamed them ``purposes''. The final rule makes changes 
to regulatory language at 45 CFR 98.1 to describe the revised purposes 
of the CCDF program, according to the updated Act.
    Comment: We received multiple comments from national and State 
organizations and child care worker organizations asking us to 
explicitly highlight compensation as an integral strategy to retaining 
a high-quality early childhood workforce in this section and in several 
other sections of the regulation.
    Response: We agree and Sec.  98.1(b)(8) of the final rule provides 
that, in providing a progression of professional development and 
promoting retention of quality early childhood caregivers, teachers, 
and directors, an important strategy is financial incentives and 
compensation improvements to align with Sec.  98.44. We note that 
several States are working to improve compensation to support 
caregivers, teachers, and directors, generally linked to attaining 
higher professional credentials and education and as a strategy to 
retain educators who have these credentials and degrees in early 
childhood programs. Turnover remains a significant issue in child care, 
and investments in professional development and training should be 
coupled with improvements in compensation so that children benefit from 
teachers with those higher levels of knowledge and skill.
Sec.  98.2 Definitions
    The final rule makes technical changes to definitions at Sec.  98.2 
and adds six new definitions. Below we discuss any comments we received 
to these proposals.
    First, the final rule makes technical changes by deleting the 
definition for group home child care provider. Some States, 
Territories, and Tribes do not consider group homes to be a separate 
category of care when administering their CCDF programs or related 
efforts, such as child care licensing. According to the National 
Association for Regulatory Administration, at least 13 States do not 
license group homes as a separate category. Some States and Territories 
use alternative terminology (e.g., large family child care homes), 
while others treat all family child care homes similarly regardless of 
size. Due to this variation, we are deleting the separate definition 
for group home child care provider, which requires a number of 
technical changes to the definitions section. We did not receive 
comments on this section.
    Under this final rule, the categories of care are defined to 
include center based child care, family child care, and in-home care 
(i.e., an individual caring for a child in the child's home).
    This final rule also makes conforming changes to the definitions 
for categories of care, eligible child care provider, and family child 
care provider.
    The final rule amends the definition for eligible child care 
provider at Sec.  98.2 to delete a group home child care provider. The 
revised definition defines an eligible child care provider as a center-
based child care provider, a family child care provider, an in-home 
child care provider, or other provider of child care services for 
compensation. Group home child care is considered a family child care 
provider for CCDF purposes.
    The final rule also amends the definition for family child care 
provider at Sec.  98.2 to include larger family homes or group homes. 
The new definition revises family child care provider to include one or 
more individuals who provide child care services. The remainder of the 
definition stays the same, specifying that services are for fewer than 
24 hours per day per child, in a private residence other than the 
child's residence, unless care in excess of 24 hours is due to the 
nature of the parent(s)' work.
    Lead Agencies may continue to provide CCDF services for children in 
large family child care homes or group homes, and this is allowable and 
recognized by the revised definition of family child care provider, 
which now includes care in private residences provided by more than one 
individual. This change eliminates group homes as a separately defined 
category of care for purposes of administering the CCDF--thereby 
allowing States, Territories, and Tribes to more easily align their 
practices with Federal requirements. The rule does not require that 
States and Territories eliminate group homes from their categories of 
care or change the way they categorize providers for the purposes of 
analyzing or setting provider payment rates.
    The final rule makes one additional change to a pre-existing 
definition as called for by new statutory language. We are amending the 
definition of Lead Agency so that it may refer to a State, Territorial 
or Tribal entity, or a joint interagency office, designated or 
established under Sec. Sec.  98.10 and 98.16(a) as indicated at Section 
658P(9) of the Act. While the NPRM proposed amending the definition of 
eligible child, we decided a revision is unnecessary and have reverted 
to the pre-existing definition that references eligibility requirements 
at Sec.  98.20.
    Finally, the final rule adds five new terms to the definitions due 
to statutory changes and to include terms commonly used in the child 
care profession.
Caregiver
    The definition of caregiver in the Act and prior regulations 
remains unchanged.
    Comment: One child care worker organization raised concerns that 
the term ``caregiver'' is outdated, and requested deletion of the term.
    Response: The final rule does not delete or alter the definition of 
``caregiver'' that is included in the Act. The final rule, however, 
adds definitions for ``teacher'' and ``director'' to recognize the 
roles in child care and early childhood education as a professional 
field. The definitions for these terms are based on a white paper 
recommending revisions to the U.S. Department of Labor's Standard 
Occupational Classification. (Proposed Revisions to the Definitions for 
the Early Childhood Workforce in the Standard Occupational 
Classification. White Paper Commissioned by the Administration for 
Children and Families, U.S. Department of Health and Human Services, 
prepared by the Workgroup on the Early Childhood Workforce and 
Professional

[[Page 67448]]

Development under contract through the Child Care and Early Education 
Policy and Research Analysis, 2005- 2018. June 18, 2014, 
www.acf.hhs.gov/sites/default/files/occ/soc_acf_submittal.pdf).
Teacher
    The final rule defines teacher as `a lead teacher, teacher, teacher 
assistant or teacher aide who is employed by a child care provider for 
compensation on a regular basis, or a family child care provider, and 
whose responsibilities and activities are to organize, guide and 
implement activities in a group or individual basis, or to assist a 
teacher or lead teacher in such activities, to further the cognitive, 
social, emotional, and physical development of children from birth to 
kindergarten entry and children in school-age child care.' We recognize 
that the responsibilities and qualifications for lead teachers, 
teachers, and teacher assistants are different as set by child care 
licensing, State early childhood professional development systems, and 
State teacher licensure policies and have added these definitions for 
simplification in relation to requirements in the Act and this rule. We 
strongly encourage States and Territories to recognize differentiated 
roles and qualifications in their requirements and systems.
Director
    The final rule defines director as `a person who has primary 
responsibility for the daily operations management for a child care 
provider, which includes a family child care provider, and which may 
serve children from birth to kindergarten entry and/or school-age 
children.'
    Comment: Several comments from national and State organizations and 
child care worker organizations expressed support for the new 
definitions for teacher and director and asked for a reorganization of 
certain words in the proposed definition to ensure that they include 
family child care providers.
    Response: We agree with the comments, and the final rule makes the 
requested changes.
Child With a Disability
    We define child with a disability as: A child with a disability as 
defined in section 602 of the Individuals with Disabilities Education 
Act (20 U.S.C. 1401); a child who is eligible for early intervention 
services under part C of the Individuals with Disabilities Education 
Act (20 U.S.C. 1431 et seq.); a child who is less than 13 years of age 
and who is eligible for services under section 504 of the 
Rehabilitation Act of 1973 (29 U.S.C. 794); and a child with a 
disability, as defined by the State. This definition is identical to 
the definition found at Section 658P(3) of the Act.
    Comment: We received comments from national organizations for 
individuals with disabilities on the definition of ``child with a 
disability'' asking to delete the ``or'' and an open-ended ability of 
the State to define the term.
    Response: The final rule's definition is identical to the 
definition set forth in the Act, which allows States, Territories, and 
Tribes to include other developmental delays and disabilities if they 
choose. Consistent with the statute, we are changing ``or'' (which was 
proposed in the NPRM) to ``and'' to indicate that a child meeting at 
least one of any of the four parts of the definition (i.e., section 602 
of IDEA, part C of IDEA, section 504 of the Rehabilitation Act, or 
definition of State, Territory or Tribe) would be considered a child 
with a disability.
English Learner
    The final rule reiterates Section 658P(5)'s definition of English 
learner as an individual who is limited English proficient, as defined 
in section 9101 of the Elementary and Secondary Education Act of 1965 
(20 U.S.C. 7801) or section 637 of the Head Start Act (42 U.S.C. 9832).
Child Experiencing Homelessness
    The final rule's definition of a child experiencing homelessness is 
adopted from section 725 of Subtitle VII-B of the McKinney-Vento Act 
(42 U.S.C. 11434a). While a definition of child experiencing 
homelessness was not included in the reauthorized CCDBG Act, we 
understand the intent of Congress was to apply the McKinney-Vento 
definition here based on a letter sent to HHS Secretary Sylvia Burwell 
in February 2015 from Senate and House members.
    Comment: Several comments expressed support for using the 
definition in the McKinney-Vento Act, section VII-B. One commenter 
sought to augment the definition to refer to several other federal laws 
that can be used to support children experiencing homelessness.
    Response: Using the McKinney-Vento Act's definition, without 
modification here, will lead to better consistency in identifying 
children and in information collection. This definition is also used by 
Head Start and education programs.

Subpart B--General Application Procedures

    Lead Agencies have considerable latitude in administering and 
implementing their child care programs. 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 all child care issues, determines the basic use of CCDF funds and 
priorities for spending CCDF funds, and promulgates the rules governing 
overall administration and oversight.
Sec.  98.10 Lead Agency Responsibilities
    This final rule amends the language at Sec.  98.10 in accordance 
with new statutory language at Section 658D(a) of the Act that a Lead 
Agency may be a collaborative agency or a joint interagency office, as 
designated or established by the Governor of the State (or by the 
appropriate Tribal leader or applicant). Paragraphs (a) through (e) 
remain unchanged. Paragraph (f) requires that, at the option of an 
Indian Tribe or Tribal organization in the State, a Lead Agency should 
consult, collaborate and coordinate in the development of the State 
Plan with Tribes or Tribal organizations in the State in a timely 
manner pursuant to Sec.  98.14. Because States also provide CCDF 
assistance to Indian children, States benefit by coordination with 
Tribes and we encourage States to be proactive in reaching out to the 
appropriate Tribal officials for collaboration. The final rule adds 
``consult'' to recognize the need for formal, structured consultation 
with Tribal governments, including Tribal leadership, and the fact that 
many States and Tribes have consultation policies and procedures in 
place. We received one comment on this section.
    Comment: One State and a Tribal organization wrote that they 
support the requirement to consult, collaborate, and coordinate in the 
development of the State Plan with Indian Tribes or Tribal 
organizations.
    Response: The final rule keeps this language.
Sec.  98.11 Administration Under Contracts and Agreements
    Written agreements. Section 98.11 previously required Lead Agencies 
that administer or implement the CCDF program indirectly through other 
local agencies or organizations to have written agreements with such 
agencies that specify mutual roles and responsibilities. However, it 
did not address the content of such agreements. This final rule amends 
regulatory

[[Page 67449]]

language at Sec.  98.11(a)(3) to specify that, while the content of the 
written agreements may vary based on the role the agency is asked to 
assume or the type of project undertaken, agreements must, at a 
minimum, include tasks to be performed, a schedule for completing 
tasks, a budget that itemizes categorical expenditures consistent with 
CCDF requirements at Sec.  98.65(h), and indicators or measures to 
assess performance. Many Lead Agencies administer the CCDF program 
through the use of sub-recipients that have taken on significant 
programmatic responsibilities, including providing services on behalf 
of the Lead Agency. For example, some Lead Agencies operate primarily 
through a county-based system, while others devolve decision-making and 
administration to local workforce boards, school readiness coalitions 
or community-based organizations such as child care resource and 
referral agencies. Through working with grantees to improve program 
integrity, ACF has learned that the quality and specificity of written 
agreements vary widely, which hampers accountability and efficient 
administration of the program. These changes represent minimum, common-
sense standards for the basic elements of those agreements, while 
allowing latitude in determining specific content. The Lead Agency is 
ultimately responsible for ensuring that all CCDF-funded activities 
meet the requirements and standards of the program, and thus has an 
important role to play to ensure written agreements with sub-recipients 
appropriately support program integrity and financial accountability.
    We are cognizant that some States and Territories lack strong 
requirements to ensure there is transparency in cases where a sub-
recipient contracts with a network of family child care providers to 
serve children receiving CCDF. This rule places a strong emphasis on 
implementation of provider-friendly payment practices, including a 
payment agreement or authorization of services for all payments 
received by child care providers. When a local entity contracts with a 
family child care network for services, we agree that there should be a 
clear understanding from the outset regarding payment rates for 
providers, any fees the provider may be subject to, and payment 
policies.
    Finally, Sec.  98.11(b)(5) adds a reference to the HHS regulations 
requiring Lead Agencies to oversee the expenditure of funds by sub-
recipients and contractors, in accordance with 75 CFR 351 to 353. The 
final rule changes the term ``subgrantee'' in the proposed rule to 
``subrecipients'' in this final rule as a technical correction. These 
regulations implement the Office of Management and Budget's Uniform 
Administrative Requirements for Federal awards (see ACF, Uniform 
Administrative Requirements, Cost Principles, and Audit Requirements, 
Program Instruction: CCDF-ACF-PI-2015-01, January 2015.)
    Section 658D(b)(1)(A) of the Act provides Lead Agencies with broad 
authority to administer the program through other governmental or non-
governmental agencies. In addition, CCDF Lead Agencies must comply with 
requirements for monitoring and management of sub-recipients, including 
government-wide grant requirements issued by the Office of Management 
and Budget (OMB) at 2 CFR 200.330 to 200.322 and adopted by HHS at 45 
CFR 75.351 to 75.353, which address reporting, auditing and other 
requirements related to sub-recipients. This final rule adds language 
at Sec.  98.11 to improve the quality and specificity of written 
agreements to promote program integrity and efficient administration at 
all levels. We received three comments on this section.
    Comment: One child care worker organization commented that these 
requirements should apply in all instances where CCDF funds are sub-
granted or passed through to an entity, including arrangements between 
intermediary entities and individual child care providers.
    Response: This provision applies only to written agreements between 
lead Agencies and first-level sub-recipients (and not to agreements 
between first-level sub-recipients and lower-level sub-recipients). The 
regulation states that the agreement must specify the mutual roles and 
responsibilities of the Lead Agency and the other agencies--indicating 
that the Lead Agency is a party to the agreement. This language is 
intended to be broad as sub-entities may fulfill any number of 
different roles or projects, including implementing quality improvement 
activities, determining eligibility for families, or providing consumer 
education on behalf of the Lead Agency. We strongly encourage lower-
level agreements to have similar provisions, but prefer to leave this 
as an area of flexibility to give State and local agencies discretion 
over the details, given the wide-range of conditions and circumstances 
involved. Also, we note that regulations at 98.67(c)(2) require Lead 
Agencies to have in place fiscal control and accountability procedures 
that permit the tracing of funds to a level of expenditure adequate to 
establish that such funds have not been used in violation of the CCDF 
rules. Therefore, Lead Agencies that devolve program administration to 
first, second, and third-level entities necessarily must be concerned 
with the integrity and transparency of all written agreements involving 
CCDF funds.
    The comment also urged ACF to compile and disseminate best 
practices for written agreements between entities that administer CCDF 
monies and providers and that the State or local agency develop a model 
written agreement for networks. This is an area where ACF anticipates 
providing more technical assistance to assist States in developing 
model written agreements focused on cases where a sub-recipient 
contracts with a network of family child care providers to serve 
children receiving CCDF.
    Comment: We received a comment from one State that some of the 
items for written agreements do not seem applicable to the 
administration of child care subsidies. For example, including a 
schedule for completing tasks does not seem applicable since the tasks 
of administering child care subsidies are ongoing and do not have end 
dates. States may have existing methods of ensuring compliance with 
administration requirements for the program, and should be offered 
flexibility in how tasks and expenditures are overseen and monitored. 
Conversely, we received a comment from a child care worker organization 
in support of requiring a written agreement between a Lead Agency and 
another agency that must include, at minimum, tasks to be performed, a 
schedule for completing tasks, a budget which itemizes categorical 
expenditures consistent with CCDF requirements at 98.65(h), and 
indicators or measures to assess performance.
    Response: We have maintained the language in this section. Lead 
Agencies can adopt the required elements, as appropriate, to fit the 
circumstances. For example, in the schedule for tasks, they can 
indicate the tasks that are ongoing.
Sec.  98.14 Plan Process
    Coordination. Section 658E(c)(2)(O) of the Act added language to 
previously-existing requirements for coordination of programs that 
benefit Indian children requiring Lead Agencies to also coordinate the 
provision of programs that serve infants and toddlers with 
disabilities, children experiencing homelessness, and children in 
foster care. We include all children with disabilities, not just 
infants and toddlers, in the regulatory language,

[[Page 67450]]

given the critical importance of serving that population of children.
    Lead Agencies also are required to consult and coordinate services 
with agencies responsible for public health, public education, 
employment services/workforce development, and TANF. The CCDBG Act of 
2014 added a requirement for the Lead Agency to develop the Plan in 
coordination with State Advisory Councils on Early Childhood Education 
and Care, which are authorized by the Head Start Act (42 U.S.C. 9831 et 
seq.) at Section 658E(c)(2)(R).
    In this final rule, we amend Sec.  98.14(a)(1) to add the State 
Advisory Council on Early Childhood Education and Care or similar 
coordinating body, as well as additional new entities with which Lead 
Agencies are required to coordinate the provision of child care 
services. We have added parenthetical language to paragraph (a)(1)(iii) 
to specify that coordination with public education should also include 
agencies responsible for pre-kindergarten programs, if applicable, and 
early intervention and preschool educational services provided under 
Parts B and C of the Individuals with Disabilities Education Act (IDEA) 
(20 U.S.C. 1400). Other coordinating entities include agencies 
responsible for child care licensing; Head Start collaboration; 
Statewide after-school network or other coordinating entity for out-of-
school time care; emergency management and response; the Child and 
Adult Care Food Program (CACFP); Medicaid and the State children's 
health insurance program; mental health services agencies; services for 
children experiencing homelessness, including State Coordinators for 
the Education of Children and Youth Experiencing Homelessness; and, to 
the extent practicable, local liaisons designated by local educational 
agencies (LEAs) in the State as required by the McKinney-Vento Act (42 
U.S.C. 11432) and the Department of Housing and Urban Development's 
Continuum of Care and Emergency Solutions Grantees. In the final rule, 
we added other relevant nutrition programs in addition to CACFP.
    Over time, the CCDF program has become an essential support in 
local communities to provide access to early care and education in 
before- and after-school settings and to improve the quality of care. 
Many Lead Agencies already work collaboratively to develop a 
coordinated system of planning that includes a governance structure 
composed of representatives from the public and private sector, 
parents, schools, community-based organizations, child care, Head Start 
and Early Head Start, child welfare, family support, public health, and 
disability services. Local coordinating councils or advisory boards 
also often provide input and direction on CCDF-funded programs.
    This type of coordination frequently is facilitated through 
entities such as State Advisory Councils on Early Childhood Education 
and Care. In both Head Start and CCDF, collaboration efforts extend to 
linking with other key services for young children and their families, 
such as medical, dental and mental health care; nutrition; services to 
children with disabilities; child support; refugee resettlement; adult 
education and postsecondary education; family literacy and English 
language acquisition; and employment training. These comprehensive 
services are crucial in helping families progress towards economic 
stability and in helping parents provide a better future for their 
young children.
    Implementation of the requirements of the CCDBG Act of 2014 will 
require leadership and coordination between Lead Agencies and other 
child- and family-serving agencies, services, and supports at the State 
and local levels, including those identified above. For example, in 
many States, child care licensing is administered in a different agency 
than CCDF. In those States, implementation of the inspection and 
monitoring requirements included in the Act necessitates coordination 
across agencies.
    Comment: One State noted that it has multiple agencies that serve 
children experiencing homelessness and asked for a change in the 
language.
    Response: We recognize that there are many agencies that have 
responsibilities for serving children experiencing homelessness. The 
examples of agencies in this provision are not meant to be an 
exhaustive list. Each Lead Agency will need to identify the appropriate 
agencies that are responsible for providing services to children 
experiencing homelessness to comply with the coordination requirement.
    Comment: We received multiple comments from national and State 
organizations supportive of the list of coordinating partners. We 
received a few comments suggesting additional coordinating partners to 
be named in this final rule, including child care resource and referral 
agencies, specific types of mental health providers, child care 
provider organizations, and child care providers who are faith-based or 
use a distinctive early childhood education approach.
    Response: New paragraph 98.14(a)(1)(xiv) includes child care 
resource and referral agencies, as recommended by commenters. 
Recognizing that functions typically performed by resource and referral 
agencies in some instances may be performed by other types of entities, 
we expanded the regulatory language to also include child care consumer 
education organizations and providers of early childhood education and 
professional development. Lead Agencies have the flexibility, and are 
encouraged, to engage with a wide variety of cross-sector partners when 
developing the CCDF Plan. Some of the coordinating partners suggested 
by commenters, such as providers using distinctive approaches to 
teaching, and faith-based organizations are already assumed to be 
included in pre-existing regulations at Sec.  98.14(a)(1), which 
requires coordination with child care and early childhood development 
programs.
    Combined funding. Section 98.14(a)(3) reiterates the statutory 
requirement that any Lead Agency that combines funding for CCDF 
services with any other early childhood programs shall provide a 
description in the CCDF Plan of how the Lead Agency will combine and 
use the funding according to Section 658E(c)(2)(O) of the Act. Lead 
Agencies have the option of combining funding for CCDF child care 
services with programs operating at the Federal, State, and local 
levels for children in preschool programs, Tribal early childhood 
programs, and other early childhood programs, including those serving 
infants and toddlers with disabilities, children experiencing 
homelessness, and children in foster care. Combining funds could 
include blending, layering, or pooling multiple funding streams in an 
effort to expand and/or enhance services for children and families. For 
example, Lead Agencies may use multiple funding sources to offer grants 
or contracts to programs to deliver high-quality child care services; a 
Lead Agency may allow county or local governments to use coordinated 
funding streams; or policies may be in place that allow local programs 
to layer funding sources to provide full-day, full-year child care that 
meets Early Head Start, Head Start or State/Territory pre-kindergarten 
standards in addition to child care licensing requirements. As per the 
OMB Circular A-133 Compliance Supplement 2015, https://www.whitehouse.gov/omb/circulars/a133_compliance_supplement_2015, CCDF 
funds may be used in collaborative efforts with Head

[[Page 67451]]

Start programs to provide comprehensive child care and development 
services for children who are eligible for both programs. In fact, the 
coordination and collaboration between Head Start and CCDF is strongly 
encouraged by sections 640(g)(1)(D) and (E), 640(h), 641(d)(2)(H)(v), 
and 642(e)(3) of the Head Start Act in the provision of full working 
day, full calendar year of early care and learning and comprehensive 
services.
    In order to implement such collaborative programs, which share, for 
example, space, equipment or materials, grantees may blend several 
funding streams so that services are provided seamlessly for the child 
and family. The same strategy applies to State-funded preschool 
programs where, working with CCDF funds, eligible children can benefit 
from a full-day and full-year program. Lead Agencies can layer Early 
Head Start and CCDF funds for the same child as long as there is no 
duplication in payments for the exact same part of the service. This is 
an option that some Lead Agencies are already implementing. Early Head 
Start-Child Care Partnerships grants, which allow Early Head Start 
programs to collaborate with local child care centers and family child 
care providers serving infants and toddlers from low-income families, 
offer a new important opportunity to implement this strategy to expand 
access to high-quality child care for infants and toddlers. We do note 
that, when CCDF funds are combined with other funds, Sec.  98.67 
continues to require Lead Agencies to have in place fiscal control and 
accounting procedures sufficient to prepare required reports and trace 
funds to a level of expenditure adequate to establish that such funds 
have been used on allowable activities.
    Public-private partnerships. This final rule adds paragraph (a)(4) 
to Sec.  98.14 in accordance with Section 658E(c)(2)(P) of the Act, 
which requires Lead Agencies to demonstrate in their Plan how they 
encourage public-private partnerships to leverage existing child care 
and early education service delivery systems and to increase the supply 
and quality of child care services for children under age 13, such as 
by implementing voluntary shared services alliance models (i.e., 
cooperative agreements among providers to pool resources to pay for 
shared fixed costs and operation). Public-private partnerships may 
include partnerships among State/Territory and public agencies, Tribal 
organizations, private entities, faith based organizations and/or 
community-based organizations.
    Public availability of Plans. The final rule adds language at Sec.  
98.14(c)(3) that requires the Lead Agency to post the content of the 
Plan that it proposes to submit to the Secretary on a Web site as part 
of the public hearing process. A new Sec.  98.14(d) requires Lead 
Agencies to make their CCDF Plan and any Plan amendments publicly 
available. Ideally, Plans and Plan amendments are available on the Lead 
Agency Web site or other appropriate State/Territory Web sites (such as 
the consumer education Web site required at Sec.  98.33(a)) to ensure 
that there is transparency for the public, and particularly for parents 
seeking assistance, about how the child care program operates. This is 
especially important for Plan amendments, given that Lead Agencies 
often make substantive changes to program rules or administration 
during the Plan period (now three years) through submission of Plan 
amendments (subject to ACF approval), but were not previously required 
to proactively make those amendments available to the public.
    Comment: We received comments from disabilities organizations to 
insert ``early intervention'' to describe Part C and ``preschool'' 
before ``Part B'' for clarity.
    Response: We agree with a comment recommending a technical fix to 
language at Sec.  98.14(a)(1)(iii). The Act includes Part C and B of 
the Individuals with Disabilities Education Act (IDEA) for 
coordination. Part C provides early intervention services and Part B 
provides preschool as well as elementary and secondary educational 
services. The final rule adds ``early intervention and preschool'' to 
describe the educational services under IDEA.
    Comment: We received several comments from provider and child care 
worker organizations supporting the requirement that Lead Agencies make 
draft and final Plans and Plan amendments publicly available. We 
received one comment that Lead Agencies should make the Plan available 
in the language of the community and another comment asking for a 
timeframe for States and Territories to make these items public.
    Response: In paragraphs (c)(3) and (d) of this section, the final 
rule adds language that the Plan and any amendments to the Plan, as 
well as approved requests for temporary relief as discussed at Sec.  
98.19, must be made available on a Web site. The final rule does not 
require that the Plan be made available in multiple languages. However, 
we strongly encourage States to be mindful of the needs of families 
with limited English proficiency and to work with families and 
community groups to give them a voice in program planning and 
policymaking, for example, by organizing outreach meetings with 
interpreters, recruiting multilingual eligibility staff, and 
translating provider-focused documents to ensure a diverse group of 
providers. CCDF Plans are long, technical documents and there could be 
significant costs associated with translating them into multiple 
languages. The CCDF Plan asks States to indicate whether they provide 
information or services in other non-English languages and most States 
indicate that they have procedures in place to translate program 
materials and provide technical assistance to providers. Lead Agencies 
may decide it is more cost effective to prioritize translating provider 
contracts, consumer education information, or other key documents that 
are integral to service delivery than to translate the Plan itself, if 
resources are limited. We also urge States to publish these items as 
soon as possible, within a timeframe determined by the Lead Agency, for 
the greatest transparency to families, providers, and the public.
Sec.  98.15 Assurances and Certifications
    Section 658E(c) of the Act requires Lead Agencies to provide 
assurances and certifications in its Plan. The final rule adds new 
assurances based on new statutory language.
    The final rule provides that Lead Agencies are required to provide 
an assurance that training and professional development requirements 
comply with Sec.  98.44 and are applicable to caregivers, teachers, and 
directors working for child care providers receiving CCDF funds. They 
are also required to provide assurance that, 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(l). Both of these requirements are discussed in detail in later 
sections of this rule.
    Section 98.15(a)(9) of this final rule adopts the statutory 
requirement at Section 658E(c)(2)(G) of the Act for Lead Agencies to 
provide an assurance that they will maintain or implement early 
learning and developmental guidelines that are developmentally 
appropriate for all children from birth to kindergarten entry, 
describing what children should know and be able to do, and covering 
the essential domains of early childhood development (cognition, 
including language arts and mathematics; social, emotional and physical 
development; and approaches toward learning) for use

[[Page 67452]]

statewide by child care providers and caregivers. Guidelines should be 
research-based and developmentally, culturally, and linguistically 
appropriate, building in a forward developmental progression, and 
aligned with entry to kindergarten. Guidelines should be implemented in 
consultation with the State educational agency and the State Advisory 
Council on Early Childhood Education and Care or similar coordinating 
body, and in consultation with child development and content experts.
    Paragraph (a)(10) of Sec.  98.15 requires Lead Agencies to provide 
an assurance that funds received to carry out this subchapter will not 
be used to develop or implement an assessment for children that will be 
the primary or sole basis for deeming a child care provider ineligible 
to participate in a program carried out under this subchapter; will be 
used as the primary or sole basis to provide a reward or sanction for 
an individual provider; will be used as the primary or sole method for 
assessing program effectiveness; or will be used to deny children 
eligibility to participate in the program carried out under this 
subchapter. The Consolidated and Further Continuing Appropriations Act, 
2015, Public Law 113-235, made a correction to the CCDBG Act, adding 
that the assessments will not be the ``primary or'' sole basis for a 
child care provider being determined to be ineligible to participate in 
CCDF. The statute lays out the acceptable ways of using child 
assessments, including to support learning or improve a classroom 
environment; target professional development; determine the need for 
health, mental health, disability, developmental delay, or family 
support services; obtain information for the quality improvement 
process at the State/Territory level; or conduct a program evaluation 
for the purposes of providing program improvement and parent 
information. We received one comment on this section, which was 
supportive.
    Finally, Sec.  98.15(a)(11) requires, to the extent practicable and 
appropriate, an assurance that any code or software for child care 
information systems or information technology that a Lead Agency, or 
other agency, expends CCDF funds to develop must be made available to 
other public agencies for their use in administering child care or 
related programs upon request. This provision is intended to prevent 
CCDF funds from being spent multiple times on the same, or similar, 
technology in order to provide accountability for public dollars.
    Section 98.15(b) requires Lead Agencies to include certifications 
in its CCDF Plan. We are adding new requirements, as proposed in the 
NPRM, to reflect the following new statutory requirements:
     To develop the CCDF plan in consultation with the State 
Advisory Council on Early Childhood Education and Care (or similar 
coordinating body);
     to collect and disseminate to parents of eligible 
children, the general public, and, where applicable, child care 
providers, consumer education information that will promote informed 
child care choices and information on developmental screenings, as 
required by Sec.  98.33;
     to make public the result of monitoring and inspections 
reports, as well as the number of deaths, serious injuries, and 
instances of substantiated child abuse that occurred in child care 
settings as required by Sec.  98.33(a);
     to require caregivers, teachers, and directors of child 
care providers to comply with the State's, Territory's or Tribe's 
procedures for reporting child abuse and neglect as required by section 
106(b)(2)(B)(i) of the Child Abuse Prevention and Treatment Act (42 
U.S.C. 5106a(b)(2)(B)(i)), if applicable, or other child abuse 
reporting procedures and laws in the service area, as required by Sec.  
98.41(e);
     to have in effect monitoring policies and practices 
pursuant to Sec.  98.42; and
     to ensure payment practices of child care providers 
receiving CCDF funds reflect generally-accepted payment practices of 
child care providers that serve children who do not receive CCDF 
assistance, pursuant to Sec.  98.45(l).
    These requirements are discussed later in this final rule. The 
final rule also removes ``or area served by Tribal Lead Agency'' from 
Sec.  98.15(b)(6), as re-designated, because the rule includes distinct 
requirements for Tribes to enforce health and safety standards for 
child care providers. Section 98.15(b)(12), as re-designated, updates 
the reference to Sec.  98.43, which is now Sec.  98.45. All other 
paragraphs in this section remain unchanged.
    The final rule adds a new paragraph (b)(13) requiring Lead Agencies 
to certify in the CCDF Plan that they have in place policies to govern 
the use and disclosure of confidential and personally-identifiable 
information about children and families receiving CCDF-funded 
assistance and child care providers receiving CCDF funds. Previously, 
there were no Federal requirements in statute or regulation governing 
confidentiality in CCDF, although there are Federal requirements 
governing information that the CCDF agency may have in its files, such 
as child abuse and neglect information. The Federal Privacy Act is the 
primary source of Federal requirements related to client 
confidentiality (5 U.S.C. 552a note); however, the Privacy Act 
generally applies to Federal agencies, and is not applicable to State 
and local government agencies, with some exceptions, such as computer 
matching issues and requirements related to the disclosure and 
protection of Social Security numbers. (ACF has previously issued 
guidance: Clarifying policy regarding limits on the use of Social 
Security Numbers under the CCDF and the Privacy Act of 1974, Program 
Instruction: ACYF-PI-CC-00-04, 2000, which remains in effect as of the 
effective date of this rule.)
    This final rule requires that Lead Agencies have policies in place 
to govern the use and disclosure of confidential and personally 
identifiable information (PII) about children and families receiving 
CCDF-funded assistance and child care providers, which should include 
their staff, receiving CCDF funds. We offer Lead Agencies discretion to 
determine the specifics of such privacy policies because we recognize 
many Lead Agencies already have policies in place, and it is not our 
intention to make them revise such policies, provided the State's 
policy complies with existing Federal confidentiality requirements. 
Further, many Lead Agencies are working on data sharing across Federal 
and State programs and it is not our intention to make these efforts 
more challenging by introducing a new set of confidentiality 
requirements. This regulatory addition is not intended to preclude the 
sharing of individual, case-level data among Federal and State programs 
that can improve the delivery of services. The ACF Confidentiality 
Toolkit may be a useful resource for States in addressing privacy and 
security in the context of information sharing (https://www.acf.hhs.gov/sites/default/files/assets/acf_confidentiality_toolkit_final_08_12_2014.pdf).
    It is important that personal information not be used for purposes 
outside of the administration or enforcement of CCDF, or other Federal, 
State or local programs, and that when information is shared with 
outside entities (such as academic institutions for the purpose of 
research) there are safeguards in place to ensure for the non-
disclosure of Personally-Identifiable Information, which is information 
that can be used to link to, or identify, a specific individual. It is 
at the Lead Agency's discretion whether

[[Page 67453]]

they choose to comply with this provision by writing and implementing 
CCDF-specific confidentiality rules or by ensuring that CCDF data is 
subject to existing Federal or State confidentiality rules. Further, 
nothing in this provision should preclude a Lead Agency from making 
publicly available provider-specific information on the level of 
quality of a provider or the results of monitoring or inspections as 
described in Sec.  98.33.
    Comment: We received comments from private and faith-based 
providers on Sec.  98.15(a)(9) requesting language to name certain 
pedagogical approaches and other distinctive approaches to teaching in 
multiple sections, including Lead Agency certification and assurances 
regarding the State's early learning guidelines.
    Response: We decline to add this language because the request 
speaks to teaching practices rather than content of what children 
should learn and be able to do. Further, the Act prohibits the 
Secretary from requiring any specific curricula, teaching philosophy, 
or pedagogical approach. We encourage Lead Agencies to coordinate on 
the Plan development and its implementation with the full range of 
providers, including those who use distinctive curricula or teaching 
practices that are grounded in research of child development and 
learning.
    Comment: Two States and a local government raised concerns that the 
provision in Sec.  98.15(a)(11)--making available code or software for 
child care information systems or technology developed with CCDF funds 
be made available upon request by other agencies--could negatively 
affect their ability to procure vendors for information systems. The 
commenters suggested that the provision raised the risk of violating 
licensing agreements and intellectual property law and asked for 
clarification whether this provision applies to technology partially 
funded by CCDF. One comment asked for clarifying statements whether the 
regulation applies to systems partially funded by CCDF; whether the 
systems must be shared inter-state or intra-state; and that the child, 
program, and contractor data itself would be protected under applicable 
State and federal laws.
    Response: We have modified the language in this provision to 
provide that the assurance for sharing upon request will be made ``to 
the extent practicable and appropriate.'' We also added language to 
clarify that the CCDF-funded code and software should be shared upon 
request with other public agencies, ``including public agencies in 
other States''. We considered the regulation for the Medicaid Program's 
Mechanized Claims Processing and information Retrieval Systems (90/10) 
(www.federalregister.gov/articles/2015/12/04/2015-30591/medicai-program-mechanized-claims-processing-and-information-retrieval-systems-90100 and the Office of Child Support Enforcement's Information 
Memoranda: Use of Enterprise Software in Automated Human Services 
Information Systems-Use of Enterprise Level Commercial-Off-the-Shelf 
(COTS) Software in Automated Human Services Information Systems 
(www.acf.hhs.gov/programs/css/resource/use-of-enterprise-software-in-automated-human-services-information).
    As a general practice, the reuse and availability of IT code and 
software allows States to leverage software development funding more 
effectively. Subsidy child care data systems are being developed using 
CCDF funding. Thus, this provision applies to code and software 
developed fully or partially with CCDF funds. As to sharing with other 
public agencies within the State and across State borders, we expect 
the widest reuse of IT artifacts as possible. Lastly, data would be 
protected under applicable federal and State laws. The majority of 
information system definitions typically include several layers, such 
as users, business rules, hardware, software, and data. There is 
specific mention of code and software in the provision, which does not 
include data.
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 that are required 
to be included in the CCDF Plan are outlined in Sec.  98.16. Many of 
the additions to this section correspond to changes throughout the 
regulations, which we provide explanation and responses to comment for 
later in this rule. For provisions that do not cross-reference other 
sections of the rule, we respond to comments here. Paragraph (a) of 
Sec.  98.16 continues to require that the Plan specify the Lead Agency.
    General comments. We received supportive comments from national and 
State organizations on the following subsections: Emergency and 
disaster planning (aa); outreach to English language learner children 
and children with disabilities and providers who are English language 
learners (dd); supporting providers in successful family engagement 
(gg); and responding to complaints to the national hotline (hh).
    Comment: We received comments from a child care worker organization 
requesting the addition of ``higher compensation'' as a strategy in 
several subsections of Sec.  98.16.
    Response: The final rule includes compensation improvements in the 
goals and purposes section and in the professional development and 
training sections. We agree that in raising standards, Lead Agencies 
should consider multiple strategies for raising compensation 
commensurate with caregivers, teachers, and directors attaining higher 
level credentials and education to retain highly knowledgeable and 
skilled educators and leaders. We also encourage Lead Agencies to 
consider strategies throughout the Plan that can bolster compensation, 
such as setting reimbursement rates, building the supply of quality 
child care, and using the quality set-aside dollars specifically to 
improve compensation in a field that remains undercompensated even when 
earning higher education and credentials comparable to their 
counterparts in the public education system.
    Written agreements. A new Sec.  98.16(b), which was proposed in the 
NPRM, corresponds with changes at Sec.  98.11(a)(3) discussed earlier, 
related to administration of the program through written agreements 
with other entities. In the CCDF Plan, the change requires the Lead 
Agency to include a description of processes it will use to monitor 
administrative and implementation responsibilities undertaken by 
agencies other than the Lead Agency including descriptions of written 
agreements, monitoring, and auditing procedures, and indicators or 
measures to assess performance. This is consistent with the desire to 
strengthen program integrity within the context of current Lead Agency 
practices that devolve significant authority for administering the 
program to sub-recipients. Prior paragraphs (b) through (f) are re-
designated as paragraphs (c) through (g). All paragraphs remain 
unchanged with the exception of paragraph (e), as re-designated, which 
has been revised by adding ``and the provision of services'' to clarify 
that the Plan's description of coordination and consultation processes 
should address the provision of services in addition to the development 
of the Plan. We address comments in discussion of Sec.  98.11.
    Continuity of care. A new Sec.  98.16(h) corresponds with statutory 
changes in subpart C discussed later to describe

[[Page 67454]]

and demonstrate that eligibility determination and redetermination 
processes promote continuity of care for children and stability for 
families receiving CCDF services, including a minimum 12-month 
eligibility redetermination period in accordance with Sec.  98.21(a); 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); 
processes that take into account irregular fluctuation in earnings, 
pursuant to Sec.  98.21(c); procedures and policies to ensure that 
parents are not required to unduly disrupt their employment, training, 
or education to complete eligibility redetermination, pursuant to Sec.  
98.21(d); limiting any requirements to report changes in circumstances 
in accordance with Sec.  98.21(e); policies that take into account 
children's development and learning when authorizing child care 
services pursuant to Sec.  98.21(f); and other policies and practices 
such as timely eligibility determination and processing of 
applications. Comments on this topic are discussed later.
    Child care services. Section 98.16(i)(2), as re-designated, is 
amended to reference Sec.  98.30(e)(1)(iii). Section 98.16(i)(5), as 
re-designated, is amended to require that all eligibility criteria and 
priority rules, including those at Sec.  98.46, are described in the 
CCDF Plan. The remaining subparagraphs remain unchanged.
    Consumer education. Section 98.16(j), as re-designated, 
incorporates statutory changes to provide comprehensive consumer and 
provider education, including the posting of monitoring and inspection 
reports, pursuant to Sec.  98.33, changes which are discussed later in 
this rule.
    Co-payments. Section 98.16(k), as re-designated, requires Lead 
Agencies to include a description of how co-payments are affordable for 
families, pursuant to Sec.  98.45(k), including a description of any 
criteria established by the Lead Agency for waiving contributions for 
families. This change is discussed in more detail later in the rule.
    Health and safety standards and monitoring. The final rule adds a 
provision at Sec.  98.16(l), as re-designated, requiring Lead Agencies 
to provide a description of any exemptions to health and safety 
requirements for relative providers made in accordance with Sec.  
98.41(a)(2), which is discussed later in this rule. We received no 
comments and have retained this language as proposed in the NPRM.
    The final rule adds three new paragraphs, (m) through (o), as 
proposed in the NPRM, requiring Lead Agencies to describe the child 
care standards for child care providers receiving CCDF funds, that 
includes group size limits, child-staff ratios, and required 
qualifications for caregivers, teachers, and directors, in accordance 
with Sec.  98.41(d); monitoring and other enforcement procedures to 
ensure that child care providers comply with applicable health and 
safety requirements pursuant to Sec.  98.42; and criminal background 
check requirements, policies, and procedures, including the process in 
place to respond to other States', Territories', and Tribes' requests 
for background check results in order to accommodate the 45-day 
timeframe, in accordance with Sec.  98.43.
    Comment: We received one comment on 98.16(m) that the States should 
not be required to provide in their Plan the group size, child-staff 
ratios and required qualifications.
    Response: Although the Act does not allow the Secretary to 
establish standards for group size, child-staff ratios, and required 
qualifications, there is nothing that prohibits the Secretary from 
requesting this information in the Plan. This final rule does not 
establish group size, ratios, or qualifications. However, this is 
helpful information in understanding the conditions of care children 
are experiencing and the child care workforce.
    Training and Professional Development. The final rule adds Sec.  
98.16(p) requiring Lead Agencies to describe training and professional 
development requirements for caregivers, teachers, and directors of 
child care providers who receive CCDF funds in accordance with Sec.  
98.44. We received no comments and have retained the proposed language. 
Paragraph (q), as re-designated, remains unchanged.
    Payment rates. The final rule revises Sec.  98.16(r), as re-
designated, to include the option of using an alternative methodology 
to set provider payment rates. This provision is described later in 
this final rule. It also deletes the word ``biennial'' as the 
reauthorized Act requires the market rate survey to be conducted every 
three years.
    The final rule revises paragraph (s), as re-designated, to include 
a detailed description of the State's hotline for complaints and 
process for substantiating and responding to complaints, including 
whether or not the State uses monitoring as part of its process for 
responding to complaints for both CCDF and non-CCDF providers. This 
provision is described later in the rule at Sec.  98.32. Paragraph (t), 
as re-designated (previously paragraph (n)), remains unchanged.
    The final rule revises Sec.  98.16(u), as re-designated (previously 
paragraph (o)), to include in the description of the licensing 
requirements, any exemption to licensing requirements that is 
applicable to child care providers receiving CCDF funds; a 
demonstration of why this exemption does not endanger the health, 
safety, or development of children; and a description of how the 
licensing requirements are effectively enforced, pursuant to Sec.  
98.42. We received no comments on this section.
    Building supply and quality. The final rule adds a new Sec.  
98.16(x) based on statutory language at Section 658E(c)(2)(M) of the 
Act, which requires the Lead Agency to describe strategies to increase 
the supply and improve the quality of child care services for children 
in underserved areas, infants and toddlers, children with disabilities, 
and children who receive care during nontraditional hours. As described 
in the Act, strategies may include alternative payment rates to child 
care providers, the provision of direct contracts or grants to 
community-based organizations, offering child care certificates to 
parents, or other means determined by the Lead Agency. For grants or 
contracts to be effective at increasing the supply of high-quality 
care, they should be funded at levels that are sufficient to meet any 
higher quality standards associated with that care. Along with 
increased rates and contracts, we encourage Lead Agencies to consider 
other strategies, including training and technical assistance to child 
care providers to increase quality for these types of care. We 
recommend States, Territories, and Tribes consider the recommendations 
of different strategies in the Information Memorandum from the 
Administration for Children and Families, Building the Supply of High-
Quality Child Care (November 6, 2015).
    The final rule at Sec.  98.16(x) adds that the Plan must: Identify 
shortages in the supply of high-quality child care providers; list the 
data sources used to identify supply shortages; and describe the method 
of tracking progress to support equal access and parental choice. In 
the NPRM, a similar requirement to identify supply shortages was 
included in the section on grants and contracts (which has been deleted 
in the final rule). We have moved this requirement to Sec.  98.16(x) 
since identification of supply gaps of high-quality care is a critical 
step of building

[[Page 67455]]

supply and quality for certain populations, as required by the Act. To 
identify supply shortages, the Lead Agency may analyze available data 
from market rate surveys, alternative methodologies (if applicable), 
child care resource and referral agencies, facilities studies and other 
community needs assessments, Head Start needs assessments, and other 
sources. ACF recommends that the Lead Agency examine all localities in 
its jurisdiction, recognizing that each local child care market has 
unique characteristics--for example, many rural areas face supply 
shortages. Further, we recommend that the Lead Agency's analysis 
consider all categories of care, recognizing that a community with an 
adequate supply of one category of care (e.g., centers) may face 
shortages for another category (e.g., family child care).
    Comment: We received a comment from a child care worker 
organization asking us to include compensation improvements as an 
example of a supply building strategy.
    Response: We urge Lead Agencies, as they consider setting the rate 
for certificates and grants or contracts, to examine compensation as a 
factor in quality and in recruiting and retaining knowledgeable and 
skilled staff to work in child care, particularly in hard-to-serve 
communities.
    Comment: One national organization urged us to include supply 
building strategies that reflect the linguistic and cultural 
characteristics of the families and children.
    Response: High-quality child care respects and supports linguistic 
and cultural diversity of children and their families. As well, the 
building of supply in underserved areas, to serve more infants and 
toddlers, and to respond to the needs of families who need child care 
during non-traditional hours will include communities and children who 
are English language learners. Section 98.16(dd) addresses outreach to 
English language learner families and facilitates participation of 
providers who are English language learners in the subsidy system. The 
final rule also recognizes the importance of home culture and language 
in other provisions.
    Comment: We received a comment from a multi-state private provider 
company asking us to modify the language that the strategies to 
increase supply should be directed to supplying high-quality child 
care.
    Response: We think that the Act and this final rule will raise the 
quality of child care, especially for CCDF-funded children. The 
statutory language focuses on improving the supply and quality of care. 
Taken together, this means Lead Agencies should focus on building the 
supply of high-quality care.
    Significant concentrations of poverty and unemployment. A new Sec.  
98.16(y), as proposed in the NPRM, requires Lead Agencies to describe 
how they prioritize increasing access to high-quality child care and 
development services for children of families in areas that have 
significant concentrations of poverty and unemployment and that do not 
have sufficient numbers of such programs, pursuant to Sec.  98.46(b). 
This provision is discussed later in this rule.
    Comment: We received a comment from a national organization in 
support of this provision and a recommendation that the Plan describe 
how the Lead Agency will develop programs and services that are 
culturally and linguistically relevant and support a diverse child care 
workforce.
    Response: We decline to add language to Sec.  98.16(y) but we do 
address issues of cultural and linguistically responsive child care 
services as well as the diversity of the child care workforce in other 
sections of this final rule.
    Business practices. This final rule adds a new Sec.  98.16(z) 
reiterating the statutory requirement for Lead Agencies to describe how 
they develop and implement strategies to strengthen the business 
practices of child care providers to expand the supply, and improve the 
quality of, child care services. Some child care providers need support 
on business and management practices in order to run their child care 
businesses more effectively and devote more time and attention to 
quality improvements. Improved business practices can benefit 
caregivers and children. An example of a key business practice is 
providing paid sick leave for caregivers to keep children healthy. 
Without paid time off, caregivers may come to work sick and risk 
spreading illnesses to children in care. We also encourage child care 
providers to provide paid sick leave because it promotes better health 
for child care employees, which is important to maintaining a stable 
workforce as well as consistency of care for children. According to The 
Council of Economic Advisors, ``[Pa]id sick leave also induces a 
healthier work environment by encouraging workers to stay home when 
they are sick.'' (The Economics of Paid and Unpaid Leave, The Council 
of Economic Advisors, June 2014.)
    Shared services is another business practice strategy, particularly 
for a network of family child care providers or small centers. The hub 
of the network or alliance provides business services such as billing 
and accounting, facility management, human resources management, and 
purchasing. It may also involve shared professional development and 
coaching and other pedagogical leadership. This business strategy can 
help providers leverage their limited resources more effectively and 
efficiently. We received no comments on this provision and have 
retained the language as proposed in the NPRM.
    Emergency preparedness. The final rule adds a new Sec.  98.16(aa) 
to the regulation, as proposed in the NPRM, based on Section 
658E(c)(2)(U) of the Act, to require the Lead Agency to demonstrate how 
the Lead Agency will address the needs of children, including the need 
for safe child care, before, during and after a state of emergency 
declared by the Governor or a major disaster or emergency (as defined 
by section 102 of the Robert T. Stafford Disaster Relief and Emergency 
Assistance Act, 42 U.S.C. 5122) through a Statewide Child Care Disaster 
Plan (or Disaster Plan for a Tribe's service area). The Disaster Plan 
must be developed in collaboration with the State/Territory human 
services agency, the State/Territory emergency management agency, the 
State/Territory licensing agency, local and State/Territory child care 
resource and referral agencies, and the State/Territory Advisory 
Council on Early Childhood Education and Care, or similar coordinating 
body. Tribes must have similar Disaster Plans, for their Tribal service 
area, developed in consultation with relevant agencies and partners. 
The Disaster Plan must include guidelines for continuation of child 
care subsidies and child care services, which may include the provision 
of emergency and temporary child care services and temporary operating 
standards for child care during and after a disaster; coordination of 
post-disaster recovery of child care services; and requirements that 
providers receiving CCDF funds and other child care providers, as 
determined appropriate by the Lead Agency, have in place procedures for 
evacuation, relocation, shelter-in-place, lock-down, communication and 
reunification with families, continuity of operations, accommodations 
of infants and toddlers, children with disabilities, and children with 
chronic medical conditions; and procedures for staff and volunteer 
emergency preparedness training and practice drills, including training 
requirements for caregivers of providers receiving CCDF.
    This provision largely reflects statutory language of Section 
658E(c)(2)(U) of the Act, but we have

[[Page 67456]]

clarified that the Plan must apply, at a minimum, to CCDF providers and 
may apply to other providers (such as all licensed providers) at the 
Lead Agency option. We also added language on post-disaster recovery.
    In past disasters, the provision of emergency child care services 
and rebuilding and restoring of child care facilities and 
infrastructure emerged as an essential service. The importance of the 
need to improve emergency preparedness and response in child care was 
highlighted in an October 2010 report released by the National 
Commission on Children and Disasters. The Commission's report included 
two primary sets of recommendations for child care: (1) To improve 
disaster preparedness capabilities for child care; and (2) to improve 
capacity to provide child care services in the immediate aftermath and 
recovery from a disaster (2010 Report to the President and Congress, 
National Commission on Children and Disasters, p. 81, October 2010). 
Child care has also been recognized by the Federal Emergency Management 
Agency (FEMA) as an essential service and an important part of disaster 
response and recovery. (FEMA Disaster Assistance Fact Sheet 9580.107, 
Public Assistance for Child Care Services Fact Sheet, 2013).
    Maintaining the safety of children in child care programs during 
and after disaster or emergency situations necessitates planning in 
advance by State/Territory agencies and child care providers. The 
reauthorization of the CCDBG Act, and this final rule, implement the 
key recommendation of the National Commission on Children and Disasters 
by requiring a child care-specific Statewide Disaster Plan. ACF has 
previously issued guidance (CCDF-ACF-IM-2011-01) recommending that 
Disaster Plans include five key components: (1) Planning for 
continuation of services to CCDF families; (2) coordinating with 
emergency management agencies and key partners; (3) regulatory 
requirements and technical assistance for child care providers; (4) 
provision of temporary child care services after a disaster, and (5) 
rebuilding child care after a disaster. The guidance recommends that 
disaster plans for child care incorporate capabilities for shelter-in-
place, evacuation and relocation, communication and reunification with 
families, staff training, continuity of operations, accommodation of 
children with disabilities and chronic health needs, and practice 
drills. ACF intends to provide updated guidance and technical 
assistance to States, Territories, and Tribes as they move forward with 
implementing Disaster Plans as required by the reauthorization. We 
received no comments on this provision and have retained the language 
as proposed in the NPRM.
    Payment practices. The final rule adds new Sec.  98.16(bb), 
requiring Lead Agencies to describe payment practices applicable to 
child care providers receiving CCDF, pursuant to Sec.  98.45(l), 
including practices to ensure timely payment for services, to delink 
provider payments from children's occasional absences to the extent 
practicable, and to reflect generally-accepted payment practices. This 
is discussed later in this rule. We received no comments on this 
provision but have made a conforming citation when referencing section 
98.45(l). The rest of the language is retained as proposed in the NPRM.
    Program integrity. The final rule adds new Sec.  98.16(cc), 
requiring Lead Agencies to describe processes in place to describe 
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. 
This change corresponds to a new program integrity section included in 
subpart G of the regulations, which is discussed later in this rule.
    Outreach and services for families and providers with limited 
English proficiency and persons with disabilities. The final rule adds 
new Sec.  98.16(dd) to require that the Lead Agency describe how it 
provides outreach and services to eligible families with limited 
English proficiency and persons with disabilities, and facilitate 
participation of child care providers with limited English proficiency 
and disabilities in CCDF. Currently, the Plan requires Lead Agencies to 
describe how they provide outreach and services to eligible limited 
English proficient families and providers. In the FY 2016-2018 CCDF 
Plans, States and Territories reported a number of strategies to 
overcome language barriers. Forty-nine States and Territories have 
bilingual caseworkers or translators, 45 have applications in multiple 
languages, and 19 offer provider contracts or agreements in multiple 
languages. The final rule requires Lead Agencies to develop policies 
and procedures to clearly communicate program information such as 
requirements, consumer education information, and eligibility 
information, to families and child care providers of all backgrounds.
    Comment: One comment requested language in the Plan to require a 
description of how Lead Agencies will develop child care services and 
programs that are culturally and linguistically relevant to the 
children and families that they serve, and how it will implement 
recruitment and workforce development strategies that will seek to 
increase the number of child care providers who are representative of 
the communities in which they serve.
    Response: This concern is addressed in Sec.  98.16(dd). We strongly 
agree that Lead Agencies should support children and families whose 
native language is not English, and providers who may be English 
language learners. The Migration Policy Institute's recent study shows 
that a large segment of the child care workforce, like the children and 
families they serve, are English language learners and come from a 
range of cultures. There is a strong body of research on the importance 
of child care providers respecting and supporting children's home 
language and culture in order to promote learning achievement.
    Suspension and expulsion policies. The final rule adds a new Sec.  
98.16(ee) to require that the Lead Agency describe its policies to 
prevent suspension, expulsion, and denial of services due to behavior 
of children from birth to age five in child care and other early 
childhood programs receiving CCDF funds, which must be disseminated as 
part of consumer and provider education efforts in accordance with 
Sec.  98.33(b)(1)(v).
    Comment: We received several comments from national organizations 
supporting the attention to reducing or eliminating the high rates of 
suspension and expulsion of young children. We received a comment from 
one State expressing concern that it will be difficult to enforce such 
policies. National organizations representing children with 
disabilities urged language prohibiting the use of suspension and 
expulsion. They raise concerns that such practices have excluded 
children with disabilities.
    Response: We added in the rule that the Lead Agency must describe 
policies to prevent suspension and expulsion. Recent data demonstrates 
a high rate of suspensions and expulsions of children as young as 
preschool, practices that are associated with negative educational and 
life outcomes. The data also demonstrates a greater prevalence of 
suspension and expulsion of children of color and boys. These 
disturbing trends warrant immediate attention from the early childhood 
and education fields to prevent expulsion and suspension while

[[Page 67457]]

ensuring the safety and well-being of young children (themselves and 
others) in early learning settings. Furthermore, if administered in a 
discriminatory manner, suspensions and expulsions of children may 
violate Federal civil rights laws. In addition, early childhood 
programs must comply with applicable legal requirements governing the 
discipline of a child for misconduct caused by, or related to, a 
child's disability, including, as applicable, implementing reasonable 
modifications to policies, practices, or procedures to ensure that 
children with disabilities are not suspended or expelled because of 
their disability-related behaviors unless a program can demonstrate 
that making such modifications would result in a fundamental alteration 
in the nature of a service, program, or activity.
    The Child Care and Development Block Grant (CCDBG) Act of 2014 also 
allows States to target CCDF quality enhancement funds to professional 
development that includes effective behavior management strategies and 
training on strategies to promote social-emotional development. These 
kinds of supports, both through formal coursework, and field-based, 
ongoing support in the form of coaching, mentoring, or mental health 
consultation, have been demonstrated to reduce the challenging behavior 
in children that is associated with expulsions.
    We strongly encourage States and child care providers (including 
school age providers) to utilize the guidance, policy statements, and 
resources made available by federal agencies. For school-age children, 
the following resources are available:

 Supporting and responding to behavior: Evidence-based 
classroom strategies for teachers: https://www.osepideasthatwork.org/evidencebasedclassroomstrategies/
 Positive Behavioral Interventions & Supports (PBIS) National 
Technical Assistance Center:
 Rethinking Discipline 101: Why it matters (webinar): https://www.youtube.com/watch?v=Qg-qkilRw18&feature=youtu.be

    With regard to young children, we urge States and child care 
providers to consider the recommendations in the Policy Statement on 
Expulsion and Suspension Policies in Early Childhood Settings issued by 
the Secretaries of Health and Human Services and Education at https://www2.ed.gov/policy/gen/guid/school-discipline/policy-statement-ece-expulsions-suspensions.pdf.
    Reports of serious injuries or death in child care. The final rule 
adds a new Sec.  98.16(ff) to require the Lead Agency to designate a 
State, Territorial, or Tribal entity to which child care providers must 
submit reports of any serious injuries or deaths of children occurring 
in child care, regardless of whether or not they receive CCDF 
assistance. Comments are discussed later under the related requirement 
at Sec.  98.42(b)(4).
    Family engagement. The final rule adds new Sec.  98.16(gg) to 
require the Lead Agency to describe how it supports child care 
providers in the successful engagement of families in children's 
learning and development. We received no comments on this provision and 
have left the language unchanged in the final rule.
    Complaints received through the national hotline and Web site. The 
final rule adds new Sec.  98.16(hh) to require the Lead Agency to 
describe how it will respond to complaints received through the 
national hotline and Web site, as required by (Section 658L(b)(2)) of 
the reauthorized Act. The description must include the designee 
responsible for receiving and responding to those complaints for both 
licensed and license-exempt child care providers. Complaints received 
through the national hotline and Web site will be sent to the 
appropriate Lead Agency to make sure that they are responded to 
quickly, especially when a child's health or safety is at risk. This 
provision is aimed at building those connections and ensuring that a 
process is in place for addressing complaints regarding both licensed 
and license-exempt child care providers. We received no comments and 
have left language unchanged in final rule.
    Finally, the final rule re-designates paragraph (v) as paragraph 
(ii) with no other changes. We received no comments on this provision 
and have retained the language as proposed in the NPRM.
Sec.  98.17 Period Covered by Plan
    This section describes the term of the Plan, which is now three 
years. We received no comments on this section.
Sec.  98.18 Approval and Disapproval of Plans and Plan Amendments
    This section of the regulations describes processes and timelines 
for CCDF Plan approvals and disapprovals, as well as submission of Plan 
amendments. CCDF Plans are submitted triennially and prospectively 
describe how the Lead Agency will implement the program. To make a 
substantive change to a CCDF program after the Plan has been approved, 
a Lead Agency must submit a Plan amendment to ACF for approval. The 
purpose of Plan amendments is to ensure that grantee expenditures 
continue to be made in accordance with the statutory and regulatory 
requirements of CCDF, if the grantee makes changes to the program 
during the three- year Plan period.
    Advance written notice. In conjunction with the change discussed at 
Sec.  98.14(d) to make the Plan and any Plan amendments publicly 
available, the final rule adds a provision at Sec.  98.18(b)(2) to 
require Lead Agencies to provide advance written notice to affected 
parties, specifically parents and child care providers, of changes in 
the program made through an amendment that adversely affect income 
eligibility, payment rates, and/or sliding fee scales so as to reduce 
or terminate benefits. The notice should describe the action to be 
taken (including the amount of any benefit reduction), the reason for 
the reduction or termination, and the effective date of the action.
    Comment: Two States expressed concerns that the provisions on 
advance written notice would be administrative burdens. One State asked 
that its requirements for posting for administrative rule changes meet 
this requirement. The State also asked for clarification whether the 
advance written notice is separately required for any Plan amendment. 
By contrast, child care worker organizations submitted comments in 
support of this provision and requested additional requirements. They 
asked us to go further and require a public review and comment process 
for Plan amendments prior to Lead Agency submission to the federal 
government. They note that States prepared their three-year CCDF plans 
prior to the release of the final regulations, and thus there is a 
likelihood that many Plans will have to be modified in significant ways 
to fully meet the rule.
    Response: The Lead Agency may choose to issue notification of 
adverse programmatic changes in a variety of ways, including a mailed 
letter or email sent to all participating child care providers and 
families. We are providing Lead Agencies with the flexibility to 
determine an appropriate time period for advance notice, depending on 
the type of policy change being implemented or the effective date of 
that policy change. Advance notice adds transparency to the Plan 
amendment process and provides a mechanism to ensure that affected 
parties remain informed of any substantial changes to the Lead Agency's 
CCDF Plan that may affect their ability to participate in the child

[[Page 67458]]

care program. We note that while we encourage Lead Agencies to provide 
written notice of any changes that affect income eligibility, payment 
rates, and/or sliding fee scales, we only require written notice of 
those that adversely impact parents or providers. We do not require the 
Lead Agency to hold a formal public hearing or solicit comments on each 
Plan amendment, as is required by regulations at Sec.  98.14(c) for the 
submission of the CCDF Plan. However, we encourage solicitation of 
public input whenever possible and consider this regulatory change to 
be consistent with the spirit and intent of the CCDF Plan public 
hearing provision. We encourage Lead Agencies to ensure that advanced 
written notice is provided in multiple languages, as appropriate, so 
that all parents and child care providers have access and can plan for 
changes. As noted above, the final rule adds a provision at Sec.  
98.16(dd) to require Lead Agencies to include in the Plan a description 
of processes to provide outreach and services to CCDF families and 
providers with limited English proficiency.
    Comment: A comment submitted by a group of providers asked for a 
required time limit on when advance notice is provided to them. A 
large, multi-state child care provider requested at least 30 days 
advance written notice to parties.
    Response: We decline to require a specific time period for the Lead 
Agency to provide written notice. We do urge Lead Agencies to provide 
this information as soon as possible because of the consequences to 
families and providers.
Sec.  98.19 Requests for Temporary Relief From Requirements
    Section 658I(c) of the Act indicates that Lead Agencies are allowed 
to submit a request to the Secretary to waive one or more requirements 
contained in the Act on a temporary basis: To ensure that effective 
delivery of services are not interrupted by conflicting or duplicative 
requirements; to allow for a period of time for a State legislature to 
enact legislation to implement the provisions of the Act or this part; 
or in response to extraordinary circumstances, such as a natural 
disaster or financial crisis. We are extending the waiver option to 
rules under this part as well. Prior to the enactment of the CCDBG Act 
of 2014, there was no waiver authority within the CCDF program.
    Through the changes in this final rule, we provide guidance and 
clarity on: The eligibility of States, Territories, and Tribes to 
request a waiver; what provisions are not eligible for waivers; and how 
the waiver request and approval (or disapproval) process works. In 
addition to outlining the requirements detailed in the CCDBG Act of 
2014, Sec.  98.19 includes clarifying provisions to provide greater 
understanding of the intent and implementation of the waiver process as 
temporary.
    This section of the rule details the process by which the Secretary 
may temporarily waive one or more of the requirements contained in the 
Act or this part, with the exception of State Match and Maintenance of 
Effort requirements, consistent with the requirements described in 
section 658I(c)(1) of the Act. In order for a waiver application to be 
considered, the waiver request must: Describe circumstances that 
prevent the State, Territory, or Tribe from complying with any 
statutory or regulatory requirements of this part; demonstrate that the 
waiver, by itself, contributes to or enhances the State's, Territory's, 
or Tribe's ability to carry out the purposes of this part; show that 
the waiver will not contribute to inconsistency with the objectives of 
the Act; and meet the additional requirements in this section as 
described.
    The final rule delineates the types of waivers that States, 
Territories, and Tribes can request into two distinct types: (1) 
Transitional and legislative waivers and (2) waivers for extraordinary 
circumstances. States, Territories, and Tribes may apply for temporary 
transitional and legislative waivers meeting the requirements described 
in this section that provide temporary relief from conflicting or 
duplicative requirements preventing implementation, or for a temporary 
extension in order for a State, Territorial, or Tribal legislature to 
enact legislation to implement the provisions of this subchapter.
    Transitional and legislative waivers 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 are limited to a one-year initial period and at most, an additional 
one-time, one-year renewal from the date of approval of the extension 
(which may be appropriate for a State with a two-year legislative 
cycle, for example).
    Waivers for extraordinary circumstances address temporary 
circumstances or situations, such as a natural disaster or financial 
crisis. Extraordinary circumstance waivers are limited to an initial 
period of no more than two years from the date of approval, and at 
most, an additional one-year renewal from the date of approval of the 
extension.
    Both types of waivers are probationary, subject to the decision of 
the Secretary to terminate a waiver at any time if the Secretary 
determines, after notice and opportunity for a hearing, that the 
performance of a State, Territory, or Tribe granted relief under this 
subsection has been inadequate, or if such relief is no longer 
necessary to achieve its original purposes. In the final rule, we added 
language to specify that such a hearing would be based on the rules of 
procedure in 45 CFR part 99--which contains existing hearing procedures 
governing CCDF that logically extend to the waiver process.
    In order to request a waiver, the Lead Agency must submit a written 
request, indicating which type of waiver the State, Territory, or Tribe 
is requesting and why. The request must also provide detail on the 
provision(s) from which the State, Territory, or Tribe is seeking 
temporary relief and how relief from that sanction or provision, by 
itself, will improve delivery of child care services for children and 
families. If a transitional waiver, the Lead Agency should describe the 
steps being taken to address the barrier to implementation (i.e., a 
timeline for legislative action). Furthermore, the Act emphasizes the 
importance of children's health and safety. Importantly, in the written 
request, the State, Territory, or Tribe must certify and demonstrate 
that the health, safety, and well-being of children served through 
assistance received under this part will not be compromised as a result 
of the temporary waiver.
    Within 90 days of submission of the request, the Secretary will 
notify the State, Territory, or Tribe of the approval or disapproval. 
If rejected, the Secretary will provide the State, Territory, or Tribe, 
the Committee on Education and the Workforce of the House of 
Representatives, and the Committee on Health, Education, Labor, and 
Pensions of the Senate of the reasons for the disapproval and give the 
State, Territory, or Tribe the opportunity to amend the request. If 
approved, the Secretary will notify and submit a report to the 
Committee on Education and the Workforce of the House of 
Representatives and the Committee on Health, Education, Labor, and 
Pensions of the Senate on the circumstances of the waiver including 
each specific sanction or provision waived, the reason as given by the 
State, Territory, or Tribe of the need for a waiver, and the expected 
impact of the waiver on children served under this program.

[[Page 67459]]

    No later than 30 days prior to the expiration date of the waiver, a 
State, Territory, or Tribe, at its option, may make a formal written 
request to re-certify the provisions described in this section, which 
must explain the necessity of additional time for relief from such 
sanction(s) or provisions. The State, Territory, or Tribe also must 
demonstrate progress toward implementation of the provision or 
provisions. The Secretary may approve or disapprove a request from a 
State, Territory, or Tribe for a one-time renewal of an existing waiver 
under this part for a period no longer than one year. The Secretary 
will adhere to the same approval or disapproval process for the renewal 
request as the initial request. Lastly, this final rule makes 
conforming technical amendments to the pre-existing procedures for a 
Lead Agency to appeal any ACF disapproval of a Plan or Plan amendment 
at Sec.  98.18 to indicate that the appeal process also applies to any 
appeal of a disapproved request for temporary relief under Sec.  98.19.
    Comment: We received comments from many national and State 
organizations and a State supporting our limitation on the types and 
number of categories of waivers. For example, a child care worker 
organization wrote, ``To prevent the States from backing out on 
investing in health, safety and quality standards, we commend the 
proposal for limiting waivers to reasons concerning transition, 
legislative action and extraordinary circumstances.'' A few States and 
a national organization had comments on the time limitation on waivers, 
with some commenters noting that the Act allows waivers for up to three 
years. A national organization asked for a three-year term for waivers 
of any type. Two States expressed concern that the two-year period for 
legislative and transitional waivers may not provide sufficient time 
for State legislatures to act, particularly legislatures in a few 
States that only convene in alternating years. Another State asked for 
a longer time frame to encompass a period for changing forms and 
processes reflecting newly adopted rules. A few States requested 
clarification on whether certain circumstances fall under the 
transitional and legislative category or extraordinary circumstances 
category.
    Response: The final rule establishes parameters to ensure that 
States can move quickly to make any necessary legislative or 
transitional changes. The vast majority of State legislatures meet 
annually; only four States have a legislature that meets every other 
year. They have the potential to be approved for a one-year waiver 
followed by the possibility of being approved for a one-year renewal. 
Providing a longer base time period for a waiver could lead to delays 
in making the necessary legislative or transition changes.
    Comment: One State commented that 90 days is too long for a 
decision by the Secretary and requested ACF to make a decision on a 
waiver application within 30 days.
    Response: The Act says that the Secretary shall inform the State of 
approval of disapproval of the request within 90 days after the receipt 
of a State's request under this subsection. This final rule maintains a 
90-day window, which is consistent with the period for reviewing Plan 
amendments for approval or rejection.
    Comment: One State asked for clarification on the start date of the 
waiver.
    Response: We refer Lead Agencies to the Office of Child Care's 
Program Instruction published December 17, 2015 (CCDF-ACF-PI-2015-09) 
which states: ``If a State or Territory is not going to be in 
compliance with one or more provisions by the deadline required in the 
Act, then the State/Territory must request a temporary extension/
waiver. Once the requirement(s) has been met, the Lead Agency must 
submit a Plan amendment to ACF for approval.'' Until such time, the 
State should make every effort to be in compliance. The start date of a 
waiver may vary depending on the circumstances. For example, a 
legislative or transitional waiver will typically start on the date 
corresponding with the federal statutory or regulatory deadline for 
compliance with the relevant requirement (i.e., the requirement for 
which the Lead Agency is receiving a temporary extension). The start 
date for a waiver for extraordinary circumstances will typically be 
related to the timing of those circumstances (e.g., natural disaster or 
financial crisis).
    Comment: One State asked if ACF would consider delaying the need 
for a Plan amendment for a minimum of six months in circumstances when 
the State is submitting a request for a waiver for extraordinary 
circumstances.
    Response: Lead Agencies need not submit the waiver request and Plan 
amendment together. Lead Agencies must submit temporary relief or 
waiver request at least 90 days before an effective date. Lead Agencies 
must submit Plan amendments within 60 days of a substantial change in 
the Lead Agency's program. We refer Lead Agencies to the Office of 
Child Care's Program Instruction published December 17, 2015 (CCDF-ACF-
PI-2015-09). We recognize that requests for extension due to 
extraordinary circumstances will require a case-by-case decision on 
when the Plan amendment(s) needs to be submitted.
    Comment: One State asked if it may submit a single application that 
combines multiple waiver requests.
    Response: We have accepted submissions that combine multiple 
waivers. Each waiver request, however, must address separately each 
factor required by the Act.
    Comment: Some States remarked on the need for extensions in order 
to make changes to the electronic systems to implement the rule. One 
State asked if this would fall into the category of an ``extraordinary 
circumstance.''
    Response: Requests for a waiver relating to electronic system 
changes should be submitted under the ``legislative or transitional'' 
category.
    Comment: One State recommended a third type of waiver when a 
State's current law may meet or exceed the intent of the regulations, 
and also in the case of experimental, pilot or demonstration projects, 
so long as children's health, safety, and well-being are not 
compromised and the waiver improves efficiency and effectiveness.
    Response: We decline to add a third category of waiver. States and 
Territories have been innovative in a number of ways with CCDF, such as 
quality rating and improvement systems and scholarships for child care 
providers to enroll in college. Waivers are not necessary for States to 
create pilot or demonstration projects so long as those projects do not 
jeopardize children's health, safety and well-being and do not 
contradict requirements in the Act and this final rule. Further, 
multiple national and State groups supported limiting the waivers to 
the two types in the rule. The final rule adds language indicating that 
these waivers are conditional, dependent on progress towards 
implementation of the final rule. We think this adds important 
clarification to the expectation that these waivers are temporary and 
that Lead Agencies are expected to make progress toward full 
implementation. Other changes to this section proposed by the NPRM have 
been adopted in the final rule.

Subpart C--Eligibility for Services

    This subpart establishes parameters for a child's eligibility for 
CCDF assistance and for Lead Agencies' eligibility and re-determination 
procedures. Congress made significant changes to CCDBG that emphasize 
stable financial assistance and continuity of care through CCDF

[[Page 67460]]

eligibility policies, including establishing minimum 12-month 
eligibility for all children. In this subpart, the final rule restates 
these changes and provides additional clarification where appropriate.
Sec.  98.20 A Child's Eligibility for Child Care Services
    A child's eligibility for child care services: This final rule 
clarifies at Sec.  98.20(a) and Sec.  98.20(b)(4) that eligibility 
criteria apply only at the time of eligibility determination or re-
determination based on statutory language at Section 658E(c)(2)(N)(i) 
of the Act, which establishes a minimum 12-month eligibility period by 
affirmatively stating that the child will be considered to meet all 
eligibility requirements for such assistance and will receive such 
assistance, for not less than 12 months before the State or local 
entity re-determines the eligibility of the child. (We discuss minimum 
12-month eligibility at greater length below in Sec.  98.21 Eligibility 
Determination Processes.) We received no comments on this provision and 
have retained the proposed language in this final rule.
    Income eligibility. This final rule revises Sec.  98.20(a)(2), 
adding a sentence to clarify that the State median income (SMI) used to 
determine the eligibility threshold level must be based on the most 
recent SMI data that is published by the U.S. Census Bureau. This 
clarification ensures the eligibility thresholds are based on the most 
current and valid data. It is important for Lead Agencies to use 
current data as, once determined eligible, children may continue to 
receive CCDF assistance until their household income exceeds 85 percent 
of SMI for a family of the same size, pursuant to Sec.  98.21(a)(1) 
discussed further below, or at Lead Agency option, the family 
experiences a non-temporary cessation of work, training, or education. 
Using the most recent SMI data also allows for consistency for cross-
State comparisons and a better understanding of income eligibility 
thresholds nationally.
    SMI data may not be available from the Census Bureau for some 
Territories, in which case an alternative source (subject to ACF 
approval through the CCDF State/Territory Plan process) may be used. 
Tribes are already allowed to use Tribal median income (TMI) (pursuant 
to Sec.  98.81(b)(1)) and this will continue to be allowable under this 
rule. ACF also recognizes that some Lead Agencies establish eligibility 
thresholds that vary by geographic area and that some Lead Agencies use 
Area median income (AMI) to calculate income eligibility for different 
regions in order to account for cost of living variations across 
geographic areas. Lead Agencies may use AMI in their calculations, but 
must also report the threshold in terms of SMI in their Plan, and 
ensure that thresholds based on AMI are at or below 85 percent of SMI.
    Comment: One State commented about the timelines necessary to 
comply with this provision, noting that ``States should be given up to 
one year to update income limits and copays after the publication of 
new State Median Incomes.'' In this State, ``income limits and copays 
are updated in October each year. The date that new State Median 
Incomes are published varies each year. Because of this variation it is 
important that States be given up to one year to make updates.''
    Response: Compliance with this provision will be determined through 
the State plan submission, which will occur every three years. The 
intent of the policy is to ensure that State income thresholds reflect 
the most recent information available, but we understand that Lead 
Agencies will require time to update their policies and will allow for 
a reasonable timeframe for compliance. In this instance, updating 
within the year would be considered reasonable.
    Comment: In the proposed rule, we asked for comment on whether ACF 
should provide additional guidance and specificity on the SMI used to 
determine eligibility. The Act does not specify whether States should 
use the SMI with a single year estimate, a two-year average, or a 
three-year average (which is used by the Low Income Home Energy 
Assistance Program (LIHEAP)).
    Some commenters requested that States retain the flexibility to 
``define methodology and data sources in calculating SMI.'' Other 
commenters requested additional clarification, most specifically on 
what to do when a State's median income unexpectedly decreases. A 
number of commenters asked that States be ``encouraged to use 3-year 
estimates of State median income to determine income eligibility to 
reduce the large year-to-year fluctuations that the single year 
estimates tend to generate in some States.'' Others went further, 
specifically asking ACF to revise regulatory language to include that 
in ``cases where a State's median income decreases; in such cases, a 
State should be required to maintain its income limit, rather than 
reducing it.''
    Response: While we agree with the sentiment behind the suggestion 
of maintaining eligibility thresholds even if a State's median income 
decreases, the final rule maintains State flexibility in this area to 
allow States to determine which SMI estimate to use for eligibility 
determinations. If a State's median income decreases as a result of a 
single year estimate, the State would have the option of using, and we 
strongly encourage it to consider, the 3-year estimate to lessen that 
impact of any single year fluctuation. This could mitigate some of the 
impacts of unexpected decreases, and, by aligning with LIHEAP, another 
benefit program which families may also be accessing, make it easier 
for families to manage income requirements across programs. It should 
be noted, however, that regardless of which measure the State chooses 
to use, it would still be bound by the upper income limit of 85% of SMI 
for a family of the same size.
    Asset limit. Section 658P(4)(B) of the Act revised the definition 
of eligible child at so that in addition to being at or below 85 
percent of SMI for a family of the same size, a member of the family 
must certify that the family assets do not exceed $1,000,000 (as 
certified by a member of such family). The final rule includes this 
requirement at Sec.  98.20(a)(2)(ii). We interpret this language in 
paragraph (2)(ii) of this section to mean that this requirement can be 
met solely through self-certification by a family member, with no 
further need for additional documentation. This new requirement 
provides assurance that CCDF funds are being used for families with the 
greatest need, but is not intended to impose an additional burden on 
families. This final rule does not define ``family assets,'' but 
instead allows the Lead Agency flexibility to determine what assets to 
count toward the asset limit.
    Comment: One commenter had concerns that the ``very high maximum 
asset level draws attention to the notion that CCDF funding could be 
given to families that are quite a distance from poverty.'' The 
commenter also claimed that ``if there is any basis for the importance 
of a $1 million ceiling, self-certification by a family member seems to 
negate the accuracy of tracking this.''
    Response: The asset limit was established by the CCDBG Act of 2014. 
The high level is not meant to indicate that families far above poverty 
should be served, but rather provide a mechanism to ensure that funding 
does not inadvertently go to families with high asset levels that are 
not reflected in their income calculations. Further, clarification that 
self-certification is sufficient to meet this requirement and that 
there is no need for additional documentation does not unnecessarily 
impair the accuracy of this requirement, but is important to honor the 
intent of

[[Page 67461]]

the requirement while minimizing any unnecessary burden on families. 
The final rule retains language in this provision as proposed in the 
NPRM.
    Protective services. Section 658P(4) of the Act indicates that, for 
CCDF purposes, an eligible child includes a child who is receiving or 
needs to receive protective services. This final rule adds language at 
Sec.  98.20(a)(3)(ii) to clarify that the protective services category 
may include specific populations of vulnerable children as identified 
by the Lead Agency. Children do not need to be formally involved with 
child protective services or the child welfare system in order to be 
considered eligible for CCDF assistance under this category. The Act 
references children who ``need to receive protective services,'' 
demonstrating that the intent of this language was to provide services 
to at-risk children, not to limit this definition to serve children 
already in the child protective services system.
    It is important to note that including additional categories of 
vulnerable children in the definition of protective services is only 
relevant for the purposes of CCDF eligibility and does not mean that 
those children should automatically be considered to be in official 
protective service situations for other programs or purposes. It is 
critical that policies be structured and implemented so these children 
are not identified as needing formal intervention by the CPS agency, 
except in cases where that is appropriate for reasons other than the 
inclusion of the child in the new categories of vulnerable child for 
purposes of CCDF eligibility. We received limited comments on this 
section and discuss these below.
    Similarly, this final rule removes the requirement that case-by-
case determinations of income and co-payment fees for this eligibility 
category must be made by, or in consultation with, a child protective 
services (CPS) worker. While consulting with a CPS worker is no longer 
a requirement, it is not prohibited; a Lead Agency may consult with or 
involve a CPS caseworker as appropriate. We encourage collaboration 
with the agency responsible for children in protective services, 
especially when a child also is receiving CCDF assistance.
    These changes provide Lead Agencies with additional flexibility to 
offer services to those who have the greatest need, including high-risk 
populations, and reduce the burden associated with eligibility 
determinations for vulnerable families.
    Under previous regulations at Sec.  98.20(a)(3)(ii)(B), at the 
option of the Lead Agency, this category could already include children 
in foster care. The regulations already allowed that children deemed 
eligible based on protective services may reside with a guardian or 
other person standing ``in loco parentis'' and that person is not 
required to be working or attending job training or education 
activities in order for the child to be eligible. In addition, the 
prior regulations already allowed grantees to waive income eligibility 
and co-payment requirements as determined necessary on a case-by-case 
basis, by, or in consultation with, an appropriate protective services 
worker for children in this eligibility category. This final rule 
clarifies, for example, that a family living in a homeless shelter may 
not meet certain eligibility requirements (e.g., work or income 
requirements), but, because the child is in a vulnerable situation, 
could be considered eligible and benefit from access to high-quality 
child care services.
    We note that this new provision does not require Lead Agencies to 
expand their definition of protective services. It merely provides the 
option to include other high-needs populations in the protective 
services category solely for purposes of CCDF, as many Lead Agencies 
already choose to do.
    We did not receive many comments on this policy, but those who did 
comment were supportive of this clarification and appreciative of the 
``discretion to include specific populations of vulnerable children, 
especially if they do not need to be formally involved with CPS or 
child welfare system.'' The regulatory language proposed in the NPRM is 
retained in this final rule.
    Additional eligibility criteria. Under pre-existing regulations, 
Lead Agencies are allowed to establish eligibility conditions or 
priority rules in addition to those specified through Federal 
regulation so long as they do not discriminate, limit parental rights, 
or violate priority requirements (these are described in full at Sec.  
98.20(b)). This final rule revises this section in paragraph 
98.20(b)(4) to add that any additional eligibility conditions or 
priority rules established by the Lead Agency cannot impact eligibility 
other than at the time of eligibility determination or re-
determination. This revision was made to be consistent with the 
aforementioned change to Sec.  98.20(a) which says that eligibility 
criteria apply only at the time of determination or re-determination. 
It follows that the same would be true of additional criteria 
established at the Lead Agency's option.
    The final rule adds paragraph (c), clarifying that only the 
citizenship and immigration status of the child, the primary 
beneficiary of CCDF, is relevant for the purposes of determining 
eligibility under PRWORA and that a Lead Agency, or other administering 
agency, may not condition eligibility based upon the citizenship or 
immigration status of the child's parent. Under title IV of PRWORA, 
CCDF is considered a program providing Federal public benefits and thus 
is subject to requirements to verify citizenship and immigration status 
of beneficiaries. In 1998, ACF issued a Program Instruction (ACYF-PI-
CC-98-08) which established that ``only the citizenship status of the 
child, who is the primary beneficiary of the child care benefit, is 
relevant for eligibility purposes.'' This proposal codifies this policy 
in regulation and clarifies that Lead Agencies are prohibited from 
considering the parent's citizenship and immigration status.
    ACF has previously clarified through a program instruction (ACYF-
PI-CC-98-09) that when a child receives Early Head Start or Head Start 
services that are supported by CCDF funds and subject to the Head Start 
Performance Standards, the PRWORA verification requirements do not 
apply. Verification requirements also do not apply to child care 
settings that are subject to public educational standards. These 
policies remain in effect.
    All comments received were supportive of the clarification on 
citizenship and this policy will remain in this final rule. One 
national organization commented that ``ensuring that the citizenship or 
immigration status of a child's parent does not impact their ability to 
access CCDF-funded child care maintains the program's focus on ensuring 
access to high-quality child care services for vulnerable populations. 
Given that this policy was previously contained in sub-regulatory 
guidance to States, we are very appreciative of ACF's proposal to 
codify it within the CCDF program regulations.''
Sec.  98.21 Eligibility Determination Processes
    In this final rule, Sec.  98.21 addresses the processes by which 
Lead Agencies determine and re-determine a child's eligibility for 
services. In response to comment, this final rule includes a new Sec.  
98.21(a)(5) which describes limited additional circumstances for which 
assistance may be terminated prior to the end of the minimum 12-month 
eligibility period, which will be discussed in greater detail below.

[[Page 67462]]

    Minimum 12-month eligibility. Section 98.21 reiterates the 
statutory change made in Section 658E(c)(2)(N)(i) of the Act, which 
establishes minimum 12-month eligibility periods for all CCDF families, 
regardless of changes in income (as long as income does not exceed the 
Federal threshold of 85 percent of SMI) or temporary changes in 
participation in work, training, or education activities. Under the 
Act, Lead Agencies may not terminate CCDF assistance during the 12-
month period if a family has an increase in income that exceeds the 
Lead Agency's income eligibility threshold but not the Federal 
threshold, or if a parent has a temporary change in work, education or 
training.
    We note that, during the minimum 12-month eligibility period, Lead 
Agencies may not end or suspend child care authorizations or provider 
payments due to a temporary change in a parent's work, training, or 
education status. In other words, once determined eligible, children 
are expected to receive a minimum of 12 months of child care services, 
unless family income rises above 85% of SMI or, at Lead Agency option, 
the family experiences a non-temporary cessation of work, education, or 
training.
    As the statutory language states that a child determined eligible 
will not only be considered to meet all eligibility requirements, but 
also ``will receive such assistance,'' Lead Agencies may not offer 
authorization periods shorter than 12 months as that would functionally 
undermine the statutory intent that, barring limited circumstances, 
eligible children shall receive a minimum of 12 months of CCDF 
assistance. We note that, despite the language that the child ``will 
receive such assistance,'' the receipt of such services remains at the 
option of the family. The Act does not require the family to continue 
receiving services nor does it force the family to remain with a 
provider if the family no longer chooses to receive such services. Lead 
Agencies would not be responsible for paying for care that is no longer 
being utilized. This is discussed further in the new Sec.  98.21(a)(5).
    Comment: Comments were generally supportive of the statutory change 
to a minimum 12-month eligibility period, though there were concerns 
about the costs and possible impacts on enrollment patterns. Those in 
support emphasized that this change ``would make it easier for families 
to access and retain more stable child care assistance and increase 
continuity of care for children.'' These commenters considered this a 
significant improvement to the previous law which ``commonly resulted 
in children experiencing short periods of assistance of usually less 
than a year, and families cycling on and off assistance,'' and had the 
unintended consequence of ``modest increases in earnings or brief 
periods of unemployment or reductions in work hours caus[ing] families 
to lose child care assistance.''
    Other commenters also thought that ``setting eligibility for longer 
periods will dramatically reduce the significant administrative burden 
on small businesses and at-risk families,'' and that this policy will 
facilitate ``the ability to partner with others such as Head Start and 
Early Head Start and increases the quality of those partnerships.''
    However, some commenters, particularly States, shared concerns 
about the implications of this change, wanting to ``draw attention to 
the significant cost of this requirement especially in light of 
stagnant funding levels to implement all the required changes.'' 
Another commenter focused on the idea that the ``unintended consequence 
of these proposed rules is that by extending eligibility for current 
recipients of child care subsidies, other families in need will never 
have a chance to access the subsidies because federal funding has not 
been sufficiently increased to cover the cost.''
    Response: While we recognize the logistical challenges that States 
will experience as they are transitioning to minimum 12-month 
eligibility, we re-emphasize that this is a statutory requirement. We 
also think these longer periods of assistance will ensure that families 
derive greater benefit from the assistance and that this policy creates 
more opportunity for families to work towards economic stability. Any 
policy decision will have significant tradeoffs, and while the total 
number of families served may decrease as families stay on longer, this 
effect would be due to a decrease in churn, meaning that the number of 
children and families served at any given point would not be affected 
by families staying on longer. We think that the added benefit of 
continuity of services provided by reducing churn will have a positive 
overall impact on children and families and be a more effective use of 
federal dollars.
    However, we do recognize that during the minimum 12-month 
redetermination periods, it may be necessary to collect some 
information to complete the redetermination process in time. We allow 
such practices, so long as it is limited (e.g. a few days or weeks in 
advance) and is not used as a way to circumvent the minimum 12-month 
period. Even if information is collected in advance, eligibility cannot 
be terminated prior to the minimum 12-month period, even if 
disqualifying information is discovered during the preliminary 
collection of documentation (unless it indicates that family income has 
exceeded 85% of SMI or, at the Lead Agency option, the family has 
experienced a non-temporary cessation in work, or attendance at a 
training or education program).
    Comment: One commenter questioned our interpretation of the Act 
that ``assistance must be at the same level throughout the period.'' 
This commenter thought that ``a State should be able to adjust the 
number of authorized hours (and thus the payment level) within the 12-
month period due to a change in the number of hours of child care 
needed for a parent to work or participate in education or training, 
while maintaining eligibility for the entire 12-month period.''
    Response: Section 658E(c)(2)(N)(i)(I) of the Act states that each 
child who receives assistance under this subchapter in the State will 
be considered to meet all eligibility requirements for such assistance 
``and will receive such assistance'' for not less than 12 months before 
the State or designated local entity re-determines the eligibility of 
the child under this subchapter. ``[A]nd will receive such assistance'' 
clearly indicates that eligibility and authorization for services, as 
determined at the time of eligibility determination or redetermination, 
should be consistent throughout the period. To clarify the regulatory 
language on this policy, we are adding language at Sec.  98.21(a)(1) to 
say that once deemed eligible, the child shall receive services ``at 
least at the same level'' for the duration of the eligibility period. 
This also makes this section more consistent with the Act, which says 
that the child will receive such assistance, for not less than 12 
months, and Sec.  98.21(a)(3) of the final rule, which prohibits Lead 
Agencies from increasing family co-payments within the minimum 12-month 
eligibility period.
    We are making a change to the language as proposed in the NPRM to 
now say that, once deemed eligible, the child shall receive services 
``at least at the same level.'' This makes it clear that the Lead 
Agency still has the ability to increase the child's benefit during the 
eligibility period, aligning the section with the provision at Sec.  
98.21(e)(4)(i), which requires Lead Agencies to act on information 
provided by the family if it would reduce the family's co-payment or 
increase the family's subsidy.
    However, we do note that a State is not obligated to pay for 
services that are

[[Page 67463]]

not being used, so if a family voluntarily changes their care 
arrangement to use less care, the State can adjust their payments 
accordingly. We do want to reemphasize, however, that as this rule 
makes it clear that authorizations do not have to be tied to a family's 
work, training, or education schedule, even if the parents' schedule 
changes, in the interest of child development and continuity, the child 
must be allowed the option to stay with their care arrangement.
    Definition of temporary: This final rule defines ``temporary 
change'' at Sec.  98.21(a)(1)(ii) to include, at a minimum: (1) Any 
time-limited absence from work for employed parents due to reasons such 
as need to care for a family member or an illness; (2) any interruption 
in work for a seasonal worker who is not working between regular 
industry work seasons; (3) any student holiday or break for a parent 
participating in training or education; (4) any reduction in work, 
training or education hours, as long as the parent is still working or 
attending training or education; and (5) any cessation of work or 
attendance at a training or education program that does not exceed 
three months or a longer period of time established by the Lead Agency.
    The above circumstances represent temporary changes to the parents' 
schedule or conditions of employment, but do not constitute permanent 
changes to the parents' status as being employed or attending a job 
training or educational program. This definition is in line with 
Congressional intent to stabilize assistance for working families. Lead 
Agencies must consider all changes on this list to be temporary, but 
should not be limited by this definition and may consider additional 
changes to be temporary. The final rule modifies language proposed in 
the NPRM at Sec.  98.21(a)(1)(ii)(A), which addresses absences from 
employment. Whereas the NPRM stipulated that the definition of 
temporary had to include family leave (including parental leave) or 
sick leave, the final rule modifies this to say any time-limited 
absence from work for an employed parent due to reasons such as need to 
care for a family member or an illness. This change was made to 
acknowledge that while a parent may have a legitimate reason for an 
absence, there may be circumstances where leave is not granted by the 
employer. This language ensures that even if official leave has not 
been granted, CCDF assistance should still be continued. To clarify, in 
this new language still accounts for family leave (or parental leave), 
which will now be included under the need to care for a family member.
    Section 98.21(a)(ii)(F) clarifies that a child must retain 
eligibility despite any change in age, including turning 13 years old 
during the eligibility period. This is consistent with the statutory 
requirement that a child shall be considered to meet all eligibility 
requirements until the next re-determination. This allows Lead Agencies 
to avoid terminating access to CCDF assistance immediately upon a 
child's 13th birthday in a manner that may be detrimental to positive 
youth development and academic success or that might abruptly put the 
child at-risk if a parent cannot be with the child before or after 
school.
    Comment: Commenters were supportive of this clarification, one 
stating that ``taken together, these provisions protect children from 
losing access to child care because their parent experiences a 
temporary change in employment status, small increase in income, or has 
to move within the State,'' and another commenter stated that they 
found it particularly helpful ``that ACF declares eligibility is 
maintained when a parent is using sick leave or parental leave or is on 
a student holiday break from classes.''
    However, one comment indicated that the State ``would incur 
significant costs if allowed children to stay on after they turn 13,'' 
and recommended ``State discretion to do this pending available 
funds.''
    Response: Given that there were few comments opposing this new 
policy allowing children to remain eligible after they turn 13, we are 
keeping this provision in this final rule. Additionally, given the 
nature of funding for CCDF, this ``significant cost'' is more 
accurately characterized as a reallocation of expenses rather than new 
costs. For the small subset of CCDF children who will turn 13 during 
their eligibility period, there is value in allowing them to retain 
eligibility, and that the benefits of such policies outweigh the 
potential challenges. We also note that if the family chooses to stop 
utilizing care prior to the end of the eligibility period (e.g. the 
school year ends and there are no plans for care during the summer), 
then the State would no longer be obligated to pay for the care that is 
not being used.
    At Sec.  98.21(a)(ii)(G), this final rule requires that a child 
retain eligibility despite any change in residency within the State, 
Territory, or Tribal service area. This provides stability for families 
who, under current practice, may lose child care assistance despite 
maintaining their State, Territory or Tribal residency. This may 
require coordination between localities within States, Territories, or 
Tribes or necessitate some Lead Agencies to change practices for 
allocating funding. This level of coordination is essential, as the 
State, Territory, or Tribe is the entity responsible for CCDF 
assistance.
    Comment: We received a number of comments in this area, some that 
were supportive of this policy and its importance for ensuring that 
families retain their benefits, and others, particularly States that 
are county-administered, that were concerned about the implementation 
of this requirement. A number of States indicated that ``due to the 
unique administrative structure of [county administered] States, with 
delegated authority to local entities for administration of programs 
and services, the transference of eligibility, from one part of the 
State to another, poses uniquely difficult situations when each 
locality has a distinctive financial situation. For example, the States 
are unsure how to handle continuity of services and maintenance of 12-
month eligibility during situations where a family moves out of the 
county where they initially became eligible and into a county that is 
out of funding and has a wait list.'' Some commenters asked for further 
clarification, particularly as it related to which county would be 
responsible for the ongoing payment, ``If a child is eligible for 12 
months, does the originating county continue payments or the receiving 
county? Or, should the State reserve funding to address the inter-
county movement of families?'' This commenter further emphasized that 
``given the financial impact, additional guidance is needed with regard 
to how 12-month eligibility is funded.''
    This also raised the issue of what happens when a family moves out 
of State. One commenter said, ``There are also situations where a 
customer moves out of State. In some instances, they move without 
notifying the Lead Agency. [This] Lead Agency recommends that the rule 
is amended to allow Lead Agencies to terminate benefits prior to 12-
months if it is discovered that a family moved out of State.''
    Response: Given the number of comments on this issue, we carefully 
considered the various factors in play and are keeping the policy on 
retaining eligibility if a family moves within the State, but are 
adding new language that would allow a Lead Agency to terminate 
eligibility prior to the end of the eligibility period if the family 
moves out of the State.

[[Page 67464]]

    While we understand some of the unique challenges facing county-
administered States, given that the CCDF block grant is a block grant 
to the State, it is reasonable for the State to develop policies that 
allow a family to retain their eligibility as long as they remain 
within the State. The question of whether the receiving or originating 
county should pay for the assistance is a question best left up to the 
State. These are logistical and implementation issues that will vary 
depending on each State's approach to administering the program. 
However, we do emphasize that this does not prohibit counties from 
establishing different eligibility criteria to take into account local 
variation.
    As for a family that moves out of the State, we agree that this 
would be considered appropriate grounds for termination. We have added 
a new section at Sec.  98.21(a)(5) describing additional limited 
circumstances that would allow a Lead Agency to end assistance prior to 
the end of the minimum 12-month eligibility period. We discuss this in 
more detail below, but the new regulatory language at Sec.  
98.21(a)(5)(ii) allows Lead Agencies to terminate assistance due to a 
change in residency outside of the State, Territory, or Tribal service 
area. However, while the final rule allows Lead Agencies to terminate 
for this reason, this is a permissive policy and not a requirement. 
Neighboring States/Territories/Tribes can still develop agreements to 
allow families to retain their eligibility if they cross State/
Territory/Tribal boundaries. For example, in large metropolitan areas 
where daily commutes and neighborhoods regularly cross State 
boundaries, or Tribal populations which may move outside the Tribal 
service area but remain within a State boundary, it may be appropriate 
to develop such agreements. We encourage Lead Agencies to develop 
policies to meet the needs of their families and match the realities of 
their population's geographic and economic mobility.
    Nothing in this rule prohibits Lead Agencies from establishing 
eligibility periods longer than 12 months or lengthening eligibility 
periods prior to a re-determination. We encourage (but do not require) 
Lead Agencies to consider how they can use this flexibility to align 
CCDF eligibility policies with other programs serving low-income 
families, including Head Start, Early Head Start, Medicaid, or SNAP. 
For example, once determined eligible, children in Head Start remain 
eligible until the end of the succeeding program year. Children in 
Early Head Start are considered eligible until they age out of the 
program. Consistent with existing ACF guidance (ACYF-PIQ-CC-99-02) a 
Lead Agency could establish eligibility periods longer than 12 months 
for children enrolled in Head Start and receiving CCDF in order to 
align eligibility periods between programs. Similarly, Lead Agencies 
are encouraged to establish longer eligibility periods during an infant 
or toddler's enrollment in Early Head Start or in other collaborative 
models, such as Early Head Start-Child Care Partnerships.
    Operationalizing alignment across programs can be challenging, 
particularly if families enroll in programs at different times. While 
the Lead Agency must ensure that eligibility is not re-determined prior 
to 12 months, it could align with other benefit programs by ``resetting 
the clock'' on the eligibility period to extend the child's CCDF 
eligibility by starting a new 12-month period if the Lead Agency 
receives information, such as information pursuant to eligibility 
determinations or re-certifications in other programs, that confirms 
the child's eligibility and current co-payment rate. Alignment promotes 
conformity across Federal programs, such as SNAP, and can simplify 
eligibility and reporting processes for families and administering 
agencies. However, it should be noted that a Lead Agency cannot 
terminate assistance for a child prior to the end of the minimum 12-
month period if the recertification process of another program reveals 
a change in the family's circumstances, unless those changes impact 
CCDF eligibility (e.g., a change in income over 85 percent of SMI or, 
at the option of the Lead Agency, a non-temporary change in the work, 
job training, or educational status of the parent). We retained the 
language in section 98.21(a)(1) as proposed in the NPRM.
    Continued assistance. In 98.21(a)(2) of this final rule, if a 
parent experiences a non-temporary job loss or cessation of education 
or training, Lead Agencies have the option--but are not required--to 
terminate assistance prior to the minimum 12 months. Per the Act, prior 
to terminating assistance, the Lead Agency must provide a period of 
continued assistance of at least three months to allow parents to 
engage in job search activities. By the end of the minimum three-month 
period of continued assistance, if the parent is engaged in an eligible 
work, education, or training activity, assistance should not be 
terminated and the child should either continue receiving assistance 
until the next scheduled re-determination or be re-determined eligible 
for an additional minimum 12-month period. This final rule clarifies 
that assistance must be provided at least at the same level during the 
period. This clarification is important because reducing levels of 
assistance during this period would undermine the statutory intent to 
provide stability for families during times of increased need or 
transition.
    It is important to note that the Act allows Lead Agencies to 
continue child care assistance for the full minimum 12-month 
eligibility period even if the parent experiences a non-temporary job 
loss or cessation of education or training. The default policy is that 
a child remains eligible for the full minimum 12-month eligibility 
period, but the Lead Agency has the option to terminate assistance 
under these particular conditions. A Lead Agency may choose not to 
terminate assistance for any families prior to a re-determination at 12 
months.
    If a Lead Agency chooses to terminate assistance under these 
conditions after at least three months of continued assistance, it has 
the option of doing so for all CCDF families or for only a subset of 
CCDF families. For example, a Lead Agency could choose to allow 
priority families (e.g., children with special needs, children 
experiencing homelessness) to remain eligible through their eligibility 
period despite a parent's loss of work or cessation of attendance at a 
job training or educational program, but terminate assistance (after a 
period of continued assistance) for families who do not fall in a 
priority category. Or, a Lead Agency may choose to allow families in 
certain types of care, such as high-quality care, to remain eligible 
regardless of a parent's work or education activity.
    While the Lead Agency must provide continued assistance for at 
least three months, there is no requirement to document that the parent 
is engaged in a job search or other activity related to resuming 
attendance in an education or training program during that time. In 
fact, we strongly discourage such policies as they would be an 
additional burden on families and be inconsistent with the purposes of 
CCDF.
    If a Lead Agency does choose to terminate assistance under these 
circumstances, it must allow families that have been terminated to 
reapply as soon as they are eligible again instead of making the family 
wait until their original eligibility period would have ended in order 
to reapply.
    A policy that provides continuous eligibility, regardless of non-
temporary changes, reduces the burden on families and the 
administrative burden on Lead Agencies by minimizing reporting and

[[Page 67465]]

the frequency of eligibility adjustments. Retention of eligibility 
during periods of family instability (such as losing a job) can 
alleviate some of the stress on families, facilitate a smoother 
transition back into the workforce, and support children's development 
by maintaining continuity in their child care. Moreover, studies show 
that the same families that leave CCDF often return to the program 
after short periods of ineligibility. A report published by the 
Assistant Secretary for Planning and Evaluation (ASPE) at HHS, Child 
Care Subsidy Duration and Caseload Dynamics: A Multi-State Examination, 
found that ``many families receive subsidies sporadically over time and 
frequently return to the subsidy programs after they exit.'' Short 
periods of subsidy receipt can be the result of a variety of factors, 
including eligibility policies and procedures. The ``churning'' present 
in CCDF demonstrates that families often lose their child care 
assistance for conditions that are temporary, which is detrimental for 
the family and child and inefficient for the Lead Agency.
    Lead Agencies considering the option to terminate assistance in 
response to ``non-temporary'' changes are encouraged to use 
administrative data to understand the extent to which CCDF families 
currently cycle on and off the program, to make a determination as to 
whether it is in the interest of anyone (child, parent, or agency) to 
terminate assistance for families who may ultimately return to the 
program.
    Some Lead Agencies include in their definition of allowable work 
activities a period of job search and allow children to initially 
qualify for CCDF assistance based on their parent(s) seeking 
employment. It is not our intention to discourage Lead Agencies from 
allowing job search activities as qualifying work. Therefore, 
consistent with language included in the preamble to the NPRM, new 
regulatory language at Sec.  98.21(a)(2)(iii) addresses this 
circumstance. This is consistent with the intent of the Act to allow 
Lead Agencies the option to end assistance prior to a re-determination 
if the parent(s) has not secured employment or educational or job 
training activities, as long as assistance has been provided for no 
less than three months. In other words, if a child qualifies for child 
care assistance based on a parent's job search, the Lead Agency has the 
option to end assistance after a minimum of three months if the parent 
has still has not found employment, although assistance must continue 
if the parent becomes employed during the job search period. Even if 
the parent does not find employment within three months, Lead Agencies 
could choose to provide additional months of job search to families as 
well or to continue assistance for the full minimum 12-month 
eligibility period.
    Comment: Commenters were supportive of this policy. One State 
indicated while ``continuity will have a fiscal impact,'' they thought 
that ``allowing States the option to terminate assistance prior to 12 
months, with a minimum of 3 months of continued assistance is 
reasonable.'' Other States voiced appreciation for the clarification 
that States have the ``discretion to continue assistance to a subset of 
families such as those within a certain priority or type of care.''
    There was a request for clarification regarding how often the 
minimum 3-month period of continued assistance could apply within a 
particular eligibility period. The commenter asked ``if, within the 12-
month eligibility period, an individual experiences more than one 
occasion of permanent job loss or of education/training, do they 
continue to get 3 months of job search each time, and with each new 
loss?'' These commenters asked for clarification about ``whether there 
are any limitations to how many times within a single 12-month 
eligibility period a person is entitled to a 3-month job search 
period.'' This was raised as a concern because of the potential 
negative impact it could have on a parent's motivation ``to truly 
reestablish employment or education if they are able to ``work'' for 
one day every three months and still continue to receive services.''
    Response: A plain reading of the statutory language does not 
provide a limit to the number of times a family could receive the 
period of continued assistance. Given that the 3-month period of 
continued assistance is at the State option and that the default policy 
(as stated above) is for families to retain their eligibility until the 
end of the eligibility period, it would be inconsistent to put a limit 
on how many times this could apply. Since the intent of this provision 
is to allow the parent some time to resume work, or resume attendance 
at a job training or educational activity, a parent who has 
successfully found new employment or resumed another qualifying 
activity within the minimum 3-month period should not be penalized by 
losing their child care assistance (and possibly undermining the 
stability of newfound employment, training, or education). Especially 
given the often unstable nature of employment among low-income 
communities, this will provide some measure of stability in instances 
where families, despite their best efforts, cycle in and out of 
employment. In these instances, when the home life may be in flux, a 
level of stability in the child's care arrangement becomes that much 
more valuable.
    Additional circumstances for termination: In the proposed rule, we 
asked for comment on whether there are any additional circumstances 
other than those discussed above under which a Lead Agency should be 
allowed to end a child's assistance (after providing three months of 
continued assistance) prior to the minimum 12-month period. Commenters 
were reminded that since these regulations must comply with statutory 
requirements, any suggestions had to remain within the bounds of the 
Act in order to be considered.
    Based on feedback from States and various stakeholders (received 
prior to the publication of the proposed rule), ACF had already 
considered possible exceptions to the minimum 12-month eligibility 
period for certain populations, such as children in families receiving 
TANF and children in protective services, but had decided that such 
special considerations would be in conflict with the Act, which clearly 
provides 12-month eligibility for all children.
    Comment: We had a number of comments in this area. Commenters 
provided suggestions for reasons that a State should be able to 
terminate assistance prior to the end of the eligibility period, 
including: Non-use of subsidy, fraud or intentional program violations, 
moving out of the State, changes in household composition, protective 
services status (some emergency assistance that may not be required for 
a full eligibility period), change in priority group, and failure to 
cooperate with mandatory child support.
    Response: We agreed with commenters on the need to provide some 
additional allowances in this area because there were legitimate 
reasons why a Lead Agency may need to terminate assistance prior to the 
end of the eligibility period. Therefore, in response to comments, the 
final rule adds a new Sec.  98.21(a)(5), which describes additional 
limited circumstances that would allow a Lead Agency to end assistance 
prior to the end of the minimum 12-month eligibility period.
    This new regulatory language states that notwithstanding paragraph 
(a)(1), the Lead Agency may discontinue assistance prior to the next 
re-determination in limited circumstances where there have been: (i) 
Excessive unexplained absences despite multiple

[[Page 67466]]

attempts by the Lead Agency or designated entity to contact the family 
and provider, including notification of possible discontinuation of 
assistance; (A) If the Lead Agency chooses this option, it shall define 
the number of unexplained absences that shall be considered excessive; 
(ii) A change in residency outside of the State, Territory, or Tribal 
service area; or (iii) Substantiated fraud or intentional program 
violations that invalidate prior determinations of eligibility.
    We have determined that these three were compelling reasons for 
which Lead Agencies would be justified in acting. Regarding termination 
due to excessive unexplained absences, we stress that every effort 
should be made to contact the family prior to terminating benefits. 
Such efforts should be made by the Lead Agency or designated entity, 
which may include coordinated efforts with the provider to contact the 
family. If a State chooses to terminate for this reason, the Lead 
Agency must define how many unexplained absences would constitute an 
``excessive'' amount and therefore grounds for early termination. The 
definition of excessive should not be used as a mechanism for 
prematurely terminating eligibility and must be sufficient to allow for 
a reasonable number of absences. It is ACF's view that unexplained 
absences should account for at least 15 percent of a child's planned 
attendance before such absences are considered excessive. This 15 
percent aligns generally with Head Start's attendance policy and ACF 
will consider it as a benchmark when reviewing and monitoring this 
requirement.
    As discussed above, we are allowing States to terminate eligibility 
if the family moves outside of the State, Territory, or Tribal service 
area. This was not explicitly discussed in the proposed rule, but the 
discussion about maintaining eligibility when moving within State 
revealed the need for clarification in this area. Given that the CCDF 
program is a block grant with the State, it would not make sense for 
the family's benefit to be able to travel across those borders. As 
discussed above, this is a permissive policy and not a requirement. We 
encourage Lead Agencies to develop agreements where appropriate to 
accommodate parental movement, particularly in areas where appropriate 
and necessary to meet the needs of families. And as a reminder, as 
stated in Sec.  98.21(a)(ii)(G), States cannot terminate assistance if 
a family is moving within the State.
    As for changes in household composition, this is already allowed, 
in so far as the Lead Agency can require families to report such 
changes if they would result in a change that would raise the family's 
income level above 85% of SMI.
    Fraud or intentional program violation would also be a legitimate 
reason to terminate assistance if such fraud invalidates the prior 
eligibility determination or redetermination. One commenter stated that 
it ``is critical to have processes and procedures in place to limit 
improper payments and other fraudulent activities,'' and therefore 
recommended including a provision in the final rule that families could 
lose eligibility if they misrepresented circumstances at the initial 
determination and/or provided fraudulent information. Early termination 
of benefits is justified when there has been substantiated fraud or 
intentional program violation and such a family would not have been 
eligible. We caution that this does not change the limitations on what 
a State can require a family to report during the eligibility period. 
However, in instances where program integrity efforts reveal fraud or 
intentional program violations, under this final rule, the State would 
be able to terminate eligibility.
    Co-payments. Section 98.21(a)(3) clarifies that a Lead Agency 
cannot increase family co-payment amounts within the minimum 12-month 
eligibility period as raising co-payments within the eligibility period 
would not be consistent with the statutory requirement that the child 
receive such assistance for not less than 12 months. Protecting co-
payments levels within the eligibility period provides stability for 
families and reduces administrative burden for Lead Agencies. This 
final rule includes an exception to this rule for families that are 
eligible as part of the graduated phase-out provision discussed below.
    In addition, the final rule requires the Lead Agency to allow 
families the option to report changes, particularly because we want to 
permit families to report those changes that could be beneficial to the 
family's co-payment or subsidy level. The Lead Agency must act upon 
such reported changes if doing so would reduce the family's co-payment 
or increase the subsidy. The Lead Agency is prohibited from acting on 
the family's self-reported changes if it would reduce the family's 
benefit, such as increasing the co-payment or decreasing the subsidy.
    The limitation on raising co-payments, by protecting the child's 
benefit level for the minimum 12-month eligibility period, is 
consistent with the statutory requirement at 658E(c)(2)(N) of the Act 
that, once deemed eligible, a child shall receive such assistance, for 
not less than 12 months. Raising co-payments earlier than the 12-month 
period could potentially destabilize the child's access to assistance 
and has the unintended consequence of forcing working parents to choose 
between advancing in the workplace and child care assistance. This is 
discussed further below in the section on reporting changes in 
circumstances.
    Comment: Comments received in this area were mixed. In general, 
States wanted to retain the ability to increase co-payments throughout 
the year, while national organizations and other stakeholders thought 
that keeping co-payments stable during the year was a worthwhile policy 
for families.
    Those who supported this policy cited studies that showed that 
``high co-payments are a major reason that families leave the subsidy 
program.'' Commenters also referenced a Senate Health, Education, 
Labor, and Pensions Committee Report on the CCDBG Act, which notes that 
``The committee does not want to discourage families engaged in work 
from pursuing greater opportunities in the form of increased wages or 
earnings. . . . The committee strongly believes that if families are 
truly to achieve self-sufficiency that CCDBG cannot perversely 
incentivize families to forgo modest raises or bonuses for fear of 
losing assistance under the CCDBG program.''
    Those in favor of retaining the ability to increase co-pays pointed 
to the implications, primarily financial, should they be unable to 
adjust co-payments. One stated that they would be forced to ``charge 
the highest co-payment amounts allowed in order to manage the fiscal 
liability'' and another pointed out that such a policy ``limits the 
Department's ability to utilize co-payments as a means of managing 
State fiscal resources,'' and an inability to do so would ``result in 
serving fewer children and families and may force waitlists.''
    Other commenters stated that they thought increasing co-payment 
amounts during the eligibility period would not negatively affect a 
family's subsidy or co-payment and would not be unduly burdensome. This 
commenter reasoned that ``In most cases, income changes reported are 
fairly small, and even if that change moves the family up on the co-pay 
schedule, the incremental change in the co-pay will likely be less than 
$4 per week.'' Commenters also pointed out that increasing co-payment 
amounts was beneficial to families to help them transition off child 
care assistance and thus avoid the cliff effect that comes with losing 
the subsidy.

[[Page 67467]]

    Response: While we recognize the States' positions, for the 
following reasons, we are declining to change this for this final rule. 
Regarding the use of co-payments to manage budgets and wait lists, such 
ongoing incremental changes are to the overall detriment of 
participating families and ultimately undermine the effectiveness of 
the program. One of the commenters above mentioned that these co-
payment increases are usually minor and would not impact the family's 
financial situation. Given this incremental financial benefit to the 
State, the administrative burden to both the family (notification with 
every change in income) and the State (having to track and adjust co-
payments with minor changes for families throughout the year) outweighs 
the benefit gained. Additionally, a small increase (such as the $4 
increase mentioned above) may seem incremental from a policy 
perspective, but may represent a significant burden on low-income 
families managing the daily expenses of food, clothing, diapers, etc.
    As for using co-payments to mitigate the impact of the cliff 
effect, this is an area where we agree. This is why Sec.  98.21(e)(3) 
allows Lead Agencies to increase co-payments for families eligible due 
to the graduated phase-out provision. Since the graduated phase-out 
period (which will be discussed in the next section) was specifically 
designed to help families transition as their income rises, it is 
appropriate that co-payments be adjusted.
    Graduated phase-out. New statutory language at Section 
658E(c)(2)(N)(iv) of the Act requires Lead Agencies to have policies 
and procedures in place to allow for the provision of continued child 
care assistance at the time of re-determination for children of parents 
who are working or attending a job training or educational program and 
whose income has risen above the Lead Agency's initial income 
eligibility threshold to qualify for assistance but remains at or below 
85 percent of State median income. Lead Agencies retain the authority 
to establish their initial income eligibility threshold at or below 85 
percent of SMI. If a Lead Agency's initial eligibility threshold is set 
at 85 percent of SMI, it would be exempt from this requirement.
    The proposed rule would have required Lead Agencies that set their 
initial income eligibility level below 85 percent of SMI (for a family 
of the same size) to provide for a graduated phase-out of assistance by 
establishing two-tiered eligibility (an initial, entry-level income 
threshold and a higher exit-level income threshold for families already 
receiving assistance) with the exit threshold set at 85 percent of SMI. 
States would have had the option of either allowing the family to 
remain income eligible until the family exceeded 85% of SMI or for a 
limited period of not less than an additional 12 months.
    The purpose of this graduated phase-out provision is to promote 
continuity of care and is consistent with the statutory requirement 
that families retain child care assistance during an eligibility period 
as their income increases. However, as discussed below, in response to 
comment, the final rule makes two significant changes to this 
requirement: (1) Offering additional flexibility on setting the second 
tier of eligibility, and (2) removing the possible time limit on 
eligibility.
    Comment: We received mixed comment on the proposed graduated phase-
out requirement. While commenters were supportive of improving 
continuity for families, a number of commenters indicated that they 
thought setting the two tiered system with the exit threshold at 85% of 
SMI was too restrictive. Commenters also raised similar concerns about 
the cost of this provision and the impact that it could potentially 
have on the demographics of CCDF families served. One commenter said 
that ``the down side of this otherwise sensible policy idea is that, 
absent sufficient resources, lower income families may be denied access 
to subsidies while higher income families continue to benefit. It's a 
difficult tradeoff.''
    Response: Given the comments that we received in this area, and in 
recognition of the difficult trade-offs inherent in this policy, the 
final rule revises language proposed by the NPRM for the graduated 
phase-out provision. This final rule still requires Lead Agencies to 
establish two-tiered eligibility thresholds, but the graduated phase-
out requirement at Sec.  98.21(b) now says that the second tier of 
eligibility (used at the time of eligibility re-determination) will be 
set at 85 percent of SMI for a family of the same size, but that the 
Lead Agency has the option of establishing a second tier lower than 85% 
of SMI as long as that level is above the Lead Agency's initial 
eligibility threshold, takes into account the typical household budget 
of a low income family, and provides justification that the eligibility 
threshold is (1) sufficient to accommodate increases in family income 
that promote and support family economic stability; and (2) reasonably 
allows a family to continue accessing child care services without 
unnecessary disruption.
    This revision from what was proposed in the NPRM will give Lead 
Agencies additional flexibility to establish their second tier of 
eligibility. However, it is important to note that once deemed 
eligible, the family shall be considered eligible for a full minimum 
12-month eligibility period even if their income exceeds the second 
eligibility level during the eligibility period, as long as it does not 
exceed 85 percent of SMI.
    While the revised regulatory language offers Lead Agencies some 
flexibility to set the second tier of eligibility, we still strongly 
encourage that Lead Agencies establish this second tier at 85 percent 
of SMI (as a number of States have already done). Not only does this 
maximize continuity of subsidy receipt for the family, linking the exit 
threshold to the Federal eligibility limit is the most straightforward 
approach for families to navigate and for Lead Agencies to implement. 
However, ACF also understands that there are significant trade-offs 
associated with establishing the second tier at 85% of SMI, including 
how many lower income families can be served in the program.
    As a result, the final rule provides Lead Agencies flexibility to 
set their second tier below 85% of SMI, provided they show that their 
exit threshold takes into account typical family expenses, such as 
housing, food, health care, diapers, transportation, etc., and is set 
at an income level that promotes and supports family economic stability 
and reasonably allows a family to continue accessing child care 
services without unnecessary disruption. Lead Agencies setting their 
second tier below 85% of SMI must take into account a number of factors 
to determine whether the family's increase in income is a substantial 
enough change to justify a loss of assistance without causing a ``cliff 
effect.'' For example, the Lead Agency would need to show that there is 
a difference between the first and second eligibility tiers and that 
this difference is sufficient to accommodate increases in income over 
time that are typical for low-income workers. ACF encourages Lead 
Agencies setting their second tier below 85% SMI to also consider how 
families that lose their subsidy will access ongoing child care and 
potential impacts on families' economic security.
    Additionally, when determining a family's ability to afford child 
care, the Lead Agency should be mindful that this final rule uses seven 
percent of family income as a benchmark for affordable child care. 
While Lead Agencies have flexibility in establishing their sliding fee 
scales and determining what constitutes a cost barrier for

[[Page 67468]]

families, seven percent level is a recommended benchmark and any 
calculations about affordability should either incorporate this 
benchmark or provide justification for how families can afford to spend 
a higher percentage of their income on child care. Furthermore, to 
ensure Lead Agencies are fully taking into consideration the financial 
obligations of families, Lead agencies must also collect data on any 
amounts providers charge families more than the required family co-
payment in instances where the provider's price exceeds the subsidy 
payment, if the State allows for such a practice, and to demonstrate a 
rationale for the allowance to charge families any additional amounts. 
This is mentioned in greater detail below in response to comments 
received specifically on the policies set forth in the proposed rule 
related to charging amounts above the co-payment. As for other concerns 
about the potential impact of the graduated phase-out provision, there 
are already several factors that will mitigate the possible negative 
impacts of this policy. First of all, the graduated phase-out provision 
provides some level of stability by protecting income growth, but there 
will still be natural attrition from the program due to other factors. 
Families have to go through redetermination every 12 months (or a 
longer period set by the Lead Agency) and be deemed otherwise eligible 
for the program. Families will also cycle out of the program through 
the Lead Agency option to terminate assistance due to job loss or 
cessation of education/training (after at least three months of 
continued assistance). According to analyses of CCDF administrative 
data, the current levels of attrition over time are steady and 
dramatic. Approximately 24 percent of families receive services for 
longer than a year, only about 10 percent receive it for 2 years, and 
the decline continues until approximately only 1 percent still receives 
the subsidy after 5 years. (Unpublished HHS tabulations based on CCDF 
administrative data reported by States on the ACF-801) We expect 
policies put into place to promote continuity will lengthen 
eligibility, but due to external factors, there will continue to be a 
turnover in the CCDF population.
    In addition, the financial impact of this policy may be contained 
because: (1) The average cost of subsidy tends to naturally decline 
over time as the child's age increases, and (2) this final rule allows 
the Lead Agency to increase co-pays during the graduated phase-out 
period. CCDF administrative data shows that per child costs decline as 
the child ages. This is due to the fact that school-age care is 
typically part-time for much of the year and less expensive than care 
provided for younger children. Therefore, the cost of the subsidy for 
families who remain on the program will naturally decline, which will 
free up resources for new enrollment.
    As discussed further below, this final rule at section 98.21(b)(3) 
allows Lead Agencies to adjust co-payments during the graduated phase-
out period. Over time, this would result in more cost sharing with 
families and free up State funds to allow other children to enter the 
subsidy system. As co-pays rise for parents with increasing incomes, 
families will naturally choose to leave the program.
    Comment: There were objections to the second option of the proposed 
graduated phase-out proposal, which would have allowed Lead Agencies to 
offer a period of graduated phase-out for a limited period of not less 
than an additional 12 months. A number of commenters objected to ``any 
provision that allows or encourages States to set arbitrary time limits 
on child care assistance,'' and said that ``income, rather than time 
spent in the program, is a far better measure of families' need for 
continued assistance.''
    Response: We agree with this concern and have removed the provision 
from this final rule. The option was included in the proposed rule to 
provide some parameters around the graduated phase-out provision, but 
we recognize now that the introduction of a time limit to the program 
could have unintended consequences and runs counter to the goals of the 
program, including to support parents trying to achieve independence 
from public assistance. And as described above, there are factors 
already in play within the graduated phase-out provision that will 
naturally limit the fiscal impact of this over time. That, combined 
with the new flexibility on establishing the second eligibility 
threshold, makes the previous option of ``a limited period of not less 
than an additional 12 months'' unnecessary.
    We have also added language at Sec.  98.21(b)(2) to clarify that 
once determined eligible under the graduated phase-out provision, the 
family is considered eligible under the same conditions described in 
Sec.  98.20 and Sec.  98.21, with the exception of the co-payment 
restrictions at Sec.  98.21(a)(3). Pursuant to Sec.  98.21(a)(3), Lead 
Agencies are prohibited from increasing family co-payments within the 
minimum 12-month eligibility period. However, in subparagraph (b)(2) of 
this section, Lead Agencies will be permitted to adjust family co-
payment amounts during the graduated phase-out period to help families 
transition off of child care assistance as they become better able to 
afford the cost of care.
    Lead Agencies have the option to gradually increase co-payments for 
families with children eligible under the graduated phase-out provision 
and may require additional reporting on changes to do so. However, this 
final rule further clarifies that such additional reporting 
requirements must not constitute an undue burden, pursuant to the 
conditions in (e)(2)(ii) and (e)(2)(iii). Such requirements must not 
require an office visit in order to fulfill notification requirements, 
and must offer a range of notification options (e.g., phone, email, 
online forms, extended submission hours) to accommodate the needs of 
parents.
    While such co-payment policies should help families gradually 
transition off of assistance, ACF encourages Lead Agencies to ensure 
that co-payment increases are gradual in proportion to a family's 
income growth and do not constitute too high a cost burden for families 
so as to ensure stability as family income increases. Lead Agencies 
must remain in compliance with the statutory requirement at Section 
658E(c)(5) that the State's sliding fee scale is not a barrier to 
families receiving CCDF assistance.
    Income eligibility policies play an important role in promoting 
pathways to financial stability for families. Currently, 16 Lead 
Agencies use two-tiered income eligibility. However, even with higher 
exit-level eligibility thresholds in these States/Territories, a small 
increase in earnings may result in families becoming ineligible for 
assistance before they are able to afford the full cost of care. While 
there are many factors that determine how a State sets their 
eligibility thresholds, an unintended consequence of low eligibility 
thresholds is that low income parents may pass up raises or job 
advancement in order to retain their subsidy, which undermines a key 
goal of CCDF to help parents achieve independence from public 
assistance. This rule allows low-income families to continue child care 
assistance as their income grows in order to support financial 
stability.
    Irregular fluctuations in earnings. In Sec.  98.21(c), we reiterate 
statutory language at Section 658E(c)(2)(N)(i)(II) of the Act which 
requires Lead Agencies to establish processes for initial determination 
and re-determination of eligibility that take into account parents' 
irregular fluctuations in earnings. We

[[Page 67469]]

clarify that temporary increases in income should not affect 
eligibility or family co-payments, including monthly income 
fluctuations that show temporary increases, which if considered in 
isolation, may incorrectly indicate that a family is above the federal 
threshold of 85 percent of SMI, when in actuality their annual income 
remains at or below 85 percent of SMI.
    Lead Agencies retain broad flexibility to set their policies and 
procedures for income calculation and verification. There are several 
approaches Lead Agencies may take to account for irregular fluctuations 
in earnings. Lead Agencies may average family earnings over a period of 
time (e.g., 12 months) to better reflect a family's financial 
situation; Lead Agencies may adjust documentation requirements to 
better account for average earnings, for example, by requesting the 
earnings statement that is most representative of the family's income, 
rather than the most recent statement; or Lead Agencies may choose to 
discount temporary increases in income provided that a family 
demonstrates that an isolated increase in pay (e.g., short-term 
overtime pay, lump sum payments such as tax credits, etc.) is not 
indicative of a permanent increase in income.
    We did not receive substantive comment in this section and are 
therefore retaining the proposed language in this final rule.
    Undue disruption. In accordance with Section 658E(c)(2)(N)(i)(II) 
of the Act, the final rule adds Sec.  98.21(d), which requires the Lead 
Agency to establish procedures and policies to ensure that parents, 
especially parents receiving TANF assistance, are not required to 
unduly disrupt their education, training, or employment in order to 
complete the eligibility re-determination process. This provision of 
the Act seeks to protect parents from losing assistance for failure to 
meet renewal requirements that place unnecessary barriers or burdens on 
families, such as requiring parents to take leave from work in order to 
submit documentation in person or requiring parents to resubmit 
documents that have not changed (e.g., children's birth certificates).
    To meet this provision, Lead Agencies could offer a variety of 
family-friendly mechanisms through which parents could submit required 
documentation (e.g., phone, email, online forms, extended submission 
hours, etc.). Lead Agencies could also consider strategies that inform 
families, and their providers, of an upcoming re-determination and what 
is required of the family. Lead Agencies could consider only asking for 
information necessary to make an eligibility determination or only 
asking for information that has changed and not asking for 
documentation to be re-submitted if it has been collected in the past 
(e.g., children's birth certificates; parents' identification, etc.) or 
is available from other electronic data sources (e.g., verified data 
from other benefit programs). Lead Agencies can pre-populate renewal 
forms and have parents confirm that information is accurate.
    In general, ACF strongly encourages Lead Agencies to adopt 
reasonable policies for establishing a family's eligibility that 
minimize burdens on families. Given the new eligibility provisions 
established by reauthorization, Lead Agencies are encouraged to re-
evaluate processes for verifying and tracking eligibility to simplify 
eligibility procedures and reduce duplicative requirements across 
programs. Simplifying and streamlining eligibility processes along with 
other changes in the subpart may require significant change within the 
CCDF program. Lead Agencies should provide appropriate training and 
guidance to ensure that caseworkers and other relevant child care staff 
(including those working for designated entities) clearly understand 
new policies and are implementing them correctly. Comments received in 
this section were supportive of the proposed policies and we are 
therefore keeping these provisions in this final rule.
    Reporting changes in circumstance. Currently, many Lead Agencies 
have policies in place to monitor eligibility on an ongoing basis to 
ensure that at any given point in time a family is eligible for 
services, often called change-reporting or interim-reporting. As the 
revised statute provides that children may retain eligibility through 
most changes in circumstance, it is our belief that comprehensive 
reporting of changes in circumstance is not only unnecessary but runs 
counter to CCDF's goals of promoting continuity of care and supporting 
families' financial stability.
    Additionally, there are challenges associated with interim 
monitoring and reporting, including costs to families trying to balance 
work or education and family obligations and costs to Lead Agencies 
administering the program. Overly burdensome reporting requirements can 
also result in increased procedural errors, as even parents who remain 
eligible may face difficulties complying with onerous reporting rules.
    Lead Agencies should significantly reduce change reporting 
requirements for families within the eligibility period, and limit the 
reporting requirements to changes that impact federal CCDF eligibility. 
Section 98.21(e) of final rule requires Lead Agencies to specify in 
their Plans any requirements for families to notify the Lead Agency (or 
its designee) of changes in circumstances between eligibility periods, 
and describe efforts to ensure such requirements do not place an undue 
burden on eligible families that could impact continued eligibility 
between re-determinations.
    Under Sec.  98.21(e)(1), the Lead Agency must require families to 
report a change at any point during the minimum 12-month period only 
when the family's income exceeds 85% of SMI, taking into account 
irregular income fluctuations. At the option of the Lead Agency, the 
Lead Agency may require families to report changes where the family has 
experienced a non-temporary cessation of work, training, or education.
    Section 98.21(e)(2) specifies that any notification requirements 
may not constitute an undue burden on families and that compliance with 
requirements must include a range of notification options (e.g., phone, 
email, online forms, extended submission hours) and not require an in-
person office visit. This includes parents who are working, as well as 
those participating in job training or educational programs.
    The final rule also limits notification requirements only to items 
that impact a family's eligibility (e.g., income changes over 85 
percent of SMI, and at Lead Agency option, the status of the child's 
parent as working or attending a job training or educational program) 
or those that are necessary for the Lead Agency to contact the family 
or pay providers (e.g., a family's change of address or a change in the 
parent's choice of provider). Lead Agencies may examine additional 
eligibility criteria at the time of the next re-determination.
    Section 98.21(e)(4) requires Lead Agencies to allow families the 
option of reporting information on an ongoing basis, particularly to 
allow families to report information that would be beneficial to their 
assistance (such as an increase in work hours that necessitates 
additional child care hours or a loss of earnings that could result in 
a reduction of the family co-payment). While we encourage limiting 
reporting requirements for families, it was not our intent to limit the 
family's ability to report changes in circumstances, particularly in 
cases where they may have entered into more stressful or vulnerable 
situations or would be eligible for additional child care assistance. 
Moreover, if a family voluntarily reports changes on an

[[Page 67470]]

ongoing basis to the Lead Agency that do not make the family 
ineligible, the Lead Agency must act on these provisions if it would 
increase the family's benefit, but cannot act on any information that 
would reduce the family's benefit. (We do note, however, that a Lead 
Agency may adjust the subsidy amount in accordance with its payment 
rate schedule in the event that a family voluntarily changes child care 
providers during the eligibility period). All of the above provisions 
apply to any entities that perform eligibility functions in the CCDF 
program on the Lead Agency's behalf.
    Finally, some Lead Agencies currently use electronic data from 
other State/Territory and Federal databases to verify or monitor CCDF 
eligibility. Lead Agencies may continue this practice, which is 
particularly useful in reducing the burden on families at the time of 
initial determination or re-determination. However, Lead Agencies 
should ensure any such data that is acted upon during the minimum 12-
month eligibility period conform to the above requirements for change 
reporting and all CCDF rules.
    We recognize that some States currently send interim reporting 
forms to families during the eligibility period to request that 
families verify or update information. Some States use such interim 
reporting to align with processes in other programs, such as semi-
annual SNAP simplified change reporting. Such periodic reporting forms 
are contrary to the spirit of the Act, which provides for minimum 12-
month eligibility between redeterminations. In the NPRM, we asked for 
comments on whether States should have the option for 6-month interim 
reporting forms for CCDF, and if such reports are allowed, the best way 
to structure them so as to promote continuity of services for the 
minimum 12-month eligibility period for eligible families, consistent 
with the Act. We also asked for comment on whether States should be 
able to adjust co-payments or otherwise act on verified information 
(e.g., updated income information) received from other programs or 
sources.
    As discussed earlier, acting on information received pursuant to 
eligibility determinations or re-certifications in other programs 
allows CCDF Lead Agencies to extend a child's eligibility by 
``resetting the clock'' and starting a new 12-month period. We asked 
for comments on whether the benefits of this approach outweigh the 
impact of any co-payment increases, if allowed, during the minimum 12-
month period, and whether those benefits would be a reason to allow 
Lead Agencies to act on verified information from other programs.
    Comment: Comments received in this area were mixed, mostly between 
States who value interim and six-month reporting as a mechanism for 
working with families and ensuring that their information is still 
accurate, and other commenters who prioritized stability for the family 
and minimizing administrative burden.
    One State commented that six month reporting was necessary ``to 
ensure that a need for care still exists and to review any changes that 
may benefit the client.'' Another said that it ``utilizes a 6 month 
review form for parents to report changes in circumstances.'' This 
process, according to the State, ``does not require the parent to show 
up in person and thus does not constitute an undue burden on 
families.''
    Another area of concern for States was alignment with other 
programs. There was concern that if a State cannot act on information 
discovered through interim reporting and ``if these changes cannot be 
applied, the program will need to be de-linked from other eligibility 
programs. This would impose a significant administrative burden and 
will be costly.''
    Other commenters had concerns about the impact that interim 
reporting would have on families and were particularly wary of any such 
reporting undermining the minimum 12-month eligibility established by 
the Act. One commenter pointed out that the process ``can be overly 
burdensome to poor and low-income families, adds an additional 
administrative cost and, as noted in the proposed rules, is not in 
keeping with the spirit of the Act's minimum 12-month eligibility 
period.''
    Response: Despite concerns to the contrary, limiting interim 
reporting and, in particular, prohibiting 6-month reporting is 
essential to maintaining the advances made by the CCDBG Act of 2014. We 
are concerned that 6-month interim checks will lead to de-facto 
redeterminations, with many families potentially losing subsidy for 
failure to submit interim reports (even if they otherwise continue to 
meet eligibility requirements). Additionally, because the Act specifies 
that, once determined to be eligible, a child will be considered to 
meet all eligibility requirements for such assistance and will receive 
such assistance, for not less than 12 months, there is no longer 
sufficient rationale for verifying information (such as a need for 
care) or tracking changes within the eligibility period. The Act now 
specifically mandates that children will be considered to meet 
eligibility requirements, so tracking changes would be not only 
unnecessary, but in conflict with the Act. While some States indicate 
that interim reporting is not burdensome to families, the fact remains 
that, if a family did not complete a report, they would most likely be 
terminated from assistance. This is counter to the minimum 12-month 
redetermination period established by the Act.
    However, for the purposes of adjusting co-payments, in section 
98.21(e)(3) we do allow Lead Agencies to require additional reporting 
on changes in family income for families in the graduated phase-out 
category. This should alleviate some of the concern from States and 
allow some measure of reporting, but limited to those families who have 
already exceeded the State's initial eligibility threshold.
    Research and experience in the field suggests that administrative 
burden is a barrier to continuity; the Act requires that 
redetermination processes should not unduly disrupt parents' 
employment. A literature review of research on child care subsidies 
found, ``According to an experimental study in Illinois and analyses of 
administrative data in six other States, the length of subsidy spells 
is associated with the timing of subsidy redetermination, with shorter 
redetermination periods being associated with shorter subsidy spells 
and subsidy spells tending to end at the time of redetermination.'' 
(Forry, et al., Child Trends, December 2013) We are therefore keeping 
this final rule consistent with what was proposed in the NPRM.
    For commenters concerned about limitations on interim reporting 
being a barrier to linking with other programs, we want to emphasize 
that that these limits refer to CCDF reporting requirements. If a 
family is participating in another benefit program that has interim 
reporting requirements, nothing in this final rule prohibits those 
programs from interim reporting. This would, however, limit the Lead 
Agency's ability to act, for CCDF purposes, on information gathered 
through another program's reporting. We recognize the possible 
logistical challenges of alignment, and will make technical assistance 
providers with experience in this area available to work with and 
support Lead Agencies in maintaining alignment with other programs 
while implementing these new requirements.
    For those commenters who expressed a desire for interim reporting 
so that families could report beneficial changes, Sec.  98.21(e)(4) of 
this final rule requires that Lead Agencies must allow families the 
option to voluntarily report changes

[[Page 67471]]

on an ongoing basis. This ensures that a family will not be limited in 
their ability to report, particularly in instances that would be to 
their benefit.
    Program integrity. It is important to ensure that CCDF funds are 
effectively and efficiently targeted towards eligible low-income 
families. Policies to promote continuity, such as lengthening 
eligibility periods and allowing a child to remain eligible between re-
determination periods, are consistent with and support a strong 
commitment to program integrity. ACF expects Lead Agencies to have 
rigorous processes in place to detect fraud and improper payments, but 
these should be reasonably balanced with family-friendly practices.
    In order to remain consistent with the requirements in this 
subpart, Sec.  98.21(a)(4) affirmatively states that, because a child 
meeting eligibility requirements at the most recent eligibility 
determination or re-determination is considered eligible between re-
determinations as described in Sec.  98.21(a)(1), any payment for such 
a child shall not be considered an error or improper payment under 
Subpart K due to the family's circumstances. This clarifies that 
compliance with the policies in this Subpart do not constitute an error 
and Lead Agencies will not be held accountable for payments within 
these parameters.
    When implementing their CCDF programs, Lead Agencies must balance 
ensuring compliance with eligibility requirements with other 
considerations, including administrative feasibility, program 
integrity, promoting continuity of care for children, and aligning 
child care with Head Start, Early Head Start, and other early childhood 
programs. These changes are intended to remove any uncertainty 
regarding applicability of Federal eligibility requirements for CCDF 
and the threat of potential penalties or disallowances that otherwise 
may inhibit a Lead Agencies' ability to balance these priorities in a 
way that best meets the needs of children.
    Some Lead Agencies currently use ``look back'' and recoupment 
policies as part of eligibility re-determinations. These review a 
family's eligibility for the prior eligibility period to see if the 
family was ineligible during any portion of that time and recoup 
benefits for any period where the family had been ineligible. However, 
there is no Federal requirement for Lead Agencies to recoup CCDF 
overpayments, except in instances of fraud. We strongly discourage such 
policies as they may impose a financial burden on low-income families 
that is counter to CCDF's long-term goal of promoting family economic 
stability. The Act affirmatively states an eligible child will be 
considered to meet all eligibility requirements for a minimum of 12 
months regardless of increases in income (as long as income remains at 
or below 85 percent of SMI) or temporary changes in parental employment 
or participation in education and training. Therefore, there are very 
limited circumstances in which a child would not be considered eligible 
after an initial eligibility determination. We encourage Lead Agencies 
instead to focus program integrity efforts on the largest areas of risk 
to the program, which tend to be intentional violations and fraud 
involving multiple parties.
    Existing regulations at Sec.  98.60 indicate that Lead Agencies 
shall recover child care payments that are the result of fraud from the 
responsible party. While the final rule does not define the term fraud 
and leaves flexibility to Lead Agencies, fraud in this context 
typically involves knowing and willful misrepresentation of information 
to receive a benefit. We urge Lead Agencies to carefully consider what 
constitutes fraud, particularly in the case of individual families.
    Taking into consideration children's development and learning. This 
final rule affirms that both the child's development and the parent's 
need to work or attend school or training are factors in the child care 
needs of each family. This rule amends Sec.  98.21 to add paragraph (f) 
to require that Lead Agencies take into consideration children's 
development and learning and promote continuity of care when 
authorizing child care services. There are myriad ways in which this 
provision could be incorporated into Lead Agencies' eligibility, 
intake, authorization, and CCDF policies and practices. ACF intends to 
work with Lead Agencies to provide technical assistance and identify a 
variety of strategies to fit different eligibility processes. As an 
example, in serving a preschool-aged child (i.e., age 3 or 4), the Lead 
Agency may consider whether or not the child has access to a high-
quality preschool setting and how CCDF can make enrollment in a high-
quality preschool more likely.
    Lead Agencies could partner with Head Start, pre-kindergarten, or 
other high-quality programs to build an intentional package of 
arrangements for the child that allows for attendance at preschool and 
a second arrangement that accommodates the parent's work schedule. For 
infants and toddlers, a Lead Agency may want to coordinate services 
with Early Head Start, while also maintaining a secondary child care 
arrangement to preserve the relationship with a familiar caregiver, as 
it is particularly important for infants and toddlers to build and 
maintain secure relationships with caregivers. A Lead Agency could also 
offer parents the choice to select high-quality infant slots that are 
funded through contracts or grants. For children of all ages, providing 
more intensive case management for families with children with multiple 
risk factors can increase the likelihood that the family will find a 
stable, quality child care provider that is willing to work with other 
service providers in assisting the child and family.
    The intent of this provision is that the Lead Agency has some 
mechanism in place to consider the child's development and learning, 
but a Lead Agency has broad flexibility to determine how this is done. 
At a minimum, we expect Lead Agencies to collect sufficient information 
during the CCDF intake process in order to make necessary referrals for 
services. For example, a Lead Agency could ensure there is an automatic 
referral of eligible children to Early Head Start or Head Start. A Lead 
Agency could also include in their eligibility determination process a 
question about whether or not the child has an Individualized Education 
Program (IEP) or Individual Family Service Plan (IFSP), so that the 
parent could be provided with information on providers that are 
equipped to provide services that meet the child's individual needs.
    ACF encourages Lead Agencies to engage in public-private 
partnerships so that responsibility for implementing this provision 
does not fall solely on CCDF eligibility workers. Partnerships with 
child care resource and referral agencies, early intervention agencies, 
and others may mean that a few well-chosen questions during the intake 
process prompt the eligibility worker (or automated system if the 
process is online) to direct the family to appropriate resources. This 
requirement does not require a developmental screening of every child 
as part of the eligibility process; however, child care agencies should 
partner to ensure that children in the CCDF subsidy system can access 
appropriate screening and follow-up.
    We recognize that, given constraints on funding, limited human 
resource capacity, and the inadequate supply of high-quality care, a 
perfect arrangement will not be found in all cases. Rather, we expect 
Lead Agencies to consider how they can best meet the developmental and 
learning needs of

[[Page 67472]]

children in their policies and practices and to encourage partnerships 
among high-quality providers, child care resource and referral 
agencies, and case management partners to strengthen CCDF's capacity to 
fulfill its child development mission for families.
    Comment: While comments in this area were supportive of the 
addition of child development, there were some concerns regarding 
implementation. One commenter pointed out that, in their State, 
``parents apply online for child care assistance and are not required 
to have an interview. The proposed requirement would result in adding a 
list of additional questions to the application for services. 
Eligibility workers process multiple programs (TANF, SNAP, Medicaid, 
Child Care) and do not have the expertise in this area. The questions 
would need to be automatically screened and referrals sent. This would 
require extensive programming changes.''
    Response: As stated above, the intent of this provision is that the 
Lead Agency has some mechanism in place to consider the child's 
development and learning, but a Lead Agency has broad flexibility to 
determine how this is done. In one of the examples given, eligibility 
for Early Head Start or Head Start, this could be determined through 
information already collected during the eligibility process. It may be 
necessary for the State to add additional questions to fulfill this 
requirement (for instance, the IEP or IFSP question mentioned above) 
However, given the broad flexibility that States have in this area, we 
will work with the State to implement these changes within a reasonable 
timeline and provide technical assistance where appropriate to support 
these efforts. We have retained the language in Sec.  98.21(f) from the 
NPRM.
    No requirement to limit authorized care to parent schedule. The 
final rule clarifies at Sec.  98.21(g) 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 work, training, or educational 
activities. Tying child care subsidy authorizations closely to parental 
work, education, or training hours may limit access to high-quality 
settings and does not support the fixed costs of providing care. In 
particular, it creates challenges for parents with variable schedules 
and inhibits their children from accessing a consistent child care 
arrangement. This provision clarifies that ``matching'' the hours of 
child care to a parent's hours of work is not required. In some cases, 
such ``matching'' works against the interests of the parent or child.
    Lead Agencies are encouraged to authorize adequate hours to allow 
children to participate in a high-quality program, which may be more 
hours than the parent is working or in education or training. For 
example, if most local high-quality early learning programs offer only 
full-time slots, a child whose parent is working part-time may need 
authorization for full-time care. Commenters were supportive of this 
policy, and the final rule therefore retains it.

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

    Two of the Act's purposes are: (1) To promote parental choice to 
empower working parents to make their own decisions regarding the child 
care services that best suit their family's needs; and (2) to encourage 
States to provide consumer education information to help parents make 
informed choices about child care services and to promote involvement 
by parents and family members in the development of their children in 
child care settings. 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 conducted by Lead Agencies to increase parental 
awareness of the range of child care options available to them.
    This final rule makes a number of changes to this subpart, 
including, establishment of a hotline for parents to submit complaints 
about child care providers, establishment of a consumer education Web 
site with provider-specific information including monitoring and 
inspection reports, ensuring parents and providers receive information 
about developmental screenings for children, and requiring Lead 
Agencies to affirmatively provide CCDF parents with a consumer 
statement with specific information about the child care provider they 
select.
Sec.  98.30 Parental Choice
    This final rule includes a technical change to delete group home 
child care from the variety of child care categories at Sec.  98.30(e) 
from which parents receiving a certificate for child care service must 
be able to choose. This is a conforming change consistent with 
revisions at Sec.  98.2 removing group home child care from the 
definition of categories of care and eligible child care provider. As 
discussed earlier, instead the final rule modifies the definition of 
family child care provider to include one or more individuals to be 
inclusive of group home child care within this category. Lead Agencies 
may continue to use the category of group homes, but we are no longer 
requiring it as a separate category for federal reporting purposes. We 
did not receive comments on this provision and the final rule retains 
the language from the NPRM.
    In-home care. This final rule revises Sec.  98.30(f)(2) to 
explicitly allow for Lead Agencies to adopt policies that may limit 
parental access to in-home care. This change aligns with previously-
existing policy as discussed in the preamble to the 1998 Final Rule. 
Specifically, the preamble documented Lead Agencies' ``complete 
latitude to impose conditions and restrictions on in-home care.'' (63 
FR 39950) As discussed in the 1998 preamble, monitoring the quality of 
care and the appropriateness of payments to in-home providers poses 
special challenges for Lead Agencies.
    Comment: The few comments we received on this provision were 
generally supportive. One State commented that it would not prohibit or 
limit in-home care because it is often chosen in that State to provide 
care for families with non-traditional work hours.
    Response: To clarify, this provision does not limit or prohibit a 
State from allowing parents to choose in-home care. Rather, it provides 
Lead Agencies with the flexibility to limit the use of that care. We 
understand there are many factors that may lead parents to choose in-
home care, including the need for care at non-traditional hours or care 
for children with special needs, and urge Lead Agencies to consider 
those factors when deciding whether to put limitations on in-home care. 
It is crucial that parents have access to the types of care necessary 
for them to work and for their children to be in a safe and enriching 
environment. While this change codifies Lead Agencies' ability to 
impose limits on the use of in-home care, it does not allow for Lead 
Agencies to flatly prohibit the use of in-home care. As this is 
longstanding policy, we do not expect the change to have a significant 
impact on families or Lead Agencies. We have retained the language 
proposed in the NPRM.
    Parental choice and child care quality. Regulations at Sec.  
98.30(f) prohibit Lead Agencies from implementing health and safety or 
regulatory requirements that significantly restrict parental choice by

[[Page 67473]]

expressly or effectively excluding any category or type of provider, as 
defined at Sec.  98.2, or any type of provider within a category of 
care. Section 98.2 defines categories of care as center-based child 
care, family child care, and in-home care (i.e., a provider caring for 
a child in the child's own home). Types of providers are defined as 
non-profit, for-profit, sectarian, and relative providers.
    This final rule adds paragraph (g) at Sec.  98.30 to clarify that, 
as long as parental choice provisions at paragraph (f) of this section 
are met, parental choice provisions should not be construed as 
prohibiting a Lead Agency from establishing policies that require child 
care providers that serve children receiving subsidies to meet higher 
standards of quality, such as those identified in a quality rating and 
improvement system or other transparent system of quality indicators 
pursuant.
    In order to be meaningful, the parental choice requirements 
included in this section should give parents access to child care 
arrangements across a range of providers that foster healthy 
development and learning for children. Many Lead Agencies have invested 
a significant amount of CCDF funds to implement quality rating and 
improvement systems (QRIS) to promote high-quality early care and 
education programs, and some have expressed concerns that the 
previously existing regulatory language related to parental choice 
inhibited their ability to link the child care subsidy program to these 
systems. In order to fully leverage their investments, Lead Agencies 
are seeking to increase the number of children receiving CCDF subsidies 
that are enrolled with providers participating in the quality 
improvement system. ACF published a Policy Interpretation Question 
(CCDF-ACF-PIQ-2011-01) clarifying that parental choice provisions 
within regulations do not automatically preclude a Lead Agency from 
implementing policies that require child care providers serving 
subsidized children to meet certain quality requirements, including 
those specified within a quality improvement system. As long as certain 
conditions are met to protect a parent's ability to choose from a 
variety of categories and types of care, a Lead Agency could require 
that, in order to provide care to children receiving subsidies, the 
provider chosen by the parent must meet requirements associated with a 
specified level in a quality improvement system. This final rule 
incorporates the policy interpretation into regulation at Sec.  
98.30(g).
    Comment: We received very few comments on this area. Faith-based 
and private education organizations recommended we delete the provision 
because it ``potentially eliminates essential distinctions among 
providers and thus robs parents of choice.''
    Response: We declined to accept this comment and have left the 
provision as proposed in the NPRM. As a Lead Agency may make different 
allowances as they implement this policy, we do not think it will limit 
parental choice. There are certain tenants that the Lead Agency should 
follow when establishing these policies to ensure that parents continue 
to have access to the full range of providers. We encourage Lead 
Agencies to assess the availability of care across categories and 
types, and availability of care for specific subgroups (e.g., infants, 
school-age children, families who need weekend or evening care) and 
within rural and underserved areas, to ensure that eligible parents 
have access to the full range of categories of care and types of 
providers before requiring them to choose providers that meet certain 
quality levels. Should a Lead Agency choose to implement a quality 
improvement system that does not include the full range of providers, 
the Lead Agency would need to have reasonable exceptions to the policy 
to allow parents to choose a provider that is not eligible to 
participate in the quality improvement system (e.g., relative care). As 
an example, a Lead Agency may implement a system that incorporates only 
center-based and family child care providers. In cases where a parent 
selects a center-based or family child care provider, the Lead Agency 
may require that the provider meet a specified level or rating. 
However, the policy also must allow parents to choose other categories, 
such as in-home care, and types of child care providers, such as 
relative providers, that may not be eligible to participate in the 
quality improvement system. This is particularly important for 
geographic areas where an adequate supply of high-quality child care is 
lacking or when a parent has scheduling, transportation, or other 
issues that prevent the use of a preferred provider within the system.
    In addition, this final rule includes Sec.  98.30(h) to clarify 
that Lead Agencies may provide parents with information and incentives 
that encourage the selection of high-quality child care without 
violating parental choice provisions. This provision allows, but does 
not require, Lead Agencies to adopt policies that incentivize parents 
to choose high-quality providers as determined by a system of quality 
indicators. Lead Agencies are not required to adopt policies that 
encourage or incentivize parents to choose high-quality providers; 
however, we strongly encourage that they do adopt these policies.
    Comment: We only received a few comments on the proposed provision. 
Faith-based and private education organizations recommended deleting 
the provision as it ``substitutes the Lead Agency's interpretation of 
what constitutes `high-quality' child care for the parent's 
interpretation.'' Another commenter supported keeping the provision but 
requested ACF provide examples of how Lead Agencies can use information 
and incentives to help parents choose high-quality providers.
    Response: This provision codifies previously existing policy and 
provides Lead Agencies with needed tools to help support parents as 
they look for quality child care settings. Therefore, we have chosen to 
keep the provision as proposed in the NPRM. We want to emphasize that 
Lead Agencies are not required to implement these policies. Lead 
Agencies have the flexibility to determine what types of information 
and incentives to use to encourage parents to choose high-quality 
providers. One option is to lower parental co-payments for parents that 
choose a high-quality provider. We encourage Lead Agencies, or their 
partners such as child care resource and referral agencies, to use 
information from a QRIS or other system of quality indicators to make 
recommendations and help parents make informed child care decisions, 
for example, by listing the highest rated providers at the top of a 
referral list and providing information about the importance of high-
quality child care. Lead Agencies are not limited to these examples and 
should design information sharing and incentives in a way that best 
fits the families they serve with CCDF.
Sec.  98.31 Parental Access
    This final rule makes a technical change at Sec.  98.31 to specify 
that Lead Agencies shall provide a detailed description ``in the Plan'' 
of how they ensure that providers allow parents to have unlimited 
access to their children while the children are in care. This 
corresponds to the provision at Sec.  98.16(t). We received one comment 
from a national organization expressing support for this provision and 
have retained the proposed rule language
Sec.  98.32 Parental Complaints
    Hotline for parental complaints. Section 658E(c)(2)(C) of the Act 
requires Lead Agencies to maintain a record of

[[Page 67474]]

substantiated parental complaints, make information regarding such 
parental complaints available to the public on request, and provide a 
detailed description of how such a record is maintained and made 
available. This final rule adds Sec.  98.32(a), which requires Lead 
Agencies to establish or designate a hotline or similar reporting 
process for parents to submit complaints about child care providers. In 
connection with this change we have added a provision at Sec.  
98.33(d), to require Lead Agencies to include the hotline number or 
other reporting process in the consumer statement for CCDF parents, 
pursuant to this requirement. Lead Agencies should identify the 
capability for the parental complaint hotline to be accessible to 
persons with limited English proficiency and persons with disabilities, 
such as through the provision of interpretation services and auxiliary 
aids.
    Lead Agencies vary in how they meet the previously-existing 
requirement to keep a record of and make public substantiated parental 
complaints. According to an analysis of FY 2014-2015 CCDF Plans, as 
well as State child care and licensing Web sites, 18 States have a 
parental complaint hotline that covers all CCDF providers, 22 States 
have a parental complaint hotline that covers some child care 
providers, and 16 States and Territories do not have a parental 
complaint hotline.
    The Department of Defense (DOD) military child care program runs a 
national parental complaint hotline. The Military Child Care Act of 
1989 (Pub. L. 101-189) required the creation of a national 24 hour, 
toll-free hotline that allows parents to submit complaints about 
military child care centers anonymously. DOD has found the hotline to 
be an important tool in engaging parents in child care. In addition, 
complaints received through the hotline have helped DOD identify 
problematic child care programs. For example, information that was 
submitted through the hotline led to an investigation and the closure 
of some child care facilities in the early 1990s. (Campbell, N., 
Appelbaum, J., Martinson, K., Be All That We Can Be: Lessons from the 
Military for Improving Our Nation's Child Care System, National Women's 
Law Center, 2000)
    We strongly encourage the Lead Agency to widely publicize the 
process for submitting a complaint about a provider and to consider 
requiring child care providers to publicly post the process, including 
the hotline number and/or URL for the web-based complaint system, in 
their center or family child care home to increase parental awareness. 
Other areas for posting may be on the Web site required by Section 
658E(c)(2)(E) of the Act and Sec.  98.33(a), through a child care 
resource and referral network, at local agencies where parents apply 
for benefits, or other consumer education materials distributed by the 
Lead Agency.
    We also strongly encourage Lead Agencies to implement a single 
point of entry (e.g., one toll-free hotline number) as the most 
straightforward way for parents to file a complaint. There should not 
be a burden for the parent in finding the correct hotline number or Web 
page address. Many parents may not know whether the provider is 
licensed or license-exempt, for example, and therefore will not know 
which hotline to call if there are separate contact points for 
providers. Lead Agencies that choose to combine existing lines or 
devolve responsibility to local agencies should set-up a single point 
of entry with a process to immediately refer the call to the 
appropriate agency.
    Comment: A few States requested clarification about whether the 
hotline had to be monitored 24 hours a day.
    Response: Lead Agencies have a great deal of flexibility in how 
they implement the parental complaint hotline. To be most useful, 
parents should be able to file a complaint at any time. We strongly 
recommend, but do not require, that a telephonic hotline be operational 
24 hours a day, or at minimum include a voicemail system that allows 
parents to leave complaints when an operator is not available. Lead 
Agencies may also choose to have a web-based system that allows for 24-
hour complaint submission.
    Comment: One State opposed the requirement to implement a hotline 
or similar process for parents to submit complaints. The State argued 
that the reauthorized statute required a national hotline to be created 
and ``the State can include the national toll-free hotline information 
as the `single contact number'. . . if necessary''.
    Response: Section 658L(b)(2) of the Act requires HHS to create a 
national hotline for submitting complaints. HHS is currently working on 
designing and implementing this hotline as a tool for parents to submit 
concerns. However, the CCDBG Act of 2014 did not change the requirement 
that States keep and make available a record of substantiated 
complaints. Maintaining and sharing substantiated complaints continues 
to be a statutory requirement and establishing a clear, easily-
accessible way for parents to file complaints is an important part of 
meeting that requirement. As this is a separate process from the 
national hotline, States still must have a means for collecting 
parental complaints. In addition, States and localities are in a much 
better position to react quickly to complaints, which can be critical 
when there are immediate concerns about a child's safety. By requiring 
States and Territories to have a parental complaint system, ACF aims to 
ensure that parents have the tools necessary to ensure their children 
are in safe environments. Therefore, we have retained the language in 
the proposed rule.
    Furthermore, the requirement provides enough flexibility that 
States likely already have the infrastructure in place to 
operationalize a hotline or other reporting mechanism, and therefore we 
do not expect it will be a burden. We want to emphasize that the Lead 
Agency may choose a different agency at the State, Territory, Tribal, 
or local level to manage the parental complaint system or find ways to 
combine the process for collecting parental complaints with already 
existing hotlines. For example, in some States and Territories, the 
licensing agency handles complaints of licensed providers and a 
different agency handles license-exempt providers. Lead Agencies may 
choose to devolve management of a complaint system to the local level 
in order to facilitate more prompt and timely follow-up. We leave it to 
the discretion of the Lead Agency to determine the best way to manage 
the hotline.
    Process for Substantiating and Responding to Complaints. This final 
rule requires Lead Agencies at Sec.  98.32(d)(1) to describe in their 
Plans their processes for substantiating and responding to complaints, 
including whether the State, Territory or Tribe uses monitoring as part 
of its process for responding to complaints for both CCDF and non-CCDF 
providers. We encourage Lead Agencies to have a complaint response plan 
in place that includes appropriate time frames for following up on a 
complaint depending on the urgency or severity of the parent's concern 
and other relevant factors. States, Territories and Tribes must have a 
process for substantiating complaints, and we strongly recommend that 
this include unannounced inspections and monitoring visits, 
particularly in instances where there is a potential threat to safety, 
health, or well-being of children.
    Comment: In the NPRM, we requested comments about requiring Lead 
Agencies at Sec.  98.42 to use unannounced monitoring visits to respond 
to complaints related to health and safety of the child. As discussed 
later, many

[[Page 67475]]

commenters supported States being required to conduct inspections in 
response to complaints. However, others felt that we should leave how 
Lead Agencies respond to complaints to the discretion of the State.
    Response: This final rule does not require Lead Agencies to use a 
specific process for responding to complaints. However, it is important 
that the public know how a Lead Agency responds to and substantiates a 
complaint. This is especially true because of the long-standing 
statutory requirement for States to keep a record of any substantiated 
complaints made about a child care provider. In order to meet that 
requirement, Lead Agencies must have some process for examining 
complaints when they are submitted. Therefore, this final rule requires 
States to provide additional information in their Plans about how they 
respond to complaints, including whether or not the response includes 
monitoring visits of CCDF and non-CCDF providers.
Sec.  98.33 Consumer and Provider Education
    In the 2014 reauthorization, Congress expanded the requirements 
related to consumer and provider education. Section 658E(c)(2)(E) of 
the Act requires Lead Agencies to collect and disseminate, through 
child care resource and referral organizations or other means as 
determined by the Lead Agency, to parents of eligible children, the 
general public, and, where applicable, providers, consumer education 
information that will promote informed child care services. In 
addition, Section 658E(c)(2)(D) requires monitoring and inspection 
reports of child care providers to be made available electronically. 
This focus on consumer education as a crucial part of parental choice 
has laid the foundation for a more transparent system, helping parents 
to better understand their child care options and encouraging providers 
to improve the quality of their services.
    Every interaction parents have with the subsidy system is an 
opportunity to engage them in consumer education to help them make 
informed decisions about their child care providers, as well as provide 
resources that promote child development. This final rule requires 
consumer education services be directly included as part of the intake 
and eligibility process for families applying for child care 
assistance. Parents of eligible children often lack the information 
necessary to make informed decisions about their child care 
arrangement. Low-income working families may face additional barriers 
when trying to find information about child care providers, such as 
limited access to the internet, limited literacy skills, limited 
English proficiency, or disabilities. Lead Agencies can play an 
important role in bridging the gap created by these barriers by 
providing information directly to families receiving CCDF subsidies to 
ensure they fully understand their child care options and are able to 
assess the quality of providers.
    When implementing consumer and provider education provisions, we 
recommend Lead Agencies consider three target audiences: Parents, the 
general public, and child care providers. While some components are 
aimed at ensuring parents have the information they need to choose a 
child care provider, others are equally important for caregivers who 
interact with parents on a regular basis and can serve as trusted 
sources of information.
    Lead Agencies should ensure that all materials are consumer-
friendly and easily accessible; this includes using plain language and 
considering the abilities, languages, and literacy levels of the 
targeted audiences. Lead Agencies should consider translation of 
materials into multiple languages, as well as the use of ``taglines'' 
on consumer education materials for frequently encountered non-English 
languages and to inform persons with disabilities how they can access 
auxiliary aids or services and receive information in alternate formats 
at no cost.
    Consumer education Web site. This final rule amends paragraph (a) 
of Sec.  98.33 to require Lead Agencies to collect and disseminate 
consumer education information to parents of eligible children, the 
general public, and providers through a consumer-friendly and easily 
accessible Web site. The Web site must, at a minimum, include seven 
components: (1) Lead Agency policies and procedures, (2) information on 
availability of child care providers, (3) quality of child care 
providers, (4) provider-specific monitoring and inspection reports, (5) 
aggregate number of deaths and serious injuries (for each provider 
category and licensing status) and instances of substantiated child 
abuse in child care settings each year, (6) referral to local child 
care resource and referral organizations, and (7) directions on how 
parents can contact the Lead Agency, or its designee, and other 
programs to better understand information on the Web site. The 
specifics of each component are discussed in detail below.
    This final rule requires the Web site to be consumer-friendly and 
easily accessible. To ensure that the Web site is accessible for all 
families, it must provide for the widest possible access to services 
for families who speak languages other than English and persons with 
disabilities. Lead Agencies should make sure the Web site meets all 
Federal and State laws regarding accessibility, including the Americans 
with Disabilities Act (ADA) of 1990 (42 U.S.C. 12101, et seq.), to 
ensure individuals with disabilities are not excluded, denied services, 
segregated or otherwise treated differently because of the absence of 
auxiliary aids and services. We recommend Lead Agencies follow the 
guidelines laid out by section 508 of the Rehabilitation Act of 1973, 
as amended (29 U.S.C. 794d), when designing their Web sites. Section 
508 requires that individuals with disabilities, who are members of the 
public seeking information or services from a Federal agency, have 
access to and use of information and data that is comparable to that 
provided to the public who are not individuals with disabilities. The 
US Department of Justice has provided guidance and resources on how to 
create an accessible site at http://www.ada.gov/Websites2.htm.
    Parents should be able to access all the consumer information they 
need to make an informed child care choice through a simple, single 
online source. We encourage Lead Agencies to review current systems and 
redesign if needed to allow for a single point of entry, especially if 
the systems are funded with CCDF funds. However, we recognize that Lead 
Agencies have made significant investments in databases and other web-
based applications. For many States/Territories, the CCDF Lead Agency 
and the licensing agency may not be the same, leading to multiple data 
systems with different ownership. We do not intend to require 
completely new systems be built. Rather, the Web site is a single 
starting point for parents to access the various sources of public 
information required by the Act, including health and safety 
information, licensing history, and other related provider information. 
In the case where this information is already available on multiple Web 
sites, such as in a locally-administered State where each county has 
its own Web site, the Lead Agency could choose to create a single 
consumer-friendly Web page that connects to each of these Web sites, 
provided that each of the Web sites meets all the criteria at Sec.  
98.33(a). Similarly, if there are two Web sites, one that includes 
licensed providers and another that includes CCDF providers, we 
strongly encourage Lead Agencies to

[[Page 67476]]

create a single Web site through which parents can access information.
    The first required component of the consumer education Web site is 
a description of Lead Agency policies and procedures relating to child 
care. This includes explaining how the Lead Agency licenses child care 
providers, including the rationale for exempting providers from 
licensing requirements, as described at Sec.  98.40; the procedure for 
conducting monitoring and inspections of child care providers, as 
described at Sec.  98.42; policies and procedures related to criminal 
background checks for staff members of child care providers, as 
described at Sec.  98.43; and the offenses that prevent individuals 
from being employed by a child care provider or receiving CCDF funds. 
The information about Lead Agency policies and procedures included on 
the consumer education Web site should be in plain language.
    The second required component is a localized list of all providers 
that is searchable by zip code and differentiates whether they are 
licensed or license-exempt providers. This information must include all 
licensed child care providers, and at the discretion of the State, all 
license-exempt child care providers serving children receiving CCDF 
assistance, other than those only providing care for children to whom 
they are related. This means that the Lead Agency may choose to not 
include license-exempt family child care homes in the zip code search. 
When making information public, Lead Agencies should ensure that the 
privacy of individual caregivers and children is maintained, consistent 
with State, local, and tribal laws. Lead Agencies must ensure that this 
localized list includes a clear indicator if a serious injury or death 
due to a substantiated health and safety violation has occurred at that 
provider. This clear indicator should link to the monitoring and 
inspection report (or plain language summary of the report) that 
provides more detail and context on the serious injury or death that 
occurred. As described in more detail below, it is crucial that parents 
are able to clearly identify if a provider had a violation that led to 
the death of a child or a serious injury. We expect that providers with 
serious violations (e.g., leading to a child's death) will no longer be 
operating once a State, Territory or Tribe takes compliance action.
    While not required, we recommend that Lead Agencies include 
additional information with provider profiles, beyond what is required 
by statute, including contact information, enrollment capacity, years 
in operation, education and training of caregivers, and languages 
spoken by caregivers. We also suggest that the quality information and 
monitoring reports be included in the initial search results.
    The third required component is provider-specific quality 
information as determined by the Lead Agency, in accordance with 
Section 658E(c)(2)(E)(i)(II) of the Act, for all child care providers 
for whom they have this information on the Web site. Lead Agencies may 
choose the best method for differentiating the quality levels of child 
care providers. In this rule, we are not requiring that Lead Agencies 
have a QRIS. However, we strongly encourage Lead Agencies to use a 
QRIS, or other transparent system of quality indicators, to collect the 
quality information required at Sec.  98.33(a)(3). Lead Agencies that 
have a QRIS should use information from the QRIS to provide parents 
with provider-specific quality information. By transparent system of 
quality indicators we mean a method of clear, research-based indicators 
that are appropriate for different types of providers, including child 
care centers and family child care homes, and appropriate for providers 
serving different age groups of children, including infants, toddlers, 
preschool, and school-age children. The system should help families 
easily understand whether a provider offers services meeting Lead 
Agency-determined best practices and standards to promote children's 
development, or is meeting a nationally recognized, research-based set 
of criteria, such as Head Start or national accreditation. We encourage 
Lead Agencies to incorporate mandatory licensing requirements as the 
foundation of any system of quality indicators, as a baseline of 
information for parents. By building on licensing structures, Lead 
Agencies may have an easier transition to a more sophisticated system 
that differentiates between indicators of quality.
    Because not all eligible and licensed non-relative child care 
providers may be included in a transparent system of quality 
indicators, this final rule clarifies that provider-specific quality 
information must only be posted on the consumer Web site if it is 
available for the individual provider, which is a caveat included in 
statute. We recognize that it takes time to build a comprehensive 
system that is inclusive of a large number of providers across a wide 
geographic area. However, in order for the quality information provided 
on the Web site to be meaningful and useful for parents it should 
include as many providers as possible. We are not requiring a specific 
participation rate, but the public should have contextual information 
regarding the extent of participation by providers in a system of 
quality indicators.
    In designing a mechanism for differentiating child care quality, we 
suggest considering the following key principles: Provide outreach to 
targeted audiences; ensure indicators are research-based and 
incorporate the use of validated observational tools when feasible; 
ensure assessments of quality include program standards that are 
developmentally appropriate for different age groups; incorporate 
feedback from child care providers and families; make linkages between 
consumer education and other family-specific issues such as care for 
children with special needs; engage community partners; and establish 
partnerships that build upon the strengths of child care resource and 
referral programs and other public agencies that serve low-income 
parents.
    The majority of States/Territories reported in their CCDF Plans 
that they have at least started to implement a QRIS. HHS has 
established a Priority Performance Goal to track the number of States 
that implement a QRIS meeting recommended benchmarks, and, as of FY 
2015, 32 States/Territories met the benchmark, and 28 States/
Territories have made progress on implementing a high-quality QRIS that 
meets HHS benchmarks since the goal was established in FY 2011.
    While ACF encourages Lead Agencies to implement a systemic 
framework for evaluating, improving, and communicating the level of 
quality in child care programs, we are not limiting Lead Agencies to a 
QRIS as the only mechanism for collecting the required quality 
information. Lead Agencies have the flexibility to implement more 
limited, alternative systems of quality indicators. For example, Lead 
Agencies could choose to use a profile or report card of information 
about a child care provider that could include compliance with State/
Territory licensing or health and safety requirements, information 
about ratios and group size, average teacher training or credentials, 
type of curriculum used, any private accreditations held, and presence 
of caregivers to work with young English learners or children with 
special needs. Lead Agencies could also build on existing professional 
development registries or other training systems to provide parents 
with information about caregiver training.
    The fourth Web site requirement is Lead Agencies must post 
provider-specific results of monitoring and inspection reports, 
including those

[[Page 67477]]

reports that are due to major substantiated complaints (as defined by 
the Lead Agency) about a provider's failure to comply with health and 
safety requirements and other Lead Agency policies. The definition of 
``major substantiated complaint'' varies across the country. Therefore, 
we are not requiring a standard definition. However, this final rule 
requires Lead Agencies to explain how they define it on their consumer 
education Web sites. This requirement ensures that the results of 
monitoring and inspection requirements at Sec.  98.42 are available to 
parents when they are deciding on a child care provider.
    In following the statutory language at Section 658E(c)(2)(D) of the 
Act, Lead Agencies must post the monitoring and inspections results for 
child care providers, as defined at Sec.  98.2. This means that the Web 
site must include any provider subject to the monitoring requirements 
at Sec.  98.42, as well as all licensed child care providers and all 
child care providers eligible to deliver CCDF services. Lead Agencies 
are required to post inspection reports for child care providers that 
do not receive CCDF, if available. However, if information is not 
available, such as if a provider is not being inspected and there is no 
inspection report, States are not required to actively seek the 
information.
    This final rule requires Lead Agencies to post full monitoring and 
inspection reports. In order for inspection results to be consumer-
friendly and easily accessible, Lead Agencies must use plain language 
for parents and child care providers and caregivers to understand. 
Often monitoring and inspection reports are long and include jargon and 
references to codes or regulations without any explanation. Reports 
that include complicated references and lack explanation are not 
consumer-friendly, limiting a parent's ability to make an informed 
decision about a child care provider. In the case that full reports are 
not in plain language, Lead Agencies must post a plain language summary 
or interpretation in addition to the full monitoring and inspection 
report.
    Lead Agencies must post reports in a timely manner and include 
information about the date of inspection, information about any 
corrective actions taken by the Lead Agency and child care provider, 
where applicable, and prominently display any health and safety 
violations, including any fatalities or serious injuries that occurred 
at that child care provider While this final rule does not define 
``consumer-friendly and easily accessible'', it is crucial parents be 
able to clearly identify if a provider had a violation that led to the 
death of a child or a serious injury. To ensure this information is 
easily accessible, this final rule requires Led Agencies to clearly and 
prominently display any health and safety violations, including any 
fatalities or serious injuries taking place at the provider. 
Prominently displaying this information helps parents to access 
critical information quickly and without having to sift through other 
information or click through multiple pages. We recommend this 
information be the first item, after the provider name and identifying 
information, included on the report, and be highlighted in a way that 
makes it easy for parents to see, such as through a different or bold 
font or a special text box. As stated earlier in the rule, the 
localized list of providers should include a clear indicator if a 
serious injury or death occurred at the provider due to a substantiated 
health and safety violation, and this indicator should link to the 
monitoring and inspection report that contains greater detail and 
contextual information about the serious injury or death.
    Lead Agencies must also post, at a minimum, three years of results, 
where available. A single year of results could mask patterns of 
infractions and is insufficient for a parent to judge the safety of the 
environment. We do not expect Lead Agencies to post reports 
retrospectively or prior to the effective date of this provision 
(November 19, 2017). Finally, while not required, if earlier reports 
are available, we encourage Lead Agencies to post them on the Web site 
in order to provide more information for parents.
    Posting results and corrective actions in a timely manner is 
crucial to ensuring parents have updated information when making their 
provider decisions. The final rule does not define ``timely.'' We are 
leaving it to the discretion of the Lead Agency to determine a 
reasonable amount of time based on the needs of its families and its 
capacity for updating. However, we do recommend Lead Agencies update 
results as soon as possible and no later than 90 days after an 
inspection or corrective action is taken.
    This final rule also requires Lead Agencies to establish a process 
for correcting inaccuracies in the reports. Lead Agencies have 
discretion to determine the best process for ensuring that all the 
information included in the monitoring and inspection results is 
accurate. We recommend they work with child care providers to design 
and implement a process, and widely distribute the process to child 
care providers.
    The fifth required component of the consumer education Web site is 
posting of the aggregate number of deaths, serious injuries, and 
instances of substantiated child abuse that occurred in child care 
settings each year, for eligible child care providers. This requirement 
is associated with the provider setting and therefore it should include 
information about any child in the care of a provider eligible to 
receive CCDF, not just children receiving subsidies. The information on 
deaths and serious injuries must be separately delineated by category 
of provider (e.g. centers, family child care homes) and licensing 
status (i.e., licensed or license-exempt). The information should 
include: (1) The total number of children in care by provider category/
licensing status; (2) the total number of deaths of children in care by 
provider category/licensing status; and (3) the total number of serious 
injuries in care by provider category/licensing status. We are not 
defining serious injuries or substantiated child abuse in this rule. We 
encourage Lead Agencies to use their State or Territory child welfare 
agency's definition of substantiated child abuse for consistent 
reporting across programs. We encourage Lead Agencies to include the 
data with the results of an annual review of all serious injuries and 
deaths occurring in child care, as required at Sec.  98.53(f)(4).
    The sixth required component of the consumer education Web site is 
the ability to refer to local child care resource and referral 
organizations, which is also a requirement of the national Web site 
discussed later in this final rule. The Web site should include contact 
information, as well as any links to Web sites for any local child care 
resource and referral organizations.
    The final required component of the consumer education Web site is 
information on how parents can contact the Lead Agency, or its 
designee, or other programs that can help the parent understand 
information included on the consumer education Web site. The consumer 
education Web site required by Sec.  98.33(a) represents a significant 
step in making it easier for parents to access information about the 
child care system and potential child care providers. However, the 
amount of information may be difficult to understand or find. In 
addition, parents searching for child care may prefer to speak with a 
person directly as they make decisions about their child's care. 
Therefore, the Web site must include information about how to contact 
the Lead Agency, or its designee, such as a

[[Page 67478]]

child care resource and referral agency, to answer any questions 
parents might have after reviewing the Web site.
    Commenters expressed support for the proposed consumer education 
requirements. In general, they felt strongly about the importance of 
increased access to information for parents and new opportunities for 
family engagement both by the Lead Agency and the child care provider.
    Comment: The majority of commenters supported including all 
licensed child care providers on the consumer education Web site. 
However, commenters were mixed on whether license-exempt providers 
receiving CCDF should be included. Organizations representing school-
age child care programs, family child care providers, and private child 
care providers felt it was important that license-exempt providers be 
included on the Web site because they may include more formal types of 
care, like afterschool programs based in schools and are therefore 
license-exempt. One commenter said ``Because many States offer 
exemptions from licensing for school-aged care centers, it will be 
important to make these centers and their information available to 
parents by ensuring that Web sites are not limited to licensed care, 
moreover expanding the Web site to all eligible providers/centers 
further provides parents with choice.'' Further, as another commenter 
pointed out, ``In many States, license-exempt providers are also family 
child care providers who view themselves in this profession but cannot 
get licensed by their State even if they wanted to.'' For these 
providers, they may want to be on the Web site, and a policy exempting 
all license-exempt providers might not work in their best interest.
    On the other hand, several commenters, including States, national 
advocacy organizations, and unions representing child care workers, 
suggested providing Lead Agencies with flexibility about which 
providers must be included on the Web site. Their concerns centered on 
the fact that not all providers, especially license-exempt family child 
care homes, are a part of the child care market and therefore may not 
want to be available for to care for children they do not know. 
Alternatively, they may be at capacity and unable to accept additional 
children. One comment signed by several national organizations said 
``We believe that including license-exempt providers would serve to 
advertise their services to parents looking for child care . . . These 
providers are often not in the business of child care and only care for 
individuals with whom they have a prior relationship.'' A State also 
noted that ``this might serve to advertise the providers' services to 
parents looking for care when the care is an informal situation.'' A 
few States also expressed concerns about privacy for these providers as 
they are providing care in their homes.
    Response: The proposed rule included all licensed and eligible 
child care providers, other than those only serving children to whom 
they were related, in all of the provider-specific posting 
requirements, including the zip-code search. However, the commenters 
raise valid points about how some providers may not actually be a part 
of the market. Therefore, the final rule gives Lead Agencies the 
flexibility to decide which license-exempt CCDF providers are included 
in the localized list at Sec.  98.33(a)(2). We strongly encourage Lead 
Agencies not to have a blanket policy regarding including these 
providers in the zip-code search, but rather suggest being mindful 
about the different types of license-exempt providers in their State, 
as well as mindful of providers that might want to be included in 
searches for marketing purposes.
    However, we have not extended this flexibility to the provider-
specific quality information at Sec.  98.33(a)(3), as the statute and 
this final rule include the caveat that quality information must be 
included only if it is available for that child care provider. If a 
Lead Agency has quality information based on a QRIS or other 
transparent system of quality indicators, then this information should 
be available to parents and the general public, regardless of the 
provider's licensing status. We understand that some States do not 
include license-exempt child care providers in their QRIS, and this 
rule continues to allow States the flexibility to only include licensed 
child care providers in their quality ratings. However, if the QRIS 
includes license-exempt providers, this quality information must be 
posted on the Web site for those providers with ratings.
    We also have not extended this flexibility to monitoring and 
inspections results required at Sec.  98.33(a)(4), and are requiring 
Lead Agencies to post provider-specific information for all licensed 
and eligible child care providers, unless the provider is related to 
all the children in their care. This is more consistent with the 
requirements of the Act and critical to ensuring that parents have the 
information they need to make an informed child care decision. These 
providers are required to be monitored on an annual basis. Therefore, 
the Lead Agency will have the report already, limiting additional 
burden. In addition, research suggests that online publishing of 
licensing violations and complaints impact provider behavior. One study 
found that after inspection reports were posted online, there was an 
improvement in the quality of care, specifically the classroom 
environment and improved management at child care centers serving low-
income children receiving child care subsidies. (Witte, A. and Queralt, 
M., What Happens When Child Care Inspections and Complaints Are Made 
Available on the Internet? National Bureau of Economic Research, 2004) 
While the zip-code search may be more about marketing and referrals to 
child care providers, the monitoring reports are about ensuring parents 
know the health and safety records of their child care provider, as 
well as about transparency of public dollars.
    Lead Agencies with concerns regarding providers' privacy could use 
a unique identifier, such as a licensing number, to include on the 
profile. Parents interested in a certain provider can ask the provider 
or the Lead Agency for the identifier in order to look up more 
information about health and safety requirements met by a certain 
provider on the Web site. Lead Agencies also may choose to provide only 
limited information about a provider, such as provider name and zip 
code to make it easier for parents to identify their chosen provider 
without posting their full address.
    Comment: Commenters recognized and supported the need to have more 
than one year of reports available for each provider, but the majority 
of commenters, including States and national organizations, expressed 
concern about the proposed requirement that the Web sites include at 
least five years of results. Several States noted that five years of 
information may not be useful and cause parents to overlook the 
improvements and corrections providers have made in the last five 
years. One State said ``Providing older data that may be outdated could 
be confusing to parents and detrimental to child care providers who 
have made changes or improvement to practices.'' While others said that 
for States that do more than one visit each year, this would lead to an 
excess of information. Several national organizations suggested giving 
Lead Agencies flexibility with how many years they included, provided 
they included at least one year. A couple of States said two to three 
years would better fit existing State licensing policies.
    Response: We appreciated commenters providing additional

[[Page 67479]]

details about how reports are currently handled and how the proposed 
five-year requirement would interact with their policies. Based on 
these comments, we have changed the proposed regulation at Sec.  
98.33(a)(4)(iii) and now require that Lead Agencies include a minimum 
of either three years of results. This will balance the need for 
parents to have access to a comprehensive health and safety history of 
their provider with evolving State policies regarding monitoring and 
inspections.
    Comment: Several national organizations commented that creating a 
plain language summary of individual monitoring and inspection reports 
would create a burden for Lead Agencies. Instead, they recommended 
``permitting States the alternative of posting an interpretation--for 
example, a plain language glossary of terms that could help parents 
interpret monitoring results''.
    Response: It is important to have individual monitoring and 
inspection reports easily accessible to both parents and providers. 
Expecting a parent to have to consult a separate guide or glossary in 
order to understand a monitoring and inspection report creates an 
additional burden to information. Therefore, we declined to allow a 
guide to take the place of the plain language summary. We encourage 
Lead Agencies to consider simplifying and translating their monitoring 
and inspection reports in order to create more consumer-friendly 
documents. This will help to ease any additional burden that might be 
created by having to create a plain language summary of the report.
    Comment: Commenters, including national organizations and child 
care worker organizations, recommended that we add a regulatory 
requirement that Lead Agencies create an appeals process for findings 
included in the monitoring reports. Some commenters noted that 
sometimes reports have errors, and Lead Agencies should have a process 
to correct these errors to ensure proper information for both providers 
and parents. Others said providers should have time to appeal a finding 
before the report or finding is posted on the Web site.
    Response: We agreed that Lead Agencies should have a process in 
place for quickly correcting errors on the Web site, and have made this 
a regulatory requirement at Sec.  98.33(a)(4). However, we declined to 
add a regulatory requirement for States to have an appeals process for 
monitoring findings or to require a delay in posting this information 
while an appeal is in process. We leave it to the discretion of the 
Lead Agency to work with providers to determine the best approach.
    We strongly support Lead Agencies implementing policies that are 
fair to providers, including protections related to the consumer 
education Web site. We recommend, but do not require, that Lead 
Agencies establish an appeals process for providers that receive 
violations, consistent with their own State laws and policies governing 
administrative appellate proceedings. This appeals process should 
include timeframes for filing the appeal, for the investigation, and 
for removal of any violations from the Web site determined on appeal to 
be unfounded. Lead Agencies also must ensure that the consumer 
education Web site is updated regularly. Some Lead Agencies currently 
allow providers to review monitoring and inspection results prior to 
posting on a public Web site. Nothing in this rule should be taken as 
prohibiting that practice moving forward. However, the requirement that 
information be posted in a timely manner means that Lead Agencies may 
need to limit the amount of time providers have to review the results 
prior to posting.
    Comment: In the proposed rule, we requested comment on Sec.  
98.33(a) about whether the preamble to this final rule should set 90 
days as a benchmark for timely posting of results. Commenters 
universally supported ACF not including a definition of ``timely'' in 
the regulatory language. We received many comments with a range of 
suggestions for how to define ``timely''. Several commenters, including 
many national organizations, said that 90 days was too long and 
recommended a 30-day benchmark. On the other hand, several States 
commented that while they are usually able to post reports within a few 
days, they can take up to 90 days when there are other agencies that 
need to be involved.
    Response: We appreciated commenters providing feedback on this 
benchmark. We have chosen to leave it as proposed in the NPRM as a 
recommended 90 day benchmark, and are not adding a requirement to the 
regulatory language. We expect reports to be posted as quickly as 
possible, but believe 90 days is reasonable considering the 
complexities related to the monitoring and inspection process and 
reports.
    Comment: We proposed to require that States post provider-specific 
information on the number of serious injuries and deaths that occurred 
in that provider setting. While a couple commenters supported the goal 
of this provision, the vast majority, including States, national 
organizations, and child care worker organizations, were strongly 
opposed to the proposal. Most of the commenters noted, as we did in the 
preamble to the proposed rule, that not all serious injuries and deaths 
that occur in child care are the fault of the child care provider, and 
any provider-specific information would need to include additional 
details about what happened. However, as one State said, ``Providing 
information on the context of the situation would be labor intensive 
and may potentially violate the child and families' privacy. However, 
providing no context would be unfair to providers.'' Several States 
also commented that ``Where a provider's conduct related to an injury 
or other incident fails to meet licensing requirements, the incident 
will result in an enforcement action that is publicly posted.'' Another 
State said ``If the child care provider or a staff member is found to 
be responsible for a child's death, the child care provider would not 
continue to be registered, licensed, or employed at a licensed child 
care facility. Information on specific incidents would be available 
through the substantiated complaint information already required for 
the public Web site.''
    Response: Based on comments, we have chosen not to include the 
proposed requirement to post provider-specific information on serious 
injuries and deaths in this final rule, though nothing in this rule 
should be seen as prohibiting Lead Agencies from including this 
information on their Web sites if they so choose.
    However, we continue to have concerns about a parent's ability to 
quickly access information about whether a death or serious injury had 
occurred at a specific child care provider. To balance the concerns of 
the commenters with the need for parents to be able to easily access 
this information, we have revised Sec.  98.33(a)(4) to require that 
monitoring and inspection reports and summaries prominently display 
information about health and safety violations, including fatalities 
and serious injuries, that occurred at that child care provider. 
Parents will be able to access this important information more quickly 
if it is highlighted at the beginning of the report, as opposed to 
buried amongst other inspection items. Further, including this 
information as part of the monitoring and inspection report avoids 
providing information about deaths and serious injuries without the 
context necessary for parents to make an informed decision.
    Additional consumer education. This final rule incorporates 
statutory requirements at Section 658E(c)(E)(i) of the Act by adding 
paragraph (b) at

[[Page 67480]]

Sec.  98.33, which requires Lead Agencies to provide additional 
consumer education to eligible parents, the general public, and, where 
applicable, child care providers. The consumer education may be done 
through child care resource and referral organizations or other means 
as determined by the Lead Agency, and can be delivered through the 
consumer education Web site at Sec.  98.33(a). We strongly encourage 
Lead Agencies to use additional means to provide this information 
including through direct conversations with case workers, information 
sessions for parents and child care providers, outreach and counseling 
available at intake from eligibility workers, and to and through child 
care providers to parents.
    This final rule requires consumer education to include: Information 
about the availability of child care services through CCDF, other 
programs for which families might be eligible, and the availability of 
financial assistance to obtain child care services; other programs for 
which families receiving CCDF may be eligible; programs carried out 
under Section 619 and Part C of the Individuals with Disabilities 
Education Act (IDEA) (20 U.S.C. 1419, 1431 et seq.); research and best 
practices concerning children's development, including meaningful 
parent and family engagement and physical health and development; and 
policies regarding the social-emotional behavioral health of children.
    The first required piece of information is about the availability 
of child care services through CCDF and other programs that parents may 
be eligible for, as well as any other financial assistance that may be 
available to help parents obtain child care services. Lead Agencies 
should provide information about any other Federal, State/Territory/
Tribal, or local programs that may pay for child care or other early 
childhood education programs, such as Head Start, Early Head Start and 
State-funded pre-kindergarten that would meet the needs of parents and 
children. This information should also detail how other forms of child 
care assistance, including CCDF, are available to cover additional 
hours the parent might need due to their work schedule.
    The second requirement is for consumer education to include 
information about other assistance programs for which families 
receiving child care assistance may be eligible. These programs 
include: Temporary Assistance for Needy Families (TANF) (42 U.S.C. 601 
et seq.); Head Start and Early Head Start (42 U.S.C. 9831 et seq.); 
Low-Income Home Energy Assistance Program (LIHEAP) (42 U.S.C. 8621 et 
seq.); Supplemental Nutrition Assistance Program (SNAP) (7 U.S.C. 2011 
et seq.); Special Supplemental Nutrition Program for Women, Infants, 
and Children (WIC) (42 U.S.C. 1786); Child and Adult Care Food Program 
(CACFP) (42 U.S.C. 1766); and Medicaid and the State Children's Health 
Insurance Programs (CHIP) (42 U.S.C. 1396 et seq., 1397aa et seq.).
    In providing consumer education, Lead Agencies may consider the 
most appropriate and effective ways to reach families, which may 
include information in multiple languages and partnerships with other 
agencies and organizations, including child care resource and referral. 
Lead Agencies should also coordinate with workforce development 
entities that have direct contacts with parents in need of child care. 
Some Lead Agencies co-locate services for families in order to assist 
with referrals or enrollment in other programs.
    Families eligible for child care assistance are often eligible for 
other programs and benefits but many parents lack information on 
accessing the full range of programs available to support their 
children. More than half of infants and toddlers in CCDF have incomes 
below the federal poverty level, making them eligible for Early Head 
Start. Lead Agencies can work with Early Head Start programs, including 
those participating in Early Head Start-Child Care Partnerships, to 
direct children who are eligible for Early Head Start to available 
programs. Currently only approximately 5% of eligible children receive 
Early Head Start, and less than half of eligible children are served by 
Head Start.
    Despite considerable overlap in eligibility among the major work 
support programs, historically, many eligible working families have not 
received all public benefits for which they qualify. For example, more 
than 40 percent of children who are likely to be eligible for both SNAP 
and Medicaid or CHIP fail to participate in both programs (Rosenbaum, 
D. and Dean, S. Improving the Delivery of Key Work Supports: Policy & 
Practice Opportunities at A Critical Moment, Center on Budget and 
Policy Priorities, 2011). A study using 2001 data found that only 5 
percent of low-income working families obtained Medicaid or CHIP, SNAP, 
and child care assistance (Mills, G., Compton, J. and Golden, O., 
Assessing the Evidence about Work Support Benefits and Low-Income 
Families, Urban Institute, 2011). In addition to providing consumer 
education on the assistance programs listed at Sec.  98.33(b)(1)(ii), 
Lead Agencies must provide outreach to families experiencing 
homelessness in accordance with Sec.  98.51(c). As part of their 
outreach to families experiencing homelessness, we encourage Lead 
Agencies to provide consumer education about housing assistance 
programs when providing consumer information on other assistance 
programs.
    In addition to informing families about the availability of these 
programs, some Lead Agencies have streamlined parents' access to other 
benefits and services by coordinating and aligning eligibility criteria 
or processes and/or documentation or verification requirements across 
programs. This benefits both families and administering agencies by 
reducing administrative burden and inefficiencies. Lead Agencies also 
coordinate to share data across programs so families do not have to 
submit the same information to multiple programs. Finally, Lead 
Agencies have created online Web sites or portals to allow families to 
screen for eligibility and potentially apply for multiple programs. We 
recommend Lead Agencies consider alignment strategies that help 
families get improved access to all benefits for which they are 
eligible.
    Thirdly, consumer education must include information about programs 
for children with disabilities carried out under Part B Section 619 and 
Part C of the Individuals with Disabilities Education Act (IDEA) (20 
U.S.C. 1419, 1431 et seq.).
    The fourth piece of required consumer education is information 
about research and best practices concerning children's development, 
and meaningful parent and family engagement. It must also include 
information about physical health and development, particularly healthy 
eating and physical activity. This information may be included on the 
consumer education Web site, as well as be provided through brochures, 
in person meetings, from caseworks, and other trainings.
    While this information is important for parents and the general 
public, we encourage Lead Agencies to target this information to child 
care providers as well. Each of these components is crucial for 
caregivers to understand in order to provide an enriching learning 
environment and build strong relationships with parents. Lead Agencies 
may choose to include information about family engagement frameworks in 
their provider education. Many States and communities have employed 
these frameworks to promote caregiver skills and knowledge through

[[Page 67481]]

their QRIS, professional development programs, or efforts to build 
comprehensive early childhood systems. States have used publicly-
available tools, including from the Office of Head Start. The Head 
Start Parent, Family, and Community Engagement framework is a research-
based approach to program change that shows how different programs can 
work together as a whole--across systems and service areas--to support 
parent and family engagement and children's learning and development. 
This framework will be revised by joint technical assistance center for 
use by States and Territories and for child care providers. In 
addition, the U.S. Department of Health and Human Services and U.S. 
Department of Education in 2016 released a policy statement on family 
engagement from the early years to the early grades, including 
resources for States, early childhood programs, and others to build 
capacity to effectively partner with families.
    Understanding research and best practices concerning children's 
development is an essential component for the health and safety of 
children, both in and outside of child care settings. Caregivers should 
be knowledgeable of important developmental milestones not only to 
support the healthy development of children in their care, but also so 
they can be a resource for parents and provide valuable parent 
education. Knowledge of developmental stages and milestones also 
reduces the odds of child abuse and neglect by establishing more 
reasonable expectations about normative development and child behavior. 
This requirement is associated with the requirement at Sec.  
98.44(b)(1) that orientation or pre-service for child care caregivers, 
teachers and directors include training on child development.
    Lastly, consumer education must include provision of information 
about policies regarding social-emotional behavioral health of 
children, which may include positive behavioral health intervention and 
support models for birth to school-age or as age- appropriate, and 
policies to prevent suspension and expulsion of children birth to age 
five in child care and other early childhood programs as described in 
the Plan at Sec.  98.16(ee).
    Social-emotional development is fostered through securely attached 
relationships; and learning, by extension, is fostered through frequent 
cognitively enriching social interactions within those securely 
attached relationships. Studies indicate that securely attached 
children are more advanced in their cognitive and language development, 
and show greater achievement in school. In 2015, ACF issued an 
information memorandum detailing research and policy options related to 
children's social-emotional development. (CCDF-ACF-IM-2015-01, http://www.acf.hhs.gov/sites/default/files/occ/ccdf_acf_im_2015_01.pdf). By 
providing consumer education on social-emotional behavioral health 
policies, Lead Agencies are helping parents, the general public, and 
caregivers understand the importance of social-emotional and behavioral 
health and how the Lead Agency is encouraging the support of children's 
ability to build healthy and strong relationships.
    In conjunction with this consumer education requirement, this rule 
adds Sec.  98.16(ee) which requires Lead Agencies to provide a 
description of their policies to prevent suspension, expulsion, and 
denial of services due to behavior of children birth to age five in 
child care and other early childhood programs receiving CCDF 
assistance. Ensuring that parents and providers understand suspension 
and expulsion policies for children birth to age five is particularly 
important. Data on suspension and expulsion in early childhood 
education settings is somewhat limited and focused on rates at 
publicly-funded prekindergarten programs. One national study that 
looked at almost 4,000 State-funded prekindergarten classes found that 
the overall rate of expulsion in State-funded prekindergarten classes 
was more than three times the national rate of expulsion for students 
in Kindergarten through Twelfth Grade (Gilliam, W. Prekindergarteners 
Left Behind: Expulsion Rates in State Prekindergarten Programs. 
Foundation for Child Development, 2005). Data from the U.S. Department 
of Education showed that more than 8,000 preschool students were 
reported as suspended at least once during the 2011-2012 school year, 
with Black children and boys disproportionately being suspended more 
than once (U.S. Department of Education Office of Civil Rights Data 
Snapshot: Early Childhood Education, March 2014. http://www2.ed.gov/about/offices/list/ocr/docs/crdc-early-learning-snapshot.pdf). In 2014, 
the U.S. Departments of Health and Human Services and Education jointly 
released a policy statement addressing expulsion and suspension in 
early learning settings and highlighting the importance of social-
emotional and behavioral health (https://www.acf.hhs.gov/sites/default/files/ecd/expulsion_suspension_final.pdf). The policy statement affirms 
the Departments' attention to social-emotional and behavioral health 
and includes several recommendations to States and early childhood 
programs, including child care programs, to assist in their efforts. It 
strongly encourages States to establish statewide policies, applicable 
across settings, including publicly and privately funded early 
childhood programs, to promote children's social-emotional and 
behavioral health and to eliminate or severely limit the use of 
expulsion, suspension, and other exclusionary discipline practices.
    Comment: Commenters were supportive of the additional consumer 
education information. We received a few comments from national 
organizations regarding the requirement that Lead Agencies provide 
information about policies related to suspension and expulsion of 
children ages birth to five. These commenters requested regulatory 
language that more specifically either prohibited the use of suspension 
and expulsion for these age groups or at least discouraged their use. 
One State commented that a statewide policy prohibiting providers from 
expelling or suspending children would be very difficult to enforce.
    Response: In response to these comments, the regulatory language at 
Sec.  98.33(b)(1)(v) requires consumer education about policies to 
prevent suspension and expulsion. A similar change was made in the plan 
section at Sec.  98.16(ee). While we cannot require States to create 
policies that limit or prohibit suspension and expulsion of young 
children, we urge States to move in that direction. We received no 
other comments on Sec.  98.33(b) and have retained the rest of the 
language as proposed in the NPRM.
    Information about developmental screenings. Section 
658E(c)(2)(E)(ii) of the Act requires Lead Agencies to provide consumer 
education about developmental screenings to parents, the general 
public, and, when applicable, child care providers. Specifically, such 
information should include (1) information on existing resources and 
services the Lead Agency can use in conducting developmental screenings 
and providing referrals to services for children who receive child care 
assistance; and (2) a description of how a family or eligible child 
care provider may use those resources and services to obtain 
developmental screenings for children who receive child care assistance 
and may be at risk for cognitive or other developmental delays, 
including social, emotional, physical, or linguistic delays. The

[[Page 67482]]

information about the resources may include the State or Territory's 
coordinated use of the Early and Periodic Screening, Diagnosis, and 
Treatment program under the Medicaid program carried out under title 
XIX of the Social Security Act (42 U.S.C. 1396 et seq.) and 
developmental screening services available under section 619 and part C 
of the IDEA (20 U.S.C. 1419, 1431 et seq.).
    This final rule adds new paragraph (c) at Sec.  98.33, which 
requires Lead Agencies to provide information on developmental 
screenings as part of their consumer education efforts during the 
intake process for families receiving CCDF assistance and to 
caregivers, teachers, and directors through training and education. 
Information on developmental screenings, as other consumer education 
information, should be accessible for individuals with limited English 
proficiency and individuals with disabilities.
    Educating parents and caregivers on what resources are available 
for developmental screenings, as well as how to access these 
screenings, is crucial to ensuring that developmental delays or 
disabilities are identified early. Some children may require a more 
thorough evaluation by specialists and additional services and 
supports. Lead Agencies should ensure that all providers are 
knowledgeable on how to access resources to support developmental and 
behavioral screening, and make appropriate referrals to specialists, as 
needed, to ensure that children receive the services and supports they 
need as early as possible.
    Comment: Commenters supported the requirement to provide 
information about developmental screenings to parents and providers. 
One advocacy organization recommended that we require that all children 
receive a developmental screening within 45 days of enrollment in order 
to align with Head Start standards.
    Response: As we do not have the authority to require all children 
receiving CCDF to have a developmental screening, we declined to add 
the requirement to this final rule. While we are not requiring that all 
children receive a developmental screening, we strongly recommend that 
Lead Agencies develop strategies to ensure all children receive a 
developmental and behavioral screening within 45 days of enrollment in 
CCDF, which aligns with Head Start standards. With regular screenings, 
families, teachers, and other professionals can be assured that young 
children get the services and supports they need, as early as possible 
to help them thrive alongside their peers. Birth to 5: Watch Me Thrive, 
a coordinated Federal effort to encourage universal developmental and 
behavioral screening for children and to support their families and 
caregivers, has information and resources at www.acf.hhs.gov/programs/ecd/watch-me-thrive. In addition to research-based developmental and 
behavioral screenings, Lead Agencies should encourage parents and child 
care providers to use the tools and resources developed by the Centers 
for Disease Control and Prevention as part of their ``Learn the Signs. 
Act Early.'' campaign. These resources help parents and child care 
providers to become familiar with and keep track of the developmental 
milestones of children. These resources are available at http://www.cdc.gov/ncbddd/actearly/. The resources provided through this 
campaign are not a substitute for regular developmental screenings, but 
help to improve early identification of children with autism and other 
developmental disabilities so children and families can get the 
services and support they need as early as possible. We received no 
other comments on this provision and have retained the language in 
Sec.  98.33(c) as proposed in the NPRM.
    This final rule adds new paragraph (d) to Sec.  98.33, which 
requires Lead Agencies to provide families receiving CCDF assistance 
with easily understandable information on the child care provider they 
choose, including health and safety requirements met by the provider, 
any licensing or regulatory requirements met by the provider, date the 
provider was last inspected, any history of violations of these 
requirements, and any quality standards met by the provider. Lead 
Agencies also should provide information necessary for parents and 
providers to understand the components of a comprehensive background 
check, and whether the child care staff members of their provider have 
received such a check. The consumer statement must also include 
information about the hotline for parental complaints about possible 
health and safety violations and information describing how CCDF 
assistance is designed to promote equal access to comparable child care 
in accordance with Sec.  98.45.
    If a parent chooses a provider that is legally-exempt from 
regulatory requirements or exempt from CCDF health and safety 
requirements (e.g., relatives at the Lead Agency option), the Lead 
Agency or its designee should explain the exemption to the parent. Lead 
Agencies that choose to use an alternative monitoring system for in-
home providers, as described at Sec.  98.42(b)(2)(v)(B), should 
describe this process for parents that choose in-home care. When a 
parent chooses a relative or in-home child care provider, the Lead 
Agency should explain to the parent the health and safety policies 
associated with relative or in-home care. The Lead Agency should 
provide the parents with resources about health and safety trainings 
should the parent wish for the relative to obtain training regardless 
of the exemption.
    There is a great deal of variation in how Lead Agencies handle 
intake for parents receiving child care subsidies. Therefore, we allow 
flexibility for Lead Agencies to implement the consumer statement in 
the way that best fits both their administrative needs and the needs of 
the parents. This means that the consumer statement may be presented as 
a hard copy or electronically. When providing this information, a Lead 
Agency may provide it by referring to the Web site required by Sec.  
98.33(a). In such cases, the Lead Agency should ensure that parents 
have access to the Internet or provide access on-site in the subsidy 
office. While we recognize the need for Lead Agency flexibility in this 
area, we have concerns about relying solely on electronic consumer 
statements. Parents may not have access to the Internet or may have 
questions about the consumer statement that need to be answered by a 
person. If a parent is filing an application online, we encourage the 
inclusion of a phone number, directed to either the Lead Agency or 
another organization such as a child care resource and referral agency, 
to ensure parents can have their questions answered. We also recommend 
that intake done over the phone should include the offer to either 
email or mail the consumer statement to the parent; and, that 
information on consumer statements should be accessible by individuals 
with limited English proficiency and individuals with disabilities.
    We realize, in some cases, a parent has chosen their provider prior 
to the intake process. If the parent comes in with a provider already 
chosen, the parent should be given the consumer statement on that 
provider. When a parent has not chosen a child care provider prior to 
intake, Lead Agencies should ensure that the parent receives 
information about available child care providers and general consumer 
education information required at Sec.  98.33(a), (b), and (c). This 
information should include a description of health and safety 
requirements and licensing or regulatory requirements for child care

[[Page 67483]]

providers, processes for ensuring requirements are met, as well as 
information about the background check process for child care staff 
members of providers, and what offenses may preclude a provider from 
serving children.
    We strongly recommend that Lead Agencies provide parents receiving 
TANF and child care assistance, whether through CCDF or TANF, with the 
necessary support and consumer education in choosing child care. We 
strongly encourage social service agencies, child care licensing 
agencies, child care resource and referral agencies, and other related 
programs to work closely to ensure that parents receiving TANF are 
provided with the information and support necessary for them to make 
informed child care decisions.
    Comment: We received mixed comments on the requirement to provide a 
consumer statement to families receiving child care assistance. 
Organizations representing child care resource and referral agencies 
and those representing private child care providers supported the 
requirement with one commenter saying ``This provision of information 
will further help support the selection of high-quality care for 
children that promotes their health and safety.'' We also received 
several comments from States and national organizations recommending we 
delete the proposed consumer statement because it is duplicative of the 
requirements for the consumer education Web site and created additional 
burdens for the States.
    Response: We agree that there is a lot of overlap between the 
consumer statement and the Web site, as we designed it that way to 
avoid additional work for Lead Agencies. It seems we were unclear in 
our description in the proposed rule. We do not expect Lead Agencies to 
create a whole new document or information item. Rather, the Lead 
Agency can point parents to the provider's profile on the Web site or 
print it out for a parent who may be doing intake in person. We also do 
not expect the consumer statements to be used to try to change the mind 
of a parent that has already chosen a provider. It is meant to ensure 
that parents have a comprehensive understanding of the requirements of 
providers and the health and safety record of their provider. For these 
reasons, we have retained the proposed rule language related to the 
consumer statement.
    While there is a lot of overlap, the consumer statement provides 
targeted consumer education to subsidy parents who are specifically 
clients of the agency, and we have a special interest in helping them 
select child care, because we know from research that low-income 
children have the most to gain from high-quality child care and because 
the care is publicly subsidized. Most Lead Agencies have a direct 
relationship with families receiving child care subsidies, thus they 
have an opportunity to provide these parents with the consumer 
statement and more targeted consumer education.
    We encourage Lead Agencies to provide parents receiving CCDF 
assistance with updated information on their child care provider on a 
periodic basis, such as by providing an updated consumer statement at 
the time of the family's next eligibility redetermination. Ties between 
the CCDF Lead Agency and the licensing agency can help to ensure that 
families are notified when providers are seriously out-of-compliance 
with health and safety requirements, and that placement of children and 
payment of CCDF funds do not continue where children's health and 
safety may be at-risk.
    Linkages to national Web site. Section 658L(b)(2) of the Act 
requires the Secretary to operate a national Web site and hotline for 
consumer education and submission of complaints. The Act allows for the 
national Web site to provide the information either directly or through 
linkages to State databases. As it is not feasible or sensible for HHS 
to recreate databases many States have already created, we intend to 
use electronic transfers between federal, State and local systems to 
provide information needed by parents to make informed choices about 
the highest quality early childhood settings available that meet the 
needs of the families in their communities. In response to this 
requirement and comments we received on the proposed rule, Sec.  
98.33(e) of the final rule adds a requirement for Lead Agencies to 
provide linkages to databases related to the consumer education 
requirements at paragraph (a), including a zip-code based list of 
licensed and license-exempt child care providers, information about the 
quality of an available child care provider, if available, and health 
and safety records including monitoring and inspection reports.
    Comment: In the proposed rule, we requested comment about the best 
way to link the required national Web site with the States' consumer 
education Web sites in order to avoid duplication and maximize 
coordination. We received a few comments from States about how to link 
the systems. One State suggested we ``simply link all State provider 
Web sites to the Federal page.'' A couple States requested 
clarification about what the linkages might be, with one commenting 
that ``If the national Web site required a data transfer from our State 
system, we have concerns about the cost and time needed to coordinate 
implementation of this transfer.''
    Response: By requiring the opening of linkages to databases, as 
provided for in the Act, we expect to be able to easily use existing 
State data to update the national site without creating new 
requirements or burdens for the Lead Agencies. Creating direct linkages 
to State and Territory databases gives ACF the ability to pull required 
child care data, such as available providers and health and safety 
records, in a way that allows for an effective customer experience and 
user interface. This requirement is the best way to provide a seamless 
presentation of the items required in the Act.
    The purpose of the national Web site is to provide families with 
easy to understand resources that help families in locating local child 
care providers and understanding local licensing and health and safety 
requirements. We plan to build the Web site around existing databases 
at the State level. As Web site best practices promote the reduction of 
redirecting users to multiple Web sites, using database linkages as 
opposed to linking to State Web sites provides a better user experience 
for families. In addition, the Act requires the national Web site to be 
searchable by zip code. Linking to sites would not allow for a search 
throughout the national Web site, and would not meet the requirements 
of the statute.
    CCDF plan. This final rule includes a technical change at Sec.  
98.33(g), as redesignated, to change the reference to a biennial Plan 
to a triennial Plan as established by Section 658E(b) of the Act. We 
did not receive comments on this provision.

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 State/Territory and local regulatory 
and health and safety requirements, monitoring and inspections, and 
criminal background checks. It addresses training and professional 
development requirements for caregivers, teachers, and directors 
working for CCDF providers. It also includes provisions requiring the 
Lead Agency to ensure that payment rates to

[[Page 67484]]

providers serving children receiving subsidies ensure equal access to 
the child care market, to establish a sliding fee scale that provides 
for affordable cost-sharing for families receiving assistance, and to 
establish priorities for receipt of child care services.
Sec.  98.40 Compliance With Applicable State/Territory and Local 
Regulatory Requirements
    Section 658E(c)(2)(F) of the Act maintains the requirement that 
every Lead Agency has in effect licensing requirements applicable to 
child care services within its jurisdiction. If any types of CCDF 
providers are exempt from licensing requirements, the Act now requires 
Lead Agencies to describe why such licensing exemption does not 
endanger the health, safety, or development of children who receive 
services from child care providers who are exempt from such 
requirements. The final rule includes a corresponding change at Sec.  
98.40(a)(2), and provides clarification that the Lead Agency's 
description must include a demonstration of how these exemptions do not 
endanger children and that such descriptions and demonstrations must 
include any exemptions based on provider category, type, or setting; 
length of day; providers not subject to licensing because the number of 
children served falls below a Lead Agency-defined threshold; and any 
other exemption to licensing requirements. This relates to the 
corresponding CCDF Plan provision at Sec.  98.16(u).
    To clarify, this requirement does not compel the Lead Agency to 
offer exemptions from licensing requirements to providers. Rather, it 
requires that, if the Lead Agency chooses to do so, it must provide a 
rationale for that decision. We also note that these exemptions refer 
to exemptions from licensing requirements, but that license-exempt CCDF 
providers continue to be subject to the health, safety, and fire 
standards applicable to all CCDF providers in the Act. The only 
allowable exception to CCDF health and safety requirements is for 
providers who care only for their own relatives, which we discuss 
further below. In response to the NPRM, we received support for the 
requirement that Lead Agencies describe licensing exemptions and 
demonstrate that exemptions do not endanger the health, safety, or 
development of children in their care. We have therefore retained the 
NPRM language in this final rule.
Sec.  98.41 Health and Safety Requirements
    Section 658E(c)(2)(I)(i) of the Act requires Lead Agencies to have 
in effect health and safety requirements for providers and caregivers 
caring for children receiving CCDF assistance that relate to ten health 
and safety topics: (i) Prevention and control of infectious diseases 
(including immunization); (ii) prevention of sudden infant death 
syndrome and use of safe sleeping practices; (iii) administration of 
medication, consistent with standards for parental consent; (iv) 
prevention and response to emergencies due to food and allergic 
reactions; (v) building and physical premises safety, including 
identification of and protection from hazards that can cause bodily 
injury such as electrical hazards, bodies of water, and vehicular 
traffic; (vi) prevention of shaken baby syndrome and abusive head 
trauma; (vii) emergency preparedness and response planning for 
emergencies resulting from a natural disaster, or a man-caused event 
(such as violence at a child care facility); (viii) handling and 
storage of hazardous materials and the appropriate disposal of 
biocontaminants; (ix) appropriate precautions in transporting children, 
if applicable; and (x) first aid and cardiopulmonary resuscitation 
(CPR). To clarify, biocontaminants include blood, body fluids or 
excretions that may spread infectious disease.
    Section 658E(c)(2)(I)(ii) of the Act says that health and safety 
topics may include requirements relating to nutrition, access to 
physical activity, or any other subject area determined by the State to 
be necessary to promote child development or to protect children's 
health and safety--which the final rule restates at Sec.  
98.41(a)(1)(xii). While these topics are optional in this final rule, 
we strongly encourage Lead Agencies to include them in basic health and 
safety requirements. Educating caregivers on appropriate nutrition, 
including age-appropriate feeding, and physical activity for young 
children is essential to prevent long-term negative health implications 
and assist children in reaching developmental milestones. This final 
rule also adds ``caring for children with special needs'' as an 
optional topic on this list.
    Lead Agencies are responsible for establishing standards in the 
above areas for CCDF providers and should require providers to develop 
policies and procedures that comply with these standards. We encourage 
Lead Agencies to adopt these standards for all caregivers and providers 
regardless of whether they currently receive CCDF funds. The Act 
requires health and safety training on the above topics to be completed 
pre-service or during an orientation period and on an ongoing basis. 
This training requirement is discussed in greater detail in Sec.  98.44 
on training and professional development.
    ACF released Caring for Our Children Basics (CfoC) Basics, http://www.acf.hhs.gov/programs/ecd/caring-for-our-children-basics). CfoC 
Basics is a set of recommendations, which is intended to create a 
common framework to align basic health and safety efforts across all 
early childhood settings. CfoC Basics, represent minimum, baseline 
standards for health and safety. CfoC Basics is based on Caring for Our 
Children: National Health and Safety Performance Standards; Guidelines 
for Early Care and Education Programs, 3rd Edition, produced with the 
expertise of researchers, physicians, and practitioners (American 
Academy of Pediatrics, American Public Health Association, National 
Resource Center for Health and Safety in Child Care and Early 
Education. (2011). Caring for Our children: National health and safety 
performance standards; Guidelines for early care and education 
programs. 3rd edition, American Academy of Pediatrics; Washington, DC: 
American Public Health Association.)
    We recommend that Lead Agencies looking for guidance on 
establishing health and safety standards consult ACF's CfoC Basics. The 
list of health and safety topics required by the Act is aligned with, 
but not fully reflective of, health and safety recommendations from 
both CfoC Basics as well as Caring for Our Children: National Health 
and Safety Performance Standards. Lead Agencies can be confident that 
if their standards are aligned with CfoC Basics, they will be 
considered to have adequate minimum standards. Lead Agencies are 
encouraged, however, to go beyond these baseline standards to develop a 
comprehensive and robust set of health and safety standards that cover 
additional areas related to program design, caregiver safety, and child 
developmental needs, using the full Caring for Our Children: National 
Health and Safety Performance Standards guidelines.
    This final rule reiterates these new health and safety requirements 
at Sec.  98.41(a) and provides clarifications that include specifying 
that the health and safety requirements be appropriate to the age of 
the children served in addition to the provider setting. Lead Agency 
requirements should reflect necessary content variation, within the 
required topic areas, depending on the provider's particular 
circumstances. For

[[Page 67485]]

example, prevention of sudden infant death syndrome and safe sleep 
training is only necessary if a caregiver cares for infants. Similarly, 
if an individual is caring for children of different ages, training in 
pediatric first-aid and CPR should include elements that take into 
account that practices differ for infants and older children. For 
providers that care for school-age children, Lead Agencies may need to 
develop requirements that are appropriate for that stage of development 
(i.e., that recognize the greater need for older children's autonomy 
while maintaining health and safety). In this final rule, we also 
clarify that, in addition to having these requirements in effect, they 
must be implemented and enforced, and that these requirements are 
subject to monitoring pursuant to Sec.  98.42. This is intended to help 
ensure that requirements are put into practice and that providers are 
held accountable for meeting them. The required health and safety 
topics are included at Sec.  98.41(a)(1). Lead Agencies will continue 
to have flexibility to determine how they will implement requirements 
and whether additional or more stringent requirements are appropriate 
for their State. Further, if existing licensing or regulatory 
requirements for CCDF providers established by the Lead Agency address 
the areas specified in this rule, then no additional requirements are 
necessary.
    Comment: Although there was some concern regarding cost to 
implement, we received strong support for the inclusion of health and 
safety requirements, specific to the age of children served, for 
providers and caregivers caring for children receiving CCDF. For 
example, there was support for the inclusion of prevention of shaken 
baby syndrome and abusive head trauma; building and physical premises 
safety; emergency preparedness; prevention of sudden infant death 
syndrome and use of safe sleeping practices; and recognition and 
reporting of child abuse and neglect. There was also support for the 
inclusion of optional topics such as nutrition, physical activity, and 
caring for children with special needs. There was a recommendation to 
clarify that the first aid and CPR requirement include reference to 
pediatrics. There were also recommendations to include the prevention 
of child maltreatment, quality sleep promotion, age-appropriate screen 
time promotion, and partnership with child care health consultants in 
the list of required health and safety topics.
    While we received support for the requirement that license-exempt 
providers who receive CCDF must adhere to the health and safety 
requirements applicable to all CCDF providers in the Act, there was 
some concern with cost of implementation and barriers due to State 
statute. However, the federal statute clearly requires these standards 
apply to license-exempt providers.
    Finally, we received a number of comments supporting the reference 
to CfoC Basics to aid in implementation if States so choose. Some 
commenters made the additional request that the individual health and 
safety topics in the regulation include specific references to the 
relevant standards in CfoC Basics. A few comments went further and 
asked that CfoC Basics be required for use by all CCDF providers.
    Response: We agree that there is value in including child 
maltreatment to the list of topics, so the final rule amends Sec.  
98.41(a)(1)(vi) to include the prevention of child maltreatment to the 
provision that requires the prevention of shaken baby syndrome and 
abusive head trauma. We also agree that additional specificity for the 
type of first aid and CPR training is valuable and so the final rule 
amends Sec.  98.41(a)(1)(x) to specify that the requirement of first 
aid and CPR must pertain to pediatrics.
    While we do recognize the value in topics related to quality sleep, 
age-appropriate screen time, and partnership with child care health 
consultants, we declined to add these to the required list of health 
and safety topics. The list of health and safety topics is meant to 
provide a baseline of health and safety for child care, but does not 
preclude Lead Agencies from adding additional requirements. Lead 
Agencies should consider whether additional topics, such as those 
mentioned above and others, are necessary to promote child development 
or protect health and safety under Sec.  98.41(a)(1)(xii)(D).
    While we appreciate the support for CfoC Basics, we respectfully 
disagree with providing references to specific CfoC Basics standards 
within health and safety topics. Providing the complete CfoC Basics as 
reference allows the regulations to stay current as CfoC Basics is 
updated in the future. With respect to the request that CfoC Basics be 
made a requirement, while CfoC Basics is a valuable resource for Lead 
Agencies to utilize, we want to maintain Lead Agency flexibility as 
they implement these standards.
    Immunizations and Tribal programs. This final rule amends the 
regulatory language at Sec.  98.41(a)(1)(i)(A) regarding immunizations 
by replacing ``States and Territories'' with ``Lead Agencies'' to be 
inclusive of Tribes. Minimum Tribal health and safety standards under 
effect currently address immunization in a manner that is consistent 
with the requirements of this section. As a result, there is no longer 
a compelling reason to continue to exempt Tribes from this requirement. 
The final rule makes a corresponding change to the regulations at Sec.  
98.83(d) in Subpart I. We discuss this and other changes regarding 
health and safety requirements as they pertain to Tribes in our 
discussion of Subpart I.
    Immunizations for in-home care and relative care. In the NPRM, we 
proposed to add ``provided there are no other unrelated children who 
are cared for in the home'' to the previously-existing exemption to the 
immunization requirement for children who receive care in their own 
homes at Sec.  98.41(a)(1)(i)(B)(2). Such children may continue to be 
exempt from requirements, provided that they are not in care with other 
unrelated children, which could endanger the health of those children. 
Commenters on the NPRM were supportive of this proposed requirement, so 
the final rule retains the provision. The final rule also makes a 
corresponding change at Sec.  98.41(a)(1)(i)(B)(1) to indicate that the 
pre-existing immunization exemption for children who are cared for by 
relatives only applies as long as there are no other unrelated children 
who are cared for in the same setting.
    Children experiencing homelessness and children in foster care. 
Section 98.41(a)(1)(i)(C) of the final rule restates the new statutory 
requirement at Section 658E(c)(2)(I)(i)(I) that requires Lead Agencies 
to establish a grace period for children experiencing homelessness and 
children in foster care. This will allow such children to receive CCDF 
services while their families (including foster families) are given a 
reasonable period of time to comply with immunization and other health 
and safety requirements. The final rule clarifies that any payment for 
such child during the grace period shall not be considered an error or 
improper payment under subpart K of this part. At Sec.  
98.41(a)(1)(i)(C)(1), the final rule adds a requirement for Lead 
Agencies to establish grace periods in consultation with the State, 
Territorial, or Tribal health agency. As well, Sec.  
98.41(a)(1)(i)(C)(3) allows Lead Agencies the option of establishing 
grace periods for other children who are not homeless or in foster care 
consistent with previously-existing regulations, which allow the 
establishment of grace periods more broadly. This was included in the 
1998 CCDF regulation due to significant feedback that requiring 
immunizations to be

[[Page 67486]]

completely up-to-date prior to receiving services could constitute a 
barrier to working. This provision was added to offer additional State 
flexibility. Adding a specific grace period provision in the statute 
was not intended to limit State's abilities to establish these policies 
but rather to ensure that, at a minimum, this policy existed for 
children experiencing homelessness and children in foster care.
    The intent of this provision was to reduce barriers to enrollment 
given the uniquely challenging circumstances of homeless and foster 
children, not to undermine children's health and safety. The intent was 
not for those children to be permanently exempt from immunization and 
other health and safety requirements. For that reason, Sec.  
98.41(a)(1)(i)(C)(4) requires Lead Agencies to coordinate with 
licensing agencies and other relevant State/Territorial/Tribal and 
local agencies to provide referrals and support to help families 
experiencing homelessness and foster children comply with immunization 
and other health and safety requirements. This will help children, once 
enrolled and receiving CCDF services, to obtain necessary services and 
the proper documentation in a timely fashion. We received support for 
this proposal, and the final rule retains it.
    Comment: There was support for the inclusion of a grace period for 
children experiencing homelessness and children in foster care in 
addition to the requirement that Lead Agencies help refer and support 
those children's families in obtaining immunizations. However, there 
was concern for the establishment of grace periods without oversight. 
Concerns were raised that the proposed rule allowed too much 
flexibility for Lead Agencies to establish grace periods without 
parameters, possibly negating group immunity protections that 
vaccinations are intended to provide. Conversely, there was concern 
that timeframes could be too restrictive and create barriers that the 
reauthorized Act intended to remove.
    Response: In response to comments, we have amended the final rule 
to include language that now requires Lead Agencies to establish grace 
periods in consultation with the State, Tribal, or Territorial health 
agency. This provision is included at Sec.  98.41(a)(1)(i)(C)(1). This 
will provide some valuable safeguards to health and safety of children 
in care while also allowing some considerations for the logistical 
challenges of the most vulnerable children and families.
    Emergency preparedness and response. Section 658E(c)(2)(I)(i)(VII) 
of the Act requires CCDF health and safety requirements to include 
emergency preparedness and response planning for emergencies resulting 
from a natural disaster, or a man-caused event (such as violence at a 
child care facility) as defined under section 602(a)(1) of the Robert 
T. Stafford Disaster Relief and Emergency Assistance Act (42 U.S.C. 
5195a(a)(1)). This final rule includes this provision at Sec.  
98.41(a)(1)(vii) as well as additional language drawn from Section 
658E(c)(2)(U) of the Act regarding Statewide Disaster Plans. According 
to the Act, Statewide Disaster Plans should address evacuation, 
relocation, shelter-in-place, and lock-down procedures; procedures for 
staff and volunteer emergency preparedness training and practice 
drills; procedures for communication and reunification with families; 
continuity of operations; and accommodation of infants and toddlers, 
children with disabilities, and children with chronic medical 
conditions. Communication and reunification with families should 
include procedures that identify entities with responsibility for 
temporary care of children in instances where the child care provider 
is unable to contact the parent or legal guardian in the aftermath of a 
disaster. Accommodation of infants and toddlers, children with 
disabilities, and children with chronic medical conditions should 
include plans that address multiple facets, including ensuring adequate 
supplies (e.g., formula, food, diapers, and other essential items) in 
the event that sheltering-in-place is necessary. In addition to being 
addressed in the Statewide Disaster Plan, we require that health and 
safety requirements for CCDF providers include these topics so that 
child care providers and staff will be adequately prepared in the event 
of a disaster.
    Guidance in Caring for Our Children: National Health and Safety 
Performance Standards and CfoC Basics, includes recommended standards 
for written evacuation plans and drills, planning for care for children 
with special health needs, and emergency procedures related to 
transportation and emergency contact information for parents. The 
former National Association of Child Care Resource and Referral 
Agencies (now Child Care Aware of America) and Save the Children 
published Protecting Children in Child Care During Emergencies: 
Recommended State and National Standards for Family Child Care Homes 
and Child Care Centers, that includes recommended State regulatory 
standards related to emergency preparedness for family child care homes 
and child care centers.
    Comment: There was a recommendation to include mental health crisis 
training as a requirement in emergency preparedness and response 
planning.
    Response: While we support the inclusion of mental health crisis 
training, such training is already included under the required 
emergency preparedness training for staff and volunteers as described 
under Section 98.41(a)(1)(vii). States have the latitude to include 
mental health crisis training within that requirement and are 
encouraged to do so.
    Group Size Limits and Child-Staff Ratios. Section 658E(c)(2)(H) of 
the Act requires Lead Agencies to establish group size limits for age-
specific populations and appropriate child-staff ratios that will 
provide healthy and safe conditions for children receiving CCDF 
assistance as well as meet children's developmental needs. It also 
requires Lead Agencies to address required qualifications for 
caregivers, teachers, and directors, which is discussed at Sec.  98.44. 
Consistent with these requirements, Sec.  98.41(d) of this final rule 
requires the Lead Agency to establish standards for CCDF child care 
services that strengthen the relationship between caregivers and 
children as well as provide for the safety and developmental needs of 
the children served, given the type of child care setting. This is a 
minor change from the proposed language in the NPRM, which required 
Lead Agencies to establish standards that ``promote'' the caregiver and 
child relationship. We changed ``promote'' to ``strengthen'' in this 
final rule to more accurately describe the intent of this provision, 
which is to ensure a strong, meaningful relationship between the child 
and the adult providing care.
    Ratio and group size standards are necessary to ensure that the 
environment is conducive to safety and learning. Child-staff ratios 
should be set such that caregivers can demonstrate the capacity to meet 
health and safety requirements and evaluate the needs of children in 
their care in a timely manner. A low child-staff ratio allows for 
stronger relationships between a child and their caregiver, which is a 
key component of quality child care. Studies of high-quality early 
childhood programs found that group size and ratios mattered to the 
safety and the quality of children's experiences, as well as to 
children's health. (13 Indicators of Quality Child Care: Research 
Update, presented to Office of the Assistant Secretary for Planning and

[[Page 67487]]

Evaluation and Health Resources and Services Administration/Maternal 
and Child Health Bureau U.S. Department of Health and Human Services, 
2002 and National Institute of Child Health and Human Development 
(NICHD). 2006. The NICHD study of early child care and youth 
development: Findings for children up to age 4 1/2 years. Rockville, 
MD: NICHD.).
    While States have flexibility in setting group size and child-staff 
ratios, these standards are often inter-related. For example, using 
square footage per child by itself does not ensure an appropriate 
determination of group size. While we are not establishing a Federal 
requirement for group size and child-staff ratios, there are resources 
that Lead Agencies can use when developing their standards. CfoC Basics 
recommends:

    Appropriate ratios should be kept during all hours of program 
operation. Children with special health care needs or who require 
more attention due to certain disabilities may require additional 
staff on-site, depending on their special needs and the extent of 
their disabilities. In center-based care, child-staff ratios should 
be determined by the age of the majority of children and the needs 
of children present. For children 23 months and younger, a ratio of 
four children to one child care provider should be maintained. For 
children 24 to 35 months, a ratio of four to six children per 
provider should be maintained. For children who are three years old, 
a maximum ratio of 9:1 should be preserved. If all children in care 
are four to five years of age, a maximum ratio of 10:1 should be 
maintained.
    In family child care homes, the caregivers' children as well as 
any other children in the home temporarily requiring supervision 
should be included in the child-staff ratio. In family child care 
settings where there are mixed age groups that include infants and 
toddlers, a maximum ratio of 6:1 should be maintained and no more 
than two of these children should be 24 months or younger. If all 
children in care are under 36 months, a maximum ratio of 4:1 should 
be maintained and no more than two of these children should be 18 
months or younger. If all children in care are three years old, a 
maximum ratio of 7:1 should be preserved. If all children in care 
are four to five years of age, a maximum ratio of 8:1 should be 
maintained.

    As stated earlier, these represent baseline recommendations and 
Lead Agencies should not feel limited by them. ACF also encourages Lead 
Agencies to consider the group size and child-staff ratios outlined in 
Caring for Our Children: National Health and Safety Performance 
Standards and the Head Start and Early Head Start standards for child-
staff ratios, especially in light of partnerships between Head Start 
and child care. The Head Start program performance standards set forth 
ratios and group size requirements for the center-based-and family 
child care options for Head Start and Early Head Start providers. Early 
Head Start requires a ratio of one teacher for every four infants and 
toddlers in center based programs with a maximum group size of eight, 
or a maximum group size of nine if there are three teachers.
    A Head Start family child care provider working alone may have a 
maximum group size of six, with no more than two children under two 
years old. A family child care provider may care for up to four 
children under three years old with a maximum group size of four, with 
no more than of two children under 18 months of age. When there is a 
teacher and an assistant, the maximum group size is 12 children, with 
no more than four children under two years old. Head Start requires a 
ratio two teachers in center-based programs with a maximum group size 
of 17 children for three year olds and 20 children for four year olds.
    Another resource for determining appropriate child-staff ratios and 
group sizes is NFPA 101: Life Safety Code from The National Fire 
Protection Association (NFPA), which recommends that small family child 
care homes with one caregiver serve no more than two children incapable 
of self-preservation. For large family child care homes, the NFPA 
recommends that no more than three children younger than 2 years of age 
be cared for where two caregivers are caring for up to 12 children 
(National Fire Protection Association, NFPA 101: Life Safety Code, 
2009).
    In response to the NPRM, commenters were supportive of giving Lead 
Agencies the latitude to establish their own requirements for child-
staff ratios and group size specific to setting type and age of 
children served. For example, one comment stated that they ``appreciate 
ACF's acknowledgement of the role provider-child ratios and group size 
standards play in ensuring an environment conducive to safety and 
learning, and the role of low ratios in stronger relationships with 
caregivers, a key element of quality. While ACF does not have the 
statutory authority to set specific ratios and size limits, we 
appreciate that ACF highlighted the examples in CFOC Basics, as well as 
Head Start, as examples for consideration.''
    Compliance with Child Abuse Reporting Requirements. Section 
658E(c)(2)(L) of the Act requires Lead Agencies to certify in its Plan 
that child care providers comply with procedures for reporting child 
abuse and neglect as required by section 106(b)(2)(B)(i) of the Child 
Abuse Prevention and Treatment Act (CAPTA) (42 U.S.C. 
5106a(b)(2)(B)(i)). That provision of CAPTA requires that the State has 
in effect and is enforcing a State law, or has in effect and is 
operating a statewide program, relating to child abuse and neglect that 
includes provisions or procedures for an individual to report known and 
suspected instances of child abuse and neglect, including a State law 
for mandatory reporting by individuals required to report such 
instances. Thus, Lead Agencies must certify that caregivers, teachers, 
and directors of child care providers will be required to report child 
abuse and neglect as individuals or mandatory reporters, whether or not 
the State explicitly identifies these persons as mandatory reporters.
    Because the CAPTA requirement above is not applicable to Tribes or, 
in some circumstances, to Territories, the final rule expands upon this 
provision at Sec.  98.41(e) by requiring Lead Agencies to certify that 
caregivers, teachers, and directors of child care providers within the 
State (or service area) will comply with the State's, Territory's or 
Tribe's child abuse reporting requirements as required by section 
106(b)(2)(B)(i) of CAPTA, if applicable, or other child abuse reporting 
procedures and laws in the service area. Territories and Tribes may 
have their own reporting procedures and mandated reporter laws. Also, 
some Tribes may work with States to use the State's reporting 
procedures. Further, the Federal Indian Child Protection and Family 
Violence Prevention Act requires mandated reporters to report child 
abuse occurring in Indian country to local child protective services 
agency or a local law enforcement agency (18 U.S.C. 1169). While State, 
Territory, and Tribal laws about when and to whom they report vary, 
child care providers and staff are often considered mandatory reporters 
of child abuse and neglect and responsible for notifying the proper 
authorities in accordance with applicable laws and procedures. 
Regardless, the provision is intended for the Lead Agency to ensure 
that caregivers, teachers, and directors follow all relevant child 
abuse and neglect reporting procedures and laws, regardless of whether 
a child care caregiver or provider is considered a mandatory reporter 
under existing child abuse and neglect laws. We note that this 
requirement applies to caregivers, teachers, and directors of all child 
care providers, regardless of whether they receive CCDF funds. We did 
not receive comments on this provision and have

[[Page 67488]]

made no changes to the proposed rule language.
    To support this statutory requirement, we have added recognition 
and reporting of child abuse and neglect to the list of health and 
safety topics at Sec.  98.41(a)(1)(xi) to ensure that caregivers, 
teachers, and directors are properly trained to be able to recognize 
the manifestations of child maltreatment. According to the FY 2016-2018 
CCDF Plans, 49 States and Territories have a pre-service training 
requirement on mandatory reporting of suspected abuse or neglect for 
staff in child care centers and 25 States and Territories require pre-
service training in this area for family child care.
    Comment: As mentioned earlier, we received support for the 
inclusion of the recognition and reporting of child abuse and neglect 
in the list of required health and safety topics.
    Response: We have retained this provision in accordance with 
Section 658E(c)(2)(L) of the Act. Child abuse and neglect training can 
be used to educate and establish child abuse and neglect prevention and 
recognition measures for children, parents, and caregivers. While 
caregivers, teaches, and directors are not expected to investigate 
child abuse and neglect, it is important that all of these individuals 
are aware of common physical and emotional signs and symptoms of child 
maltreatment.
Sec.  98.42 Enforcement of Licensing and Health and Safety Requirements
    The majority of the language we proposed in section 98.42 is new, 
based on requirements added in the CCDBG Act of 2014. States receiving 
CCDF funds are required to have child care licensing systems in place 
and must ensure child care providers serving children receiving 
subsidies meet certain health and safety requirements.
    Procedures to ensure compliance with licensing and health and 
safety requirements. Previous regulations required that the Lead Agency 
must have procedures in effect to ensure that child care providers of 
CCDF services within the service area served by the Lead Agency, comply 
with all applicable State, local, or Tribal requirements. This final 
rule retains the proposed rule language and clarifies at Sec.  98.42(a) 
that these requirements must include the health and safety requirements 
described in Sec.  98.41. We received no comments on this section.
    Monitoring requirements. Section 658E(c)(2)(K) of the Act requires 
that Lead Agencies conduct monitoring visits for all child care 
providers receiving CCDF funds, including license-exempt providers 
(except, at Lead Agency option, those that only serve relatives). The 
Act requires Lead Agencies to certify that licensed CCDF providers 
receive one pre-licensure inspection for compliance with health, 
safety, and fire standards and at least one, annual, unannounced 
licensing inspection for compliance with licensing standards, including 
health, safety, and fire standards. License-exempt CCDF providers 
(except, at Lead Agency option, those serving relatives) must receive 
at least one annual inspection for compliance with health, safety, and 
fire standards at a time determined by the Lead Agency. The final rule 
restates these requirements at Sec.  98.42(b). For existing licensed 
providers already serving CCDF children, we will consider the Lead 
Agency to have met the pre-licensure requirement through completion of 
the first, annual on-site inspection.
    Section 98.42(b)(2) of the final rule clarifies that annual 
inspections for both licensed and license-exempt CCDF providers 
includes, but is not be limited to, those health and safety 
requirements described in Sec.  98.41. The final rule also clarifies 
that Tribes are subject to the monitoring requirements, unless a Tribal 
Lead Agency requests an alternative monitoring methodology in its Plan 
and provides adequate justification, subject to ACF approval, pursuant 
to Sec.  98.83(d)(2).
    Pre-licensure inspections. The vast majority of States and 
Territories already require inspections for all child care providers 
prior to licensure, which we strongly encourage. Only one State does 
not require pre-licensure inspections for child care centers, and seven 
States do not require pre-licensure inspections for family child care. 
This final rule interprets the pre-licensure inspection requirement as 
an indication that an on-site inspection is necessary for licensed 
child care providers prior to providing CCDF-funded child care. 
Therefore, any licensed provider that did not previously receive a pre-
licensure inspection must be inspected prior to caring for a child 
receiving CCDF.
    Comment: We received strong support for pre-licensure inspections 
as a condition for licensure as well as meeting the pre-licensure 
inspection requirement through the first annual on-site inspection for 
existing licensed CCDF providers and those in States that do not 
currently require pre-licensure visits. However, there was concern that 
the first annual inspection of existing licensed providers who provide 
CCDF-funded care would not take place in a timely manner and families 
would not receive needed care.
    Response: Because monitoring of licensing and regulatory 
requirements does not go into effect until November 19, 2016, per 
Section 658E(c)(2), we expect existing CCDF providers to have received 
their annual on-site inspection before phase in of the pre-licensure 
inspection requirement. This visit will meet the pre-licensure 
inspection requirement and allow for providers to continue serving CCDF 
children without interruption.
    The Act and this final rule require annual inspections of licensed 
child care providers receiving CCDF funds. Research supports the use of 
regular, unannounced inspections for monitoring compliance with health 
and safety standards and protecting children. A recent series of 
Department of Health and Human Services' (HHS) Office of Inspector 
General (OIG) audits identified deficiencies with health and safety 
protections for children in child care with CCDF providers in several 
States, including in Arizona, Connecticut, Florida, Louisiana, Maine, 
Michigan, Minnesota, Pennsylvania, Puerto Rico, and South Carolina. For 
example, an OIG audit in one State examined the monitoring of 20 family 
child care home providers that participate in the CCDF program and 
found 17 in violation of at least one licensing requirement, including 
four providers who did not comply with background check requirements. 
Another audit found 19 out of 20 licensed family child care home CCDF 
providers in violation of at least one State licensing requirement 
related to the health and safety of children. Unfortunately, the 
oversight and monitoring problems highlighted in recent reports were 
similar to those first identified 23 years ago. (HHS OIG, Some Arizona 
Child Day Care Centers Did Not Always Comply with State Health and 
Safety Licensing Requirements. (A-09-13-01008). January 2015; HHS OIG, 
Some Connecticut Child Day Centers Did Not Always Comply with State 
Health and Safety Licensing Requirements, (A-01-13-02506). April 2014; 
HHS, OIG, Some Florida Child Care Centers Did Not Always Comply with 
State Health and Safety Licensing Requirements, (A-04-14-08033), March 
2016; HHS, OIG, Some Louisiana Child Day Centers Did Not Always Comply 
with State Health and Safety Licensing Requirements, (A-06-13-00036). 
August 2014; HHS, OIG, Some Maine Child Day Centers Did Not Always 
Comply with State Health and Safety Licensing Requirements, (A-01-13-
02503) August 2014; HHS, OIG, Some

[[Page 67489]]

Minnesota Child Care Centers Did Not Always Comply with State Health 
and Safety Licensing Requirements, (A-05-14-00022) March 2015; HHS, 
OIG, Some Pennsylvania Child Day Centers Did Not Always Comply with 
State Health and Safety Licensing Requirements, (A-03-14-00251). 
September 2015; HHS, OIG, Some South Carolina Child Care Centers Did 
Not Always Comply with State Health and Safety Licensing Requirements, 
(A-04-14-08032) November 2015; HHS, OIG, Review of Health and Safety 
Standards at Child Care Facilities in North Carolina, (A-12-92-00044) 
March 23, 1993; HHS, OIG, Audit of Health and Safety Standards at Child 
Care Facilities in Nevada, (A-09-92-00103) September 1993. HHS, OIG, 
Nationwide Review of Health and Safety Standards at Child Care 
Facilities (A-04-94-00071) December 1994).
    In the proposed rule, we specifically solicited comments about 
expanding the requirement for unannounced, annual inspections to all 
licensed child care providers, regardless of whether or not they 
currently receive CCDF funds. While we received many supportive 
comments, this final rule does not extend the requirements to providers 
not receiving CCDF and keeps the regulatory language at Sec.  98.42(b) 
as proposed. However, we strongly encourage Lead Agencies to conduct 
annual, unannounced visits of all licensed child care providers, 
including those not serving children receiving child care subsidies.
    Comment: The majority of commenters supported the goal of extending 
unannounced, annual inspections to all licensed providers. However, 
several commenters, including States and a municipality, expressed 
concerns about the high costs related to the proposal, especially 
considering the other costs associated with the monitoring requirements 
included in the Act. One State said it ``understands the concern ACF 
poses regarding not inspecting all providers on the same inspection 
frequency; however, cost is a legitimate and real barrier to 
implementing a rule that would require annual inspection of all 
providers in States where this is not already in practice.'' Comments 
also reflected concerns about the logistics of implementing the 
proposed requirement. Child care providers, national/State/local 
organizations, child care worker organizations, and advocates supported 
unannounced, annual inspections for all licensed providers. Commenters 
agreed with ACF's concerns that requiring inspections only of licensed 
CCDF providers, and not all licensed providers, could result in a 
bifurcated system in which children receiving CCDF do not have access 
to the full range of licensed child care providers.
    Response: In light of the significant number of concerns related to 
the cost of broader coverage, the final rule keeps Sec.  98.42(b) as 
proposed and does not require the expansion of annual inspections to 
licensed child care providers not serving children receiving CCDF. 
However, ACF continues to be concerned that if all licensed child care 
providers are not subject to at least annual inspections, CCDF families 
would be restricted from accessing a portion of the provider population 
(those that have not been inspected annually), effectively denying 
children access to some providers, limiting parental choice, and 
resulting in a bifurcated system. Therefore, we strongly encourage Lead 
Agencies to use annual inspections as a means for monitoring all 
licensed child care providers.
    Annual inspections of license-exempt providers. This provision is 
addressed in section 98.42(b)(2)(ii) of this final rule, which 
clarifies that the annual monitoring applies to license-exempt 
providers that are eligible to provide CCDF services. The Act does not 
require that inspections for license-exempt CCDF providers be 
unannounced, but ACF strongly encourages some use of unannounced 
visits, as they have been found effective in promoting compliance with 
health and safety requirements among providers who have a history of 
low compliance with State child care regulations. (R. Fiene, 
Unannounced vs. announced licensing inspections in monitoring child 
care programs, Pennsylvania Office of Children, Youth and Families, 
1996; American Academy of Pediatrics, American Public Health 
Association, National Resource Center for Health and Safety in Child 
Care and Early Education; Caring for Our Children: National health and 
safety performance standards; Guidelines for early care and education 
programs. 3rd edition.) However, there may be situations in which a 
Lead Agency cannot be sure that a provider and children will be present 
(e.g., when a provider is caring for a child whose parent has a 
variable work schedule). In such situations, advance notification of a 
visit may be necessary. The Lead Agency may also choose to inform 
providers before monitoring staff depart for unannounced visits that 
involve significant travel time, such as those in rural areas, to avoid 
staff visits when the provider or children are not present. Lead 
Agencies are encouraged to make reasonable efforts to conduct visits 
during the hours providers are caring for children and ensure that 
providers who care for children on the evenings and weekends are 
monitored so that the supply of non-traditional hour care is not 
reduced. ACF intends to provide technical assistance to CCDF Lead 
Agencies on best practices for monitoring license-exempt providers, 
including the use of unannounced inspections.
    Comment: We received comments from a few States that indicated 
concerns for requiring inspections of license-exempt programs due to 
cost and conflicts with State statute. One commenter stated that 
``conducting monitoring visits to license-exempt programs will be 
challenging for our licensing staff since we will not have jurisdiction 
over these programs.''
    Response: The annual inspection of license-exempt providers who 
receive CCDF for compliance with health, safety, and fire standards is 
required by the Act. In cases where there is a conflict with State 
statute, the State will need to take legislative action in order to 
comply. If additional time is necessary to make this change, this final 
rule includes a waiver provision at Sec.  98.19(b) that allows the Lead 
Agency to apply for a temporary extension that provides 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.
    Process for responding to complaints. Section 658E(c)(2)(C) of the 
Act requires Lead Agencies to maintain a record of substantiated 
parental complaints, and Sec.  98.32 of the final rule requires Lead 
Agencies to establish a reporting process for parental complaints. A 
logical extension of these requirements is for Lead Agencies to respond 
to complaints, including monitoring where appropriate, in particular 
those of greatest concern to children's health and safety. Unannounced 
inspections allow for an investigation of the situation and, if the 
threat is substantiated, may prevent future incidences. In the NPRM, we 
had not proposed a requirement for monitoring in response to complaints 
but sought comments on whether this final rule should include a 
requirement for Lead Agencies to conduct unannounced inspections in 
response to complaints and whether this requirement should apply to 
providers receiving CCDF funds or additional providers.

[[Page 67490]]

    Comment: In general, there was support from national organizations 
for States to conduct inspections in response to complaints received 
about incidents in child care that impact children's health and safety. 
For example, one submission recommended that this final rule ``include 
a requirement for States to conduct inspections in response to 
complaints received about incidents in child care that impact 
children's health and safety. Inclusion of such a requirement is a 
logical step given that States are required to have a hotline in place 
for the public to report complaints. States should have in place a 
system to determine those complaints that indicate a risk to children's 
health and safety and investigate accordingly.''
    However, there was also concern from national, State and local 
organizations; child care resource and referral agencies; and States 
about conducting unannounced inspections for all complaints and 
recommended that unannounced visits be conducted in response to 
complaints of imminent danger to children, as defined by the State. 
Many felt that States should have the ability to develop State-specific 
procedures for monitoring in response to complaints, including the 
triggers for unannounced visits.
    Response: Consistent with the NPRM, we decline to require 
monitoring inspections in response to complaints. However, this final 
rule at Sec.  98.32(d)(1) requires Lead Agencies to describe in their 
CCDF Plans how they respond to and substantiate complaints, including 
whether or not the State uses monitoring in its process of responding 
to complaints for both CCDF and non-CCDF providers. This requirement 
corresponds to the Plan question included at Sec.  98.16(s).
    Coordination of monitoring. Section 98.42(b)(2)(iii) of the final 
rule requires Lead Agencies to coordinate, to the extent practicable, 
with other Federal, State/Territory, and local entities that conduct 
similar on-site monitoring. Possible partners include licensing, QRIS, 
Head Start, and the Child and Adult Care Food Program (CACFP).
    Coordinating with other monitoring agencies can be beneficial to 
both agencies as they prevent duplication of services. As an example of 
current interagency coordination, one State holds monthly meetings with 
representation from its licensing division, CCDF Lead Agency, CACFP, 
and other public agencies with child care monitoring responsibilities. 
These divisions and agencies identify areas of overlap in monitoring 
and coordinate accordingly to leverage combined resources and minimize 
duplication of efforts. It is important that any shared costs be 
properly allocated between the organizations participating and 
benefiting from the partnership.
    To the extent that other agencies provide an on-site monitoring 
component that may satisfy or partially satisfy the new monitoring 
requirement under the Act and this final rule, the Lead Agency is 
encouraged to pursue collaboration, which may include sharing 
information and data as well as coordinating resources. However, the 
Lead Agency is ultimately responsible for meeting these requirements 
and ensuring that any collaborative monitoring efforts satisfy all CCDF 
requirements. In response to the NPRM, there was strong support for 
coordination of monitoring across programs with other Federal, State/
Territory, and local entities that conduct similar on-site monitoring; 
therefore, we have retained this provision in this final rule.
    Differential monitoring. Section 98.42(b)(2)(iv)(A) of the final 
rule gives Lead Agencies the option of using differential monitoring, 
or a risk-based monitoring approach, provided that the monitoring visit 
is representative of the full complement of health and safety standards 
and is conducted for all applicable providers annually, as required in 
statute.
    A white paper developed by HHS's Office of the Assistant Secretary 
for Planning and Evaluation, found the following:

    Many States are using differential monitoring to make monitoring 
more efficient. As opposed to `one size fits all' systems of 
monitoring, differential monitoring determines the frequency and 
depth of needed monitoring from an assessment of the provider's 
history of compliance with standards and regulations. Providers who 
maintain strong records of compliance are inspected less frequently, 
while providers with a history of non-compliance may be subject to 
more announced and unannounced inspections. In some States, more 
frequent inspections are conducted for providers who are on a 
corrective action plan, or after a particularly egregious violation. 
(Trivedi, P.A. (2015). Innovation in monitoring in early care and 
education: Options for states. Washington, DC: Office of the 
Assistant Secretary for Planning and Evaluation, U.S. Department of 
Health and Human Services)

    Differential monitoring often involves monitoring programs using 
monitoring tools or protocols that investigate a subset of requirements 
to determine compliance. There are two methods used to identify rules 
for differential monitoring:
     Key Indicators: An approach that focuses on identifying 
and monitoring those rules that statistically predict compliance with 
all the rules; and
     Risk Assessment: An approach that focuses on identifying 
and monitoring those rules that place children at greater risk of 
mortality or morbidity if violations or citations occur.
    The key indicators approach is often used to determine the rules to 
include in an abbreviated inspection. A risk assessment approach is 
often used to classify or categorize rule violations and can be used to 
identify rules where violations pose a greater risk to children, 
distinguish levels of regulatory compliance, or determine enforcement 
actions based on categories of violations. Note that monitoring 
strategies that rely on sampling of providers or allow for a monitoring 
frequency of less than once per year for providers are not allowable as 
every child care provider must receive at least one inspection 
annually, in accordance with the Act. However, differential monitoring 
key indicator approaches can be used in annual monitoring visits, 
provided that the content covered during each visit is representative 
of the full complement of health and safety requirements.
    ACF encourages Lead Agencies to consider the use of differential 
monitoring as a method for determining the scheduling and priority for 
unannounced monitoring visits. This may be based on an assessment of 
the child care provider's past level of compliance with health and 
safety requirements, information received that could indicate 
violations, or the occurrence of a monitoring visit from another 
program. Differential monitoring allows Lead Agencies to prioritize 
monitoring of providers that have previously been found out of 
compliance or the subject of parental complaints or that have not been 
monitored through other programs.
    Lead Agencies should use data to make necessary adjustments to 
differential monitoring or the frequency of monitoring visits over 
time. For example, if widespread or significant compliance issues are 
found under existing monitoring protocols, the Lead Agency could 
consider increasing the frequency of monitoring visits. As discussed in 
Innovations in Monitoring, Lead Agencies should be intentional and 
cautious in their use of differential monitoring and not replace 
routine inspection of all licensed providers, including those with good 
compliance records. We encourage Lead Agencies to follow the 
recommendations below

[[Page 67491]]

when implementing key indicators and/or risk-based approaches:
     Assess resources available in the federal TA system that 
can assist with undertaking a key indicator or statistical/risk-based 
approach;
     Conduct comprehensive unabbreviated inspections of all 
facilities at least every three years;
     Have a monitoring protocol/instrument in use and at least 
one year's worth of data from monitoring visits in place prior to 
determining key indicators;
     Combine a key indicator system with a risk-based approach, 
to ensure that resources are well-targeted to the providers that are 
out of compliance in the most crucial areas for the protection of 
children;
     Continue to do full inspections with providers that (1) 
have not maintained a regular license for the past two consecutive 
years, (2) have had recent changes in their director, (3) have had 
complaints that have been substantiated in the past 12 months, (4) have 
recently experienced sanctions, and (5) have a past history of repeated 
violations;
     Conduct validation studies by comparing compliance data 
from comprehensive reviews to compliance data from key indicator 
reviews;
     Consider and develop a different set of key indicators for 
different types of child care settings (e.g., center-based versus 
family child care).
    As there was strong support for the use of differential monitoring 
as a method for annual inspections, we are retaining this provision in 
this final rule.
    Monitoring in-home care. At Sec.  98.42(b)(2)(v)(B), this final 
rule requires that that Lead Agencies have the option to develop 
alternate monitoring requirements for care provided in the child's home 
that are appropriate to the setting. A child's home may not meet the 
same standards as other child care facilities and this provision gives 
Lead Agencies flexibility in conducting more streamlined and targeted 
inspections. For example, Lead Agencies may choose to monitor in-home 
providers on basic health and safety requirements such as training and 
background checks. Lead Agencies could choose to focus on health and 
safety risks that pose imminent danger to children in care. This 
flexibility cannot be used to bypass the monitoring requirement 
altogether. States should develop procedures for notifying parents of 
monitoring protocols and consider whether it would be appropriate to 
obtain parental permission prior to entering the home for inspection 
purposes.
    Comment: In response to the NPRM, there was support from States and 
national organizations for Lead Agencies to have the option to develop 
alternative monitoring requirements for in-home care. Some felt that, 
when care is provided in the child's home, certain aspects of health 
and safety are the responsibility of the parents and not under the 
child care provider's control. One comment said that ``the fact that 
there are public dollars being invested does indicate that the Lead 
Agency should be empowered to do what is necessary to ensure that the 
child care experience that is being funded is developmentally 
appropriate, safe, clean and is equal to what a family not eligible for 
CCDF funding might expect.''
    However, a number of comments believed care provided in a child's 
home should be exempt from on-site monitoring. In-home monitoring 
raises privacy concerns for families, as well as the potential for 
unintended consequences. They believed that imposing monitoring 
requirements on in-home care may lead States to further restrict the 
use of in-home care by families receiving assistance (as permitted by 
Sec.  98.16(i)(2)), including among those who need it. The few families 
that use care in the child's own home may do so because of 
circumstances that severely limit their access to other options--
circumstances such as a child's serious disability or a parent's work 
schedule that requires overnight care. Lead Agencies should be 
permitted to exempt in-home child care providers from health and safety 
and on-site monitoring requirements, just as relative providers may be 
exempt.
    Response: While we are sensitive to concerns in this area, we do 
not have the statutory authority to exempt in-home providers from 
monitoring requirements. However, by allowing Lead Agencies to develop 
alternative methodologies for meeting this requirement, this final rule 
grants significant flexibility to States in how they choose to fulfill 
this requirement. We encourage Lead Agencies to use an approach that 
emphasizes training and technical assistance that focuses on assisting 
families in making their homes safe for their children. For example, 
some Lead Agencies provide parents with health and safety checklists 
that allow them to assess critical elements of their home environment. 
Additionally, instead of inspectors who monitor for compliance with 
licensing requirements, Lead Agencies should consider whether other 
entities, such as resource and referral agencies or other community 
organizations, are better positioned to monitor and provide supports 
for care provided in an in-home setting.
    Licensing inspector qualifications. Section 658E(c)(2)(K)(i)(I) of 
the Act requires Lead Agencies to ensure that individuals who are hired 
as licensing inspectors in the State are qualified to inspect those 
child care providers and facilities and have received training in 
related health and safety requirements, and are trained in all aspects 
of the State's licensure requirements. This final rule re-states this 
statutory requirement at Sec.  98.42(b)(1) and clarifies that such 
training should include, at a minimum, the areas listed in Sec.  98.41 
as well as all aspects of State, Territory, or Tribal licensure 
requirements. As inspectors must monitor the health and safety 
requirements in Sec.  98.41, it follows that the training of inspectors 
should include these standards.
    The final rule also clarifies that inspectors be trained in health 
and safety requirements appropriate to provider setting and age of 
children served. Inspecting care for children of different ages, and in 
different settings, may require specialized training in order to 
understand differences in care. We encourage Lead Agencies to consider 
the cultural and linguistic diversity of caregivers when addressing 
inspector competencies and training. Caring for Our Children: National 
Health and Safety Performance Standards recommends that licensing 
inspectors have ``pre-qualified'' education and experience about the 
types of child care they will be assigned to inspect and in the 
concepts and principles of licensing and inspections. When hired, the 
standards recommend at least 50 clock hours of competency-based 
orientation training and 24 annual clock hours of competency-based 
continuing education. There was significant support for specialized 
training of licensing inspectors in health and safety in early care and 
education settings, as well as the consideration of cultural and 
linguistic diversity of caregivers when addressing competencies and 
trainings, which we have retained in this final rule.
    Licensing inspector-provider ratios. Section 658E(c)(2)(K)(i)(III) 
of the Act requires Lead Agencies to have policies in place to ensure 
the ratio of inspectors to providers is sufficient to ensure visits 
occur in accordance with Federal, State, and local law. The final rule 
expands on this requirement at Sec.  98.42(b)(3) to ensure 
applicability with Federal, State, Territory, Tribal, and local law. 
The public comment process showed that there was support for this 
requirement. Large caseloads make it difficult for

[[Page 67492]]

inspectors to conduct valid and reliable inspections. While the Act 
does not require a specific ratio, Lead Agencies can refer to the 
National Association of Regulatory Agencies (NARA) recommendation of a 
maximum workload for inspectors of 50-60 facilities. (NARA and Amie 
Lapp-Payne. (May 2011). Strong Licensing: The Foundation for a Quality 
Early Care and Education System: Preliminary Principles and Suggestions 
to Strengthen Requirements and Enforcement for Licensed Child Care.)
    Reporting of serious injuries and deaths. At Sec.  98.42(b)(4), 
this final rule requires that Lead Agencies require child care 
providers to report to a designated State, Territorial, or Tribal 
entity any serious injuries or deaths of children occurring in child 
care. This complements Sec.  98.53(f)(4), which requires States and 
Territories to submit a report describing any changes to regulations, 
enforcement mechanisms, or other policies addressing health and safety 
based on an annual review and assessment of serious child injuries and 
any deaths occurring in child care programs serving CCDF children and, 
to the extent possible, other regulated and unregulated child care 
settings. States, Territories, and Tribes are required to apply this 
reporting requirement to all child care providers, regardless of 
subsidy receipt, to report incidents of serious child injuries or death 
to a designated agency. This is also consistent with the statutory 
requirement at Section 658E(c)(2)(D), which requires Lead Agencies to 
collect and disseminate aggregate number of deaths, serious injuries, 
and instances of substantiated child abuse that occurred in child care 
settings each year, for eligible providers.
    The Lead Agency must identify the ``designated entity'' in its Plan 
as required at Sec.  98.16(ff). If there are existing structures in 
place that look at child morbidity, the Lead Agency may work within 
that structure to establish a designated entity. The reporting 
mechanism can be tailored to fit with existing policies and procedures. 
Our purpose is the reporting of incidents so that the Lead Agency and 
other responsible entities can make the appropriate response, publicly 
report prevalence data, and make any appropriate changes to health and 
safety policies.
    Comment: There was support for the requirement of reporting serious 
injuries and deaths of children occurring in child care settings. 
However, concern was raised that the NPRM failed to provide specific 
direction as to how Lead Agencies should respond to reports of serious 
injuries and deaths, who should bear responsibility of investigating 
and responding to allegations, and what rights parents and defendants 
have to information during and following the investigation.
    Response: As mentioned above, Sec.  98.32(d)(1) requires Lead 
Agencies to report in their State Plans how they respond to and 
substantiate complaints, including whether the process includes 
monitoring of child care providers. We have chosen not to establish 
further parameters around this requirement to give Lead Agencies 
flexibility to design a system that best works for their program.
    Exemption for relative providers. Previous regulations at Sec.  
98.41(e) allowed Lead Agencies to exempt relative caregivers, including 
grandparents, great-grandparents, siblings (if such providers live in a 
separate residence), and aunts or uncles from health and safety and 
monitoring requirements described in this section. In the final rule, 
this relative exemption remains at Sec.  98.42(c), which includes 
language that requires Lead Agencies, if they choose to exclude such 
providers from any of these requirements, to provide a description and 
justification in the CCDF Plan, pursuant to Sec.  98.16(1), of 
requirements, if any, that apply to these providers. Asking Lead 
Agencies to describe and justify relative exemptions from health and 
safety requirements and monitoring provides accountability that any 
exemptions are issued in a thoughtful manner that does not endanger 
children.
    Comment: We received a request for clarification on whether or not 
relative providers are exempt from requirements for ratios, group size, 
and caregiver qualifications. We also received one comment that 
reflected concern for the lack of health and safety requirements on 
guidance and training for relative providers. We also received one 
comment requesting that the types of relatives who may be exempt from 
requirements be expanded to include additional types of relatives.
    Response: A Lead Agency may choose to exclude relative providers 
from any health and safety and monitoring requirements if a description 
and justification is provided in the CCDF Plan. This may include 
requirements for ratios, group size, and caregiver qualifications.
    We should clarify that while the federal statute gave the option to 
exempt relatives from health and safety requirements, it is not 
required. Also, Lead Agencies have the option to exempt relatives from 
certain, but not all health and safety requirements. They have the 
ability to determine the scope of an exemption and if there are certain 
health and safety requirements that the Lead Agency believes are 
important to apply to a relative provider, they have the ability to do 
so. Technical assistance will be available to support the promotion of 
health, safety, and child development in all early care and education 
settings.
    The Act defines relatives and, therefore, we are unable to expand 
the scope of who may be considered for exemption due to statutory 
language. However, as there is an option in the final rule to develop 
alternative monitoring requirements for in-home providers at Sec.  
98.42(b)(2)(v), Lead Agencies may choose to explore this flexibility 
when care is provided in the child's home by individuals who are not 
included in the list for exemption but the Lead Agency believes merit 
special considerations.
Sec.  98.43 Criminal Background Checks
    The reauthorization added Section 658H on requirements for 
comprehensive criminal background checks, which are a basic safeguard 
essential to protect the safety of children in child care and reduce 
children's risk of harm. Parents have the right to be confident that 
their children's caregivers, and others who come into contact with 
their children, do not have a record of violent offenses, sex offenses, 
child abuse or neglect, or other behaviors that would disqualify them 
from caring for children. A GAO report found several cases in which 
individuals convicted of serious sex offenses had access to children in 
child care facilities as employees, because they were not subject to a 
criminal history check prior to employment (Overview of Relevant 
Employment Laws and Cases of Sex Offenders at Child Care Facilities, 
GAO-11-757, GAO, 2011).
    Comprehensive background checks have been a long-standing ACF 
policy priority. According to an analysis of the FY 2016-2018 CCDF 
Plans, all States and Territories require that child care center staff 
undergo at least one type of criminal background check, and 
approximately 45 require an FBI fingerprint check for centers. Fifty-
five States and Territories require family child care providers to have 
a criminal background check, and approximately 45 require an FBI 
fingerprint check. For some States and Territories, these requirements 
are currently limited to licensed providers, rather than all providers 
that serve children receiving CCDF subsidies.

[[Page 67493]]

    Background check effective dates. The Act requires that States and 
Territories shall meet the requirements for the provision of criminal 
background checks for child care staff members not later than the last 
day of the second full fiscal year after the date of enactment of the 
Child Care and Development Block Grant Act of 2014. This delayed 
effective date requires States and Territories to come into compliance 
with the background check requirements by September 30, 2017.
    Comment: Several States requested clarifying language be added to 
the preamble around the statutory effective dates for the background 
check requirements.
    Response: A State must have policies and procedures in place that 
meet the background check requirements not later than September 30, 
2017. In addition, in accordance with Section 658H(d)(2), staff members 
who were employed prior to the enactment of the CCDBG Act of 2014 must 
have submitted requests for background checks that meet all the 
requirements by September 30, 2017. Section 658H(d)(4), the Act 
provides that a provider need not submit a new request for a child care 
staff member if the staff member received a background check meeting 
all the required components under the Act within the past five years 
while employed by, or seeking employment by, a child care provider 
within the State. If a staff member employed prior to the CCDBG Act of 
2014 satisfies all of those requirements, then it is not necessary for 
a provider to submit a new request until five years following the 
background check completion. It will be important to evaluate the 
current background check requirements to ensure that all new 
requirements are satisfied, including the disqualification factors. If 
the current background check requirements do not satisfy the new 
requirements or results of the current background checks are not 
maintained, then new background checks would need to be conducted.
    We strongly encourage States to establish policies and procedures 
well in advance of the September 30, 2017, effective date, in order to 
allow sufficient time to clear the backlog of existing providers and 
staff members that must be checked prior to the deadline. It is also 
important to note that the HHS Secretary may grant the State an 
extension of up to one year to complete the background check 
requirements, as long as the State demonstrates a good faith effort to 
comply. This extension is separate from the transitional waiver 
described earlier in the preamble. States applying for an extension 
must be able to describe their current implementation efforts and 
present a timeline for compliance within one year, by September 30, 
2018. ACF will release specific guidance to States interested in an 
extension. In addition, the reauthorized Act establishes a penalty for 
noncompliance. For any year that a State fails to substantially comply, 
ACF shall withhold up to 5 percent of the State's CCDF funds for each 
year until coming into compliance.
    Background check implementation. Section 658H(a) of the Act 
requires that States shall have in effect requirements, policies, and 
procedures to require and conduct criminal background checks for child 
care staff members (including prospective child care staff members) of 
child care providers. Having procedures in place to conduct background 
checks on child care staff members will require coordination across 
public agencies. The CCDF Lead Agency must work with other agencies, 
such as the Child Welfare office and the State Identification Bureau, 
to ensure the checks are conducted in accordance with the Act. In 
recognition of this effort, Sec.  98.43(a)(1) clarifies that these 
requirements involve multiple State, Territorial, or Tribal agencies. 
We discuss the comments we received on this provision further below.
    Tribes and background checks. In the final rule, Tribal Lead 
Agencies are also subject to the background check requirements 
described in this section, with some flexibility as discussed later in 
Subpart I.
    Applicability of background checks requirements. The statutory 
language identifying which providers must conduct background checks on 
child care staff members is unclear. It is our interpretation of the 
Act that all licensed, regulated, and registered child care providers 
and all child care providers eligible to deliver CCDF services (with 
the exception of those individuals who are related to all children for 
whom child care services are provided) are subject to the Act's 
background check requirements. Section 98.43(a)(1)(i) of the final 
rules applies this requirement to all licensed, regulated, or 
registered providers, regardless of whether they receive CCDF funds and 
all license-exempt CCDF providers (with the exception of individuals 
who are related, as defined in the definition of eligible child care 
provider, to all children for whom child care services are provided).
    Comment: Overall, the comments, from national organizations and 
multiple States, supported broadly applying the background check 
requirements to all licensed, regulated, or registered child care 
providers and all child care providers eligible to deliver CCDF 
services. One State and one Territory submitted comments disagreeing 
with our interpretation.
    Response: ACF was pleased by the support for broad applicability of 
the background check requirements. We acknowledge that the statutory 
language is not clear about the universe of staff and providers subject 
to the background check requirement; however, our interpretation aligns 
with the general intent of the statute to improve the overall safety of 
child care services and programs. Furthermore, there is justification 
for applying this requirement in the broadest terms for two important 
reasons. First, all parents using child care deserve this basic 
protection of having confidence that those who are trusted with the 
care of their children do not have criminal backgrounds that may 
endanger the well-being of their children. Second, limiting those child 
care providers who are subject to background checks has the potential 
to severely restrict parental choice and equal access for CCDF 
children, two fundamental tenets of CCDF. If not all child care 
providers are subject to comprehensive background checks, providers 
could opt to not serve CCDF children, thereby restricting access. 
Creating a bifurcated system in which CCDF children have access to only 
a portion of child care providers who meet applicable standards would 
be incongruous with the purposes of the Act and would not serve to 
advance the important goal of serving more low-income children in high-
quality care.
    Comment: One comment suggested adding regulatory language to 
capture all State definitions of provider groups. The comment stated, 
``Some States may use words, such as `certified' or `listed care' that 
should not be exempt from a comprehensive check merely because the 
words `licensed, regulated, or registered' are not used. For example, 
legislation is currently pending in at least one State that would 
eliminate the category of care called `voluntarily registered' and 
replace it with a voluntary `list.' ''
    Response: It is not necessary to insert additional regulatory 
language to address other State definitions of provider groups. As 
described earlier, the background check requirements apply to licensed, 
regulated, or registered providers, regardless of whether they receive 
CCDF funds as well as all providers eligible to deliver CCDF services. 
Our interpretation of the law applies these requirements broadly

[[Page 67494]]

and includes providers who are ``certified'' or ``listed.''
    Definition of child care staff member. Section 658H(i) of the Act 
defines a child care staff member as someone (other than an individual 
who is related to all children for whom child care services are 
provided) who is employed by the child care provider for compensation 
or whose activities involve unsupervised access to children who are 
cared for by the child care provider. Section 98.43(a)(2)(ii) of the 
final rule includes contract and self-employed individuals in the 
definition of child care staff members, as they may have direct contact 
with children. In addition, we require individuals, age 18 or older, 
residing in a family child care home to be defined as child care staff 
members and, therefore, subject to background checks, as well as the 
disqualifying crimes and appeals processes.
    Comment: In the NPRM, at Sec.  98.43(a)(2)(ii), we defined child 
care staff member to mean ``an individual age 18 and older . . .'' We 
received a letter from Senator Alexander and Congressman Kline asking 
us to revise this regulatory language to reflect current State 
practice. The letter stated, ``The NPRM defines those staff required to 
receive a background check as individuals 18 and older, yet a number of 
State laws allow individuals younger than 18 to be employed by 
providers. To ensure the maximum amount of safety while still 
respecting individual States' employment laws, we request the 
Department provide information or assistance to States on conducting 
background checks for both staff aged 18 and older, and those younger 
than 18 to ensure all States are able to comply with the background 
checks required in the Act.''
    Response: ACF agreed with the concerns described in the letter. The 
reference to ``age 18 or older'' is removed from the final rule. This 
change better aligns with the original statutory language and removes 
the unintentional limitation placed on the definition of child care 
staff member. The original statutory language requires any individual, 
regardless of age, who is employed by a child care provider for 
compensation to complete comprehensive background checks.
    Comment: Several comments continued to ask for clarification on who 
is included in the definition of child care staff member. A letter from 
Senator Alexander and Congressman Kline advised, ``The scope of the 
NPRM's definition of `child care staff member' for the purposes of a 
required background check is unclear. We ask for clarity for providers 
so they may know definitively if an individual who receives 
`compensation, including contract employees or self-employed 
individuals' is required to automatically receive a background check, 
or if such individuals should additionally have duties listed under 
subparagraph (B). As written, the definition is unclear if these 
requirements are mutually exclusive and would trigger a background 
check on their own regard or if a `child care staff member' would need 
to fit both such requirements. We ask you also to review the 
administrative burden this definition could place on providers. While 
retaining the highest safety measures for children, we urge the 
Department to review this requirement and listen to comments from 
centers and providers to ensure their obligation captures individuals 
who may have unsupervised access to children but is not duplicative of 
State requirements or overly burdensome.''
    Response: The Act states that a child care staff member means an 
individual (other than an individual who is related to all children for 
whom child care services are provided) who is employed by a child care 
provider for compensation; or whose activities involve the care or 
supervision of children for a child care provider or unsupervised 
access to children who are cared for or supervised by a child care 
provider. This definition, like the definition of child care provider, 
is broad. It encompasses not only caregivers, teachers, or directors, 
but also janitors, cooks, and other employees of a child care provider 
who may not regularly engage with children, but whose placement at the 
facility gives them the opportunity for unsupervised access. Given that 
these individuals are employed by a child care provider, they are 
included in the statute's definition. Therefore, it is important that 
they also complete a comprehensive background check in order to ensure 
and protect children's safety.
    The final rule adds the terms ``contract employees'' and ``self-
employed individuals'' to the definition of ``child care staff 
member.'' These terms are meant to clarify the definition, particularly 
for family child care providers. Many family child care providers are 
self-employed individuals who own their own businesses. The final rule 
specifically requires any individual residing in a family child care 
home age 18 or older to complete a background check. We discuss this 
requirement in greater detail below. These individuals may also have 
unsupervised access to children, so completing a background check is a 
necessary safeguard to protect the children in care. The definition of 
child care staff member generally covers any individual who is employed 
by the child care provider and any individual who may have unsupervised 
access to children in care.
    Comment: The comments were mixed on whether other adults in a 
family child care home should be subject to the background checks 
requirements. Several national organizations and States wrote in 
support, while child care worker organizations, a few national 
organizations, and one State did not support the provision. One State 
wrote, ``We currently require background reviews on all household 
members 18 years or older and have found multiple individuals whose 
presence could place children at risk.''
    Response: As illustrated by the State's comment, requiring other 
adults in family child care homes to complete background checks is 
vital to ensuring children's health and safety. A majority of States 
already require other adults in family child care homes to receive 
background checks. Forty-three States require some type of background 
check of family members 18 years of age or older that reside in the 
family child care home (Leaving Child Care to Chance: NACCRRA's Ranking 
of State Standards and Oversight for Small Family Child Care Homes, 
National Association of Child Care Resource and Referral Agencies, 
2012).
    Although these individuals may not be directly responsible for 
caring for children, they have ample opportunity for unsupervised 
access to children. For this reason, as proposed in the NPRM, we are 
specifically requiring other adults in family child care homes to 
complete the background check requirements. Because these individuals 
are included in the definition of child care staff member, they are 
subject to the same disqualifications and appeals processes described 
in the Act and the regulations. We strongly discourage States from 
identifying any additional disqualifying crimes for residents of family 
child care homes, and encourage them to consider that casting too wide 
a net could have adverse effects on the supply of family child care 
providers and other consequences for individuals returning from 
incarceration. As described later in the preamble, we also strongly 
encourage States to implement a waiver review process that meets the 
recommendations of the U.S. Equal Employment Opportunity Commission for 
any additional disqualifying crimes (U.S. Equal Employment Opportunity 
Commission, Enforcement Guidance on

[[Page 67495]]

the Consideration of Arrest and Conviction Records in Employment 
Decisions under Title VII of the Civil Rights Act of 1964, http://www.eeoc.gov/laws/guidance/upload/arrest_conviction.pdf).
    Comment: In the NPRM, ACF asked for comment on whether additional 
individuals in the family child care homes should be subject to the 
background check requirements. There was only lukewarm support for 
requiring background checks for minors in family child care homes. 
Several States recommended checking individuals over ages 12, 13, or 16 
to mirror current State policy and practice.
    Response: ACF is declining to require background checks for 
individuals under age 18 in family child care homes. However, States 
that check individuals younger than age 18 may continue checking all 
background check components permitted by State law. The Adam Walsh 
Child Protection and Safety Act of 2006 (42 U.S.C. 16901) requires 
States to include in their sex offender registries juveniles convicted 
as adults and juveniles who are convicted of an offense similar or more 
serious than aggravated sexual abuse. We allow States the flexibility 
to follow current State laws and registry policies to check those 
individuals younger than 18 in family child care homes; however, we 
strongly encourage States to implement a waiver process that meets the 
recommendations of the U.S. Equal Employment Opportunity Commission for 
any additional disqualifying crimes (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, http://www.eeoc.gov/laws/guidance/upload/arrest_conviction.pdf).
    Comment: A few comments asked for clarification around volunteers. 
One State wrote, ``In many circumstances, a parent volunteer (for 
activities such as field trips) would fit into the definition of child 
care staff member (`activities involve the care or supervision of 
children' and they may be unsupervised for periods of time) and 
therefore [would] require them to meet all background check 
requirements. This requirement could prevent some parents from 
involvement in enrichment activities, particularly because of the cost 
associated with the background checks.''
    Response: Volunteers who provide infrequent and irregular service 
that is supervised or parent volunteers who are supervised do not meet 
the definition of child care staff member. Volunteers who come into a 
child care facility to help with a classroom party, read to students, 
or assist with recess are not caring for or supervising children for a 
child care provider. Rather, volunteers in the situations described 
above are providing additional assistance under supervision of the 
primary caregiver.
    Volunteers are not specifically included in the Act, nor have we 
specifically included them in the regulation. We are allowing States 
the discretion to create their own policies and screening processes for 
volunteers. However, it is ACF's view that volunteers who have not had 
background checks may not be left with children unsupervised. 
Volunteers who have unsupervised access to children must have 
background checks that comply with the statute. These volunteers will 
be subject to the same disqualifications and appeals process as 
described in the Act and regulations. As with other adults in the 
household, we strongly discourage States from adding additional 
disqualifications outside the Act. We also encourage Lead Agencies to 
require that volunteers who have not had background checks be easily 
identified by children and parents, for example through visible name 
tags or clothing.
    Components of a criminal background check. The Act outlines five 
components of a criminal background check: (1) A search of the State 
criminal and sex offender registry in the State where the staff member 
resides and each State where the staff member has resided for the past 
five years; (2) A search of the State child abuse and neglect registry 
in the State where the staff member resides and each State where the 
staff member has resided for the past five years; (3) A search of the 
National Crime Information Center; (4) A Federal Bureau of 
Investigation (FBI) fingerprint check using the Integrated Automated 
Fingerprint Identification System; and (5) A search of the National Sex 
Offender Registry.
    After extensive consultation with the FBI and other subject-matter 
experts, we made technical changes to address duplication among these 
components. In the final rule, we are consolidating the list of 
required components in the regulations at Sec.  98.43(b) to:
    (1) A Federal Bureau of Investigation fingerprint check using Next 
Generation Identification;
    (2) A search of the National Crime Information Center's National 
Sex Offender Registry; and
    (3) A search of the following registries, repositories, or 
databases in the State where the child care staff member resides and 
each State where such staff member resided during the preceding 5 
years:
    i. State criminal registry or repository, with the use of 
fingerprints being required in the State where the staff member 
resides, and optional in other States;
    ii. State sex offender registry or repository; and
    iii. State-based child abuse and neglect registry and database.
    It is our understanding that there is some duplication among the 
National Crime Information Center's (NCIC) National Sex Offender 
Registry (NSOR), the FBI fingerprint searches, and the searches of 
State criminal, sex offender, and child abuse and neglect registries. 
An FBI fingerprint check provides access to national criminal history 
record information across State lines on people arrested for felonies 
and some misdemeanors under State, Federal, or Tribal law. However, 
there are instances where information is contained in State databases, 
but not in the FBI database. A search of the State criminal records and 
a FBI fingerprint check returns the most complete record and better 
addresses instances where individuals are not forthcoming regarding 
their past residences or committed crimes in a State in which they did 
not reside.
    In addition to gaps in the FBI fingerprint and the State criminal 
records, there are a number of instances in which an individual may be 
listed in the State sex offender registry and not in NSOR, and vice 
versa. For example, some States have statutes that disallow the removal 
of offenders, regardless of offender status, while in the NSOR, the 
agency owning the record is required to remove the offender from active 
status once his/her sentencing is completed. In addition, federal, 
juvenile, and international sex offender records may be included in the 
NSOR; whereas, State laws may prohibit the use of this information in 
the State sex offender registry. Because of these discrepancies, it is 
important to check the State sex offender registries in addition to an 
FBI fingerprint check and a check of the NCIC's NSOR. It is our belief 
that the Act requires such thorough background check to ensure that 
offenders do not slip through the cracks to be given access to 
children.
    Comment: Commenters, including several national organizations, 
child care worker organizations, and a couple of States, argued that an 
FBI fingerprint check should be considered a sufficient check of the 
National Crime Information Center (NCIC) and the National Sex Offender 
Registry (NSOR) because it checks the fingerprint records of several 
NCIC files, including the NSOR.

[[Page 67496]]

    Response: Based on consultation with the FBI, we understand that 
the comments are partially correct. The FBI fingerprint check using 
Next Generation Identification (NGI) (formerly the Integrated Automated 
Fingerprint Identification System--IAFIS) will provide a person's 
criminal history record information which will incorporate data from 
three NCIC person files, including the NSOR, provided certain 
identifying information has been entered into the NSOR record. The 
change in the language from IAFIS to NGI is a technical change and 
should not impact Lead Agency background check processes. The NGI is 
the biometric identification system that has now replaced the older 
IAFIS.
    There is significant overlap between the FBI fingerprint check and 
the NSOR check (via the NCIC), yet there are a number of individuals in 
the NSOR who are not identified by solely conducting an FBI fingerprint 
search. The FBI links fingerprint records to the NSOR records via a 
Universal Control Number, but a small percentage of cases are missing 
the fingerprints. In some cases, individuals were not fingerprinted at 
the time of arrest, or the prints were rejected by the FBI for poor 
quality. This small percentage of records can be accessed through a 
name-based search of the NCIC. A number of those individuals may also 
be identified by a search of the State sex offender registries, but it 
is impossible to know whether there is complete overlap. In the absence 
of verification of complete duplication of records, it is important to 
require separate searches of an FBI fingerprint check and a name-based 
search of the NCIC's NSOR. Because Congress included each of these 
searches in the Act, it is our belief that the intent is for the 
background check to be as comprehensive and thorough as possible.
    Comment: In the NPRM, we requested comments on the feasibility of a 
search of the NCIC and the level of burden required by the Lead Agency. 
We received comments from 12 States and two State police departments 
that all emphasized that without further guidance from the FBI, name-
based searches of the NCIC and NSOR will be extremely difficult because 
these databases are limited to law enforcement purposes only.
    Response: The comments are correct. The NCIC is a law enforcement 
tool consisting of 21 files, including the NSOR. The 21 files contain 
seven property files that help track missing property and 14 person 
files with information relevant to law enforcement (e.g., missing 
persons or wanted persons). State criminal records are not stored in 
the NCIC. The only file with information that would aid in determining 
whether an individual could be hired as a child care employee is the 
NSOR. The other files do not contain information on the disqualifying 
crimes listed in the Act. Further, the FBI has advised that a general 
search of the NCIC database will return records that cannot be made 
privy to individuals outside of law enforcement (i.e., the Known or 
Appropriately Suspected Terrorist File). Therefore, we are clarifying 
that a check of the NCIC will only need to search the NSOR file.
    The comments call out a number of potential challenges, also 
identified by ACF, in requiring an NCIC check. It is our understanding 
that an NCIC check has not been included in any other non-criminal 
background check law applicable to States to date, and so, resolving 
these challenges is in many ways unchartered territory.
    First, access to the NCIC, including, in some cases, physical 
access to computers capable of searching the NCIC, is limited, and it 
is primarily available to law enforcement agencies. Therefore, to 
conduct this check, Lead Agencies will have to partner with a State, 
Tribal, or local law enforcement agency. Because the NCIC has not been 
used this way, we do not know of examples of other State agencies 
partnering in this way or what such partnerships would entail. We also 
do not know the implications for Lead Agencies that use third-party 
vendors to conduct background checks. Third-party vendors do not have 
authorized access to conduct name-based checks of the NCIC for 
noncriminal justice purposes.
    Secondly, the NCIC is a name-based check, rather than fingerprint 
based. Hit verification of name-based checks may be labor intensive, 
especially when searching for individuals with common names. While we 
are concerned about the burden on Lead Agencies to conduct this check, 
we recognize that the NCIC was included in the statute, and we are 
concerned about the potential for missing sex offenders by not 
conducting a comprehensive search.
    Because of the challenges identified by both the commenters and 
ACF, we will not begin to determine compliance with the requirement to 
search the NCIC's NSOR until after guidance is issued by ACF and the 
FBI. ACF has been working closely with the FBI to find solutions for 
State access. We plan to release guidance that will be shared with both 
State Lead Agencies and State Identification Bureaus. We expect that 
Lead Agencies will be required to partner with local law enforcement to 
perform NCIC checks of the NSOR. This guidance will give States further 
instruction in how to search the NCIC's NSOR and how to utilize the 
results. We understand that States may not be able to begin 
implementing the check of the NCIC's NSOR until the specific guidance 
is released. ACF will address implementation timeframes for this 
particular search in the future guidance. Lead Agencies should begin to 
form partnerships with local law enforcement and State Identification 
Bureaus in order to meet the requirement to check the NCIC's NSOR 
database.
    Comment: Several commenters, including States and a State police 
department, suggested requiring a search of the National Sex Offender 
Public Web site (NSOPW) instead of a search of the NSOR.
    Response: A search of the NSOPW does not satisfy the statutory 
requirement for a search of the NSOR, and therefore, we declined to 
make any changes in the final rule. ACF does encourage an additional 
search of the NSOPW at www.nsopw.gov, although it is not required. The 
NSOPW acts as a pointer for each State, Territory, and Tribally-run sex 
offender registry. The registries are updated and kept in real time and 
may be searched by name, but other identifying information may be 
limited in these records.
    Comment: In the NPRM, we proposed to require that the search of the 
State criminal records would include a fingerprint check in the State 
where the individual resides and the States the individual has resided 
for the past five years. However, State commenters, including State 
police departments, recommended removing the requirement to search 
other States' criminal repositories using fingerprints. The comments 
emphasized that the technology does not exist to allow States to send 
fingerprints electronically to check other States' repositories. A law 
enforcement representative wrote, ``For State Identification Bureaus 
that are the ones sending the prints on to the FBI, it could be easy; 
however, requests coming from other States would be a very manual 
process--hard copy cards, scanned in, and mailed responses back. We 
have no way of disseminating results back to every other State via an 
automated means.''
    Response: ACF is removing the proposal to check other States' 
criminal repositories using fingerprints. It was not our intent to 
create an additional burden for States. Instead, in the final rule, we 
are requiring States to do a fingerprint-based check of the criminal 
repository only in the State where the individual resides. Use of 
fingerprints is

[[Page 67497]]

optional in other States where the individual resided within the past 
five years. Fingerprint searches reduce instances of false positives 
and also help capture records filed under aliases. We do not believe 
that a fingerprint search of the State repository is an additional 
burden. States can use the same set of fingerprints to check both the 
State criminal history check and the FBI fingerprint check. When 
conducting searches of other States' criminal repositories, the State 
may utilize a name-based search, instead of a fingerprint.
    Comment: The Act requires States to check the State criminal 
registry or repository; sex offender registry or repository; and child 
abuse and neglect registry and database for every State where a child 
care staff member has lived in for the past five years. Based on our 
preliminary conversations with States, the requirement to conduct 
cross-State background checks of the three different repositories is 
another unexplored area for Lead Agencies. In the NPRM, we asked for 
comments on whether States have any best practices or strategies to 
share and how ACF can support Lead Agencies in meeting the cross-State 
background check requirements.
    Comments we received from national organizations and States 
reinforced that these cross-State checks are indeed new territory for 
Lead Agencies. These comments offered a variety of suggestions of how 
ACF can support States in meeting the cross-State background check 
requirements, including introducing an electronic information exchange 
system, drafting a standard Memorandum of Understanding, maintaining a 
national contacts list, and studying the viability of cross-State 
background checks at the regional level.
    Response: ACF is continuing to work closely alongside our technical 
assistance partners to learn how we can support and help facilitate 
these cross-State checks. In the months since the CCDBG Act of 2014 was 
enacted and the NPRM was published, we have been engaged in Regional 
level calls with States to understand supports needed to overcome 
barriers to the required cross-State checks. We have also been reaching 
out to other Federal partners to explore existing systems and 
opportunities to collaborate. We have not found an existing system that 
would support States in conducting all of the cross-State checks.
    We appreciate the suggestions from the commenters and have already 
begun work toward bringing some of them to fruition. We know States 
want tools and guidance to complete these checks. ACF has recently 
announced a pilot project to develop a National Interstate Background 
Check Clearinghouse to support Lead agencies in meeting the cross-State 
background check requirements. The goal of this system is to enable 
Lead Agencies to exchange background check information securely with 
other State, Territory, and Tribal Lead Agencies. ACF is also working 
on developing a national CCDF information sharing agreement as part of 
this project. We ask that States continue to make a good faith effort 
toward complying with these checks and that States work to build 
partnerships across State lines.
    While ACF is still working to understand how we can support cross-
State background checks, this rule also requires a couple of provisions 
to help create transparency around the process. At Sec.  
98.43(a)(1)(iii), Lead Agencies are required to have requirements, 
policies, and procedures in place to respond as expeditiously as 
possible to other States', Territories', and Tribes' requests for 
background check results in order to accommodate the 45 day timeframe. 
The final rule also requires Lead Agencies to include the process by 
which another Lead Agency may submit a background check request on the 
Lead Agency's consumer education Web site, along with all of the other 
background check policies and procedures. In addition, this final rule 
requires, at Sec.  98.16(o), that Lead Agencies describe in their Plans 
the procedures in place to respond to other State, Territory, or Tribal 
requests for background check results within the 45 day timeframe. ACF 
will use this question in the Plan to help ensure compliance with the 
background check requirements in the Act. These provisions are intended 
to minimize confusion about the correct contact information for 
background check requests and to ensure that there are processes in 
place for timely responses. Having policies and procedures in place to 
respond to outside background check requests is a first step toward an 
effective cross-State background check system.
    Comment: We heard from a number of States that are closed-record 
States, which means they cannot release an individual's background 
check records or information to other States. One State explained that 
it is, ``a closed record State and does not release criminal history 
information to any out-of-state entity for civil purposes, one of which 
is determining employment eligibility. This is a fundamental tenant of 
being a closed record State. However, there is a process by which an 
individual residing in another State may obtain his/her fingerprint-
based personal criminal background history from [the State's] Bureau of 
Criminal Identification and Information (Bureau) within the Office of 
State Police and provide it to a Lead Agency in another State.''
    Response: States need to have a methodology in place to respond to 
other States' requests for background check results. ACF does not 
expect to penalize States that have made a good faith effort to request 
information from other States. For States with closed-record laws or 
policies, we understand that this requirement may be in direct 
opposition with State law. States will need to either change their laws 
to allow for the exchange of background check information for child 
care staff members or create other solutions. Although the Act requires 
States to be in compliance by September 30, 2017, States (including 
closed-record States) may request an extension of up to one year in 
order to make the necessary legislative or other changes to share 
background check information across State lines. ACF is currently 
working with our technical assistance partners to understand the impact 
of closed-record laws.
    Although ACF discourages this practice, a closed-record State may 
utilize a process similar to what the State commenter describes above. 
The closed-record State may give the background check results directly 
to the individual to relay to the requesting State. States are required 
to respond to other States' requests for background check requests, and 
when a State is giving the results directly to an individual, that 
State must have a process in place to inform the requesting State. This 
practice increases the potential for fraud relating to the results and 
also places the burden on the individual. States should carefully 
consider these factors and the impact they could have on the supply of 
child care providers. ACF encourages States to find other solutions, 
whenever possible.
    We encourage State partnerships and agreements, whenever possible, 
in order to meet the requirements of the Act. One potential solution 
may be for the closed-record States to determine whether the individual 
is eligible or ineligible for employment given the State background 
check results. The closed-record State could disclose this 
determination with the requesting State, without revealing the 
background check information. We do recognize that this is an imperfect 
solution, since States use different definitions and criteria for 
disqualification, particularly in the case of child abuse and neglect 
findings.

[[Page 67498]]

However, States may use this solution to comply with the statutory 
requirements, as long as States also comply with the requirements 
related to the appeals process.
    If the individual is deemed ineligible by a closed-record State, 
then the closed-record State is also responsible for notifying the 
individual and following the requirements at Sec.  98.43(e)(2)(ii). The 
closed-record State must provide information related to each 
disqualifying crime in a report to the individual. The closed-record 
State must also send information on the opportunity to appeal and 
adhere to the appeals process described at Sec.  98.43(e)(3).
    Comment: Comments from States and national organizations asked ACF 
to provide clarity around what to do if a State does not respond to 
another State's request for results from the State's criminal 
repository, sex offender registry, and child abuse and neglect 
registry.
    Response: As discussed later in the preamble, we are allowing 
States the flexibility to make employment decisions in the event that 
not all background check components are completed within 45 days. ACF 
does not expect to penalize States that have made a good faith effort 
to request information from other States.
    Comment: Before publishing our NPRM, we heard particular concern 
about the statutory requirement for cross-State checks of the child 
abuse and neglect registries. We understand that States have developed 
their own requirements for submitting requests, and there is not a 
uniform method of responding. Therefore, in the NPRM, we solicited 
comments on how States will meet this requirement and respond to other 
State requests.
    Comments from national organizations and child care worker 
organizations suggested new regulatory language that would only require 
a search of the State-based child abuse and neglect registries ``if one 
exists and such a search is allowable for such purposes under State law 
and practice.'' Other comments emphasized the importance of cross-State 
child abuse and neglect registries. A letter co-signed by several child 
care resource and referral agencies, asserted, ``We do not support 
language that would circumvent the concept of checking against a State 
child abuse registry or listing or whatever such a registry may be 
called in a State. States have the systems, although they may be called 
different names. It is time to have effective cross-checks in place to 
promote the safety of children.''
    Response: ACF is declining to add the suggested regulatory 
language. The Act includes, as the final component of a comprehensive 
background check, the search of the State child abuse and neglect 
registries in the State where the individual lives and the States where 
the individual has resided for the past five years. States, including 
those that do not have formal child abuse and neglect registries, are 
expected to comply with this requirement. We recognize that 
implementation of this critically important component of protecting 
children will vary across States. Every State has procedures for 
maintaining records of child abuse and neglect, but only 41 States, the 
District of Columbia, American Samoa, Guam, and Puerto Rico require 
central registries by statute. The type of information contained in 
central registries and department records differ from State to State. 
Some States maintain all investigated reports of abuse and neglect in 
the central registry, while others maintain only substantiated or 
indicated reports. The length of time the information is held and the 
conditions for expunction also vary. Access to information maintained 
in registries also varies by State, and some States may need to make 
internal changes to meet the requirement for a search of the State's 
own child abuse and neglect registry. Approximately 31 States and the 
District of Columbia allow or require a check of the central registry 
or department records for individuals applying to be child or youth 
care providers. (Establishment and Maintenance of Central Child Abuse 
Registries, Children's Bureau, July 2014).
    Comment: We received a number of requests for guidance on what 
information from child abuse and neglect registries States need to make 
employment decisions and how to interpret that information. Simply 
being part of a State-based child abuse and neglect registry is not a 
disqualification under the Act, so just knowing that an individual is 
on the registry is not enough information to make a determination. 
States need to know what types of information they need and how to 
interpret that information in order to make employment eligibility 
determinations for child care staff members.
    Response: The commenters are correct that the Act only requires 
that the child abuse and neglect registries be checked and did not 
require an individual be disqualified because of child abuse and 
neglect findings. Because many child abuse and neglect registries use 
name-based searches, States may need to take additional steps to verify 
that the individual is the same person as is listed on a registry. 
There is so much variation in the information maintained in each 
registry, so we are allowing Lead Agency flexibility in how to handle 
findings on the child abuse and neglect registries. ACF does suggest 
that the Lead Agency not necessarily immediately disqualify an 
individual, depending on the finding and evaluate any findings 
carefully, on a case by case basis.
    The definitions of child abuse and neglect, what is considered 
substantiated or indicated child abuse and neglect, and other legal 
terminology associated with child abuse and neglect registries varies 
from State to State. In addition, some registries may contain 
unsubstantiated complaints or incidences. Lead Agencies should be 
cautious when using unsubstantiated allegations of child abuse and 
neglect in determining an individual's employment eligibility.
    Based on consultation with the Children's Bureau at ACF, we 
understand that State Child Welfare agencies or State Child Protective 
Services agencies already have policies and procedures in place to make 
determinations about the suitability of substitute care providers using 
child abuse and neglect findings. We are working to ensure that child 
welfare agencies are also aware of the requirements in the Act for a 
search of the State child abuse and neglect registry in the State where 
the individual lives and the States where the individual has resided 
for the past five years. Lead Agencies should partner closely with the 
relevant State agencies to seek guidance in making employment 
decisions.
    Comment: We received several comments from States that do not 
conduct due process when placing an individual on their child abuse and 
neglect registry. One State wrote, ``In the course of abuse/neglect 
investigations in our State, we do not offer up-front due process for 
findings made against an individual. If a background check is requested 
on the individual in the course of employment in child care in [the 
State] or as part of a foster care/adoption application in [the State], 
our agency uses that opportunity to offer a hearing in front of an 
administrative law judge through the State Office of Administrative 
Hearings. If an individual chooses to contest the finding(s), the 
process can be lengthy. It requires our agency to schedule and prepare 
for a hearing, including contacting appropriate witnesses and

[[Page 67499]]

providing opposing council (if one exists) with redacted case files.''
    Response: We understand the issue the commenters are raising 
relates to procedures that some State child welfare agencies have on 
due process for individuals in state child abuse and neglect registries 
that may delay the Lead Agency in providing information about an 
individual who is seeking employment with a child care provider. The 
Act requires States to carry out background checks requests, including 
searches of State-based child abuse and neglect registries, as quickly 
as possible, in not less than 45 days. States that have a due process 
approach as described by the commenters may not be able to meet the 45 
day timeframe for providing the registry information for child care 
employment purposes. As such, we encourage the Lead Agencies to work 
with their child welfare agencies to assist them in understanding the 
statutory requirements to meet the 45 day timeframe. ACF is working on 
joint guidance to be released by the Children's Bureau and the Office 
of Child Care to ensure that both the State Lead Agencies and State 
child welfare agencies are aware of their roles in the background check 
process.
    Comment: In the NPRM, ACF requested comment from States about 
whether cross-State background check systems for foster or adoptive 
parents could be used to support cross-State background checks for 
prospective child care staff members as well. Comments varied. Two 
States believe that their foster and adoptive parent systems would be 
able to support cross-State background checks for child care staff 
members. However, the national association of State child care 
administrators expressed concern about this suggestion: 
``Administrators understand that these data are housed in the child 
welfare agency and use of and compliance with this proposal would 
vary.''
    Response: The cross-State background check requirement has 
similarities to language at Section 152(a)(1)(C) of the Adam Walsh 
Child Protection and Safety Act of 2006 (42 U.S.C. 671(a)(1)(C)) for 
foster or adoptive parents. That law requires a State to check any 
child abuse and neglect registry maintained by the State for 
information on any prospective foster or adoptive parent and on any 
other adult living in the home of such a prospective parent, and 
request any other State in which any such prospective parent or other 
adult has resided in the preceding five years, to enable the State to 
check any child abuse and neglect registry maintained by such State for 
such information, before the prospective foster or adoptive parent may 
be finally approved for placement of a child. We encourage Lead 
Agencies to reach out to the State Child Welfare or Protective Services 
to explore whether the process in place for foster or adoptive parents 
could also be used to support a process for child care staff members.
    Disqualifications. The Act specifies a list of disqualifications 
for child care providers and staff members who are serving children 
receiving CCDF assistance. Unlike the other requirements in the 
background check section, the Act only applies the restriction against 
employing ineligible child care staff members to child care providers 
receiving CCDF assistance. These employment disqualifications 
specifically do not apply to child care staff members of licensed 
providers who do not serve children receiving CCDF subsidies. This 
gives Lead Agencies the flexibility to impose similar restrictions upon 
child care providers who are licensed, regulated, or registered and do 
not receive CCDF funds.
    The list of disqualifications from the Act includes a list of 
felonies and misdemeanors that disqualify an individual from being 
employed as a child care staff member. We understand that States define 
crimes differently, but our expectation is that States will match the 
equivalent crimes to those on this list. These disqualification 
requirements appear at Sec.  98.43(a)(1)(ii) and Sec.  98.43(c). We are 
not adding any additional disqualifications to the final rule.
    Even though the Act includes a specific list of disqualifications, 
it also allows Lead Agencies to prohibit individuals' employment as 
child care staff members based on their convictions for other crimes 
that may impact their ability to care for children. If a Lead Agency 
does disqualify an individual's employment, they must, at a minimum, 
give the child care staff members or prospective staff members the same 
rights and remedies described in Sec.  98.43(e). This language from 
Section 658H(h) of the Act is restated in the final rule at Sec.  
98.43(h). In the final rule, we also added language to link this 
paragraph to the list of disqualifications at Sec.  98.43(c)(1).
    We strongly encourage Lead Agencies that chose to consider other 
crimes as disqualifying crimes for employment to ensure that a robust 
waiver and appeals process is in place. As discussed later, a waiver 
and appeals process should conform to the recommendations of the U.S. 
Equal Employment Opportunity Commission, including the ability to waive 
findings based on factors as inaccurate information, certificate of 
rehabilitation, age when offense was committed, time since offense, and 
whether the nature of offense is a threat to children. (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, http://www.eeoc.gov/laws/guidance/upload/arrest_conviction.pdf). Moreover, we strongly 
discourage Lead Agencies from considering additional disqualifying 
crimes. Casting too wide a net could have adverse effects on the supply 
of family child care providers and other consequences for individuals 
returning from incarceration. The disqualifications described in the 
Act are appropriate to determine whether an individual should be able 
to care for children.
    Comment: A couple of States requested clarification on the length 
of time an individual would be ineligible if convicted of one of the 
disqualifying crimes listed in the Act. One State said, ``[the State's] 
Supreme Court rendered a decision that precludes the State from 
imposing lifetime employment bans. Enforcing the regulation as proposed 
will require the program office to challenge that decision. 
Additionally the proposed regulation appears to go beyond what the 
statute provides and encroaches on the State's police powers to decide 
who can be licensed in the State.''
    Response: ACF is not requiring any additional disqualifications or 
parameters around disqualifications that are not already required by 
the Act. The Act includes a list of disqualifications at Section 
658H(c), with a list of disqualifying crimes at Sections 658H(c)(1)(D) 
and (E). With the exception of a felony conviction of a drug-related 
offense committed during the preceding five years, all of the felony 
and violent misdemeanor convictions listed by the Act are lifetime bans 
against employment by a child care provider delivering CCDF services. 
The Act does not allow any flexibility to grandfather in current child 
care staff members who have been convicted of one of the crimes 
described in the Act. States do have the option to individually review 
drug-related felony convictions that were committed during the 
preceding five years. As discussed later in the preamble, we encourage 
States to conduct these reviews in accordance with guidance from the 
U.S. Equal Employment Opportunity Commission.
    Comment: Several comments from national organizations and child 
care worker organizations urged ACF to

[[Page 67500]]

redact self-disclosure language that originally appeared in the 
preamble of the NPRM. A letter co-signed by 80 national organizations, 
wrote, ``Given the complexity of the background checks as prescribed 
and the specific disqualifying crimes established in Act, we recommend 
that ACF not encourage self-disclosure as it could prevent employment 
of a qualified child care staff member or prospective staff member. 
Individuals with a criminal history completely unrelated to their 
ability to care for and have responsibility for the safety and well-
being of children, as well as those with no record whatsoever who might 
be intimidated, could inaccurately assume that they would not be 
eligible for employment. It could also violate a child care staff 
member's right to privacy with his or her employer.''
    Response: We agreed with the commenters and have removed the self-
disclosure language from the preamble.
    Frequency of Background Checks. Section 658H(d) of the Act requires 
child care providers to submit requests for background checks for each 
staff member. The requests must be submitted prior to when the 
individual becomes a staff member and must be completed at least once 
every five years. These requirements are included in the regulations at 
Sec.  98.43(d)(1) and (2). For staff members employed prior to the 
enactment of the CCDBG Act of 2014, the provider must request a 
background check prior to September 30, 2017 (the last day of the 
second full fiscal year after the date of enactment) and at least once 
every five years.
    Although not a requirement, we encourage Lead Agencies to enroll 
child care staff members in rap back programs. A rap back program works 
as a subscription notification service. An individual is enrolled in 
the program, and the State Identification Bureau receives a 
notification if that individual is arrested or convicted of a crime. 
States can specify which events trigger a notification. Rap back 
programs provide authorizing agencies with notification of subsequent 
criminal and, in limited cases, civil activity of enrolled child care 
staff members so that background check information is not out of date. 
However, unless the rap back program includes all the components of a 
comprehensive background check under the Act, the Lead Agency is 
responsible for ensuring that child care staff members complete all 
other components at least once every five years.
    Section 658H(d)(4) of the Act specifies instances in which a child 
care provider is not required to submit a background check for a staff 
member. Staff members do not need background check requests if they 
satisfy three requirements: (1) The staff member received a background 
check that included all of the required parts within the past five 
years while employed by, or seeking employment by, another child care 
provider in the State; (2) the State gave a qualifying result to the 
first provider for the staff member; and (3) the staff member is 
employed by a child care provider within the State or has been 
separated from employment from a child care provider for less than 180 
days. These requirements are included in the final rule at Sec.  
98.43(d)(3). Lead Agencies should consider how to facilitate tracking 
this type of information and maintaining records of individual 
providers so that unnecessary checks are not repeated.
    Comment: We received several comments from States asking whether 
staff members' background checks could be re-assessed when they seek 
employment by another child care provider in the State. One State 
wrote, ``We allow a child care staff to carry forward his or her 
fingerprint-based background check from one child care operation to 
another, as long as the person maintains a name-based recheck every 24 
months. However, our agency also has a process where we re-assess an 
individual with certain criminal or abuse/neglect history for each 
child care operation in which he/she would like to work. [The State] 
looks at a variety of factors, including details about the role the 
individual will be working in and the compliance history of the 
specific child care operation, and makes a determination of overall 
risk given the results of the background check.''
    Response: If a staff member meets the three requirements described 
in the Act, then the child care provider does not need to submit a 
background check request. However, States do have the option of 
creating more stringent requirements, such as requiring background to 
be performed with greater frequency or when a staff member changes the 
place of employment. Where possible, ACF encourages States to keep 
processes in place, like the one described by the State, that allow 
them to make nuanced decisions about individuals' employment 
eligibility and that carefully consider extenuating circumstances 
relating to the individual's background check records.
    Provisional Employment. The Act requires child care providers to 
submit a request for background check results prior to a staff member's 
employment but does not describe instances of provisional employment 
while waiting for the results of the background check. We received many 
comments on this issue in the 2013 NPRM, with commenters expressing 
concern that the background check requirements could prevent parents 
from accessing the provider of their choice, if the provider's staff 
has not already received a background check. Parents often need to 
access child care immediately, for example, as they start new jobs, and 
commenters were worried that this could lead to delays in accessing 
care.
    In recognition of the possible logistical constraints and barriers 
to parents accessing the care they need, Sec.  98.43(d)(4) of the final 
rule allows prospective staff members to provide services to children 
while under supervision and on a provisional basis, after completing 
either the FBI fingerprint check or the search of the State criminal 
repository, using fingerprints in the State where the staff member 
resides.
    Comment: In the NPRM, we proposed that a prospective staff member 
could begin work for a child care provider after the background check 
request was submitted, as long as that staff member was continually 
supervised by someone who had already completed the background check 
requirements. Although several commenters supported the idea of 
provisional employment, others were concerned that the provision as 
proposed did not protect children's health and safety.
    Response: We agreed with the commenters. The final rule allows a 
prospective staff member to begin work while under supervision after 
completing the FBI fingerprint check or the search of the State 
criminal repository using fingerprints in the State where the staff 
member resides. Until all the background check components have been 
completed, the prospective staff member must be supervised at all times 
by someone who has already received a qualifying result on a background 
check within the past five years. States may pose additional 
requirements beyond this minimum. We note that the new regulatory 
language aligns with the requirements in the Head Start Performance 
Standards and hope the language allows for better partnerships between 
the two programs.
    In addition, we encourage Lead Agencies to require child care 
providers to inform parents about background check policies and any 
provisional hires they may have. Allowing provisional hiring does offer 
more flexibility, but it is also important that Lead Agencies ensure 
that any provisional status is

[[Page 67501]]

limited in scope and implemented with transparency.
    Comment: Several commenters asked ACF to clarify what should happen 
to provisional employees if all of the required background check 
components are not completed by the end of the statutory 45 day 
timeframe.
    Response: A State must process, at the very least, either the FBI 
fingerprint check or the search of the State criminal repository, using 
fingerprints in the State where the staff member resides, before a 
child care staff member may begin work. As described in further detail 
later in the preamble, we expect all of the checks to be completed in 
the timeframe established by the Act. However, the final rule gives 
Lead Agencies the discretion to make decisions in the limited cases in 
which not all of the required components are completed.
    Completion of Background Checks. Once a child care provider submits 
a background check request, Section 658H(e)(1) of the Act requires the 
Lead Agency to carry out the request as quickly as possible. The 
process must not take more than 45 days after the request was 
submitted. These requirements are included in the final rule at Sec.  
98.43(e)(1).
    Comment: Many comments from State continue to be concerned with 
being able to meet the statutory 45-day timeframe, especially for 
cross-State checks. Several comments asked ACF for an exception to the 
45-day timeframe in those cases.
    Response: The Act does not give ACF the authority to grant States 
exceptions to the 45-day timeframe. While we expect checks to be 
completed in the timeframe established by the Act, we will allow Lead 
Agencies to create their own procedures in the event that all of the 
components of a background check are not complete within the required 
45 days. As described earlier in the preamble, prospective child care 
staff members are required to complete either the FBI fingerprint check 
or the search of the State criminal repository, using fingerprints in 
the State where the staff member resides, before they begin work.
    Lead Agencies must work together with the relevant State/Territory 
entities to minimize delays. After the FBI receives electronic copies 
of fingerprints, they typically process background check results within 
24 hours. There can be delays when the submitted fingerprint image 
quality is poor. Some States use hard copy fingerprints that must be 
made electronic for submission to the FBI, which can lead to delays. We 
encourage Lead Agencies to adopt electronic fingerprinting, which 
allows for background check results to be processed more quickly.
    We encourage Lead Agencies to leverage existing resources to build 
and automate their background check systems. One potential resource for 
States is the National Background Check Program (NBCP), as established 
by Section 6201 of the Patient Protection and Affordable Care Act, 
which aims to create a nationwide system for conducting comprehensive 
background checks on applicants for employment in the long-term care 
(LTC) industry. The NBCP is an open-ended funding opportunity that can 
award up to $3 million dollars (with a $1 million dollar State match) 
to each State to support building State background check 
infrastructure. The Centers for Medicare & Medicaid Services (CMS) 
administers the NBCP and since 2010, has awarded over $63 million in 
grant funds to participating States to design, implement, and operate 
background check programs that meet CMS's criteria.
    Privacy of results. Section 658H(e)(2) of the Act requires the Lead 
Agency to make determinations regarding a child care staff member's 
eligibility for employment. The Lead Agency must provide the results of 
the background check to the child care provider in a statement that 
indicates only whether the staff member is eligible or ineligible, 
without revealing specific disqualifying information. If the staff 
member is ineligible, the Lead Agency must provide information about 
each specific disqualifying crime to the staff member, as well as 
information on how to appeal the results of the background check to 
challenge the accuracy and completeness. In the final rule, we clarify 
the language at Sec.  98.43(e)(2)(ii) to specifically require that when 
an individual is sent the information on the disqualifying crimes, the 
State must, at the same time, provide information on the opportunity to 
appeal. This change is discussed in greater detail below.
    In order for a Lead Agency to conduct FBI fingerprint checks, it 
must have statutory authority to authorize the checks. The Act may be 
used an authority to conduct FBI background checks, but Lead Agencies 
may continue to use other statutes as authorities to conduct FBI 
background checks on child care staff as well. Most Lead Agencies 
currently use Public Law 92-544 or the National Child Protection Act/
Volunteers for Children Act (NCPA/VCA) (42 U.S.C. 5119a) as the 
authority to conduct FBI background checks. Public Law 92-544, enacted 
in 1972, gave the FBI authority to conduct background checks for 
employment and licensing purposes. The majority of States are using 
Public Law 92-544 as authority to conduct background checks, but a few 
States use the NCPA/VCA.
    Public Law 92-544 is similar to the Act and only allows the State 
to notify the provider whether an individual is eligible or ineligible 
for employment. Similarly, the NCPA/VCA requires dissemination of the 
results to a governmental agency, unless the State has implemented a 
Volunteer and Employee Criminal History System (VECHS) program. Thus, a 
major difference between the Act and the NCPA/VCA with a VECHS program 
is in the protection of privacy of results. Through the NCPA/VCA VECHS 
program, Lead Agencies may share an individual's specific background 
check results with the child care provider, provided the individual has 
given consent. Lead Agencies have the flexibility to continue to use 
these statutes as authority to complete the FBI fingerprint check, as 
long as the employment determination process required by the Act is 
followed. That is, Lead Agencies must make employment eligibility 
determinations in accordance with the requirements in the Act, but they 
also may exercise the flexibility allowed through the NCPA/VCA VECHS 
program to share results of background checks with child care 
providers. Comments from States that utilize differing statutes were 
supportive of this flexibility.
    Appeals and review process. Section 658H(e)(3) of the Act requires 
Lead Agencies to have a process for child care staff members (including 
prospective staff members) to appeal the results of a background check 
by challenging the accuracy or completeness of the information 
contained in their criminal background report. An appeals process is an 
important aspect of ensuring due process for staff members and allows 
them to challenge the accuracy of the background check results. 
According to the Act, each child care staff member should be given 
notice of the opportunity to appeal and receive instructions about how 
to complete the appeals process if the child care staff member wishes 
to challenge the accuracy or completeness of their background report. 
The Lead Agency must complete the appeals process in a timely manner. 
The Lead Agency must work with other agencies that are in charge of 
background check information and results, such as the Child Welfare 
office and the State Identification Bureau, to ensure the appeals 
process is conducted in accordance with the Act.

[[Page 67502]]

The appeals requirements appear at Sec.  98.43(e)(3) of the final rule.
    Section 658H(e)(4) of the Act allows for a review process 
specifically for staff members convicted of drug-related felonies 
committed during the previous five years. States may use this review 
process, also known as a waiver process, to determine those staff 
members convicted of drug-related felonies committed during the 
previous five years to be eligible for employment by a CCDF provider. 
The review process is different from the appeals process because it 
allows the Lead Agency to consider extenuating circumstances on a case-
by-case basis. The Act's review process requirements appear at Sec.  
98.43(e)(4) of the final rule.
    Comment: A comment, co-signed by several national organizations, 
wrote advocating for more protections governing the appeals process for 
individuals who challenge inaccurate background checks. The letter 
advised, ``[T]he regulations fail to include adequate standards 
governing appeals that seek to demonstrate that the background check 
information relied upon was inaccurate or incomplete. Given the CCDF 
program's reliance on the FBI background check system, which routinely 
generate[s] faulty information, ACF should adopt more robust appeals 
rights to protect those workers--mostly workers of color--who, through 
no fault of their own, often have inaccurate records in the federal and 
State criminal history information systems. Thus, the following key 
features of a fair and effective appeal process should be incorporated 
into the ACF regulations:
    1. In response to an appeal filed by a worker challenging the 
accuracy of the background check report, the State should immediately 
make the background check report available in order for the worker to 
validate the State's information and properly prepare an appeal.
    2. The burden should be on the State to make a genuine effort to 
track down missing disposition information related to disqualifying 
offenses, not on the worker. Often, the worker is not in a position to 
locate information on an arrest that may have occurred in another State 
or may no longer be readily accessible in court or law enforcement 
systems due to the age of the offense.
    3. The worker should be provided at least 60 days to prepare the 
appeal, and a longer period of time (up to 120 days) if the State 
requires the individual to produce official documentation of a record. 
The State should also allow for a `good cause' extension of time to 
file the appeal or supporting material.
    4. Once the State has received the appeal information from the 
worker, it should issue a written decision within a specific period of 
time (not to exceed 30 days).
    5. In the case of a negative determination, the decision should 
indicate the State's efforts to verify the accuracy of the information 
challenged by the worker. The decision should also indicate any 
additional appeal rights available to the worker, as well as 
information on how the individual can correct the federal or State 
records at issue in the case.
    6. The State should collect and periodically report data on the 
number of appeals filed, the outcome of the appeals, and the State's 
decision processing times.''
    Response: ACF strongly agrees with the worker protections described 
in this comment. While background checks are a necessary safeguard to 
protect children in child care, we are also mindful of the 
disproportionate impact that they can have on low-income individuals of 
color. A robust and effective appeals process, that incorporates the 
elements described above, is critical to protect prospective child care 
staff members who have inaccurate or incomplete background check 
records. As such, we made changes to the regulatory language at Sec.  
98.43(e)(2)(ii) and Sec.  98.43(e)(3) to incorporate many of these 
protections, while still preserving some State flexibility.
    At Sec.  98.43(e)(2)(ii), the final rule requires that when a staff 
member receives a disqualifying result from the State, that information 
should be accompanied by information on the opportunity to appeal. The 
State must provide information about each specific disqualifying crime 
to the staff member, and that information should allow the staff member 
to decide whether to challenge the accuracy and completeness of the 
background checks results. Each child care staff member will be given 
clear instructions about how to complete the appeals process. The 
instructions should include the process for appeals, with clear steps 
individuals may take to appeal and the timeline for each of these 
steps. Although we are not requiring a specific timeframe, we do 
recommend that States allow staff members a reasonable amount of time 
of at least 60 days to prepare the appeal.
    If the staff member chooses to file an appeal, then, at Sec.  
98.43(e)(3)(iii), the final rule requires the State to attempt to 
verify the accuracy of the information challenged by the child care 
staff member, including making an effort to locate any missing 
disposition information related to the disqualifying crime. As the 
comment notes, child care staff members may not be able to access court 
or law enforcement records, so the burden should be on the State to 
recover them.
    The Act requires that the appeals process must be completed in a 
timely manner. Although the final rule does not require a specific 
timeframe, we recommend that States issue a decision within 30 days of 
the appeal. The final rule, at Sec.  98.43(e)(3)(v), requires that 
every staff member who submits an appeal will receive a written 
decision from the State. In the case of a negative determination, the 
decision should indicate the State's efforts to verify the accuracy of 
information challenged by the child care staff member, as well as any 
additional appeals rights available to the child care staff member. The 
final rule does not require that States collect and report data on the 
number of appeals filed, the outcome of the appeals, or the State's 
decision processing times. However, States should consider tracking and 
publishing this information. This information can be used to gage the 
speed and effectiveness of the appeals process, and States may be able 
to use it to make improvements to their appeals process over time.
    Comment: A letter from Senator Alexander and Congressman Kline 
asked ACF to provide guidance on the obligations of a child care 
provider during the appeals process: ``The NPRM strongly encourages 
Lead Agencies that choose to consider crimes other than those listed in 
the Act as disqualifying crimes for employment to ensure a robust 
waiver and appeals process is in place; however, it is unclear what the 
obligations of a provider are during the appeals process timeframe. We 
support the highest level of safety assurances for parents and 
children, as well as legal assurances for providers, and again we ask 
the Department to carefully consider the comments from providers and 
centers to ensure these provisions are easy to follow without causing 
great disruption to the delivery of care for children.''
    Response: The Act does not address the obligations of child care 
providers while staff members or prospective staff members are engaged 
in the appeals process. In addition, ACF did not receive any comments 
from child care providers addressing this issue. Therefore, ACF opts 
not to include additional regulatory language in order to allow States 
to make decisions that will continue to protect children's health and 
safety without causing great

[[Page 67503]]

disruption to the delivery of care for children. States are responsible 
for determining the most appropriate obligations for providers during 
the appeals process, and must inform providers about those obligations 
during an appeals process. States have the option of allowing child 
care providers to employ staff members or prospective staff members 
while they are involved in the appeals process. We encourage States to 
consult the U.S. Equal Employment Opportunity Commission's guidance 
(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, http://www.eeoc.gov/laws/guidance/upload/arrest_conviction.pdf). In addition, 
we note Section 658H(e)(5) of the Act, which is reiterated at Sec.  
98.43(e)(5), requires that nothing in this section shall be construed 
to create a private right of action if a provider has acted in 
accordance with this section. If a child care provider acts in 
accordance with the requirements of the Act, private parties may not 
bring a lawsuit.
    Comment: Comments from national organizations and child care worker 
organizations urged ACF to include new regulatory language requiring 
the individualized review for drug-related felonies described at Sec.  
98.43(e)(4) to follow the U.S. Equal Employment Opportunity 
Commission's (EEOC) guidelines. A letter co-signed by several national 
organizations stated, ``Communities of color, and women of color in 
particular, have suffered immeasurably as a result of the collateral 
consequences of an arrest or conviction for a drug offense. Indeed, 
women now represent the fastest growing segment of the criminal justice 
system, due largely to drug offenses, not violent crime. In fact, 24 
percent of all incarcerated women were convicted of drug offenses, 
compared to just 16 percent of men. As the ACLU concluded in their 
analysis of the issue, `[w]omen of all races use drugs at approximately 
the same rate, but women of color are arrested and imprisoned at much 
higher rates.' [W]e urge ACF to emphasize in the preamble that the 
States should adopt robust waivers procedure as applied to 
disqualifying drug offenses. In addition, ACF should specifically 
incorporate the EEOC guidelines in the regulations (Section 
98.43(e)(4)), which would provide specific direction to the States 
beyond simply referencing Title VII.''
    Response: Section 658H(e)(4) of the Act, which is reiterated at 
Sec.  98.43(e)(4) of the final rule, allows Lead Agencies to conduct a 
review process through which the Lead Agency may determine that a child 
care staff member (including a prospective child care staff member) 
convicted of a disqualifying felony drug-related offense, committed 
during the preceding five years, may be eligible for employment by a 
provider receiving CCDF funds. The law also requires that the review 
process must be consistent with Title VII of the Civil Rights Act of 
1964 (42 U.S.C. 2000e et seq.), which prohibits employment 
discrimination based on race, color, religion, sex and national origin. 
ACF interprets the statutory reference to Title VII of the Civil Rights 
Act to mean that Lead Agencies must conduct the review processes in 
accordance with the EEOC's current guidance on the use of criminal 
background checks in employment decisions, which requires 
individualized consideration of the nature of the conviction, age at 
the time of the conviction, length of time since the conviction, and 
relationship of the conviction to the ability to care for children, or 
other extenuating circumstances.
    Lead Agencies should consult the EEOC's current guidance on the 
consideration of criminal records in employment decisions to ensure 
compliance with Title VII's prohibition against employment 
discrimination (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, http://www.eeoc.gov/laws/guidance/upload/arrest_conviction.pdf). As described in the comment, members of low-
income communities of color are disproportionately charged and 
convicted of drug-related offenses. Establishing a robust process for 
an individualized review that follows EEOC guidance is important to 
protect these individuals. This process allows Lead Agencies to 
consider extenuating circumstances and to make nuanced decisions to 
deem an individual to be eligible for employment.
    Comment: A letter co-signed by several national organizations also 
asked ACF to require an individualized review that complies with the 
EEOC guidance for any other disqualifying crimes added by the Lead 
Agency. The letter wrote, ``This `individualized assessment' of 
mitigating factors is a critical component of a fair background check 
process, as detailed in the EEOC guidance. It simply provides an 
opportunity for a prospective hire to explain why she is qualified for 
the position and does not pose a risk to child safety and well-being, 
even if she may have an otherwise disqualifying offense on her record. 
Individualized assessments are also particularly important for victims 
of domestic violence, who are often charged and convicted of a broad 
range of offenses, many of which are directly related to the abuse they 
experience. Accordingly, we urge ACF to incorporate the language of the 
EEOC guidance into Section 98.43(h)(1) of the CCDF regulations, thus 
mandating that the States take into account the individual's work 
history, evidence of rehabilitation, and other compelling factors that 
mitigate against disqualifying the individual from child care 
employment based on a conviction record.''
    Response: As described above, ACF interprets consistency with Title 
VII of the Civil Rights Act to mean that Lead Agencies must follow the 
EEOC guidelines. As such, we strongly encourage Lead Agencies to follow 
recommendations to implement an individualized assessment and waiver 
process in particular for any other disqualifying crimes not listed in 
the Act. In addition to challenging the record for accuracy and 
completeness, an individualized review allows the Lead Agency to 
consider other relevant information, and to provide waivers where 
appropriate. The EEOC recommends reviewing the following evidence: 
``the facts or circumstances surrounding the offense or conduct; the 
number of offenses for which the individual was convicted; older age at 
the time of conviction, or release from prison; evidence that the 
individual performed the same type of work, post-conviction, with the 
same or a different employer, with no known incidents of criminal 
conduct; the length and consistency of employment history before and 
after the offense or conduct; rehabilitation efforts (e.g., education/
training); employment or character references and any other information 
regarding fitness for the particular position; and whether the 
individual is bonded under a federal, State, or local bonding program'' 
(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, http://www.eeoc.gov/laws/guidance/upload/arrest_conviction.pdf).
    Background check fees. Lead Agencies have the flexibility to 
determine who pays for background checks (e.g., the provider, the 
applicant, or the Lead Agency) but Section 658H(f) of the Act requires 
that the fees charged for completing a background check may

[[Page 67504]]

not exceed the actual cost of processing and administration. The cost 
of conducting background checks varies across States and Territories. 
The current FBI fee is $14.75 to conduct a national fingerprint check 
(subject to change). According to FY 2014-2015 CCDF State Plan data, 
most Lead Agencies report low costs to check State registries.
    ACF recognizes the important role that fees play in sustaining a 
background check system. While States and Territories cannot profit 
from background check fees, we do not want to prevent fees that support 
the necessary infrastructure. Fees cannot exceed costs and result in 
return to State general funds, but they can be used to build and 
maintain background check infrastructure. Further, we expect that Lead 
Agencies using third party contractors to conduct background checks 
will ensure that these contractors are not charging excessive fees that 
would result in huge profits. ACF does not want background check fees 
to be a barrier or burden for entry into the child care workforce.
    Comment: Comments from national organizations and child care worker 
organizations asked ACF to clarify whether CCDF funds could be used to 
cover the costs of background checks. One child care worker 
organization wrote, ``We urge ACF to additionally clarify that States 
are permitted to use CCDBG funding to cover the cost of the background 
checks for legally exempt and family child care providers, and their 
household members, so that the cost of the background checks is not a 
barrier for these providers.''
    Response: We agree with the comments. The intent of the Act is not 
to create additional burdens for certain provider groups. At Lead 
Agency discretion, CCDF funds may be used to pay the costs of 
background checks, including legally exempt and family child care 
providers, and their household members.
    Consumer education Web site. The Act requires States and 
Territories to ensure that their background check policies and 
procedures are published on their Web sites. We require that States and 
Territories also include information on the process by which a child 
care provider or other State or Territory may submit a background check 
request in order to increase transparency about the process. Comments 
on this provision, located at Sec.  98.43(g) of the final rule, were 
largely supportive. These background check policies and procedures 
should be included on the consumer education Web site discussed in 
detail in Subpart D at Sec.  98.33(a).
Sec.  98.44 Training and Professional Development
    Section 658E(c)(2)(G) of the Act requires Lead Agencies to describe 
in their CCDF Plan their training and professional development 
requirements designed to enable child care providers to promote the 
social, emotional, physical and cognitive development of children and 
to improve the knowledge and skills of caregivers, teachers, and 
directors in working with children and their families, which are 
applicable to child care providers receiving CCDF assistance. At Sec.  
98.44 we create a cohesive approach to the Act's provisions for 
training and professional development at Section 658E(c)(2)(G), 
provider training on health and safety at Section 658E(c)(2)(I)(i)(XI), 
and provider qualifications at Section 658E(c)(2)(H)(i)(III). This rule 
builds on the pioneering work of States on professional development and 
reflects current State policies.
    We received comments from States concerned about the resources 
needed to meet these requirements and the capacity of professional 
development providers to fulfill the demand. We recognize that the Act 
and the rule require more attention to training and professional 
development; however, the knowledge and skill of caregivers, teachers, 
and directors is at the heart of quality experiences for children.
    Caregiver, teacher and director. As discussed earlier, we have 
added definitions for ``teacher'' and ``director'' to Sec.  98.2. 
Adding these terms promotes professional recognition for early 
childhood and school-age care teachers and directors and aligns with 
terms used in the field. The Act uses the terms ``caregiver'' and 
``provider'' and we maintain the use of those terms throughout this 
section as appropriate. We also use the terms ``teacher'' and 
``director'' to recognize the different professional roles and their 
differentiated needs for training and professional development. For 
example, teachers provide direct services to children and need 
knowledge of curricula and health, safety, and developmentally 
appropriate practices. In addition, directors need skills to manage and 
support staff and perform other administrative duties. For simplicity 
sake, we have included teacher assistants or aides in the same term as 
teacher. Training and professional development should be tailored to 
the role or job responsibilities but all caregivers, teachers, and 
directors need the foundational knowledge of health, safety, and child 
development.
    Collaboration. The Act requires the Lead Agency to consult with the 
State Early Care and Education Advisory Committee on this section of 
the Plan. We encourage Lead Agencies to collaborate as well with 
entities that set State teacher standards and certificates, entities 
that award early childhood education credentials, institutions of 
higher education, child care providers and early childhood education 
professional associations.
    Framework and progression of professional development. At Sec.  
98.44(a), we require that Lead Agencies describe in their CCDF Plan the 
State or Territory framework for training, professional development and 
postsecondary education based on statutory language at Section 
658E(c)(2)(G)(i). The Act requires the framework to be developed in 
consultation with the State Advisory Council on Early Childhood 
Education and Care (SAC). We received many comments supporting our 
outline of the six framework components.
    The final rule at Sec.  98.44(a)(3) describes the components of a 
professional development framework. We deleted language in the NPRM 
that proposed these components be addressed in the framework ``to the 
extent practicable'' since each State's framework should address these 
components to some extent-- but we recognize that each State may be in 
a different stage of development of implementation. We received many 
comments supporting our identification of six components of a 
framework, described below. These are based on recommendations by the 
National Child Care Information Center and the National Center on Child 
Care Professional Development Systems and Workforce Initiatives (former 
technical assistance projects of the Office of Child Care), and 
national early childhood professional associations, including the 
National Association for the Education of Young Children. The recent 
report of the National Academies of Sciences' expert panel on the early 
childhood workforce speaks to the intentional and multifaceted system 
of supports that will be needed to ensure that every caregiver, 
teacher, and director can provide high-quality development and learning 
to the diversity of children in child care and early childhood 
programs. (Institute of Medicine and National Research Council, 2015. 
Transforming the workforce for children birth through age 8: A unifying 
foundation. Washington, DC: The National Academies Press) The six 
components are: Professional standards

[[Page 67505]]

and competencies, career pathways, advisory structures, articulation, 
workforce information, and financing. These components are discussed 
below. In the CCDF Plans, the majority of States and Territories 
indicated that they have implemented the same components of a 
professional development framework system. We provide for flexibility 
on the strategies, breadth and depth with which States and Territories 
will develop and implement a framework that includes these components. 
A comment from a national organization said, ``The proposed rule's 
focus on professional development, including its specification of six 
components for Lead Agencies' professional development frameworks 
(based on the National Academies of Sciences expert panel report on the 
early childhood workforce), is a critical advance toward the 
professionalization of the early childhood workforce. This, in sum, is 
a key ingredient for quality.''
    1. Core knowledge and competencies. Caregivers, teachers, and 
directors need a set of knowledge and skills to be able to provide 
high-quality child care and school-age care. The foundational core 
knowledge--what all early childhood professionals should know and be 
able to do--should be supplemented with specialized competencies and 
professional development that recognizes different professional roles, 
ages of children being served, and special needs of children. According 
to the FY 2016-2018 CCDF Plans, 44 States and Territories have fully 
implemented core knowledge and competencies aligned to professional 
standards.
    2. Career pathways. Section 658E(c)(2)(G)(ii)(I) of the Act 
requires Lead Agencies to create a progression of professional 
development, which may include encouraging postsecondary education. 
This progression is in essence a career pathway, also known as a career 
lattice or career ladder. The National Academies of Sciences' report, 
Transforming the Early Childhood Workforce: A Unifying Framework, calls 
for States to implement ``phased, multiyear pathways to transition to a 
minimum bachelor's degree requirement with specialized knowledge and 
competencies'' for all early childhood teachers working with children 
from birth through age eight. (Institute of Medicine (IOM) and National 
Research Council (NRC). 2015. Transforming the workforce for children 
birth through age 8: A unifying foundation. Washington, DC: The 
National Academies Press). According to the FY 2016-2018 CCDF Plans, 
nearly all States and Territories have developed a career pathway that 
includes qualifications, specializations, and credentials by 
professional role. Although we do not require that States set any 
particular credential as a licensing qualification or a point on the 
career pathway, the pathway should form a transparent, efficient 
sequence of stackable, and portable credentials from entry level that 
can build to more advanced professional competency recognition, and at 
each step, aligned to improved compensation. One model of professional 
development is the Registered Apprenticeship, providing job-embedded 
professional development and coursework that leads to a Child 
Development Associate (CDA) credential. In many apprenticeships, this 
is done through an agreement with the community college to carry credit 
toward an Associate degree. The costs of tuition, books, and the CDA 
evaluation fee are covered by the apprenticeship. The CDA is often a 
first professional step on an early childhood education career ladder 
that can lead to better compensation and a pathway to higher levels of 
education.
    3. Advisory structures. Because professional development and 
training opportunities and advancement may cut across multiple 
agencies, it is important to have a formal communication and 
coordination effort. For example, professional development resources 
for individuals providing special education services for preschools and 
infants and toddlers may not be administered by the CCDF Lead Agency. 
The State higher education board or board of education generally makes 
policies for higher education institutions. Many States use the SACs as 
an advisory body for professional development systems policy and 
coordination. (Administration for Children and Families, U.S. 
Department of Health and Human Services, Early Childhood State Advisory 
Councils Final Report, 2015) We encourage the advisory body to include 
representatives of different types of professional development 
providers (such as higher education, entities that grant teacher 
certification, certificates and credentials in early childhood 
education, child care resource and referral, QRIS coaches and technical 
assistance providers) as well as CCDF providers through membership on 
the advisory or participation in subcommittees or advisory groups.
    4. Articulation. Articulation of coursework, when one higher 
education institution matches its courses or coursework requirements 
with other institutions, prevents students from repeating coursework 
when changing institutions or advancing toward a higher degree. 
Transfer agreements, another type of articulation, allow the credit 
earned for an associate degree to count toward credits for a 
baccalaureate degree. States and Territories can encourage articulation 
and transfer agreements between two- and four-year higher education 
degree programs, as well as articulation with other credentials and 
demonstrated competencies specifically as it pertains to early 
childhood education degree programs. We require that, to the extent 
practicable, professional development and training awards continuing 
education units or is credit-bearing. We encourage professional 
development that is credit-bearing where these credits readily transfer 
to a degree or certificate program. In their FY 2016-2018 Plans, 52 
States and Territories reported having articulation agreements in place 
across and within institutions of higher education and 47 States and 
Territories reported having articulation agreements that translate 
training and/or technical assistance into higher education credit.
    5. Workforce information. It is important to collect and evaluate 
data to identify gaps in professional development accessibility, 
affordability, and quality. Information may be gathered from different 
sources, such as child care resource and referral agencies, scholarship 
granting entities, higher education institutions, Head Start Program 
Information Report data, and early childhood workforce registries. 
Information about the characteristics of the workforce, access to and 
availability of different types of training and professional 
development, compensation, and turnover can help the advisory body and 
other stakeholders make policy and financing decisions.
    6. Financing. Financing of the framework and of individuals to 
access training and professional development, including postsecondary 
education, is critical. Many Lead Agencies use CCDF funds to finance 
the professional development infrastructure and the costs of training 
and professional development, including postsecondary education, for 
caregivers, teachers, and directors. States and Territories report 
using their SAC grants and Race to the Top-Early Learning Challenge 
grants to leverage and expand CCDF funds for workforce improvement and 
retention. Twenty-eight States/Territories reported that they used SAC 
grants to complete a workforce study; 29 States/Territories used SAC 
grants to create or enhance their Core Knowledge and Competencies 
framework; and 18 States/Territories used SAC grants to develop or 
enhance their workforce registries. We encourage Lead Agencies

[[Page 67506]]

to leverage CCDF funds with other public and private resources to 
accelerate professional development efforts.
    We received multiple comments from national and State organizations 
that they were pleased to see the framework and its description in the 
preamble. We received comments from a national organization and early 
childhood worker organizations to add language to the preamble to 
expand the description of some of the components, and we have adopted 
some of these modifications in the preamble.
    Section 658E(c)(2)(G)(ii)(II) of the Act allows the Lead Agency to 
engage training providers in aligning training opportunities with the 
State's training framework, which the rule restates at Sec.  
98.44(a)(2). The rule adds professional development providers, 
including higher education and education as well as training 
opportunities to ensure that all appropriate types of professional 
development, including formal education that is needed for career 
progression, are included. We encourage the participation of the full 
range of training and professional development providers, including 
higher education and entities that grant teacher certification, 
certificates and credentials in early childhood education, to align 
with the framework. Training and professional development may be 
provided through institutions of higher education, child care resource 
and referral agencies, worker organizations, early childhood 
professional associations, and other entities. This alignment may lead 
to a more coherent and accessible sequence of professional development 
for individuals to meet Lead Agency requirements and progress in their 
professional development and to maximize the use of professional 
development resources.
    Qualifications. Section 658E(c)(2)(H)(i)(III) of the Act requires 
Lead Agencies to set qualifications for CCDF providers. The final rule 
reiterates that requirement at Sec.  98.44(a)(4) and clarifies that 
such qualifications should be designed to enable caregivers, teachers, 
and directors to promote the full range of children's development: 
Social, emotional, physical, and cognitive development. States and 
Territories currently set minimum qualifications for teacher 
assistants, teachers, directors, and other roles in centers, family 
child care, and school-age care settings in their licensing standards. 
We encourage Lead Agencies to consider the linkage between these 
minimum qualifications and higher qualifications in the progression of 
professional development or career pathways. According to Section 
658E(c)(2)(G)(ii)(I) of the Act, professional development should be 
conducted on an ongoing basis, provide for a progression of 
professional development (which may include encouraging the pursuit of 
postsecondary education), and reflect current research and best 
practices relating to the skills necessary for the caregivers, 
teachers, and directors to meet the developmental needs of 
participating children and engage families. These requirements are in 
paragraphs (5) and (6) of Sec.  98.44(a).
    Comment: One comment asked for specific language that the State 
framework and qualifications require at least basic training or 
coursework on early childhood care and education.
    Response: The Act gives Lead Agencies the flexibility to determine 
qualifications. The final rule adds child development to the health and 
safety topical areas that must be addressed during the pre-service or 
orientation period. These we see as the foundation of the progression 
of professional development, and with the requirement for ongoing 
annual professional development, aligned to the State framework 
(particularly the component on career pathways) urge Lead Agencies to 
ensure opportunities for caregivers, teachers and directors to deepen 
their understanding and application of best practices to support 
children's development and learning. We note that our addition of child 
development to the topics in the pre-service or orientation training 
should be understood to give at minimum a basic overview and grounding 
in child development. The Act and this rule identify a variety of 
topics in child development for ongoing professional development, which 
should not be considered an exhaustive list.
    Quality, diversity, stability and retention of the workforce. 
Section 658E(c)(2)(G)(ii)(I) of the Act also requires assurances in the 
Plan that training and professional development will improve the 
quality of, and stability within, the child care workforce. Section 
98.44(a)(7) requires that the training and professional development 
requirements must also improve the quality and diversity of caregivers, 
teachers, and directors. Maintaining diverse and qualified caregivers, 
teachers, and directors is a benefit to serving children of all 
backgrounds. The final rule also provides that such requirements 
improve the retention (including financial incentives) of caregivers, 
teachers, and directors within the child care workforce, based on the 
high turnover rate in child care that can disrupt continuity of care 
for children. In order for children to benefit from high-quality child 
care, it is important to retain caregivers, teachers, and directors who 
have the knowledge and skills to provide high-quality experiences. In 
2012, the average annual turnover rate of classroom staff was 13 
percent, and the turnover rate among centers (child care, Head Start 
and schools) that experienced any turnover was 25 percent. (Whitebook, 
M., Phillips, D. & Howes, C. (2014.)) Worthy work, STILL unlivable 
wages: The early childhood workforce 25 years after the National Child 
Care Staffing Study. Berkeley, CA: Center for the Study of Child Care 
Employment, University of California, Berkeley)
    Comment: One State raised concerns that it does not have a way to 
track outcomes for whether there were improvements in the quality, 
diversity, stability and retention of the workforce.
    Response: The rule requires the Lead agency to describe in its plan 
how it will improve the quality, diversity, stability and retention of 
caregivers, teachers, and directors. We do not specify how a Lead 
Agency will evaluate or document changes in the child care workforce. A 
majority of States have established registries where early childhood 
caregivers, teachers, and directors can document their professional 
development. These registries also help provide information on the 
characteristics of the early childhood workforce in the State. There 
are a number of other sources of workforce information available to 
Lead Agencies, such as participants in State-provided trainings, 
scholarship programs for early childhood teachers for postsecondary 
education, quality rating and improvement systems, and workforce 
surveys. A minimum best practice should be that caregivers, teachers, 
and directors document training and professional development in the 
personnel files of the facility.
    Comment: We received comments from multiple national and state 
organizations, including organizations representing child care workers, 
asking us to explicitly include higher compensation as an example of a 
retention strategy.
    Response: We strongly agree that retaining caregivers, teachers, 
and directors who attain more professional knowledge and skill is 
important to raising the quality of children's experiences in child 
care and school-age care settings. The final rule adds compensation 
improvements as an example along with financial incentives at Sec.  
98.44(a)(7). There are examples of States that implement compensation

[[Page 67507]]

improvements that connect higher compensation with increasing levels of 
education in their career pathways, and that explicitly build such 
improvements into their quality rating and improvement systems. We urge 
States and Territories to implement strategies to raise the 
compensation of caregivers, teachers, and directors as they raise 
qualification standards. Given the amount of public and private 
investment in professional development and the length of time 
individuals are working in child care, it is important to retain the 
caregivers, teachers, and directors who have benefitted from those 
professional investments in order to create continuity of high-quality 
teaching and care for children.
    Aligning training and professional development with the 
professional development framework. Section 98.44(b) of the final rule 
requires Lead Agencies to describe in the Plan their requirements for 
training and professional development for caregivers, teachers, and 
directors of CCDF providers that, to the extent practicable, align with 
the State or Territory's training and professional development 
framework required by Sec.  98.44(a). There is a continuum of 
professional development from pre-service and orientation training 
through increasing levels of knowledge and skill.
    Pre-service or orientation health and safety training. Section 
658E(c)(2)(I)(i)(XI) of the Act requires Lead Agencies to set minimum 
health and safety training, to be completed pre-service or during an 
orientation period in addition to ongoing training, appropriate to the 
provider setting involved that addresses the specific topic areas 
listed in the final rule at Sec.  98.41(a)(1). All caregivers, 
teachers, and directors in programs receiving CCDF funds must receive 
this training. Many States and Territories already have pre-service and 
orientation training requirements for licensed providers. We have 
placed this requirement in the professional development section of the 
rule because we see preliminary health and safety training requirements 
as a part of a continuum of professional development. We require that 
pre-service or orientation training include the major domains of child 
development in addition to the Act's requirement for health and safety 
training. Understanding child development is integral to providing 
high-quality child care.
    The Act allows an orientation period during which staff can fulfill 
the training requirement. Lead Agencies will have broad flexibility to 
determine what training is required ``pre-service'' and what training 
may be completed during an ``orientation'' period. We require pre-
service or orientation training be completed within three months of 
caring for children as recommended by CfoC Basics. During those three 
months, caregivers and teachers who provide direct care for children 
must be supervised until training is completed in pediatric first aid 
and CPR, safe sleep practices, standards precautions to prevent 
communicable disease, poison prevention, and shaken baby syndrome/abuse 
head trauma.
    We encourage providers to document completion of the pre-service or 
orientation training so that caregivers, teachers, and directors do not 
need to repeat foundational training when they change employment. This 
documentation can be useful for the State's or Territory's licensing 
agency and career pathway.
    We expect variability in how Lead Agencies will implement this 
provision. There are a number of low- or no-cost resources available, 
including online resources, which cover many of these trainings. 
Several of these are available at ACF's Web site, Early Educator 
Central at https://earlyeducatorcentral.acf.hhs.gov/coursework. We do 
not advocate the exclusive use of online trainings. A mixed delivery 
training system that includes both online and in-person trainings can 
meet the varied needs of child care caregivers, teachers, and 
directors. We encourage Lead Agencies to permit individuals to use 
certificates and credentials that include a demonstration of competence 
in any or all of the health, safety, and child development topics to 
fulfill, partially or in full, the training requirements.
    Comment: Many comments supported the increased attention to 
training and professional development as a key component of quality 
child care. However, several States also noted that currently they do 
not require pre-service or orientation in all of the required health 
and safety topics, and that resources to pay for and provide the 
training is a challenge. One comment asked for additional clarification 
regarding whether the pediatric First Aid and CPR requirement applies 
to all child care personnel or to the provider itself (e.g., ensuring 
at least one provider personnel is certified and on premises at any 
given time). Another comment expressed concern that training in 
pediatric CPR and First Aid without certification could potentially 
lead to liability issues in the event that First Aid is provided or CPR 
is administered by personnel who have been trained in these areas but 
not certified.
    Response: We recognize that there is a need for resources to offset 
the costs of training and for building capacity to deliver it. However, 
licensing requirements for health and safety must go hand in hand with 
training to ensure that all caregivers, teachers, and directors 
understand how to preserve the health and safety of children in their 
care. As stated in the preamble, States and Territories have 
flexibility in how they will provide the training and comply with this 
provision. The Administration for Children and Families has provided 
several no-cost or low-cost trainings at the Web site http://eclkc.ohs.acf.hhs.gov/hslc/tta-system/health/ccdbg/ccdbg-required-health-safety-training.html.
    With regard to flexibility and demonstrating competence, we 
recognize that some training for pre-service or orientation will not 
result in certification and others that will, such as pediatric First 
Aid and CPR. We remind States and Territories that they must set 
requirements for ongoing, annual professional development and must 
address certain topics beyond health and safety as outlined in the Act. 
All of these trainings and professional development opportunities 
should be aligned with the State's training and professional 
development framework, contribute to a progression of professional 
learning, and reflect current research and best practices to promote 
the social, emotional, physical and cognitive development of children.
    Comment: One comment focused on infants and toddlers and the need 
to ensure that caregivers, teachers and directors are supervised until 
they have training in critical areas of health and safety. The comment 
cautioned that ``babies and toddlers and other young children cannot 
wait three months to be in safe care.''
    Response: Because SIDS and other training are so important to 
health and safety, Sec.  98.44(b)(1)(i) of the final rule requires 
supervision during the pre-service or orientation period.
    Comment: We received a comment requesting more references to 
school-age caregivers.
    Response: The final rules adds specific references to school-age 
care at Sec.  98.44(a) and Sec.  98.44(a)(4). The definitions of the 
terms caregiver, teacher, and director as defined in the final rule 
include school-age care. CCDF serves children from birth to age 13 
years and we expect States to apply these training and professional 
development provisions to the caregivers, teachers, and directors

[[Page 67508]]

serving children in that age span. The final rule also promotes 
training and professional development that is appropriate to the 
setting and the age of children served.
    Comment: We received support for a three-month period for pre-
service or orientation from a number of national and State 
organizations. A State and an organization representing child care 
workers asked for a sixth-month period for pre-service or orientation 
training citing concerns about the resources to provide training and 
the capacity of training providers to meet the demand.
    Response: We have maintained at Sec.  98.44(b) the three-month 
window and encourage Lead Agencies to consider how credentials and 
certificates earned by caregivers, teachers, and directors prior to 
caring for children can fulfill these requirements. The Act requires 
specific health and safety protections in licensing, and for these to 
be implemented, caregivers, teachers, and directors should have 
foundation training in them. We added child development, but did not 
specify the depth and breadth of training in this area for the pre-
service or orientation period and note that there is a requirement for 
ongoing, annual professional development as well. The combination of 
online and in-person resources in these topics, and that this is pre-
service or orientation level training, should allow caregivers, 
teachers and directors to fulfill this requirement in this time frame. 
As we describe elsewhere in the preamble, ACF's Web site provides free 
or low-cost online resources on many of these topics.
    Comment: We received a few comments asking from national 
organizations to add topics for pre-service or orientation training, 
such as violence/trauma, nutrition and physical activity, mathematics, 
arts, and behavior management. National disabilities groups requested 
the addition of communication to the early learning and development 
domains. We received comments from faith-based and private providers 
requesting language in several places that training and professional 
development would accommodate distinctive approaches, and specified 
certain methods, curricula, and philosophies.
    Response: The Act and this final rule require pre-service or 
orientation training in health and safety and we have added child 
development. The Act and this rule also specify areas for ongoing 
professional development, outlining, at a minimum, knowledge and 
application of the State's early learning and developmental guidelines 
(where applicable), the State's health and safety standards, and 
social-emotional behavior intervention models, which may include 
positive behavior intervention and support models. We provide States 
with the flexibility in how to meet these requirements and promote 
ongoing professional learning in these more specific areas. Further, 
the final rule does not limit the type of training provider or the 
approach to teaching except that it should be research-based. Further, 
we encourage Lead Agencies to reach out to the full range of the types 
of providers when developing this section of the Plan and in aligning 
the professional development opportunities to the State's professional 
development framework and the progression of professional development 
or career pathway.
    Comment: We received comments from representatives of family child 
care providers and child care workers organizations requesting language 
that the training be appropriate to the setting as well as the age of 
children served.
    Response: All caregivers, teachers, and directors should have the 
foundational health, safety and child development training, as well as 
ongoing professional development that help them advance on an early 
childhood career pathway. We agree that training should also be 
meaningful for the setting in which the care is provided, and have 
added language to the final rule at Sec.  98.44(b)(1) and Sec.  
98.44(b)(2) that training and professional development should be 
appropriate to the setting and age of children served, recognizing that 
family child care providers may benefit from training and professional 
development that reflects a different type of care than center-based 
programs, such as mixed age grouping and health and safety in a home 
environment.
    Comment: We received comments asking for training and professional 
development in cultural and linguistic appropriate practices to support 
the diversity of children in child care.
    Response: Section 98.44(a)(6) of the final rules provides that the 
training must reflect current research and best practices, including 
culturally and linguistically appropriate practices. We also note that 
the Act and this final rule encourage professional development related 
to different ages and populations of children, including English 
language learners.
    Ongoing professional development. Section 658E(c)(2)(G)(ii)(I) of 
the Act requires the Plan to include assurances that training and 
professional development will be conducted on an ongoing basis, which 
the final rule restates at Sec.  98.44(b)(2) with a number of 
parameters. Section 98.44(b)(2)(i) requires that ongoing training 
maintain and update the health and safety training standards described 
at Sec.  98.41(a)(1).
    Section 658E(c)(2)(G)(iii) of the Act requires each Lead Agency's 
Plan to include the number of hours of training for eligible providers 
and caregivers to engage in annually, as determined by the Lead Agency. 
Section Sec.  98.44(b)(2) of the final rule reiterates this by 
requiring Lead Agencies to establish the minimum annual requirement for 
hours of training and professional development for caregivers, teachers 
and directors of CCDF providers. While Lead Agencies have flexibility 
to set the number of hours, Caring for Our Children recommends that 
teachers and caregivers receive at least 30 clock hours of pre-service 
training and a minimum of 24 clock hours of ongoing training annually. 
(American Academy of Pediatrics, American Public Health Association, 
National Resource Center for Health and Safety in Child Care and Early 
Education. 2011. Caring for our children: National health and safety 
performance standards; Guidelines for early care and education 
programs. 3rd edition. Elk Grove Village, IL: American Academy of 
Pediatrics; Washington, DC: American Public Health Association.)
    The Act also specifies that the ongoing professional development 
must: Incorporate knowledge and application of the Lead Agency's early 
learning and developmental guidelines (where applicable) and the Lead 
Agency's health and safety standards; incorporate social-emotional 
behavior intervention models, which may include positive behavior 
intervention and support models; be accessible to providers supported 
by Tribal organizations or Indian Tribes that receive CCDF assistance; 
and be appropriate for different populations of children, to the extent 
practicable, including different ages of children, English learners, 
and children with disabilities.
    Continuing education units and credit-bearing professional 
development. The final rule requires Lead Agencies to describe in the 
Plan the requirements for ongoing, accessible professional development 
aligned to a progression of professional development that, to the 
extent practicable, awards continuing education units or is credit-
bearing. While we encourage credit-bearing professional development 
that readily transfers to a degree program or certificate, we also 
acknowledge that there remains work in States and

[[Page 67509]]

Territories to create transfer and articulations agreements.
    Comment: We received comments relating to cultural linguistic 
diversity of the workforce and best practices with children and 
families.
    Response: The final rule includes a provision that the States and 
Territories address in their framework improving the quality, 
diversity, stability and retention of caregivers, teachers, and 
directors. We urge States and Territories to examine and address 
diversity of the workforce at each step of the career pathway. Ensuring 
the diversity of the workforce--at all levels of the career pathway--
should be interpreted broadly, such as demographic characteristics of 
race, gender, age, native language, among other characteristics.
    Comment: There were a large number of comments from national and 
State organizations and child care worker organizations requesting an 
explicit reference to higher compensation throughout this section.
    Response: We strongly agree that the compensation of many child 
care staff and program leaders is not reflective of the importance of 
the work. As required qualifications rise, there needs to be 
commensurate increases in compensation in order to retain a workforce 
with the specialized knowledge and skills to support children's 
positive development, health, and safety. Many States have initiatives 
that support child care providers with financial support as well as 
academic advisement to gain more formal education and credentials, with 
some compensation improvement. Thus, the final rule at Sec.  
98.44(a)(7) provides that improving the quality, stability, diversity 
and retention of the child care workforce includes financial incentives 
and compensation improvements. Section 98.53(a)(1)(vii) regarding the 
uses of the quality set-aside includes the ability to use those 
resources for these financial incentives and compensation improvements.
    Comment: We received a comment from a national early childhood 
organization asking for additional language that would emphasize that 
the credit-bearing professional development readily transfers to a 
degree or certificate program.
    Response: We require the Plan to address a State framework that 
includes career pathways and articulation agreements. We encourage the 
promotion of credit-bearing professional development that is readily 
transferable, but also recognize that there remains work to be done to 
implement transfer agreements. Some caregivers, teachers, and directors 
may already have a degree and a certificate and do not need 
transferable credit-bearing coursework, but as professionals, should be 
required to have appropriate ongoing, accessible professional 
development to deepen their knowledge and skills.
Sec.  98.45 Equal Access
    Consistent with Section 658E(c)(4) of the Act, Sec.  98.45 of this 
final rule requires the Lead Agency to: (1) Certify in its CCDF Plan 
that payment rates for CCDF subsidies are sufficient to ensure equal 
access for eligible children to child care services that are comparable 
to child care services provided to children whose parents are not 
eligible to receive child care assistance; and (2) provide a summary of 
the facts the Lead Agency used to determine that payment rates are 
sufficient to ensure equal access. This final rule modifies the key 
elements in the previous regulation used to determine that a CCDF 
program provides equal access for eligible families, and includes 
additional elements consistent with statutory provisions on equal 
access and rate setting at Section 658E(c)(4) of the Act and payment 
practices at Section 658E(c)(2)(S).
    Under Sec.  98.45(b) of this final rule, the summary of data and 
facts now includes: (1) Choice of the full range of providers, 
including the extent to which child care providers participate in the 
CCDF subsidy system; (2) adequate payment rates, based on the most 
recent market rate survey or alternative methodology; (3) base payment 
rates that enable child care providers to meet the health, safety, 
quality, and staffing requirements in the rule; (4) the cost of higher-
quality child care, including how payment rates for higher-quality care 
relate to the estimated cost of that care; (5) affordable co-payments, 
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 (informed by data collected by the State and with 
regard to a working family's ability to pay such mandatory fees without 
restricting access to care they would otherwise access taking into 
consideration the family co-payment, payment rate for the provider, and 
the cost of care), and the extent to which CCDF providers charge such 
amounts; (6) payment practices that support equal access to a range of 
providers; (7) how and on what factors the Lead Agency differentiates 
payment rates; and (8) any additional facts considered by the Lead 
Agency. All of these changes are discussed further below.
    Based on Section 658E(c)(4)(B) of the Act, Sec.  98.45(c) of this 
final rule requires Lead Agencies to conduct, no earlier than two years 
before the submission of their CCDF Plan, a statistically valid and 
reliable market rate survey or an alternative methodology, such as a 
cost estimation model.
    Statistically Valid and Reliable Market Rate Survey. A market rate 
survey is an examination of prices, and Lead Agencies have flexibility 
to use data collection methodologies other than a survey (e.g., 
administrative data from resource and referral agencies or other 
sources) so long as the approach is statistically valid and reliable. 
ACF is not defining statistically valid and reliable within the 
regulatory language but is establishing a set of benchmarks, largely 
based on CCDF-funded research to identify the components of a valid and 
reliable market rate survey. (Grobe, D., Weber, R., Davis, E., Kreader, 
L., and Pratt, C., Study of Market Prices: Validating Child Care Market 
Rate Surveys, Oregon Child Care Research Partnership, 2008)
    ACF will consider a market rate survey to be statistically valid 
and reliable if it meets the following benchmarks:
     Includes the priced child care market. The survey includes 
child care providers within the priced market (i.e., providers that 
charge parents a price established through an arm's length 
transaction). In an arm's length transaction, the parent and the 
provider do not have a prior relationship that is likely to affect the 
price charged. For this reason, some unregulated, license-exempt 
providers, particularly providers who are relatives or friends of the 
child's family, are generally not considered part of the priced child 
care market and therefore are not included in a market rate survey. 
These providers typically do not have an established price that they 
charge the public for services, and the amount that the provider 
charges is often affected by the relationship between the family and 
the provider. In addition, from a practical standpoint, many Lead 
Agencies are unable to identify a comprehensive universe of license-
exempt providers because individuals frequently are not included on 
lists maintained by licensing agencies, resource and referral agencies, 
or other sources. In the absence of findings from a market rate survey, 
Lead Agencies often use other facts to establish payment rates for 
providers outside of the priced market (e.g., license-exempt 
providers); for example, many Lead Agencies set these payment rates as 
a percentage of the rates for providers in the priced market.

[[Page 67510]]

     Provides complete and current data. The survey uses data 
sources (or combinations of sources) that fully capture the universe of 
providers in the priced child care market. The survey should use lists 
or databases from multiple sources, including licensing, resource and 
referral, and the subsidy program, if necessary, for completeness. In 
addition, the survey should reflect up-to-date information for a 
specific time period (e.g., all of the prices in the survey are 
collected within a three-month time period).
     Represents geographic variation. The survey includes 
providers from all geographic parts of the State, Territory, or Tribal 
service area. It also should collect and analyze data in a manner that 
links prices to local geographic areas.
     Uses rigorous data collection procedures. The survey uses 
good data collection procedures, regardless of the method (mail, 
telephone, or web-based survey; administrative data). This includes a 
response from a high percentage of providers (generally, 65 percent or 
higher is desirable and below 50 percent is suspect). Some research 
suggests that relatively low response rates in certain circumstances 
may be as valid as higher response rates. (Curtin R., Presser S., 
Singer E., The Effects of Response Rate Changes on the Index of 
Consumer Sentiment, Public Opinion Quarterly, 2000; Keeter S., Kennedy 
C., Dimock M., Best J., Craighill P., Gauging the Impact of Growing 
Nonresponse on Estimates from a National RDD Telephone Survey, Public 
Opinion Quarterly, 2006) Therefore, in addition to looking at the 
response rate, it is necessary to implement strong sample designs and 
conduct analyses of potential response bias to ensure that the full 
universe of providers in the child care market is adequately 
represented in the data and findings. Lead Agencies should consider 
surveying in languages in addition to English based on the languages 
used by child care providers, and other strategies to ensure adequate 
responses from key populations.
     Analyzes data in a manner that captures market 
differences. The survey should examine the price per child care slot, 
recognizing that all child care facilities should not be weighted 
equally because some serve more children than others. This approach 
best reflects the experience of families who are searching for child 
care. When analyzing data from a sample of providers, as opposed to the 
complete universe, the sample should be appropriately weighted so that 
the sample slots are treated proportionally to the overall sample 
frame. The survey should collect and analyze price data separately for 
each age group and category of care to reflect market differences.
    The purpose of the market rate survey is to guide Lead Agencies in 
setting payment rates within the context of market conditions so that 
rates are sufficient to provide equal access to the full range of child 
care services, including high-quality child care. However, the child 
care market itself often does not reflect the actual costs of providing 
child care and especially of providing high-quality child care designed 
to promote healthy child development. Financial constraints of parents 
prevent child care providers from setting their prices to cover the 
full cost of high-quality care, which is unaffordable for many 
families. As a result, a market rate survey may not provide sufficient 
information to assess the actual cost of quality care. Therefore, it's 
often important to consider a range of data, including, but not limited 
to, market rates, to understand prices in the child care market.
    Comment: One national organization recommended requiring that 
surveys be conducted by a neutral third party.
    Response: We have not added this requirement because we do not want 
to hamper Lead Agencies' ability to administer the survey according to 
the available processes that work best for their jurisdiction. Many 
States currently administer the survey through a partner with expertise 
in survey design and implementation--such as a postsecondary 
educational institution or research firm. Some States, however, have an 
in-house unit with the necessary expertise. Regardless of the approach, 
the survey must meet the benchmarks for validity and reliability 
outlined above, and must be conducted in a manner that provides 
transparency--including the required pre-survey consultation with 
stakeholders and the preparation and dissemination of the detailed 
report containing results.
    Alternative Methodology. The reauthorized Act allows a Lead Agency 
to base payment rates on an alternative methodology, such as a cost 
estimation model, in lieu of a market rate survey. The final rule at 
Sec.  98.45(c)(2) requires that any alternative methodology be approved 
in advance by ACF. ACF plans to issue uniform procedures and timeframes 
regarding approval of alternative methodologies. A cost estimation 
model is one such alternative approach in which a Lead Agency can 
estimate the cost of providing care at varying levels of quality based 
on resources a provider needs to remain financially solvent. The 
Provider Cost of Quality Calculator (https://www.ecequalitycalculator.com/Login.aspx) is a publicly available web-
based tool that calculates the cost of quality-based on site-level 
provider data for any jurisdiction. Many States, working with the 
Alliance for Early Childhood Finance and Augenblick, Palaich and 
Associates (APA), contributed to the development of the cost calculator 
methodology that preceded the online tool, and was funded by the Office 
of Child Care through the technical assistance network. The tool helps 
policymakers understand the costs associated with delivering high-
quality child care and can inform payment rate setting.
    Comment: National organizations and child care worker organizations 
supported the proposal to require ACF advance approval of alternative 
methodologies.
    Response: The final rule maintains this provision, recognizing that 
alternative methodologies are a new, unproven approach (in comparison 
to the long-standing use of market rate surveys). To obtain ACF 
approval, the Lead Agency must demonstrate how the alternative 
methodology provides a sound basis for setting payment rates that 
promote equal access and support a basic level of health, safety, 
quality, and staffing, as discussed below. Advance ACF approval is only 
necessary if the Lead Agency plans to replace the market rate survey 
with an alternative methodology. Advance approval is not required if 
the Lead Agency plans to implement both a market rate survey and an 
alternative methodology. ACF will provide non-regulatory guidance to 
Lead Agencies regarding the process for proposing an alternative 
methodology, including criteria and a timeline for approval. We will 
also consider whether to provide a list of recommended methodologies, 
which may include modeling and other approaches. The Act specifically 
mentions cost estimation models, and we anticipate that such models 
would account for key factors that impact the cost of providing care--
such as: Staff salaries and benefits, training and professional 
development, curricula and supplies, group size and ratios, enrollment 
levels, facility size, and other costs.
    Additional Facts Demonstrating Equal Access. Section 98.45(d) of 
the final rule requires that the market rate survey or alternative 
methodology reflect variations by geographic location, category of 
provider, and child's age.

[[Page 67511]]

Section 658E(c)(4)(B)(i) of the Act applies this requirement to market 
rate surveys, but the final rule extends it to alternative 
methodologies as well. Lead Agencies must include in their Plans how 
and why they differentiate their rates based on these factors. The 
final rule also requires Lead Agencies to track through the market rate 
survey or alternative methodology, or through a separate source, 
information on the extent to which: (1) Child care providers are 
participating in the CCDF subsidy program and any barriers to 
participation, including barriers related to payment rates and 
practices; and (2) CCDF child care providers charge amounts to families 
more than the required family co-payment, including data on the size 
and frequency of any such amounts. Under Sec.  98.45(b), this 
information must be included as part of the Lead Agency's summary of 
data and facts in the Plan that demonstrate equal access.
    Comment: The NPRM had proposed that the market rate survey include 
information on the extent to which child care providers are 
participating in the CCDF subsidy program and any barriers to 
participation, including barriers related to payment rates and 
practices. National organizations and child care worker organizations 
supported the proposal and recommended that that the information be 
required of all States, whether conducting a market rate survey or 
alternative methodology. Two States shared concerns about the 
associated administrative burden and cost, but one of the States said 
the information would be useful.
    Response: In response to comments, the final rule requires that all 
Lead Agencies track information on the extent of provider participation 
in CCDF and barriers to participation. Low payment rates as well as 
late or delayed payments and other obstacles may force some providers 
to stop serving or limit the number of children receiving subsidies in 
their care. Other providers may choose to not serve CCDF children at 
all. (Adams, G., Rohacek, M., and Snyder, K., Child Care Voucher 
Programs: Provider Experiences in Five Counties, 2008). The final rule 
allows flexibility for States to track this information through the 
most efficient process--whether through the market rate survey, 
alternative methodology, or another source. As suggested by commenters, 
we recommend that States track not only the number of providers 
participating in CCDF, but also the number/portion of children (served 
by each provider) who receive subsidizes, and whether the provider 
places any limits on the number.
    Public Consultation and Input. Based on Section 658E(c)(4)((B)(i) 
of the Act, Sec.  98.45(e) requires the Lead Agency to consult with the 
State's Early Childhood Advisory Council or similar coordinating body, 
child care directors, local child care resource and referral agencies, 
and other appropriate entities prior to conducting a market rate survey 
or alternative methodology. Under the rule, Lead Agencies must also 
consult with organizations representing child care caregivers, 
teachers, and directors. Under Sec.  98.45(f)(2)(iv), when setting 
payment rates, Lead Agencies must take into consideration the views and 
comments of the public obtained through required consultation (under 
paragraph (e)) and other means determined by the Lead Agency.
    Comment: Child care worker organizations supported the proposal in 
the NPRM providing for consultation with organizations representing 
child care caregivers, teachers, and directors, but requested 
additional provisions to ensure an adequate voice for child care 
workers in the process for setting payment rates. One national child 
care worker organization and its member affiliates recommended a 
separate public hearing specifically focused on rate setting and worker 
compensation levels.
    Response: The final rule retains the provision at Sec.  98.45(e) 
requiring consultation with worker organizations prior to the market 
rate survey or alternative methodology. We are not requiring a separate 
public hearing to allow Lead Agency flexibility to determine the best 
mechanism for obtaining public input; some Lead Agencies may be able to 
address rate setting through the public hearing already required at 
Sec.  98.14(c). In response to comments, however, Sec.  98.45(f)(2)(iv) 
requires Lead Agencies to take into consideration the views and 
comments of the public when setting rates. The final rule also requires 
the Lead Agency to respond to stakeholder comments in its detailed 
report (discussed below).
    Detailed Report. Section 98.45(f)(1) of the final rule reflects the 
statutory requirement for a Lead Agency to prepare and make widely 
available a detailed report containing results of its survey or 
alternative methodology. Section 658E(c)(4)(B)(ii) of the Act requires 
this report be available 30 days after completion of the survey or 
alternative methodology. Because we consider analysis and preparation 
of the report to be part of completing a survey, the rule indicates 
that Lead Agencies have 30 days from completion of the report to make 
the information available. ACF expects Lead Agencies to complete this 
report well in advance of the Plan submission deadline in order to 
allow enough time to for review and input by stakeholders and the 
public.
    In addition to the results of the market rate survey or alternative 
methodology, a Lead Agency must indicate in its report the estimated 
cost of care necessary to support child care providers' implementation 
of the health, safety, quality, and staffing requirements at Sec. Sec.  
98.41, 98.42, 98.43, and 98.44, including any relevant variation by 
geographic location, category of provider, or age of child. As part of 
the summary of data and facts demonstrating equal access, we will ask 
Lead Agencies in their Plans to indicate the estimated cost of care 
necessary to support child care providers' implementation of these 
health, safety, quality, and staffing requirements.
    Under Sec.  98.45(f)(1), a Lead Agency's report must also include 
the estimated cost of care necessary to support higher-quality child 
care, as defined by the Lead Agency using a quality rating and 
improvement system or other system of quality indicators, at each level 
of quality. Under Sec.  98.45(b), this information must be included as 
part of the Lead Agency's summary of data and facts in the Plan that 
demonstrate equal access. The report must also include the Lead 
Agency's response to stakeholder views and comments.
    Comment: One State indicated that the 30-day timeframe for making 
the report public would be difficult to meet due to the time needed to 
complete a rigorous analysis of the data and provide a meaningful 
report.
    Response: Under the rule, the 30-day timeframe for posting the 
report on the Internet begins after the report is completed.
    Setting Payment Rates. Section Sec.  98.45(f)(2) establishes the 
parameters for setting payment rates based on the market rate survey or 
alternative methodology and on other factors. Paragraph (f)(2)(i) 
requires the Lead Agency to set rates in accordance with the most 
recent market rate survey or alternative methodology.
    Comment: National organizations, child care worker organizations, 
child care providers, and one State supported the proposal to require 
use of the current survey or methodology to set rates. Six States 
opposed the proposal or expressed concerns. They said that, without 
increased Federal resources, this is an unfunded mandate, and increased 
rates will lead to serving fewer children due to significant costs.

[[Page 67512]]

    Response: The final rule retains this provision at Sec.  
98.45(f)(2)(i) because the Act requires the use of the most recent 
survey or methodology. Section 658E(c)(4)(B)(iii) of the Act requires 
Lead Agencies to set payment rates in accordance with the results of 
the market rate survey or alternative methodology, which must be 
conducted every three years. We interpret this statutory provision to 
mean that Lead Agencies must use results of the most recent market rate 
survey or alternative methodology. The intent of the new statutory 
requirement to conduct a market rate survey or alternative methodology 
every three years is that it be used to set payment rates, not treated 
as an obligatory paperwork exercise.
    Payment rates should reflect the current child care market. Setting 
payment rates based on older market rate surveys or alternative 
methodologies that reflect outdated prices or costs results in 
insufficient payment rates that do not reflect current market 
conditions and undermine the statutory requirement of equal access. 
This final rule effectively requires Lead Agencies to reevaluate their 
payment rates at least every three years. This process will vary based 
on State laws and rules. In a number of States, action by the State 
legislature is necessary to change payment rates; however, it is 
unclear whether State legislatures are adequately engaged in reviewing 
current market rate survey results. A hearing in the State legislature 
at least every three years based on the results of the most current 
survey/methodology, or other similar process, may be necessary in these 
States to meet this requirement. Where updated data from a market rate 
survey or alternative methodology indicates that prices or costs have 
increased, Lead Agencies must raise their rates as a result. Moreover, 
we encourage Lead Agencies to consider annual increases in rates that 
keep pace with regular increases in the costs of providing child care.
    Comment: The preamble to the NPRM indicated that the 75th 
percentile remains an important benchmark for gauging equal access. 
National organizations, child care worker organizations, and child care 
providers strongly supported retaining the 75th percentile as a 
benchmark. One large multi-State child care provider said that 
``current rates set by Lead Agencies do not promote quality and equal 
access'' and ``a business offering a similar discount on services isn't 
staying in business long, is covering costs through another program, or 
is providing an inferior service.'' Six States opposed the benchmark or 
had concerns. They said that, without increased funding, expectations 
for the 75th percentile would result in major reductions in the number 
of children served. Some commenters questioned the use of the 75th 
percentile as a universal standard, saying that other factors, such as 
quality, should be considered.
    Response: We restate the continued importance of the 75th 
percentile as a benchmark for gauging equal access by Lead Agencies 
conducting a market rate survey. 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 this rate as a proxy for equal 
access. To establish payments at the 75th percentile, rates within 
categories from the market rate survey are arranged from lowest to 
highest. The 75th percentile is the number separating the 75 percent of 
lowest rates from the 25 percent that are highest. Setting rates at the 
75th percentile demonstrates that CCDF families have access to at least 
three-quarters of all available child care. Retaining this benchmark 
also allows for accountability and comparability across States using a 
market rate survey approach, which can be useful in gauging equal 
access and monitoring trends in rates and access to quality care over 
time.
    Currently, nearly all Lead Agencies set rate ceilings that are 
below the 75th percentile and, in many cases, significantly below that 
benchmark. This is of great concern to ACF both because inadequate 
rates may violate the statutory requirement for equal access and 
because CCDF is serving a large number of vulnerable children who would 
benefit from access to high-quality care and for whom payment rates 
even higher than the 75th percentile may be necessary to afford access 
to such care. Low rates simply do not provide sufficient resources to 
cover costs associated with the provision of high-quality care or to 
attract and retain qualified caregivers, teachers, and directors. Low 
rates may also impact the willingness of child care providers to serve 
CCDF children thereby restricting access. Currently, even in States and 
Territories that pay higher rates for higher-quality care, base rates 
are so inadequate that even the highest payment levels are often below 
the 75th percentile. While rates vary by category of care, locality, 
and other factors, nine States include rates that are set below the 
25th percentile and five States have not adjusted their rates in over 
five years according to the FY2016-2018 CCDF Plans, This means that 
CCDF families are unable to access a significant portion of the child 
care market.
    We agree with commenters that rates must consider a range of 
factors, and we anticipate that payment rates will differ by types of 
care, ages of children and geographic location, among other factors. 
Regardless, we expect that Lead Agencies will ensure that rates for all 
provider categories and age groups similarly provide equal access for 
children served by CCDF. Consideration of quality factors is discussed 
further below.
    We understand the States' concern about potential caseload decline; 
however, the Act mandates that payment rates support equal access. 
While we are not requiring that Lead Agencies pay providers at the 75th 
percentile, we strongly discourage Lead Agencies from paying providers 
less than the 75th percentile. ACF intends to enhance its monitoring of 
rates through the CCDF Plan approval process. Lead Agencies that set 
their base rates at the 75th percentile of the most recent market rate 
survey will be assured approval by ACF that rates provide equal access 
(assuming that the Lead Agency also demonstrates compliance with the 
other equal access components, including how the rates enable child 
care providers to meet health, safety, quality, and staffing 
requirements in accordance with Sec.  98.45(f)(2)(ii)). ACF will apply 
scrutiny in its review to rates set below that threshold, as well as to 
rates that appear to be below a level to meet minimum quality standards 
based on alternate methodologies. Finally, any alternative methodology 
or market rate survey that results in stagnant or reduced payment rates 
will result in further increased scrutiny by ACF in its review, and the 
Lead Agency will need to provide a justification for how such rates 
result in improving access to higher-quality child care.
    Comment: The NPRM proposed to require that payment rates must 
provide access to care that is of comparable quality to care with 
incomes above 85 percent of State median income (SMI). The preamble to 
the NPRM added that Lead Agencies with rates below the 75th percentile 
would be required to demonstrate that their rates allow CCDF families 
to purchase care of comparable quality to care that is available to 
families with incomes above 85 percent of SMI; this would include data 
on the quality of care that CCDF families can purchase and that is 
available to families above 85 percent of SMI. We received a letter 
from Senator Alexander and Congressman Kline objecting that this 
proposal was an unfunded mandate that would create a large paperwork 
and

[[Page 67513]]

administrative burden. National organizations and child care worker 
organizations said that this data comparison would not be meaningful 
enough to justify burdening States. They also indicated that little 
evidence exists that families above 85 percent of SMI are accessing 
care of higher quality compared to families below 85 percent of SMI.
    Response: In light of the significant and widespread concerns, we 
have not included this provision in the final rule. However, the final 
rule includes additional provisions to strengthen the consideration of 
quality of care as an important factor in ensuring equal access 
(discussed further below).
    Supporting Providers' Implementation of Health, Safety, Quality, 
and Staffing Requirements. Section 98.45(f)(2)(ii) requires Lead 
Agencies to set base payment rates, at a minimum, at levels sufficient 
for child care providers to meet health, safety, quality, and staffing 
requirements as described in the rule--consistent with the Lead 
Agency's summary of data and facts in the Plan under Sec.  98.45(b)(3) 
and information included in its detailed report under Sec.  
98.45(f)(1)(ii)(A).
    Comment: Numerous commenters supported the proposal, including 
national organizations, child care worker organizations, child care 
resource and referral agencies, and child care providers. Some child 
care worker organizations wanted to go further and also require a 
separate analysis related to adequate compensation for child care 
workers, including for home-based providers. Two commenters supported 
the proposal, but wanted to clarify that this provision does not stand 
on its own, but must be considered along with the other equal access 
components at Sec.  98.45.
    Response: We are retaining the provision, with revisions in 
response to comments. Base payment rates, at a minimum, should be 
sufficient to ensure compliance with applicable licensing and 
regulatory requirements, health and safety standards, training and 
professional development standards, and appropriate child to staff 
ratio, group size limits, and caregiver qualification requirements 
(that Lead Agencies define) as required by the Act. In light of the 
requirements for child to staff ratio, group size limits, and caregiver 
qualifications, we have added ``staffing'' to the regulatory language 
to reflect that base payment rates should be sufficient for providers 
to meet health, safety, quality, and staffing requirements. We are not 
requiring a separate calculation of rates that would be sufficient to 
support adequate compensation of child care workers, but strongly agree 
that worker compensation should be considered as part of the broader 
analysis of the cost of meeting health, safety, quality, and staffing 
requirements in order to attract skilled, trained, and adequately-
compensated caregivers, teachers, and directors for the provision of 
CCDF-funded care. We also agree with commenters that Lead Agencies must 
demonstrate equal access through all components included in Sec.  
98.45.
    Comment: Four States opposed or expressed concerns about this 
proposal, objecting to the additional administrative burden on States 
and providers of conducting the analysis necessary to determine if base 
rates are sufficient to support health, safety, quality, and staffing 
requirements--particularly in light of the vast variation across 
providers and communities. One State noted that price and cost are 
significantly different concepts, and conflating them creates confusion 
about the expectation. The State said that ``base'' payment rate was 
not defined in the Act or regulations, and objected to raising base 
rates rather than raising rates for higher-quality providers. Another 
State said the proposal was a back-door way to essentially require a 
cost estimation model rather than a market rate survey.
    Response: OCC plans to provide technical assistance to help Lead 
Agencies conduct this analysis, and the free, web-based Provider Cost 
of Quality Calculator is available. While the NPRM referred to both 
cost and price in this provision, we agree that cost and price are two 
different concepts and, for purposes of clarity, have eliminated the 
reference to price in the final rule. Lead Agencies should ensure that 
base payment rates are sufficient to support the cost to the provider 
(rather than price) of health, safety, quality and, staffing 
requirements. Base rates are the lowest, foundational rates before any 
differentials are added (e.g., for higher quality or other purposes). 
Lead Agencies that choose to conduct a market rate survey (rather than 
an alternative methodology) are still required to comply with this 
provision, but may conduct an analysis that is more narrowly focused on 
ensuring that base payment rates are adequate to cover the cost of 
health, safety, quality, and staffing--rather than a full alternative 
methodology (e.g., cost estimation model) that would need to look more 
broadly at costs. We also agree with commenters that, beyond base 
rates, it is important to raise rates for higher-quality providers 
(discussed further below).
    Cost of Higher Quality. The final rule includes Sec.  
98.45(f)(2)(iii) in accordance with the statutory requirement at 
Section 658E(c)(4)(B)(iii)(II) of the Act to take into consideration 
the cost of providing higher-quality care than was provided prior to 
the reauthorization when setting payment rates. Under the rule, a Lead 
Agency may define higher-quality care using a quality rating 
improvement system or other system of quality indicators. The Lead 
Agency must consider how payment rates compare to the estimated cost of 
care at each level of higher quality--consistent with the summary of 
data and facts in the Plan at Sec.  98.45(b)(4) and information in the 
Lead Agency's detailed report at Sec.  98.45(f)(1)(ii)(B). Within these 
parameters, Lead Agencies may take different approaches to setting 
rates for higher-quality care, including increasing base payment rates, 
using pay differentials or higher rates for higher-quality care, or 
other strategies, such as direct grants or contracts that pay higher 
rates for child care services that meet higher-quality standards. ACF 
acknowledges that rates above the benchmark of 75th percentile may be 
required to support the costs associated with high-quality care. In 
order for providers to offer high-quality care that meets the needs of 
children from low-income families, they need sufficient funds to be 
able to recruit and retain qualified staff, use intentional approaches 
to promoting learning and development using curriculum and engaging 
families, and provide safe and enriching physical environments.
    Comment: One commenter, a national expert on child care financing, 
suggested some options to demonstrate equal access, such as requiring 
Lead Agencies to document the gap between the market rate and the 
estimated cost of services at each level of a Quality Rating and 
Improvement System or other quality measure, and implementing steps, 
over time, to close the gap at higher-cost programs (such as high-
quality programs for infants and toddlers).
    Response: We agree with the commenter's recommended approach, which 
is consistent with the statutory requirement at section 
658E(c)(4)(B)(iii)(II) for Lead Agencies to take into consideration the 
cost of providing higher-quality child care services when setting 
payment rates. This approach is also an important companion to the 
provision requiring that base rates support the basic health, safety, 
quality, and staffing provisions required by the Act and this rule, as 
it is important to also consider how rates support higher-quality care.

[[Page 67514]]

    Therefore, Sec.  98.45(b)(4) of the final rule requires the Lead 
Agency's summary of data and facts in the CCDF Plan to include how its 
payment rates that apply to higher-quality care, as defined by the Lead 
Agency using a quality rating and improvement system or other system of 
quality indicators, relate to the estimated cost of care at each level 
of quality. To ensure transparency, the Lead Agency's detailed report 
required under Sec.  98.45(f)(1), like the market rate survey or 
alternative methodology results, must also include the estimated cost 
of higher-quality care at each level of quality, as defined by the Lead 
Agency using a quality rating and improvement system or other system of 
quality indicators (and including any relevant variation by geographic 
location, category of provider, or age of child). Finally, when setting 
payment rates, Sec.  98.45(f)(2)(iii) of the final rule requires the 
Lead Agency to take into consideration the cost of providing higher-
quality child care services, including consideration of the estimated 
cost at each level of higher quality. ACF intends to provide technical 
assistance to help Lead Agencies conduct the analysis necessary to 
comply with these provisions, and, as previously mentioned, the 
Provider Cost of Quality Calculator is available as a tool.
    Comment: The preamble to the 1998 Final Rule reminded Lead Agencies 
of the general principle that Federal subsidy funds cannot pay more for 
services than is charged to the public for the same service (63 FR 
39959). In the 2015 NPRM, we clarified that, while this principle 
remains in effect, Lead Agencies may pay amounts above the provider's 
private-pay rate to support quality. A number of commenters supported 
this clarification. National organizations and child care worker 
organizations suggested going further to clarify that States must set 
base payment rates at a level sufficient to support implementation of 
health, safety, quality, and staffing requirements even if such rates 
are higher than private-pay rates (which is important for poor 
communities with depressed child care markets).
    Response: In this final rule, we maintain the clarification that 
Lead Agencies may pay amounts above the provider's private pay rate to 
support quality. A Lead Agency also may peg a higher payment rate to 
the provider's cost of doing business at a given level of quality. For 
example, an analysis of the cost of providing high-quality care (i.e., 
at the top levels of a QRIS) using a cost estimation model or other 
method could show the cost of providing the service is greater than the 
price charged in the market. Recognizing that private pay rates are 
often not sufficient to support high-quality, many Lead Agencies have 
already implemented tiered subsidy payments that support quality. 
Payments may exceed private pay rates if they are designed to pay 
providers for additional costs associated with offering higher-quality 
care or types of care that are not produced in sufficient amounts by 
the market (e.g., non-standard hour care, care for children with 
disabilities or special health care needs, etc.).
    We also agree with commenters that, as required by Sec.  
98.45(f)(2)(ii), Lead Agencies must set base payment rates at a level 
sufficient to support implementation of health, safety, and quality 
requirements even if such rates are higher than private-pay rates.
    Comment: One commenter, an organization that operates child care 
programs, requested clarification that child care providers can charge 
reduced prices or give scholarships to non-CCDF children without 
impacting the private-pay level used to determine the subsidy amount.
    Response: We agree that child care providers may receive CCDF 
payment for an eligible child at the level of the full private-pay 
price, even if some private-pay children receive scholarships or 
reduced prices. For example, if a provider's private-pay price is $200 
per week and some private-pay children receive a scholarship of $50 per 
week, the families receiving scholarships would pay $150 per week 
(i.e., the difference between the private-pay price and the 
scholarship). The provider, however, would still be eligible for CCDF 
subsidy reimbursement up to $200 per week under Federal rules as long 
as such scholarships are bona fide.
    Tribes. In accordance with Sec. Sec.  98.81(b)(6) and 98.83(d)(1), 
we exempt Tribal grantees from the requirement to conduct a market rate 
survey or alternative methodology and related rate-setting 
requirements. However, in their CCDF Plans, Tribes must still describe 
their payment rates, how they are established, and how they support 
health, safety, quality, and staffing requirements and, where 
applicable, cultural and linguistic appropriateness. Tribes, at their 
option, may still conduct a market rate survey or alternative 
methodology or use the State's market rate survey or alternative 
methodology when setting payment rates.
    Other Provisions. The rule at Sec.  98.45(f)(2)(v) reflects 
language at Section 658E(c)(4)(B)(iii)(III) of the Act, which requires 
Lead Agencies to set payment rates without reducing the number of 
families receiving assistance, to the extent practicable. ACF 
recognizes the limitations of Lead Agencies' abilities to increase 
rates under resource constraints and that Lead Agencies must balance 
competing priorities. We recognize that greater budgetary resources are 
needed to serve all children eligible for CCDF. While we do not want to 
see a reduction in children served, it is our belief that current 
payment rates for CCDF-funded care in many cases do not support equal 
access to a minimum level of quality for CCDF children and should be 
increased.
    The final rule at Sec.  98.45(g) re-designates and revises former 
Sec.  98.43(c). The previous regulations prohibited Lead Agencies from 
differentiating payment rates based on a family's eligibility status or 
circumstance. This provision was intended to prevent Lead Agencies from 
establishing different payment rates for child care for low-income 
working families as payments for children from TANF families or 
families in education or training. Such a prohibition remains relevant; 
differentiating payment rates based on an eligibility status (such as 
receiving TANF or participation in education or training) would violate 
the equal access provision. In order to clarify that this prohibition 
does not conflict with the ability of Lead Agencies to differentiate 
payments based on the needs of particular children, for example, paying 
higher rates for higher-quality care for children experiencing 
homelessness, this final rule removes the word ``circumstance'' in 
paragraph (g) so that this provision only refers to the conditions of 
eligibility and not the needs or circumstance of children. Setting 
lower payment rates based on the eligibility status of the child is not 
consistent with Congress' intent to allow for differentiation of rates. 
Further, establishing different payment rates for low-income families 
and TANF families does not further the goals of the Act or support 
access to high-quality care for low-income children. Commenters on the 
NPRM supported this provision.
    The rule at Sec.  98.45(i) re-designates and revises the former 
Sec.  98.43(e) to add ``if the Lead Agency acts in accordance with'' 
this regulation, to the pre-existing language that nothing in this 
section shall be construed to create a private right of action in 
accordance with statutory language.
    Based on Section 658E(c)(4)(C) of the Act, Sec.  98.45(j) states 
that Lead Agencies may not be prevented from differentiating payment 
rates based on

[[Page 67515]]

geographic location of child care providers, age or particular needs of 
children (such as children with disabilities and children served by 
child protective services), whether child care providers provide 
services during weekend or other non-traditional hours; or a Lead 
Agency's determination that differential payment rates may enable a 
parent to choose high-quality child care. Section 98.45(j)(2) adds 
children experiencing homelessness to the statute's list of children 
with particular needs; this addition was supported by homeless 
advocates who commented on the NPRM. Paying higher rates for higher-
quality care is an important strategy as it provides resources 
necessary to cover the costs of quality improvements in child care 
programs. Lead Agencies should also consider differentiating rates for 
care that is in low supply, such as infant-toddler care and care during 
nontraditional hours, as an incentive for providers.
    Parent fees. Section 658E(c)(5) requires Lead Agencies to establish 
and periodically revise a sliding fee scale that provides for cost-
sharing for families receiving CCDF funds. The reauthorization added 
language that cost-sharing should not be a barrier to families 
receiving CCDF assistance. In this final rule, we have moved the 
regulatory language on sliding fee scales (previously Sec.  98.42) 
under the equal access section (Sec.  98.45), recognizing affordable 
co-payments as an important aspect of equal access.
    The final rule amends the previous regulatory language, now Sec.  
98.45(k), by adding language that the cost-sharing should not be a 
barrier to families receiving assistance. Further, the final rule 
provides that Lead Agencies may not use the cost, price of care, or 
subsidy payment rate as a factor in setting co-payment amounts. In 
addition to allowing Lead Agencies to waive co-payments for families 
below poverty and children that receive or need to receive protective 
services (as allowed under prior regulation), the final rule also 
allows Lead Agencies to waive contributions from families that meet 
other criteria established by the Lead Agency.
    Comment: The NPRM proposed a new Federal benchmark for affordable 
parent fees of seven percent of family income. National organizations 
and advocates wrote in support of the proposal. Seven States and one 
municipal agency objected or expressed concerns, arguing that 
implementation would be costly and result in fewer children served. Two 
of the States said that co-payments higher than seven percent were 
reasonable for some families to allow for gradual transitioning to the 
full cost of care.
    Response: We retain the seven percent benchmark in this final rule. 
Lead Agencies have flexibility in establishing their sliding fee scales 
and determining what constitutes a cost barrier for families, but the 
seven percent level is a recommended benchmark. This new Federal 
benchmark revises the prior benchmark, created in the preamble to the 
1998 Final Rule, of 10 percent of family income as an affordable co-
payment. As in the past, we are declining from defining affordable in 
regulation but we are revising this established benchmark through this 
preamble. It is our view that a fee that is no more than seven percent 
of a family's income is a better measure of affordability. According to 
the U.S. Census Bureau, the percent of monthly income families spend on 
child care on average has stayed constant between 1997 and 2011 (most 
recent data available), at around seven percent. Poor families on 
average spend approximately four times the share of their income on 
child care compared to higher income families. (Who's Minding the Kids? 
Child Care Arrangements: Spring 2011, U.S. Census Bureau, 2013.) As 
CCDF assistance is intended to offset the disproportionately high share 
of income that low-income families spend on child care in order to 
support parents in achieving economic stability, it is our belief that 
CCDF families should not be expected to pay a greater share of their 
income on child care than reflects the national average. For the 
majority of CCDF families receiving assistance, this new Federal 
benchmark would not result in a change in the amount of copay charged. 
The average percentage of family income spent on CCDF co-payments, 
among families with a co-payment, is seven percent.
    Under Sec.  98.21(a)(3), Lead Agencies cannot increase family co-
payments within the minimum 12-month eligibility period unless the 
family's income is in a graduated phase-out of care as described at 
Sec.  98.21(b)(2). When designing fee scales, we encourage Lead 
Agencies to consider how their fee scales address affordability for 
families at all income levels. Lead Agencies should ensure that small 
increases in earnings during the graduated phase-out period do not 
trigger large increases in co-payments that are unaffordable for 
families, in order to ensure stability for families as they improve 
their economic circumstance and transition off child care assistance.
    Comment: National organizations and child care providers supported 
the NPRM's proposal to prohibit basing co-payment amounts on cost of 
care or amount of subsidy payment. Two States objected, saying the 
proposal was prescriptive and contrary to long-standing State practice.
    Response: In the final rule, we include this provision at Sec.  
98.45(k)(2). This corrects a contradiction between the 1992 and 1998 
preamble discussions. The 1992 preamble stated that ``Grantees may take 
into account the cost of care in establishing a fee scale,'' (57 FR 
34380), while the 1998 preamble states that ``As was stated in the 
preamble to the regulations published on August 4, 1992, basing fees on 
the cost or category of care is not allowed.'' (63 FR 39960). The final 
rule corrects this discrepancy by stating that Lead Agencies may not 
base their co-payment amounts on the cost of care or subsidy amount. 
This is consistent with existing practice for the majority of States, 
and is essential to preserving equal access and parental choice because 
basing co-payments on cost or subsidy amount incentivizes families to 
use lower cost care and impedes access to higher cost care.
    Comment: National organizations and two States endorsed the NPRM's 
proposal to allow Lead Agencies to waive co-payments for families 
meeting criteria set by the Lead Agency. One of the States said ``this 
flexibility will better support efforts to provide services to 
vulnerable populations.''
    Response: We retain this provision in the final rule at Sec.  
98.45(k)(4), and add ``at Lead Agency discretion'' to clarify that the 
Lead Agency may choose whether or not to waive co-payments. Lead 
Agencies have often requested more flexibility to waive co-payments 
beyond just those families at or below the poverty level and children 
in need of protective services. This change increases flexibility to 
determine waiver criteria that the Lead Agency believes would best 
serve subsidy families. For example, a Lead Agency could use this 
flexibility to target particularly vulnerable populations, such as 
homeless families, migrant workers, victims of human trafficking, or 
families receiving TANF. Lead Agencies may choose to waive co-payments 
for children in Head Start and Early Head Start, including children 
served by ACF-funded Early Head Start-Child Care Partnerships, which 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. Waiving CCDF fees for families served 
by both Head Start/Early Head Start and CCDF can support continuity for 
families. While we are allowing Lead

[[Page 67516]]

Agencies to define criteria for waiving co-payments, the criteria must 
be described and approved in the CCDF Plan. Lead Agencies may not use 
this revision as an authority to eliminate the co-payment requirement 
for all families receiving CCDF assistance. We continue to expect that 
Lead Agencies will have co-payment requirements for a substantial 
number of families receiving CCDF subsidies.
    Comment: The NPRM proposed to require that Lead Agencies prohibit 
child care providers receiving CCDF funds from charging parents 
additional mandatory fees above the family co-payment based on the Lead 
Agencies' sliding fee scale. Numerous commenters strongly objected to 
this proposal, including the letter from Senator Alexander and 
Congressman Kline, 13 States, national organizations, child care worker 
organizations, child care providers, and child care resource and 
referral agencies. Commenters said the proposal, while well-
intentioned, would be a serious restraint on parental choice and 
impediment to accessing high-quality care. They were also concerned 
about the fiscal impact on child care providers, and anticipated that 
it would no longer be economically-feasible for many of them to keep 
slots open for CCDF children. Some of the commenters said the proposal 
would diminish socio-economic diversity in child care programs, and 
would be difficult to administer and enforce. One commenter, who 
opposed the proposal, suggested an alternative that would require Lead 
Agencies to estimate the size of the total family share (including co-
payment and any additional amounts paid by the family) in order to 
frame to issue and inform future policy solutions.
    Response: We withdraw our proposal in response to the strong 
negative reaction and specific issues raised by commenters. However, we 
remain concerned that, according to the 2016-2018 Plans, 42 Lead 
Agencies have policies allowing providers to charge families the 
difference between the maximum payment rate and their private-pay rate. 
Requiring families to pay above the established co-payment may make 
care unaffordable for families and may be a barrier to families 
receiving assistance. It masks the true cost of care to the family and 
whether co-pays are reasonable. Such policies require families to make 
up the difference for Lead Agencies' low payment rates. Due to these 
concerns, we have added new requirements at Sec.  98.45(b)(5) that 
require the Lead Agency to include in its Plan a rationale for its 
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. The 
Lead Agency must also provide an 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. In addition, under Sec.  98.45(d)(2)(ii), 
mentioned earlier, Lead Agencies must track through the market rate 
survey or alternative methodology, or through a separate source, 
information on the extent to which CCDF providers charge such 
additional amounts, including data on the size and frequency of any 
such amounts disaggregated by category and licensing status of 
provider. This information will provide greater transparency on the 
scope of the issue and a basis for future decisions by policymakers and 
administrators.
    Provider Payment Practices. The final rule at Sec.  98.45(l) 
requires the Lead Agency to demonstrate in its Plan that it has 
established certain payment practices applicable to all CCDF child care 
providers, including practices related to timeliness, paying for 
absence days, and other generally-accepted payment practices. The NPRM 
proposed benchmarks in these key areas (discussed in more detail 
below), and asked for comment on whether the proposed benchmarks or 
other benchmarks should be included in the final rule.
    Comment: National organizations, child care worker organizations, 
child care resource and referral agencies, and child care providers 
supported the proposed benchmarks. According to a coalition of national 
organizations, ``Congress established a principle that payment 
practices under CCDBG should not differ from common practices for 
private-pay parents. Therefore, we support the benchmarks included in 
the NPRM. . . .'' States opposed the benchmarks and asked for more 
flexibility.
    Response: We retain the benchmarks for provider payment practices 
(with some modifications in response to comments, as discussed below) 
in light of the critical role of payment practices in ensuring equal 
access. At the same time, the final rule allows flexibility for Lead 
Agencies to choose from several options within each key area of payment 
practices (i.e., timeliness, absence policies, and generally-accepted 
practices). In addition to payment rates, policies governing provider 
payments are an important aspect of ensuring equal access and 
supporting the ability of providers to provide high-quality care. When 
payment practices result in unstable, unreliable payments (as was often 
the case prior to reauthorization), it is difficult for providers to 
meet fixed costs of providing child care (such as rent, utilities and 
salaries) and to plan for investments in quality. Surveys and focus 
groups with child care providers have found that some providers 
experience problems with late payments, including issues with receiving 
the full payment on time and difficulties resolving payment disputes. 
(Adams, G., Rohacek, M., and Snyder, K., Child Care Voucher Programs: 
Provider Experiences in Five Counties, 2008) This research also found 
that delayed payments creates significant financial hardships for the 
impacted providers, and forces some providers to stop serving or limit 
the number of children receiving child care subsidies.
    Comment: Some child care worker organizations requested additional 
language in the regulation to specify that the payment practices must 
be applied consistently over all categories of care, including family 
child care. One municipal agency recommended that absence day policies 
apply only to licensed providers.
    Response: We have added language to the final rule to specify that 
the payment practices described in Sec.  98.45(l) apply to all CCDF 
child care providers. It is important to ensure that the practices 
apply uniformly to all categories of providers in order to ensure 
parental choice for families.
    Timeliness. The final rule at Sec.  98.45(l)(1) requires Lead 
Agencies to ensure timeliness of payment. This provision is based on 
Section 658E(c)(4)(iv) of the Act, which requires Lead Agencies to 
describe how they will provide for the timely payment for child care 
services provided by CCDF funds. Under the rule, Lead Agencies must 
ensure timely provider payments by either paying prospectively prior to 
the delivery of services or paying providers retrospectively within no 
more than 21 calendar days of the receipt of a complete invoice for 
services.
    Comment: While many commenters supported the proposal, a few (two 
States and a municipality) expressed concern about the option for 
prospective payments--suggesting that it would lead to improper 
payments and costly recoupment activities, and that it would be costly 
and unnecessary to redesign State payment systems.
    Response: We do not believe prospective payments will lead to a 
higher incidence of improper payments, particularly if the Lead Agency 
has adequate policies allowing payment for

[[Page 67517]]

absence days. As discussed elsewhere in this rule, recoupment for 
improper payments is not required by Federal rules, except in cases of 
fraud. We strongly encourage Lead Agencies to pay prospectively where 
possible, but the final rule still allows the option for paying on a 
reimbursable basis within 21 days.
    Comment: One State and a locality in that State indicated that 21 
days was not long enough, and requested expanding to 30 days. One 
commenter requested clarifying that the timeframe referred to calendar 
days. One commenter asked that providers be able to assess late fees to 
Lead Agencies that miss the deadline.
    Response: Given that most States did not specifically object to the 
21-day timeframe, the final rule retains it. The final rule clarifies 
that the timeframe refers to calendar days. The rule does not include a 
provision regarding late fees, but OCC intends to monitor State 
performance and may take compliance action if necessary. The final rule 
provides 21 days as a maximum period of time but we encourage Lead 
Agencies to provide payment sooner if possible. We do not expect this 
requirement to be burdensome for Lead Agencies. According to their 
FY2016-2018 CCDF Plans, 39 States/Territories had an established 
timeframe for provider payments ranging from 3 to 35 days, the majority 
of which were shorter than 21 days. We encourage administrative 
improvements such as automated billing and payment mechanisms, 
including direct deposit and web-based electronic attendance and 
billing systems, to help facilitate timely payments to providers.
    Comment: A few commenters (three States and a city) requested 
exceptions to the timeframe for certain cases, including cases where 
there is a late or incomplete bill or cases where there is an 
investigation for potentially fraudulent activity or risk assessment 
occurring. One commenter argued that the timeframe should apply to all 
invoices.
    Response: We agree that the timeframe should not begin until a 
complete invoice is received, and the final rule at Sec.  
98.45(l)(1)(ii) reflects this. We also recognize that there may be some 
limited instances, such as cases involving a fraud investigation, when 
the 21-day timeframe is not met. However, because these instances 
should be rare exceptions to the rule, a change to the regulatory 
provision governing most payments is not warranted.
    Absence days. Section 98.45(l)(2) provides three examples for how 
Lead Agencies could meet the statutory requirement at section 
658E(c)(2)(S)(ii) of the Act to support the fixed costs of providing 
child care services by delinking provider payment rates from an 
eligible child's occasional absences due to holidays or unforeseen 
circumstances such as illness, to the extent practicable. This may 
include: (1) By paying providers based on a child's enrollment, rather 
than attendance; (2) by providing a full payment to providers as long 
as a child attends for 85 percent of the authorized time; or (3) by 
providing full payment to providers as long as a child is absent for 
five or fewer days in a four week period. We recognize that these three 
examples represent different levels of stringency; however, the final 
rule provides flexibility in acknowledgement of the ways that States 
structure their policies. Lead Agencies that do not choose one of these 
three approaches must describe their approach in the State Plan, 
including how the approach is not weaker than one of the three listed 
above.
    Prior to reauthorization, many States closely linked provider 
payments to the hours a child attends care. A child care provider was 
not paid for days or hours when a child was absent, resulting in a loss 
of income. Generally-accepted payment practices typically require 
parents who pay privately for child care to pay their provider a set 
fee based on their child's enrollment, often in advance of when 
services are provided. Payments are not altered due to a child's 
absence in part because the child's teacher still serves in the same 
capacity with the same salary even if a particular child does not 
attend on a given day.
    We are establishing 85 percent, or five or fewer days, as a 
benchmark for when providers should receive a full payment, regardless 
of the reason for the absence (e.g., whether it is approved or 
unapproved). We selected 85 percent (or five or fewer days) as a 
threshold based in part on Head Start policy, which currently requires 
center-based programs to maintain a monthly 85 percent attendance rate 
and to analyze absenteeism if monthly average daily attendance falls 
below that threshold. New proposed Head Start Performance Standards, 
issued in June 2015, would require programs to take actions (which 
could include additional home visits or the provision of support 
services) to increase child attendance when children have four or more 
consecutive unexcused absences or are frequently absent. While Head 
Start policy informed the development of this rule, the final rule's 
provisions differ in several ways. The final rule does not require CCDF 
child care providers to take action to address individual or systemic 
absenteeism, although Lead Agencies may encourage CCDF providers to 
take this approach and consider how child care providers may be 
supported in addressing high rates of absenteeism among families. 
Chronic absenteeism from high-quality programs is a concern because it 
may lessen the impact on children's school readiness and may signal 
that a family is in need of additional supports.
    The Act and final rule require Lead Agencies to implement this 
provision ``to the extent practicable.'' We interpret this language as 
setting a limit on the extent to which Lead Agencies must act, rather 
than providing a justification for not acting at all. The final rule 
does not require Lead Agencies to pay for all days when children are 
absent, although that would most closely mirror private-pay practices; 
however, each Lead Agency is expected to implement a policy that 
accomplishes the goals of the Act. A refusal to implement all such 
policies as being ``impracticable'' will not be accepted.
    Comment: Many commenters supported the provision regarding absence 
days, including the letter from Senator Alexander and Congressman 
Kline, national organizations, child care providers, and one State. The 
commenters recognized that providing more stability in subsidy payments 
will increase provider participation and parental choice.
    Response: We agree, and the final rule retains the provision in the 
final rule as proposed in the NPRM.
    Comment: Three States and one municipality raised concerns or 
questions, objecting to the cost and administrative burden. One State 
said that it had recently invested in an attendance system that issues 
full payment based on an 80% benchmark.
    Response: The final rule allows for significant Lead Agency 
flexibility by providing three options, in addition for the opportunity 
to justify an alternative approach in the Plan. Lead Agencies retain 
discretion to allow for additional excused and/or unexcused absences 
(above the level of 85 percent, or 5 or fewer days) and to provide for 
the full payment for services in those circumstances. We recognize that 
many Lead Agencies have invested in electronic time and attendance 
systems linked to provider payments. These systems may be used to track 
whether a child is enrolled and attending care; however, Lead Agencies 
should ensure that such systems do not link attendance and payment so 
tightly as to violate this provision.
    Comment: The NPRM asked for comments on alternatives to the three

[[Page 67518]]

identified examples of approaches that Lead Agencies may want to use 
for absence policies. Some States recommended greater flexibility in 
crafting absence policies that may be based on different periods of 
time (e.g., 3-, 6- or 12-month periods), tiered attendance strata 
(e.g., full-time, half-time), or other methods (e.g., waivers and 
exceptions based on medical conditions). Other commenters supported 
only the three options without any additional choices. One State asked 
for clarification on what will be required for States to justify an 
alternative approach in lieu of the three identified options.
    Response: The final rule accommodates the flexibility requested by 
State commenters. In addition to the three identified approaches, a 
Lead Agency may justify an alternative approach in its Plan. For 
example, a Lead Agency may choose an alternative time period for 
measuring absences (e.g., 1, 3, 6, 12 months, etc.). In its Plan, the 
Lead Agency would need to demonstrate that its alternative approach 
delinks payment from a child's absences at least to the same extent as 
providing full payment for 85 percent attendance or five of fewer 
absences in a month.
    Comment: A few commenters requested allowing flexibility for 
payment policies to accommodate program closure days, including 
holidays, inclement weather, and professional development days.
    Response: We are sympathetic to this suggestion, and encourage Lead 
Agencies to adopt policies that provide payment for program closure 
days. However, we stop short of a requirement because the statutory 
provision focused on delinking payments from a child's absences rather 
than program closures.
    Comment: One State asked whether States will be given the option of 
authorizing paid absences only for specific need categories (e.g., 
children with chronic illnesses or court-ordered visitation), or be 
allowed to consider absence policies that discourage under-utilization.
    Response: The absence policies must apply to all CCDF children and 
providers and may not be limited to specific need categories because 
the goal is to provide consistency and stability of payments consistent 
with generally-accepted practices in the private-pay market. The 
identified thresholds (85 percent, or five or fewer days) already 
acknowledge that children should be attending for large majority of the 
time, thereby guarding against under-utilization.
    Generally-accepted payment practices. Consistent with section 
658E(c)(2)(S) of the Act, Sec.  98.45(l)(3) of the final rule requires 
CCDF payment practices to reflect generally-accepted payment practices 
of child care providers that serve children who do not receive CCDF-
funded assistance. This provision is designed to support stability of 
funding and encourage more child care providers to serve children 
receiving CCDF funds. Unless a Lead Agency is able to prove that the 
following policies are not generally-accepted in its particular State, 
Territory, or service area, or among particular categories or types of 
providers, Lead Agencies must: (1) Pay providers based on established 
part-time or full-time rates, rather than paying for hours of service 
or smaller increments of time; and (2) pay for reasonable, mandatory 
registration fees that the provider charges to private-paying parents.
    Lead Agencies should ensure that payment practices for each 
category or type of provider reflect generally-accepted payment 
practices for such providers in order to ensure that families have 
access to a range of child care options. We note that these benchmarks 
represent minimum generally-accepted practices. Lead Agencies may 
consider additional policies that are fair to providers, promote the 
financial stability of providers, and encourage more providers to serve 
CCDF eligible children. Such policies may include: Providing 
information on payment practices in multiple languages to promote the 
participation of diverse child care providers; implementing dedicated 
phone lines, web portals, or other access points for providers to 
easily reach the subsidy agency for questions and assistance regarding 
payments; and periodically surveying child care providers to determine 
their satisfaction with payment practices and timeliness, and to 
identify potential improvements.
    Comment: Two States provided comments regarding part-time and full-
time rates. One State requested that it be allowed to determine payment 
according to the time increment (e.g., daily, weekly, etc.) that the 
provider uses to charge for services according to its rate structure. 
The other State requested an allowance to continue its current practice 
of paying a weekly rate when more than 35 hours of care is provided per 
week, or a daily rate when at least five hours of care is provided per 
day.
    Response: The final rule allows Lead Agencies the flexibility to 
define part-time and full-time. However, the final rule prohibits Lead 
Agencies from paying for hours of service or smaller increments of 
time. Therefore, a Lead Agency may not pay in increments smaller than 
daily part-time and daily full-time rates. We encourage Lead Agencies 
to pay part-time and full-time rates on a weekly or monthly basis.
    Comment: The NPRM proposed to require paying for mandatory fees 
that the provider charges to private-paying parents, such as fees for 
registration (unless the Lead Agency provides evidence that such 
practice is not generally-accepted in the State or service area). 
Several commenters, including eight States, objected--saying the 
provision would be administratively burdensome and costly, and would 
require revisions to automated payment systems and/or manual entry with 
the potential for errors. Commenters also said that it was unclear 
which mandatory fees were included (e.g., fees for transportation, 
meals, supplies, late pick-up, etc.), and objected that the proposal 
did not include a cap or require fees to be reasonable.
    Response: The final rule narrows and clarifies this provision in 
response to comments. The regulation at Sec.  98.45(l)(3)(ii) limits 
the required payment to mandatory registration fees, which includes 
initial and annual registration fees, rather than including other types 
of fees. The rule also indicates that the registration fees must be 
``reasonable'' so that a Lead Agency may establish a cap on fees that 
are beyond the bounds of fees typically charged, or establish an annual 
limit on the number of registration fees paid in a year (such as three 
registration fees a year) for families that change or start new 
providers. This requirement aligns with the statutory provision 
regarding generally-accepted payment practices as the payment of 
registration fees is generally-accepted in the private-pay market.
    Other payment practices. In addition, there are certain other 
generally-accepted payment practices that the final rule requires of 
all Lead Agencies. Section 98.45(l)(4) through (6) requires Lead 
Agencies to: Ensure that child care providers receive payment for any 
services in accordance with a payment agreement or authorization for 
services; ensure that child care providers receive prompt notice of 
changes to a family's eligibility status that may impact payment; and 
establish timely appeal and resolution processes for any payment 
inaccuracies and disputes. While these practices are unique to the 
subsidy system, they are analogous to generally-accepted payment 
practices in

[[Page 67519]]

the private pay market, such as establishing contracts between 
providers and parents and providing adequate advance notice of changes 
that impact payments. The appeals and resolution process is important 
in fairness to providers.
    Comment: Child care worker organizations requested that the payment 
agreements or authorization for services must be in writing and include 
basic standards or content.
    Response: The final rule at Sec.  98.45(l)(4) specifies that the 
payment agreement or authorization for services must be ``written'' and 
include, at a minimum, information regarding provider payment policies, 
including rates, schedules, and fees charged to providers, and the 
dispute resolution process.
    Comment: Regarding the proposed requirement for a Lead Agency to 
ensure child care providers receive prompt notice of any changes to a 
family's eligibility status that may impact payment, one major child 
care provider requested additional parameters to ensure the notice is 
timely.
    Response: In response to this comment, the final rule at Sec.  
98.45(l)(5) specifies that the notice be sent to providers no later 
than the day on which the Lead Agency becomes aware that such changes 
to eligibility status will occur.
Sec.  98.46 Priority for Services
    The CCDBG Act of 2014 included several provisions to increase 
access to CCDF services for children and families experiencing 
homelessness. Consistent with the spirit of these additions, the final 
rule adds ``children experiencing homelessness'' to the Priority for 
Services section at Sec.  98.46.
    Lead Agencies have flexibility as to how they offer priority to 
these populations, including by prioritizing enrollment, waiving co-
payments, paying higher rates for access to higher-quality care, or 
using grants or contracts to reserve slots for priority populations. 
Section 658E(c)(3)(B)(ii) of the Act requires ACF to report to Congress 
on whether Lead Agencies are prioritizing services to children 
experiencing homelessness, children with special needs, and families 
with very low incomes.
    The Section 658E(c)(2)(Q) of the Act also requires Lead Agencies to 
describe the process by which they propose to prioritize investments 
for increasing access to high-quality child care for children of 
families in areas that have significant concentrations of poverty and 
unemployment and lack such programs. The final rule reiterates this 
requirement at Sec.  98.46(b). It is our interpretation that the 
investments referred to in the Act may include direct child care 
services provided under Sec.  98.50(a) and activities to improve the 
quality of child care services under Sec.  98.50(c).
    While Lead Agencies have flexibility in implementing this new 
statutory language, ACF encourages Lead Agencies to target investments 
based on analysis of data showing poverty, unemployment and supply 
gaps. Lead Agencies may also consider how to best support parents' 
access to workforce development and employment opportunities (such as 
allowing job search as a qualifying activity for assistance and 
allowing broader access to assistance for education and training by 
reducing eligibility restrictions), which would support the child care 
needs of families in areas with high poverty and unemployment.
    Commenters were supportive of adding ``children experiencing 
homelessness'' to the list of populations for which the Lead Agency 
must give priority for services. One commenter emphasized that 
``Homeless families face barriers over and above what other poor 
families face, by virtue of their extreme poverty, high rates of 
mobility, trauma, invisibility, and lack of documentation. Compared to 
poor housed parents, homeless parents are less likely to receive child 
care subsidies. At the same time, they are more likely to rely on 
informal child care arrangements and to report quitting jobs or school 
due to problems with child care. In addition to the barriers to 
accessing child care, research has shown that homelessness puts 
children at increased risk of health problems, developmental delays, 
academic underachievement, and mental health problems.''
    Another commenter highlighted that prioritizing homeless families 
has the added benefit of aligning ``federal child care with the Head 
Start requirement for Head Start programs to prioritize homeless 
children for enrollment. Aligning policies between these two programs 
will help to create consistent State and local policy, and remove 
barriers to essential services.''
    One commenter did express concern that ``the proposed CCDF 
regulations do not contain a requirement in the plan provision (Sec.  
98.16 Plan) for States to report how they are prioritizing homeless 
children,'' and were worried that ``without specificity in a 
description, made publically available in a State Plan, stakeholders 
will not have the opportunity to share insights, experiences, and ideas 
for effective prioritization of this population. Implementation of the 
requirement will not be as clear and robust as it needs to be to reach 
the children and families who are the intended beneficiaries.''
    While the CCDF State Plan Preprint already includes a question 
about meeting priority categories, we agree that this should be 
included in the regulatory language. Therefore, the final rules revises 
prior language at 98.16(i), which formerly required reporting on 
additional eligibility criteria, priority rules, and definitions 
pursuant to 98.20(b), and expands it to require reporting on a 
description of any eligibility criteria, priority rules, and 
definitions established pursuant to Sec. Sec.  98.20 and 98.46.
    By adding the reference to 98.46, Lead Agencies must now include a 
description in their State Plans of how they are providing priority to 
children of families with very low family income (considering family 
size), children with special needs, which may include any vulnerable 
populations as defined by the Lead Agency, and children experiencing 
homelessness.
    Comment: Another commenter requested additional clarification about 
whether ``priority is given to all homeless children based on the 
McKinney Vento definition (shall) or can lead agencies choose to make 
portions of the definition a priority?''
    Priority must be given to children experiencing homeless as defined 
in this final rule at Sec.  98.2: A child who is homeless as defined in 
section 725 of Subtitle VII-B of the McKinney-Vento Act (42 U.S.C. 
11434a). There are a variety of ways in which a State can demonstrate 
priority that could include some variation and targeting within the 
definition of homeless, provided that some priority for services is 
extended for the population experiencing homelessness as defined.
    Comment: One commenter raised a concern that prioritizing services 
to children experiencing homelessness may have the ``unintended 
consequence [of] segregating populations of children in contracted 
programs which is counter to the McKinney-Vento law.''
    Response: We appreciate that this concern was raised and welcome 
the opportunity to provide some additional clarification. We emphasize 
that while children experiencing homelessness should be prioritized, it 
is not our intent to serve them in separate segregated programs. Some 
States do use grants and contracts in a targeted manner to ensure that 
there are slots available in areas with high concentrations of poverty 
and wide-spread instances of homelessness. This is a valuable

[[Page 67520]]

strategy that can strengthen a State's ability to serve its most 
vulnerable populations and is a practice encouraged by Sec.  98.50 of 
the final rule. Lead Agencies can use such a strategy to target 
resources while also remaining consistent with the spirit of McKinney 
Vento Act's ``Prohibition on Segregating Homeless Students,'' which 
says that States shall not segregate such child or youth in a separate 
school, or in a separate program within a school, based on such child's 
or youth's status as homeless (42 U.S.C. 11434a, Section 722(e)(3) 
Subtitle VII-B).

Subpart F--Use of Child Care and Development Funds

    Subpart F of 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.
Sec.  98.50 Child Care Services
    This final rule specifies that paragraph (a), as re-designated, is 
describing use of funds for direct child care services. This clarifies 
that the reference to ``a substantial portion of funds'' at paragraph 
(g), as re-designated, applies to direct services, as opposed to other 
types of activities.
    Section 658G(a)(2) of the Act increases the percentage of total 
CCDF funds (including mandatory funding) that Lead Agencies must spend 
on activities to improve the quality of child care services. Paragraphs 
(b), (d), (e), and (f), respectively, require Lead Agencies to spend a 
minimum of nine percent of funds (phased in over five years) on 
activities to improve the quality of care and three percent (beginning 
in FY 2017) to improve the quality of care for infants and toddlers; 
not more than five percent for administrative activities; not less than 
70 percent of the Mandatory and Matching funds to meet the needs of 
families receiving TANF, families transitioning from TANF, and families 
at-risk of becoming dependent on TANF; and, after setting aside funds 
for quality and administrative activities, at least 70 percent of 
remaining Discretionary funds on direct services.
    Grants and contracts. In the NPRM, ACF proposed to revise Sec.  
98.50(a)(3) to require States and Territories to use at least some 
grants and contracts for the provision of direct services, with the 
extent determined by the Lead Agency after consideration of shortages 
of supply of high-quality care and other factors as determined by the 
State. However, based on feedback from some members of Congress, 
States, and other stakeholders, we have chosen not to keep the proposed 
change to require the use of some grants or contracts and are making no 
changes to Sec.  98.50(a)(3), as re-designated. While this final rule 
does not require States and Territories to use grants and contracts for 
direct services, we strongly encourage Lead Agencies to use grants and 
contracts to address the limited supply of high-quality child care 
options. They are a critical aspect of an effective CCDF system, and 
using grants and contracts in combination with certificates can play a 
role in building the supply and availability of child care, 
particularly high-quality care, for underserved populations and areas., 
While the majority of States and Territories rely solely on 
certificates to provide child care assistance to eligible families, 
Some States and Territories have reported in their CCDF Plans using 
grants and contracts to increase the supply of specific types of child 
care. These include contracts to fund programs to serve children with 
special needs, targeted geographic areas, infants and toddlers, and 
school-age children. Grants and contracts also are used to provide 
wrap-around services to children enrolled in Head Start and 
prekindergarten to provide full-day, full-year care and to fund 
programs that provide comprehensive services. Additionally, Lead 
Agencies report using grants and contracts to fund child care programs 
that provide higher-quality child care services.
    Comment: We received a strong response to the proposed requirement. 
States and faith-based and private education organizations were 
strongly opposed, arguing it would inhibit State flexibility and 
parental choice and went against the intent of the Act. For example, 
one State said, ``States understand the child care environment in which 
they operate. It may not always be the case that establishing grants or 
contracts is an effective way to increase access to quality care''. 
Another said, ``Each State and local area should have the flexibility 
to offer direct child care services through the use of certificates 
only''. In addition, a letter from Senator Alexander and Congressman 
Kline said ``Requiring the use of grants or contracts by States and 
Territories, limiting parents' ability to directly select the provider 
right for their family, is concerning as it reduces options, restricts 
parental choice, diminishes local control, and requires States to 
substantially change their operating procedures, as well as directly 
contradicts congressional intent.'' Specifically commenters said it 
violated the intent of Section 658Q(b) of the CCDBG Act which says 
nothing in this subchapter shall be construed in a manner (1) to favor 
or promote the use of grants and contracts for the receipt of child 
care services under this subchapter over the use of child care 
certificates; or (2) to disfavor or discourage the use of such 
certificates for the purchase of child care services, including those 
services provided by private or non-profit entities, such as faith-
based providers.
    Response: As discussed earlier, we have chosen not to keep the 
proposed requirement to use at least come grants and contracts for 
direct services. The proposed requirement to use grants and contracts 
was not meant to limit or discourage the use of certificates to provide 
assistance to families. However, after considering feedback from some 
members of Congress, States, and other stakeholders, we have chosen to 
not to change the regulatory language at Sec.  98.50(a)(3), as re-
designated, giving States and Territories the ability to choose whether 
or not they use grants or contracts to provide direct services.
    Comment: Numerous national organizations and child care worker 
organizations supported the use of grants and contracts to build the 
supply of high-quality care, stating ``Grants and contracts can be an 
effective means of ensuring that child care providers have the stable 
funding that they need to meet high-quality standards.'' In addition, a 
comment submitted by a group of child care resource and referral 
agencies said, ``the use of contracts expands the choices for care that 
parents have by ensuring low-income families have access to higher 
quality care.''
    Response: While this final rule does not require the use of grants 
and contracts for direct services, we continue to think a system that 
includes certificates, grants or contracts, and private-pay families is 
the most sustainable option for the CCDF program and for child care 
providers. Certificates play a critical role in supporting parental 
choice; however, demand-side mechanisms like certificates are only 
fully effective when there is an adequate supply of child care. 
Multiple research studies have shown a lack of supply of certain types 
of child care and for certain localities. Child care supply in many 
low-income and rural communities is often low, particularly for infant 
and toddler care, school-age children, children with disabilities, and 
families with non-traditional work schedules.

[[Page 67521]]

    Grants or contracts can play a role in building the supply and 
availability of child care, particularly high-quality care, in 
underserved areas and for special populations in order to expand 
parental choice. For example, Lead Agencies may use grants or contracts 
to incentivize providers to open in an area they might not otherwise 
consider, or to serve children for whom care is more costly. Grants and 
contracts are paid directly to the provider so long as slots are 
adequately filled, which is a more predictable funding source than 
vouchers or certificates. Stable funding offers providers incentive to 
pay the fixed costs associated with providing high-quality child care, 
such as adequate salaries to attract qualified staff, or to provide 
higher cost care, such as for infants and toddlers or children with 
special needs, or to locate in low-income or rural communities.
    If a Lead Agency chooses to use grants and contracts to provide 
direct services, we recommend considering the ability of the child care 
market to sustain high-quality child care providers in certain 
localities for specific populations. Grants and contracts may help 
lessen the effects of larger economic changes that may impact the child 
care market. A recession may cause high-quality child care centers to 
close. However, because of the significant start-up costs associated 
with establishing a high-quality child care facility, the supply of 
child care may take longer to return to the market, making it difficult 
for parents to find child care. Contracting slots during a recession 
helps to preserve access to high-quality child care for low-income 
families and stabilize the income of providers, helping them survive 
the recession and continue to benefit the community. (Warner, M., 
Recession, Stimulus and the Child Care Sector: Understanding Economic 
Dynamics, Calculating Impact, 2009) Grants or contracts can also be 
used to support two-generation programs for community college students, 
teen parents, or meet other State priorities such as for homeless 
children. Finally, grants or contracts can improve accountability by 
giving the Lead Agency more access to monitor a child care provider's 
compliance with health and safety requirements and appropriate billing 
practices.
    When considering whether to use grants or contracts, Lead Agencies 
are encouraged to contract with multiple types of settings, including 
child care centers and staff family child care networks or systems. 
Family child care networks or systems are groups of associated family 
child care providers who pool funds to share some operating and 
staffing costs who provide supports to providers often to manage their 
businesses and enhance quality. Contracting directly with family child 
care networks allows for more targeted use of funds with providers that 
benefit from additional supports that may improve quality. Research 
shows affiliation with a staffed family child care network is a strong 
predictor of quality in family child care homes, when providers receive 
visits, training, materials, and other supports from the network 
through a specially trained coordinator. (Bromer, J. et al., Staffed 
Support Networks and Quality in Family Child Care: Findings from the 
Family Child Care Network Impact Study, Erikson Institute, 2008)
    Expenditures on activities to improve the quality of child care. 
Both the quality activity set-aside and the set-aside for infants and 
toddlers at Sec.  98.50(b) apply to the State and Territory's full CCDF 
award, which includes Discretionary, Mandatory, and Federal and State 
shares of Matching funds. Non-Federal maintenance-of-effort funds are 
not subject to the quality and infant and toddler set-asides. These 
amounts are minimum requirements. States and Territories may reserve a 
larger amount of funding than is required at paragraphs (b)(1) and (2) 
for these activities. Note that the phase-in of the increase in the 
quality set-aside at Sec.  98.50(b) only applies to States and 
Territories. The regulatory language at Sec.  98.50(b) provides that 
the quality expenditure requirement is out of the aggregate amount of 
funds expended by a State or Territory. The phase-in and applicability 
of the quality set-aside for Tribal grantees is at Sec.  98.83(g) and 
discussed in Subpart I of this final rule.
    This final rule at Sec.  98.53(c) lays out specific requirements 
related to the quality activities funds. First, this rule requires the 
use of the quality funds to align with an assessment of the Lead 
Agency's need to carry out such services. As part of this assessment, 
we expect Lead Agencies to review current expenditures on quality, 
assess the need for quality investment in comparison with revised 
purposes of the Act, including the placement of more low-income 
children in high-quality child care, and determine the most effective 
and efficient distribution of funding among and across the categories 
authorized by the Act. Second, the activities must include measurable 
indicators of progress in accordance with the requirement at Sec.  
98.53(f). We recognize some activities may have the same indicators of 
progress. However, each activity must be reported on and linked to some 
indicator(s). Finally, this rule allows for quality activities to be 
carried out by the Lead Agency or through grants and contracts with 
local child care resources and referral organizations or other 
appropriate entities.
    Comment: Commenters were supportive of the proposed provisions 
related to quality expenditures. One State asked for clarification 
about what the assessment must entail, and a few other commenters asked 
for clarification about whether the assessment of quality activities 
had to be done on an annual basis. One comment signed by several 
national organizations expressed concern that an annual assessment 
would be a burden for Lead Agencies and overlook the fact that 
``quality improvement strategies are often multi-year initiatives and 
in many cases areas targeted for improvement will not change 
dramatically from year to year.''
    Response: Lead Agencies have the flexibility to design an 
assessment of quality activities that best meets their needs, including 
how often they do the assessment. We recommend, but do not require, it 
be done at least every three years to support the CCDF State Plan. We 
also recommend Lead Agencies include measures and outcomes when quality 
investments are made to facilitate assessment and ensure that funds are 
used in an intentional and effective manner.
    Comment: A national organization suggested the regulation include a 
set-aside to improve the quality of care for school-age children and 
programs.
    Response: School-age care is critical to meeting the needs of 
working families, and we strongly support Lead Agencies continuing to 
invest quality funds into activities that improve the school-age 
programs. The allowable quality activities continue to provide 
opportunities for Lead Agencies to invest in improving the quality of 
care for school-aged children. However, as the CCDBG Act of 2014 did 
not include a permanent set-aside for school-age quality activities, we 
decline to require such a set-aside in this final rule.
    Comment: Faith-based and private education organizations requested 
we revise the regulatory language to require that quality funds be used 
``in a manner that accommodates a variety of distinctive approaches to 
early childhood education, such as faith-based, Montessori, and Waldorf 
programs.''
    Response: We declined to add this to the regulatory language. Lead 
Agencies may choose to follow those parameters when deciding how to 
spend their quality funds, but we do not want to limit their 
flexibility by including

[[Page 67522]]

additional requirements related to their quality funds. Further, 
regulatory language at Sec.  98.53(a)(3)(vii) related to the use of 
quality funds for QRIS or other systems of quality indicators already 
provides for funds to be used in a way that ``accommodate a variety of 
distinctive approaches to early childhood education and care, including 
but not limited to, those practices in faith-based settings, community-
based settings, child-centered settings, or similar settings that offer 
a distinctive approach to early childhood development.'' It is more 
appropriate to include this requirement under the QRIS activity than as 
a general requirement related to quality spending. We have kept the 
proposed regulatory language.
    Funding for Direct Services. At Sec.  98.50, this final rule 
includes a technical change at paragraph (e) to clarify that the 
provision applies to the Mandatory and Federal and State share of 
Matching funds. This change simply formalizes previously existing 
policy. Paragraph (h) has been re-designated without changes.
    Paragraph (f) incorporates statutory language and requires Lead 
Agencies to use at least 70 percent of any Discretionary funds left 
after the Lead Agency sets aside funding for quality and administrative 
activities to fund direct services.
    This final rule includes a technical change at Sec.  98.50(g), as 
re-designated, that requires Lead Agencies to spend a substantial 
portion of the funds remaining after applying provisions at paragraphs 
(a) through (f) of this section to provide direct child care services 
to low-income families who are working or attending training or 
education.
    Comment: We received one comment asking for clarification about how 
the change at paragraph (g) might impact services for certain groups, 
including ``children categorized as protective service cases (for CCDF 
purposes) whose parents are not working or in education or training.''
    Response: The provision at paragraph (g) is a long standing 
regulatory requirement based on statutory language. The proposed 
clarification that the funding apply to direct services, which has been 
retained in this final rule, is based on previously existing policy, 
and we do not expect it to have an impact on how Lead Agencies deliver 
services. We did not receive other comments on these provisions and 
have kept the proposed regulatory language.
Sec.  98.51 Services for Children Experiencing Homelessness
    This final rule includes a new section at Sec.  98.51 that 
reiterates new statutory language at 658E(c)(3)(B)(i) of the Act, which 
requires Lead Agencies to spend at least some CCDF funds on activities 
that improve access to quality child care services for children 
experiencing homelessness. This requires Lead Agencies to have 
procedures for allowing children experiencing homelessness to be 
determined eligible and enroll prior to completion of all required 
documentation.
    The final rule also clarifies that if a child experiencing 
homelessness is found ineligible, after full documentation, any CCDF 
payments made prior to the final eligibility determination will not be 
considered errors or improper payments and any payments owed to a child 
care provider for services should be paid. Lead Agencies are expected 
to provide training and technical assistance on identifying and serving 
children and families experiencing homelessness and outreach 
strategies.
    Comment: Commenters were very supportive of this new section on 
services to children experiencing homelessness. One national 
organization was ``particularly pleased to see the clear indication 
that if a family experiencing homelessness is determined to be 
ineligible after full documentation is obtained, providers still will 
be paid. This is an important strategy for removing barriers to child 
care for this population, as many child care providers may be hesitant 
to accept homeless families into their program for fear of not being 
paid for services rendered.'' They were also supportive of the policy 
clarification that ``. . . training and technical assistance is not 
limited to child care providers only, but is to be directed to Lead 
Agency staff as well. This will better ensure that children can be 
identified at the point of application and that administrators and 
policy makers are better educated on the unique needs of this 
population.''
Sec.  98.52 Child Care Resource and Referral System
    Section 658E(c)(2)(E) of the Act allows, but does not require, Lead 
Agencies to use CCDF funds for child care resource and referral 
services to assist with consumer education and specifies functions of 
such entities. Consistent with this provision, this final rule at Sec.  
98.52 incorporates statutory language that allows Lead Agencies to 
spend funds to establish or support a system of local or regional child 
care resource and referral organizations that is coordinated, to the 
extent determined by the Lead Agency, by a statewide public or private 
nonprofit, community-based or regionally based, local child care 
resource and referral organization.
    Paragraph (b) specifies a list of resource and referral activities 
that should be carried out at the direction of the Lead Agency. 
Therefore, if the Lead Agency does not need the child care resource and 
referral organization to carry out a certain activity, the organization 
does not have to carry out that activity.
    Comment: Commenters expressed support for child care resource and 
referral agencies and the important role they can play in helping 
families access child care and providing consumer education about 
quality child care to parents of children receiving subsidies and the 
general public. A national organization representing many child care 
resource and referral agencies recommended ``the community 
relationships that have been built over the past decades by State and 
local child care resource and referral agencies can be utilized as a 
foundation for any initiatives designed to improve the information 
provided to consumers, as well as expanding the reach of the 
services.'' While most comments related to this provision were 
generally about the work of child care resource and referral agencies, 
one commenter expressed concern about language included in the proposed 
regulation that would give Lead Agencies discretion to decide which of 
the activities at paragraph (b) would be required if a Lead Agency 
chose to fund child care resource and referral agencies. The commenter 
noted, ``These are important and interrelated functions. There is the 
possibility under the proposed regulations that States may pursue a 
checklist.''
    Response: We strongly agree with commenters that child care 
resource and referral organizations can play a critical role in helping 
parents access high-quality child care. Child care resource and 
referral organizations should assist Lead Agencies in meeting the 
expanded requirements to provide information to families and help meet 
the new purpose of increasing family engagement. When determining 
partnerships with local resource and referral agencies, we recommend 
Lead Agencies give consideration to the expanded requirements for 
consumer education at Sec.  98.33 and how best to meet those 
requirements, including whether existing child care resource and 
referral agencies and/or additional partners can assist in reaching 
low-income parents of

[[Page 67523]]

children receiving subsidies, providers, and the general public.
    The activities at paragraph (b) lay out a strong framework for how 
Lead Agencies and child care resource and referral agencies can work 
together. However, Lead Agencies need flexibility in how they choose to 
work with different organizations, including child care resource and 
referral agencies, and we have chosen to leave the regulatory language 
as proposed in the NPRM.
Sec.  98.53 Activities To Improve the Quality of Child Care
    As noted above, the CCDBG Act of 2014 increased the percent of 
expenditures Lead Agencies must spend on quality activities. We 
strongly encourage Lead Agencies to develop a carefully considered 
framework for quality expenditures that takes into account the 
activities specified by the Act, and uses data on gaps in quality of 
care and the workforce, as well as effectiveness of existing quality-
enhancement efforts, to target these resources. Lead Agencies should 
also coordinate quality activities with the statutory requirement to 
spend at least three percent of expenditures on improving quality and 
access for infants and toddlers, beginning in FY 2017.
    Section 658G(b) of the Act includes a list of 10 allowable quality 
activities and requires Lead Agencies to spend their quality funds on 
at least one of the 10 activities. This final rule incorporates and 
expands on the list of allowable activities at Sec.  98.53(a). In 
addition, we removed language included in the proposed rule at Sec.  
98.53(a) that said quality funds had to be used to ``increase the 
number of low-income children in high-quality child care'' and replaced 
it with ``improve the quality of child care services for all children, 
regardless of CCDF receipt, in accordance with paragraph (d).'' This 
ensures consistency with the provision at Sec.  98.53(d) that clarifies 
quality activities are not restricted to CCDF children. Below we 
include an explanation and response to comments on the allowable 
quality activities.
    1. Supporting the training, professional development, and 
postsecondary education of the child care workforce as part of a 
progression of professional development. This final rule includes 
professional development as an allowable quality improvement 
expenditure at Sec.  98.53(a)(1). The Act references the section of the 
Plan requiring assurances related to training and professional 
development, which is elaborated in this final rule at Sec.  98.44. We 
encourage Lead Agencies to align the uses of funds for training, 
professional development, and postsecondary education with the State or 
Territory's framework and progression of professional development to 
maximize resources. Training and professional development may be 
provided through institutions of higher education, child care resource 
and referral agencies, worker organizations, early childhood 
professional associations, and other entities. Additional areas for 
investments in training and professional development, are included with 
additional detail at Sec.  98.53(a)(1)(i) through (vii) as follows:
    (a) Offering training, professional development and post-secondary 
education that relate to the use of scientifically-based, 
developmentally, culturally, and age-appropriate strategies to promote 
all of the major domains of child development and learning, including 
those related to nutrition and physical activity and specialized 
training for working with populations of children, including different 
age groups, English learners, children with disabilities, and Native 
Americans and Native Hawaiians, to the extent practicable, in 
accordance with the Act.
    (b) Incorporating the effective use of data to guide program 
improvement and improve opportunities for caregivers, teachers and 
directors to advance on their progression of training, professional 
development, and postsecondary education. We expanded upon the 
statutory language to include opportunities for caregivers, teachers 
and directors to advance professionally as there are a variety of data 
collected (such as information from licensing inspectors, quality 
rating and improvement systems, or accreditation assessments) that can 
guide program improvement by helping providers make adjustments in the 
physical environment and teaching practices.
    (c) Including effective, age-appropriate behavior management 
strategies and training, including positive behavior interventions and 
support models for birth to school-age, that promote positive social 
and emotional development and reduce challenging behaviors, including 
reducing suspensions and expulsions of children under age five for such 
behaviors.
    (d) Providing training and outreach on engaging parents and 
families in culturally and linguistically appropriate ways to expand 
their knowledge, skills, and capacity to become meaningful partners in 
supporting their children's positive development.
    (e) Providing training in nutrition and physical activity needs of 
young children.
    (f) Providing training or professional development for caregivers, 
teachers and directors regarding the early neurological development of 
children; and
    (g) Connecting caregivers, teachers and directors of child care 
providers with available financial aid to help them pursue relevant 
postsecondary education, or delivering other financial resources 
directly through programs that provide scholarships and compensation 
improvements for education attainment and retention.
    2. Improving upon the development or implementation of the early 
learning and development guidelines. We restate at Sec.  98.53(a)(2) 
statutory language to allow the use of CCDF quality funds to provide 
technical assistance to eligible child care providers on the 
development or implementation of early learning and development 
guidelines. Early learning and development guidelines should be 
developmentally appropriate for all children from birth to kindergarten 
entry, describing what such children should know and be able to do, and 
cover the essential domains of early childhood development. Most States 
and Territories already have such guidelines, but may need to update 
them or better integrate them into their professional development 
system required at Sec.  98.44. Section 658E(c)(G) of the Act requires 
Lead Agencies to describe training and professional development, 
including the ongoing professional development on early learning 
guidelines. In June 2015, ACF released the newly revised Head Start 
Early Learning Outcomes Framework: Ages Birth to Five (HSELOF, 2015). 
The HSELOF provides research-based expectations for children's learning 
and development across five domains from birth to age five. As States 
and Territories undertake revisions to their early learning guidelines, 
we encourage them to crosswalk their guidelines with the HSELOF to 
ensure they are comprehensive and aligned. Coordinating between State/
Territory early learning and development guidelines and the HSELOF can 
help build connections between child care programs and Early Head 
Start/Head Start programs. We also encourage Lead Agencies to consider 
expanding learning and development guidelines for school-age children, 
either through linkages to programs already in place through the State 
department of education or local educational agencies (LEAs), or by 
adapting current early learning and development guidelines to

[[Page 67524]]

be age-appropriate for school-age children.
    Developing, implementing, or enhancing a tiered quality rating and 
improvement system (QRIS). We incorporate this allowable activity at 
Sec.  98.53(a)(3). The Act lists seven characteristics of a QRIS that 
Lead Agencies may choose to incorporate when developing a QRIS with 
quality funds, which we expand upon:
    (a) Support and assess the quality of child care providers in the 
State, Territory, or Tribe. QRIS should include training and technical 
assistance to child care providers to help them improve the quality of 
care and on-site quality assessments appropriate to the setting;
    (b) Build on licensing standards and other regulatory standards for 
such providers. We encourage Lead Agencies to incorporate their 
licensing standards and other regulatory standards as the first level 
or tier in their QRIS. Making licensing the first tier facilitates 
incorporating all licensed providers into the QRIS;
    (c) Be designed to improve the quality of different types of child 
care providers and services. We encourage Lead Agencies to implement 
QRIS that are applicable to all child care sectors and address the 
needs of all children, including children of all ages, families of all 
cultural-socio-economic backgrounds, and practitioners. One way to 
provide support for different types of care is providing quality funds 
to support staffed family child care networks that can provide coaching 
and support to individual family child care providers to improve the 
quality in those settings.
    (d) Describe the safety of child care facilities. Health and safety 
are the foundations of quality, and should not be treated as wholly 
separate requirements. Including the safety of child care facilities as 
part of a QRIS helps to reinforce this connection.
    (e) Build the capacity of early childhood programs and communities 
to support parents' and families' understanding of the early childhood 
system and the ratings of the programs in which the child is enrolled. 
This capacity may be built through a robust consumer and provider 
education system, as described at Sec.  98.33. Lead Agencies should 
provide clear explanations of quality ratings to parents. In addition 
to the Web site, Lead Agencies may have providers post their quality 
rating or have information explaining the rating system available at 
child care centers and family child care homes. This information should 
also be accessible to parents with low literacy or limited English 
proficiency;
    (f) Provide, to the maximum extent practicable, financial 
incentives and other supports designed to expand the full diversity of 
child care options and help child care providers improve the quality of 
services. Research has found that initial supports and significant 
financial incentives are needed to make the quality improvements 
necessary for providers to move up levels in the QRIS. In order to 
ensure that providers continue to improve their quality and help move 
more low-income children into high-quality child care, we recommend 
Lead Agencies to make these incentives a focus of investment; and
    (g) Accommodate a variety of distinctive approaches to early 
childhood education and care, including but not limited to, those 
practices in faith-based settings, community-based settings, child-
centered settings, or similar settings that offer a distinctive 
approach to early childhood development. Parental choice is a very 
important part of the CCDF program, and parents often consider a 
variety of factors, including religious affiliation, when choosing a 
child care provider. Lead Agencies should take these factors into 
account when setting quality standards and levels in their QRIS, as 
well as designing how the information will be made available to the 
public.
    4. Improving the supply and quality of child care programs and 
services for infants and toddlers. The Act includes improving the 
supply and quality of child care programs and services for infants and 
toddlers as an allowable quality activity, which we reiterate at Sec.  
98.53(a)(4). Lead Agencies may use any quality funds for infant and 
toddler quality activities, in addition to the required three percent 
infant and toddler quality set-aside. Lead Agencies are encouraged to 
pay special attention to what is needed to enhance the supply of high-
quality care for infants and toddlers in developing their quality 
investment framework and coordinate activities from the main and 
targeted set asides to use resources most effectively. The Act and rule 
state that allowable activities may include:
    (a) Establishing or expanding high-quality community or 
neighborhood-based family and child development centers, which may 
serve as resources to child care providers in order to improve the 
quality of early childhood services provided to infants and toddlers 
from low-income families and to help eligible child care providers 
improve their capacity to offer high-quality, age-appropriate care to 
infants and toddlers from low-income families. We interpret this 
provision to encourage the provision of resources to high-quality child 
care providers or other qualified community-based organizations that 
serve as hubs of support to providers in the community (by providing 
coaching or mentoring opportunities, facilitating efficient shared 
services, lending libraries, etc.);
    (b) Establishing or expanding the operation of community or 
neighborhood-based family child care networks. As discussed earlier, 
staffed family child care networks can help improve the quality of 
family child care providers. Lead Agencies may choose to use the 
quality funds to help networks cover overheard and quality enhancement 
costs, such as providing access to coaches or health consultants, 
substitutes in order for staff to attend professional development, and 
peer activities;
    (c) Promoting and expanding child care providers' ability to 
provide developmentally appropriate services for infants and toddlers, 
such as primary caregiving, continuity, responsive care, and 
foundations for future cognitive development;
    (d) If applicable, developing infant and toddler components within 
the Lead Agency's QRIS for child care providers for infants and 
toddlers, or the development of infant and toddler components in the 
child care licensing regulations or early learning and development 
guidelines. Adopting standards specifically for infants and toddlers 
may be necessary to ensure the systemic support needed for 
individually-responsive care;
    (e) Improving the ability of parents to access transparent and easy 
to understand consumer education about high-quality infant and toddler 
care as described at Sec.  98.33; and
    (f) Carrying out other activities determined by the Lead Agency to 
improve the quality of infant and toddler care provided, and for which 
there is evidence that the activities will lead to improved infant and 
toddler health and safety, infant and toddler cognitive and physical 
development, or infant and toddler well-being, including providing 
health and safety training (including training in safe sleep practices, 
first aid, and cardiopulmonary resuscitation for providers and 
caregivers).
    5. Establishing or expanding a statewide system of child care 
resource and referral services. Section Sec.  98.53(a)(5) of the final 
rule reiterates statutory language to include establishing or expanding 
a statewide

[[Page 67525]]

system of child care resource and referral services as an allowable 
quality activity. While Sec.  98.52 includes a list of activities that 
child care resource and referral agencies should carry out if they are 
funded by Lead Agencies, Lead Agencies do not have to limit their 
resource and referral-related quality funds to those activities.
    6. Facilitating compliance with health and safety. The final rule 
restates statutory language at Sec.  98.53(a)(6) to include 
facilitating compliance with Lead Agency requirements for inspection, 
monitoring, training, and health and safety, and with licensing 
standards. While it is likely Lead Agencies will need to use quality 
funding for implementation and enforcement of the new minimum health 
and safety requirements for child care providers in the Act, we urge 
them to consider expenditures on this purpose foundational to enhancing 
quality, and consider how these investments are a part of the States' 
progress in improving the quality of child care available. For example, 
Lead Agencies should consider linking quality expenditures for health 
and safety training to the quality framework discussed earlier in this 
preamble, such that a Lead Agency may establish a QRIS that ties 
eligibility for providers to participate directly to licensing as the 
base level.
    7. Evaluating and assessing the quality and effectiveness of child 
care programs and services offered, including evaluating how such 
programs positively impact children. The statutorily-allowable list of 
quality activities includes at Sec.  98.53(a)(7) evaluating and 
assessing the quality and effectiveness of child care programs and 
services offered, including evaluating how such programs positively 
impact children. This final rule at Sec.  98.53(f)(3) requires Lead 
Agencies to report on the measures they will use to evaluate progress 
in improving the quality of child care programs and services. Including 
evaluation as an allowable quality activity recognizes that evaluating 
progress may take additional investments, for which Lead Agencies may 
use quality funds. A good evaluation design can provide information 
critical to improving a quality initiative at many points in the 
process, and increase the odds of its ultimate success. (Government 
Accountability Office, Child Care: States Have Undertaken a Variety of 
Quality Improvement Initiatives, but More Evaluations of Effectiveness 
Are Needed, GAO-02-897).
    8. Supporting child care providers in the voluntary pursuit of 
accreditation by a national accrediting body with demonstrated, valid, 
and reliable program standards of high-quality. The final rule restates 
statutory language at Sec.  98.53(a)(8) supporting child care providers 
in the voluntary pursuit of accreditation by a national accrediting 
body with demonstrated, valid and reliable program standards of high-
quality as an allowable quality activity. Accreditation is one way to 
differentiate the quality of child care providers. In order to gain 
accreditation, child care centers and family child care homes must meet 
certain quality standards outlined by accrediting organizations. 
Meeting these standards involves upfront investments and changes to 
programs or child-to-staff ratios which increase financial costs to 
programs. Quality funds can help providers cover these costs.
    9. Supporting efforts to develop or adopt high-quality program 
standards relating to health, mental health, nutrition, physical 
activity, and physical development. The final rule restates statutory 
language at Sec.  98.53(a)(9) supporting Lead Agency or local efforts 
to develop or adopt high-quality program standards relating to health, 
mental health, nutrition, physical activity, and physical development 
for children as an allowable quality activity. We recommend Lead 
Agencies look to Head Start for strong program standards in 
comprehensive services and consider how these standards may be 
translated into State and local strategies to deliver a similar array 
of services to families and children in child care. Half of children 
receiving CCDF are under the Federal Poverty Line and would quality for 
Head Start. This could include adding the standards to licensing, 
encouraging standards through QRIS, or embedding them in the 
requirements of grants or contracts for direct services. We encourage 
Lead Agencies that choose to use their quality funds for this activity 
to focus on research-based standards and work with specialists to 
develop age-appropriate standards in these areas.
    10. Carrying out other activities, including implementing consumer 
education provisions, determined by the Lead Agency. This final rule 
restates statutory language at Sec.  98.53(a)(10) that carrying out 
other activities, including implementing consumer education provisions 
at Sec.  98.33, determined by the Lead Agency to improve the quality of 
child care services provided and for which measurement of outcomes 
relating to improvement of provider preparedness, child safety, child 
well-being, or entry to kindergarten is possible, are considered 
allowable quality activities. This tenth allowable activity provides 
Lead Agencies flexibility to invest in quality activities that best 
suit the needs of parents, children, and providers in their area. Over 
the years, Lead Agencies have been innovative in how they spent their 
quality funds, creating novel ways for improving quality of care, such 
as QRIS, that are now widely used tools for quality improvement. 
Therefore, we encourage Lead Agencies to experiment with the types of 
quality activities in which they invest. However, it is critical that 
Lead Agencies ensure that these new quality activities are focused and 
represent a smart investment of limited resources, which is why any 
activity that falls in the ``other'' category must have measurable 
outcomes that relate to provider preparedness, child safety, child 
well-being, or entry to kindergarten. Lead Agencies are encouraged to 
establish research-based measures for evaluating the outcomes of these 
quality activities. Lead Agencies will report on these measures and 
activities on an annual basis through the Quality Progress Report at 
Sec.  98.53(f).
    Commenters were overwhelmingly supportive of the increased focus on 
quality activities. While there were not many comments on individual 
allowable activities, several organizations specifically expressed 
support for the seventh allowable activity of evaluating and assessing 
the quality and effectiveness of child care programs and services 
offered atSec.  98.53(a)(7), including evaluating how such programs 
positively impact children. As one national organization said 
``Transparency in this area is both important for State accountability 
and for informing the field and other States on best practices.''
    Comment: Several commenters, including national organizations and 
child care worker organizations, requested that supporting increased 
compensation for child care workers be included as an allowable use of 
quality funds. One commenter said, ``Predicated upon the research-based 
connection between quality and compensation, ACF should be explicitly 
and abundantly clear about States' ability to use quality dollars to 
directly support increased compensation for early childhood 
educators.'' Another comment signed by several organizations 
recommended we ``clarify that these resources are presented as 
additional funding options, but in no way preclude the use of CCDBG 
funds for such purposes of scholarships or compensation.''
    Response: We agree low pay for child care workers is a significant 
issue and impacts the quality of teachers and

[[Page 67526]]

directors that choose to work in child care. As we know that teacher-
child interaction is one of the most important determinants of quality, 
it only makes sense that CCDF quality funds be allowed to be used to 
help access programs that may help to increase a child care worker's 
compensation. In response, Sec.  98.53(a)(1)(vii) of the final rule 
provides that quality funds may be used to deliver financial resources 
to child care caregivers, teachers, and directors directly through 
programs that provide scholarships and compensation improvements for 
education attainment. These resources may include programs designed to 
increase wages through educational scholarships, education-based salary 
supplements, and training to current child care staff that will lead to 
a nationally-recognized credential and/or college credit in early 
childhood education.
    Comment: Several national organizations and child care worker 
organizations requested we clarify that quality funds may be used for 
enhanced or differential payment rates for child care providers to 
cover the higher costs of providing high-quality care or care to 
infants and toddlers. One comment signed by several national 
organizations said ``Because the base cost of providing quality for 
infants and toddlers is higher than that for older children, 
regulations should clarify that enhanced rates, even if not connected 
to a QRIS, are an allowable quality improvement strategy.'' In 
contrast, one commenter representing several child care resource and 
referral agencies recommended prohibiting quality funds from being used 
to support enhanced or differential payment rates because ``given the 
need to increase rates overall throughout the states, [enhanced rates] 
would crowd out quality activities designed to strengthen the 
workforce, which we think are already underfunded.''
    Response: We recognize that certain types of care are more 
expensive to provide, including high-quality care and care for infants 
and toddlers. Lead Agencies have used their quality funds to provide 
differential rates to child care providers meeting higher levels of 
quality, either based on state QRIS ratings or other indicators of 
quality. These enhanced rates both incentivize providers to meet 
higher-quality standards and supports the increase costs for providers 
often associated with quality improvements. This final rule continues 
to allow differential payment rates for higher-quality care as an 
allowable use of quality funds.
    However, we have concerns about quality funds being used to 
increase rates without consideration for the quality of care. The 
reauthorized Act clearly moves away from the idea that quality funds 
may be used to simply increase access and instead increase access to 
high-quality child care. We strongly discourage the use of quality 
funds for direct services, including enhanced rates for infant and 
toddler care regardless of quality, and suggest that in the limited 
circumstances when quality funds are used for this purpose, the rates 
still be tied in some way to high-quality care.
    Comment: A few commenters, including professional organizations, 
suggested adding to Sec.  98.53(b)(3)(viii): ``Build on existing 
research-based, national accreditation by creating an entry point for 
accredited providers at an appropriate level higher than level one. 
Embedding accreditation into the QRIS supports a continuous quality 
improvement process and facilitates incorporating more and higher-
quality providers into the QRIS.''
    Response: We declined to add this language to the regulation. We 
understand that national accreditations are often a marker for higher-
quality child care, and some Lead Agencies already consider how these 
accreditations match up with the requirements of their QRIS or other 
system of quality indicators. This final rule in no way limits a Lead 
Agency's ability to continue this practice. However, adding this to 
regulatory language may have the impact of limiting a Lead Agency's 
flexibility in designing its QRIS. We have chosen to leave how 
accreditation is incorporated into a QRIS to the discretion of the Lead 
Agency.
    Quality activities not restricted to CCDF children. This final rule 
clarifies at Sec.  98.53 paragraph (d) that activities to improve the 
quality of child care are not restricted to children meeting 
eligibility requirements under Sec.  98.20 or to the child care 
providers serving children receiving subsidies. Thus, CCDF quality 
funds may be used to enhance the quality and increase the supply of 
child care for all families, including those who receive no direct 
assistance. To ensure consistency, this final rule also removed 
language included in the proposed rule at Sec.  98.53(a) that said the 
funds had to be used to ``increase the number of low-income children in 
high-quality child care.'' This final rule instead says the Lead Agency 
must expend funds from each fiscal year's allotment on quality 
activities pursuant to Sec.  98.50(b) and Sec.  98.83(g) in accordance 
with an assessment of need by the Lead Agency. Such funds must be used 
to carry out at least one of the listed quality activities.
    Comment: The few comments we received on the provision supported 
the proposed changes. A local child care resource and referral 
organization said, ``We are fully supportive of the clarification and 
from our experience on the ground within communities, we see that the 
broader use of quality dollars is making a difference within 
communities.'' However, one commenter expressed concern that this 
policy could lead to an increase in quality expenditures at the expense 
of direct services funding.
    Response: This provision clarifies existing policy regarding CCDF 
quality expenditures, and we do not expect it to cause a shift in how 
Lead Agencies spend their funds. Lead Agencies continue to have the 
flexibility to determine how much of their allocation is spent on 
quality improvements, provided that they meet the expenditure minimums 
at Sec.  98.50(b) and any targeted expenditure requirements at Sec.  
98.53(e). Therefore, we kept the proposed regulatory language.
    Targeted funds and quality minimum. This final rule adds paragraph 
(e) at Sec.  98.53 to codify longstanding ACF policy that targeted 
funds for quality improvement and other activities included in 
appropriations law may not count towards meeting the minimum quality 
spending requirement, unless otherwise specified by Congress. Beginning 
in FY 2000, Congress included in annual appropriations law for CCDF 
discretionary funds a requirement for Lead Agencies to spend portions 
of such funds on specified quality activities. Changes to the minimum 
quality spending requirement and the addition of a set-aside for infant 
and toddler care included in reauthorization may lead to changes or 
removal of targeted funds from annual appropriations law. However, we 
have chosen to include this provision to formalize the policy, in the 
event that targeted funds are included in future appropriations.
    Reporting on quality activities. Sections 658G(c) and (d) of the 
Act require Lead Agencies to report total expenditures on quality 
activities, certify that those expenditures met the minimum quality 
expenditure requirement, and describe the quality activities funded. 
This final rule incorporates these reporting requirements into the 
regulation at Sec.  98.53(f), requiring Lead Agencies to prepare and 
submit annual reports to the Secretary, including a quality progress 
report and expenditure report. The reports must be made publicly 
available, preferably on the Lead Agency's consumer education Web site

[[Page 67527]]

required at Sec.  98.33(a). This final rule also requires that Lead 
Agencies detail the measures used to evaluate progress in improving the 
quality of child care programs and services, and data on the extent to 
which investments have shown improvements on the measures. 
Additionally, Lead Agencies must describe any changes to regulations, 
enforcement mechanisms, or other policies addressing health and safety 
based on an annual review and assessment of serious child injuries and 
any deaths occurring in child care programs serving children. While 
Lead Agencies are required to include child care programs serving 
children receiving CCDF in their reporting, we encourage the inclusion 
of other regulated and unregulated child care centers and family child 
care homes, to the extent possible, in keeping with the overall purpose 
of CCDF to enable more low-income children to access high-quality child 
care.
    Currently, States and Territories report their categorical 
expenditures through the ACF-696 reporting form. This form is used to 
determine if the Lead Agency has met the minimum quality expenditure 
amount and is referenced at Sec.  98.65(g) in this rule. We expect to 
continue to use the ACF-696 form to determine whether a Lead Agency has 
met expenditure requirements at Sec.  98.50(b), including both the 
quality set-aside and the set-aside to improve quality for infants and 
toddlers.
    We will capture information on the quality activities and the 
measures and data used to determine progress in improving the quality 
of child care services through a Quality Progress Report. This report 
replaces the Quality Performance Report that was an appendix to the 
Plan. The Quality Performance Report has played an important role in 
increasing transparency on quality spending. The new Quality Progress 
Report will continue to gather detailed information about quality 
activities, but include more specific data points to reflect the new 
quality activities required by the Act and this final rule. The Quality 
Progress Report will be a new annual data collection and will require a 
public comment and response period as part of the Paperwork Reduction 
Act process, which will give Lead Agencies and others the opportunity 
to comment on the specifics of the report.
    As part of the Quality Progress Report, States and Territories will 
be required to describe any changes to regulations, enforcement 
mechanisms, or other policies addressing health and safety based on an 
annual review and assessment of any serious injuries and deaths 
occurring in child care programs serving children receiving CCDF 
assistance, and, to the extent possible, in other regulated and 
unregulated child care centers and family child care homes. This 
provision complements Sec.  98.41(d)(4), discussed earlier in the 
preamble, which requires child care providers to report to a designated 
State or Territorial entity any serious injuries or deaths of children 
occurring in child care. States and Territories must consider any 
serious injuries and deaths reported by providers and other information 
as part of their annual review and assessment. This report also works 
in conjunction with the requirements at Sec.  98.33(a)(4) that Lead 
Agencies post the annual aggregate number of deaths and serious 
injuries to their consumer education Web sites.
    This provision requires Lead Agencies to list and describe the 
annual number of child injuries and fatalities in child care and to 
describe the results of an annual review of all serious child injuries 
and deaths occurring in child care. The primary purpose of this change 
is the prevention of future tragedies. Sometimes, incidents of child 
injury or death in child care are preventable. For example, one State 
reviewed the circumstances surrounding a widely-publicized, tragic 
death in child care and identified several opportunities to improve 
State monitoring and enforcement that might otherwise have identified 
the very unsafe circumstances surrounding the child's death and 
prevented the tragedy. The State moved quickly to make several changes 
to its monitoring procedures. It is important to learn from these 
tragedies to better protect children in the future. Lead Agencies 
should review all serious child injuries and deaths in child care, 
including lapses in health and safety (e.g., unsafe sleep practices for 
infants, transportation safety, issues with physical safety of 
facilities, etc.) to help identify appropriate responses, such as 
training needs.
    The utility of this assessment is reliant upon the Lead Agency 
obtaining accurate, detailed information about any child injuries and 
deaths that occur in child care. Therefore, ACF strongly encourages 
Lead Agencies to work with the State or Territory entity responsible 
for child care licensing in conducting the review and also with their 
established Child Death Review systems and with the National Center for 
the Review and Prevention of Child Death (www.childdeathreview.org). 
The National Center for the Review and Prevention of Child Death, which 
is funded by the Maternal and Child Health Bureau in the Health 
Resources and Services Administration (HRSA), reports there are more 
than 1,200 State and local teams in all 50 States and the District of 
Columbia, and emerging teams in Guam and the Navajo Nation. (National 
Center for the Review and Prevention of Child Death, Keeping Kids 
Alive: A Report on the Status of Child Death Review in the United 
States, 2013) The Child Death Review system is a process in which 
multidisciplinary teams of people meet to share and discuss case 
information on deaths in order to understand how and why children die 
so that they can take action to prevent other deaths. These review 
systems vary in scope and in the types of death reviewed, but every 
review panel is charged with making both policy and practice 
recommendations that are usually submitted to the State governor and 
are publicly available. The National Center for the Review and 
Prevention of Child Death provides support to local and State teams 
throughout the child death review process through training and 
technical assistance designed to strengthen the review and the 
prevention of future deaths.
    Lead Agencies also may work in conjunction with the National 
Commission to Eliminate Child Abuse and Neglect Fatalities, established 
in 2013 by the Protect Our Kids Act. (Pub. L. 112-275). The Commission, 
consisting of 12 members appointed by the President and Congress, 
published its report Within Our Reach: A National Strategy to Eliminate 
Child Abuse and Neglect Fatalities (http://eliminatechildabusefatalities.sites.usa.gov/files/2016/03/CECANF-final-report.pdf) in 2016. Over two years, the Commission held hearings in 11 
jurisdictions to hear from State leaders, local and tribal leaders, 
child protection and safety staff, advocates, parents, and other 
stakeholders. The report outlines a strategy to protect children at 
highest risk of fatality from abuse and neglect. Although this 
Commission only studied a subsection of child injuries and deaths, it 
is important that Lead Agencies work with the agencies charged with 
reviewing and implementing these recommendations and take them into 
consideration as they examine serious injuries and deaths occurring in 
child care settings.
    The only comment received on this provision was positive and said, 
``This requirement will help prevent future incidents and ensure States 
use this feedback proactively to protect children''. We have kept the 
proposed regulatory language.

[[Page 67528]]

    This final rule adds a fifth component to the QPR, which requires 
Lead Agencies to report how they responded to complaints received 
through the national hotline and Web site required by Section 
658L(b)(2) of the Act. As discussed earlier, Sec.  98.16(hh) requires 
Lead Agencies report in their CCDF plans how they will respond to 
complaints received through the national hotline and Web site. The 
addition of this component to the QPR allows for HHS to gather 
information on how Lead Agencies handled the complaints they received. 
Adding this question to the QPR allows for HHS to ensure that 
complaints received through the national hotline and Web site have been 
addressed in a way deemed appropriate by the Lead Agency, provided the 
response meets health and safety requirements. As the QPR will be going 
through a new OMB clearance process under the Paperwork Reduction Act, 
Lead Agencies and other stakeholders will have the opportunity to 
comment on specific questions related to this regulatory requirement.
Sec.  98.54 Administrative Costs
    Section 658E(c)(3) of the Act and regulations at Sec.  98.54(a), as 
re-designated, prohibit Lead Agencies from spending more than five 
percent of CCDF funds for administrative activities, such as salaries 
and related costs of administrative staff and travel costs. Paragraph 
98.54(c) provides that this limitation applies only to States and 
Territories (note that a 15 percent limitation applies to Tribes under 
Sec.  98.83(g)). This final rule at Sec.  98.54(b) formally adds a list 
of activities that should not be counted towards the limitation on 
administrative expenditures. As stated in the preamble to the 1998 CCDF 
Final Rule, the Conference Agreement that accompanied the Personal 
Responsibility and Work Opportunity Reconciliation Act of 1996 (H. Rep. 
104-725 at 411) indicated that these activities should not be 
considered administrative costs. This list is incorporated into the 
regulation itself for clarity and easy reference. We did not receive 
any comments on this provision and kept the proposed regulatory 
language.
    Administrative costs and sub-recipients. New paragraph Sec.  
98.54(e) clarifies that if a Lead Agency enters into agreements with 
sub-recipients for operation of the CCDF program, the amount of the 
contract or grant attributable to administrative activities as 
described at Sec.  98.54(a) (or Sec.  98.83(g) for Tribes) shall be 
counted towards the administrative cost limit. Previously existing CCDF 
regulation at Sec.  98.54(a) provides a listing of activities that may 
constitute administrative costs and defines administrative costs to 
include administrative services performed by grantees or sub-grantees 
or under agreements with third-parties. We have received questions from 
Lead Agencies to clarify whether activities performed through sub-
recipients or contractors are subject to the five percent 
administrative cost limitation. While we do not as a technical matter 
separately apply the administrative cap to funds provided to each sub-
recipient, the Lead Agency must ensure that the total amount of CCDF 
funds expended on administrative activities--regardless of whether 
expended by the Lead Agency directly or via sub-grant, contract, or 
other mechanism--does not exceed the administrative cost limit.
    Comment: A couple States submitted comments requesting 
clarification about which activities the cap applied to and how the 
change might impact their current sub-contracts. For example, one State 
commented that applying the five percent administrative cap to 
contracted centers would cause a significant number of providers to 
close.
    Response: The administrative expenditure cap applies to activities 
related to administering the CCDF program. Administrative activities at 
Sec.  98.54(a), as re-designated, include, but are not limited to: (1) 
Salaries and related costs of the staff of the Lead Agency or other 
agencies engaged in the administration and implementation of the 
program pursuant to Sec.  98.11; (2) travel costs for official business 
in carrying out the program; (3) administrative services, including 
such services as accounting services, performed by grantees or sub-
grantees or under agreements with third parties; (4) audit services as 
required at Sec.  98.65; (5) other costs for goods and services 
required for the administration of the program, including rental or 
purchase of equipment, utilities, and office supplies; and, (6) 
indirect costs as determined by an indirect cost agreement or cost 
allocation plan pursuant to Sec.  98.57, as re-designated.
    The administrative cost cap only applies to activities related to 
administering the CCDF program in a State, Territory, or Tribe. It does 
not apply to administration of child care services in an individual 
child care center or family child care home. Any costs related to 
administration of services by a provider, even if that provider is 
being paid through a contract, are considered direct services. However, 
if a sub-recipient provides services that are part of administering the 
CCDF program and included in the list above, then those administrative 
costs would count toward the administrative cost limit.
    Determining whether a particular service or activity provided by a 
sub-recipient under a contract, sub-grant, or other mechanisms would 
count as an administrative activity towards the five percent 
administrative cost limitation depends on the function or nature of the 
contract/sub-grant/mechanism. If a Lead Agency provides a contract or 
sub-grant for direct services, the entire cost of the contract could 
potentially be counted as direct services if there is no countable 
administrative component. On the other hand, if the entire sub-grant or 
contract provided services to administer the CCDF program (e.g., for 
payroll services for Lead Agency employees), then the entire cost of 
the contract would count towards the administrative cost cap. If a sub-
grant/contract includes a mix of administrative and programmatic 
activities, the Lead Agency must develop a method for attributing an 
appropriate share of the sub-grant/contract costs to administrative 
costs. Lead Agencies should refer to the list of activities that are 
exempt from the administrative cost cap at Sec.  98.54(b) when 
determining what components must be included in the administrative cost 
limit. The regulation at Sec.  98.54(e) formalizes pre-existing ACF 
policy regarding administrative costs. Therefore, the new paragraph 
should not have a significant impact on CCDF programs or create 
additional burdens to staying below the administrative cost cap. We 
have kept the proposed regulatory language.
Sec.  98.56 Restrictions on the Use of Funds
    CCDF regulations at Sec.  98.56(b)(1), as re-designated, indicate 
that States and local agencies may not spend CCDF funds for the 
purchase or improvement of land or for the purchase, construction, or 
permanent improvement of any building or facility. However, funds may 
be expended for minor remodeling, and for upgrading child care 
facilities to assure that providers meet State and local child care 
standards, including applicable health and safety requirements. States 
and Territories may use CCDF funds for minor renovations related to 
meeting the requirements of the Americans with Disabilities Act (ADA) 
of 1990 (42 U.S.C. 12101, et seq.) However, funds may not be used for 
major renovation or construction for purposes of meeting the 
requirements of the ADA. Tribal Lead Agencies may request approval to 
use CCDF funds for construction and major

[[Page 67529]]

renovation of child care facilities (Sec.  98.84).
    This final rule adds language at Sec.  98.56(b)(1) to indicate that 
improvements or upgrades to a facility that are not specified under the 
definitions of construction or major renovation at Sec.  98.2 may be 
considered minor remodeling and are, therefore, not prohibited. This 
final rule formally incorporates ACF's long-standing interpretation 
into regulatory language.
    We received one comment expressing support for this clarification 
and the continued prohibition on using CCDF funds construction and 
major renovations. We left the language as proposed in the NPRM.
    This final rule includes a technical change at Sec.  98.56(e), as 
re-designated, adding that CCDF may not be used as the non-Federal 
share for other Federal grant programs, unless explicitly authorized by 
statute. We did not receive any comments on this provision.

Subpart G--Financial Management

    The focus of subpart G is to ensure proper financial management of 
the CCDF program, both at the Federal level by HHS and the Lead Agency 
level. The final rule changes to this section include: Addressing the 
amount of CCDF funds the Secretary may set-aside for technical 
assistance, research and evaluation, a national toll-free hotline and 
Web site; incorporating targeted funds that have been included in 
appropriations language (but were not in the previous regulations); 
inclusion of the details of required financial reporting by Lead 
Agencies; and clarifying requirements related to obligations. Lastly, 
the final rule added a new section on program integrity.
Sec.  98.60 Availability of Funds
    Technical assistance; research and evaluation; national toll-free 
hotline and Web site. Prior to reauthorization, the Act allowed the 
Secretary to provide technical assistance to help Lead Agencies carry 
out the CCDF requirements. Pursuant to pre-existing regulations, the 
Secretary withheld one quarter of one percent of a fiscal year's 
appropriation for technical assistance. The reauthorization added 
greater specificity to the Act regarding the provision of technical 
assistance. Specifically, Section 658I(a)(3) of the Act requires the 
Secretary to provide technical assistance, such as technical assistance 
to improve the business practices of child care providers, (which may 
include providing technical assistance on a reimbursable basis) which 
shall be provided by qualified experts on practices grounded in 
scientifically valid research, where appropriate. Section 658I(a)(4) 
requires the Secretary to disseminate, for voluntary informational 
purposes, information on practices that scientifically valid research 
indicates are most successful in improving the quality of programs that 
receive CCDF assistance. Section 658G requires the Secretary to offer 
technical assistance which may include technical assistance through the 
use of grants or cooperative agreements, on activities funded by 
quality improvement expenditures.
    In addition, Sections 658O(a)(4), and 658O(a)(5) of the Act 
indicate that the Secretary shall reserve up to \1/2\ of 1 percent of 
the amount appropriated for the Act to support these technical 
assistance and dissemination activities. Additionally, section 
658O(a)(3) of the Act indicates that the Secretary may reserve up to 
$1.5 million for the operation of a national toll-free hotline and Web 
site. Annual appropriations law has provided funding for a national 
hotline and Web site in prior years, but this funding is now authorized 
through the Act with an expanded scope and requirements. In this final 
rule at Sec.  98.60(b), we do not specify a particular funding amount 
for technical assistance, research and evaluation, or the national 
hotline and Web site. Rather, we say that ``a portion'' of CCDF funds 
will be made available for these purposes. Because appropriations law 
has addressed the amount of funding for some of these activities in the 
past, we want to leave flexibility to accommodate any future decisions 
by Congress. As we indicate in the regulatory language, funding for 
these activities is subject to the availability of appropriations, and 
will be made in accordance with relevant statutory provisions and the 
apportionment of funds from the Office of Management and Budget.
    Obligations. The final rule adds a new provision at Sec.  
98.60(d)(7) to clarify that the transfer of funds from a Lead Agency to 
a third party or sub-recipient counts as an obligation, even when these 
funds will be used for issuing child care certificates. Some Lead 
Agencies contract with local units of government or non-governmental 
third parties, such as child care resource and referral agencies, to 
administer their CCDF programs. The functions included in these 
contracts could include eligibility determination, subsidy 
authorization, and provider payments. The contracting of some of these 
duties to a third party has led to many policy questions as to whether 
CCDF funds that are used by third parties to administer certificate 
programs are considered obligated at the time the subgrant or contract 
is executed between the Lead Agency and the third party pursuant to 
regulation at Sec.  98.60(d)(5), or rather at the time the voucher or 
certificate is issued to a family pursuant to pre-existing regulation 
at Sec.  98.60(d)(6).
    The preamble to the August 4, 1992, CCDBG Regulations (57 FR 34395) 
helps clarify the intent of Sec.  98.60(d). It states, ``The 
requirement that State and Territorial grantees obligate their funds 
[within obligation timeframes] applies only to the State or Territorial 
grantee. The requirement does not extend to the Grantee's sub-grantees 
or contractors unless State or local laws or procedures require 
obligation in the same fiscal year.'' It follows that, in the absence 
of State or local laws or procedure to the contrary, Sec.  98.60(d)(6) 
would not apply when the issuance of a voucher or certificate is 
administered by a third party because the funds used to issue the 
vouchers or certificates would have already been obligated by the Lead 
Agency. Based on this language, we have interpreted the obligation to 
take place at the time of contract execution between the Lead Agency 
and the third party. The addition of the added paragraph (d)(7) simply 
codifies pre-existing ACF policy, and does not change pre-existing 
obligation and liquidation requirements. Note that a local office of 
the Lead Agency, and certain other entities specified in regulation at 
Sec.  98.60(d)(5) are not considered third parties. A third party must 
be a wholly separate organization and cannot be subordinate or superior 
offices of the Lead Agency, or under the same governmental organization 
as the Lead Agency.
    The final rule adds several technical changes at Sec.  98.60(d). It 
updates a reference to HHS regulations on expenditures and obligations 
at Sec.  98.60(d)(4)(ii) to reflect new rules issued by HHS that 
implement the Office of Management and Budget's Uniform Administrative 
Requirements for Federal awards. The final rule includes Sec.  
98.60(d)(6) to clarify that the provision regarding the obligation of 
funds used for certificates applies specifically in instances where the 
Lead Agency issues child care certificates. Additionally, the final 
rule adds a technical change at Sec.  98.60(h) to eliminate a reference 
to Sec.  98.51(a)(2)(ii), which has been deleted. This technical change 
does not change the meaning or the substance of paragraph (h), which 
specifies that repayment of loans made to child care providers as part 
of a quality improvement activity may be made in cash or in services 
provided in-kind.

[[Page 67530]]

    Comment: One State suggested that we modify the term 
``certificate'' related to payment of services in Sec.  98.60(d)(6) and 
(7) of this final rule. The commenter said that the Act's definition of 
the term `certificate' indicates that disbursement is issued by a 
grantee directly to a parent, implying that the parent then uses this 
to pay a child care provider--a sort of arm's length transaction common 
in a market based system. The commenter stated that this does not match 
the certificate payment process in many States--where payment is made 
to the provider rather than the parent. Furthermore, the commenter 
stated that the term ``grantee'', used in the definition of 
``certificate'', is synonymous with ``Lead Agency'' or with their 
designee. The commenter suggested either defining ``grantee'' or, 
replacing use of ``grantee'' where it occurs with ``Lead Agency'' or 
their designee for consistency.
    Response: We declined to modify the regulatory definition for the 
term ``certificate,'' also commonly known as ``voucher,'' since the 
definition is largely based on statutory language. In the Act, the term 
``child care certificate'' means a certificate (that may be a check, or 
other disbursement) that is issued directly to a parent who may use 
such certificate only as payment for child care services. However, we 
recognize that many States in fact make payments directly to child care 
providers on the parents' behalf for purposes of administrative ease, 
which is allowable as long as other requirements regarding certificates 
are met (including the parental choice provisions). We agree that the 
term ``grantee'' in this definition has the same meaning as the term 
``Lead Agency'' or designee.
Sec.  98.61 Allotments From Discretionary Funds
    Tribal funds. To address amended section 658O(a)(2) of the Act, 
this final rule revises Sec.  98.61(c) to indicate that Indian Tribes 
and Tribal organizations will receive an amount ``not less than'' two 
percent of the amount appropriated for the Child Care and Development 
Block Grant (i.e., CCDF Tribal Discretionary Funds). Under prior law 
and regulation, Tribes received ``up to'' two percent. Under the 
reauthorized Act, the Secretary may only reserve an amount greater than 
2 percent for Tribes if two conditions are met: (1) The amount 
appropriated is greater than the amount appropriated in FY 2014, and 
(2) the amount allotted to States is not less than the amount allotted 
in FY 2014. It is important to note that reauthorization of the Act 
allows for a potential increase in the Tribal Discretionary funds, but 
it does not affect the Tribal Mandatory funds. Tribes may only be 
awarded up to 2 percent of the Mandatory Funds, per Section 418(a)(4) 
of the Social Security Act (42 U.S.C. 618(a)(4)). Recognizing the needs 
of Tribal communities, ACF increased the Tribal CCDF Discretionary set-
aside from 2 percent to 2.5 percent for FY 2015, and to 2.75 percent 
for FY 2016. We encourage Tribes to use any increased funds for 
activities included in reauthorization, such as health and safety, 
continuity of care, and consumer education. ACF has consulted with 
Tribes regarding future funding levels and plans to make that 
determination on an annual basis, taking into consideration the overall 
appropriation level as well as unique Tribal needs and circumstances, 
including the need for sufficient funding to provide care that address 
culture and language in Tribal communities.
    Targeted funds. This final rule adds Sec.  98.61(f) to reference 
funds targeted through annual appropriations law. In prior years since 
FY 2000, annual appropriations law has required the use of specified 
amounts of CCDF funds for targeted purposes (e.g., quality, infant and 
toddler quality, school-age care and resource and referral). The 
reauthorized Act includes increased quality spending requirements; 
however, we include this regulatory provision in the event that 
Congress provides for additional targeted funds in the future. The new 
paragraph (f) is for clarification so that the regulations provide a 
complete picture of CCDF funding parameters. New paragraph (f) provides 
that Lead Agencies shall expend any funds set-aside for targeted 
activities as directed in appropriations law.
    Audits and financial reporting. The final rule adds a technical 
change at Sec.  98.65(a), regarding the requirement for the Lead Agency 
to have an audit conducted in accordance with the Single Audit Act 
Amendments of 1996. This paragraph replaces a reference to OMB Circular 
A-133 with a reference to 45 CFR part 75, subpart F, which is the new 
HHS regulation implementing the audit provisions in the Office of 
Management and Budget's Uniform Administrative Requirements for Federal 
awards.
    The final rule adds regulatory language at Sec.  98.65(g), which 
previously provided that the Secretary shall require financial reports 
as necessary, to now specify that States and Territories must submit 
quarterly expenditure reports for each fiscal year. Currently, States 
and Territories file quarterly expenditure reports via the ACF-696; 
however, the prior regulations did not describe this reporting in 
detail. Revised paragraph (h) requires States and Territories to 
include the following information on expenditures of CCDF grant funds, 
including Discretionary (which includes any reallocated funds and funds 
transferred from the TANF block grant), Mandatory, and Matching funds; 
and State Matching and Maintenance-of-Effort (MOE) funds: (1) Child 
care administration; (2) Quality activities, including any sub-
categories of quality activities as required by ACF; (3) Direct 
services; (4) Non-direct services including: (i) Computerized 
information systems, (ii) Certificate program cost/eligibility 
determination, (iii) All other non-direct services; and (6) Such other 
information as specified by the Secretary.
    We added greater specificity to the regulation in light of the 
important role expenditure data play in ensuring compliance with the 
quality expenditure requirements at Sec.  98.51(a), administrative cost 
cap at Sec.  98.52(a), and obligation and liquidation deadlines at 
Sec.  98.60(d). Additional expenditure data provide us with important 
details about how Lead Agencies are spending both their Federal and 
State CCDF funds, including what proportion of funds are being spent on 
direct services to families and how much has been invested in quality 
activities. These reporting requirements do not create an additional 
burden on Lead Agencies because we are simply updating the regulations 
to reflect current expenditure reporting processes.
    Tribal financial reporting. This final rule adds a new provision at 
Sec.  98.65 that requires Tribal Lead Agencies to submit annual 
expenditure reports to the Secretary via the ACF-696T. As with State 
and Territorial grantees, these expenditure reports help us to ensure 
that Tribal grantees comply with obligation and liquidation deadlines 
atSec.  98.60(e), the fifteen percent administrative cap at Sec.  
98.83(g), and the quality expenditure requirement at Sec.  98.51(a). 
This reporting requirement is current practice.
Sec.  98.68 Program Integrity
    The final rule adds a new section Sec.  98.68, which requires Lead 
Agencies to have effective procedures and practices that, ensure 
integrity and accountability in the CCDF program. These regulatory 
changes formalize the implementation process of the CCDF Plan, which 
require Lead Agencies to report in these areas.
    The Plan now includes questions on internal controls, monitoring 
sub-recipients, approach to identify fraud

[[Page 67531]]

and payment errors, methods of investigation and collection of 
identified fraud, and sanctions for clients and providers who engage in 
fraud. ACF has been working with State, Territorial, and Tribal CCDF 
Lead Agencies to strengthen program integrity to ensure that funds are 
maximized to benefit eligible children and families. For example, ACF 
issued a Program Instruction (CCDF-ACF-PI- 2010-06) that provides 
stronger policy guidance on preventing waste, fraud, and abuse and has 
worked with States to conduct case record reviews to reduce 
administrative errors. The requirements in this section build on these 
efforts and are designed to reduce errors in payment and minimize 
waste, fraud, and abuse to ensure that funds are being used for 
allowable program purposes and for eligible beneficiaries.
    In the final rule, section Sec.  98.68(a) requires Lead Agency 
internal controls to include processes to ensure sound fiscal 
management, processes to identify areas of risk, processes to train 
child care providers and staff of Lead Agency and other agencies 
engaged in the administration of CCDF about program requirements and 
integrity, and regular evaluation of internal control activities. 
Examples of internal controls include practices that identify and 
prevent errors associated with recipient eligibility and provider 
payment such as: Checks and balances that ensure accuracy and adherence 
to procedures; automated checks for red flags or warning signs; and 
established protocols and procedures to ensure consistency and 
accountability. We have also added language to the final rule to 
indicate that such internal controls should be undertaken while 
maintaining continuity of services. In other words, Lead Agencies must 
ensure that internal controls designed to limit errors and improper 
payments do not result in undue administrative burdens for families 
that would interfere with continued, stable subsidy receipt for 
eligible families. In addition, Sec.  98.68(b)(1) of this final rule 
requires Lead Agencies to describe in their Plan the processes that are 
in place to identify fraud and other program violations associated with 
recipient eligibility and provider payment. These processes may 
include, but are not limited to, record matching and database linkages, 
review of attendance and billing records, quality control or quality 
assurance reviews, and staff training on monitoring and audit 
processes.
    The provision at Sec.  98.68(b)(2) of the final rule requires Lead 
Agencies to establish internal controls to investigate and recover 
fraudulent payments and impose sanctions on clients or providers in 
response to misuse of CCDF program funds. Lead Agencies are required to 
describe in their Plan the processes that are in place to identify 
fraud or other program violations. The Lead Agencies' requirements 
mandated under Sec.  98.68(b)(2) build on pre-existing requirements at 
Sec.  98.60(h)(1) to reduce errors in payment and minimize waste, 
fraud, and abuse to ensure that funds are being used for allowable 
program purposes and for eligible beneficiaries.
    Similarly, the provision at Sec.  98.68(c) requires Lead Agencies 
to describe in their Plans the procedures that are in place for 
documenting and verifying that children meet eligibility criteria at 
the time of eligibility determination and redetermination. Lead 
Agencies are responsible for ensuring that all children served in CCDF 
are eligible at the time of eligibility determination or 
redetermination. Lead Agencies should, at a minimum, verify or maintain 
documentation of the child's age, family income, and require proof that 
parents are engaged in eligible activities. Income documentation may 
include, but is not limited to, pay stubs, tax records, child support 
enforcement documentation, alimony court records, government benefit 
letters, and receipts for self-employed applicants. Documentation of 
participation in eligible activities may include school registration 
records, class schedules, or job training forms. Lead Agencies are 
encouraged to use automated verification systems and electronic 
recordkeeping practices to reduce paperwork.
    Comment: A child care worker organization and a national 
organization supported the new paragraph in section 98.68(a) of this 
final rule, but wanted to add further language that would require Lead 
Agencies to describe in their Plan, the processes that are in place to 
make sure that child care providers are trained and knowledgeable about 
program violations and administrative rules.
    Response: We agree and the final rule incorporates this language at 
Sec.  98.68(a)(3). In order to ensure program integrity in a fair, 
consistent, and effective manner, it is essential for child care 
providers to be trained and knowledgeable about program rules, while 
maintaining quality of care and continuity of CCDF services. In 
addition, we have expanded this provision to require training for staff 
of the Lead Agency and other agencies engaged in administration of the 
CCDF about program requirements and integrity. It is essential for CCDF 
staff, especially frontline caseworkers who determine eligibility and 
authorize services, to be trained in program rules and program 
integrity efforts.

Subpart H--Program Reporting Requirements

Sec.  98.71 Contents of Reports
    Section 98.71 of the final rule describes administrative data 
elements that Lead Agencies are required to report to ACF, including 
basic demographic data on the children served, the reason they are in 
care, and the general type of care. The majority of changes to 
reporting requirements described in this final rule have already been 
implemented through the Office of Management and Budget's information 
collection process under the Paperwork Reduction Act. The Office of 
Child Care issued revised forms and instructions for the ACF-800 
(annual aggregate report) and ACF-801 (monthly case-level report) in 
January 2016. This final rule makes conforming changes in the 
regulation.
    The ACF-801 report includes a data element on the total monthly 
family income and family size used for determining eligibility. 
Previous regulations at Sec.  98.71(a)(1) do not include family size. 
Therefore, this final rule amends the regulatory language at Sec.  
98.71(a)(1) to align the regulations with the reporting requirements in 
effect. This does not represent any change in how Lead Agencies 
previously reported family income.
    In addition, the final rule adds a new provision at Sec.  
98.71(a)(2), which requires Lead Agencies to report zip code data on 
both the family and the child care provider records. These new elements 
will allow States and Territories and ACF to identify the communities 
where CCDF families and providers are located, including the type and 
quality level of providers. Sections 658E(a)(2)(M) and 658E(a)(2)(Q) of 
the Act require States and Territories to address the needs of certain 
populations regarding supply and access to high-quality child care 
services in underserved areas including areas that have significant 
concentrations of poverty and unemployment. In comments, one national 
organization strongly supported this provision because it will enable 
policymakers to assess where families and providers reside and the 
level of quality available in their communities.
    This final rule adds a new element at Sec.  98.71(a)(11) that 
requires Lead Agencies to report, in addition to the total monthly 
family co-payment, any amount charged by the provider to the family 
more than the co-payment in

[[Page 67532]]

instances where the provider's price exceeds the subsidy payment, if 
applicable. Unlike all the other new data elements in this rule, this 
element has not yet been added to the ACF-801 form, but will be added 
through the Paperwork Reduction Act clearance process. For more 
information about the importance of this data element, see the related 
discussion on equal access (Sec.  98.45) earlier in the preamble.
    Section 658K(a)(1)(E) of the Act prohibits the monthly case-level 
report from containing personally identifiable information. As a 
result, this final rule amends language at Sec.  98.71(a)(14) by 
deleting Social Security Numbers (SSNs) and instead requiring a unique 
identifying number from the head of the family unit receiving 
assistance and from the child care provider. It is imperative that the 
unique identifier assigned to each head of household be used 
consistently over time--regardless of whether the family transitions on 
and off subsidy, or moves within the State or Territory. This will 
allow Lead Agencies and ACF to identify unique families over time in 
the absence of the Social Security Number (SSN). A Lead Agency may 
still use personally identifiable information, such as SSNs, for its 
own purposes, but this information cannot be reported on the ACF-801. 
Furthermore, pursuant to the Privacy Act (5 U.S.C. 552a note), Lead 
Agencies cannot require families to disclose SSNs as a condition of 
receiving CCDF services. The final rule adds a new provision at Sec.  
98.71(a)(16) to indicate whether a family is experiencing homelessness 
based on statutory language at Section 658K(a)(1)(B)(xi) that requires 
Lead Agencies to report whether children receiving CCDF assistance are 
experiencing homelessness. Many national organizations strongly 
supported this provision in their comments. This final rule also adds a 
new provision at Sec.  98.71(a)(17) to indicate whether the parent(s) 
are in the military service. The Administration has taken a number of 
actions to increase services and supports for members of the military 
and their families. This element will identify if the parent is 
currently active duty (i.e., serving fulltime) in the U.S. Military or 
a member of either a National Guard unit or a Military Reserve unit. 
This data will allow Lead Agencies and ACF to determine the extent to 
which military families are accessing the CCDF program.
    In addition, this final rule adds a new provision at Sec.  
98.71(a)(18) to indicate whether a child is a child with a disability. 
Section 658E(c)(3)(B) of the Act requires a Lead Agency's priority for 
services to include children with special needs. ACF is required to 
determine annually whether Lead Agencies use CCDF funds in accordance 
with priority for services requirements, including the priority for 
children with special needs. While Lead Agencies have flexibility to 
define ``children with special needs'' in their CCDF Plans, many 
include children with disabilities in their definitions. This data will 
help ACF determine, as required by the Act, whether Lead Agencies are 
in compliance with priority for service requirements. Furthermore, the 
reauthorization added several other provisions related to ensuring 
children with disabilities have access to subsidies, and that the child 
care available meets the needs of these children. This data element 
will provide information about the extent to which the CCDF program is 
serving children with disabilities.
    Additionally, the final rule adds a new provision at Sec.  
98.71(a)(19) to require Lead Agencies to report a new data element on 
the primary language spoken in the child's home, using responses that 
are consistent with data reporting requirements for the Head Start 
program. The reauthorized Act includes provisions that support services 
to English learners. Section 658E(c)(2)(G) of the Act requires Lead 
Agencies to assure that training and professional development of child 
care providers address needs of certain populations to the extent 
practicable, including English learners. Under Section 658G, allowable 
quality activities include providing training and outreach on engaging 
parents and families in culturally and linguistically appropriate ways 
to expand their knowledge, skills, and capacity to become meaningful 
partners in supporting their children's positive development.
    In accordance with sections 658E(c)(2)(J) and 658E(c)(2)(C) of the 
Act, which mandates monitoring and inspection requirements for Lead 
Agencies, the final rule adds a new provision at Sec.  98.71(a)(20) to 
indicate, for each child care provider currently providing services to 
a CCDF child, the date of the most recent inspection for compliance 
with health, safety, and fire standards (including licensing standards 
for licensed providers) as described in Sec.  98.42(b). Lead Agencies 
will need to track inspection dates to ensure that CCDF providers are 
monitored at least annually. If the Lead Agency uses more than one 
visit to check for compliance with these standards, the Lead Agency 
should report the most recent date on which all inspections were 
completed. Moreover, the final rule adds provision at Sec.  
98.71(a)(21) to require Lead Agencies to submit an indicator of the 
quality of the child care provider as part of the quarterly family 
case-level administrative data report. This change will allow ACF and 
Lead Agencies to capture child-level data on provider quality for each 
child receiving a child care subsidy. This addition is in line with one 
of the Act's new purposes, which is to increase the number and 
percentage of low-income children in high-quality child care. States 
and Territories currently report on the quality of child care 
provider(s) based on several indicators--including: QRIS participation 
and rating, accreditation status, compliance with State prekindergarten 
standards or Head Start performance standards, and other State defined 
quality measure. However, until recently, States and Territories were 
required to report on at least one of the quality elements for a 
portion of the provider population. This resulted in limited quality 
data, often for only a small portion of child care providers in a State 
or Territory. This change now requires quality information for every 
child care provider. Working with States and Territories to track this 
data will give us a key indicator on the progress we are making toward 
the goal of increasing the number of low-income children in high-
quality care. Lead Agencies must also take into consideration the cost 
of providing higher-quality care when setting payment rates pursuant to 
Sec.  98.44(f)(iii). To ensure that the CCDF program is providing 
meaningful access to high-quality care, it is essential for Lead 
Agencies to have data on the quality of CCDF providers. Prior paragraph 
(a)(16) is re-designated as paragraph (a)(22) but otherwise is 
unchanged. Several national organizations submitted comments in support 
of this provision.
    The final rule also adds a new provision at Sec.  98.71(b)(5) to 
report the number of child fatalities by type of care, as required by 
section 658K(a)(2)(F) of the Act. This should include the number of 
fatalities occurring among children while in the care and facility of 
child care providers serving CCDF children (regardless of whether the 
child who dies was receiving CCDF). Previous paragraph (b)(5) is re-
designated as paragraph (b)(6) but otherwise is unchanged.
    The final rule revises paragraph (c), regarding reporting 
requirements for Tribal Lead Agencies to specify that the Tribal Lead 
Agency's annual report shall include such information as the Secretary 
will require. We intend to

[[Page 67533]]

revisit requirements for all Tribal Lead Agencies, pursuant to the 
changes in Subpart I. Proposed reporting requirements will be subject 
to public comment under the Paperwork Reduction Act.
    Comment: In general, commenters supported revisions to this 
section. Specifically, commenters appreciated the additional reporting 
of various data elements to improve the quality and transparency of the 
program reporting requirements. Some commenters recommended that Lead 
Agencies be required to post all reports submitted to ACF on the Lead 
Agency Web site in a timely manner (e.g., within 30 days), while always 
respecting family confidentiality.
    Response: The final rule adds a new provision at Sec.  98.71(d) to 
require State and Territorial Lead Agencies make available on a Web 
site in a timely manner annual aggregate administrative data reports 
via the ACF-800 under Sec.  98.71(b), quarterly financial reports under 
Sec.  98.65(g), and annual quality progress reports under Sec.  
98.53(f). We understand the value of having reports submitted by Lead 
Agencies available via the Lead Agencies' Web sites in a timely manner 
for purposes of transparency regarding administration of the program.
    We declined to require Lead Agencies to post case level reports on 
their Web site. Pursuant to section 658K(a)(1)(E) of the Act and Sec.  
98.71(a)(13) of this final rule, we are concerned about the potential 
confidentiality issues that may arise related to case-level reporting 
on ACF-801. We want to protect the confidentiality of families and 
children who receive CCDF assistance. Furthermore, we post State-by-
State tables of CCDF administrative data on the Office of Child Care 
Web site. In addition, each year we post an updated dataset of the 
administrative reports on our collaborative research Web site 
www.researchconnections.org for use and analysis by researchers.
    Comment: Many national organizations supported the provision at 
Sec.  98.71(a)(18) to require Lead Agencies to report the language 
spoken at home on the ACF-801. However, one commenter said that the 
requirements in the Act and the NPRM to provide services and take 
reasonable steps to provide access to individuals with limited English 
proficiency can be accomplished without placing additional burdens on 
States and families to report the language spoken at home. The 
commenter also stated that Lead Agencies are already aware of the 
typical languages spoken by families in the community and can design 
training services to meet the needs of the local community without 
placing this additional reporting burden on parents.
    Response: We declined to remove the provision at Sec.  98.71(a)(18) 
of this final rule to require Lead Agencies to submit data reporting on 
language spoken at home on ACF-801. Retaining this reporting 
requirement is necessary to obtain adequate national longitudinal data 
on the languages spoken by families at home, so Lead Agencies and child 
care providers can tailor their services to meet the needs of the 
families they serve, and to allow for transparency and oversight to 
ensure adequate access for these families.
    Comment: Some national organizations supported the provision we 
added at Sec.  98.71(a)(17) of this final rule that requires Lead 
Agencies to report whether a child receiving CCDF has a disability. 
Some commenters were disappointed with the definition of ``child with a 
disability'' in the Act that gives Lead Agencies the flexibility to 
include their own State-specific definition. One commenter recommended 
that the data collection distinguish whether the child has a disability 
in accordance with (a) IDEA; or (b) ADA or Section 504 of the 
Rehabilitation Act.
    Response: While we appreciated commenters' support and input on 
approaches for Lead Agencies to report disability data, we declined to 
further clarify the type of disability that Lead Agencies must report. 
We expect Lead Agencies to follow the Act's definition of ``child with 
a disability''. Under the Act, ``child with a disability'' means (1) A 
child with a disability, as defined in section 602 of the Individuals 
with Disabilities Education Act (20 U.S.C. 1401); (2) A child who is 
eligible for early intervention services under part C of the 
Individuals with Disabilities Education Act (20 U.S.C. 1431 et seq.); 
(3) A child who is less than 13 years of age and who is eligible for 
services under section 504 of the Rehabilitation Act of 1973 (29 U.S.C. 
794); and (4) A child with a disability, as defined by the State 
involved.
    Comment: One State commented about the information technology costs 
associated with the implementation of the provisions in section Sec.  
98.71 of this final rule.
    Response: As mention earlier, the Office of Child Care has already 
implemented the majority of new data reporting requirements through the 
Paperwork Reduction Act information collection clearance process. For 
many of the new data elements, we have provided a phased-in 
implementation period to allow for States and Territories to make 
necessary changes to their automated systems. Lead Agencies may use 
CCDF funds to upgrade their data reporting systems to meet the new 
requirements.

Subpart I--Indian Tribes

    This subpart addresses requirements and procedures for Indian 
Tribes and Tribal organizations applying for or receiving CCDF funds. 
This section describes provisions of Subpart I and serves as the Tribal 
summary impact statement as required by Executive Order 13175. CCDF 
currently provides funding to approximately 260 Tribes and Tribal 
organizations that administer child care programs for approximately 520 
federally-recognized Indian Tribes, either directly or through 
consortia arrangements. Tribal CCDF programs are intended for the 
benefit of Indian children, and these programs serve only Indian 
children. With few exceptions, Tribal CCDF grantees are located in 
rural and economically challenged areas. In these communities, the CCDF 
program plays a crucial role in offering child care options to parents 
as they move toward economic stability, and in promoting learning and 
development for children. In many cases, Tribal child care programs 
also emphasize traditional culture and language. Below we discuss the 
Tribal CCDF framework and regulatory changes.
    The Act is not explicit in how its provisions apply to Tribes. ACF 
traditionally issues regulations to define how the Act applies to 
Tribes. This final rule is the result of several months of consultation 
on the reauthorized Act and on the 2015 NPRM with Tribes, as well as 
past consultations and Tribal comments on our 2013 NPRM. We heard from 
many Tribal leaders and CCDF Administrators asking for flexibility to 
implement child care programs that meet the needs of individual 
communities. The requirements in this final rule are designed to 
increase Tribal Lead Agency flexibility, while balancing the CCDF dual 
goals of promoting families' financial stability and fostering healthy 
child development.
    Tribal consultation and comments. ACF is committed to consulting 
with Tribes and Tribal leadership to the extent practicable and 
permitted by law, prior to promulgating any regulation that has Tribal 
implications. As this rule has been developed, ACF has engaged with 
Tribes through multiples means. The requirements in this final rule 
were informed by past consultations, listening sessions, and meetings 
with Tribal representatives on related topics.

[[Page 67534]]

    Starting in early 2015, we began a series of formal consultations, 
conducted in accordance with the ACF Tribal Consultation Policy (76 FR 
55678) with Tribal leaders to determine how the provisions in the Act 
should apply to Tribes and Tribal organizations. In addition to an 
informal listening session in February 2015, from March to May 2015, 
OCC held three formal conference calls and an in-person consultation 
session with Tribal leaders and Tribal CCDF administrators to discuss 
the impact of reauthorization on Tribes. Tribes and Tribal 
organizations were informed of these consultations and conference calls 
through letters to Tribal leaders. Much of the testimony and dialogue 
focused on the vast differences among Tribes and Tribal organizations.
    After the proposed rule was published, OCC conducted a formal, in-
person consultation with Tribal leadership in January 2016 during the 
public comment period. Tribal CCDF administrators and staff were also 
invited to attend. We included the written testimonies we received as 
formal comments on the proposed rule. In addition, we held conference 
calls, including Regional calls with Tribal CCDF Administrators, and 
disseminated materials specifically addressed to Tribes to describe the 
impact of the proposed rule. Throughout, we encouraged Tribes to submit 
written comments during the public comment period. We received 15 
comments from Tribes and Tribal organizations, many of which were co-
signed by multiple Tribes. We will address these comments in this 
subpart.
    This rule was informed by these conversations and comments. We 
continue to balance flexibility for Tribes to address the unique needs 
of their communities with the need to ensure accountability and quality 
child care for children. In response to the comments we received from 
Tribes, we have made changes to how the final rule applies to Tribes, 
including clarifying implementation periods and adding in flexibility 
around the background check requirements. Below we discuss broader 
contextual issues, including how provisions located outside of Subpart 
I apply to Tribes, before moving on to a discussion of changes to 
Sections 98.80, 98.81, 98.82, 98.83, and 98.84.
    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 Demonstration Act of 1992 
(Pub. L. 102-477). This law permits Tribal governments to integrate a 
number of their federally-funded employment, training, and related 
services programs into a single, coordinated comprehensive program. ACF 
publishes annual program instructions providing directions for Tribes 
wishing to consolidate CCDF funds under an Indian Employment, Training, 
and Related Services plan. This program instruction will include 
information on how this final rule impacts the 102-477 Plan. The 
Department of the Interior has lead responsibility for administration 
of Public Law 102-477 programs.
    Dual eligibility of Indian children. Census data indicates over 60 
percent of American Indian and Alaskan Native families do not reside on 
reservations or other Native lands; therefore, significant numbers of 
eligible Indian children and families are served by State Lead 
Agencies. Eligible Indian children who reside in Tribal service areas 
continue to have dual eligibility to receive child care services from 
either the State or Tribal CCDF program, in accordance with pre-
existing regulation, at Sec.  98.80(d). Section 658O(c)(5) of the Act 
mandates that, for child care services funded by CCDF, the eligibility 
of Indian children for a Tribal program does not affect their 
eligibility for a State program.
    Implementation. The NPRM did not discuss implementation timeframes 
specific to Tribal Lead Agencies. The CCDBG Act of 2014 included 
effective dates for States and Territories, but these effective dates 
do not apply to Tribes.
    Comment: Many Tribal commenters emphasized that Tribes need an 
appropriate timeline for implementation of the final rule. The national 
association of tribal child care programs recommended a 24 to 36 month 
implementation period.
    Response: We agreed with the commenters. Although many Tribes have 
already begun moving forward, this final rule represents a shift in the 
Tribal CCDF requirements. ACF will determine compliance with provisions 
in this final rule through review and approval of the FY 2020-2022 
Tribal CCDF Plans that become effective October 1, 2019. Using the next 
Plan cycle to gage compliance will give Tribes approximately three 
years (or close to 36 months) to implement the new provisions in the 
final rule. This will provide more opportunities for consultation and 
technical assistance to Tribes to assist in development of the CCDF 
Plan. Tribes may submit Plan amendments, as necessary, if they wish to 
change their policies prior to the beginning of the next Plan period.
    Tribes that have consolidated CCDF with other employment, training 
and related programs under Public Law (Pub. L. 102-477), are not 
required to submit separate CCDF Plans, but will be required to submit 
amendments to their Public Law 102-477 Plans, along with associated 
documentation, in accordance with this timeframe to demonstrate 
compliance with the final rule.
    Comment: The CCDBG Act of 2014 included phased-in increases to the 
quality expenditure requirements (Sec.  98.50(b)(1)), so that States 
and Territories must spend at least seven percent of their CCDF funds 
on quality improvement activities starting in FY 2016 and increasing to 
nine percent by 2020. Starting in FY 2017, States and Territories must 
also spend three percent on quality improvement activities for infants 
and toddlers (Sec.  98.50(b)(2)). Commenters also asked for Tribal-
specific implementation timelines to the quality expenditure 
requirements.
    Response: We agreed with the commenters. As the timeframe for 
States and Territories exists in regulatory language at Sec.  98.50(b), 
in the final rule, we added new regulatory language at Sec.  98.83(g) 
to give Tribes a longer phase-in period. As described later in the 
preamble, all Tribes, regardless of their CCDF allocation amount, are 
subject to the quality expenditure requirements. Tribes receiving large 
and medium allocations are also subject to the three percent infant and 
toddler quality spending requirement.
    Because the quality spending requirements are new to Tribes that 
were previously exempt, ACF is allowing a phased-in timeframe starting 
with four percent in FY 2017. In FY 2018 and 2019, the quality 
expenditure requirements will increase to seven percent and then, to 
eight percent in FY 2020 and 2021. Finally, starting in FY 2022, Tribes 
will be required to spend nine percent on quality improvement 
activities. Tribes with large and medium allocations will be subject to 
the three percent infant and toddler quality requirement starting in FY 
2019.

[[Page 67535]]



----------------------------------------------------------------------------------------------------------------
                                                                              Total quality      Total quality
                                                           Infant/toddler     set-aside for      set-aside for
                                      Quality set-aside    (large/medium       tribes  with       tribes  with
         Federal fiscal year             (all tribes)       allocations)          small           large/medium
                                          (percent)          (percent)         allocations        allocations
                                                                                (percent)          (percent)
----------------------------------------------------------------------------------------------------------------
FY 2017.............................                  4  .................                  4                  4
FY 2018.............................                  7  .................                  7                  7
FY 2019.............................                  7                  3                  7                 10
FY 2020.............................                  8                  3                  8                 11
FY 2021.............................                  8                  3                  8                 11
FY 2022 (and ongoing)...............                  9                  3                  9                 12
----------------------------------------------------------------------------------------------------------------

    This phase-in mimics timeframes allowed to States and Territories 
by the CCDBG Act of 2014 and gives Tribes time to plan for the quality 
increases each year.
    Funding. Tribal CCDF funding is comprised of two funding sources: 
(1) Discretionary Funds, authorized by the Act and annually 
appropriated by Congress; and (2) Tribal Mandatory Funds, provided 
under Section 418(a)(4) of the Social Security Act (42 U.S.C. 
618(a)(4)). Reauthorization of the Act allows for a potential increase 
in the Tribal Discretionary funds, but does not affect the Tribal 
Mandatory funds. Tribes may only be awarded up to two percent of the 
Mandatory Funds, per the Social Security Act.
    Comment: In the NPRM, ACF asked for comment on the Tribal CCDF 
Discretionary set-aside, including the process to be used to determine 
the amount of the Discretionary set-aside. We received a number of 
comments from Tribes and Tribal organizations asking for a Tribal 
Discretionary set-aside of not less than five percent.
    Response: According to Section 658O(a)(2) of the Act, Tribes will 
receive not less than two percent of the Discretionary CCDF funding. 
The Secretary may reserve an amount greater than two percent for Tribes 
if two conditions are met: (1) The amount appropriated is greater than 
the amount appropriated in FY 2014, and (2) the amount allotted to 
States is not less than the amount allotted in FY 2014. Given that the 
Act provides two conditions that must be met in order to raise the 
Tribal Discretionary set-aside, we cannot permanently raise the set-
aside to five percent.
    ACF does recognize the needs of Tribal communities and increased 
the Tribal CCDF Discretionary set-aside from two percent to 2.5 percent 
in FY 2015 and up to 2.75 percent in FY 2016. These increased set-
asides raised the total Tribal CCDF Funding from $107 million in FY 
2014 to $134 million in FY 2016. We encouraged Tribes to use the 
increased funding on activities included in reauthorization, such as 
health and safety, continuity of care, and consumer education, in order 
to implement this final rule. ACF will continue consulting with Tribes 
when determining the Discretionary set-aside each year.
    Tribal CCDF framework. Tribes shall be subject to the CCDF 
requirements in Part 98 and 99 based on the size of their CCDF 
allocation. CCDF Tribal allocations vary from less than $25,000 to over 
$12 million. We recognize that Tribes receiving smaller CCDF grants may 
not have sufficient resources or infrastructure to effectively operate 
a program that complies with all CCDF requirements. Therefore, in the 
final rule, there are now three categories of CCDF Tribal grants, with 
thresholds established by the Secretary: Large allocations, medium 
allocations, and small allocations. Each category is paired with 
different levels of CCDF requirements, with those Tribes receiving the 
largest allocations expected to meet most CCDF requirements. Tribes 
receiving smaller allocations are exempt from specific provisions in 
order to account for the size of the grant awards (see table below).

------------------------------------------------------------------------
        Large allocations         Medium allocations   Small allocations
------------------------------------------------------------------------
 Subject to the majority   Allowed     Exempt
 of CCDF requirements.             the same            from the majority
 Exempt from some          exemptions as the   of CCDF
 requirements, including, but      large allocation    requirements,
 not limited to: Consumer          category.           including those
 education website, the            Exempt      exemptions for
 requirement to have licensing     from operating a    large and medium
 for child care services, market   certificate         allocation
 rate survey or alternative        program..           categories.
 methodology (but still required                       Must
 to have rates that support                            spend their funds
 quality), and the training and                        in alignment with
 professional development                              CCDF goals and
 framework.                                            purposes.
 Subject to the                                Only
 monitoring requirements, but                          subject to:
 allowed the flexibility to                            The
 propose an alternative                                health and safety
 monitoring methodology in their                       requirements;
 Plans.                                                The
 Subject to the                                monitoring
 background check requirements,                        requirements;
 but allowed to propose an                             The
 alternative background check                          background check
 approach in their Plans.                              requirements;
                                                       Quality
                                                       spending
                                                       requirements
                                                       (except the
                                                       infant and
                                                       toddler quality
                                                       spending
                                                       requirements);
                                                      
                                                       Eligibility
                                                       definitions of
                                                       Indian child and
                                                       Indian
                                                       reservation/
                                                       service area;
                                                       The 15%
                                                       admin cap;
                                                       Fiscal,
                                                       audit, and
                                                       reporting
                                                       requirements; and
                                                       Any other
                                                       requirement
                                                       defined by the
                                                       Secretary.
                                                       Submit an
                                                       abbreviated Plan.
------------------------------------------------------------------------

    Commenters were generally supportive of the new Tribal CCDF 
framework that was proposed in the NPRM. Given the broad range in 
Tribal CCDF allocation amounts, the tribal framework allows CCDF 
requirements to be better scaled to the size of a Tribe's allocation.

[[Page 67536]]

    Comment: In the NPRM, ACF proposed that grants over $1 million 
would be considered large allocations. Grants between $250,000 and $1 
million would be considered medium allocations. Finally, grants of less 
than $250,000 would be considered small allocations. We did not propose 
to set the allocation thresholds through regulation so that they could 
be updated or revised at a later date through consultation and notice. 
A few commenters recommended lower dollar thresholds than the NPRM had 
proposed for the delineations among small, medium, and large 
allocations.
    Response: Although we considered lowering the thresholds between 
the allocation amounts, we are not making changes to the allocation 
thresholds in this final rule. Using the FY 2016 Tribal allocations, 
large allocations (CCDF grants over $1 million) include 34 Tribal 
grantees; medium allocations (CCDF grants between $250,000 and $1 
million) include 72 Tribal grantees; and small allocations (CCDF grants 
less than $250,000) include 153 Tribal grantees. Although these 
thresholds are not regulatory and can be adjusted in the future, we 
wanted to set thresholds that could be stable over time as the program 
grows.
    Comment: ACF received several questions from commenters asking how 
Tribes will transition between allocation amounts if their CCDF 
allocation increases from a small allocation to a medium allocation or 
a medium allocation to a large allocation.
    Response: In the past, Tribes have been given one year from the 
time they receive their grant award to make programmatic changes and to 
submit Plan amendments to transition from exempt to non-exempt. But 
because there are significantly more requirements between the 
allocation thresholds (particularly between small and medium 
allocations), Tribes will need more time to make programmatic changes 
to comply with the new requirements.
    If a Tribe's allocation increases enough to move from a small 
allocation to a medium allocation (or a medium allocation to a large 
allocation), the Tribe will be informed, as before, through their grant 
award letter. In most cases, the Tribe will have until the next Plan 
cycle to make changes and submit a new Plan that reflects the 
allocation threshold. The Tribe may also submit Plan amendments in 
order to make these changes more quickly. Tribes that cross an 
allocation threshold during the last year of a Plan cycle will have a 
transition period of at least one year and therefore, if necessary, may 
come into compliance through Plan amendments after the next Plan cycle 
has started. During this transition period, ACF will work closely with 
the Tribal Lead Agency to provide technical assistance and support.
    Comment: Several commenters asked for clarity in how the new 
framework would apply to Tribal consortia. Some commenters asked that 
consortia, regardless of the size of their allocation, be held to the 
same standard as Tribes receiving large allocations. Other commenters 
emphasized that because consortia divide their funds among 
participating Tribes or Native villages, the allocation size does not 
necessarily correlate with the capacity of the participating Tribes.
    Response: We declined to set separate requirements for Tribal 
consortia. The framework will apply to consortia in the same way that 
it applies to other Tribes and Tribal organizations. Requirements are 
set by CCDF allocation size.
    Comment: A couple commenters asked for additional requirements for 
Tribes receiving small allocations. One commenter wrote that Tribes 
receiving small allocations should be required ``to establish some 
basic eligibility criteria for families receiving CCDF funded child 
care. We encourage OCC to clearly indicate that, even within these 
flexible eligibility parameters, including children from all federally 
recognized Tribes in the definition of `Indian children' for child 
count purposes and then prioritizing services to members of the Tribal 
Lead Agency's Tribe would not be allowable.''
    Response: We agreed with the comments. As described later in the 
preamble, Tribes receiving small allocations are exempt from the 
majority of the CCDF eligibility requirements, but if they are 
providing direct services, they will need to describe their eligibility 
criteria in their Plans. In addition, at Sec.  98.83(f)(8), we are 
requiring them to define the terms ``Indian child'' and ``Indian 
reservation or tribal service area'' for purposes of determining 
eligibility.
    Definition of homelessness. In the final rule, Tribes are subject 
to the regulatory definition at Sec.  98.2 of a child experiencing 
homelessness, as well as the requirement at Sec.  98.46(a)(3) to give 
priority for services to children experiencing homelessness.
    Comment: Many commenters asked that Tribes be given flexibility to 
define homelessness for their communities because the definition in the 
McKinney-Vento Act, which is used in these regulations, may not meet 
the needs of Tribal communities. One Tribe wrote recommending ``that 
Tribes should self-determine the definition of `homeless' allowing for 
informal custody of family members without court guardianship 
documents.''
    Response: We understand that homelessness and lack of adequate 
housing are significant concerns in many Tribal communities. However, 
the definition from the McKinney-Vento Act is broad that therefore 
already allows significant flexibility for prioritizing CCDF services. 
Using the McKinney-Vento definition will make it easier to align with 
other programs, like Head Start or the State CCDF, that already use 
McKinney-Vento as the standard.
    Eligibility for services. Tribal Lead Agencies receiving large or 
medium allocations are subject to the new and revised provisions around 
eligibility for services in Subpart C of this final rule--including, 
but not limited to, changes regarding: The 12-month re-determination 
periods at Sec.  98.21(a); the continued assistance provisions at Sec.  
98.21(a)(2); and the graduated phase-out at Sec.  98.21(b).
    Comment: In the NPRM, we proposed that Tribes receiving large or 
medium allocations would be subject to the requirement at Sec.  
98.21(a) establishing that all Lead Agencies shall re-determine a 
child's eligibility for child care services no sooner than 12 months 
following the initial determination or most recent re-determination. 
Tribal comments were divided around this issue. Several commenters 
voiced concerns about the 12-month re-determination periods, and many 
commenters explained that Tribes need more flexibility to best serve 
their communities.
    However, other commenters praised the 12-month re-determination 
requirements. One tribal child care program wrote, ``I applaud the 
minimum 12-month eligibility change; our program adopted this in 2015, 
and it has allowed enrolled children to maintain consistency in their 
child care settings. Parents have expressed relief that they are not in 
danger of losing their child care benefits if they move or experience a 
change in employment, school, or job training. Additionally, this 
change has removed burdensome and invasive tracking of parents' status 
by eligibility staff and the resulting withdrawal and re-enrollment of 
families.'' Another tribal child care program wrote, ``12-month 
eligibility periods with payments to child care providers on a regular 
basis will accomplish the intent of the law. If Tribes use the 3-months 
of job search, it should not significantly affect wait lists. It should 
save staff time of CCDF

[[Page 67537]]

grantees to not process the paperwork for a more frequent eligibility 
period, allowing more funding for direct services.''
    Response: We recognize that there are unique circumstances in 
Tribal communities; however, the importance of continuity of care and 
reducing the administrative burden on families served outweighs the 
commenters' concerns. As discussed earlier in Subpart C, 12-month re-
determination periods provide stability and continuity in the program 
that benefits both children and families. Continuity of subsidy receipt 
not only supports financial self-sufficiency by offering working 
families stability to establish a strong financial foundation, it also 
prepares children for school by creating stable conditions necessary 
for healthy child development and early learning. We know that the 
relationship between children and their caregivers is an essential 
aspect of quality, and policies that minimize temporary disruption to 
subsidy receipt also support stability in a child's care arrangement.
    As described earlier in Subpart C, during the minimum 12-month 
eligibility period, Tribal Lead Agencies may not end or suspend child 
care authorizations or provider payments due to a temporary change in a 
parent's work, training, or education status, which includes seasonal 
work. In other words, once determined eligible, children are expected 
to receive a minimum of 12 months of child care services, unless family 
income rises above 85 percent Grantee Median Income (GMI) or, at Lead 
Agency option, the family experiences a non-temporary cessation of 
work, education, or training.
    We note that Tribal Lead Agencies are also subject to the continued 
assistance provision at Sec.  98.21(a)(2) so that if a parent 
experiences a non-temporary job loss or cessation of education or 
training, Tribal Lead Agencies have the option--but are not required--
to terminate assistance prior to 12 months. Prior to terminating 
assistance, the Tribal Lead Agency must provide a period of continued 
assistance of at least three months to allow parents to engage in job 
search activities. This provision is described in greater detail in 
Subpart C.
    Comment: Tribes receiving large or medium allocations are subject 
to the requirement at Sec.  98.21(b) for a graduated phase-out. This 
requirement applies to Tribal Lead Agencies that set their initial 
income eligibility level below 85 percent of GMI. In those instances, 
the Tribal Lead Agency will be required to establish two-tiered 
eligibility thresholds, with the second tier of eligibility set at 85 
percent of SMI or a family of the same size, but with the option of 
establishing a second tier lower than 85% of SMI as long as that level 
is above the Lead Agency's initial eligibility threshold, takes into 
account the typical household budget of a low income family, and 
provides justification that the eligibility threshold is (1) sufficient 
to accommodate increases in family income that promote and support 
family economic stability; and (2) reasonably allows a family to 
continue accessing child care services without unnecessary disruption. 
Therefore, at redetermination, children who meet all other non-income 
related eligibility criteria would be considered eligible for a CCDF 
subsidy if their income exceeds the initial eligibility threshold but 
is still below the second eligibility threshold. This is discussed in 
greater detail above in the preamble discussion on graduated phase-out 
at Sec.  98.21(b). We only received one comment on this provision from 
a Tribe who asked us to limit the graduated phase-out period to three 
months to mirror the period for job search.
    Response: We declined to make any Tribal-specific changes to 
graduated phase-out provision. Income eligibility policies play an 
important role in promoting pathways to financial stability for 
families. In addition, the vast majority of Tribes already set their 
initial income eligibility levels at 85 percent of GMI. For these 
Tribes, the graduated phase-out provision does not apply.
    Consumer Education. Tribal Lead Agencies receiving large or medium 
allocations are generally subject to the new and revised provisions 
around consumer education in Subpart D of this final rule--including, 
but not limited to, changes regarding: The parental complaint hotline 
at Sec.  98.32(a) and the consumer education provisions at Sec.  98.33.
    Many Tribal commenters recommended that Tribal Lead Agencies be 
allowed to use a method for accepting and resolving parental complaints 
other than through a parental complaint hotline. These commenters 
believe that a hotline will create an administrative and financial 
burden, and especially because in smaller communities, there are issues 
with unfounded accusations and confidentiality issues.
    Response: We strongly encourage Tribal Lead Agencies to establish 
policies that provide for thorough tribally-directed investigations, 
confidentiality protections, and due process related to accepting and 
resolving parent complaints. Tribal Lead Agencies should partner with 
other Tribal agencies that may have jurisdiction or expertise. Concerns 
about the possibility of ultimately unfounded accusations and 
confidentiality do not overcome the need to have a system in place to 
ensure children are safe, secure, and healthy. Parents should know who 
to contact if they have a concern, particularly if they feel there is 
an imminent threat that could result in danger to a child or children. 
Having a hotline ensures that parents have a reliable mechanism to 
report complaints. Although ACF encourages it, the hotline is not 
required to be operated for 24 hours or in multiple languages.
    In the final rule, we also allow Lead Agencies to use similar 
reporting processes, like a secure Web site or email address, to 
collect parental complaints. In addition to providing an accessible 
mechanism for parental complaints, the Tribal Lead Agency must take 
appropriate and timely actions to investigate and resolve complaints. 
Tribes may continue to receive written complaints in addition to a 
hotline or Web site. Simply making the phone number of the Tribal child 
care office widely available and documentation of responses to parental 
complaints is adequate. Other than more widely publicizing the phone 
number, in some situations, no other action may be required. Tribes 
also have the option of coordinating with States to use the State-
designated hotline for parental complaints.
    Comment: One commenter worried that requiring Tribes receiving 
large or medium allocations to collect and disseminate consumer 
education as required at Sec.  98.33 would be a significant 
administrative burden.
    Response: We declined to exempt Tribes with large or medium 
allocations from the consumer education requirements. As discussed in 
Subpart D, parents often lack information regarding specific 
requirements that individual child care providers may or may not meet. 
Parents choosing a provider should be able to do so with access to any 
relevant information that the Tribe may have about that provider, 
including any health and safety, licensing or regulatory requirements 
met by the provider, the date the provider was last inspected, and 
history of violations, and compliance actions taken against a provider.
    As proposed in the NPRM and discussed later in the preamble, all 
Tribes are exempt from the consumer education Web site and all 
requirements that specifically relate to the Web site. Tribal Lead 
Agencies have the flexibility

[[Page 67538]]

to use a variety of approaches to disseminate consumer education, 
including the use of brochures, Tribal newsletters, or social media. 
Consumer education services should be directly included as part of the 
intake and eligibility process for families applying for child care 
assistance.
    Health and Safety. In keeping with the goals of this final rule and 
the intent of the Act, ensuring the health and safety of children in 
child care and promoting quality to support child development are of 
the utmost importance. As such, all Tribes, including those with small 
allocations, are subject to the health and safety requirements at Sec.  
98.41 (as well as the monitoring and background check requirements, 
discussed later in this preamble), and all Tribes are required to meet 
the quality spending requirements at Sec.  98.83(g) and Sec.  98.53.
    All Tribes are required to meet the requirements at Sec.  98.41(a), 
which include requirements around a list of health and safety topics; 
health and safety training; setting group size limits and ratios; and 
compliance with child abuse reporting requirements. These health and 
safety requirements create a baseline essential to protecting children 
in child care. (In addition, as discussed below, all Tribes are subject 
to the immunization requirements that previously only applied to States 
and Territories.)
    In the NPRM, we proposed to require Tribes receiving small 
allocations to be subject to the health and safety requirements, only 
if they were providing direct services. However, in the final rule, we 
are removing the reference to direct services. Regardless of whether 
they are providing direct services, Tribal Lead Agencies need to ensure 
any child care program receiving CCDF dollars meets the health and 
safety standards at Sec.  98.41 (as well as the monitoring and 
background check requirements.)
    The Act, at Section 658O(c)(2)(D) of the Act continues to require 
HHS to develop minimum child care standards for Indian Tribes and 
Tribal organizations receiving funds under CCDF. After three years of 
consultation with Tribes, Tribal organizations, and Tribal child care 
programs, health and safety standards were first published in 2000. The 
standards were updated and reissued in 2005. The HHS minimum standards 
are voluntary guidelines that represent the baseline from which all 
programs should operate to ensure that children are cared for in 
healthy and safe environments and that their basic needs are met. Many 
Tribes already exceed the minimum Tribal standards issued by HHS, and 
some have used the minimum standards as the starting point for 
developing their own more specific standards. These minimum standards 
will need to be revised and updated to align with new requirements of 
the Act and this final rule. In the preamble to Subpart E, ACF 
recommends that Lead Agencies consult the recently published Caring for 
Our Children Basics (CfoC Basics) for guidance on establishing health 
and safety standards.
    Comment: In the NPRM, we requested comment on whether the CfoC 
Basics should replace the current HHS minimum standards as the new 
health and safety guidelines for Tribes. Commenters agreed that the HHS 
minimum standards need to be updated but emphasized that the standards 
should not be updated without Tribal consultation. In addition, several 
commenters asked that Tribes be given the flexibility to incorporate 
customs and traditions into care, standards, and caregiver trainings.
    Response: ACF is committed to consultation with Tribes and will not 
release revised minimum standards without first consulting Tribes. We 
have begun the process of revising the standards with guidance from a 
workgroup composed of Tribal CCDF health and safety experts. The group 
is reviewing CfoC Basics and adding Tribal customs and traditions, such 
as the use of cradleboards. We will use these revised standards to 
consult with Tribes and hope to reissue them shortly.
    Comment: Overall, the commenters were supportive of the new 
requirements around health and safety. One commenter asked that 
individual Tribes be granted exemptions to specific requirements if the 
Tribe provides an adequate plan for addressing health and safety with 
limited resources.
    Response: We declined to allow Tribes to request exemptions to the 
health and safety requirements at Sec.  98.41. As stated earlier, we 
view these requirements to be a baseline for health and safety. Health 
and safety is the foundation of quality in child care, and health 
promotion in child care settings can improve children's development. 
These changes will make significant strides in strengthening standards 
to ensure the basic safety, health, and well-being of children 
receiving a child care subsidy.
    Comment: One commenter wrote recommending that ``States be required 
to communicate, coordinate and collaborate with any Tribe in their 
jurisdiction for training opportunities and professional development, 
and provide documentation of the same. States should fund participation 
as much as possible.'' The commenter also asked that Tribal monitoring 
inspectors also have access to the State inspectors' training 
opportunities.
    Response: The Act already requires States to make training and 
professional development opportunities accessible to Tribal caregivers, 
teachers, and directors. The training should also be appropriate for 
Native American children. These requirements, located in Subpart E at 
Sec. Sec.  98.44(b)(2)(vi) and 98.44(b)(2)(iv)(D), give States the 
obligation to communicate, coordinate, and collaborate with Tribes on 
training opportunities. We also strongly encourage States to make 
training opportunities accessible to Tribal monitoring inspectors, when 
appropriate. States and Tribal Lead Agencies should document this 
collaboration in the CCDF Plans.
Sec.  98.80 General Procedures and Requirements
    Section 98.80 provides an introduction to the general procedures 
and requirements for CCDF Tribal grantees. As discussed above, ACF 
modified Sec.  98.80(a) so that Tribes are subject to CCDF requirements 
based on the size of their total CCDF allocation. Please see the 
earlier discussion of the Tribal CCDF Framework for more information 
and a discussion of the comments received.
Sec.  98.81 Application and Plan Procedures
    Section 98.81 addresses the application and Plan procedures for 
Tribal CCDF grantees, and much of the new regulatory language in this 
section, particularly the Plan exemptions listed at Sec.  98.81(b)(6) 
and Sec.  98.81(b)(9), reflects the changes made in Section 98.80 
(General procedures and requirements) and Section 98.83 (Requirements 
for Tribal programs). These exemptions will be discussed in greater 
detail later in the preamble. Tribes receiving large or medium 
allocations will continue to fill out a traditional Tribal CCDF Plan, 
described at Sec.  98.81(b), and Tribes receiving small allocations 
will fill out an abbreviated Plan, described at Sec.  98.81(c). The 
Plan periods will now be three years, as required by the Act.
    Categorical eligibility. At Sec.  98.81(b)(1), the regulations 
require that the Plan filled out by Tribes receiving large or medium 
allocations must include the basis for determining family eligibility. 
The final rule adds language at Sec.  98.81(b)(1)(i) to allow a Tribe, 
whose Tribal Median Income (TMI) is below a level established by the 
Secretary, the option of considering any Indian child in the Tribe's 
service area to be eligible

[[Page 67539]]

to receive CCDF funds, regardless of the family's income, work, or 
training status, provided that provision for services still goes to 
those with the highest need. We are setting the threshold at 85 percent 
of State Median Income (SMI). Using 85 percent of SMI mirrors other 
thresholds set by the Act and allows the majority of CCDF Tribes to 
exercise this option, if they choose. We are not setting this threshold 
through regulation to allow the level to be updated in the future 
though consultation and notice.
    Comment: We received mixed support for the categorical eligibility 
provision. NICCA commented that they appreciated ``. . . the 
flexibility this provides to Tribes to determine how to provide 
quality, consistent early childhood services to best meet their 
communities' needs.'' Other commenters worried that this provision 
would increase waitlists and would increase the potential for fraud or 
the prioritization of Tribal Council members' children.
    Response: If Tribes choose to take advantage of this option, then 
they can create opportunities to align CCDF programs with other Tribal 
early childhood programs, including Tribal home visiting, Early Head 
Start, and Head Start. This provision also allows Tribes to better take 
advantage of Early Head Start-Child Care Partnership grants. There are 
limited resources in Tribal communities, and we wanted to create the 
flexibility within the CCDF program to more easily align with other 
early childhood programs.
    However, we do acknowledge the commenters' concerns. In response, 
the final rule requires Tribes that take this option ensure that 
provision for services still goes to those with the highest need. 
Tribal Lead Agencies will describe in their Plans how they are ensuring 
those families with the greatest need are receiving CCDF services. We 
also note that, while Tribes can determine any Indian child eligible 
regardless of the family's income, work, or training status, other 
requirements, such as the sliding fee scale, still apply.
    In addition, if a Tribe chooses to take this option, the Tribe's 
CCDF Plan must show a comparison of TMI and SMI by family size. The 
Tribe will also need to include in the Plan the documentation of the 
TMI data source. Tribes may use tribally-collected income data, but we 
strongly recommend that Tribes use Census data. The data should be the 
most recent TMI and SMI data available. We will provide technical 
assistance in documenting the Tribe's TMI to Tribes that choose this 
option.
    Income eligibility. The final rule moves previously-existing 
regulatory language from Sec.  98.80(f) to Sec.  98.81(b)(1)(ii). Under 
this revised provision, if a Tribe chooses not to exercise the option 
for categorical eligibility at Sec.  98.81(b)(1)(i) or has a TMI higher 
than 85 percent of SMI, then the Tribe would determine eligibility for 
services in accordance with Sec.  98.20(a)(2). That is, Tribes will set 
income eligibility requirements that do not exceed 85 percent of SMI or 
TMI. Tribes will continue to have the option of using either 85 percent 
of SMI or 85 percent of TMI.
    Comment: Several Tribes and tribal organizations were worried that 
moving this provision would limit Tribes' flexibility to make decisions 
about income eligibility.
    Response: Moving this provision does not affect current policy. 
Tribes continue to have the flexibility to set income eligibility 
requirements for their program and communities. In accordance with 
Sec.  98.20(a)(2), a family's income may not exceed 85 percent of SMI 
or TMI.
    Payment rates. The final rule exempts all Tribes from the 
requirement to use a market rate survey or alternative methodology to 
set provider payment rates (discussed later in this preamble). However, 
at Sec.  98.81(b)(5), we require that Plans submitted by Tribes 
receiving large or medium allocations include a description of the 
Tribe's payment rates; how they are established; and how they support 
quality, and where applicable, cultural and linguistic appropriateness. 
While market rate surveys or alternative methodologies do not 
necessarily make sense for Tribal communities, it is important for 
Tribal Lead Agencies to have rates sufficient to provide equal access 
to the full range of child care services, including high-quality child 
care. We did not receive comments on this provision.
    Plan exemptions. At Sec.  98.81(b)(6), ACF adds eight new Plan 
exemptions for Tribes receiving large or medium allocations. In the 
NPRM, we proposed that such Tribal Lead Agencies would be exempt from 
including in their Plans descriptions of the market rate survey or 
alternative methodology; the licensing requirements applicable to child 
care services; and the early learning guidelines. We are keeping these 
three exemptions in the final rule, as well as adding five additional 
exemptions. Tribal Lead Agencies are also exempt from including in 
their Plans the certification to develop the CCDF Plan in consultation 
with the State Advisory Council; the identification of the public or 
private entities designated to receive private funds; the descriptions 
relating to Matching funds; and the description of how the Lead Agency 
prioritizes increasing access to high-quality child care in areas with 
high concentrations of poverty. These requirements do not apply to 
Tribal communities, and these exemptions mirror changes made in Section 
98.83. They are discussed in further detail later in the preamble.
    At Sec.  98.81(b)(9), Plans for Tribes receiving medium allocations 
are exempt from the requirements relating to a description of the child 
care certificate program, unless the Tribe choses to include those 
services. This exemption corresponds with the exemption in Section 
98.83(e) discussed later in the preamble.
    Plans for Tribes receiving small allocations. Tribes receiving 
small allocations (less than $250,000) are exempt from the majority of 
CCDF requirements. These Tribes are only subject to core CCDF 
requirements, described later in Section 98.83(f). As such, at Sec.  
98.81(c), we require that these Tribes fill out an abbreviated CCDF 
Plan, tailored to these core requirements. A shorter Plan application 
is more aligned with the level of funding that these Tribes receive. 
All of the Plan exemptions described in Sec.  98.81(b) for Tribes 
receiving large or medium allocations will also apply to Tribes 
receiving small allocations. ACF will release a Program Instruction 
defining the elements that will be included in the abbreviated Plan for 
Tribes receiving small allocations.
Sec.  98.82 Coordination
    Section 98.82 requires Tribal Lead Agencies to coordinate with 
State CCDF programs and with other Federal, State, local, and Tribal 
child care and child development programs. Tribal Lead Agencies must 
also coordinate with the entities listed at Sec.  98.12 and Sec.  
98.14.
    Comment: One commenter asked us to clarify in the regulatory 
language that Tribal Lead Agencies need to coordinate, to the extent 
practicable, with the entities listed at Sec.  98.12 and Sec.  98.14.
    Response: We agreed with the commenter. The preamble language from 
our NPRM made it clear that our expectation is that Tribal Lead 
Agencies should coordinate to the extent practicable, so we added the 
regulatory language to clarify this expectation in the final rule. This 
addition does not change pre-existing policy; it serves as a 
clarification of the regulatory language.
    The regulations at Sec.  98.82 require Tribal Lead Agencies to 
coordinate with the entities described at Sec.  98.14 in the

[[Page 67540]]

development of their Plans and the provision of services, to the extent 
practicable. This list includes newly added child care licensing, Head 
Start collaboration, State Advisory Councils on Early Childhood 
Education and Care or similar coordinating bodies, statewide 
afterschool networks, emergency management and response, CACFP, 
services for children experiencing homelessness, Medicaid, and mental 
health services. We do recognize that Tribes may not always have access 
or connections with these entities. Many of these agencies, especially 
the State Advisory Councils and the statewide afterschool networks, 
interact primarily on the State level. Others, including child care 
licensing and Head Start, may not exist in the Tribe's service area.
    Tribes should coordinate with these agencies to the extent 
possible. The Tribal Plan pre-print will ask Tribes to describe their 
efforts to coordinate with all the entities listed at Sec.  98.14, but 
if coordination is not applicable, then the Tribes may simply say so in 
their Plans. We will support Tribal Lead Agency efforts to coordinate 
with these entities and plan to provide technical assistance to both 
Tribes and States to promote Tribal access and participation.
    Tribes should also take note of two new provisions in the Act, 
reiterated in this final rule, which require State coordination with 
Tribes. First, at Sec.  98.10(f), State Lead Agencies must collaborate 
and coordinate with the Tribes, at the Tribes' option, in a timely 
manner in the development of the State Plan. States must be proactive 
in reaching out to the Tribal officials for collaboration and are 
required to describe how they collaborated and coordinated with Tribes 
in their State Plans.
    Second, State Lead Agencies must have training and professional 
development in place designed to enable child care providers to promote 
the social, emotional, physical, and cognitive development of children 
and to improve the knowledge and skills of child care caregivers, 
teachers, and directors in working with children and their parents. 
Section 98.44(b)(2)(vi) requires that this training and professional 
development be accessible to caregivers, teachers, and directors of 
CCDF child care providers supported through Indian Tribes or Tribal 
organizations. Section 98.44(b)(2)(iv)(D) provides that the training 
and professional development should also, to the extent practicable, be 
appropriate for Native American children. Tribes should work with 
States to help ensure that these statutory requirements are met. Tribal 
CCDF programs should also coordinate with other childhood development 
programs located in the Tribal service area, including any programs 
that support the preservation and maintenance of native languages.
Sec.  98.83 Requirements for Tribal Programs
    Section 98.83 addresses specific requirements for Tribal CCDF 
programs. In recognition of the unique social and economic 
circumstances in many Tribal communities, Tribal Lead Agencies are 
exempt from a number of CCDF requirements. At paragraph (d)(1), we 
exempt all Tribes, regardless of allocation size, from: A consumer 
education Web site at Sec.  98.33(a); the requirements for licensing 
applicable to child care services at Sec.  98.40; the professional 
development framework at Sec.  98.44(a); the market rate survey or 
alternative methodology and the related requirements at Sec.  
98.45(b)(2); the requirement that Lead Agencies prioritize increasing 
access to high-quality child care in areas of high concentrations of 
poverty; and the quality progress report at Sec.  98.53(f). Tribes that 
receive medium or small CCDF allocations are also exempt from the 
requirements of operating a certificate program at Sec.  98.30(a) and 
(d). Tribes that receive small allocations are exempt from the majority 
of the new CCDF requirements to give these Tribes more flexibility in 
how they spend their CCDF funds. Finally, two provisions apply to all 
Tribes, unless the Tribe describes an alternative in its Plan: 
Monitoring of child care providers and facilities at Sec.  98.42(b)(2) 
and conducting background checks at Sec.  98.43.
    We are also removing previously-existing language on immunizations 
so that Tribes must now assure that children receiving CCDF services 
are age-appropriately immunized. We added regulatory language to add 
clarity to the previously-existing exemptions; this language does not 
change the previous policy. ACF added two new paragraphs at (d)(2) and 
(d)(3) giving Tribes more flexibility around the monitoring inspections 
requirements and the requirement for comprehensive background checks. 
At paragraph (e), ACF exempts Tribes receiving medium or small CCDF 
allocations from the requirement to operate a certificate program. At 
paragraph (f), ACF adds more flexibility for Tribes receiving small 
allocations by only subjecting them to core CCDF requirements.
    Service area. The final rule includes a technical addition at Sec.  
98.83(b) to clarify that Tribes (with the exception of Tribes without 
reservations located in Alaska, California, or Oklahoma) must operate 
their CCDF programs on or near Indian reservations. Long-standing ACF 
policy guidance clarifies that a Tribe's service area must be ``on or 
near the reservation,'' and therefore must be within a reasonably close 
geographic proximity to the delineated borders of a Tribe's 
reservation. Tribes that do not have reservations must establish 
service areas within reasonably close geographic proximity to the area 
where the Tribe's population resides. ACF will not approve an entire 
State as a Tribe's service area. This policy clarification does not 
affect States' jurisdiction over child care licensing. Tribal service 
areas are also addressed in the regulations at Sec.  98.81(b)(2)(ii), 
and the same policy guidance applies.
    Comment: One commenter asked ACF to delete the exception for 
Alaska, California, and Oklahoma because several Tribes in these States 
now have reservations.
    Response: We declined to remove this exception from the regulatory 
language. Although there are reservations in Alaska, California, and 
Oklahoma, the majority of Tribes in these States do not have 
reservations. Tribes located in these three States that have an 
established reservation area should define their service area to be 
``on or near'' the reservation.
    Consumer education Web site. All Tribes are exempt from the 
requirement for a consumer education Web site at Sec.  98.33(a) because 
of the administrative cost of building a Web site, as well as the lack 
of reliable high-speed internet in some Tribal areas. Furthermore, in 
some instances, the small number of child care providers in the Tribe's 
service area may not warrant the development and maintenance of a Web 
site. However, where appropriate, we encourage Tribes to implement Web 
sites for consumer education and to work with entities, such as States 
or child care resource and referral agencies that maintain provider-
specific information on a Web site. For example, in cases where Tribal 
child care providers are licensed by the State, information about 
compliance with health and safety requirements should be available on 
the State's Web site. We did not receive any comments on this 
exemption.
    Licensing for child care services. ACF is exempting all Tribes from 
the requirement to have in effect licensing requirements applicable to 
child care services at Sec.  98.40. This is a pre-existing statutory 
and regulatory requirement that was re-affirmed by the reauthorized 
Act. The majority of CCDF Tribal grantees do not have their own 
licensing

[[Page 67541]]

requirements. Many Tribes certify in their Plans that they have adopted 
their State's licensing standards, but these requirements may not be 
appropriate for Tribal communities. In addition, requiring Tribes to 
have licensing requirements is counter to Section 658O(c)(2)(D) of the 
Act, which requires that in lieu of any licensing and regulatory 
requirements under State or local law, the Secretary, in consultation 
with Indian Tribes and Tribal organizations, shall develop minimum 
child care standards that shall be applicable to Indian Tribes and 
Tribal organization receiving assistance under this subchapter. Tribes 
may instead use the voluntary guidelines issued by HHS, described 
earlier in the preamble. We did not receive any comments on this 
exemption.
    Training and professional development framework. We are exempting 
Tribes from the requirement at Sec.  98.44(a) to describe in their CCDF 
Plan the State framework for professional development. This requirement 
is State-specific and not relevant for Tribes.
    We do note, as discussed in greater detail earlier in the preamble, 
that States are required to communicate, coordinate, and collaborate 
with Tribes around training and professional development opportunities 
to make sure that tribal providers have access to training 
opportunities. Ongoing State professional development must be 
accessible to caregivers supported through Indian Tribes and Tribal 
organizations. The trainings must also be, to the extent practicable, 
appropriate for populations of Native American and Native Hawaiian 
children.
    Market rate survey or alternative methodology. Section 
98.83(d)(1)(iv) of the final rule exempts all Tribes from conducting a 
market rate survey or alternative methodology and all of the related 
requirements. In many Tribal communities, the child care market is 
extremely limited. Also, many Tribes are located in rural, isolated 
areas, making a market rate survey or alternative methodology 
difficult. Furthermore, Sec.  98.83(e) of the final rule exempts Tribes 
receiving CCDF allocations of $1 million or less (medium and small 
allocations) from operating a certificate program. Therefore, these 
Tribes are not required to offer the full range of child care services. 
For these Tribes especially, market rate surveys are not relevant. 
Despite exempting Tribes from these requirements, setting payment rates 
to support quality is essential to providing equal access to child care 
services. Tribes receiving large or medium allocations will be asked in 
their Plans how rates were set and how these rates support quality. We 
did not receive any comments on this exemption.
    Increasing access to high-quality in concentrations of poverty. The 
final rule exempts all Tribes from the requirement at Sec.  98.46(b) to 
prioritize increasing access to high-quality child care and development 
services for children and families in areas that have significant 
concentrations of poverty and unemployment and that do not have a 
sufficient number of such programs.
    Comment: In the NPRM, Tribes were subject to this requirement, and 
several commenters did not believe that it was appropriate for Tribal 
communities.
    Response: We agreed with the commenters. Given the poverty that 
exists on many Tribal reservations and service areas, we decided this 
requirement was redundant for Tribes. In addition, this exemption 
aligns with another pre-existing policy that exempts Tribes from the 
requirement to give priority for services to children of families with 
very low family income.
    Although Tribes are exempt from this requirement, we note that 
Tribes receiving large and medium allocations are subject to the 
requirements at Sec.  98.46(a)(2) and (3). These Tribal Lead Agencies 
must give priority for services to children with special needs, which 
may include any vulnerable populations as define by the Lead Agency and 
to children experiencing homelessness.
    Quality Progress Report. At Sec.  98.83(d)(1)(vii), Tribal Lead 
Agencies are exempt from completing the Quality Progress Report (QPR) 
at Sec.  98.53(f), which is a revised version of the former Plan 
appendix, the Quality Performance Report. In the future, we are 
planning to add additional questions on quality improvement activities 
to the Tribal Plan, ACF-700, and ACF-696T, but we will discuss these 
changes with Tribes and provide opportunity for public comment.
    The QPR includes a report describing any changes to State 
regulations, enforcement mechanisms, or other policies addressing 
health and safety based on an annual review and assessment of serious 
child injuries and any deaths occurring in child care programs. Under 
this provision, Tribes are exempt from completing the QPR, including 
the review and assessment of serious injuries and deaths. 
Notwithstanding, we encourage Tribal Lead Agencies to complete a 
similar process to the one described in the QPR and to review the 
reported serious injuries or deaths and make policy or programmatic 
changes that could potentially save a child's life.
    Immunization requirement. Consistent with the final rule's overall 
focus on promoting high-quality care that supports children's learning 
and development, Sec.  98.83(d) of the final rule removes the reference 
to Sec.  98.41(a)(1)(i). This change extends coverage of CCDF health 
and safety requirements related to immunization so that the 
requirements apply to Tribes, whereas previously Tribes were exempt. At 
the time the previous regulations were issued in 1998, minimum Tribal 
health and safety standards had not yet been developed and released by 
HHS. However, the minimum Tribal standards have subsequently been 
developed and released, and the standards address immunization in a 
manner that is consistent with the requirements at Sec.  
98.41(a)(1)(i). As a result, there is no longer a compelling reason to 
continue to exempt Tribes from this regulatory requirement. Many Tribes 
have already moved forward with implementing immunization requirements 
for children receiving CCDF assistance. By extending the requirement to 
Tribes, we will ensure that Indian children receiving CCDF assistance 
are age-appropriately immunized as part of efforts to prevent and 
control infectious diseases.
    Comment: Commenters expressed concern about the new immunization 
requirement and asked for grace period to implement the requirement.
    Response: As described earlier in the preamble, ACF will not be 
begin determining compliance with the final rule until the next Plan 
cycle with the FY 2020-2022 CCDF Plans. Tribal Lead Agencies will be 
able to use that time before that Plan cycle to work toward 
implementing the immunization requirements. In addition, as with States 
and Territories, Tribes have flexibility to determine the method to 
implement the immunization requirement. For example, they may require 
parents to provide proof of immunization as part of CCDF eligibility 
determinations, or they may require child care providers to maintain 
proof of immunization for children enrolled in their care. We also 
note, as indicated in the regulation, Lead Agencies have the option to 
exempt the following groups: (1) Children who are cared for by 
relatives; (2) children who receive care in their own homes; (3) 
children whose parents object on religious grounds; and (4) children 
whose medical condition requires that immunizations not be given. In 
determining which immunizations will be required, a Tribal Lead Agency 
has flexibility to apply its own immunization recommendations or 
standards. Many Tribes may choose to

[[Page 67542]]

adopt recommendations from the Indian Health Service or the State's 
public health agency.
    Monitoring inspections. In the final rule, all Tribes, regardless 
of allocation size, are subject to the monitoring requirements at Sec.  
98.42(b)(2), which reflect the requirements in the Act. However, we 
allow Tribal Lead Agencies to describe an alternative monitoring 
approach in their Plans, subject to ACF approval, and must provide 
adequate justification for the approach. Section 658E(c)(2)(K) of the 
Act requires at least one pre-licensure inspection and annual 
unannounced monitoring for licensed child care providers. License-
exempt providers are subject to annual monitoring on health, safety, 
and fire standards. The rule also allows Lead Agencies to use 
differential monitoring strategies and to develop alternate monitoring 
requirements for care provided in the child's home.
    Comment: Commenters expressed support for the flexibility to 
propose an alternative approach and to partner with other agencies to 
conduct monitoring.
    Response: In our 2013 NPRM, we also proposed that Tribal Lead 
Agencies would be subject to monitoring requirements, and we received 
many comments asking for more flexibility for Tribes. As with the 2013 
NPRM, the monitoring requirements in the Act and the additional 
requirements described in this rule may not be culturally appropriate 
for some Tribal communities. By allowing Tribes to describe alternative 
monitoring strategies in their Plans, we intend to give Tribal Lead 
Agencies some flexibility in determining which monitoring requirements 
should apply to child care providers. Tribes cannot use this 
flexibility to bypass the monitoring requirement altogether, but may 
introduce a monitoring strategy that is culturally appropriate or more 
financially feasible for their communities. Tribes may also use this 
flexibility to partner with other agencies that may already be 
conducting monitoring visits, such as State Lead Agencies, the Indian 
Health Service, or the Child and Adult Care Food Program. Coordinating 
and partnering with existing agencies can help lessen the financial and 
administrative burden.
    Comment: One comment asked for clarity around how the monitoring 
requirement for licensed and licensed-exempt child care providers would 
apply to Tribes. The commenter noted that most Tribes do not have 
licensing requirements in place.
    Response: We declined to make any Tribal-specific changes to how 
the monitoring requirements apply to licensed or license-exempt child 
care providers. If a Tribal child care provider is licensed by the 
State or by the Tribe, then that provider shall be required to receive 
at least one pre-licensure visit and an annual unannounced monitoring 
inspection, provided that the Tribe has not proposed an alternative 
strategy in the Plan. On the other hand, if the Tribal child care 
provider is not licensed by the State or the Tribe, then that provider 
is subject to annual monitoring on health, safety, and fire standards. 
These monitoring requirements are discussed in greater detail in 
Subpart E of the preamble.
    Comprehensive background checks. Tribal Lead Agencies are subject 
to the background check requirements at Sec.  98.43. A comprehensive 
background check includes: An FBI fingerprint check; a search of the 
National Crime Information Center's National Sex Offender Registry; and 
a search of the following registries in the State where the child care 
staff member lives and each State where the staff member has lived for 
the past five years: State criminal registry using fingerprints, State 
sex offender registry, and the State child abuse and neglect registry, 
as described at Sec.  98.43(b).
    We note that, in order to conduct an FBI fingerprint check using 
Next Generation Identification, Lead Agencies must act under an 
authority granted by a Federal statute. States, as described in Subpart 
E, may choose among three federal laws that grant authority for FBI 
background checks for child care staff. These three statutes are: The 
Act, Public Law 92-544, and the National Child Protection Act/
Volunteers for Children Act. These three laws give States the authority 
to conduct FBI fingerprint checks, but none of them specifically grant 
that same authority to Tribes. In order for Tribes to conduct FBI 
background checks, they may use the Indian Child Protection and Family 
Violence Prevention Act, which, to date, only covers those individuals 
who are being considered for employment by the Tribe in positions that 
have regular contact with, or control over, Indian children. Otherwise, 
Tribes will need to work with States to complete the FBI background 
check using a State's authority under an approved Public Law 92-544 
statute or under procedures established pursuant to the National Child 
Protection Act/Volunteers for Children Act (NCPA/VCA). We understand 
that this may present difficulties for Tribes, especially for those 
that do not currently have a partnership with the State. Therefore, in 
the final rule at Sec.  98.83(d)(3), we are allowing Tribes to describe 
an alternative background check approach in their Plans, subject to ACF 
approval, and must describe an adequate justification for the approach.
    Comment: Commenters were very supportive of the requirements for 
background checks for child care staff members. One Tribe wrote that it 
``supports criminal background checks performed on all types of child 
care providers and household members over 18 years of age. We think in 
the safety of our children and persons responsible for their care.''
    Commenters also described the substantial amounts of time and money 
needed to complete the checks. They worried about jurisdictional issues 
between Tribes and States, making it difficult for Tribes to gain 
access to all of the required checks. In addition, other commenters 
felt that particular elements, such as some of the disqualifying crimes 
may not be appropriate for Tribes. One Tribe said, ``Tribes should . . 
. determine whether providers meet qualifications and as sovereign 
nations, should have the flexibility to implement a waiver and appeals 
process for some of the crimes listed in Sec.  98.43(c)(1).''
    Response: We agree with the commenters that comprehensive 
background checks are important for ensuring children's health and 
safety in child care. We applaud the commenters' support of these 
requirements. However, we also acknowledge the significant challenges 
that face Tribes in being able to comply. As such, Tribes will be 
allowed to describe an alternative approach in their Plans and describe 
how the approach continues to protect the health and safety of 
children.
    ACF will not approve approaches with blanket exemptions or waivers 
to the background check requirements. We expect to allow some 
flexibility around the components of a comprehensive background check, 
particularly when there are jurisdictional issues between States and 
Tribes or when conducting background checks on other adults residing in 
family child care homes. Tribes should coordinate with States as much 
as possible in order to obtain access to the FBI and State databases. 
However, without an authorizing statute, we felt that Tribes may need 
flexibility to propose alternative checks that ensure children's health 
and safety.
    When a Tribe is conducting background checks on other adults in a 
family child care home, we have heard through our consultation sessions 
that many Tribal families reside in households with several 
generations. Requiring all members of the household to complete all 
five components of a

[[Page 67543]]

comprehensive background check could be burdensome for the family and 
for the Tribal Lead Agency. Therefore, the Tribal Lead Agency could 
also use an alternative strategy to conduct background checks on other 
individuals in a family child care home. ACF expects that Tribal Lead 
Agencies will conduct some components of a background check for these 
individuals.
    We may also grant flexibility to Tribes around the disqualifying 
crimes. We will not approve any approaches that ask for flexibility 
around violent crimes or crimes against children. Tribes may also 
request flexibility around the requirement to carry out background 
check requests within 45 days. In many cases, Tribes must rely on State 
systems, which may extend the background check process.
    We expect Tribes to comply with the background check requirements 
to the best of their abilities and will continue to work with Tribes to 
provide guidance, support, and technical assistance. Background checks 
continue to be a vital instrument in safeguarding children's health and 
safety. Tribal alternative approaches must be able to justify how they 
are appropriately comprehensive and protect the health and safety of 
children in child care.
    Certificate program. At Sec.  98.83(e) of this final rule, Tribes 
that receive medium or small allocations are exempt from operating a 
certificate program. We recognize that small Tribal grantees may not 
have sufficient resources or infrastructure to effectively operate a 
certificate program. In addition, many smaller Tribes are located in 
less-populated, rural communities that frequently lack the well-
developed child care market and supply of providers that is necessary 
for a certificate program. Tribes that receive large allocations will 
still be required to offer all categories of care through a certificate 
program.
    Under the previous regulations, Tribes receiving smaller CCDF 
grants were exempt from operating a certificate program. The dollar 
threshold for determining which Tribes were exempt from operating a 
certificate program was established by the Secretary. It was set at 
$500,000 in 1998 and has not changed. By exempting Tribes receiving 
medium or small allocations from operating a certificate program, we 
are effectively raising the dollar threshold to $1 million. As 
discussed earlier, we consider medium allocations to be grants between 
$250,000 and $1 million and small allocations to be grants of less than 
$250,000. This expands the number of Tribes that are exempt from 
operating a certificate program. This higher threshold will allow 
Tribes with smaller CCDF allocations to focus on implementing the new 
requirements in this final rule, specifically concentrating on the 
health and safety and quality requirements. Please see the earlier 
discussion of the Tribal CCDF framework for more information and a 
discussion of the comments received.
    Small allocations requirements. Tribes receiving the smallest CCDF 
allocations should not be subject to the same requirements as the 
Tribes receiving larger grant awards. Therefore, in this final rule, 
ACF is exempting Tribes receiving small allocations (less than 
$250,000) from the majority of the CCDF requirements to give these 
Tribes more flexibility in how they spend their CCDF funds and to focus 
these funds on health and safety and quality spending. At Sec.  
98.83(f), we require that Tribal Lead Agencies receiving small 
allocations spend their CCDF funds in alignment with the goals and 
purposes of CCDF as described in Sec.  98.1. These Tribal Lead Agencies 
must also comply with the health and safety requirements, monitoring 
requirements, background checks requirements, and quality spending 
requirements. The regulatory language at Sec.  98.83(f) defines the 
only CCDF provisions that apply to Tribes with small allocations.
    These limited requirements allow Tribes with small allocations the 
flexibility to spend their CCDF funds in ways that would most benefit 
their communities. Tribes could choose to spend all of their CCDF funds 
on quality activities, or they could invest all of their funds into a 
Tribal CCDF-operated center. These Tribes are also required to meet the 
health and safety requirements, including the monitoring and background 
check requirements, as discussed earlier. In addition, Tribes with 
small allocations need to define Indian child and Indian reservation or 
tribal service area as they relate to eligibility. Tribes that receive 
small allocations also continue to be required to meet the fiscal, 
audit, and reporting requirements in the rule. To align with these 
limited CCDF requirements, Tribes with small allocations will complete 
an abbreviated Plan, as discussed earlier. This approach balances 
increased flexibility with accountability, and ACF encourages these 
Tribes to focus their CCDF spending on ensuring health and safety and 
quality for children in child care.
    Comment: One commenter asked ACF to remove language at Sec.  
98.83(f)(11) that allows ACF to require ``any other requirement 
established by the Secretary.''
    Response: We declined to remove this regulatory language from the 
final rule. We reserve the option to require additional requirements 
described in this final rule. If ACF chooses to exercise this option, 
we will inform Tribes in advance and will engage in formal 
consultation.
    Quality improvement activities. All Tribes and Tribal organizations 
are subject to the quality spending and quality improvement activities 
requirements described at Sec.  98.83(g) and Sec.  98.53. The old 
regulations at Sec.  98.83(f) exempted Tribes and Tribal organizations 
with smaller allocations (total CCDF allocations less than $500,000) 
from the requirement to spend four percent on quality activities. We 
amended Sec.  98.83(f) by deleting paragraph (3) so that all Tribes, 
regardless of their allocation size, are now required to meet quality 
spending requirements included at Sec.  98.83(g).
    The Act requires State and Territory Lead Agencies to spend 
increasing minimum amounts on quality activities, reaching nine percent 
in FY 2020. As described earlier, Tribal Lead Agencies have a slightly 
different phase-in period, so that Tribes will be spending increasing 
amounts to reach nine percent by FY 2022. In addition, Tribal Lead 
Agencies receiving large or medium allocations must spend at least 
three percent on quality activities to support infants and toddlers. 
Tribes with small allocations are exempt from this requirement. The 
minimum quality expenditures are considered baselines; Tribal Lead 
Agencies may spend a larger percentage of funds on quality, as 
described at Sec.  98.83(g)(3).
    Comment: Overall, Tribal commenters supported the quality spending 
requirements. A couple of commenters were concerned that spending 
increasing percentages of CCDF funds on quality improvement activities 
would limit the funds for direct services and suggested that the 
minimum quality percentages should be based on the size of a Tribe's 
allocation.
    Response: We are pleased that Tribal commenters were supportive of 
this new requirement. A primary goal of this final rule is to promote 
high-quality child care to support children's learning and development. 
We want to ensure that Indian children and Tribes benefit from the 
increased recognition of the importance of high-quality child care. As 
such, we will not be limiting the quality spending percentages based on 
the size of the Tribe's allocation. Because the quality requirement is 
applied as a percentage of the Tribe's CCDF expenditures, the amount 
required will be relatively small for Tribes with small allocations.

[[Page 67544]]

    There are a wide range of quality improvement activities that 
Tribes have the flexibility to implement, and the scope of these 
efforts can be adjusted based on the resources available so that even 
smaller Tribal Lead Agencies can effectively promote the quality of 
child care. Most Tribal Lead Agencies are likely already engaged in 
activities that count as quality improvement. We will provide technical 
assistance to help Tribes identify current activities that may count 
towards meeting the quality spending requirement, as well as 
appropriate new opportunities for quality spending.
    The revisions to Sec.  98.53 (Activities to Improve the Quality of 
Child Care), discussed earlier in this preamble, provide a systemic 
framework for organizing, guiding, and measuring progress of quality 
improvement activities. We recognize that this systemic framework may 
be more relevant for States than for many Tribes, given the unique 
circumstances of Tribal communities. However, Tribes may implement 
selected components of the quality framework at Sec.  98.53, such as 
training for caregivers, teachers, and directors or grants to improve 
health and safety.
    The revisions to Sec.  98.53 in no way restrict Tribes' ability to 
spend CCDF quality dollars on a wide range of quality improvement 
activities. As is currently the case, these activities could include: 
Child care resource and referral activities; consumer education; grants 
or loans to assist providers; training and technical assistance for 
providers and caregivers; improving salaries of caregivers, teachers 
and directors; monitoring or enforcement of health and safety 
standards; and other activities to improve the quality of child care, 
including native language lessons and cultural curriculum development. 
While Tribes have broad flexibility, to the degree possible, Tribes 
should plan strategically and systemically when implementing their 
quality initiatives in order to maximize the effectiveness of those 
efforts.
    In addition, we encourage strong Tribal-State partnerships that 
promote Tribal participation in States' systemic initiatives, as well 
as State support for Tribal initiatives. For example, Tribes and States 
can work together to ensure that quality initiatives in the State are 
culturally relevant and appropriate for Tribes, and to encourage Tribal 
child care providers to participate in State initiatives, such as QRIS 
and professional development systems.
    Comment: Two commenters suggested that Tribes should be exempt from 
the three percent infant and toddler quality spending requirement 
because some Tribes only deliver after-school or school age services.
    Response: In the final rule, Tribes receiving large and medium 
allocations are subject to the requirement to spend three percent on 
quality activities for infants and toddlers. Tribes have previously 
been exempt from the targeted fund requirement relating to infants and 
toddlers under annual appropriations law. However, infants and toddlers 
are an underserved population, and therefore, it is important that 
quality dollars are directed to increase the quality of their care. In 
addition, in accordance with Sec.  98.16(x), Tribes receiving large and 
medium allocations are expected to describe in their Plans the 
strategies used to increase supply and improve the quality of child 
care services for children in underserved areas, infants and toddlers, 
children with disabilities, and children who receive care during 
nontraditional hours. Tribal Lead Agencies can use infant and toddler 
quality dollars as a strategy to increase supply and improve the 
quality of child care service for infants and toddlers.
    The final rule exempts small allocation Tribes from this 
requirement because many of these Tribes have built programs around 
school age and after-school care. However, we do strongly encourage 
these Tribes to consider spending quality funds to support infants and 
toddlers.
    Base amount. In the NPRM, OCC proposed to increase the base amount 
from $20,000 to $30,000, starting in FY 2017, to account for inflation 
that has eroded the value of the base amount since it was originally 
established in 1998. Each year, Tribal CCDF grantees' CCDF allocations 
are based on a Discretionary base amount, as well as a Discretionary 
and Mandatory amount based on the number of children submitted in the 
child count.
    Comment: We received mixed comments on whether the base amount 
should be raised to $30,000. Several commenters suggested that a cap 
should be placed on the total base amount that Tribal consortia can 
receive in order for a more equitable distribution of funds. Other 
commenters were concerned that the increased base amount would decrease 
the per child amount.
    Response: We will be going forward with our proposal to increase 
the base amount starting in FY 2017. Tribal commenters were correct 
that an increase in the Discretionary base amount will result in a 
lower Discretionary per child amount than would occur without the 
change in base amount. An increase in the base amount benefits smaller 
Tribes and consortia. Larger Tribes will receive less funding then they 
would have in the absence of this change.
    We also intend, to the extent possible, to increase the Tribal set-
aside to hold all Tribes harmless so that no Tribe will receive a 
decrease in funds.
    The base amount is not included in regulation and does not require 
regulatory change. ACF may continue to adjust the base amount in the 
future, following consultation with Tribes.
    Comment: Commenters asked for clarification in how the 
Discretionary base amount interacts with the new requirement that 
Tribes receiving large and medium allocations must spend 70 percent of 
their CCDF Discretionary funds (after reserving the required amount for 
quality activities) on direct services.
    Response: The final rule includes language at Sec.  98.83(h) 
exempting the base amount from the 70 percent direct services 
requirement. In addition, pre-existing policy exempts the base amount 
from the administrative cost limitation and the quality expenditure 
requirements.
    As noted by the commenters, Tribes receiving large and medium 
allocations are subject to the requirement at Sec.  98.50(f) that 
requires Lead Agencies to reserve from their CCDF Discretionary funds 
the required minimum quality expenditures. From the leftover funds, 
these Tribal Lead Agencies must spend not less than 70 percent to fund 
direct services. This requirement is described at greater length in the 
preamble of Subpart F. Tribes receiving small allocations are exempt 
from this requirement.
Sec.  98.84 Construction and Renovation of Child Care Facilities
    Section 98.84 describes the procedures and requirements around 
Tribal construction or renovation of child care facilities. The CCDBG 
Act of 2014 reaffirmed Tribes' ability to request to use CCDF funds for 
construction or renovation purposes. Section 658O(c)(6)(C) of the Act 
continues to disallow the use of CCDF funds for construction or 
renovation if it will result in a decrease in the level of child care 
services. However, the Act now allows for a waiver for this clause if 
the decrease in the level of child care services is temporary. A Tribe 
will also need to submit a plan to ACF demonstrating that, after the 
construction or renovation is completed, the level of child care 
services will increase or the quality of child care services will 
improve. In order for a Tribe to use CCDF funds on

[[Page 67545]]

construction or renovation while decreasing the level of direct 
services, the Tribe must certify that, after the construction is 
completed, the number of children served will increase or the quality 
of care will increase. The final rule reiterates this language from the 
Act at Sec.  98.84(b)(3).
    Comment: One commenter asked ACF to define through regulation a 
definition for the length of time that a decrease in direct services 
may be considered temporary.
    Response: We declined to define a temporary decrease in the level 
of direct services in this final rule. ACF will issue a revised Program 
Instruction to describe the application process for using CCDF funds on 
construction or renovation. This Program Instruction will also be 
updated to reflect the new requirements in the Act and will address the 
length of time that a decrease in direct services may be considered 
temporary. The Program Instruction is used by ACF to expand upon and 
further describe the statutory and regulatory requirements. In the 
event that the CCDF regulations do not address a specific issue, then 
we look to Head Start and HHS's generally-accepted construction and 
renovation guidelines.

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

    Subpart J contains provisions regarding HHS monitoring of Lead 
Agencies to ensure compliance with CCDF requirements, processes for 
examining complaints and for determining non-compliance, and penalties 
and sanctions for non-compliance. In this final rule we added several 
technical changes at Sec.  98.92 to align the regulations with the 
penalties and sanctions requirements in effect for determining non-
compliance.
Sec.  98.92 Penalties and Sanctions
    Previously-existing regulations allow HHS to impose penalties and 
other appropriate sanctions for a Lead Agency's failure to 
substantially comply with the Act, the implementing regulations, or the 
Plan. Such penalties and sanctions may include the disallowance or 
withholding of CCDF funds in accordance with Sec.  98.92. These 
regulations remain in effect.
    In addition, the final rule adds a new provision at Sec.  98.92(b) 
in accordance with two penalties added by the reauthorization of the 
Act. New section 658E(c)(3)(B)(ii) requires HHS to annually prepare a 
report that contains a determination about whether each Lead Agency 
uses CCDF funding in accordance with priority for services provisions. 
These priority provisions are reiterated at Sec.  98.46(a) of these 
regulations, and require Lead Agencies to give priority to children 
with special needs, children from families with very low incomes, and 
children experiencing homelessness. The Act requires HHS to impose a 
penalty on any Lead Agency failing to meet the priority for services 
requirements. A new regulatory provision at Sec.  98.92(b)(3) 
implements this penalty.
    In accordance with the Act, the final rule provides that a penalty 
of five percent of the CCDF Discretionary Funds shall be withheld for 
any Fiscal Year the Secretary determines that the Lead Agency has 
failed to give priority for service in accordance with Sec.  98.44. 
This penalty will be withheld no earlier than the first full Fiscal 
Year following the determination to apply the penalty, and the penalty 
will not be applied if the Lead Agency corrects its failure to comply 
and amends its CCDF Plan within six months of being notified of the 
failure. The Secretary may waive a penalty for one year in the event of 
extraordinary circumstances, such as a natural disaster. The second new 
penalty was added by section 658H(j)(3) of the Act and is related to 
the new criminal background check requirements. This final rule adds 
this penalty through new regulatory language at Sec.  98.92(b)(4). In 
accordance with the Act, the final rule provides that a penalty of five 
percent of the CCDF Discretionary Funds for a Fiscal Year shall be 
withheld if the Secretary determines that the State, Territory, or 
Tribe has failed to comply substantially with the criminal background 
check requirements at Sec.  98.43. This penalty will be withheld no 
earlier than the first full Fiscal Year following the determination to 
apply the penalty, and this penalty will not be applied if the State, 
Territory or Tribe corrects the failure before the penalty is to be 
applied or if it submits a plan for corrective action that is 
acceptable to the Secretary.

Subpart K--Error Rate Reporting

    On September 5, 2007, ACF published a Final Rule that added subpart 
K to the CCDF regulations. This subpart established 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. The error 
reports are designed to implement provisions of the Improper Payments 
Information Act of 2002 (Pub. L. 107-300) and the subsequent Improper 
Payments Elimination and Recovery Act (Pub. L. 111-204). This final 
rule retains the error reporting requirements at subpart K. In addition 
to the regulatory requirements at subpart K, details regarding the 
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. These program integrity 
efforts help ensure that limited program dollars are going to low-
income eligible families for which assistance is attended.
Sec.  98.100 Error Rate Reporting
    Interaction with eligibility requirements. This final rule includes 
regulatory language at Sec.  98.100(d) defining an improper payment to 
clarify that, because a child meeting eligibility requirements at the 
most recent eligibility determination or redetermination is considered 
eligible between redeterminations as described in Sec.  98.20(a)(1), 
any payment for such a child shall not be considered an error or 
improper payment due to a change in the family's circumstances, as set 
forth at Sec.  98.21(a) and (b). Several State commenters supported 
this provision. We added the reference to Sec.  98.21(b) in the final 
rule to include the graduated phase-out period. If a State chooses to 
adjust co-payments during the graduated phase-out, failure to properly 
do so may potentially result in improper payments.
    Corrective action plan. This final rule adds Sec.  98.102(c) to 
require that any Lead Agency with an improper payment rate that exceeds 
a threshold established by the Secretary must submit a comprehensive 
corrective action plan, as well as subsequent reports describing 
progress in implementing the plan. This is a conforming change to match 
new requirements for corrective action plans that were contained in the 
recent revisions to the forms and instructions. The corrective action 
plan must be submitted within 60-days of the deadline for submission of 
the Lead Agency's standard error rate report required by Sec.  
98.102(b).

VI. Regulatory Process Matters

a. Regulatory Flexibility Act

    The Regulatory Flexibility Act (RFA), as amended by the Small 
Business Regulatory Enforcement Fairness Act, (5 U.S.C. 605(b)) 
requires federal agencies to determine, to the extent feasible, a 
rule's economic impact on small entities, explore regulatory options 
for reducing any significant economic impact on a substantial number of 
such entities, and explain their regulatory approach. This final rule 
will not result in a significant economic impact on a

[[Page 67546]]

substantial number of small entities. This rule is intended to 
implement provisions of the Act, and is not duplicative of other 
requirements. The reauthorization of the Act and these implementing 
regulations are intended to better balance the dual purposes of the 
CCDF program by adding provisions that ensure that healthy, successful 
child development is a consideration for the CCDF program (e.g., 
preserving continuity in child care arrangements; ensuring that child 
care providers meet basic standards for ensuring the safety of 
children, etc.).
    The primary impact of the Act and this final rule is on State, 
Territory, and Tribal CCDF grantees because the rule articulates a set 
of expectations for how grantees are to satisfy certain requirements in 
the Act. To a lesser extent the rule would indirectly affect small 
businesses and organizations, particularly family child care providers, 
as discussed in more detail in the Regulatory Impact Analysis below. In 
particular, requirements for comprehensive criminal background checks 
and health and safety training in areas such as first-aid and CPR may 
have an impact on child care providers caring for children receiving 
CCDF subsidies. However, the rule will not have a significant economic 
impact on a substantial number of child care providers.
    The estimated cost of a comprehensive criminal background check is 
$55 per check. For the required health and safety training, a number of 
low-cost or free training options are available. Many States use CCDF 
quality dollars or other funding to fully or partially cover the costs 
of background checks and trainings. The health and safety provisions in 
the rule will primarily affect those CCDF providers currently exempt 
from State licensing that are not relatives--which account for only 
about 22 percent of CCDF providers nationally. Finally, we note that 
the final rule contains many provisions that will benefit child care 
providers by providing more stable funding through the subsidy program 
(e.g., eligibility provisions that promote continuity and improved 
payment practices).

b. Executive Orders 12866 and 13563

    Executive Orders 12866 and 13563 direct federal agencies to assess 
all costs and benefits of available regulatory alternatives and, if 
regulation is necessary, to select regulatory approaches that maximize 
net benefits (including potential economic, environmental, public 
health and safety effects, distributive impacts, and equity). The 
Orders require federal agencies to submit significant regulatory 
actions to the Office of Management and Budget (OMB) for approval. 
Section 3(f)(1) of Executive Order 12866 defines ``significant 
regulatory actions'', generally as any regulatory action that is likely 
to result in a rule that may: (1) Have an annual effect on the economy 
of $100 million or more or adversely affect in a material way the 
economy, a sector of the economy, productivity, competition, jobs, the 
environment, public health or safety, or State, local, or Tribal 
governments or communities; (2) create a serious inconsistency or 
otherwise interfere with an action taken or planned by another agency; 
(3) materially alter the budgetary impact of entitlements, grants, user 
fees, or loan programs or the rights and obligations of recipients 
thereof; or (4) raise novel legal or policy issues arising out of legal 
mandates, the President's priorities, or the principles set forth in 
the Executive Order.
    We estimate that the reauthorized Act and this NPRM will have an 
annual effect on the economy of more than $100 million. Therefore, this 
final rule represents a significant regulatory action within the 
meaning of section 3(f)(1) of Executive Order 12866. Given both the 
directives of Executive Orders 12866 and 13563 and the importance of 
understanding the benefits, costs, and savings associated with these 
proposed changes, we describe the costs and benefits associated with 
the proposed changes and available regulatory alternatives below in the 
Regulatory Impact Analysis.

c. Regulatory Impact Analysis

    We have conducted a Regulatory Impact Analysis (RIA) to estimate 
and describe expected costs and benefits resulting from the 
reauthorized Act and this final rule. This included evaluating State-
by-State policies in major areas of policy change, including monitoring 
and inspections (including a hotline for parental complaints), 
background checks, training and professional development, consumer 
education (including Web site and consumer statement), quality 
spending, minimum 12-month eligibility and related provisions, 
increased subsidies, and supply building (see Table 1).
    The State policies described in this RIA, including information 
from the FY 2014-2015 CCDF Plans, represent policies that were in place 
prior to the reauthorization of the Act. This is consistent with Office 
of Management and Budget (OMB) Circular A-4 which indicates that in 
cases where substantial portions of a rule simply restate statutory 
requirements that would be self-implementing, even in the absence of 
the regulatory action, the RIA should use a pre-statute baseline (i.e., 
comparison point for determining impacts).
    In conducting the analysis, we also took into account the statutory 
effective dates for various provisions. A number of States have already 
begun changing their policies toward compliance with the CCDBG Act of 
2014, which was enacted in November of 2014, but data on those changes 
is not yet available and are not factored into this analysis.

                                      Table 1--Overview of Major Provisions
----------------------------------------------------------------------------------------------------------------
                                           Relevant provisions of CCDBG
                                                        Act                      Provisions of final rule
----------------------------------------------------------------------------------------------------------------
                                                Health and Safety
----------------------------------------------------------------------------------------------------------------
Background checks........................  658H........................  Sec.   98.43.
Monitoring and inspections (including a    658E(c)(2)(J), 658E(c)(2)(C)  Sec.   98.42, Sec.   98.32.
 hotline for parental complaints).
Training and Professional Development      658E(c)(2)(G), 658E(c)(2)(I)  Sec.   98.44.
 (Pre-service, orientation, and ongoing
 training).
----------------------------------------------------------------------------------------------------------------
                                               Consumer Education
----------------------------------------------------------------------------------------------------------------
Consumer education website...............  658E(c)(2)(D), 658E(c)(2)(E)  Sec.   98.33.
Consumer statement.......................  658E(c)(2)(D), 658E(c)(2)(E)  Sec.   98.33.
----------------------------------------------------------------------------------------------------------------

[[Page 67547]]

 
                                                Quality Spending
----------------------------------------------------------------------------------------------------------------
Quality, infant and toddler spending.....  658G........................  Sec.  Sec.   98.53, 98.50(b).
----------------------------------------------------------------------------------------------------------------
                                               Continuity of Care
----------------------------------------------------------------------------------------------------------------
Minimum 12-month eligibility and related   658E(c)(2)(N)...............  Sec.  Sec.   98.20, 98.21.
 provisions.
----------------------------------------------------------------------------------------------------------------
                                      Increased subsidy and supply building
----------------------------------------------------------------------------------------------------------------
Increased subsidy........................  658E(c)(4), 658(c)(2)(S)....  Sec.   98.45.
----------------------------------------------------------------------------------------------------------------

    Need for regulatory action. CCDF has far reaching implications for 
America's low-income children, and the reauthorized Act and this final 
rule shine a new light on the role that child care plays in child 
development and making sure children are ready for school. The Act and 
this final rule take important steps toward ensuring that children's 
health and safety is being protected in child care settings. Both the 
Department of Health and Human Services' (HHS) Office of Inspector 
General (OIG) and the Government Accountability Office (GAO) have 
identified serious deficiencies with health and safety protections for 
children in child care. Prior to reauthorization of the Act, there was 
a wide range of health and safety standards across States. For example, 
ten States lacked even the most basic first aid and CPR training 
requirements, and in some cases, this approach to health and safety did 
not include vital standards in areas such as safe sleep practices and 
recognition and reporting of suspected child abuse and neglect.
    In addition, without any federal monitoring requirement prior to 
CCDBG reauthorization, 24 States allowed license-exempt family child 
care providers to self-certify that they met health and safety 
requirements without any documentation or other verification. As 
mentioned earlier, the importance of monitoring was highlighted in a 
recent series of Department of Health and Human Services' (HHS) Office 
of Inspector General (OIG) audits that identified deficiencies with 
health and safety protections for children in child care with CCDF 
providers in several States, including in Arizona, Connecticut, 
Florida, Louisiana, Maine, Michigan, Minnesota, Pennsylvania, Puerto 
Rico, and South Carolina. As discussed throughout this final rule, 
minimum health and safety standards included in the reauthorized Act 
and this rule are essential to help prevent children from being exposed 
to child care settings that put their health and safety at risk. The 
importance of such standards and the inherent risks are discussed at 
length in Caring for Our Children (Caring for Our Children: National 
Health and Safety Performance Standards; Guidelines for Early Care and 
Education Programs, 3rd Edition, which was produced with the expertise 
of researchers, physicians, and practitioners. (American Academy of 
Pediatrics, American Public Health Association, National Resource 
Center for Health and Safety in Child Care and Early Education. (2011).
    Parental choice is a foundational tenet of the CCDF program--to 
ensure parents are empowered to make their own decisions regarding the 
child care that best meets their family's needs. Prior to 
reauthorization, CCDF rules required Lead Agencies to promote informed 
child care choices by collecting and disseminating consumer education 
information to parents and the general public. Over the years, 
economists have researched and written about the problem of information 
asymmetry in the child care market and the resulting impact both on the 
supply of high-quality care and a parent's ability to access high-
quality care. (Blau, D., The Child Care Problem: An Economic Analysis, 
2001; Mocan, N., The Market for Child Care, National Bureau of Economic 
Research, 2002) In order for parental choice to be meaningful, parents 
need to have access to information about the choices available to them 
in the child care market and have some way to gauge the level of 
quality of providers. The Act and this final rule strengthen consumer 
education requirements to make information about child care providers 
more accessible and transparent for parents and the general public.
    Stable relationships between a child and their caregiver are an 
essential aspect of quality. Yet, under current policies, clients may 
``churn'' on and off of CCDF assistance every few months, even when 
they remain eligible. Some studies show that many families appear to 
remain eligible for the subsidies after they leave the program, 
suggesting that child care subsidy durations also are likely influenced 
by factors unrelated to employment (Grobe, D., R.B. Weber and E.E. 
Davis (2006). Why do they leave?: Child care subsidy use in Oregon.). 
Congress and ACF are concerned that State subsidy policies can make it 
overly burdensome for parents to keep their subsidy, or are not 
flexible enough to allow for temporary or minor changes in a family's 
circumstances. This is supported by a study that featured a series of 
interviews with State and local child care administrators and 
identified a number of administrative practices that appear to reduce 
the duration of child care subsidy usage (Adams, G., K. Snyder and J.R. 
Sandfort, Navigating the child care subsidy system: Policies and 
practices that affect access and retention. Urban Institute, 2002) 
Through interviews with ``state and local child care administrators and 
key experts, and focus groups with caseworkers, parents, and 
providers'' in 12 States, the study found that families often faced 
considerable administrative burden when trying to apply for or 
recertify their eligibility status. For example, families sometimes had 
to interact with more than one agency during the application process, 
had to make more than one trip to an administrative office, and 
sometimes had to wait for weeks or months to get an appointment with a 
social worker. In addition, families receiving Temporary Assistance for 
Needy Families (TANF) sometimes had additional difficulties with 
redetermination because of the temporary nature of their employment or 
training activities. The study also found that agencies had different 
policies regarding the ways in which families could recertify their 
eligibility status including mail, phone, or fax. Parents often find it 
difficult to navigate administrative processes and paperwork required 
to maintain their eligibility when policies are inflexible to changes

[[Page 67548]]

in a family's circumstances. Policies that make it difficult for 
parents to keep their subsidy threaten the employment stability of 
parents and can disrupt children's continuity of care. This final rule 
establishes a number of family-friendly policies that benefit CCDF 
families by promoting continuity in subsidy receipt and child care 
arrangements.
    Changes made by the CCDBG Act of 2014 and this final rule, 
consistent with the revised purposes of the Act, are needed to: Protect 
the health and safety of children in child care; help parents make 
informed consumer choices and access information to support child 
development; provide equal access to stable, high-quality child care 
for low-income children; and enhance the quality of child care and the 
early childhood workforce.
    Commenters on the proposed rule who had overall reservations about 
the cost of the Act were typically concerned with the impact of 
redirecting limited funds to new requirements, including the potential 
loss of child care slots if funding is diverted from direct services. 
One commenter said that ``few States have a budget environment capable 
of absorbing the estimated costs of compliance.'' Others pointed to a 
need for additional resources in order to fully realize the 
expectations of the CCDBG reauthorized Act and this final rule. One 
commenter representing a State child care program said that ``in order 
to advance the worthy goals of the CCDBG Act of 2014, the federal 
government must either provide sufficient federal resources to fund the 
envisioned transformation in a prescriptive manner, incrementally 
increase prescriptive compliance as adequate funds become available to 
reach the goals or allow States to use available resources with maximum 
flexibility to achieve results.'' Some States did submit their own cost 
calculations and some focused on the financial impact of providing 
minimum 12-month eligibility and other family-friendly policies. While 
we do address the potential impact of these policies below, these are 
not considered costs for the purposes of this analysis, but rather are 
considered a reallocation of resources rather than a new cost.
    A number of national organizations expressed these funding concerns 
indicating that ``achieving the goals of the CCDBG Act to improve the 
health, safety, and quality of child care and the stability of child 
care assistance will require additional resources. Congress made a down 
payment on funding in the recent FY 2016 omnibus budget; however, 
additional investments will be necessary to ensure the success of the 
new law and to address the gaps that already exist in the system.''
    Concerns about costs and tradeoffs are vital to the conversation 
about implementing the Act and this regulation. Throughout this final 
rule, we address the individual concerns raised about specific 
provisions and make adjustments where necessary. Whereas all policies 
have been discussed in detail in the body of the preamble above, this 
Regulatory Impact Analysis focuses on quantifying those policies that 
would have an impact on the overall cost to society of the Act and the 
final rule. As detailed below, the large majority of costs are related 
to items explicitly required by the Act. There are places in the final 
rule where we clarify language from the Act to ensure that the program 
is implemented in a way that is consistent with the intent of the law.
    For the purposes of estimating the costs of these new requirements, 
the analysis makes a number of assumptions. In the proposed rule, we 
welcomed comment on all aspects of the analysis, but throughout the 
narrative, we specifically requested comment in areas where there is 
uncertainty. While, as stated above, a number of commenters did express 
general concerns about the overall cost of the proposal, few provided 
specific comments on the assumptions made by the Regulatory Impact 
Analysis. Those specific comments that we did receive are included in 
the analysis below and largely supported the underlying assumptions of 
our original analysis.
    One overarching assumption that is consistent across all the 
estimates is that we are assuming that the current caseload of children 
in the CCDF program (which is a monthly average of approximately 1.4 
million children) remains constant. Due to inflation and the potential 
for erosion in the value of the subsidy over time, funding increases 
will be necessary to maintain the caseload and avoid slot loss; 
however, those changes are not reflected in this RIA since they are not 
directly associated with the Act or the final rule.
    While the estimate cannot fully predict how States and Territories 
will design policies in response to these new requirements or who would 
be responsible for paying certain costs, we do recognize that absent 
additional funding, these costs will impact the CCDF caseload. This 
point is discussed in greater detail below.

A. Analysis of Costs

    In our analysis of costs, we considered any claims on resources 
that would be made that would not have occurred absent the rule. This 
includes new requirements that are merely reiterating changes made in 
the reauthorized CCDBG Act of 2014, which were effective upon the date 
of enactment of November 19, 2014. This RIA discusses the potential 
impact of the following major provisions in the statute and in the 
final rule:
     Monitoring and inspections (including State hotlines for 
parental complaints);
     background checks;
     health and safety training;
     consumer education (Web site and consumer statement);
     minimum 12-month eligibility periods;
     administrative and IT/infrastructure costs; and
     increased subsidy rates per child associated with 
improving continuity and equal access.
    We conducted a State-by-State analysis of these major provisions. 
It should be noted that due to insufficient data, the health and safety 
portions of this cost estimate in the NPRM did not include Territories 
and Tribes. This omission was not meant to minimize the fact that 
requirements of the Act and the final rule will still have a 
significant programmatic and financial impact on Territories and 
Tribes. In the proposed rule, we invited public comment on the 
anticipated financial impact of the Act and the proposed rule on 
Territories and Tribes, but did not receive enough additional 
information to conduct a thorough analysis of costs for Territories and 
Tribes. However, to account for these costs in the RIA, we estimating 
the cost using the percentage of funding allocated to Territories and 
Tribes and applying that percentage to the cost estimate for States. 
For Territories, their funding allocation amounts to 0.5 percent and 
for Tribes, this is 2.0 percent of CCDF funding. By applying these 
percentages to the cost estimate for States, we are assuming that the 
combined cost of meeting the new requirement for Territories and Tribes 
also equals approximately 2.5% of the cost for States. It should be 
noted that the overall Tribal allocations amounts to slightly more than 
2.0 percent due to funding level changes included in the CCDBG Act, but 
given that Tribes are not subject to all new requirements and have 
significant flexibility in some areas (particularly for medium and 
small allocation Tribes), we believe that 2.0 percent is a reasonable 
percentage to use for this estimate. The total annual money and 
opportunity cost for Territories and Tribes (using a 3 percent discount 
rate) is approximately $7.5 million. This is an estimated total of $66

[[Page 67549]]

million dollars over the full ten year period of the cost estimate. 
Additionally, for Territories and Tribes the estimated transfer costs 
related to increased supply building would be $20.9 million per year 
(using a 3 percent discount rate) or an estimated total of $184.3 
million over the full ten year period of the cost estimate.
    In order to determine State practices prior to the passage of the 
CCDBG Act of 2014, we relied on information from State-submitted FY 
2014-2015 CCDF Plans, as well as the 2011-13 Child Care Licensing Study 
(prepared by the National Association for Regulatory Administration). 
We used data on requirements within a State by child care setting type 
(center, family home, group home, child's home) and licensing status, 
to project costs based on specific features of a State's requirements 
as reported at the time. If a State already met or exceeded an 
individual requirement, we assumed no additional cost associated with 
the final rule. When possible, if a State partially met the requirement 
we applied a partial implementation cost. For example, a State that has 
an annual monitoring requirement for its licensed centers would be 
assigned no additional cost to implement that specific part of the 
regulatory requirement.
    For example, some States already conduct comprehensive background 
checks that include all components of a comprehensive background check 
required by law except an FBI fingerprint check. Prorated costs were 
assigned accordingly (assumptions about partial costs are explained in 
greater detail in the discussions below). The final rule offers 
significant flexibility in implementing various provisions, therefore 
in the RIA we identified a range of implementation options to establish 
lower and upper bound estimates and chose a middle-of-the-road approach 
in assessing costs.
    This RIA takes statutory effective dates into account within a 10-
year window. The analysis and accounting statements distinguish between 
average annual costs in years 1-5 during which some of the provisions 
will be in varying stages of implementation and the average annual 
ongoing costs in years 6-10 when all the requirements would be fully 
implemented (10-year annualized costs and total present value costs 
will also be presented throughout). Some costs will be higher during 
the initial period due to start-up costs, such as building a consumer 
Web site, and costs associated with bringing current child care 
providers into compliance with health and safety requirements. However, 
significant costs, such as the requirement to renew background checks 
every five years, would not be realized until later. These compounding 
requirements, including the cost of increasing subsidy rates, account 
for the escalation in costs in the out years of the analysis.
    Throughout this RIA, we calculate two kinds of costs: Money costs 
and opportunity costs (Note: The analysis also considers ``transfers'', 
which are discussed in the section on Estimated Impacts of Increased 
Subsidy; see Table 8 below for additional details). Any new 
requirements that have budgetary impacts on States or involve an actual 
financial transaction are referred to as money costs. For example, 
there is a fee associated with conducting a background check, which is 
a money cost regardless of who pays for the fee. For purposes of this 
analysis, we examined what additional resource claims would be made as 
a result of the reauthorized Act and final rule regardless of who 
incurs the cost or from what source it is paid (which varies widely by 
State). In some instances, money costs will be incurred by the State 
and may require States to redistribute how they use CCDF funds in a way 
that has a budgetary impact. In other cases, money costs will be 
incurred by child care providers or parents.
    Alternatively, claims that are made for resources where no exchange 
of money occurs are identified as opportunity costs. Opportunity costs 
are monetized based on foregone earnings and would include, for 
example, a caregiver's time to attend health and safety trainings when 
they might otherwise be working.
    Each year, more than $5 billion in federal funding is allocated to 
State, Territory, and Tribal CCDF grantees. Activities in the final 
rule are all allowable costs within the CCDF program and we expect many 
activities to be paid for using CCDF funds. For example, although some 
States may supplement funding, others may choose to redistribute 
funding from a current use to address start-up costs or new priorities. 
As discussed above, we received a number of comments from States in 
response to the proposed rule that, in the absence of additional 
funding, meeting requirements in the final rule would result in a 
reduction in the CCDF caseload. Therefore, we anticipate some money 
costs will result in this type of re-distributive budgetary impact 
within the CCDF program.
    However, to make the costs of the rule concrete, we provide 
analysis on the economic impact of the rule if the child care caseload 
were to remain constant. While we recognize that there may be a 
decrease in caseload due to the financial realities of the new 
requirements, applying that decrease in caseload to underlying 
assumptions of this analysis would only lessen the estimated cost, 
which would result in a probable underestimate. While the costs 
estimated in this analysis represent the costs required, (regardless of 
who pays for the requirement) to meet the new requirements for the 
current monthly caseload of 1.4 million children, it is not, and should 
not be interpreted as, our projection of future caseload.
    Overall, based on our analysis, annualized costs associated with 
these provisions averaged over a ten year window, are $235.2 million 
(plus an additional $59.2 million in opportunity costs) and the 
annualized amount of transfers is approximately $839.1 million (all 
estimated using a 3 percent discount rate), which amounts to a total 
annualized impact on States, Territories, and Tribes of approximately 
$1.16 billion.
    This RIA represents all of the changes made between the NPRM and 
the final rule and other methodological refinements--with some changes 
increasing costs (follow-up monitoring visits, adding in an estimate 
for Tribes and Territories) and others decreasing the costs (removing 
the required use of grants and contracts). The result is an estimated 
increase of about $33 million per year in money costs and an increase 
in total annual impact from $1.1 billion in the NPRM to $1.16 billion 
in the final rule.
    Of that amount, approximately $1.15 billion is directly 
attributable to the statute, with only an annualized cost of 
approximately $4 million (or approximately 0.3% of the total estimated 
impact) directly attributable to the discretionary provision of this 
regulation that extends the background check requirement. This RIA 
includes an additional estimated cost of $38 million per year for 
follow-up monitoring visits that was not accounted for in the version 
of the RIA that appeared in the NPRM. However, this is considered a 
natural outgrowth of the statutorily-required inspections and therefore 
not included in the discretionary amount because it is not attributable 
to a new requirement in the regulation. Compliance with these 
requirements will be determined through the CCDF State Plan process. 
Therefore, throughout this analysis we have phased in these 
discretionary requirements with the full costs taking effect in FY 2019 
(to align with the next round of plans, which will become effective 
October 2018).

[[Page 67550]]

    While this analysis does not attempt to fully quantify the many 
benefits of the reauthorization and this final rule, we describe the 
benefits qualitatively in detail and conduct a breakeven analysis to 
compare requirements clarified through this regulation against a 
potential reduction in child fatalities and injuries. Further detail 
and explanation on the impact of each of the provisions is available 
below.
1. Health and Safety Provisions
    Per the new requirements in the Act, this final rule includes 
several provisions focused on improving the health and safety of child 
care. We estimated costs associated with the following three 
requirements: Monitoring and inspections at Sec.  98.42; comprehensive 
background checks at Sec.  98.43; and health and safety training at 
Sec.  98.41(a)(2).
    Implementation costs of health and safety provisions, specifically 
the start-up costs, will depend primarily on the number of child care 
providers in a State and current State practice in areas covered by the 
final rule. We used data from the FY 2014 ACF-800 administrative data 
report to estimate that approximately 269,000 providers caring for 
children receiving CCDF subsidies would be subject to CCDF health and 
safety requirements. In addition to these CCDF providers, this analysis 
also includes approximately 110,000 licensed providers who are not 
currently receiving CCDF subsidies but would be subject to the 
monitoring (added in the final rule) and background check and certain 
reporting requirements.
    These figures exclude relative care providers since States may 
exempt these providers from CCDF health and safety requirements. 
According to OCC's 2014 administrative data, there are approximately 
115,000 relative care providers receiving CCDF assistance. States vary 
widely on what they require of relatives, with 18 States/Territories 
requiring that relative providers meet all health and safety 
requirements, 4 exempting relatives for all requirements, and 34 
indicating that relative providers were exempt from some but not all 
requirements.
    It is difficult to forecast State behavior in response to new 
requirements since Lead Agencies have the option to exempt relatives 
from these requirements. Even those States that currently apply 
requirements to relatives may keep those requirements at current levels 
rather than expanding to meet new requirements. As a hypothetical, if 
States were to apply half of all the new health and safety requirements 
to half of the current number of relative providers, the annualized 
cost (using a 3% discount rate) would be approximately $40 million 
(averaged over a 10 year window). However, since applying the new 
requirements to relatives is not a legal requirement and we anticipate 
that many States will choose to maintain their relative exemptions, we 
are not including costs associated with relative providers in the 
accounting statement for this regulatory impact analysis. We did 
request comment on the extent to which Lead Agencies anticipate 
applying new requirements to relative providers and only one State 
responded to this request, indicating that they did ``not plan to 
extend the new requirements to those homes where an exemption already 
exists.''
    It should be noted that, based on a longitudinal analysis of OCC's 
administrative data, the number of child care providers serving CCDF 
children has declined by nearly 50 percent between 2004 and 2014, an 
average decrease of 4 percent per year. The greatest decline occurred 
in settings legally operating without regulation, specifically family 
child care; however, both regulated and license-exempt child care 
centers also saw declines. This analysis is based on current provider 
counts, but assuming that the number of CCDF providers will continue to 
steadily decrease, this estimate of the number of providers, and 
resulting costs associated with implementing health and safety 
provisions, may be an overestimate.
    Many States' licensing requirements for child care providers 
already meet or exceed certain components of the minimal health and 
safety requirements for CCDF providers in this final rule. For example, 
training in first-aid and CPR and background checks are commonly 
included as part of State licensing, with approximately 40 States 
already meeting this requirement for licensed providers (centers, group 
home, and family child care).
    Many licensed CCDF providers already meet many of the other health 
and safety requirements as well. For example, more than 40 States 
already require annual monitoring of all their licensed providers, with 
even more already requiring pre-inspections of their licensed 
providers. In the case of licensed centers, more than 45 States already 
require pre-inspections. For those States whose licensing requirements 
do not meet CCDF health and safety requirements, there will be costs 
incurred. However, the largest cost will be incurred for those CCDF 
providers that are currently exempt from State licensing that are not 
relatives--approximately 85,000 providers nationally. (Table 2 below 
provides a national picture of the types of CCDF providers.) We used an 
expanded State-by-State version of this table to estimate costs for 
meeting health and safety requirements. As stated above, the final rule 
allows States to exempt relatives from health and safety requirements, 
including background checks, health and safety training, and 
monitoring. Therefore, ACF did not attribute any cost associated with 
these requirements to relative CCDF providers.

                                                           Table 2--Summary of CCDF Providers
                                                                       [FY2014] *
--------------------------------------------------------------------------------------------------------------------------------------------------------
                       Licensed CCDF providers                        CCDF providers legally operating without regulation (license-exempt)
-------------------------------------------------------------------------------------------------------------------------------------------
                                                                        Child's home (in-home)       Family and group home                      Total
                 Centers                   Family home   Group home  --------------------------------------------------------    Centers
                                                                        Relative    Non-relative    Relative    Non-relative
--------------------------------------------------------------------------------------------------------------------------------------------------------
81,352..................................       70,165        32,130        38,670        27,739        77,958        50,330         7,355       385,699
--------------------------------------------------------------------------------------------------------------------------------------------------------
* Source: ACF-800, Report 13.

    Monitoring and pre-inspections. The Act requires that States 
conduct monitoring visits for all CCDF providers including all license-
exempt providers (except, at Lead Agency option, those that serve 
relatives). While States must have monitoring policies and practices in 
effect (for both licensed and license-exempt CCDF providers) no later 
than

[[Page 67551]]

November 19, 2016, the full cost of this requirement will not be in 
effect until 2017. Therefore, we are projecting some period of phase-
in, with 25% of providers subject to monitoring in 2015 and an 
additional 50% (a total of 75%) subject to monitoring requirements in 
2016. The costs of these requirements will be fully realized from 2017 
on.
    The Act specified different monitoring requirements for providers 
who are licensed and providers who are license-exempt.
     For Licensed CCDF Child Care Providers--States must 
conduct one pre-licensure inspection for health, safety, and fire 
standards and at least annual, unannounced inspections for licensed 
CCDF providers.
     For License-Exempt Providers (except, at Lead Agency 
option, those serving relatives)--States must conduct at least annual 
inspections for license-exempt CCDF providers for compliance with 
health, safety, and fire standards at a time determined by the State.
    For this estimate, if a State reported that they conduct at least 
one annual monitoring visit for licensed CCDF providers (pre-licensure 
inspections are discussed separately below), we assumed no additional 
cost for those providers because it met or exceeded the frequency 
required by the Act and final rule. The majority of States already 
monitor licensed CCDF providers annually (more than 40 across all 
settings--centers, family child care, and group homes). A subset of 
States that currently have annual monitoring requirements do not 
conduct unannounced visits. However, we did not assign a cost for 
States changing their policy from announced to unannounced monitoring. 
We acknowledge that there may be an administrative cost to such a 
change, but for the purposes of this estimate, we consider that to be 
included in the overall administrative cost allocation discussed below. 
We asked for public comment on specific costs associated with moving 
from announced to unannounced inspections, but did not receive any.
    This cost estimate takes into account three major components of the 
new monitoring requirements: (1) Annual monitoring of both licensed and 
license-exempt CCDF providers, (2) Pre-inspections for licensed CCDF 
providers, and (3) a Hotline for parental complaints.
    The annual monitoring estimate includes the following variables 
analyzed on a State-by-State basis:
     Current State Practice: We collected State-level data from 
the 2014-15 CCDF State plans and the NARA 2011-13 Child Care Licensing 
Study to determine which States already met annual inspection 
requirements. Data was collected for the following settings: Licensed 
CCDF providers (family, group home, and centers) and license-exempt 
CCDF providers (non-relative).
     Current Provider Counts: Using 2014 CCDF administrative 
data, we collected the number of CCDF providers within each setting for 
each State.
    Using these data we arrived at an estimate of the number of CCDF 
providers within each State that would newly require an annual 
monitoring visit. We then estimated the number of new licensing 
inspectors and supervisors that would be required to monitor the 
projected number of providers newly subject to monitoring, based on a 
projected caseload of child care providers for each licensing staff. To 
estimate the actual cost, we calculated the cost of employing (salary 
and overhead) the estimated number of necessary new licensing staff 
(inspectors and supervisors).
    The Act requires States to have a ratio of licensing inspectors to 
child care providers and facilities that is sufficient to conduct 
effective inspections on a timely basis, but there is no federally 
required ratio. The current range of annual caseloads per licensing 
inspector is large, from 1:33 to 1:231. We used the following range to 
estimate the impact:
     Lower bound: 50th percentile of current licensing 
caseloads (weighted by the number of providers in each State), which 
produced an adjusted caseload of 1:126 providers per monitoring staff.
     Upper bound: A 1:50 ratio of providers to monitoring 
staff, as recommended by the National Association of Regulatory 
Administration.
    Our final cost estimate represents the midpoint between the lower 
and upper bound estimate. To calculate the number of required 
supervisory staff, we assumed a ratio of one supervisor per seven 
monitoring staff, which is the current average across States as 
reported in the NARA 2011-13 Child Care Licensing Study.
    To generate the actual cost associated with this staffing increase, 
we multiplied the number of new staff by salary and overhead costs for 
full-time equivalent (FTE) staff based on Bureau of Labor Statistics 
(BLS) data from the National Occupation and Wage Estimates from May 
2013. The same FTE costs were applied to all States. The salary applied 
was $42,690 for each monitoring line staff (see Community and Social 
Service Specialists, All Other: Code 21-1099) and $65,750 for each 
supervisor (see Social and Community Service Managers: Code 11-9151), 
which was then multiplied by 2 to account for benefits and overhead. 
(Data from the Bureau of Economic Analysis's National Income and 
Product Accounts shows that in 2013, wages and salaries are 
approximately 50 percent of total compensation.). Using this 
methodology, the annualized money cost of meeting the annual monitoring 
requirements is $172.9 million, estimated using a 3 percent discount 
rate. The estimated present value cost of meeting this requirement over 
the 10 year period examined in this rule, using a 3% discount rate, is 
approximately $1.5 billion.
    While not required by the Act or the final rule, we anticipate that 
annual monitoring in States could result in additional follow-up visits 
if problems were identified in the initial visit. Because we did not 
have data on this with which to estimate potential impacts, we asked 
for comment in the NPRM on the percentage of providers that would 
require a follow-up visit as a result of new annual monitoring visits. 
In response to this request, one State estimated that approximately 23% 
of all providers would require a new annual visit once the annual 
monitoring visit requirement goes into effect and another estimated 
that ``approximately 20% of new annual monitoring inspections'' would 
result in follow-up inspections. Despite not being an explicit 
requirement of the rule or statute, we believe that follow-up visits 
would be a natural result of the new statutory inspection requirements 
and are therefore including this potential cost in the final cost 
estimate. Assuming a 20% follow-up rate, the associated costs could be 
approximately $40.6 million per year (estimated using a 3% discount 
rate).
    Opportunity costs for the monitoring requirements account for the 
fact that to successfully pass a monitoring visit, there would 
presumably be a number of administrative costs (in terms of time; an 
opportunity cost) for providers and caregivers. For example, providers 
must read the new rules, change their current practices to comply, and 
obtain and track paperwork to make sure they are in compliance. For the 
purposes of this following analysis, we made several assumptions about 
the amount of time required to prepare for and comply with the 
monitoring requirement, but we welcome comment on these assumptions. To 
calculate the opportunity cost of these visits, we assumed that time 
spent doing administrative tasks equals the length of the monitoring 
visit plus an additional 1.5 and 2.0 hours of preparation per

[[Page 67552]]

hour of the visit, for family child care and center providers 
respectively.
    Based on one State reporting that their monitoring visits for 
licensure took between 2.5 and 5 hours, we used 2.5 hours as the basis 
for our lower bound and 4 hours as the basis for our upper bound. We 
used 4 hours instead of 5 for our upper bound estimate because 5 hours 
is the amount reported for a licensing visit, but what is required in 
the final rule is generally less extensive than what is generally 
required for licensure. As such, our lower bound estimate uses 6.25 and 
7.5 hours of preparation for family child care and center providers, 
respectively, and our upper bound uses 10 and 12 hours of preparation 
for family child care and center providers, respectively.
    Two States provided their estimated time spent on monitoring. One 
State estimated that they currently ``expend 10 hours of staff time per 
visit'' and another cited a study they conducted in 2006 that found 
``day care licensing staff indicates that an average of 9.35 hours is 
spent preparing for, traveling to, and conducting a monitoring 
inspection.'' Since both of these figures are within the range of the 
assumptions used for our analysis, we are keeping the assumptions the 
same for the final rule.
    According to BLS, for child care workers, one hour equals $18.80 
after accounting for benefits and overhead (we include overhead because 
administrative preparation time would most likely occur during work 
hours). We estimated the opportunity cost of preparation time for 
monitoring to be an average of $8.1 million annually (estimated using a 
3% discount rate) during the two-year phase-in period (assumes States 
begin to ramp-up monitoring, but not fully implemented) and an 
annualized opportunity cost of $14.3 million (estimated using a 3% 
discount rate) over the entire 10 year window. Note that the phase-in 
period discussed here covers a two year period and is different from 
the phase in period in the table below, which shows a phase-in period 
of 5 years (after which all requirements would be fully implemented).
    Some proportion of providers will require remedial work to meet 
CCDF health and safety requirements after an annual visit. For example, 
a provider may be out of compliance with building safety or not have 
up-to-date immunization records, and costs in terms of time as well as 
material resources would be necessary to come into compliance. However, 
it is difficult to quantify these effects because the specific 
remediation required will vary by provider and other circumstances. 
Therefore, we did not attempt to monetize the cost of providers' 
remediation efforts. In addition, there are also benefits to be reaped 
(in terms of child health and safety) as providers makes changes to 
come into compliance with health and safety requirements as a result of 
this rule, but that are not quantified in this analysis.
    Next we estimate cost of pre-licensure inspections required of 
licensed CCDF providers by the Act. Using the same methodology that we 
used for annual monitoring, we determined how many States already met 
this requirement and used CCDF administrative data to determine the 
number of licensed providers (by setting type) that did not previously 
but would now require pre-licensure visits. The final rule allows 
States to grandfather all existing providers--thus there is no start-up 
cost or backlog of providers that need a pre-inspection. There are not 
good data to estimate how many new providers a State would need to pre-
inspect on an annual basis, but anecdotal evidence suggests the number 
is relatively small. Of the States that do not currently require pre-
inspections (1 for centers, 6 for group homes, and 7 for family child 
care), we estimated (based on information shared by a few States) that 
a lower bound of five percent of family child care and four percent of 
center care would be new each year (lower bound). For the upper bound, 
we estimate that 12 percent of family child care and 7 percent of child 
care centers would be new each year.
    Using a caseload of 88 providers per monitoring staff (the midpoint 
of the 50th percentile of current caseload data and the recommended 
caseload of 50:1), and using the same salary and benefits data as the 
monitoring estimates, the ongoing average annual pre-inspection costs 
are estimated to be approximately $0.7 million (estimated using a 3% 
discount rate), but would not begin until 2017. The estimated present 
value cost of meeting this requirement over the 10 year period examined 
in this rule, using a 3% discount rate, is approximately $6.2 million.
    Monetized caregiver time to prepare for pre-inspections is 
considered an opportunity cost and is estimated to be approximately 
$200,000 annually, a relatively small amount because this only applies 
to new licensed providers in the few States that don't already require 
pre-licensure inspections. Though some of the opportunity cost would be 
incurred prior to the actual inspection visit, for the purposes of this 
estimate, we considered all costs for pre-inspections as beginning 
after the end of the phase-in period. We used the same methodology used 
to calculate annual inspections to determine the opportunity cost of 
pre-inspections.
    However, recognizing that preparing for an initial licensing 
inspection may require additional time, we used the midpoint of the 
estimate time for an annual visit and doubled it for an estimated 16.25 
hours for family child care and group homes and 19.5 hours for centers. 
We asked for comment on these assumptions, but did not receive specific 
information on the amount of time required to prepare for and 
participate in a pre-inspection (rather than a regular inspection).
    This cost analysis also includes the ``parental complaint hotline'' 
as part of the monitoring requirements. The final rule requires at 
Sec.  98.32(a) that Lead Agencies establish or designate a hotline or 
similar reporting method for parents to submit complaints about child 
care providers. Lead Agencies have flexibility in how they implement 
this requirement, including whether the system is telephonic or through 
a similar reporting process, whether the hotline is toll-free, and 
whether the hotline is managed at the State or local level. Based on an 
examination of several States that already have comparable hotlines in 
place, this estimate for the parental complaint hotline includes 
multiple components that might be associated with the implementation 
and maintenance of a telephonic hotline.
    These components include the one-time purchase of an automatic call 
distribution (ACD) system at $45,000; the use of a digital channel on a 
T1 line ranging from $204 to $756 per year; 2,000 minutes of incoming 
call time at $0.06 per minute; and salary and benefits for one FTE to 
manage the hotline at $67,000. States vary in how they collect parental 
complaints. According to an analysis of the FY 2014-2015 CCDF Plans and 
review of State child care and licensing Web sites, 18 States/
Territories have a parental complaint hotline that covers all CCDF 
providers, 22 States/Territories have a parental complaint hotline that 
covers some child care providers, and 16 States/Territories do not have 
a parental complaint hotline. (Note that unlike the other health and 
safety provisions, this estimate does include Territories).
    States that had hotlines for both licensing and CCDF were 
considered as meeting the full requirement for a parental complaint 
hotline and had no additional costs. States that only had one hotline 
(e.g., only for licensed providers) were considered as partially 
meeting the requirement for the hotline and had 0.5 FTEs applied. The 
full

[[Page 67553]]

amount was applied to States that did not have anything in place that 
met the requirements of the hotline.
    We used a range of options to estimate the impact of the parental 
complaint hotline requirement based on the cost of the TI line and 
whether the hotline is toll-free and chose the mid-point as the primary 
estimate. Using this methodology, the estimated present value cost of 
meeting this requirement over the 10 year period examined in this rule, 
using a 3% discount rate, is approximately $16.6 million. Average 
annual costs during the phase-in period are estimated to be 
approximately $2.6 million during the first year (different than the 
phase-in figure in Table 3 below) and an average of $1.8 million for 
each year after. The estimate assumed slightly higher startup costs 
during the first year because States and Territories may need to 
purchase and install an ACD system.

                                                   Table 3--Estimated Impacts of Monitoring Provisions
                                                                     [$ in millions]
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                              Annualized cost (over 10 years)       Total present value (over 10 years)
                                             Phase-in     Ongoing annual -------------------------------------------------------------------------------
                                              annual          average                          Discounted                              Discounted
                                          average (years   (years 6-10)   Undiscounted -------------------------- Undiscounted -------------------------
                                               1-5)                                          3%           7%                         3%           7%
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                               Money Costs ($ in millions)
--------------------------------------------------------------------------------------------------------------------------------------------------------
Annual monitoring.......................           155.9           194.9         175.4        172.9        169.4       1,753.8      1,518.7      1,272.8
Preinspection new facilities............             0.5             0.9           0.7          0.7          0.7           7.3          6.2          5.1
Hotline.................................             2.0             1.8           1.9          1.9          1.9          18.8         16.6         14.3
                                         ---------------------------------------------------------------------------------------------------------------
    Subtotal............................           158.4           197.6         178.0        175.4        171.9       1,779.9      1,541.5      1,292.2
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                            Opportunity Costs ($ in millions)
--------------------------------------------------------------------------------------------------------------------------------------------------------
Annual monitoring.......................            12.9            16.2          14.6         14.3         14.1         145.5        126.0        105.6
Preinspection new facilities............             0.1             0.2           0.2          0.2          0.2           1.9          1.6          1.3
                                         ---------------------------------------------------------------------------------------------------------------
    Subtotal............................            13.1            16.4          14.7         14.5         14.2         147.4        127.6        106.9
                                         ---------------------------------------------------------------------------------------------------------------
        Total...........................           171.5           214.0         192.7        189.9        186.1       1,927.3      1,669.1      1,399.1
--------------------------------------------------------------------------------------------------------------------------------------------------------

    Comprehensive background checks. The CCDBG Act of 2014 added a new 
section at 658H on requirements for comprehensive, criminal background 
checks that draw on federal and State information sources. The Act 
outlines five components of a criminal background check, which we 
restate in Sec.  98.43 of the final rule. There are several aspects of 
the background check requirements that must be taken into account in a 
cost estimate. This includes the background checks for existing child 
care staff members (who do not already have them), the new federal 
requirement that child care staff members receive a background check 
every five years, background checks for other adults living in family 
child care homes, and checks with other States if a child care staff 
member has lived in another State. This cost estimate does not take 
into account the cost of the requirement at Sec.  98.43(b)(2) for a 
search of the National Sex Offender Registry (NSOR) file of the 
National Crime Information Center (NCIC). ACF is currently in 
discussions with the FBI to determine the logistics behind States 
meeting this requirement and plans to issue guidance about how States, 
Territories, and Tribes can search the NSOR file. We asked for comment 
on the cost of meeting this requirement and one State estimated a one-
time cost of $3 million to meet this requirement. Another State noted 
that ``the amount of security that will be required and the system 
changes that will be necessary to meet these security requirements has 
not been specifically identified'' but that ``automation would be 
costly, and the labor cost for a non-automated solution would be very 
high as well.'' While helpful, we did not feel that we received 
sufficient information to extrapolate across a nationwide analysis, so 
are retaining the caveat that this cost estimate does not include a 
search of the NSOR file of the NCIC.
    Similar to the methodology used for monitoring, the first step of 
the cost estimate was to determine current State practice. This is 
important because there would not be a new cost for States with 
requirements in place. One State provided a related comment, stating 
that since they already require FBI fingerprint checks of employees in 
child care centers, they do ``not anticipate that the additional types 
of background checks will result in a significant increase in the 
number of persons being flagged as risky.'' This State's current 
requirements also include checks for family child care homes, but since 
this was a recently implemented requirement, they acknowledge that 
``child care homes will feel the financial impact of running background 
checks on additional applicants more significantly than a center-based 
operation.''
    To account for existing State practice such as the one mentioned 
above and the resulting variation in cost, we used CCDF 2014-15 State 
Plan data (which included State-by-State data on four distinct 
background check components organized by provider type) to determine 
which States already met certain components of the background check 
requirement. After identifying the areas where States would need to 
implement new requirements we applied the provider counts to determine 
the number of child care staff members that would need to meet these 
new background check requirements.
    Because our administrative data on the number of CCDF providers 
represent the number of child care programs serving CCDF children, not 
the individual child care staff members in these settings that would 
need to receive a background check, we estimate the number of 
individual child care staff members that would be affected by this 
provision by applying a multiplier to each provider type (centers, 
family home, and group home).
    We are requiring individuals, age 18 or older, residing in a family 
child care home be subject to background checks because it is 
reasonable to assume that these individuals may have unsupervised 
access to children. Because we are including these individuals in the 
definition of child care staff members, they will be subject to the 
same requirements and will be

[[Page 67554]]

allowed the same appeals process as employees.
    To generate an estimated number of staff per child care center, we 
used data from the National Survey of Early Care and Education (NSECE), 
which indicated that the median number of children per center 
nationally is approximately 50. We then used the following data 
sources: (1) ACF-801 CCDF administrative data, which provides a 
detailed breakdown of the number of CCDF children by age group; and (2) 
Caring for our Children, which has a recommended staff-child ratio for 
centers by age group. (Caring for Our Children's recommended staff-
child ratios are an overestimate because not all States have adopted 
the standard.) Using these figures, a weighted average was generated 
that takes into account the national age-distribution of CCDF children 
served and recommended child-staff ratios for an average center and a 
baseline multiplier of 11 staff members per child care center receiving 
CCDF-funded subsidies, 8 of whom are caregivers and 3 are additional 
staff members or individuals who may have unsupervised contact with 
children.
    We estimated the number of other adult household members residing 
in family child care homes (persons other than the caregiver) and 
relevant staff members and added this to our cost estimate. We assumed 
each family child care and group home provider had an average of 1 
additional household member. (This assumption is informed by 
consultation with State administrators, who stated that most frequently 
there is 1 other adult over the age of 18 in a family child care home 
that must undergo a background check).
    Using these multipliers, we estimated the cost for background 
checks for staff members newly subject to the requirements. This 
includes both the cost of obtaining the background check and the 
opportunity cost for child care staff members to meet the required 
components. The opportunity cost represents the value of time (measured 
as foregone earnings) of child care staff members during the time, they 
spend to complete a background check.
    Many States already require some, if not most, of the background 
check components. To determine the existing need, we compared the 
requirements described in this final rule against current background 
check requirements, as reported in the CCDF 2014-2015 Plans. According 
to the Plan information, nearly 30 States require that licensed child 
care center staff undergo a State criminal background check that 
includes a fingerprint. More States already have requirements for a 
State criminal background check without a fingerprint, but for this 
estimate, we only counted States that required a fingerprint as meeting 
the requirement. For licensed centers, more than 40 already require an 
FBI fingerprint check, nearly all already require a check with a child 
abuse and neglect registry, and more than 35 require a check with a sex 
offender registry. Nearly 30 States require licensed family child 
providers to have a State criminal background check that includes a 
fingerprint, more than 40 already require an FBI fingerprint check, 
more than 30 require a check with the child abuse and neglect registry, 
and more than 35 require a check against a sex offender registry.
    Fewer States meet the background check requirements for unlicensed 
CCDF providers. According to our State Plan data, only fewer than 25 
States already have FBI fingerprint check requirements in place for its 
unlicensed providers and only six require those providers to have a 
State background check that includes a fingerprint.
    Using this data, we identified gaps in existing State policies as 
compared to the newly-required background check components. These gaps 
were matched with CCDF ACF-800 administrative data showing the number 
of providers per setting type by State, and then using the methodology 
above calculated the number of child care staff members requiring 
background checks.
    As mentioned above, there are two costs of a background check: The 
fee to conduct the check and the time it takes for individuals to get 
the check. With regard to the fee, Lead Agencies have flexibility to 
determine who pays for background checks. According to the FY 2014-2015 
CCDF Plans, approximately 30 States require the child care provider to 
pay for the background check, approximately 10 States indicated the 
cost was split, and fewer than 10 States indicated they pay the fees 
associated with the cost of conducting a background check. However, 
regardless of how costs are assigned, an impact analysis must include 
the overall monetary and opportunity cost impacts.
    While we do anticipate that there will be costs associated with 
enhancing or building systems to process background checks and appeals, 
we believe that this cost is accounted for here in two areas: (1) The 
cost estimate is based on a fee for conducting the background check, 
which is applied to each individual. This fee includes costs associated 
with processing the background check; and (2) We applied a 5% 
administrative cost and a 5% information technology (IT) startup cost 
to all of these new requirements (discussed below). Between these two 
items, we think that this estimate sufficiently accounts for potential 
costs of running the background check system.
    In their CCDF Plans, Lead Agencies described their costs associated 
with conducting background checks, including cost information on 
individual components of the background check. This information, 
combined with information we received from the FBI regarding costs of 
FBI fingerprint checks, was used to derive an estimated average cost of 
each background check component for a total of $55 for each set of four 
background checks. We applied this cost (or a partial cost) to the 
number of individuals in need of some or all of the background check 
components, determined after identifying State-by-State practices for 
different types of providers
    Next, we estimated the average annual ongoing cost of administering 
background checks to new child care staff members (as opposed to start-
up costs associated with bringing existing staff members into 
compliance). Child care provider departure rates cited in the 
literature vary widely from as low as 10 percent to 20 percent (The 
Early Childhood Care and Education Workforce: Challenges and 
Opportunities, Institute of Medicine and the National Research Council, 
2012). We used these as the lower and upper bounds, respectively for 
our estimated turnover rate. We then reduced this estimate by another 
10 percent to account for the fact that the Act requires some 
portability of background checks for certain staff members in a State, 
meaning that if a staff member has already passed a background check 
within the past five years, then that individual is not required to get 
another background check when changing employment from one child care 
provider to another.
    Based on this approach, the estimated present value cost of meeting 
these background check requirements (for existing and new providers) 
over the 10 year period examined in this rule, using a 3% discount 
rate, is approximately $58.6 million. ACF estimated that during the 
three year phase-in period background check fees would have an average 
annual money cost of $10.8 million (also estimated using a 3% discount 
rate), as States bring existing providers into compliance. (Note again 
that this phase-in period is different than the five year period 
indicated in the table below). We estimate the average annual ongoing 
money costs associated with background checks for new staff members of 
approximately $4

[[Page 67555]]

million (estimated using a 3% discount rate).
    The Act requires that all child care staff members receive a 
background check every five years. Through the 2014-15 CCDF State 
Plans, States report on how frequently licensed providers are required 
to receive each component of the background check. This data was 
available both by individual background check component and by provider 
type. If a State already required that a particular background check be 
renewed every five years (or more frequently), we did not include it in 
this cost estimate. While we know that States have similar policies in 
place for unlicensed providers, we do not have data for this subset of 
the provider population. Therefore, we considered the renewal of 
background checks for unlicensed providers to be a fully new cost to 
all States, understanding that this is more likely than not an 
overestimate.
    Since not all background checks will be conducted in the same year, 
we spread these costs evenly over a five year period to show that the 
costs would not be incurred all at once. We recognize that in practice 
these costs may not be evenly distributed over the five year period, 
depending on how States choose to conduct background checks during the 
initial implementation period. However, any uneven distribution of 
costs over time only negligibly affects the total dollar amount. The 
estimated present value cost of renewing background checks for all 
individuals over the 10 year period examined in this rule, using a 3% 
discount rate, is approximately $55.4 million, with the average annual 
ongoing money costs of this five year renewal requirement (once it 
begins in year six of the ten year window) to be $6.3 million. However, 
since provider counts have been in steady decline (as discussed 
earlier), this may be an over-estimate.
    Another feature of the background check requirement is that States 
are required to check the State-based criminal, sex offender, and child 
abuse and neglect registries for any States where an individual resided 
during the preceding five years. One State specifically noted that they 
did ``anticipate that there will be additional costs associated with 
background checks for out-of-State providers, particularly when 
obtaining out-of-State information,'' and that in their case, ``that 
cost would be passed down to the provider, therefore some providers may 
opt out of participating in the subsidized child care program.'' It 
should be restated, however, that while this analysis estimates the 
cost of each requirement, it does not take into account who will 
ultimately assume the cost.
    To estimate how many individuals would require an additional State 
background check, we used data from the U.S. Census Bureau, which 
conducts a Current Population Survey that includes data on Migration 
and Geographic Mobility (Current Population Survey Data on Migration/
Geographic Mobility, U.S. Census Bureau). Mobility data on employed 
individuals (inclusive of all races and genders) ages 25 to 64 show an 
out of State mobility rate of approximately two percent. Given that 
this data measures mobility in a given year and our requirement is for 
a five year window, we use a 10% mobility rate for this calculation. We 
assume that 10% of all child care staff members will require a check 
with another State and assign a prorated cost of the background checks 
minus the FBI check accordingly. We estimate the average annual ongoing 
money costs of this requirement to check other States to be less than a 
million dollars. Next, to estimate opportunity cost, we monetized child 
care staff member time spent obtaining a comprehensive background 
check, such as completing paperwork or other activities necessary to 
complete the check. We assumed that a check of the child abuse neglect 
registry takes 30 minutes, and that the other three components of a 
comprehensive background check take 1 hour combined (or 20 minutes 
each) for a total of 1.5 hours. We also assumed that each hour is worth 
$12.80, assuming $10 per hour for a child care staff member multiplied 
by 1.28 to account for benefits. (We derived these hours and benefit 
rates from the Employer Cost for Employee Compensation database, Bureau 
of Labor Statistics, which we then adjusted to reflect the number of 
child care providers that are self-employed) ACF estimated average 
annual opportunity costs (using a 3% discount rate) for all the 
background check components of $6.3 million during the 3 year phase in 
period and an annualized cost of $ 7.1 million over the 10 year window. 
This is a total present value of approximately $62.4 million over ten 
years (using a 3% discount rate).
    More extensive background checks will lead to greater numbers of 
job applicants and other associated people being flagged as risky, thus 
leading to additional types of cost. For example, a hiring search would 
need to be extended if the otherwise top candidate is revealed by a 
background check to be unsuitable to work with children. These costs 
that result from background checks are correlated with benefits; 
indeed, if this category of costs is zero, then the background check 
provisions of this final rule would have no benefits. However, due to 
lack of data, we have not attempted to quantify either this type of 
costs or the associated benefits.

                                                Table 4--Estimated Impacts of Background Check Provisions
                                                                     [$ in millions]
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                              Annualized cost (over 10 years)       Total present value (over 10 years)
                                             Phase-in     Ongoing annual -------------------------------------------------------------------------------
                                          annual average  average (years                       Discounted                              Discounted
                                            (years 1-5)        6-10)      Undiscounted -------------------------- Undiscounted -------------------------
                                                                                             3%           7%                         3%           7%
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                               Money Costs ($ in millions)
--------------------------------------------------------------------------------------------------------------------------------------------------------
Background Checks.......................             8.4             4.5           6.5          6.7          6.9          64.6         58.6         52.2
Background Check Renewals...............             0.0            13.6           6.8          6.3          5.7          68.1         55.4         42.6
Background Checks with Other States.....             0.5             0.8           0.7          0.6          0.6           6.5          5.7          4.8
                                         ---------------------------------------------------------------------------------------------------------------
    Subtotal............................             9.0            18.9          13.9         13.6         13.3         139.2        119.7         99.6
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                            Opportunity Costs ($ in millions)
--------------------------------------------------------------------------------------------------------------------------------------------------------
Background Checks.......................             5.8             3.1           4.4          4.6          4.8          44.4         40.3         35.9
Background Check Renewals...............             0.0             4.4           2.2          2.0          1.8          22.1         18.0         13.8
Background Checks with Other States.....             0.5             0.4           0.5          0.5          0.5           4.7          4.1          3.6
                                         ---------------------------------------------------------------------------------------------------------------

[[Page 67556]]

 
    Subtotal............................             6.3             7.9           7.1          7.1          7.1          71.1         62.4         53.3
                                         ---------------------------------------------------------------------------------------------------------------
        Total...........................            15.3            26.8          21.0         20.7         20.4         210.3        182.1        152.9
--------------------------------------------------------------------------------------------------------------------------------------------------------

    Caregiver, teacher and director training. The Act and this final 
rule require Lead Agencies to establish training requirements for 
caregivers, teachers, and directors of CCDF providers. The Act (section 
658E(c)(2)(I)) and the final rule (Sec.  98.41(a)(1)) require pre-
service or orientation training and on-going training in health and 
safety topics, including first aid and CPR, safe sleep practices, and 
other specified areas. In addition, the Act (section 658E(c)(2)(G)) and 
final rule (Sec.  98.44) require training and professional development, 
including training on child development.
    For this analysis, we estimated costs in the following areas: 
Current number of CCDF caregivers, teachers, and directors (using FY 
2014 data) to meet new pre-service or orientation training 
requirements; on-going training for caregivers, teachers, and directors 
(which includes new incoming caregivers); and pre-service or 
orientation training for new caregivers, teachers, and directors.
    To establish a baseline, ACF used information reported by States in 
their FY 2014-2015 CCDF Plans and information from the 2011-13 Child 
Care Licensing Study to determine--for each of the training areas--
which trainings were already required by State policy for the following 
providers: Centers, family homes, and group homes. The available data 
allowed us to distinguish between requirements for licensed providers 
and unlicensed providers, allowing us to further refine the cost 
estimate. Once current requirements for each State were identified, we 
were able to determine which new trainings would be required, and then 
apply the cost of receiving the balance of trainings.
    We reviewed the health and safety training delivery models in 
multiple States with a range of available training requirements to get 
a better sense of the range of costs for training. We found a wide 
range, from training provided at no-cost, to training packages that 
cost up to $170. Using these figures as a basis, a lower bound of $60 
and an upper bound of $140 was established for the total training 
package per caregiver. This range is informed by the fact that many no-
cost online training courses have already been developed, and thus are 
truly no cost, but even States taking advantage of no-cost online 
trainings would most likely have to use additional trainings with costs 
associated in order to meet all the requirements.
    Training costs were broken into three components: First-aid & CPR 
training, child development training, and then a package of all other 
basic health and safety requirements. For the purposes of this 
estimate, we created these groupings to better reflect the available 
cost information that we gathered through our research. First-aid and 
CPR are the most commonly offered trainings, so their costs were easier 
to identify. One State did point to these particular trainings as an 
area of concern due to the ongoing costs that they think ``would be 
paid by providers.'' We discuss our rationale for these trainings 
(which are required by statute) in the preamble above, but do recognize 
that there is a cost to this requirement and this cost estimate 
reflects such costs.
    We separated child development training from the rest of the 
package to reflect the fact that the delivery of trainings in this area 
are more likely to be tied to broader on-going professional development 
curricula or programs, and may have a higher cost. Breaking the 
trainings down in this way allowed us to apply a prorated amount, based 
on what was currently required by States.
    This training requirement only applies to child care providers 
receiving CCDF subsidies. However, as with the background check 
estimate, another factor in the calculation was the number of 
caregivers, teachers and directors per provider that would need to 
receive the training, since the ACF-800 data captures the number of 
child care providers serving CCDF children not individual caregivers, 
teachers, or directors in these settings that would need to receive 
training. To compensate we applied a multiplier to each setting type 
(centers, family home, and group home). We used the same methodology 
described in the background check section above (based on data from the 
NSECE, ACF-801, and Caring for our Children child-staff ratios), to 
create a weighted average of nine caregivers/teachers/directors per 
child care center. Unlike the background check requirement, the 
training would only apply to those providing care for children. For 
family child care homes, we estimate that one caregiver per site would 
be required to receive training, and two caregivers per group home.
    Next, we assumed that some caregivers, teachers, and directors may 
already have training in some of the topics, though they were not 
previously required, and reduced the total estimate by 10 percent. 
After applying these assumptions, to gaps in current State practice, we 
were able to estimate the present value cost of compliance with the new 
pre-service and orientation training requirement. A basic explanation 
of the calculation is the number of trainings required for compliance 
(by State and by provider type) multiplied by number of individuals 
trained multiplied by the cost per training (up to $140 per 
individual). We also assumed that some portion of individuals will have 
already received trainings that could apply to the new requirements, so 
we reduced the final estimate by ten percent. Using a 3% discount rate, 
the estimated cost is an annualized value of $7 million, or a total of 
approximately $61 million over the 10 year period examined in this 
rule. We estimated that during the phase-in period, the required pre-
service or orientation health and safety training has an average annual 
money cost of $18.8 million for the initial two year phase-in period 
and $3.0 million in subsequent years. The higher cost in the initial 
years is due to the high cost of bringing current providers into 
compliance during the phase-in period while in subsequent years, the 
pre-service and orientation trainings would only apply to new 
providers.
    To estimate the ongoing cost of providing health and safety 
training in

[[Page 67557]]

the required topic areas pursuant to the Act to newly entering 
caregivers, teachers, and directors of CCDF providers who would not 
otherwise have been required to receive training, we had to predict 
turnover within the provider population. We took the midpoint of the 
turnover number we used for background checks--15 percent. Since, 
according to the NSECE, many caregivers new to a care setting are not 
new to the profession, we further reduced that estimate by 20 percent 
to account for the fact that some new caregivers, teachers, and 
directors will be coming from other CCDF care settings, and thus bring 
their training credentials with them. (Number and Characteristics of 
Early Care and Education (ECE) Teachers and Caregivers: Initial 
Findings from the National Survey of Early Care and Education (NSECE), 
OPRE Report #2013-38)
    To generate a cost of ongoing training, based on anecdotal evidence 
from State administrators, we assumed that ongoing trainings (e.g., 
maintaining competencies and certificates) would be the equivalent of 
approximately 20% of the total cost of pre-service and orientation 
training to the entire CCDF provider population and used that as our 
annual estimate. We estimated that on an ongoing basis, average 
annualized money costs for training would be $6.2 million (estimated 
using a 3% discount rate). The estimated present value cost of this 
requirement over the 10 year period examined in this rule is 
approximately $54 million (again using a 3% discount rate).
    Next we monetized caregiver/teacher/director time spent completing 
the requisite health and safety trainings (opportunity costs). The 
National Center on Child Care Professional Development Systems and 
Workforce Initiatives funded by ACF reported that the training topics 
together would require a minimum of 20 hours. However, most caregivers 
will require only a subset of the training topics (e.g., SIDS training 
is only for caregivers that serve infants; transportation and child 
passenger safety is only as applicable). Using that as a baseline, for 
the purposes of this calculation we used a lower bound estimate of 15 
hours and an upper bound of 30 hours to complete the required 
trainings. We used the midpoint of these two estimates for the final 
estimate. We assumed that each hour of staff time equals $12.80, the 
same as we did for background checks ($10 for child care caregivers 
multiplied by 1.28 to account for benefits, but not overhead). 
(Employer Cost for Employee Compensation database, Bureau of Labor 
Statistics, adjusted to reflect the number of child care providers that 
are self-employed)
    We then applied a 10 percent reduction to those figures to account 
for caregivers who have fulfilled some training requirements that were 
not previously required. Using these assumptions, during the initial 
two year phase-in period (different than the 5 year phase-in period 
indicated in the table below) the average annual opportunity cost of 
monetized caregiver time on trainings is estimated to be approximately 
$63.2 million. The average annual opportunity cost for the entire 10 
year period is estimated to be 37.6 million, with a total present value 
of $330.0 million over the 10 year period (using a 3% discount rate).

                                                    Table 5--Estimated Impacts of Training Provisions
                                                                     [$ in millions]
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                              Annualized cost (over 10 years)       Total present value (over 10 years)
                                             Phase-in         Ongoing    -------------------------------------------------------------------------------
                                          annual average  annual average                       Discounted                              Discounted
                                            (years 1-5)    (years 6-10)   Undiscounted -------------------------- Undiscounted -------------------------
                                                                                             3%           7%                         3%           7%
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                               Money Costs ($ in millions)
--------------------------------------------------------------------------------------------------------------------------------------------------------
Pre-Service & Orientation...............             9.8             3.5           6.6          7.0          7.5          66.4         61.4         56.0
On-going (existing providers)...........             5.6             7.0           6.3          6.2          6.1          62.9         54.4         45.5
                                         ---------------------------------------------------------------------------------------------------------------
    Subtotal............................            15.4            10.5          12.9         13.2         13.5         129.3        115.8        101.5
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                            Opportunity Costs ($ in millions)
--------------------------------------------------------------------------------------------------------------------------------------------------------
Pre-Service & Orientation...............            27.9            10.0          18.9         19.9         21.2         189.2        174.9        159.5
On-going (existing providers)...........            15.9            19.9          17.9         17.6         17.3         179.2        155.0        129.7
                                         ---------------------------------------------------------------------------------------------------------------
    Subtotal............................            43.8            29.9          36.8         37.6         38.5         368.4        330.0        289.3
                                         ---------------------------------------------------------------------------------------------------------------
        Total...........................            59.2            40.4          49.7         50.8         52.0         497.7        445.8        390.8
--------------------------------------------------------------------------------------------------------------------------------------------------------

    Administrative and information technology (IT) startup. Compliance 
with these health and safety provisions will require States to incur 
administrative costs and develop or expand their information technology 
systems and capacity. One State noted in their comment that the new 
requirements ``will require significant modifications to our licensing 
system. This significant burden on our IT resources will require more 
staff resources than we have available and will also require State 
monetary resources that are not currently available.''
    Given that there will be significant variation at the State level 
on these costs, rather than attempt to quantify the related costs for 
each provision, we applied a percentage of the total health and safety 
money costs (minus the costs for the hotline for parental complaints, 
which already includes administrative and IT costs in its calculation) 
to estimate the costs of both administrative and IT/infrastructure 
costs. This analysis assumes 5 percent for administrative costs and an 
additional 5 percent for IT/Infrastructure costs. Since the annualized 
amount of all total health and safety money costs (minus the hotline 
for parental complaint) is approximately $202.2 million, five percent 
of that would be approximately $10.0 million per year (using a 3% 
discount rate).
    Our 5 percent estimate for Administrative costs is based on Sec. 
658E(c)(3)(C) of the Act, which places a 5 percent limit on 
administrative costs, by stating that not more than 5 percent of the 
aggregate amount of funds available to the State to carry out this 
subchapter by a State in each fiscal year may be expended for 
administrative costs incurred by such State to carry out all of its 
functions and duties under this

[[Page 67558]]

subchapter. According to the most recently available data collected 
through the ACF-696 financial reports, of the 56 States and 
Territories, only 4 were using the full 5 percent allowed for 
administrative costs.
    The 5 percent estimate for IT/Infrastructure costs is based on 
OCC's expenditure data (ACF-696), which shows that Lead Agencies 
reported using a total of $68 million or approximately 1 percent of 
expenditures on computer information systems. Given the expected 
increase in IT costs associated with implementing the new rule, 
including possible costs associated with consultation, we increased 
that to 5 percent, which we considered a reasonable estimate given 
current expenditure levels.
    The estimated present value cost of both administrative costs and 
IT/Infrastructure costs amounts to an annualized cost of approximately 
$10.0 million each, which would result in a cost of $88.2 million over 
the 10 year period examined in this rule, using a 3% discount rate.

                                               Table 6--Estimated Impacts of Health and Safety Provisions
                                                                     [$ in millions]
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                              Annualized cost (over 10 years)       Total present value (over 10 years)
                                             Phase-in         Ongoing    -------------------------------------------------------------------------------
                                              annual          annual                           Discounted                              Discounted
                                          average (years  average (years  Undiscounted -------------------------- Undiscounted -------------------------
                                               1-5)            6-10)                         3%           7%                         3%           7%
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                               Money Costs ($ in millions)
--------------------------------------------------------------------------------------------------------------------------------------------------------
Monitoring..............................           158.4           197.6         178.0        175.4        171.9       1,779.9      1,541.5      1,292.2
Background Checks.......................             9.0            18.9          13.9         13.6         13.3         139.2        119.7         99.6
Training................................            15.4            10.5          12.9         13.2         13.5         129.3        115.8        101.5
Admin...................................             9.1            11.3          10.2         10.0          9.9         101.7         88.2         74.2
IT & Infrastructure.....................             9.1            11.3          10.2         10.0          9.9         101.7         88.2         74.2
                                         ---------------------------------------------------------------------------------------------------------------
    Subtotal............................           201.0           249.6         225.2        222.2        218.5       2,251.8      1,953.4      1,641.7
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                            Opportunity Cost ($ in millions)
--------------------------------------------------------------------------------------------------------------------------------------------------------
Monitoring..............................            13.1            16.4          14.7         14.5         14.2         147.4        127.6        106.9
Background Checks.......................             6.3             7.9           7.1          7.1          7.1          71.1         62.4         53.3
Training................................            43.8            29.9          36.8         37.6         38.5         368.4        330.0        289.3
                                         ---------------------------------------------------------------------------------------------------------------
    Subtotal............................            63.2            54.2          58.6         59.2         59.8         586.9        520.0        449.5
                                         ---------------------------------------------------------------------------------------------------------------
        Total...........................           264.2           303.8         283.8        281.4        278.3       2,838.7      2,473.4      2,091.2
--------------------------------------------------------------------------------------------------------------------------------------------------------

2. Consumer Education Provisions
    The Act and the final rule includes several provisions related to 
improving transparency for parents and helping them to make better 
informed child care choices. Some of these provisions may require new 
investments by the States, Territories, and Tribes, including a 
consumer education Web site at Sec.  98.33(a) and a consumer statement 
at Sec.  98.33(d). Greater discussion of each of the provisions can be 
found at Subpart D. All costs associated with implementation of 
consumer education requirements are considered money costs (as opposed 
to opportunity costs) since they would involve an actual money 
transaction.
    Consumer education Web site. The final rule, per the Act, amends 
paragraph (a) of Sec.  98.33 to require Lead Agencies to create a 
consumer-friendly and easily accessible Web site as part of their 
consumer education activities. The Web site must at a minimum include 
six main components: (1) Lead Agency policies and procedures, (2) 
provider-specific information for all licensed child care providers, 
and at the discretion of the Lead Agency, all eligible child care 
providers (other than an individual who is related to all children for 
whom child care services are provided), (3) results of monitoring and 
inspection reports for all eligible child care providers (other than an 
individual who is related to all children for whom services are 
provided), (4) aggregate number of deaths, serious injuries, and 
instances of substantiated child abuse in child care settings each year 
for eligible providers, (5) referral to local child care resource and 
referral organizations, and (6) directions on how parents can contact 
the Lead Agency, or its designee, and other programs to help the parent 
understand information included on the Web site. We established our 
estimate based on current State practice and the market price of 
building a Web site that fulfills the requirements in this final rule.
    ACF conducted a comprehensive review of State Web sites and found 
35 States and Territories already have Web sites that meet at least 
some of the new requirements. Based on an analysis of current State 
consumer education Web sites, we assumed that any of the States that 
did not meet any of the new requirements would have all new costs. For 
States that met some of the requirements, we determined the percentage 
of work needed for the Web site to meet the requirements and multiplied 
the percentage of work needed by the cost estimate for building and 
implementing a consumer education Web site. Components of a Web site 
that we looked for and included in our estimate were: The scope of the 
Web site in terms of which providers were included; health and safety 
requirements; posting the date of last inspection, including any 
history of violations or compliance actions taken against a provider; 
information on the quality of the provider; and aggregate data on 
number of fatalities, serious injuries, and substantiated cases of 
child abuse that occurred in child care. From this review, we 
determined the amount of work needed for all States and Territories to 
build and implement the requirements of the consumer education Web 
site. We also consulted several organizations familiar with building 
Web sites to establish an upper and lower bounds for the estimate based 
on the final rule that covered the full range of implementation, from 
planning and initial set-up to beta testing. The upper and lower bound 
estimates include features that would make the Web site more user-
friendly but may not be included in the final rule, including

[[Page 67559]]

advanced search functions, such as a map feature, to make it easier for 
parents to find care.
    Building and implementing a new Web site requires some start-up 
costs, so the cumulative estimated costs are higher during the initial 
five-year phase-in period. We established a lower bound estimate to 
include the web developer costs of planning, creating supporting 
documentation, site and infrastructure set-up, static page creation, 
initial data imports, the creation of basic and advanced search 
functions and data management systems, and testing. The upper bound 
adds development and improvement activities to modernize the Web site 
as technologies change. Ongoing annual costs include quality control 
and maintenance, providing customer support, and monthly data updates 
to the Web site. All of these estimates include salaries and overhead 
for the Web site developers and staff, weighted by the number of CCDF 
providers in each State.
    Based on our research, we used the same salary and overhead 
information ($67,000 for line staff) for all States. However, there 
will be different levels of effort depending on the number of providers 
in a State, so we assumed different FTEs based on the total number of 
child care providers in a State: States with more than 8,000 providers 
(3.0 FTE), States with between 3,000 and 8,000 providers (2.50 FTE), 
and States with less than 3,000 providers (2.0 FTE). 11 States had over 
8,000 providers; 16 States and Territories had between 3,000 and 8,000 
providers; and 29 States and Territories had fewer than 3,000 
providers.
    Over the five-year phase-in period, we estimated an average annual 
money cost (estimated using a 3% discount rate) for just the building 
and maintenance of Web sites of $12.8 million and ongoing money costs 
of $11.8 million annually thereafter.
    The consumer education Web site requires a list of available 
providers and provider-specific monitoring reports, including any 
corrective actions taken. The costs associated with collecting the 
information necessary to provide this information on the Web site is 
included in other parts of this RIA. For example, this RIA includes an 
estimate for the cost of implementing monitoring and inspection 
requirements. There may also be effort associated with translating 
information from monitoring and inspection reports for an online 
format. However, since the monitoring cost assumes the full salary for 
monitoring staff and supervisors, it is reasonable to assume that the 
duties of these employees would include processing licensing 
information/findings.
    However, one of the components of the consumer education Web site 
at Sec.  98.33(a)(2)(ii) is information about the quality of the 
provider as determined by the State through a QRIS or other transparent 
system of quality indicators, if the information is available for the 
provider. For Lead Agencies that do not currently have a means for 
differentiating quality of care, there may be new money costs 
associated with creating the system of quality indicators necessary to 
obtain quality information on providers. Therefore, we are 
incorporating the cost of implementing a system of quality indicators 
into the cost estimate for the consumer education Web site.
    In order to estimate the costs of implementing the transparent 
system of quality indicators for the consumer education Web site, we 
modeled a sample system of quality indicators using the QRIS Cost 
Estimation Model (developed by the National Center on Child Care 
Quality Improvement funded by ACF). Costs were associated with the 
following components included in the cost estimation model: Quality 
assessment, monitoring and administration, and data and other systems 
administration. For each State, we identified the components of the 
sample system of quality indicators that each individual State or 
territory was missing. Costs were applied only in the areas that were 
lacking for States and territories with partial compliance.
    States and Territories not meeting any of the components of the 
model had all new costs associated with each component. Using 
information from the CCDF FY 2014-2015 State Plans and the National 
Center on Child Care Quality Improvement, ACF determined which States 
had a system for differentiating the quality of care available in the 
State, which States could then use to provide information on the 
consumer education Web site. In order for States to be considered as 
already meeting this requirement, the State needed to have reported 
having a means for measuring and differentiating quality between child 
care providers. ACF recommends this system be a QRIS that meets high-
quality benchmarks, but as this rule does not require a QRIS, we 
counted other systems of quality indicators, such as tiered 
reimbursement based on quality, as meeting the components of the 
consumer Web site. More than 45 States have sufficient means for 
differentiating quality and therefore we assumed no cost for those 
States.
    ACF estimates that during the five-year phase-in period the total 
national cost associated with implementing transparent systems of 
quality indicators has an average annual cost of $2.2 million. This 
estimate has been included in the cost of designing and implementing 
the consumer education Web site, which was discussed above. The total 
estimated present value cost (using a 3% discount rate) of the Web site 
requirement over the 10 year period examined in this rule is $108.6 
million, with an annualized cost of $12.4 million.
    Consumer statement. The final rule at Sec.  98.33(d) requires Lead 
Agencies to provide parents receiving CCDF subsidies with a consumer 
statement that includes information specific to the child care provider 
they select. The consumer statement must include health and safety, 
licensing or regulatory requirements met by the provider, the date the 
provider was last inspected, any history of violations, and any 
voluntary quality standards met by the provider. It also must disclose 
the number for the hotline for parents to submit complaints about child 
care providers, as well as contact information for local resource and 
referral agencies or other community-based supports that can assist 
parents in finding and enrolling in quality child care.
    The information included in the consumer statement overlaps with 
much of the information required on the consumer education Web site. In 
their FY 2014-2015 CCDF Plans, 42 States and Territories report using 
their Web sites to convey consumer education information to parents 
about how their child care certificate permits them to choose from a 
variety of child care categories. Since many States and Territories are 
already using their Web sites to make available provider-specific 
information, this final rule does not require Lead Agencies to create a 
whole new document or information item. Rather, the Lead Agency can 
point parents to the provider's profile on the Web site or print it out 
for a parent that may be doing intake in person. We assumed the 
consumer education Web site already includes the majority of 
information required in the consumer statement, including, if 
available, information about provider quality. However, commenters 
noted that there may be additional staff time needed to provide 
additional information to parents receiving subsidies. Therefore, this 
cost estimate takes into account labor costs associates with the 
consumer statement. This estimate also takes into account the number of 
providers in each State or Territory. During the five-year phase-in 
period, we estimated an

[[Page 67560]]

average annual cost of the consumer statement provisions to be 
approximately $1 million and an average ongoing cost of $775,000 
annually.

                                               Table 7--Estimated Impacts of Consumer Education Provisions
                                                                     [$ in millions]
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                              Annualized cost (over 10 years)       Total present value (over 10 years)
                                             Phase-in         Ongoing    -------------------------------------------------------------------------------
                                              annual          annual                           Discounted                              Discounted
                                          average (years  average (years  Undiscounted -------------------------- Undiscounted -------------------------
                                               1-5)            6-10)                         3%           7%                         3%           7%
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                               Money Costs ($ in millions)
--------------------------------------------------------------------------------------------------------------------------------------------------------
Consumer education Web site.............            12.8            11.8          12.3         12.4         12.5         123.0        108.6         93.6
Consumer statement......................             0.5             0.8           0.7          0.6          0.6           6.5          5.5          4.5
                                         ---------------------------------------------------------------------------------------------------------------
    Total...............................            13.3            12.6          13.0         13.0         13.1         129.5        114.1         98.1
--------------------------------------------------------------------------------------------------------------------------------------------------------

3. Increased Average Subsidy per Child
    The reauthorized statute and this final rule include several 
policies aimed at increasing access to quality care for low-income 
children, as well as creating a fairer system for child care providers. 
As Lead Agencies implement these new policies, we expect that there 
will be an increase in the amount paid to child care providers, 
representing a budget impact on Lead Agencies. While we expect these 
changes to cause an increase in payments, we lack specific data on the 
amounts associated with each of these policies. We requested comments 
about whether Lead Agencies expect these policies to cause an increase 
in the subsidy payment rates, but did not receive any comments with 
specific information to further inform the cost estimate.
    We expect the following policies and practices to impose budget 
impacts (which are characterized in this analysis as transfers) on Lead 
Agencies:
     Setting payment rates based on the most recent market rate 
survey (or alternative methodology) and at least at a level to cover 
health, safety, quality, and staffing requirements in the rule (though 
some of the impact related to health and safety may already be 
accounted for in the health and safety sections of the RIA). Lead 
Agencies must also take into consideration the cost of providing 
higher-quality child care services (Sec.  98.45(f));
     Delinking provider payments from a child's occasional 
absences by either paying based on a child's enrollment, providing full 
payment if a child attends at least 85 percent of authorized time, or 
providing full payment if a child is absent for five or fewer days in a 
month (Sec.  98.45(l)(2)); and,
     Adopting the generally-accepted payment practices of child 
care providers who do not receive CCDF subsidies, including paying on a 
part-time or full-time basis (rather than paying for hours of service 
or smaller increments of time) and paying for reasonable mandatory 
registration fees that the provider charges to private-paying parents 
(Sec.  98.45(l)(3)).
    Lead Agencies are required to implement each of these policies; 
however, several of them have a few options from which Lead Agencies 
may choose. We do not know which options Lead Agencies will choose, and 
therefore are not certain of which policies will impose budget impacts 
on which Lead Agencies. These impacts will also vary by Lead Agency 
depending on how many of the policies the Lead Agency adopted prior to 
this final rule. We requested comment on how Lead Agencies may choose 
to implement these different payment policies and practices and 
included this in the preamble discussion of Sec.  98.45 above.
    Because of the multiple policy options available to Lead Agencies 
and limited data on the effects of individual policies, it is difficult 
to estimate new impacts associated with each policy listed. However, we 
recognize that implementing these new policies will impact Lead Agency 
budgets and contribute to an increase in the amount of cost per child 
of child care assistance per child. Therefore, despite our uncertainty 
regarding specific effects, we would be overlooking a potentially 
significant new impact if we did not include an analysis of payment 
policies and practices in this RIA.
    These payment policies and practices will each have varying 
effects, but once they are put together, one likely outcome is an 
increase in the average annual subsidy amount per child. Therefore, in 
order to estimate the possible payment effects associated with these 
policies, we are bundling them together and estimating their total 
impact on the average annual subsidy per child. The actual impact will 
depend on how many of the policies the Lead Agency currently has in 
place and how the Lead Agency chooses to implement these new policies.
    The average annual subsidy rate per child in FY 2014 was $4,824. 
This amount is the starting point for our estimate. The average annual 
subsidy rate per child has historically increased each year and would 
continue to do so regardless of the new law or regulation. Therefore, 
we have built in a 2.59% increase for each of the ten years included in 
this cost estimate. This increase represents the historical increases 
in the average annual subsidy per child that we estimate would occur 
without this rule.
    This subsidy amount, including the increase that would be expected 
to happen regardless of reauthorization and this final rule, provides 
the baseline for our ten year estimate. This average represents all 
settings, all types of care, all ages, and all localities, which masks 
great variation across the States/Territories based on different costs 
of living or the higher costs associated with providing care to infants 
and toddlers. For example, the highest average annual subsidy per child 
paid by a State/Territory was $9,4088 in FY 2014, while the lowest 
average annual subsidy per child paid by a State/Territory was $1,944. 
States/Territories with subsidy payments substantially lower than the 
average subsidy payment are likely to see higher increases in the 
subsidy rate than States/Territories with subsidy payments closer to 
the average.
    To calculate the impacts, we estimated a phased-in increase in the 
average annual subsidy per child above the baseline, which includes the 
expected increase in the average annual subsidy per child regardless of 
this final rule. We expect that there will be a phase-in of the subsidy 
increase as Lead Agencies phase-in the new policies in reauthorization 
and this final rule. The

[[Page 67561]]

phase-in is expected from FY 2016 to FY 2018, with the increase in the 
subsidy being $165 in FY 2016, $265 in FY 2017, and $515 in FY 2018, 
respectively, each comparable to the current baseline. This represents 
the increase on top of the regular annual average subsidy per child, 
and not the estimated subsidy itself. Following the new market rate 
survey or alternative methodology that may lead to setting higher 
payment rates, we estimate the subsidy would increase by $765 in FY 
2019, and stay steady in FY 2020 and FY 2021. With the new market rate 
survey or alternative methodology in FY 2022, we expect an additional 
increase in the subsidy of $250 (or a total increase of $1,015 above 
the baseline), and estimate the subsidy will stay steady in FY 2023 and 
FY 2024.
    These estimated increases to average annual subsidy are based on 
our assumptions about how quickly Lead Agencies may implement the 
policies, and the reality that the average annual subsidy will likely 
grow incrementally. Because of limited data, we chose to estimate a 
modest increase to the average annual subsidy per child. However, given 
the uncertainty regarding exactly how much the average annual subsidy 
per child may increase each year, we requested comments and estimates 
regarding these new costs and how they may impact the subsidy rate in 
each State/Territory. However, we did not receive comment in this area, 
so absent additional information we are keeping these cost assumptions 
for the final rule.
    The estimated increases included in this RIA are not 
recommendations for what ACF proposes to be appropriate levels to set 
rates in States/Territories and should not be considered as the amount 
needed to provide an acceptable level of health and safety, or to 
provide high-quality care. As mentioned earlier in this rule, ACF is 
very concerned about States'/Territories' current low payment rates. 
ACF continues to stand behind the 75th percentile of current market 
rates, which remains an important benchmark for gauging equal access 
for children receiving CCDF-funded child care.
    The per child calculations used here are not recommendations for a 
per child subsidy, but rather represent an estimated cost of increasing 
the current national average annual subsidy per child as a result of 
these new policies. This is likely an underestimate of the payment 
amounts necessary to raise provider payment rates to a level that 
supports access to high-quality child care for low-income children. We 
requested comments on what provider payment rates may be necessary to 
support high-quality child care. While one State did comment to note 
that they anticipate that ``it may be necessary for providers to 
increase their rates in order to comply with additional health and 
safety training requirements,'' we did not receive comments with 
specific information on projected costs related to this analysis.
    To calculate the estimated total increase in the average annual 
subsidy per child and the impacts associated with the new payment 
policies in this final rule, we multiplied the estimated increase in 
the average annual subsidy per child (described above) by the FY 2014 
CCDF caseload of 1.4 million children. Based on this formula, we 
estimate the average annual impact to be $478.8 million during the 
initial five year period, with the estimated present value over the 
subsequent 5 year period of $839.1 million (estimated using a 3% 
discount rate). This would be a total present value of approximately 
$7.4 billion over 10 years (using a 3% discount rate).
    As discussed above, there is a high level of uncertainty associated 
with this estimate. However, not including an estimate of the Lead 
Agency budget impacts associated with these policies would overlook 
significant policies in the legislation and this final rule and fail to 
give an accurate picture of the costs associated with them.
    OMB Circular A-4 notes the importance of distinguishing between 
costs to society as a whole and transfers of value between entities in 
society. The increases in subsidy payments just described impose budget 
impacts on Lead Agencies, but from a society-wide perspective, they 
only generate costs to the extent that they lead to new resources being 
devoted to quantity or quality of child care. Although we acknowledge 
this potential increase in resource use, for the technical purposes of 
this regulatory impact analysis, we will refer to the estimated subsidy 
payment impacts as transfers from Lead Agencies to entities bearing the 
existing cost burden (mostly child care providers who typically have 
low earnings), rather than societal costs.

                                                     Table 8--Estimated Impacts of Increased Subsidy
                                                                     [$ in millions]
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                              Annualized cost (over 10 years)       Total present value (over 10 years)
                                             Phase-in         Ongoing    -------------------------------------------------------------------------------
                                              annual          annual                           Discounted                              Discounted
                                          average (years  average (years  Undiscounted -------------------------- Undiscounted -------------------------
                                               1-5)            6-10)                         3%           7%                         3%           7%
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                          Transfers From Lead Agencies to Child Care Providers ($ in millions)
--------------------------------------------------------------------------------------------------------------------------------------------------------
Increased Subsidy.......................           478.8         1,281.0         879.9        839.1        786.1       8,799.0      7,372.4      5,907.7
                                         ---------------------------------------------------------------------------------------------------------------
    Total (Transfers and Costs).........           478.8         1,281.0         879.9        839.1        786.1       8,799.0      7,372.4      5,907.7
--------------------------------------------------------------------------------------------------------------------------------------------------------

B. Analysis of Benefits

    The changes made by the CCDBG Act of 2014 and the final rule have 
three primary beneficiaries: Children in care funded by CCDF (currently 
approximately 1.4 million), their families who need the assistance to 
work, pursue education or to go to school/training, and the roughly 
415,000 child care providers that care for and educate these children. 
But the effect of these changes will go far beyond those children who 
directly participate in CCDF and will accrue benefits to children, 
families, and society at large. Many providers who serve children 
receiving CCDF subsidies also serve private-paying families, and all 
children in the care of these providers will be safer because of the 
new CCDF health and safety requirements. Further, the requirements for 
background checks extend beyond just CCDF providers. The public at 
large also benefits in cost savings due to greater family work 
stability when there is stable, high quality child care; lower rates of 
child morbidity and injury; fewer special education placements and less 
need for remedial education;

[[Page 67562]]

reduced juvenile delinquency; and higher school completion rates.
    In 2012, approximately 60 percent of children age 5 and younger not 
enrolled in kindergarten were in at least one weekly non-parental care 
arrangement. (U.S. Department of Education, Early Childhood Program 
Participation, from the National Household Education Surveys Program of 
2012, August 2013) We know that many child care arrangements are low 
quality and lack basic safeguards. A 2006 study conducted by the 
National Institute of Child Health and Development (NICHD) found that, 
``most child care settings in the United States provide care that is 
``fair'' (between ``poor'' and ``good'') and fewer than 10 percent of 
arrangements were rated as providing very high quality child care.'' 
(U.S. Department of Health and Human Services, National Institutes of 
Health, Study of Early Child Care and Youth Development, 2006) More 
recently, both the Department of Health and Human Services' (HHS) 
Office of Inspector General (OIG) and the Government Accountability 
Office (GAO) have identified serious deficiencies with health and 
safety protections for children in child care settings. (HHS Office of 
the Inspector General, Child Care and Development Fund: Monitoring of 
Licensed Child Care Providers, OEI-07-10-00230, November 2013) (Early 
Alert Memorandum Report: License-Exempt Child Care Providers in the 
Child Care and Development Fund Program, HHS OIG, 2013). (Government 
Accountability Office, Overview of Relevant Employment Laws and Cases 
of Sex Offenders at Child Care Facilities, GAO-11-757, 2011) We also 
know from a growing body of research that in addition to the importance 
of quality to health and safety on a child's immediate and long term 
future health, quality is important for children's long term success in 
school and in life (as described elsewhere in this section).
    While there are many benefits to children, families, providers and 
society from affordable, higher-quality child care, there are 
challenges to quantifying their impact. CCDF provides flexibility to 
States, Territories, and Tribes in setting health and safety standards, 
eligibility, payment rates, and quality improvements. As a result, 
there is much variation in CCDF programs across States. Therefore, we 
do not have a strong basis for estimating the magnitude of the benefits 
of the CCDBG Act of 2014 and the final rule in dollar amounts. While we 
are not quantifying benefits in this analysis, we requested comment on 
ways to measure the benefit that the Act and the proposed (now final) 
rule will have on children, families, child care providers, and the 
public. However, we did not receive comment in this area that would 
support quantification of these benefits.
    As shown in the discussion below, there is evidence that the CCDBG 
Act of 2014 and final rule's improvements to health and safety, quality 
of children's experiences, and stability of assistance for parents and 
providers will have a significant positive return on the public's 
investment in child care. We discuss these benefits as ``packages'' of 
improvements: (1) Health and safety; (2) consumer information and 
education; (3) family work stability; (4) child outcomes; and (5) 
provider stability.
1. Health and Safety
    One of the most substantial changes made by this final rule is a 
package of health and safety improvements, including health and safety 
requirements in specific topic areas, health and safety training, 
background checks, and monitoring and pre-inspections.
    Health and Safety Requirements. The Act requires Lead Agencies to 
set requirements in baseline areas of health and safety, such as CPR 
and first aid, and safe sleeping practices for infants. At their core, 
health and safety standards in this final rule are intended to make 
child care safer and thus lower the risk of harm to children.
    The CCDBG Act of 2014 and the final rule are expected to lead to a 
reduction in the risk of child morbidity and injuries in child care. 
The most recent study on fatalities occurring in child care found 1,326 
child deaths from 1985 through 2003. The study also showed variation in 
fatality rates based on strength of licensing requirements and 
suggested that licensing not only raises standards of quality, but 
serves as an important mechanism for identifying high-risk facilities 
that pose the greatest risk to child safety. (Dreby, J., Wrigley, J., 
Fatalities and the Organization of Child Care in the United States, 
1985-2003, American Sociological Review, 2005) ACF collects data about 
the number of child care injuries and fatalities through the Quality 
Performance Report (QPR) in the CCDF Plan (ACF-118). In 2014, there 
were 93 child deaths in child care based on data reported by 50 States 
and Territories. The number of serious injuries to children in child 
care in 2014 was 11,047, with 35 States and Territories reporting.
    Various media outlets have also conducted investigations of unsafe 
child care and deaths of children. In Minnesota, the Star Tribune in 
Minneapolis reported in a series of articles in 2012 that the number of 
children dying in child care facilities ``had risen sharply in the past 
five years, from incidents that include asphyxia, sudden infant death 
syndrome (SIDS) and unexplained causes.'' The report found 51 children 
died in Minnesota over the five-year period. (Star Tribune, The Day 
Care Threat, 2012) In Indiana, an investigation by the Indianapolis 
Star found, ``21 deaths at Indiana day cares from 2009 to June 2013, 
and 10 more child deaths have since been reported.'' (Indianapolis 
Star, How Safe are Indiana Day Cares, 2013) Indiana recently passed 
legislation that raises standards for child care programs. In Kansas, 
the high incidence of fatalities prompted the Kansas legislature to 
implement new procedures to guide investigations of serious injury or 
sudden, possibly unexplained deaths in child care, particularly 
infants. (Kansas Blue Ribbon Panel on Infant Mortality, Road Map for 
Preventing Infant Mortality in Kansas, 2011) The case of Lexie Engelman 
was a rally cry of advocates for better health and safety requirements. 
The 13-month old child suffered fatal injuries in a registered family 
child care home in 2004 due to lack of supervision. As a result, Kansas 
enacted new protections such as requiring all providers to be licensed 
and regularly inspected, training for providers, and new rules of 
supervision. Since implementing ``Lexie's Law,'' Kansas jumped from 
46th to 3rd in the Child Care Aware of America annual ranking of State 
policies, and State officials have been able to use data to target 
regulatory action and provide information to the public in a much more 
timely way. State officials report that more stringent regulations have 
greatly enhanced State capacity to protect children.
    With respect to morbidity, 20 percent of SIDS deaths occur while 
children are in child care. (Moon, R.Y., Sprague, B.M., and Patel, 
K.M., Stable Prevalence but Changing Risk Factors for Sudden Infant 
Death Syndrome in Child Care Settings in 2001, 2005) Many of these 
deaths are preventable by safe sleep practices. Local review teams in 
one State found that 83 percent of SIDS deaths could have been 
prevented. (Arizona Child Fatality Review Program, Twentieth Annual 
Report, November 2013) As part of health and safety training 
requirements, the Act and final rule require that caregivers, teachers, 
and directors serving CCDF children receive training in safe sleep 
practices. According to the FY 2014-2015 CCDF Plans, approximately 27 
States and

[[Page 67563]]

Territories already have safe sleep and SIDS prevention pre-service 
training requirements for child care centers, and 26 States and 
Territories have SIDS prevention pre-service training requirements for 
family child care homes. Requiring the remaining States and Territories 
to have safe sleep training for child care providers will likely help 
change provider practice and lower the risk of SIDS-related deaths for 
infants.
    Health and Safety Training. The final rule codifies the requirement 
of the Act that CCDF caregivers, teachers, and directors undergo a pre-
service or orientation training, as well as receive ongoing training, 
in the health and safety standards. The final rule also adds child 
development as a required topic for required training, consistent with 
the professional development and training provisions of the Act. 
Knowledge of child development is important to understanding and 
implementing safety and health practices and conditions. Training in 
health and safety standards, particularly prevention of SIDS, should 
reduce child fatalities and injuries in child care. For example, the 
rate of SIDS in the U.S. has been reduced by more than 50 percent since 
the campaign in the early 1990s by the American Academy of Pediatrics 
on safe sleep practices with infants. (National Institutes of Health, 
Eunice Kennedy Shriver National Institute of Child Health and Human 
Development. Back to Sleep Public Education Campaign) Only 24 States 
currently require pre-service or orientation training to include SIDS 
prevention.
    Background Checks. The new background check requirements are 
expected to prevent individuals with criminal records from working for 
child care providers. Data from two States show that 5 to 10 percent 
and 3 to 4 percent, respectively, of background checks result in 
criminal record ``hits'' that disqualify the provider. To the extent 
that these individuals would have otherwise worked in child care 
settings, thereby increasing the risk of maltreatment or injury to a 
child, we assume that background checks yield a positive benefit for 
child health and safety. That is, background checks serve a real 
purpose in preventing a small proportion of potentially dangerous 
individuals from providing care to children.
    Monitoring. The Act and this final rule require States to conduct 
monitoring visits for all CCDF providers, including license-exempt 
providers (except, at the Lead Agency option, those that serve 
relatives). Licensed CCDF providers must receive a pre-licensure 
inspection and annual, unannounced inspections. License-exempt CCDF 
providers (except at the Lead Agency option those that serve relatives) 
must have annual inspections for health, safety and fire standards. 
Currently, 15 States do not conduct a licensing pre-inspection visit of 
family child care; 12 States do not conduct pre-inspections on group 
homes; and one State does not pre-inspect child care centers. Nineteen 
States do not inspect family child care providers each year, 22 States 
do not conduct annual visits for group homes, and 10 States do not 
visit child care centers on an annual basis. It is reasonable to expect 
that more stringent health and safety standards and their enforcement 
through pre-inspections and annual licensing inspections will result in 
fewer serious injuries and child fatalities in child care.
    Child Abuse Reporting and Training. Nationally, there are 
approximately 12.5 million children in child care settings. With a rate 
of over 10 children per thousand being victims of substantiated abuse 
or neglect, there are over 100,000 children estimated to be victims of 
abuse who are also receiving services in child care settings. This 
final rule contains a number of provisions designed to prevent child 
abuse and neglect. Under the Act and this final rule, Lead Agencies 
must certify that child care caregivers, teachers, and directors comply 
with child abuse reporting requirements of the Child Abuse Prevention 
and Treatment Act. The final rule also requires training on 
``recognition and reporting of suspected child abuse and neglect'', 
which would equip caregivers, teachers, and directors with training 
necessary to report potential abuse and neglect. The rule also requires 
training in child development for CCDF caregivers, teachers, and 
directors. From a protection standpoint, research has shown that 
improving parental understanding of child development reduces the 
incidence of child abuse and neglect cases. (Daro, D. and McCurdy, K., 
Preventing Child Abuse and Neglect: Programmatic Interventions, Child 
Welfare, 1994) (Reppucci, N., Britner, P., and Woodard, J., Preventing 
Child Abuse and Neglect Through Parent Education, Child Welfare, 1997) 
To the extent that this training would have a similar effect on 
caregivers, teachers, and directors of CCDF providers, we expect there 
to be some decrease in child abuse within child care settings.
    In addition to the tragedy of injuries and fatalities in child 
care, there are tangible costs such as medical care, a parent's absence 
from work to tend to an injured child, the loss for the family, and 
loss of lifetime potential earnings for society. According to the 2014 
Quality Performance Report, there were 11,407 injuries (defined as 
needing professional medical attention) and 93 fatalities reported in 
child care. We think these numbers are lower than the actual incidences 
because some Lead Agencies have difficulty accessing this information 
collected by other agencies.
2. Consumer Information and Education
    As one research study said, ``Child care markets would work more 
effectively if parents had access to more information about program 
quality and help finding a suitable situation. This would cut the cost 
of searching for care and increase the likelihood of more comparison 
shopping by parents.'' (Helburn, S. and Bergmann, B., America's Child 
Care Problem: The Way Out, 2002) The Act and final rule require the 
Lead Agency to provide consumer education to parents of eligible 
children, the general public, and child care providers. This includes a 
consumer-friendly and easily accessible Web site about relevant Lead 
Agency processes and provider-specific information. The Act and the 
final rule also require a range of information for parents, including 
the availability of child care services and other assistance for which 
they might be eligible, best practices relating to child development, 
how to access developmental screening, and policies on social-emotional 
behavioral health and expulsion. The final rule also requires a 
consumer statement for families receiving subsidies. Taken together, 
these provisions should improve parents' ability to make fully informed 
choices about child care arrangements.
    The consumer education package also provides benefits to parents in 
regards to the value of their time. Most parents want to know about 
health and safety records, licensing compliance, and quality ratings 
when deciding on a child care provider. However, this research can be 
very time consuming because of barriers to accessing the information 
needed to make a fully informed decision. For example, while all Lead 
Agencies must make substantiated complaints available to the public, 
some States previously required that people go to a government office 
during regular business hours to access these records. It is not 
reasonable to expect a parent who is working to take that time to 
navigate these bureaucratic requirements.
    The final rule's package of consumer education provisions, 
including the

[[Page 67564]]

consumer-friendly Web site, addresses the aforementioned information 
barrier by helping to provide parents with important resources in a 
manner that fits their needs.
3. Family Work Stability/Improved Labor Force Productivity
    The Act and the final rule promote continuity of care in the CCDF 
program through family-friendly policies--it requires Lead Agencies to 
implement minimum 12-month eligibility redetermination periods, ensures 
that parents who lose their jobs do not immediately lose their subsidy, 
minimizes requirements for families to report changes in circumstances, 
and provides more flexibility to serve vulnerable populations, such as 
children experiencing homelessness, without regard to income or work 
requirements.
    Benefits to employers. There is a strong relationship between the 
stability of child care and the stability of the workforce for 
employers. The cost to businesses of employee absenteeism due to 
disruptions in child care is estimated to be $3 billion annually. 
(Shellenback, K., Child Care & Parent Productivity: Making the Business 
Case, Cornell University: Ithaca, NY. 2004) The eligibility provisions 
of the Act and this final rule will allow parents to work for longer 
stretches without interruptions to their child care subsidy, and will 
benefit parents by limiting disruptions to their child care 
arrangements. These policies in turn also provide benefits to employers 
seeking to maintain a stable workforce.
    Studies show a relationship between child care instability and 
employers' dependability of a stable workforce. In one study, 54 
percent of employers reported that child care services had a positive 
impact on employee absenteeism, reducing missed workdays by as much as 
20 to 30 percent. (Friedman, D.E., Child Care for Employees' Kids, 
Harvard Business Review, 1986) In addition, 63 percent of employees 
surveyed at American Business Collaboration (ABC) companies in 10 
communities across the country reported improved productivity when a 
parent was using high-quality dependent care, and 40 percent of 
employees reporting spending less time worrying about their families, 
35 percent were better able to concentrate on work, and 30 percent had 
to leave work less often to deal with family situations. (Abt 
Associates, National Report on Work and Family, 2000) A 2010 study 
examined the impact of child care subsidy receipt by New York City 
employees and employees of subcontracted agencies in the health care 
sector. The study looked at the variables of attendance, work 
performance, productivity, and retention of employees. Results showed 
that subsidy receipt had a positive impact on work performance; 
whereas, the loss of the subsidy had a negative effect. After the 
subsidy period ended and parents were faced with less stable child care 
arrangements, participants self-reported a decrease in their work 
performance and in their work productivity coupled with an increase in 
tardiness and work/family conflict. (Wagner, K.C., Working Parents for 
a Working New York Study, Cornell and New York Child Care Coalition, 
2010)
    Benefits to parents. The lack of reliable and dependable child care 
arrangements negatively affects parents' income, hours worked, work 
performance, and advancement opportunities. To the extent that these 
new requirements will reduce barriers to retaining child care 
assistance for CCDF families, the new rule will mitigate some of the 
disruption currently experienced by low-income families. Studies have 
shown that many parents face child care issues that can disrupt work, 
impacting both the parent and their employers. One researcher, using 
data from the Survey of Income and Program Participation (SIPP), found 
that 9-12 percent of families reported losing work hours as a result of 
child care disruptions. (Boushey, H., Who Cares? The Child Care Choices 
of Working Mothers, Center for Economic and Policy Research Data, 2003) 
Another study showed that 29 percent of parents experienced a breakdown 
in their child care arrangement in the last 3 months. (Bond, J., 
Galinsky, E., and Swanberg, J., The 1997 National Study of the Changing 
Workforce, 1998)
    These child care disruptions can negatively impact parental 
employment. For example, a survey of over 200 mothers working in the 
restaurant industry in five cities: Chicago, Washington, DC, Detroit, 
Los Angeles, and New York found that instability in child care 
arrangements negatively affected their ability to work desirable shifts 
or to move into better paying positions at the restaurant. (Restaurant 
Opportunities Centers United, et al., The Third Shift: Child Care Needs 
And Access For Working Mothers In Restaurants, Restaurant Opportunities 
Centers United, 2013)
4. Child Outcomes and Human Capital Development
    Beyond implementing health and safety standards, the Act states 
that two of the purposes of the program are improving child development 
of participating children and increasing the number and percentage of 
low-income children in high-quality child care settings. This final 
rule places significant emphasis on policies that support those goals.
    Child care continuity. The eligibility and redetermination 
provisions benefit children as well as parents and employers. 
Continuity in child care arrangements can have a positive impact on a 
child's cognitive and socio-emotional development. (Raikes, H. Secure 
Base for Babies: Applying Attachment Theory Concepts to the Infant Care 
Setting, Young Children 51, no. 5, 1996) Young children need to have 
secure relationships with their caregivers in order to thrive. 
(Schumacher, R. and Hoffmann, E., Continuity of Care: Charting Progress 
for Babies in Child Care Research-Based Rationale, 2008) Children with 
fewer changes in child care arrangements are less likely to exhibit 
behavior problems. (de Schipper, J.C., Van Ijzendoorn, M. & Tavecchio, 
L., Stability in Center Day Care: Relations with Children's Well-being 
and Problem Behavior in Day Care, Social Development, 2004) Conversely, 
larger numbers of changes have been linked to less outgoing and more 
aggressive behaviors among four- and five-year-old children. (Howes, C. 
& Hamilton, C.E., Children's Relationships with Caregivers: Mothers and 
Child Care Teachers, Child Development, 1992) Continuity of care 
policies support children's ability to develop nurturing, responsive, 
and continuous relationships with their caregivers. For school-age 
children, continuity of care is important because it provides 
additional exposure to programming that can lead to improved school 
attendance and academic outcomes. (Welsh, M. Russell, C., Willimans, 
I., Promoting Learning and School Attendance through After-School 
Programs, Policy Studies Associates, 2002.)
    Child care quality beyond health and safety. Health and safety form 
the foundation of quality but are not sufficient for high-quality 
development and learning experiences. When children have high quality 
early care and education, there are benefits to the child and to 
society. (Yoshikawa, H., et al., Investing in Our Future: The Evidence 
Base on Preschool Education, 2013) The North Carolina Abecedarian 
Project demonstrated both categories of benefits. The Project enrolled 
very low-income children from infancy to kindergarten in full day, full 
year child care with high-quality staff, environments, and curricula. A

[[Page 67565]]

longitudinal study following them through age 21 found significant 
returns on the investment, such as greater school readiness that led to 
fewer special education and remedial education placements, higher rates 
of high school completion and jobs, fewer teen pregnancies, and lower 
rates of juvenile delinquency. (Masse, Leonard N. and Barnett, Steven 
W., A Benefit Cost Analysis of the Abecedarian Early Childhood 
Intervention, National Institute for Early Education Research; New 
Brunswick, NJ). Recent follow-up studies to the well-known Abecedarian 
Project, which began in 1972 and has followed participants from early 
childhood through young adulthood, found that adults who participated 
in a high quality early childhood education program are still 
benefiting from their early experiences. Abecedarian Project 
participants had significantly more years of education than their 
control group peers, were four times more likely to earn college 
degrees, and had lower risk of cardiovascular and metabolic diseases in 
their mid-30s. (Campbell, Pungello, Burchinal, et al., Adult Outcomes 
as a Function of an Early Childhood Educational Program: An Abecedarian 
Project Follow-Up, Frank Porter Graham Child Development Institute, 
Developmental Psychology, 2012 and Campbell, Conti, Heckman et al, 
Early Childhood Investments Substantially Boost Adult Health, Science 
28 March 2014, Vol. 343.)
    Other cost-benefit analyses of other publicly funded preschool 
programs with similarly high-quality standards, such as the Chicago 
Child Parent Centers, demonstrated a high return to society on the 
public investment. (``Age 21 Cost-Benefit Analysis of the Title I 
Chicago Child-Parent Centers.'' Educational Evaluation and Policy 
Analysis, 24(4): 267-303.)
    Recognizing the importance of quality as well as access, the Act 
and this final rule promote efforts to improve the quality of child 
care. Chief among these changes is the increased portion of the grant 
that a Lead Agency must use, at a minimum, for quality improvements. 
The reauthorized Act increases the prior minimum four percent quality 
spending requirement to nine percent over time. It also requires States 
to invest in quality by spending an additional 3 percent for infant and 
toddler quality. States use the quality dollars for a range of 
activities that benefit children and providers assisted with CCDF funds 
and for early childhood systems as a whole, such as State early 
learning guidelines, professional development, technical assistance 
such as coaching and mentoring as part of the quality rating and 
improvement system, scholarships for postsecondary education, and 
upgrades to materials and equipment.
    A critical element in the quality of child care is the knowledge 
and skill of the child care workforce. The Act and the final rule 
emphasize the importance of States creating and supporting a 
progression of professional development, starting with pre-service, and 
which may include postsecondary education. Quality professional 
development is critical to creating a workforce that can support 
children's readiness for success in school and in later years.
    As detailed above, there is a growing amount of evidence and 
recognition that children who experience high-quality early childhood 
programs are more likely to be better prepared in language, literacy, 
math and social skills when they enter school, and that these may have 
lasting positive impacts through adulthood. Because of the strong 
relationship between early experiences and later success, investments 
in improving the quality of early childhood and before- and after-
school programs can pay large dividends.
5. Provider Stability
    The Act and final rule include provisions to strengthen the 
stability of providers serving CCDF-assisted children. Studies that 
have interviewed child care providers participating in the subsidy 
system have shown the importance of policies that improve and stabilize 
payments to the providers. (Sandstrom, H, Grazi, J., and Henly, J.R., 
Clients' Recommendations for Improving the Child Care Subsidy Program, 
Urban Institute: Washington, DC, 2015; Adams, G., Snyder, Katherine, 
and Tout, Kathryn, Essential But Often Ignored: Child care providers in 
the subsidy system, Urban Institute: Washington, DC 2003; Oliveira, 
Peg, The Child Care Subsidy Program Policy and Practice: Connecticut 
Child Care Providers Identify the Problems, Connecticut Voices for 
Children, 2006)
    In addition to rates that reflect the cost of providing quality 
services, the manner in which providers are paid is important to the 
stability of the child care industry. Provider instability has a domino 
effect that can lead to parent employment instability, an outcome that 
undercuts the Act's core principle of ensuring that CCDF children have 
equal access to child care that is comparable to non-CCDF families.
    The Act and the final rule require Lead Agencies to pay providers 
in a timely manner based on generally accepted payment practices for 
non-CCDF providers. Lead Agencies also must de-link provider payments 
from children's absences to the extent practicable. Child care 
providers have many fixed costs, such as salaries, utilities, rent or 
mortgage.
    Surveys and focus groups with child care providers have found that 
some providers experience problems with late payments, including issues 
with receiving the full payment on time and difficulties resolving 
payment disputes. (Adams, G., Rohacek, M., and Snyder, K., Child Care 
Voucher Programs: Provider Experiences in Five Counties, 2008) This 
research has also found that delayed payments creates significant 
financial hardships for the impacted providers, and forces some 
providers to stop serving or limit the number of children receiving 
child care subsidies. Thus, lack of timely payments and rules on 
payments that lead to disincentives to taking children with chronic 
illnesses or other reasons for absences undercut the equal access 
provision. By addressing these issues, these provisions of the Act and 
final rule will provide increased stability and benefits for CCDF 
providers and the families they serve.
    Market Rate or Alternative Methodology. The child care market often 
does not reflect the actual costs of providing child care, let alone 
the higher costs of quality child care. Financial constraints of low-
income parents prevent child care providers from setting their prices 
to fully cover the cost of care (National Women's Law Center, Building 
Blocks: State Child Care Assistance Policies, 2015; Child Care Aware, 
Parents and the High Cost of Child Care, 2014. Currently, relative to 
the cost of providing quality care, CCDF subsidy payment rates are low 
in many States.
    A report from the National Women's Law Center on State subsidy 
policies states that, ``only one State had reimbursement rates at the 
federally recommended level in 2014, a slight decrease from the three 
States with rates at the recommended level in 2013, and a significant 
decrease from the twenty-two States with rates at the recommended level 
in 2001. Thirty-seven States had higher reimbursement rates for higher-
quality providers in 2014--an increase from thirty-three States in 
2013. However, in more than three-quarters of these States, even the 
higher rates were below the federally recommended level in 2014.'' 
(Turning the Corner: State Child Care Policies 2014. Schulman, K. and 
Blank, H. National Women's Law Center, Washington, DC 2014) The Act and 
the final rule require Lead Agencies to set provider payment rates 
based on the

[[Page 67566]]

current, valid market rate survey or alternative methodology.
    To allow for equal access, the rule requires that Lead Agencies set 
base payment rates sufficient to support implementation of the health, 
safety, quality, and staffing requirements. Establishing base rates at 
these levels is important to ensure that providers have the resources 
they need to meet minimum requirements and that providers are not 
discouraged from serving CCDF children. With subsidy payments higher 
than the aforementioned base rate, providers can exceed the minimum 
requirements of health and safety and quality. In doing so, more 
providers will be able to serve CCDF-assisted children and more quality 
providers may decide to participate in the subsidy system--giving 
parents more choices for their children's care. Currently there has 
been a downward trend in the number of CCDF providers, and providing 
for a stronger base rate will help mitigate this effect.

C. Distributional Effects

    As part of our regulatory analysis, we considered whether changes 
would disproportionately benefit or harm a particular subpopulation. As 
discussed above, benefits accrue both directly and indirectly to 
society. In order to implement the requirements of the CCDBG Act of 
2014 and the final rule, States may have to make key decisions about 
the allocation of resources, and some may shift priorities during the 
start-up phase and possibly continuing in later years once the State is 
fully implementing these requirements. The true impact partially 
depends on the overall funding level. The President's FY2017 Budget 
request includes additional funding to help States implement the 
policies required by the reauthorized Act and this final rule, as well 
as significant new resources across a ten year period to expand access 
to child care assistance for all eligible families with children under 
age four years of age. If funding increases sufficiently, both quality 
and access could be improved.
    While, depending on State behavior, there may be some 
distributional effect related to any cost, below is a discussion of two 
policy areas that represent specific distributional effects. The 
first--changes to subsidy policy required by the reauthorized Act--may 
result (depending on how the State chooses to implement the policy) in 
families receiving subsidies for a longer period of time, while other 
families may not be able to access subsidies (absent an increase in 
funding for the CCDF program). This would be in effect a transfer of 
subsidy funding that would potentially limit new enrollment for the 
purposes of keeping existing families enrolled longer. The second 
area--increased statutory quality spending requirements--may result in 
a change in which families receive benefits, or how they receive them, 
by shifting resources away from direct services to quality spending.
    Minimum 12-month eligibility and related provisions. In order to 
reduce administrative burden and to improve the stability and 
continuity of care in the CCDF program, the CCDBG Act of 2014 and this 
final rule at Sec. Sec.  98.20 and 98.21 require Lead Agencies to adopt 
a number of eligibility policies, including a 12-month minimum period 
for families to recertify their eligibility. This package of 
eligibility policies will allow families to maintain their eligibility 
regardless of temporary changes in work or training/education status or 
income changes (as long as income remains below 85% of State Median 
Income). Subsidy receipt is also predictive of more stable child care 
arrangements. (Brooks, et. al., Impacts of child care subsidies on 
family and child well-being, Early Childhood Research Quarterly, 2002) 
Stability of child care arrangements can affect children's healthy 
development, especially for vulnerable children who may be at special 
risk of poor developmental outcomes. (Adams, G., and Rohacek, M., Child 
Care Instability: Definitions, Context and Policy Implications, Urban 
Institute, 2010) Prior to reauthorization, about half the States had 
eligibility periods less than 12 months--typically providing only six 
months of eligibility--and families churned on and off the caseload.
    Based on qualitative research and discussions with CCDF 
participants, we expect that longer eligibility periods, and the 
related policies in the Act and this rule, will increase the average 
length of time that participating families receive child care 
subsidies. As part of this RIA, we used CCDF administrative data to 
model the policy change in the Act and final rule wherein all States 
would have a minimum of 12-month eligibility periods, to predict 
whether CCDF families would have longer participation durations and 
whether there would be any impact on the unduplicated number of 
families receiving CCDF assistance. The calculations in this estimate 
are informed by a demonstration project that randomly assigned working 
Illinois families with moderate incomes (i.e., above the normal 
eligibility thresholds) to one of three groups. (Michalopoulos, C., 
Lundquist, E., and Castells, N., The Effects of Child Care Subsidies 
for Moderate Income Families in Cook County, Illinois, MDRC, 2010) 
Although two of the three groups were both eligible for child care 
subsidies, one of the groups required recertification every six-months 
and the other required recertification every 12-months. Over a 24-month 
follow-up period, the families assigned to 12-month recertification 
periods received child care subsidies an average of 2.5 months more 
than families assigned to 6-month recertification periods.
    We also examined a ``natural experiment'' in Georgia, which changed 
its recertification period from six months to 12 months in April 2009. 
A preliminary analysis found that families had longer spell lengths 
after the policy change than families that entered care before the 
policy change. Although it is uncertain what the driving factor for 
this was, these findings from Georgia support the hypothesis that 
longer recertification periods increase the number of months that 
recipient families participate in the program.
    Assuming that States will maintain their average monthly caseloads 
once they implement the 12-month recertification periods, but will 
serve fewer unique children over that time period because of longer 
subsidy participation durations, we estimated the number of families 
that could be impacted at current funding levels. Decreased churn would 
not decrease the amount of assistance given, nor would it affect the 
average monthly caseload, but may result in a decrease in the total 
number of families served over the course of a given year. We used an 
analysis of disaggregated CCDF administrative data from FY 2010 to 
determine the ratio between unique annual counts and average monthly 
caseloads, which we used for a baseline ratio to apply to the average 
monthly caseload totals from FY 2012 (which showed 609,800 children 
being served in an average month in the 25 States with eligibility 
periods less than 12 months). With this data, we estimated the unique 
caseload size of each State in FY 2012, which is the last year for 
which we have caseload estimates and documentation of policies (which 
showed 1,053,773 unique children received services at some point during 
the year in the 25 States). Based on these assumptions and using the 
results from the Illinois study to estimate the impact on length of 
subsidy receipt, we estimate that the reduction in unique children 
served in a given year after the policy change could be approximately 
162,000 children.

[[Page 67567]]

    Increase in Quality Set-aside. As discussed above in the analysis 
of benefits, the increased quality set-aside and the new infant and 
toddler set-aside required in reauthorization will benefit children 
and, when coupled with training and higher rates, child care providers. 
Lead Agencies are not required to use quality funds to support the 
quality of care for only CCDF children. Thus, quality investments often 
support the entire child care system in the State, especially because 
of the high investments in licensing, training, and quality rating and 
improvement systems. Therefore, these increased investments will have 
an impact broader than families receiving CCDF assistance, and will 
continue to improve the quality of care available to all children, 
regardless of subsidy receipt.
    We do not expect the increase in the quality set-aside to have a 
significant impact on caseload, particularly since the majority of 
States are already spending more than the new 9% quality set-aside 
requirement (see Table 9 below). Other States that do not currently 
spend above this level will have time to phase-in the increases and 
will likely use these additional increases to cover several of the new 
health and safety and professional development requirements. Therefore, 
any caseload impact would have already been included in the costs 
associated with those provisions. However, we recognize some Lead 
Agencies will have to reallocate funds currently being used for other 
activities, including direct services, so we are discussing possible 
distributional effects here. Currently, about 13 percent of CCDF 
expenditures are spent on quality improvement activities, including 
targeted funds included in appropriations. This amount is more than the 
full percentage to be set aside for the quality and infant and toddler 
set-asides in FY 2020, once fully phased-in. However, this is a 
national figure and may not provide a complete picture of how many 
States and Territories might have to adjust their quality expenditures 
to meet new requirements.
    Using FY 2012 CCDF expenditure data, we did an analysis of the 
number of States and Territories that will have to increase their 
quality expenditures in order to meet the requirements in the CCDBG Act 
of 2014 and incorporated into this final rule at Sec.  98.50(b)(1). 
(Note: Compliance with spending requirements is determined after a full 
grant award is complete. States and Territories have three years to 
complete their grant awards. Therefore, the most recent award year for 
which we have data is FY 2012.) We included regular quality 
expenditures as well as the amount of funds spent for the ``quality 
expansion'' and ``school-age/resource and referral'' targeted funds. 
The infant and toddler targeted funds were not included in this 
analysis because they have now been incorporated into the statute. 
Instead, we have a separate analysis of the new infant and toddler set-
aside below. Below is a summary of the number of States and Territories 
at different amounts of quality expenditures:

                      Table 9--Quality Expenditures
------------------------------------------------------------------------
                                                              Number of
              % Quality expenditures (FY 2012)                states and
                                                             territories
------------------------------------------------------------------------
<7%........................................................            6
7% (effective FY 2016 and FY 2017).........................            6
8% (effective FY 2018 and FY 2019).........................            5
9% (effective FY 2020 and succeeding years)................            3
>9%........................................................           36
------------------------------------------------------------------------

    Based on this data, 39 States will not have to adjust the percent 
of funds they expend on quality activities, while six States and 
Territories will have to increase the percent of funds they spend on 
quality activities by FY 2016. For the other States and Territories, it 
varies when each will need to change the amount they spend on quality 
activities--12 States will have to adjust by FY 2018 to meet the eight 
percent requirement; and 17 States will have to adjust by FY 2020 to 
meet the nine percent requirement.
    In addition to the primary set-aside for quality activities, this 
final rule incorporates at Sec.  98.50(b)(2) a new requirement of the 
Act that, beginning in FY 2017 and each succeeding fiscal year, Lead 
Agencies must expend at least three percent of their full awards 
(including Discretionary, Mandatory, and Federal and State Matching 
funds) on activities that relates to the care of infants and toddlers. 
Since FY 2001, federal appropriations law has included a requirement 
for Lead Agencies to spend a certain amount of discretionary funds on 
activities to improve the quality of care for infants and toddlers. In 
FY 2015, this set-aside was $102 million. The new three percent 
reservation represents an increase of about $129 million (for a new 
amount of $231million), based on FY 2012 State and Territory 
expenditures.
    Lead Agencies do not currently report how much of their general 
quality funds are spent on activities targeted to improving care for 
infants and toddlers. Therefore, we only have the amount of targeted 
funds they spent on infant and toddler activities, which for all but 
five States and Territories is below the new three percent requirement. 
The increase necessary ranges from State to State, from $38,000 for 
Idaho to $21 million for New York. The average increase will be $2.5 
million per State. However, as these estimates do not include any 
regular quality funds overestimating the required increases for the 
majority of States and Territories.
    While a small number of States (five) will have to increase their 
quality expenditures, since the national average quality expenditure is 
already above the 12% target for the quality and infant and toddler 
set-asides, we are not attributing a reduction in the number of 
children served as a result of this policy change.

D. Analysis of Regulatory Alternatives

    In developing this final rule, we considered alternative ways to 
meet the purposes of the reauthorized Act. There are areas of the Act 
that we are interpreting and clarifying through this rule. Our 
interpretation of the Act remains within the legal parameters of the 
statute and is consistent with the goals and purposes of the Act. Below 
we include a discussion of areas that we clarified through the final 
rule: (1) Monitoring for licensed non-CCDF providers, (2) background 
checks for regulated and registered providers and (3) background checks 
for non-caregivers.
    For the purposes of this analysis, we are discussing the costs, 
benefits, and potential caseload impacts related to meeting these new 
requirements. However, it is particularly difficult to predict caseload 
impact due to a variety of unknown factors, including future federal 
funding levels. Even if we were to assume level federal funding, States 
could allocate new funds, redirect current quality spending (e.g., by 
changing quality activities to focus on health & safety), shift costs 
to parents or providers, or use a combination of these approaches to 
pay for new requirements. The caseload estimates in the following 
discussion are based on the assumption that the entire cost of meeting 
this requirement are covered by redistributing funds that would 
otherwise be used for direct services. Therefore, these caseload impact 
figures should be considered upper bound estimates and are mostly 
likely significant overestimates.
    Background Checks for Regulated and Registered Providers: At Sec.  
98.43(a)(1)(i), we are applying the background check requirements to 
all child care staff

[[Page 67568]]

members (including prospective child care staff members) of all 
licensed, regulated, or registered child care providers and all child 
care providers eligible to deliver CCDF services. This language 
includes all licensed, regulated, or registered providers, regardless 
of whether they receive CCDF funds and all license-exempt CCDF 
providers (with the exception of those related to all children in their 
care).
    The alternative to this policy would be to limit background checks 
to only providers receiving CCDF assistance. While we acknowledge that 
others may have interpreted the statute differently, there is 
justification for applying this requirement in the broadest terms for 
two important reasons. First, it is our strong belief that all parents 
using child care deserve this basic protection of knowing that those 
who are trusted with the care of their children do not have criminal 
backgrounds that may endanger the well-being of their children.
    Second, limiting those child care providers who are subject to 
background checks, has the potential to severely restrict parental 
choice and equal access for CCDF children. If all child care providers 
are not subject to comprehensive background checks, providers could opt 
to not serve CCDF children thereby restricting access. Creating a 
bifurcated system in which CCDF children have access to only a portion 
of child care providers who meet applicable standards would be 
incongruous with the purposes of the Act and would not serve to advance 
the important goal of serving more low-income children in high-quality 
care.
    Choosing this would present additional costs to the alternative of 
limiting background checks to only CCDF providers. The cost of the 
background check requirement for only CCDF providers would be 
approximately $11.9 million per year (estimated using a 3% discount 
rate). Using the methodology discussed in detail in the background 
check section of the preamble, we estimate the additional cost of 
requiring background checks of all licensed and regulated providers, 
rather than just those who are eligible to deliver CCDF services, to be 
approximately $1.7 million annually (estimated using a 3% discount 
rate), which would amount to an upper bound caseload impact of about 
300 fewer children served per year.
    Background Checks for Non-Caregivers: The Act defines a child care 
staff member as someone (unless they are related to all children in 
care) who is employed by the child care provider for compensation or 
whose activities involve unsupervised access to children who are cared 
for by the child care provider. This final rule requires individuals, 
age 18 or older, residing in a family child care home be subject to 
background checks. The alternative to this would be to not require 
background checks of other individuals living in the family child care 
home. However, we chose this policy because it is reasonable to assume 
that these individuals may have unsupervised access to children. 
Because we are including these individuals in the definition of child 
care staff members, they will be subject to the same requirements and 
will be allowed the same appeals process as employees.
    More than forty States require some type of background check of 
family members 18 years of age or older that reside in the family child 
care home (Leaving Child Care to Chance: NACCRRA's Ranking of State 
Standards and Oversight for Small Family Child Care Homes, National 
Association of Child Care Resource and Referral Agencies, 2012).
    While the total cost of the background check requirement is 
approximately $13.6 million, we can isolate the costs of applying the 
background checks to non-caregiver individuals, we estimate the cost to 
be approximately $3 million annually (estimated using a 3% discount 
rate), which would amount to a upper bound caseload impact of 
approximately 550 fewer children served per year.
E. Break Even Analysis for Reductions in Injuries and Deaths
    This section estimates the potential benefits associated with the 
elimination of injuries and deaths in child care settings in the United 
States, and the proportion of fatalities and injuries, which, if 
eliminated by the provisions discussed here, would justify their costs 
on their own. Standard methods are used to monetize the value of these 
potential benefits. Although children receiving subsidies through the 
Child Care and Development Fund (CCDF) are the individuals that will 
likely benefit most from the rule's overall health and safety 
provisions, we conduct this break even analysis using data on children 
in all child care settings since children in non-CCDF arrangements will 
directly benefit from the extension of background check requirements 
and may see additional benefits as a result of other health and safety 
and quality provisions in the final rule. As described above, the 
primary regulatory alternative in implementing health and safety 
provisions would be to restrict background checks provisions and 
monitoring requirements. Therefore, this analysis discusses the costs 
and benefits of the final rule relative to that alternative.
    The benefits estimated for this analysis are derived from voluntary 
data reporting on fatalities and injuries in the child care setting to 
ACF in a Quality Performance Report (QPR). These figures are 
supplemented by data from several other sources. Although many States 
contribute data to the QPR report, data on fatalities and injuries is 
not available for all States. To estimate fatalities and injuries in 
the child care setting at the national level in 2014 using the QPR 
data, we impute estimated fatalities and injuries for States with 
incomplete reports. For States with no reported data for 2014, we 
assume that the injury or fatality rate per provider is equal to the 
average injury or fatality rate per provider across States with 
available 2014 data.
    To monetize benefits from reductions in injury rates, we rely on 
data on the cost of injury from the Centers for Disease Control (CDC). 
In particular, we use CDC data to calculate the cost of non-fatal 
injuries resulting in emergency room treatment and/or hospitalization 
for children age 12 and under, which includes medical costs as well as 
lost productivity costs for caretakers, based on 2012 data.\1\ After 
adjusting for inflation using the Gross Domestic Product (GDP) deflator 
from the Bureau of Economic Analysis (BEA), the cost per injury for 
children age 12 and under is $8,095 in 2014 dollars. The benefit of a 
reduction in the injury rate, then, is the reduction in the medical 
costs and productivity losses associated with the reduction in 
injuries. Note that this does not include the dollar value of any 
changes in health status for the injured individuals, which implies 
that these estimates understate the value of reductions in injuries in 
the child care setting. Based on QPR data, we estimate that there were 
18,209 injuries in child care settings in 2014. To calculate the 
monetary value of a reduction in the injury rate in child care settings 
due to this rule, we multiplied the expected number of avoided injuries 
in each year by the value of eliminating each injury. For simplicity, 
we assume that the number of prevented injuries is the same in each 
year after implementation of the requirements, and that the cost of 
injury, in 2014 dollars, is constant over time. This method implies 
that the present value of eliminating all injuries

[[Page 67569]]

in the child care setting over the period examined in this rule, using 
a 3% discount rate, is approximately $1.30 billion.
---------------------------------------------------------------------------

    \1\ CDC provided updated estimates of the cost of injury based 
on Cost of Injury Reports 2005 and 2012 data on non-fatal injuries. 
For more information, see http://www.cdc.gov/injury/wisqars/cost/cost-learn-more.html.
---------------------------------------------------------------------------

    To monetize the value of reductions in mortality rates, we use 
estimates of the number of child fatalities in child care settings and 
information on the value of a statistical life for children. The number 
of child fatalities in the child care setting is estimated by combining 
two numbers: (1) The number of fatalities due to Sudden Infant Death 
Syndrome (SIDS), and (2) the number of fatalities due to causes other 
than SIDS. These two numbers are estimated separately because SIDS is 
one type of fatality that is likely to be impacted by the health and 
safety provisions in the Act and because the Centers for Disease 
Control (CDC) \2\ publishes accurate estimates for this type of 
death.\3\ According to CDC, there were 1,563 deaths due to SIDS in 
2011. Research from a study in 2000 estimated that 14.8 percent \4\ of 
SIDS fatalities took place in a family child care or a child care 
center. After applying the 14.8 percent to the 1,563 SIDS deaths, we 
estimate that the number of SIDS deaths in child care settings were 231 
in 2014.
---------------------------------------------------------------------------

    \2\ For more information, see http://wonder.cdc.gov.
    \3\ Our review of the QPR data conclude that the number of 
deaths and injuries reported are likely to be undercounts because 
some States do not collect data from some types of child care 
providers.
    \4\ Moon, Rachel Y., Kantilal M. Patel, and Sarah J. McDermott 
Shaefer. ``Sudden infant death syndrome in child care settings.'' 
Pediatrics 106.2 (2000): 295-300.
---------------------------------------------------------------------------

    The number of non-SIDS deaths in 2014 is estimated based on QPR 
data. Information on cause of death were reported for 18 deaths in the 
2014 QPR data, of which 5 were due to SIDS and 13 were due to other 
causes. Based on this information, we estimate that 72 percent of 
deaths in child care settings reported in QPR data were due to causes 
other than SIDS. After adding the 82 fatalities from non-SIDS as 
reported in the QPR data to the 231 fatalities from SIDS, we arrive at 
a sum of 313 fatalities in child care settings.
    A 2010 study estimates that the value of a statistical life for 
children to be $12-15 million \5\ After taking the mean of this range 
and adjusting it for inflation using the GDP deflator, we arrive at 
$14.5 million in 2014 dollars per fatality. For simplicity, we assume 
that the potential number of lives saved is the same in each year after 
implementation of the requirements. We follow Department of 
Transportation (DOT) guidance \6\ to adjust the value of a statistical 
life for real income growth, increasing it by 1.07 percent each year. 
To calculate the dollar value of reductions in mortality, we calculate 
the number of statistical lives saved, and multiply that number by the 
relevant value of a statistical life. This method implies that the 
present value of eliminating all deaths in the child care setting over 
the period examined in this rule, using a 3 percent discount rate, is 
approximately $44.4 billion.
---------------------------------------------------------------------------

    \5\ Hammitt, James K., and Kevin Haninger. ``Valuing fatal risks 
to children and adults: Effects of disease, latency, and risk 
aversion.'' Journal of Risk and Uncertainty 40.1 (2010): 57-83 
(estimate derived using stated-preference surveys inquiring about 
willingness to pay to reduce risks to one's child).
    \6\ For more information, see http://www.dot.gov/sites/dot.dev/files/docs/VSL%20Guidance.doc.
---------------------------------------------------------------------------

    Next, we estimate the proportion of fatalities and injuries which, 
if eliminated by the provision that extends background checks 
(approximately $4 million per year), would justify their costs on their 
own. Based on the assumptions and methodologies described above, the 
present value of the injury and mortality rate reduction benefits of 
the rule, using a 3 percent discount rate, would equal the costs of 
this provision if fatalities and injuries were reduced by approximately 
0.08 percent over the period examined in this rule. Note that this does 
not include other benefits associated with this rule.

F. Accounting Statement--Table of Quantified Money Costs and 
Opportunity Costs

    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.

                                           Table 10--Quantified Money Costs, Opportunity Costs, and Transfers
                                                                     [$ in millions]
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                              Annualized cost (over 10 years)       Total present value (over 10 years)
                                             Phase-in        On-going    -------------------------------------------------------------------------------
                                              annual          annual                           Discounted                              Discounted
                                          average (years  average (years  Undiscounted -------------------------- Undiscounted -------------------------
                                               1-5)            6-10)                         3%           7%                         3%           7%
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                               Money Costs ($ in millions)
--------------------------------------------------------------------------------------------------------------------------------------------------------
Health and Safety:
    Monitoring..........................           158.4           197.6         178.0        175.4        171.9       1,779.9      1,541.5      1,292.2
    Bkgd Checks.........................             9.0            18.9          13.9         13.6         13.3         139.2        119.7         99.6
    Training............................            15.4            10.5          12.9         13.2         13.5         129.3        115.8        101.5
    Admin *.............................             9.1            11.3          10.2         10.0          9.9         101.7         88.2         74.2
    IT and Infrastructure *.............             9.1            11.3          10.2         10.0          9.9         101.7         88.2         74.2
Consumer Education:
    Website.............................            12.8            11.8          12.3         12.4         12.5         123.0        108.6         93.6
    Statement...........................             0.5             0.8           0.7          0.6          0.6           6.5          5.5          4.5
                                         ---------------------------------------------------------------------------------------------------------------
        Money Costs Total...............           214.3           262.2         238.2        235.2        231.6       2,381.3      2,067.5      1,739.8
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                  Opportunity Costs--Health and Safety ($ in millions)
--------------------------------------------------------------------------------------------------------------------------------------------------------
    Monitoring..........................            13.1            16.4          14.7         14.5         14.2         147.4        127.6        106.9
    Bkgd Checks.........................             6.3             7.9           7.1          7.1          7.1          71.1         62.4         53.3
    Training............................            43.8            29.9          36.8         37.6         38.5         368.4        330.0        289.3
                                         ---------------------------------------------------------------------------------------------------------------
        Opportunity Costs Total.........            63.2            54.2          58.6         59.2         59.8         586.9        520.0        449.5
                                         ---------------------------------------------------------------------------------------------------------------
            Cost Total..................           277.5           316.4         296.8        294.4        291.4       2,968.2      2,587.5      2,189.3
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                Transfers ($ in millions)
--------------------------------------------------------------------------------------------------------------------------------------------------------
Increased Subsidy.......................           478.8         1,281.0         879.9        839.1        786.1       8,799.0      7,372.4      5,907.7

[[Page 67570]]

 
    Transfers Total.....................           478.8         1,281.0         879.9        839.1        786.1       8,799.0      7,372.4      5,907.7
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                         Territories and Tribes ($ in millions)
--------------------------------------------------------------------------------------------------------------------------------------------------------
2.5%)...................................            18.9            39.9          29.4         28.3         26.9         294.2        249.0        202.4
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                               Grand Total ($ in millions)
--------------------------------------------------------------------------------------------------------------------------------------------------------
Costs and Transfers.....................           775.2         1,637.3       1,206.1      1,161.8      1,104.4      12,061.4     10,208.9      8,299.4
--------------------------------------------------------------------------------------------------------------------------------------------------------
* Administrative and IT/Infrastructure costs are only applied to Health and Safety requirements. Other costs have administrative costs already built
  into their cost estimates.

d. Unfunded Mandates Reform Act of 1995

    The Unfunded Mandates Reform Act (UMRA) was enacted to avoid 
imposing unfunded federal mandates on State, local, and Tribal 
governments, or on the private sector. Most of UMRA's provisions apply 
to proposed and final rules for which a general notice of proposed 
rulemaking was published, and that include a federal mandate that may 
result in expenditures by State, local, or Tribal governments, in the 
aggregate, or by the private sector of $100 million or more in any one 
year. The regulatory impact analysis includes information about the 
costs of this regulation. As explained throughout the preamble to this 
final rule, ACF has ensured that the rule is based on provisions of the 
CCDBG Act of 2014. We have provided for Lead Agency flexibility in many 
areas to limit burden and allow for cost-effective implementation of 
the statutory requirements. In addition, States, Territories and Tribes 
receive well over $5 billion annually in federal funding to implement 
the program.

e. Executive Order 13045 on Protection of Children

    Executive Order 13045 applies to economically significant rules 
under Executive Order 12866 and directs agencies to identify and assess 
environmental health risks and safety risks that may disproportionately 
affect children. Agencies shall provide an evaluation of the 
environmental health or safety effects of the planned regulation on 
children and an explanation of why the planned regulation is preferable 
to other potentially effective and reasonably feasible alternatives 
considered by the agency. This regulatory action has been identified as 
being economically significant and will positively impact children by 
lowering health and safety risks in child care settings funded by CCDF. 
The regulatory impact analysis includes a full explanation of the final 
rule's expected impact on children and regulatory alternatives 
considered by the agency.

f. Executive Order 13175 on Consultation With Indian Tribes

    Executive Order 13175 requires agencies to consult with Tribal 
leaders and Tribal officials early in the process of developing 
regulations and prior to the formal promulgation of the regulations. 
Agencies also must include a Tribal impact statement, which includes a 
description of the agency's prior consultation with Tribal officials, a 
summary of the nature of their concerns and the agency's position 
supporting the need to issue the regulation, and a statement of the 
extent to which the concerns of Tribal officials have been met. ACF is 
committed to continued consultation and collaboration with Tribes, and 
this final rule meets the requirements of Executive Order 13175. The 
discussion of subpart I in section IV of the preamble serves as the 
Tribal impact statement and contains a detailed description of the 
consultation and outreach on this final rule.

g. Paperwork Reduction Act

    A number of sections in this final rule refer to collections of 
information, all of which are subject to review by the Office of 
Management and Budget (OMB) under the Paperwork Reduction Act of 1995 
(the PRA) (44 U.S.C. 3501 et seq.). In some instances (listed in the 
table below), the collections of information for the relevant sections 
of this final rule have been previously approved under a series of OMB 
control numbers.

----------------------------------------------------------------------------------------------------------------
                                                  Relevant section in the final     OMB Control     Expiration
                CCDF Title/Code                               rule                    number           date
----------------------------------------------------------------------------------------------------------------
ACF-118 (CCDF State and Territory Plan).......  Sec.  Sec.   98.14, 98.15, and         0970-0114      12/31/2018
                                                 98.16 (and related provisions).
ACF-800 (Annual Aggregate Data Reporting--      Sec.   98.71....................       0970-0150      12/31/2018
 States and Territories).
ACF-801 (Monthly Case-Level Data Reporting--    Sec.   98.71....................       0970-0167      12/31/2018
 States and Territories).
ACF-403, ACF-404, ACF-405 (Error Rate           Sec.  Sec.   98.100 and 98.102..       0970-0323      08/31/2018
 Reporting).
ACF-700 (Administrative Data Report--Tribes)..  Sec.   98.71....................       0970-0241      10/31/2016
ACF-696-T (Financial Reporting--Tribes).......  Sec.   98.65....................       0970-0195      05/31/2016
----------------------------------------------------------------------------------------------------------------

     ACF-118 (CCDF State and Territory Plan). The Act and this 
final rule add several new requirements that States and Territories 
must report in the CCDF Plans, including provisions related to health 
and safety requirements,

[[Page 67571]]

consumer education, and eligibility policies. State and Territorial 
compliance with the final rule will be determined in part through the 
review of CCDF Plans and Plan amendments. We have finalized a revised 
Plan that reflects requirements under the Act.
     ACF-800 (Annual Aggregate Data Reporting--States and 
Territories). The Act and this final rule add new annual aggregate data 
reporting requirements. Through the OMB clearance process, we finalized 
revised forms and instructions reflecting these changes.
     ACF-801 (Monthly Case-Level Data Reporting--States and 
Territories). The Act and this final rule add new case-level data 
reporting requirements. Through the OMB clearance process, we finalized 
revised forms and instructions reflecting the majority of these 
changes.
     ACF-403, ACF-404, ACF-405 (Error Rate Reporting). The 
final rule does not make changes to this information collection, which 
has been previously approved by OMB.
     ACF-700 (Administrative Data Report--Tribes). The final 
rule provides reduced regulatory specificity regarding the information 
collection, but does not change the content.
     ACF-696-T (Financial Reporting-Tribes). The final rule 
does not make any changes to this information collection.
    In other instances, which are listed below, the final rule modifies 
several previously-approved information collections, but ACF has not 
yet initiated the OMB approval process to implement these changes, or 
the approval process is currently underway but not yet completed. ACF 
will publish Federal Register notices soliciting public comment on 
specific revisions to these information collections and the associated 
burden estimates, and will make available the proposed forms and 
instructions for review.

----------------------------------------------------------------------------------------------------------------
                                                  Relevant section in the final     OMB Control     Expiration
                CCDF Title/Code                               rule                    number           date
----------------------------------------------------------------------------------------------------------------
ACF-696 (Financial Reporting--States).........  Sec.   98.65....................       0970-0163      05/31/2016
Quality Progress Report (QPR)--States and       Sec.   98.53....................       0970-0114      05/13/2016
 Territories.
ACF-118-A (CCDF Tribal Plan)..................  Sec.  Sec.   98.14, 98.16,             0970-0198      09/30/2019
                                                 98.18, 98.81, and 98.83 (and
                                                 related sections).
CCDF-ACF-PI-2013-01 (Tribal Application for     Sec.   98.84....................       0970-0160      03/31/2016
 Construction Funds).
----------------------------------------------------------------------------------------------------------------

     ACF-696 (Financial Reporting--States). The final rule 
modifies this existing information collection to require States and 
Territories to report financial data on any sub-categories of quality 
activities as required by ACF.
     Quality Progress Report (QPR)--States and Territories. The 
final rule amends the existing information collection to require States 
and Territories to submit reports on quality improvement, measures to 
evaluate progress, and other information.
     ACF-118-A (CCDF Tribal Plan) The final rule changes 
requirements that Tribes and Tribal organizations are required to 
report in the CCDF Plans, and indicates that Plan and application 
requirements will vary based on the size of a Tribe's allocation. 
Tribal compliance with the final rule will be determined in part 
through the review of Tribal CCDF Plans and Plan amendments. We are in 
the process of revising the Tribal Plan to reflect many of the priority 
areas reflected in the reauthorized Act.
     CCDF-ACF-PI-2013-01 (Tribal Application for Construction 
Funds). The Act and this final rule modify this existing information by 
changing requirements related to maintaining the level of child care 
services as a condition of using funds for construction and renovation. 
We are updating this information collection through the OMB process to 
reflect the changes.
    The table below provides annual burden estimates for the existing 
information collections that are modified by this final rule. These 
estimates reflect the total burden of each information collection, 
including the changes made by the final rule.

                                             Annual Burden Estimates
----------------------------------------------------------------------------------------------------------------
                                                                   Number of      Average burden
                  Instrument                      Number of      responses per      hours per      Total burden
                                                 respondents      respondent         response          hours
----------------------------------------------------------------------------------------------------------------
Quality Progress Report (QPR)--States and                  56              1                50              2800
 Territories.................................
ACF--696 (Financial Reporting-States)........              56              4                 5.5           1,232
ACF-118-A (CCDF Tribal Plan).................             257              0.33            120            10,177
CCDF-ACF-PI-2013-01 (Tribal Application for                 5              1                20               100
 Construction Funds).........................
----------------------------------------------------------------------------------------------------------------

    Finally, this final rule contains two new information collection 
requirements, and the table below provides an annual burden hour 
estimate for these collections. First, Sec.  98.33 requires Lead 
Agencies to collect and disseminate consumer education information to 
parents of eligible children, the general public, and providers through 
a consumer-friendly and easily accessible Web site. This Web site will 
include information about State or Territory policies (related to 
licensing, monitoring, and background checks) as well as provider-
specific information, including results of monitoring and inspection 
reports and, if available, information about quality. This requirement 
applies to the 50 States, the District of Columbia, and 5 Territories 
that receive CCDF grants. In estimating the burden estimate, we 
considered the fact that many States already have existing Web sites. 
Even in States without an existing Web site, much of the information 
will be available from licensing agencies, quality rating and 
improvement systems, and other sources. The burden hour estimate below 
reflects an average estimate, recognizing that there will be 
significant State variation. The estimate is annualized to encompass 
initial data entry as well as updates to the Web site over time.

[[Page 67572]]

    Second, Sec.  98.42 requires Lead Agencies to establish procedures 
that require child care providers that care for children receiving CCDF 
subsidies to report to a designated State, Territorial, or Tribal 
entity any serious injuries or deaths of children occurring in child 
care. This is necessary to be able to examine the circumstances leading 
to serious injury or death of children in child care, and, if 
necessary, make adjustments to health and safety requirements and 
enforcement of those requirements in order to prevent any future 
tragedies. The requirement would potentially apply to the nearly 
390,000 child care providers who serve children receiving CCDF 
subsidies, but only a portion of these providers would need to report, 
since our burden estimate assumes that no report is required in the 
absence of serious injury or death.
    Using currently available aggregate data on child deaths and 
injuries, we estimated the average number of provider respondents would 
be approximately 10,000 annually. In estimating the burden, we 
considered that more than half the States already have reporting 
requirements in place as part of their licensing procedures for child 
care providers. States, Territories, and Tribes have flexibility in 
specifying the particular reporting requirements, such as timeframes 
and which serious injuries must be reported. While the reporting 
procedures will vary by jurisdiction, we anticipate that most providers 
will need to complete a form or otherwise provide written information.

                                             Annual Burden Estimates
----------------------------------------------------------------------------------------------------------------
                                                                     Number of    Average burden
              Instrument                  Number of respondents    responses per     hours per     Total burden
                                                                    respondent       response          hours
----------------------------------------------------------------------------------------------------------------
Consumer Education Website............  56 States/Territories...               1             300          16,800
Reporting of Serious Injuries and       10,000 child care                      1               1          10,000
 Death.                                  providers.
----------------------------------------------------------------------------------------------------------------

    We did not receive any public comments on these burden estimates, 
which were included in the NPRM. The information collection provisions 
in this final rule were submitted to OMB for review as required by 
section 3507(d) of the Paperwork Reduction Act and were assigned OMB 
control number 0970-0473. Before the effective date of this final rule, 
ACF will publish a notice in the Federal Register announcing OMB's 
decision to approve, modify, or disapprove the information collection 
provisions in this final rule. An agency may not conduct or sponsor, 
and a person is not required to respond to, a collection of information 
unless it displays a currently valid OMB control number.

h. Congressional Review

    The Congressional Review Act (CRA) allows Congress to review 
``major'' rules issued by federal agencies before the rules take 
effect. The CRA defines a major rule as one that has resulted or is 
likely to result in (1) an annual effect on the economy of $100 million 
or more; (2) a major increase in costs or prices for consumers, 
individual industries, federal, State or local government agencies, or 
geographic regions; or (3) significant adverse effects on competition, 
employment, investment, productivity, or innovation, or on the ability 
of United States-based enterprises to compete with foreign-based 
enterprises in domestic and export markets. This regulation is a major 
rule because it will likely result in an annual effect of more than 
$100 million on the economy. Therefore, this final rule is being 
transmitted to Congress and the Comptroller General for review.

i. Executive Order 13132; Federalism Impact Statement

    Executive Order 13132 requires Federal agencies to consider the 
impact of their regulatory actions on State and local governments. 
Where such actions have federalism implications, agencies are directed 
to provide a statement for inclusion in the preamble to the regulations 
describing the agency's considerations.
    Consultations with State and local officials. After passage of the 
CCDBG Act of 2014, the Office of Child Care (OCC) in the Office of the 
Deputy Assistant Secretary for Early Childhood Development in ACF 
conducted outreach to engage with a variety of stakeholders to better 
understand the implications of its provisions. OCC created a 
reauthorization page on its Web site to provide public information and 
a specific email address to submit general questions. OCC received 
approximately 650 questions and comments through this email address, 
webinars, inquiries to regional offices, and meetings with grantees. 
OCC leadership and staff participated in more than 21 listening 
sessions with approximately 675 people representing diverse national, 
State, and local stakeholders regarding the reauthorized Act, held 
webinars and gave presentations at national conferences. Participants 
included State human services agencies, child care providers, parents 
with children in child care, child care resource and referral agencies, 
national and State advocacy groups, national stakeholders including 
faith-based communities, after-school and school age child care 
providers, child care researchers, State and local early childhood 
organizations, provider associations, labor unions, and National Head 
Start Association members. Furthermore, OCC held five meetings with 
State and Territory CCDF administrators and a series of consultations 
with Tribal leaders to describe the updated Act and to gather input 
from federal grantees with responsibility for operating the CCDF 
program.
    In addition, ACF reviewed the records of comments received after 
issuing a now withdrawn NPRM for CCDF in May 2013 prior to passage of 
the CCDBG Act of 2014 by Congress. Many, but not all, of the key 
components of the Act are in alignment with provisions included in that 
NPRM.
    Finally, we carefully reviewed the nearly 150 comments received on 
the December 2015 NPRM after widely disseminating the NPRM to solicit 
comments. We also held a Tribal consultation on the NPRM during the 
comment period.
    Nature of concerns and the need to issue this final rule. State, 
Territorial and Tribal CCDF Lead Agencies want to provide family 
friendly child care assistance and support increased quality of child 
care services, but are concerned about the cost of the reauthorized Act 
and need for grantee flexibility. We seriously considered these views 
in developing the final rule. We also completed a regulatory impact 
analysis to fully assess costs and benefits of the new requirements. We 
recognize that a number of the new regulatory provisions will require 
some States,

[[Page 67573]]

Territories, and Tribal Lead Agencies to re-direct CCDF funds to 
implement specific provisions.
    Extent to which we meet those concerns. Each fiscal year ACF 
provides to States, Territories, and Tribes $5.7 billion in annual 
funding to implement the CCDF program. Additionally, the regulatory 
changes we made to the Act and this final rule are based on policy 
practices already implemented by many States. Finally, in several 
areas, the final rule increases the flexibility available to States, 
Territories, and Tribes in administering the program (e.g., waiving 
family co-payments, defining protective services).

j. Treasury and General Government Appropriations Act of 1999

    Section 654 of the Treasury and General Government Appropriations 
Act of 1999 (Pub. L. 105-277) requires federal agencies to determine 
whether a regulation may negatively impact 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. This final rule will 
not have a negative impact on the autonomy or integrity of the family 
as an institution.
    Accordingly, we concluded that it is not necessary to prepare a 
family policymaking assessment. In fact, the final rule will have 
positive benefits by improving health and safety protections and the 
quality of care that children receive, as well as improving 
transparency for parents about the child care options available to 
them. The provisions in this final rule will enable parents make more 
informed child care decisions and increases continuity of care through 
family-friendly practices.

List of Subjects in 45 CFR Part 98

    Child care, Grant programs--social programs.

(Catalog of Federal Domestic Assistance Program Number 93.575, Child 
Care and Development Block Grant; 93.596, Child Care Mandatory and 
Matching Funds)

    Dated: July 14, 2016.
Mark H. Greenberg,
Acting Assistant Secretary for Children and Families.
    Approved: July 18, 2016.
Sylvia M. Burwell,
Secretary.

    Accordingly, the Department of Health and Human Services amends 45 
CFR part 98 as follows:

PART 98--CHILD CARE AND DEVELOPMENT FUND

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

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

0
2. Revise Sec.  98.1 to read as follows:


Sec.  98.1  Purposes.

    (a) The purposes of the CCDF are:
    (1) To allow each State maximum flexibility in developing child 
care programs and policies that best suit the needs of children and 
parents within that State;
    (2) To promote parental choice to empower working parents to make 
their own decisions regarding the child care services that best suits 
their family's needs;
    (3) To encourage States to provide consumer education information 
to help parents make informed choices about child care services and to 
promote involvement by parents and family members in the development of 
their children in child care settings;
    (4) To assist States in delivering high-quality, coordinated early 
childhood care and education services to maximize parents' options and 
support parents trying to achieve independence from public assistance;
    (5) To assist States in improving the overall quality of child care 
services and programs by implementing the health, safety, licensing, 
training, and oversight standards established in this subchapter and in 
State law (including State regulations);
    (6) To improve child care and development of participating 
children; and
    (7) To increase the number and percentage of low-income children in 
high-quality child care settings.
    (b) The purpose of this part is to provide the basis for 
administration of the Fund. These regulations provide that State, 
Territorial, and Tribal Lead Agencies:
    (1) Maximize parental choice of safe, healthy and nurturing child 
care settings through the use of certificates and through grants and 
contracts, and by providing parents with information about child care 
programs;
    (2) Include in their programs a broad range of child care 
providers, including center-based care, family child care, in home 
care, care provided by relatives and sectarian child care providers;
    (3) Improve the quality and supply of child care and before- and 
after-school care services that meet applicable requirements and 
promote healthy child development and learning and family economic 
stability;
    (4) Coordinate planning and delivery of services at all levels, 
including Federal, State, Tribal, and local;
    (5) Design flexible programs that provide for the changing needs of 
recipient families and engage families in their children's development 
and learning;
    (6) Administer the CCDF responsibly to ensure that statutory 
requirements are met and that adequate information regarding the use of 
public funds is provided;
    (7) Design programs that provide uninterrupted service to families 
and providers, to the extent allowed under the statute, to support 
parental education, training, and employment and continuity of care 
that minimizes disruptions to children's learning and development;
    (8) Provide a progression of training and professional development 
opportunities for caregivers, teachers, and directors to increase their 
effectiveness in supporting children's development and learning and 
strengthen and retain (including through financial incentives and 
compensation improvements) the child care workforce.

0
3. Amend Sec.  98.2 as follows:
0
a. Revise the definition of Categories of care;
0
b. Add in alphabetical order definitions for Child experiencing 
homelessness, Child with a disability, and Director;
0
c. Revise the definition of Eligible child care provider;
0
d. Add in alphabetical order a definition for English learner;
0
e. Revise the definition of Family child care provider;
0
f. Remove the definition of Group home child care provider; and
0
g. Revise the definitions of Lead Agency, Programs, and Sliding fee 
scale; and
0
h. Add in alphabetical order a definition for Teacher.

    The revisions and additions read as follows:


Sec.  98.2  Definitions.

* * * * *
    Categories of care means center-based child care, family child 
care, and in home care;
* * * * *
    Child experiencing homelessness means a child who is homeless as 
defined in section 725 of Subtitle VII-B of the McKinney-Vento Act (42 
U.S.C. 11434a);
    Child with a disability means:
    (1) A child with a disability, as defined in section 602 of the 
Individuals

[[Page 67574]]

with Disabilities Education Act (20 U.S.C. 1401);
    (2) A child who is eligible for early intervention services under 
part C of the Individuals with Disabilities Education Act (20 U.S.C. 
1431 et seq.);
    (3) A child who is less than 13 years of age and who is eligible 
for services under section 504 of the Rehabilitation Act of 1973 (29 
U.S.C. 794); and
    (4) A child with a disability, as defined by the State, Territory 
or Tribe involved;
* * * * *
    Director means a person who has primary responsibility for the 
daily operations and management for a child care provider, which may 
include a family child care provider, and which may serve children from 
birth to kindergarten entry and children in school-age child care;
* * * * *
    Eligible child care provider means:
    (1) A center-based child care provider, a family child care 
provider, an in-home child care provider, or other provider of child 
care services for compensation that--
    (i) Is licensed, regulated, or registered under applicable State or 
local law as described in Sec.  98.40; and
    (ii) Satisfies State and local requirements, including those 
referred to in Sec.  98.41 applicable to the child care services it 
provides; or
    (2) A child care provider who is 18 years of age or older who 
provides child care services only to eligible children who are, by 
marriage, blood relationship, or court decree, the grandchild, great 
grandchild, siblings (if such provider lives in separate residence), 
niece, or nephew of such provider, and complies with any applicable 
requirements that govern child care provided by the relative involved;
    English learner means an individual who is an English learner, as 
defined in section 8101 of the Elementary and Secondary Education Act 
of 1965 or who is limited English proficient, as defined in section 637 
of the Head Start Act (42 U.S.C. 9832);
* * * * *
    Family child care provider means one or more individual(s) who 
provide child care services for fewer than 24 hours per day per child, 
in a private residence other than the child's residence, unless care in 
excess of 24 hours is due to the nature of the parent(s)' work;
* * * * *
    Lead Agency means the State, territorial or tribal entity, or joint 
interagency office, designated or established under Sec. Sec.  98.10 
and 98.16(a) to which a grant is awarded and that is accountable for 
the use of the funds provided. The Lead Agency is the entire legal 
entity even if only a particular component of the entity is designated 
in the grant award document;
* * * * *
    Programs refers generically to all activities under the CCDF, 
including child care services and other activities pursuant to Sec.  
98.50 as well as quality activities pursuant to Sec.  98.53;
* * * * *
    Sliding fee scale means a system of cost-sharing by a family based 
on income and size of the family, in accordance with Sec.  98.45(k);
* * * * *
    Teacher means a lead teacher, teacher, teacher assistant, or 
teacher aide who is employed by a child care provider for compensation 
on a regular basis, or a family child care provider, and whose 
responsibilities and activities are to organize, guide, and implement 
activities in a group or individual basis, or to assist a teacher or 
lead teacher in such activities, to further the cognitive, social, 
emotional, and physical development of children from birth to 
kindergarten entry and children in school-age child care;
* * * * *

0
4. In Sec.  98.10, revise the introductory text and paragraphs (d) and 
(e) and add paragraph (f) to read as follows:


Sec.  98.10  Lead Agency responsibilities.

    The Lead Agency (which may be an appropriate collaborative agency), 
or a joint interagency office, as designated or established by the 
Governor of the State (or by the appropriate Tribal leader or 
applicant), shall:
* * * * *
    (d) Hold at least one public hearing in accordance with Sec.  
98.14(c);
    (e) Coordinate CCDF services pursuant to Sec.  98.12; and
    (f) Consult, collaborate, and coordinate in the development of the 
State Plan in a timely manner with Indian Tribes or tribal 
organizations in the State (at the option of the Tribe or tribal 
organization).

0
5. In Sec.  98.11, add a sentence to the end of paragraph (a)(3) and 
revise paragraph (b)(5) to read as follows:


Sec.  98.11  Administration under contracts and agreements.

    (a) * * *
    (3) * * * The contents of the written agreement may vary based on 
the role the agency is asked to assume or the type of project 
undertaken, but must include, at a minimum, tasks to be performed, a 
schedule for completing tasks, a budget which itemizes categorical 
expenditures consistent with CCDF requirements at Sec.  98.65(h), and 
indicators or measures to assess performance.
    (b) * * *
    (5) Oversee the expenditure of funds by subrecipients and 
contractors, in accordance with 75 CFR parts 351 to 353;
* * * * *

0
6. In Sec.  98.12, revise paragraph (c) to read as follows:


Sec.  98.12  Coordination and consultation.

* * * * *
    (c) Coordinate, to the maximum extent feasible, per Sec.  98.10(f) 
with any Indian Tribes in the State receiving CCDF funds in accordance 
with subpart I of this part.

0
7. Amend Sec.  98.14 as follows:
0
a. Revise paragraph (a)(1) introductory text;
0
b. Redesignate paragraphs (a)(1)(A) through (D) as paragraphs (a)(1)(i) 
through (iv);
0
c. Revise newly redesignated paragraphs (a)(1)(iii) and (iv);
0
d. Add paragraphs (a)(1)(v) through (xiv) and (a)(3) and (4);
0
e. Revise paragraph (c)(3); and
0
f. Add paragraph (d).
    The revisions and additions read as follows:


Sec.  98.14  Plan process.

* * * * *
    (a)(1) Coordinate the provision of child care services funded under 
this part with other Federal, State, and local child care and early 
childhood development programs (including such programs for the benefit 
of Indian children, infants and toddlers, children with disabilities, 
children experiencing homelessness, and children in foster care) to 
expand accessibility and continuity of care as well as full-day 
services. The Lead Agency shall also coordinate the provision of 
services with the State, and if applicable, tribal agencies responsible 
for:
* * * * *
    (iii) Public education (including agencies responsible for 
prekindergarten services, if applicable, and early intervention and 
preschool services provided under Part B and C of the Individuals with 
Disabilities Education Act (20 U.S.C. 1400));
    (iv) Providing Temporary Assistance for Needy Families;
    (v) Child care licensing;
    (vi) Head Start collaboration, as authorized by the Head Start Act 
(42 U.S.C. 9831 et seq.);
    (vii) State Advisory Council on Early Childhood Education and Care

[[Page 67575]]

(designated or established pursuant to the Head Start Act (42 U.S.C. 
9831 et seq.)) or similar coordinating body;
    (viii) Statewide after-school network or other coordinating entity 
for out-of-school time care (if applicable);
    (ix) Emergency management and response;
    (x) Child and Adult Care Food Program (CACFP) authorized by the 
National School Lunch Act (42 U.S.C. 1766) and other relevant nutrition 
programs;
    (xi) Services for children experiencing homelessness, including 
State Coordinators of Education for Homeless Children and Youth (EHCY 
State Coordinators) and, to the extent practicable, local liaisons 
designated by Local Educational Agencies (LEAs) in the State as 
required by the McKinney-Vento Act (42 U.S.C. 11432) and Continuum of 
Care grantees;
    (xii) Medicaid and the State children's health insurance programs 
(42 U.S.C. 1396 et seq., 1397aa et seq.);
    (xiii) Mental health services; and
    (xiv) Child care resources and referral agencies, child care 
consumer education organizations, and providers of early childhood 
education training and professional development.
* * * * *
    (3) If the Lead Agency elects to combine funding for CCDF services 
with any other early childhood program, provide a description in the 
CCDF Plan of how the Lead Agency will combine and use the funding.
    (4) Demonstrate in the CCDF Plan how the State, Territory, or Tribe 
encourages partnerships among its agencies, other public agencies, 
Indian Tribes and Tribal organizations, and private entities, including 
faith-based and community-based organizations, to leverage existing 
service delivery systems for child care and development services and to 
increase the supply and quality of child care and development services 
and to increase the supply and quality of child care services for 
children who are less than 13 years of age, such as by implementing 
voluntary shared service alliance models.
* * * * *
    (c) * * *
    (3) In advance of the hearing required by this section, the Lead 
Agency shall make available to the public the content of the Plan as 
described in Sec.  98.16 that it proposes to submit to the Secretary, 
which shall include posting the Plan content on a Web site.
    (d) Make the submitted and final Plan, any Plan amendments, and any 
approved requests for temporary relief (in accordance with Sec.  98.19) 
publicly available on a Web site.

0
8. Amend Sec.  98.15 as follows:
0
a. Revise paragraph (a)(6);
0
b. Add paragraphs (a)(7) through (11); and
0
c. Revise paragraph (b).
    The revisions and additions read as follows:


Sec.  98.15  Assurances and certifications.

    (a) * * *
    (6) That if expenditures for pre-Kindergarten services are used to 
meet the maintenance-of-effort requirement, the State has not reduced 
its level of effort in full-day/full-year child care services, pursuant 
to Sec.  98.55(h)(1).
    (7) Training and professional development requirements comply with 
Sec.  98.44 and are applicable to caregivers, teaching staff, and 
directors working for child care providers of services for which 
assistance is provided under the CCDF.
    (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(l).
    (9) The State will maintain or implement early learning and 
developmental guidelines that are developmentally appropriate for all 
children from birth to kindergarten entry, describing what such 
children should know and be able to do, and covering the essential 
domains of early childhood development (cognition, including language 
arts and mathematics; social, emotional and physical development; and 
approaches toward learning) for use statewide by child care providers 
and caregivers. Such guidelines shall--
    (i) Be research-based and developmentally, culturally, and 
linguistically appropriate, building in a forward progression, and 
aligned with entry to kindergarten;
    (ii) Be implemented in consultation with the State educational 
agency and the State Advisory Council on Early Childhood Education and 
Care (designated or established pursuant to section 642B(b)(I)(A)(i) of 
the Head Start Act (42 U.S.C. 9837b(b)(1)(A)(i)) or similar 
coordinating body, and in consultation with child development and 
content experts; and
    (iii) Be updated as determined by the State.
    (10) Funds received by the State to carry out this subchapter will 
not be used to develop or implement an assessment for children that--
    (i) Will be the primary or sole basis for a child care provider 
being determined to be ineligible to participate in the program carried 
out under this subchapter;
    (ii) Will be used as the primary or sole basis to provide a reward 
or sanction for an individual provider;
    (iii) Will be used as the primary or sole method for assessing 
program effectiveness; or
    (iv) Will be used to deny children eligibility to participate in 
the program carried out under this subchapter.
    (11) To the extent practicable and appropriate, any code or 
software for child care information systems or information technology 
that a Lead Agency or other agency expends CCDF funds to develop must 
be made available upon request to other public agencies, including 
public agencies in other States, for their use in administering child 
care or related programs.
    (b) The Lead Agency shall include the following certifications in 
its CCDF Plan:
    (1) The State has developed the CCDF Plan in consultation with the 
State Advisory Council on Early Childhood Education and Care 
(designated or established pursuant to section 642B(b)(I)(A)(i) of the 
Head Start Act (42 U.S.C. 9837b(b)(1)(A)(i))) or similar coordinating 
body, pursuant to Sec.  98.14(a)(1)(vii);
    (2) In accordance with Sec.  98.31, the Lead Agency has procedures 
in place to ensure that providers of child care services for which 
assistance is provided under the CCDF, afford parents unlimited access 
to their children and to the providers caring for their children, 
during the normal hours of operations and whenever such children are in 
the care of such providers;
    (3) As required by Sec.  98.32, the State maintains a record of 
substantiated parental complaints and makes information regarding such 
complaints available to the public on request;
    (4) It will collect and disseminate to parents of eligible 
children, the general public and, where applicable, child care 
providers, consumer education information that will promote informed 
child care choices, information on access to other programs for which 
families may be eligible, and information on developmental screenings, 
as required by Sec.  98.33;
    (5) In accordance with Sec.  98.33(a), that the State makes public, 
through a consumer-friendly and easily accessible Web site, the results 
of monitoring and inspection reports, as well as the number of deaths, 
serious injuries, and instances of substantiated child abuse that 
occurred in child care settings;

[[Page 67576]]

    (6) There are in effect licensing requirements applicable to child 
care services provided within the State, pursuant to Sec.  98.40;
    (7) There are in effect within the State (or other area served by 
the Lead Agency), under State or local (or tribal) law, requirements 
designed to protect the health and safety of children that are 
applicable to child care providers that provide services for which 
assistance is made available under the CCDF, pursuant to Sec.  98.41;
    (8) In accordance with Sec.  98.42(a), procedures are in effect to 
ensure that child care providers of services for which assistance is 
provided under the CCDF comply with all applicable State or local (or 
tribal) health and safety requirements;
    (9) Caregivers, teachers, and directors of child care providers 
comply with the State's, Territory's, or Tribe's procedures for 
reporting child abuse and neglect as required by section 
106(b)(2)(B)(i) of the Child Abuse Prevention and Treatment Act (42 
U.S.C. 5106a(b)(2)(B)(i)), if applicable, or other child abuse 
reporting procedures and laws in the service area, as required by Sec.  
98.41(e);
    (10) There are in effect monitoring policies and practices pursuant 
to Sec.  98.42;
    (11) Payment rates for the provision of child care services, in 
accordance with Sec.  98.45, are sufficient to ensure equal access for 
eligible children to comparable child care services in the State or 
sub-State area that are provided to children whose parents are not 
eligible to receive assistance under this program or under any other 
Federal or State child care assistance programs;
    (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(l); and
    (13) There are in effect policies to govern the use and disclosure 
of confidential and personally identifiable information about children 
and families receiving CCDF assistance and child care providers 
receiving CCDF funds.

0
9. Revise Sec.  98.16 to read as follows:


Sec.  98.16  Plan provisions.

    A CCDF Plan shall contain the following:
    (a) Specification of the Lead Agency whose duties and 
responsibilities are delineated in Sec.  98.10;
    (b) A description of processes the Lead Agency will use to monitor 
administrative and implementation responsibilities undertaken by 
agencies other than the Lead Agency including descriptions of written 
agreements, monitoring and auditing procedures, and indicators or 
measures to assess performance pursuant to Sec.  98.11(a)(3);
    (c) The assurances and certifications listed under Sec.  98.15;
    (d)(1) A description of how the CCDF program will be administered 
and implemented, if the Lead Agency does not directly administer and 
implement the program;
    (2) Identification of the public or private entities designated to 
receive private donated funds and the purposes for which such funds 
will be expended, pursuant to Sec.  98.55(f);
    (e) A description of the coordination and consultation processes 
involved in the development of the Plan and the provision of services, 
including a description of public-private partnership activities that 
promote business involvement in meeting child care needs pursuant to 
Sec.  98.14;
    (f) A description of the public hearing process, pursuant to Sec.  
98.14(c);
    (g) Definitions of the following terms for purposes of determining 
eligibility, pursuant to Sec. Sec.  98.20(a) and 98.46:
    (1) Special needs child;
    (2) Physical or mental incapacity (if applicable);
    (3) Attending (a job training or educational program);
    (4) Job training and educational program;
    (5) Residing with;
    (6) Working;
    (7) Protective services (if applicable), including whether children 
in foster care are considered in protective services for purposes of 
child care eligibility; and whether respite care is provided to 
custodial parents of children in protective services.
    (8) Very low income; and
    (9) In loco parentis;
    (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) Procedures and policies to ensure that parents are not required 
to unduly disrupt their education, training, or employment to complete 
eligibility redetermination, pursuant to Sec.  98.21(d);
    (5) Limiting any requirements to report changes in circumstances in 
accordance with Sec.  98.21(e);
    (6) Policies that take into account children's development and 
learning when authorizing child care services pursuant to Sec.  
98.21(f); and
    (7) Other policies and practices such as timely eligibility 
determination and processing of applications;
    (i) For child care services pursuant to Sec.  98.50:
    (1) A description of such services and activities;
    (2) Any limits established for the provision of in-home care and 
the reasons for such limits pursuant to Sec.  98.30(e)(1)(iii);
    (3) A list of political subdivisions in which such services and 
activities are offered, if such services and activities are not 
available throughout the entire service area;
    (4) A description of how the Lead Agency will meet the needs of 
certain families specified at Sec.  98.50(e);
    (5) Any eligibility criteria, priority rules, and definitions 
established pursuant to Sec. Sec.  98.20 and 98.46;
    (j) A description of the activities to provide comprehensive 
consumer and provider education, including the posting of monitoring 
and inspection reports, pursuant to Sec.  98.33, to increase parental 
choice, and to improve the quality of child care, pursuant to Sec.  
98.53;
    (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(k). This shall include a description of the criteria established 
by the Lead Agency, if any, for waiving contributions for families;
    (l) A description of the health and safety requirements, applicable 
to all providers of child care services for which assistance is 
provided under the CCDF, in effect pursuant to Sec.  98.41, and any 
exemptions to those requirements for relative providers made in 
accordance with Sec.  98.42(c);
    (m) A description of child care standards for child care providers 
of services for which assistance is provided under the CCDF, in 
accordance with Sec.  98.41(d), that includes group size limits, child-
staff ratios, and required qualifications for caregivers, teachers, and 
directors;

[[Page 67577]]

    (n) A description of monitoring and other enforcement procedures in 
effect to ensure that child care providers comply with applicable 
health and safety requirements pursuant to Sec.  98.42;
    (o) A description of criminal background check requirements, 
policies, and procedures in accordance with Sec.  98.43, including a 
description of the requirements, policies, and procedures in place to 
respond to other States', Territories', and Tribes' requests for 
background check results in order to accommodate the 45 day timeframe;
    (p) A description of training and professional development 
requirements for caregivers, teaching staff, and directors of providers 
of services for which assistance is provided in accordance with Sec.  
98.44;
    (q) A description of the child care certificate payment system(s), 
including the form or forms of the child care certificate, pursuant to 
Sec.  98.30(c);
    (r) Payment rates and a summary of the facts, including a local 
market rate survey or alternative methodology relied upon to determine 
that the rates provided are sufficient to ensure equal access pursuant 
to Sec.  98.45;
    (s) A detailed description of the State's hotline for complaints, 
its process for substantiating and responding to complaints, whether or 
not the State uses monitoring as part of its process for responding to 
complaints for both CCDF and non-CCDF providers, how the State 
maintains a record of substantiated parental complaints, and how it 
makes information regarding those complaints available to the public on 
request, pursuant to Sec.  98.32;
    (t) A detailed description of the procedures in effect for 
affording parents unlimited access to their children whenever their 
children are in the care of the provider, pursuant to Sec.  98.31;
    (u) A detailed description of the licensing requirements applicable 
to child care services provided, any exemption to licensing 
requirements that is applicable to child care providers of services for 
which assistance is provided under the CCDF and a demonstration of why 
such exemption does not endanger the health, safety, or development of 
children, and a description of how such licensing requirements are 
effectively enforced, pursuant to Sec.  98.40;
    (v) Pursuant to Sec.  98.33(f), the definitions or criteria used to 
implement the exception, provided in section 407(e)(2) of the Social 
Security Act (42 U.S.C. 607(e)(2)), to individual penalties in the TANF 
work requirement applicable to a single custodial parent caring for a 
child under age six;
    (w)(1) When any Matching funds under Sec.  98.55(b) are claimed, a 
description of the efforts to ensure that pre-Kindergarten programs 
meet the needs of working parents;
    (2) When State pre-Kindergarten expenditures are used to meet more 
than 10% of the amount required at Sec.  98.55(c)(1), or for more than 
10% of the funds available at Sec.  98.55(b), or both, a description of 
how the State will coordinate its pre-Kindergarten and child care 
services to expand the availability of child care;
    (x) A description of the Lead Agency's strategies (which may 
include alternative payment rates to child care providers, the 
provision of direct grants or contracts, offering child care 
certificates, or other means) to increase the supply and improve the 
quality of child care services for children in underserved areas, 
infants and toddlers, children with disabilities as defined by the Lead 
Agency, and children who receive care during nontraditional hours, 
including whether the Lead Agency plans to use grants and contracts in 
building supply and how supply-building mechanisms will address the 
needs identified. The description must identify shortages in the supply 
of high-quality child care providers, list the data sources used to 
identify shortages, and describe the method of tracking progress to 
support equal access and parental choice. If the Lead Agency employs 
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;
    (y) A description of how the Lead Agency prioritizes increasing 
access to high-quality child care and development services for children 
of families in areas that have significant concentrations of poverty 
and unemployment and that do not have sufficient numbers of such 
programs, pursuant to Sec.  98.46;
    (z) A description of how the Lead Agency develops and implements 
strategies to strengthen the business practices of child care providers 
to expand the supply, and improve the quality of, child care services;
    (aa) A demonstration of how the State, Territory or Tribe will 
address the needs of children, including the need for safe child care, 
before, during and after a state of emergency declared by the Governor 
or a major disaster or emergency (as defined by section 102 of the 
Robert T. Stafford Disaster Relief and Emergency Assistance Act, 42 
U.S.C. 5122) through a Statewide Disaster Plan (or Disaster Plan for a 
Tribe's service area) that:
    (1) For a State, is developed in collaboration with the State human 
services agency, the State emergency management agency, the State 
licensing agency, the State health department or public health 
department, local and State child care resource and referral agencies, 
and the State Advisory Council on Early Childhood Education and Care 
(designated or established pursuant to section 642B(b)(I)(A)(i) of the 
Head Start Act (42 U.S.C. 9837b(b)(1)(A)(i))) or similar coordinating 
body; and
    (2) Includes the following components:
    (i) Guidelines for continuation of child care subsidies and child 
care services, which may include the provision of emergency and 
temporary child care services during a disaster, and temporary 
operating standards for child care after a disaster;
    (ii) Coordination of post-disaster recovery of child care services; 
and
    (iii) Requirements that child care providers of services for which 
assistance is provided under the CCDF, as well as other child care 
providers as determined appropriate by the State, Territory or Tribe, 
have in place:
    (A) Procedures for evacuation, relocation, shelter-in-place, lock-
down, communication and reunification with families, continuity of 
operations, accommodations of infants and toddlers, children with 
disabilities, and children with chronic medical conditions; and
    (B) Procedures for staff and volunteer emergency preparedness 
training and practice drills, including training requirements for child 
care providers of services for which assistance is provided under CCDF 
at Sec.  98.41(a)(1)(vii);
    (bb) A description of payment practices applicable to providers of 
child care services for which assistance is provided under this part, 
pursuant to Sec.  98.45(l), including practices to ensure timely 
payment for services, to delink provider payments from children's 
occasional absences to the extent practicable, and to reflect 
generally-accepted payment practices;
    (cc) 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 verity 
eligibility, pursuant to Sec.  98.68;
    (dd) A description of how the Lead Agency will provide outreach and 
services to eligible families with limited

[[Page 67578]]

English proficiency and persons with disabilities and facilitate 
participation of child care providers with limited English proficiency 
and disabilities in the subsidy system;
    (ee) A description of policies to prevent suspension, expulsion, 
and denial of services due to behavior of children birth to age five in 
child care and other early childhood programs receiving assistance 
under this part, which must be disseminated as part of consumer and 
provider education efforts in accordance with Sec.  98.33(b)(1)(v);
    (ff) Designation of a State, territorial, or tribal entity to which 
child care providers must submit reports of any serious injuries or 
deaths of children occurring in child care, in accordance with Sec.  
98.42(b)(4);
    (gg) A description of how the Lead Agency will support child care 
providers in the successful engagement of families in children's 
learning and development;
    (hh) A description of how the Lead Agency will respond to 
complaints submitted through the national hotline and Web site, 
required in section 658L(b) of the CCDBG Act of 2014 (42 U.S.C. 
9858j(b)), including the designee responsible for receiving and 
responding to such complaints regarding both licensed and license-
exempt child care providers;
    (ii) Such other information as specified by the Secretary.

0
10. In Sec.  98.17, revise paragraph (a) to read as follows:


Sec.  98.17  Period covered by Plan.

    (a) For States, Territories, and Indian Tribes the Plan shall cover 
a period of three years.
* * * * *

0
11. In Sec.  98.18, revise paragraph (b) to read as follows:


Sec.  98.18  Approval and disapproval of Plans and Plan amendments.

* * * * *
    (b) Plan amendments. (1) Approved Plans shall be amended whenever a 
substantial change in the program occurs. A Plan amendment shall be 
submitted within 60 days of the effective date of the change. Plan 
amendments will be approved or denied not later than the 90th day 
following the date on which the amendment is received, unless a written 
agreement to extend that period has been secured.
    (2) Lead Agencies must ensure advanced written notice is provided 
to affected parties (i.e., parents and child care providers) of 
substantial changes in the program that adversely affect eligibility, 
payment rates, and/or sliding fee scales.
* * * * *

0
12. Add Sec.  98.19 to subpart B to read as follows:


Sec.  98.19  Requests for temporary relief from requirements.

    (a) Requests for relief. The Secretary may temporarily waive one or 
more of the requirements contained in the Act or this part, with the 
exception of State Match and Maintenance of Effort requirements for a 
State, consistent with the conditions described in section 658I(c)(1) 
of the Act (42 U.S.C. 9858g(c)(1)), provided that the waiver request:
    (1) Describes circumstances that prevent the State, Territory, or 
Tribe from complying with any statutory or regulatory requirements of 
this part;
    (2) By itself, contributes to or enhances the State's, Territory's, 
or Tribe's ability to carry out the purposes of the Act and this part;
    (3) Will not contribute to inconsistency with the purposes of the 
Act or this part, and;
    (4) Meets the requirements set forth in paragraphs (b) through (g) 
of this section.
    (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 one-year initial period;
    (ii) May be extended, in accordance with paragraph (f) of this 
section, for at most one additional year from the date of approval of 
the extension,
    (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.
    (2) Waivers for extraordinary circumstances. States, Territories 
and Tribes may apply for waivers meeting the requirements described in 
paragraph (a) of this section, in cases of extraordinary circumstances, 
which are defined as temporary circumstances or situations, such as a 
natural disaster or financial crisis. Such waivers are:
    (i) Limited to an initial period of no more than 2 years from the 
date of approval;
    (ii) May be extended, in accordance with paragraph (f) of this 
section, for at most one additional year from the date of approval of 
the extension, and;
    (iii) May be terminated by the Secretary at any time in accordance 
with paragraph (e) of this section.
    (c) Contents. Waiver requests must be submitted to the Secretary in 
writing and:
    (1) Indicate which type of waiver, as detailed in paragraph (b) of 
this section, the State, Territory or Tribe is requesting;
    (2) Detail each sanction or provision of the Act or regulations 
that the State, Territory or Tribe seeks relief from;
    (3) Describe how a waiver from that sanction or provision will, by 
itself, improve delivery of child care services for children; and
    (4) Certify and describe how the health, safety, and well-being of 
children served through assistance received under this part will not be 
compromised as a result of the waiver.
    (d) Notification. Within 90 days after receipt of the waiver 
request or, if additional follow up information has been requested, the 
receipt of such information, the Secretary will notify the Lead Agency 
of the approval or disapproval of the request.
    (e) Termination. The Secretary shall terminate approval of a 
request for a waiver authorized under the Act or this section if the 
Secretary determines, after notice and opportunity for a hearing based 
on the rules of procedure in part 99 of this chapter, that the 
performance of a State, Territory or Tribe granted relief under this 
section has been inadequate, or if such relief is no longer necessary 
to achieve its original purposes.
    (f) Renewal. 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.
    (g) Restrictions. The Secretary may not:
    (1) Permit Lead Agencies to alter the federal eligibility 
requirements for eligible children, including work requirements, job 
training, or

[[Page 67579]]

educational program participation, that apply to the parents of 
eligible children under this part;
    (2) Waive anything related to the Secretary's authority under this 
part; or
    (3) Require or impose any new or additional requirements in 
exchange for receipt of a waiver if such requirements are not specified 
in the Act.

0
13. Amend Sec.  98.20 as follows:
0
a. Revise paragraphs (a) introductory text, (a)(2) and (3), and (b) 
introductory text;
0
b. In paragraph (b)(2), remove ``Subpart D; or'' and add in its place 
``subpart D of this part;'';
0
c. In paragraph (b)(3):
0
i. Remove ``Sec.  98.44'' and add ``Sec.  98.46'' in its place; and
0
ii. Remove the period at the end of the paragraph and add ``; or'' in 
its place; and
0
d. Add paragraphs (b)(4) and (c).
    The revisions and additions read as follows:

Sec.  98.20  A child's eligibility for child care services.

    (a) To be eligible for services under Sec.  98.50, a child shall, 
at the time of eligibility determination or redetermination:
* * * * *
    (2)(i) Reside with a family whose income does not exceed 85 percent 
of the State's median income (SMI), which must be based on the most 
recent SMI data that is published by the Bureau of the Census, for a 
family of the same size; and
    (ii) Whose family assets do not exceed $1,000,000 (as certified by 
such family member); and (3)(i) Reside with a parent or parents who are 
working or attending a job training or educational program; or
    (ii) Receive, or need to receive, protective services, which may 
include specific populations of vulnerable children as identified by 
the Lead Agency, and reside with a parent or parents other than the 
parent(s) described in paragraph (a)(3)(i) of this section.
    (A) At grantee option, the requirements in paragraph (a)(2) of this 
section may be waived for families eligible for child care pursuant to 
this paragraph, if determined to be necessary on a case-by-case basis.
    (B) At grantee option, the waiver provisions in paragraph 
(a)(3)(ii)(A) of this section apply to children in foster care when 
defined in the Plan, pursuant to Sec.  98.16(g)(7).
    (b) A grantee or other administering agency may establish 
eligibility conditions or priority rules in addition to those specified 
in this section and Sec.  98.46, which shall be described in the Plan 
pursuant to Sec.  98.16(i)(5), so long as they do not:
* * * * *
    (4) Impact eligibility other than at the time of eligibility 
determination or redetermination.
    (c) For purposes of implementing the citizenship eligibility 
verification requirements mandated by title IV of the Personal 
Responsibility and Work Opportunity Reconciliation Act, 8 U.S.C. 1601 
et seq., only the citizenship and immigration status of the child, who 
is the primary beneficiary of the CCDF benefit, is relevant. Therefore, 
a Lead Agency or other administering agency may not condition a child's 
eligibility for services under Sec.  98.50 based upon the citizenship 
or immigration status of their parent or the provision of any 
information about the citizenship or immigration status of their 
parent.

0
14. Add Sec.  98.21 to subpart C to read as follows:


Sec.  98.21  Eligibility determination processes.

    (a) A Lead Agency shall re-determine a child's eligibility for 
child care services no sooner than 12 months following the initial 
determination or most recent redetermination, subject to the following:
    (1) During the period of time between determinations or 
redeterminations, if the child met all of the requirements in Sec.  
98.20(a) on the date of the most recent eligibility determination or 
redetermination, the child shall be considered eligible and will 
receive services at least at the same level, regardless of:
    (i) A change in family income, if that family income does not 
exceed 85 percent of SMI for a family of the same size; or
    (ii) A temporary change in the ongoing status of the child's parent 
as working or attending a job training or educational program. A 
temporary change shall include, at a minimum:
    (A) Any time-limited absence from work for an employed parent due 
to reasons such as need to care for a family member or an illness;;
    (B) Any interruption in work for a seasonal worker who is not 
working between regular industry work seasons;
    (C) Any student holiday or break for a parent participating in 
training or education;
    (D) Any reduction in work, training or education hours, as long as 
the parent is still working or attending training or education;
    (E) Any other cessation of work or attendance at a training or 
education program that does not exceed three months or a longer period 
of time established by the Lead Agency;
    (F) Any change in age, including turning 13 years old during the 
eligibility period; and
    (G) Any change in residency within the State, Territory, or Tribal 
service area.
    (2)(i) Lead Agencies have the option, but are not required, to 
discontinue assistance due to a parent's loss of work or cessation of 
attendance at a job training or educational program that does not 
constitute a temporary change in accordance with paragraph (a)(1)(ii) 
of this section. However, if the Lead Agency exercises this option, it 
must continue assistance at least at the same level for a period of not 
less than three months after each such loss or cessation in order for 
the parent to engage in job search and resume work, or resume 
attendance at a job training or educational activity.
    (ii) At the end of the minimum three-month period of continued 
assistance, if the parent is engaged in a qualifying work, education, 
or training activity with income below 85% of SMI, assistance cannot be 
terminated and the child must continue receiving assistance until the 
next scheduled re-determination, or at Lead Agency option, for an 
additional minimum 12--month eligibility period.
    (iii) If a Lead Agency chooses to initially qualify a family for 
CCDF assistance based 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.
    (3) Lead Agencies cannot increase family co-payment amounts, 
established in accordance with Sec.  98.45(k), within the minimum 12-
month eligibility period except as described in paragraph (b)(3) of 
this section.
    (4) Because a child meeting eligibility requirements at the most 
recent eligibility determination or redetermination is considered 
eligible between redeterminations as described in paragraph (a)(1) of 
this section, any payment for such a child shall not be considered an 
error or improper payment under subpart K of this part due to a change 
in the family's circumstances.
    (5) Notwithstanding paragraph (a)(1), the Lead Agency may 
discontinue assistance prior to the next re-determination in limited 
circumstances where there have been:

[[Page 67580]]

    (i) Excessive unexplained absences despite multiple attempts by the 
Lead Agency or designated entity to contact the family and provider, 
including prior notification of possible discontinuation of assistance;
    (A) If the Lead Agency chooses this option, it shall define the 
number of unexplained absences that shall be considered excessive;
    (ii) A change in residency outside of the State, Territory, or 
Tribal service area; or
    (iii) Substantiated fraud or intentional program violations that 
invalidate prior determinations of eligibility.
    (b)(1) Lead Agencies that establish family income eligibility at a 
level less than 85 percent of SMI for a family of the same size (in 
order for a child to initially qualify for assistance) must provide a 
graduated phase-out by implementing two-tiered eligibility thresholds, 
with the second tier of eligibility (used at the time of eligibility 
re-determination) set at:
    (i) 85 percent of SMI for a family of the same size; or
    (ii) An amount lower than 85 percent of SMI for a family of the 
same size, but above the Lead Agency's initial eligibility threshold, 
that:
    (A) Takes into account the typical household budget of a low income 
family; and
    (B) Provides justification that the second eligibility threshold 
is:
    (1) Sufficient to accommodate increases in family income over time 
that are typical for low-income workers and that promote and support 
family economic stability; and
    (2) Reasonably allows a family to continue accessing child care 
services without unnecessary disruption.
    (2) At re-determination, a child shall be considered eligible 
(pursuant to paragraph (a) of this section) if their parents, at the 
time of redetermination, are working or attending a job training or 
educational program even if their income exceeds the Lead Agency's 
income limit to initially quality for assistance, as long as their 
income does not exceed the second tier of the eligibility described in 
(b)(1);
    (3) A family meeting the conditions described in (b)(2) shall be 
eligible for services pursuant to the conditions described in Sec.  
98.20 and all other paragraphs of Sec.  98.21, with the exception of 
the co-payment restrictions at Sec.  98.21(a)(3). To help families 
transition off of child care assistance, Lead Agencies may gradually 
adjust co-pay amounts for families whose children are determined 
eligible under the graduate phase-out conditions described in paragraph 
(b)(2) and may require additional reporting on changes in family income 
as described in paragraph (e)(3) of this section, provided such 
requirements do not constitute an undue burden, pursuant to conditions 
described in (e)(2)(ii) and (iii) of this section.
    (c) The Lead Agency shall establish processes for initial 
determination and redetermination of eligibility that take into account 
irregular fluctuation in earnings, including policies that ensure 
temporary increases in income, including temporary increases that 
result in monthly income exceeding 85 percent of SMI (calculated on a 
monthly basis), do not affect eligibility or family co-payments.
    (d) 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 redetermination process.
    (e) The Lead Agency shall specify in the Plan any requirements for 
parents to notify the Lead Agency of changes in circumstances during 
the minimum 12-month eligibility period, and describe efforts to ensure 
such requirements do not place an undue burden on eligible families 
that could impact continued eligibility between redeterminations.
    (1) The Lead Agency must require families to report a change at any 
point during the minimum 12-month period, limited to:
    (i) If the family's income exceeds 85% of SMI, taking into account 
irregular income fluctuations; or
    (ii) At the option of the Lead Agency, the family has experienced a 
non-temporary cessation of work, training, or education.
    (2) Any additional requirements the Lead Agency chooses, at its 
option, to impose on parents to provide notification of changes in 
circumstances to the Lead Agency or entities designated to perform 
eligibility functions shall not constitute an undue burden on families. 
Any such requirements shall:
    (i) Limit notification requirements to items that impact a family's 
eligibility (e.g., only if income exceeds 85 percent of SMI, or there 
is a non-temporary change in the status of the child's parent as 
working or attending a job training or educational program) or those 
that enable the Lead Agency to contact the family or pay providers;
    (ii) Not require an office visit in order to fulfill notification 
requirements; and
    (iii) Offer a range of notification options (e.g., phone, email, 
online forms, extended submission hours) to accommodate the needs of 
parents;
    (3) During a period of graduated phase-out, the Lead Agency may 
require additional reporting on changes in family income in order to 
gradually adjust family co-payments, if desired, as described in 
paragraph (b)(3) of this section.
    (4) Lead Agencies must allow families the option to voluntarily 
report changes on an ongoing basis.
    (i) Lead Agencies are required to act on this information provided 
by the family if it would reduce the family's co-payment or increase 
the family's subsidy.
    (ii) Lead Agencies are prohibited from acting on information that 
would reduce the family's subsidy unless the information provided 
indicates the family's income exceeds 85 percent of SMI for a family of 
the same size, taking into account irregular income fluctuations, or, 
at the option of the Lead Agency, the family has experienced a non-
temporary change in the work, training, or educational status.
    (f) Lead Agencies must take into consideration children's 
development and learning and promote continuity of care when 
authorizing child care services.
    (g) 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 work, 
training, or educational activities.

0
15. In Sec.  98.30, revise paragraphs (e)(1), (f) introductory text, 
and (f)(2) and add paragraphs (g) and (h) to read as follows:


Sec.  98.30  Parental choice.

* * * * *
    (e)(1) For child care services, certificates under paragraph (a)(2) 
of this section shall permit parents to choose from a variety of child 
care categories, including:
    (i) Center-based child care;
    (ii) Family child care; and
    (iii) In-home child care, with limitations, if any, imposed by the 
Lead Agency and described in its Plan at Sec.  98.16(i)(2). Under each 
of the above categories, care by a sectarian provider may not be 
limited or excluded.
* * * * *
    (f) With respect to State and local regulatory requirements under 
Sec.  98.40, health and safety requirements under Sec.  98.41, and 
payment rates under Sec.  98.45, CCDF funds will not be available to a 
Lead Agency if State or local rules, procedures or other requirements 
promulgated for purposes

[[Page 67581]]

of the CCDF significantly restrict parental choice by:
* * * * *
    (2) Having the effect of limiting parental access to or choice from 
among such categories of care or types of providers, as defined in 
Sec.  98.2, with the exception of in-home care; or
* * * * *
    (g) As long as provisions at paragraph (f) of this section are met, 
parental choice provisions shall not be construed as prohibiting a Lead 
Agency from establishing policies that require providers of child care 
services for which assistance is provided under this part to meet 
higher standards of quality, such as those identified in a quality 
rating and improvement system or other transparent system of quality 
indicators.
    (h) Parental choice provisions shall not be construed as 
prohibiting a Lead Agency from providing parents with information and 
incentives that encourage the selection of high-quality child care.

0
16. Revise Sec.  98.31 to read as follows:


Sec.  98.31  Parental access.

    The Lead Agency shall have in effect procedures to ensure that 
providers of child care services for which assistance is provided 
afford parents unlimited access to their children, and to the providers 
caring for their children, during normal hours of provider operation 
and whenever the children are in the care of the provider. The Lead 
Agency shall provide a detailed description in the Plan of such 
procedures.

0
17. Revise Sec.  98.32 to read as follows:


Sec.  98.32  Parental complaints.

    The State shall:
    (a) Establish or designate a hotline or similar reporting process 
for parents to submit complaints about child care providers;
    (b) Maintain a record of substantiated parent complains;
    (c) Make information regarding such parental complaints available 
to the public on request; and
    (d) The Lead Agency shall provide a detailed description in the 
Plan of how:
    (1) Complaints are substantiated and responded to, including 
whether or not the State uses monitoring as part of its process for 
responding to complaints for both CCDF and non-CCDF providers; and,
    (2) A record of substantiated complaints is maintained and is made 
available.

0
18. Revise Sec.  98.33 to read as follows:


Sec.  98.33  Consumer and provider education.

    The Lead Agency shall:
    (a) Certify that it will collect and disseminate consumer education 
information to parents of eligible children, the general public, and 
providers through a consumer-friendly and easily accessible Web site 
that ensures the widest possible access to services for families who 
speak languages other than English and persons with disabilities, 
including:
    (1) Lead Agency processes, including:
    (i) The process for licensing child care providers pursuant to 
Sec.  98.40;
    (ii) The process for conducting monitoring and inspections of child 
care providers pursuant to Sec.  98.42;
    (iii) Policies and procedures related to criminal background checks 
for child care providers pursuant to Sec.  98.43; and
    (iv) The offenses that prevent individuals from serving as child 
care providers.
    (2) A localized list of all licensed child care providers, and, at 
the discretion of the Lead Agency, all eligible child care providers 
(other than an individual who is related to all children for whom child 
care services are provided), differentiating between licensed and 
license-exempt providers, searchable by zip code;
    (3) The quality of a provider as determined by the Lead Agency 
through a quality rating and improvement system or other transparent 
system of quality indicators, if such information is available for the 
provider;
    (4) Results of monitoring and inspection reports for all eligible 
and licensed child care providers (other than an individual who is 
related to all children for whom child care services are provided), 
including those required at Sec.  98.42 and those due to major 
substantiated complaints about failure to comply with provisions at 
Sec.  98.41 and Lead Agency child care policies. Lead Agencies shall 
post in a timely manner full monitoring and inspection reports, either 
in plain language or with a plain language summary, for parents and 
child care providers to understand, and shall establish a process for 
correcting inaccuracies in the reports. Such results shall include:
    (i) Information on the date of such inspection;
    (ii) Information on corrective action taken by the State and child 
care provider, where applicable;
    (iii) Any health and safety violations, including any fatalities 
and serious injuries occurring at the provider, prominently displayed 
on the report or summary; and
    (iv) A minimum of 3 years of results where available.
    (5) Aggregate number of deaths and serious injuries (for each 
provider category and licensing status) and instances of substantiated 
child abuse that occurred in child care settings each year, for 
eligible providers.
    (6) Referrals to local child care resource and referral 
organizations.
    (7) Directions on how parents can contact the Lead Agency or its 
designee and other programs to help them understand information 
included on the Web site.
    (b) Certify that it will collect and disseminate, through resource 
and referral organizations or other means as determined by the State, 
including, but not limited to, through the Web site described in 
paragraph (a) of this section, to parents of eligible children and the 
general public, and where applicable providers, information about:
    (1) The availability of the full diversity of child care services 
to promote informed parental choice, including information about:
    (i) The availability of child care services under this part and 
other programs for which families may be eligible, as well as the 
availability of financial assistance to obtain child care services;
    (ii) Other programs for which families that receive assistance 
under this part may be eligible, including:
    (A) Temporary Assistance for Needy Families (TANF) (42 U.S.C. 601 
et seq.);
    (B) Head Start and Early Head Start (42 U.S.C. 9831 et seq.);
    (C) Low-Income Home Energy Assistance Program (LIHEAP) (42 U.S.C. 
8621 et seq.);
    (D) Supplemental Nutrition Assistance Program (SNAP) (7 U.S.C. 2011 
et seq.);
    (E) Special supplemental nutrition program for women, infants, and 
children (42 U.S.C. 1786);
    (F) Child and Adult Care Food Program (CACFP) (42 U.S.C. 1766);
    (G) Medicaid and the State children's health insurance programs (42 
U.S.C. 1396 et seq., 1397aa et seq.);
    (iii) Programs carried out under section 619 and part C of the 
Individuals with Disabilities Education Act (IDEA) (20 U.S.C. 1419, 
1431 et seq.);
    (iv) Research and best practices concerning children's development, 
meaningful parent and family engagement, and physical health and 
development, particularly healthy eating and physical activity; and
    (v) State policies regarding social emotional behavioral health of 
children which may include positive behavioral health intervention and 
support models for birth to school-age or age-appropriate, and policies 
to prevent suspension and expulsion of children

[[Page 67582]]

birth to age five in child care and other early childhood programs, as 
described in the Plan pursuant to Sec.  98.16(ee), receiving assistance 
under this part.
    (c) Provide information on developmental screenings to parents as 
part of the intake process for families receiving assistance under this 
part, and to providers through training and education, including:
    (1) Information on existing resources and services the State can 
make available in conducting developmental screenings and providing 
referrals to services when appropriate for children who receive 
assistance under this part, including the coordinated use of the Early 
and Periodic Screening, Diagnosis, and Treatment program (42 U.S.C. 
1396 et seq.) and developmental screening services available under 
section 619 and part C of the Individuals with Disabilities Education 
Act (20 U.S.C. 1419, 1431 et seq.); and
    (2) A description of how a family or eligible child care provider 
may utilize the resources and services described in paragraph (c)(1) of 
this section to obtain developmental screenings for children who 
receive assistance under this part who may be at risk for cognitive or 
other developmental delays, which may include social, emotional, 
physical, or linguistic delays.
    (d) For families that receive assistance under this part, provide 
specific information about the child care provider selected by the 
parent, including health and safety requirements met by the provider 
pursuant to Sec.  98.41, any licensing or regulatory requirements met 
by the provider, date the provider was last inspected, any history of 
violations of these requirements, and any voluntary quality standards 
met by the provider. Information must also describe how CCDF subsidies 
are designed to promote equal access in accordance with Sec.  98.45, 
how to submit a complaint through the hotline at Sec.  98.32(a), and 
how to contact local resource and referral agencies or other community-
based supports that assist parents in finding and enrolling in quality 
child care.
    (e) Provide linkages to databases related to paragraph (a) to HHS 
for implementing a national Web site and other uses as determined by 
the Secretary.
    (f) Inform parents who receive TANF benefits about the requirement 
at section 407(e)(2) of the Social Security Act (42 U.S.C. 607(e)(2)) 
that the TANF agency make an exception to the individual penalties 
associated with the work requirement for any single custodial parent 
who has a demonstrated inability to obtain needed child care for a 
child under six years of age. The information may be provided directly 
by the Lead Agency, or, pursuant to Sec.  98.11, other entities, and 
shall include:
    (1) The procedures the TANF agency uses to determine if the parent 
has a demonstrated inability to obtain needed child care;
    (2) The criteria or definitions applied by the TANF agency to 
determine whether the parent has a demonstrated inability to obtain 
needed child care, including:
    (i) ``Appropriate child care'';
    (ii) ``Reasonable distance'';
    (iii) ``Unsuitability of informal child care'';
    (iv) ``Affordable child care arrangements'';
    (3) The clarification that assistance received during the time an 
eligible parent receives the exception referred to in paragraph (f) of 
this section will count toward the time limit on Federal benefits 
required at section 408(a)(7) of the Social Security Act (42 U.S.C. 
608(a)(7)).
    (g) Include in the triennial Plan the definitions or criteria the 
TANF agency uses in implementing the exception to the work requirement 
specified in paragraph (f) of this section.

0
19. In Sec.  98.40, redesignate paragraph (a)(2) as (a)(3), revise 
newly redesignated paragraph (a)(3), and add new paragraph (a)(2).

    The addition and revision read as follows:


Sec.  98.40  Compliance with applicable State and local regulatory 
requirements.

    (a) * * *
    (2) Describe in the Plan exemption(s) to licensing requirements, if 
any, for child care services for which assistance is provided, and a 
demonstration for how such exemption(s) do not endanger the health, 
safety, or development of children who receive services from such 
providers. Lead Agencies must provide the required description and 
demonstration for any exemptions based on:
    (i) Provider category, type, or setting;
    (ii) Length of day;
    (iii) Providers not subject to licensing because the number of 
children served falls below a State-defined threshold; and
    (iv) Any other exemption to licensing requirements; and
    (3) Provide a detailed description in the Plan of the requirements 
under paragraph (a)(1) of this section and of how they are effectively 
enforced.
* * * * *

0
20. Revise Sec.  98.41 to read as follows:


Sec.  98.41  Health and safety requirements.

    (a) Each Lead Agency shall certify that there are in effect, within 
the State (or other area served by the Lead Agency), under State, local 
or tribal law, requirements (appropriate to provider setting and age of 
children served) that are designed, implemented, and enforced to 
protect the health and safety of children. Such requirements must be 
applicable to child care providers of services for which assistance is 
provided under this part. Such requirements, which are subject to 
monitoring pursuant to Sec.  98.42, shall:
    (1) Include health and safety topics consisting of, at a minimum:
    (i) The prevention and control of infectious diseases (including 
immunizations); with respect to immunizations, the following provisions 
apply:
    (A) As part of their health and safety provisions in this area, 
Lead Agencies shall assure that children receiving services under the 
CCDF are age-appropriately immunized. Those health and safety 
provisions shall incorporate (by reference or otherwise) the latest 
recommendation for childhood immunizations of the respective State, 
territorial, or tribal public health agency.
    (B) Notwithstanding this paragraph (a)(1)(i), Lead Agencies may 
exempt:
    (1) Children who are cared for by relatives (defined as 
grandparents, great grandparents, siblings (if living in a separate 
residence), aunts, and uncles), provided there are no other unrelated 
children who are cared for in the same setting.
    (2) Children who receive care in their own homes, provided there 
are no other unrelated children who are cared for in the home.
    (3) Children whose parents object to immunization on religious 
grounds.
    (4) Children whose medical condition contraindicates immunization.
    (C) Lead Agencies shall establish a grace period that allows 
children experiencing homelessness and children in foster care to 
receive services under this part while providing their families 
(including foster families) a reasonable time to take any necessary 
action to comply with immunization and other health and safety 
requirements.
    (1) The length of such grace period shall be established in 
consultation with the State, Territorial or Tribal health agency.
    (2) Any payment for such child during the grace period shall not be 
considered an error or improper payment under subpart K of this part.
    (3) The Lead Agency may also, at its option, establish grace 
periods for other

[[Page 67583]]

children who are not experiencing homelessness or in foster care.
    (4) Lead Agencies must coordinate with licensing agencies and other 
relevant State, Territorial, Tribal, and local agencies to provide 
referrals and support to help families of children receiving services 
during a grace period comply with immunization and other health and 
safety requirements;
    (ii) Prevention of sudden infant death syndrome and use of safe 
sleeping practices;
    (iii) Administration of medication, consistent with standards for 
parental consent;
    (iv) Prevention and response to emergencies due to food and 
allergic reactions;
    (v) Building and physical premises safety, including identification 
of and protection from hazards, bodies of water, and vehicular traffic;
    (vi) Prevention of shaken baby syndrome, abusive head trauma, and 
child maltreatment;
    (vii) Emergency preparedness and response planning for emergencies 
resulting from a natural disaster, or a man-caused event (such as 
violence at a child care facility), within the meaning of those terms 
under section 602(a)(1) of the Robert T. Stafford Disaster Relief and 
Emergency Assistance Act (42 U.S.C. 5195a(a)(1)) that shall include 
procedures for evacuation, relocation, shelter-in-place and lock down, 
staff and volunteer emergency preparedness training and practice 
drills, communication and reunification with families, continuity of 
operations, and accommodation of infants and toddlers, children with 
disabilities, and children with chronic medical conditions;
    (viii) Handling and storage of hazardous materials and the 
appropriate disposal of biocontaminants;
    (ix) Appropriate precautions in transporting children, if 
applicable;
    (x) Pediatric first aid and cardiopulmonary resuscitation;
    (xi) Recognition and reporting of child abuse and neglect, in 
accordance with the requirement in paragraph (e) of this section; and
    (xii) May include requirements relating to:
    (A) Nutrition (including age-appropriate feeding);
    (B) Access to physical activity;
    (C) Caring for children with special needs; or
    (D) Any other subject area determined by the Lead Agency to be 
necessary to promote child development or to protect children's health 
and safety.
    (2) Include minimum health and safety training on the topics above, 
as described in Sec.  98.44.
    (b) Lead Agencies may not set health and safety standards and 
requirements other than those required in paragraph (a) of this section 
that are inconsistent with the parental choice safeguards in Sec.  
98.30(f).
    (c) The requirements in paragraph (a) of this section shall apply 
to all providers of child care services for which assistance is 
provided under this part, within the area served by the Lead Agency, 
except the relatives specified at Sec.  98.42(c).
    (d) Lead Agencies shall describe in the Plan standards for child 
care services for which assistance is provided under this part, 
appropriate to strengthening the adult and child relationship in the 
type of child care setting involved, to provide for the safety and 
developmental needs of the children served, that address:
    (1) Group size limits for specific age populations;
    (2) The appropriate ratio between the number of children and the 
number of caregivers, in terms of age of children in child care; and
    (3) Required qualifications for caregivers in child care settings 
as described at Sec.  98.44(a)(4).
    (e) Lead Agencies shall certify that caregivers, teachers, and 
directors of child care providers within the State or service area will 
comply with the State's, Territory's, or Tribe's child abuse reporting 
requirements as required by section 106(b)(2)(B)(i) of the Child Abuse 
and Prevention and Treatment Act (42 U.S.C. 5106a(b)(2)(B)(i)) or other 
child abuse reporting procedures and laws in the service area.

0
21. Revise Sec.  98.42 to read as follows:


Sec.  98.42  Enforcement of licensing and health and safety 
requirements.

    (a) Each Lead Agency shall certify in the Plan that procedures are 
in effect to ensure that child care providers of services for which 
assistance is made available in accordance with this part, within the 
area served by the Lead Agency, comply with all applicable State, 
local, or tribal health and safety requirements, including those 
described in Sec.  98.41.
    (b) Each Lead Agency shall certify in the Plan it has monitoring 
policies and practices applicable to all child care providers and 
facilities eligible to deliver services for which assistance is 
provided under this part. The Lead Agency shall:
    (1) Ensure individuals who are hired as licensing inspectors are 
qualified to inspect those child care providers and facilities and have 
received training in related health and safety requirements appropriate 
to provider setting and age of children served. Training shall include, 
but is not limited to, those requirements described in Sec.  98.41, and 
all aspects of the State, Territory, or Tribe's licensure requirements;
    (2) Require inspections of child care providers and facilities, 
performed by licensing inspectors (or qualified inspectors designated 
by the Lead Agency), as specified below:
    (i) For licensed child care providers and facilities,
    (A) Not less than one pre-licensure inspection for compliance with 
health, safety, and fire standards, and
    (B) Not less than annually, an unannounced inspection for 
compliance with all child care licensing standards, which shall include 
an inspection for compliance with health and safety, (including, but 
not limited to, those requirements described in Sec.  98.41) and fire 
standards (inspectors may inspect for compliance with all three 
standards at the same time); and
    (ii) For license-exempt child care providers and facilities that 
are eligible to provide services for which assistance is made available 
in accordance with this part, an annual inspection for compliance with 
health and safety (including, but not limited to, those requirements 
described in Sec.  98.41), and fire standards;
    (iii) Coordinate, to the extent practicable, monitoring efforts 
with other Federal, State, and local agencies that conduct similar 
inspections.
    (iv) The Lead Agency may, at its option:
    (A) Use differential monitoring or a risk-based approach to design 
annual inspections, provided that the contents covered during each 
monitoring visit is representative of the full complement of health and 
safety requirements;
    (B) Develop alternate monitoring requirements for care provided in 
the child's home that are appropriate to the setting; and
    (3) Ensure the ratio of licensing inspectors to such child care 
providers and facilities is maintained at a level sufficient to enable 
the State, Territory, or Tribe to conduct effective inspections on a 
timely basis in accordance with the applicable Federal, State, 
Territory, Tribal, and local law;
    (4) Require child care providers to report to a designated State, 
Territorial, or Tribal entity any serious injuries or deaths of 
children occurring in child care.
    (c) For the purposes of this section and Sec.  98.41, Lead Agencies 
may exclude grandparents, great grandparents, siblings (if such 
providers live in a separate residence), aunts, or uncles,

[[Page 67584]]

from the term ``child care providers.'' If the Lead Agency chooses to 
exclude these providers, the Lead Agency shall provide a description 
and justification in the CCDF Plan, pursuant to Sec.  98.16(l), of 
requirements, if any, that apply to these providers.


Sec. Sec.  98.43 through 98.47  [Redesignated as Sec. Sec.  98.45 
through 98.49]

0
22. Redesignate Sec. Sec.  98.43 through 98.47 of subpart E as 
Sec. Sec.  98.45 through 98.49.

0
23. Add new Sec.  98.43 to subpart E to read as follows:


Sec.  98.43  Criminal background checks.

    (a)(1) States, Territories, and Tribes, through coordination of the 
Lead agency with other State, territorial, and tribal agencies, shall 
have in effect:
    (i) Requirements, policies, and procedures to require and conduct 
criminal background checks 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;
    (ii) Licensing, regulation, and registration requirements, as 
applicable, that prohibit the employment of child care staff members as 
described in paragraph (c) of this section; and
    (iii) Requirements, policies, and procedures in place to respond as 
expeditiously as possible to other States', Territories', and Tribes' 
requests for background check results in order to accommodate the 45 
day timeframe required in paragraph (e)(1) of this section.
    (2) In this section:
    (i) Child care provider means a center based child care provider, a 
family child care provider, or another provider of child care services 
for compensation and on a regular basis that:
    (A) Is not an individual who is related to all children for whom 
child care services are provided; and
    (B) Is licensed, regulated, or registered under State law or 
eligible to receive assistance provided under this subchapter; and
    (ii) Child care staff member means an individual (other than an 
individual who is related to all children for whom child care services 
are provided):
    (A) Who is employed by a child care provider for compensation, 
including contract employees or self-employed individuals;
    (B) Whose activities involve the care or supervision of children 
for a child care provider or unsupervised access to children who are 
cared for or supervised by a child care provider; or
    (C) Any individual residing in a family child care home who is age 
18 and older.
    (b) A criminal background check for a child care staff member under 
paragraph (a) of this section shall include:
    (1) A Federal Bureau of Investigation fingerprint check using Next 
Generation Identification;
    (2) A search of the National Crime Information Center's National 
Sex Offender Registry; and
    (3) A search of the following registries, repositories, or 
databases in the State where the child care staff member resides and 
each State where such staff member resided during the preceding five 
years:
    (i) State criminal registry or repository, with the use of 
fingerprints being:
    (A) Required in the State where the staff member resides;
    (B) Optional in other States;
    (ii) State sex offender registry or repository; and
    (iii) State-based child abuse and neglect registry and database.
    (c)(1) A child care staff member shall be ineligible for employment 
by child care providers of services for which assistance is made 
available in accordance with this part, if such individual:
    (i) Refuses to consent to the criminal background check described 
in paragraph (b) of this section;
    (ii) Knowingly makes a materially false statement in connection 
with such criminal background check;
    (iii) Is registered, or is required to be registered, on a State 
sex offender registry or repository or the National Sex Offender 
Registry; or
    (iv) Has been convicted of a felony consisting of:
    (A) Murder, as described in section 1111 of title 18, United States 
Code;
    (B) Child abuse or neglect;
    (C) A crime against children, including child pornography;
    (D) Spousal abuse;
    (E) A crime involving rape or sexual assault;
    (F) Kidnapping;
    (G) Arson;
    (H) Physical assault or battery; or
    (I) Subject to paragraph (e)(4) of this section, a drug-related 
offense committed during the preceding 5 years; or
    (v) Has been convicted of a violent misdemeanor committed as an 
adult against a child, including the following crimes: Child abuse, 
child endangerment, sexual assault, or of a misdemeanor involving child 
pornography.
    (2) A child care provider described in paragraph (a)(2)(i) of this 
section shall be ineligible for assistance provided in accordance with 
this subchapter if the provider employs a staff member who is 
ineligible for employment under paragraph (c)(1) of this section.
    (d)(1) A child care provider covered by paragraph (a)(2)(i) of this 
section shall submit a request, to the appropriate State, Territorial, 
or Tribal agency, defined clearly on the State or Territory Web site 
described in paragraph (g) of this section, for a criminal background 
check described in paragraph (b) of this section, for each child care 
staff member (including prospective child care staff members) of the 
provider.
    (2) Subject to paragraph (d)(3) of this section, the provider shall 
submit such a request:
    (i) Prior to the date an individual becomes a child care staff 
member of the provider; and
    (ii) Not less than once during each 5-year period for any existing 
staff member.
    (3) A child care provider shall not be required to submit a request 
under paragraph (d)(2) of this section for a child care staff member 
if:
    (i) The staff member received a background check described in 
paragraph (b) of this section:
    (A) Within 5 years before the latest date on which such a 
submission may be made; and
    (B) While employed by or seeking employment by another child care 
provider within the State;
    (ii) The State provided to the first provider a qualifying 
background check result, consistent with this subchapter, for the staff 
member; and
    (iii) The staff member is employed by a child care provider within 
the State, or has been separated from employment from a child care 
provider within the State for a period of not more than 180 consecutive 
days.
    (4) A prospective staff member may begin work for a child care 
provider described in paragraph (a)(2)(i) of this section after 
completing 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.

[[Page 67585]]

    (e) Background check results. (1) The State, Territory, or Tribe 
shall carry out the request of a child care provider for a criminal 
background check as expeditiously as possible, but not to exceed 45 
days after the date on which the provider submitted the request, and 
shall provide the results of the criminal background check to such 
provider and to the current or prospective staff member.
    (2) States, Territories, and Tribes shall ensure the privacy of 
background check results by:
    (i) Providing 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 paragraph (c)(1) of this 
section, without revealing any disqualifying crime or other related 
information regarding the individual.
    (ii) If the child care staff member is ineligible for such 
employment due to the background check, the State, Territory, or Tribe 
will, when providing the results of the background check, include 
information related to each disqualifying crime, in a report to the 
staff member or prospective staff member, along with information on the 
opportunity to appeal, described in paragraph (e)(3) of this section.
    (iii) No State, Territory, or Tribe shall publicly release or share 
the results of individual background checks, except States and Tribes 
may release aggregated data by crime as listed under paragraph 
(c)(1)(iv) of this section from background check results, as long as 
such data is not personally identifiable information.
    (3) States, Territories, and Tribes shall provide for a process by 
which a child care staff member (including a prospective child care 
staff member) may appeal the results of a criminal background check 
conducted under this section to challenge the accuracy or completeness 
of the information contained in such member's criminal background 
report. The State, Territory, and Tribe shall ensure that:
    (i) Each child care staff member is given notice of the opportunity 
to appeal;
    (ii) A child care staff member will receive clear instructions 
about how to complete the appeals process if the child care staff 
member wishes to challenge the accuracy or completeness of the 
information contained in such member's criminal background report;
    (iii) If the staff member files an appeal, the State, Territory, or 
Tribe will attempt to verify the accuracy of the information challenged 
by the child care staff member, including making an effort to locate 
any missing disposition information related to the disqualifying crime;
    (iv) The appeals process is completed in a timely manner for each 
child care staff member; and
    (v) Each child care staff member shall receive written notice of 
the decision. In the case of a negative determination, the decision 
should indicate the State's efforts to verify the accuracy of 
information challenged by the child care staff member, as well as any 
additional appeals rights available to the child care staff member.
    (4) States, Territories, and Tribes may allow for a review process 
through which the State, Territory, or Tribe may determine that a child 
care staff member (including a prospective child care staff member) 
disqualified for a crime specified in paragraph (c)(1)(iv)(I) of this 
section is eligible for employment described in paragraph (c)(1) of 
this section, notwithstanding paragraph (c)(2) of this section. The 
review process shall be consistent with title VII of the Civil Rights 
Act of 1964 (42 U.S.C. 2000e et seq.);
    (5) Nothing in this section shall be construed to create a private 
right of action if a provider has acted in accordance with this 
section.
    (f) Fees for background checks. Fees that a State, Territory, or 
Tribe may charge for the costs of processing applications and 
administering a criminal background check as required by this section 
shall not exceed the actual costs for the processing and 
administration.
    (g) Transparency. The State or Territory must ensure that its 
policies and procedures under this section, including the process by 
which a child care provider or other State or Territory may submit a 
background check request, are published in the Web site of the State or 
Territory as described in Sec.  98.33(a) and the Web site of local lead 
agencies.
    (h) Disqualification for other crimes. (1) Nothing in this section 
shall be construed to prevent a State, Territory, or Tribe from 
disqualifying individuals as child care staff members based on their 
conviction for crimes not specifically listed in paragraph (c)(1) of 
this section that bear upon the fitness of an individual to provide 
care for and have responsibility for the safety and well-being of 
children.
    (2) Nothing in this section shall be construed to alter or 
otherwise affect the rights and remedies provided for child care staff 
members or prospective staff members residing in a State that 
disqualifies individuals as child care staff members for crimes not 
specifically provided for under this section.

0
24. Add new Sec.  98.44 to subpart E to read as follows:


Sec.  98.44  Training and professional development.

    (a) The Lead Agency must describe in the Plan the State or 
Territory framework for training, professional development, and 
postsecondary education for caregivers, teachers, and directors, 
including those working in school-age care, that:
    (1) Is developed in consultation with the State Advisory Council on 
Early Childhood Education and Care (designated or established pursuant 
to section 642B(b)(1)(A)(i) of the Head Start Act (42 U.S.C. 
9837b(b)(1)(A)(i))) or similar coordinating body;
    (2) May engage training and professional development providers, 
including higher education in aligning training and education 
opportunities with the State's framework;
    (3) Addresses professional standards and competencies, career 
pathways, advisory structure, articulation, and workforce information 
and financing;
    (4) Establishes qualifications in accordance with Sec.  98.41(d)(3) 
designed to enable child care and school-age care providers that 
provide services for which assistance is provided in accordance with 
this part to promote the social, emotional, physical, and cognitive 
development of children and improve the knowledge and skills of 
caregivers, teachers and directors in working with children and their 
families;
    (5) Includes professional development conducted on an ongoing 
basis, providing a progression of professional development (which may 
include encouraging the pursuit of postsecondary education);
    (6) Reflects current research and best practices relating to the 
skills necessary for caregivers, teachers, and directors to meet the 
developmental needs of participating children and engage families, 
including culturally and linguistically appropriate practices; and
    (7) Improves the quality, diversity, stability, and retention 
(including financial incentives and compensation improvements) of 
caregivers, teachers, and directors.
    (b) The Lead Agency must describe in the Plan its established 
requirements for pre-service or orientation (to be completed within 
three months) and ongoing professional development for caregivers, 
teachers, and directors of child care providers of services for which 
assistance is provided under the

[[Page 67586]]

CCDF that, to the extent practicable, align with the State framework:
    (1) Accessible pre-service or orientation training in health and 
safety standards appropriate to the setting and age of children served 
that addresses:
    (i) Each of the requirements relating to matters described in Sec.  
98.41(a)(1)(i) through (xi) and specifying critical health and safety 
training that must be completed before caregivers, teachers, and 
directors are allowed to care for children unsupervised;
    (ii) At the Lead Agency option, matters described in Sec.  
98.41(a)(1)(xii); and
    (iii) Child development, including the major domains (cognitive, 
social, emotional, physical development and approaches to learning);
    (2) Ongoing, accessible professional development, aligned to a 
progression of professional development, including the minimum annual 
requirement for hours of training and professional development for 
eligible caregivers, teachers and directors, appropriate to the setting 
and age of children served, that:
    (i) Maintains and updates health and safety training standards 
described in Sec.  98.41(a)(1)(i) through (xi), and at the Lead Agency 
option, in Sec.  98.41(a)(1)(xii);
    (ii) Incorporates knowledge and application of the State's early 
learning and developmental guidelines for children birth to 
kindergarten (where applicable);
    (iii) Incorporates social-emotional behavior intervention models 
for children birth through school-age, which may include positive 
behavior intervention and support models including preventing and 
reducing expulsions and suspensions of preschool-aged and school-aged 
children;
    (iv) To the extent practicable, are appropriate for a population of 
children that includes:
    (A) Different age groups;
    (B) English learners;
    (C) Children with developmental delays and disabilities; and
    (D) Native Americans, including Indians, as the term is defined in 
section 4 of the Indian Self-Determination and Education Assistance Act 
(25 U.S.C. 450b) (including Alaska Natives within the meaning of that 
term), and Native Hawaiians (as defined in section 6207 of the 
Elementary and Secondary Education Act of 1965);
    (v) To the extent practicable, awards continuing education units or 
is credit-bearing; and
    (vi) Shall be accessible to caregivers, teachers, and directors 
supported through Indian tribes or tribal organizations that receive 
assistance under this subchapter.

0
25. Revise newly redesignated Sec.  98.45 to read as follows:


Sec.  98.45  Equal access.

    (a) The Lead Agency shall certify that the payment rates for the 
provision of child care services under this part are sufficient to 
ensure equal access, for eligible families in the area served by the 
Lead Agency, to child care services comparable to those provided to 
families not eligible to receive CCDF assistance or child care 
assistance under any other Federal, State, or tribal programs.
    (b) The Lead Agency shall provide in the Plan a summary of the data 
and facts relied on to determine that its payment rates ensure equal 
access. At a minimum, the summary shall include facts showing:
    (1) How a choice of the full range of providers is made available, 
and the extent to which child care providers participate in the CCDF 
subsidy system and any barriers to participation including barriers 
related to payment rates and practices, based on information obtained 
in accordance with paragraph (d)(2) of this section;
    (2) How payment rates are adequate and have been established based 
on the most recent market rate survey or alternative methodology 
conducted in accordance with paragraph (c) of this section;
    (3) How base payment rates enable providers to meet health, safety, 
quality, and staffing requirements in accordance with paragraphs 
(f)(1)(ii)(A) and (f)(2)(ii) of this section;
    (4) How the Lead Agency took the cost of higher quality into 
account in accordance with paragraph (f)(2)(iii) of this section, 
including how payment rates for higher-quality care, as defined by the 
Lead Agency using a quality rating and improvement system or other 
system of quality indicators, relate to the estimated cost of care at 
each level of quality;
    (5) How co-payments based on a sliding fee scale are affordable, as 
stipulated at paragraph (k) of this section; if applicable, a rationale 
for the Lead Agency's policy on whether child care providers may charge 
additional amounts to families above the required family co-payment, 
including a demonstration that the policy promotes affordability and 
access; analysis of the interaction between any such additional amounts 
with the required family co-payments, and of the ability of subsidy 
payment rates to provide access to care without additional fees; and 
data on the extent to which CCDF providers charge such additional 
amounts to families (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 (l) of this section;
    (7) How and on what factors the Lead Agency differentiates payment 
rates; and
    (8) Any additional facts the Lead Agency considered in determining 
that its payment rates ensure equal access.
    (c) The Lead Agency shall demonstrate in the Plan that it has 
developed and conducted, not earlier than two years before the date of 
the submission of the Plan, either:
    (1) A statistically valid and reliable survey of the market rates 
for child care services; or
    (2) An alternative methodology, such as a cost estimation model, 
that has been:
    (i) Proposed by the Lead Agency; and
    (ii) Approved in advance by ACF.
    (d) The Lead Agency must:
    (1) Ensure that the market rate survey or alternative methodology 
reflects variations by geographic location, category of provider, and 
age of child;
    (2) Track through the market rate survey or alternative 
methodology, or through a separate source, information on the extent to 
which:
    (i) Child care providers are participating in the CCDF subsidy 
program and any barriers to participation, including barriers related 
to payment rates and practices; and
    (ii) CCDF child care providers charge amounts to families more than 
the required family co-payment (under paragraph (k) 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.
    (e) Prior to conducting the market rate survey or alternative 
methodology, the Lead Agency must consult with:
    (1) The State Advisory Council on Early Childhood Education and 
Care (designated or established pursuant to section 642B(b)(1)(A)(i) of 
the Head Start Act (42 U.S.C. 9837b(b)(1)(A)(i)) or similar 
coordinating body, local child care program administrators, local child 
care resource and referral agencies, and other appropriate entities; 
and
    (2) Organizations representing child care caregivers, teachers, and 
directors.
    (f) After conducting the market rate survey or alternative 
methodology, the Lead Agency must:

[[Page 67587]]

    (1) Prepare a detailed report containing the results, and make the 
report widely available, including by posting it on the Internet, not 
later than 30 days after the completion of the report.
    The report must include:
    (i) The results of the market rate survey or alternative 
methodology;
    (ii) The estimated cost of care necessary (including any relevant 
variation by geographic location, category of provider, or age of 
child) to support:
    (A) Child care providers' implementation of the health, safety, 
quality, and staffing requirements at Sec. Sec.  98.41 through 98.44; 
and
    (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 of quality; and
    (iii) The Lead Agency's response to stakeholder views and comments.
    (2) Set payment rates for CCDF assistance:
    (i) In accordance with the results of the most recent market rate 
survey or alternative methodology conducted pursuant to paragraph (c) 
of this section;
    (ii) With base payment rates established at least at a level 
sufficient for child care providers to meet health, safety quality, and 
staffing requirements in accordance with paragraph (f)(1)(ii)(A) of 
this section;
    (iii) Taking into consideration the cost of providing higher-
quality child care services, including consideration of the information 
at each level of higher quality required by paragraph (f)(1)(ii)(B) of 
this section;
    (iv) Taking into consideration the views and comments of the public 
obtained in accordance with paragraph (e) and through other processes 
determined by the Lead Agency; and
    (v) Without, to the extent practicable, reducing the number of 
families receiving CCDF assistance.
    (g) A Lead Agency may not establish different payment rates based 
on a family's eligibility status, such as TANF status.
    (h) Payment rates under paragraph (a) of this section shall be 
consistent with the parental requirements in Sec.  98.30
    (i) Nothing in this section shall be construed to create a private 
right of action if the Lead Agency acts in accordance with the Act and 
this part.
    (j) Nothing in this part shall be construed to prevent a Lead 
Agency from differentiating payment rates on the basis of such factors 
as:
    (1) Geographic location of child care providers (such as location 
in an urban or rural area);
    (2) Age or particular needs of children (such as the needs of 
children with disabilities, children served by child protective 
services, and children experiencing homelessness);
    (3) Whether child care providers provide services during the 
weekend or other non-traditional hours; or
    (4) The Lead Agency's determination that such differential payment 
rates may enable a parent to choose high-quality child care that best 
fits the parents' needs.
    (k) Lead Agencies shall establish, and periodically revise, by 
rule, a sliding fee scale(s) for families that receive CCDF child care 
services that:
    (1) Helps families afford child care and enables choice of a range 
of child care options;
    (2) Is based on income and the size of the family and may be based 
on other factors as appropriate, but may not be based on the cost of 
care or amount of subsidy payment;
    (3) Provides for affordable family co-payments that are not a 
barrier to families receiving assistance under this part; and
    (4) At Lead Agency discretion, allows for co-payments to be waived 
for families whose incomes are at or below the poverty level for a 
family of the same size, that have children who receive or need to 
receive protective services, or that meet other criteria established by 
the Lead Agency.
    (l) The Lead Agency shall demonstrate in the Plan that it has 
established payment practices applicable to all CCDF child care 
providers that:
    (1) Ensure timeliness of payment by either:
    (i) Paying prospectively prior to the delivery of services; or
    (ii) Paying within no more than 21 calendar days of the receipt of 
a complete invoice for services.
    (2) To the extent practicable, support the fixed costs of providing 
child care services by delinking provider payments from a child's 
occasional absences by:
    (i) Paying based on a child's enrollment rather than attendance;
    (ii) Providing full payment if a child attends at least 85 percent 
of the authorized time;
    (iii) Providing full payment if a child is absent for five or fewer 
days in a month; or
    (iv) An alternative approach for which the Lead Agency provides a 
justification in its Plan.
    (3) Reflect generally-accepted payment practices of child care 
providers that serve children who do not receive CCDF subsidies, which 
must include (unless the Lead Agency provides evidence in the Plan that 
such practices are not generally-accepted in the State or service 
area):
    (i) Paying on a part-time or full-time basis (rather than paying 
for hours of service or smaller increments of time); and
    (ii) Paying for reasonable mandatory registration fees that the 
provider charges to private-paying parents:
    (4) Ensure child care providers receive payment for any services in 
accordance with a written payment agreement or authorization for 
services that includes, at a minimum, information regarding provider 
payment policies, including rates, schedules, any fees charged to 
providers, and the dispute resolution process required by paragraph 
(l)(6);
    (5) Ensure child care providers receive prompt notice of changes to 
a family's eligibility status that may impact payment, and that such 
notice is sent to providers no later than the day the Lead Agency 
becomes aware that such a change will occur;
    (6) Include timely appeal and resolution processes for any payment 
inaccuracies and disputes.

0
26. Revise newly redesignated Sec.  98.46 to read as follows:


Sec.  98.46  Priority for child care services.

    (a) Lead Agencies shall give priority for services provided under 
Sec.  98.50(a) to:
    (1) Children of families with very low family income (considering 
family size);
    (2) Children with special needs, which may include any vulnerable 
populations as defined by the Lead Agency; and
    (3) Children experiencing homelessness.
    (b) Lead Agencies shall prioritize increasing access to high-
quality child care and development services for children of families in 
areas that have significant concentrations of poverty and unemployment 
and that do not have a sufficient number of such programs.

0
27. Revise Sec.  98.50 to read as follows:


Sec.  98.50  Child care services.

    (a) Direct child care services shall be provided:
    (1) To eligible children, as described in Sec.  98.20;
    (2) Using a sliding fee scale, as described in Sec.  98.45(k);
    (3) Using funding methods provided for in Sec.  98.30; and
    (4) Based on the priorities in Sec.  98.46.
    (b) Of the aggregate amount of funds expended by a State or 
Territory (i.e., Discretionary, Mandatory, and Federal and State share 
of Matching funds):

[[Page 67588]]

    (1) No less than seven percent in fiscal years 2016 and 2017, eight 
percent in fiscal years 2018 and 2019, and nine percent in fiscal year 
2020 and each succeeding fiscal year 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 in fiscal year 2017 and each 
succeeding fiscal year 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.
    (3) Nothing in this section shall preclude the State or Territory 
from reserving a larger percentage of funds to carry out activities 
described in paragraphs (b)(1) and (2) of this section.
    (c) Funds expended from each fiscal year's allotment on quality 
activities pursuant to paragraph (b) of this section:
    (1) Must be in alignment with an assessment of the Lead Agency's 
need to carry out such services and care as required at Sec.  98.53(a);
    (2) Must include measurable indicators of progress in accordance 
with Sec.  98.53(f); and
    (3) May be provided directly by the Lead Agency or through grants 
or contracts with local child care resource and referral organizations 
or other appropriate entities.
    (d) Of the aggregate amount of funds expended (i.e., Discretionary, 
Mandatory, and Federal and State share of Matching Funds), no more than 
five percent may be used for administrative activities as described at 
Sec.  98.54.
    (e) Not less than 70 percent of the Mandatory and Federal and State 
share of Matching Funds shall be used to meet the child care needs of 
families who:
    (1) Are receiving assistance under a State program under Part A of 
title IV of the Social Security Act;
    (2) Are attempting through work activities to transition off such 
assistance program; and
    (3) Are at risk of becoming dependent on such assistance program.
    (f) From Discretionary amounts provided for a fiscal year, the Lead 
Agency shall:
    (1) Reserve the minimum amount required under paragraph (b) of this 
section for quality activities, and the funds for administrative costs 
described at paragraph (d) of this section; and
    (2) From the remainder, use not less than 70 percent to fund direct 
services (provided by the Lead Agency).
    (g) Of the funds remaining after applying the provisions of 
paragraphs (a) through (f) of this section, the Lead Agency shall spend 
a substantial portion of funds to provide direct child care services to 
low-income families who are working or attending training or education.
    (h) Pursuant to Sec.  98.16(i)(4), the Plan shall specify how the 
State will meet the child care needs of families described in paragraph 
(e) of this section.


Sec. Sec.  98.51 through 98.55  [Redesignated as Sec. Sec.  98.53 
through 98.57]

0
28. Redesignate Sec. Sec.  98.51 through 98.55 of subpart F as 
Sec. Sec.  98.53 through 98.57.

0
29. Add new Sec.  98.51 to subpart F to read as follows:


Sec.  98.51  Services for children experiencing homelessness.

    Lead Agencies shall expend funds on activities that improve access 
to quality child care services for children experiencing homelessness, 
including:
    (a) The use of procedures to permit enrollment (after an initial 
eligibility determination) of children experiencing homelessness while 
required documentation is obtained;
    (1) If, after full documentation is provided, a family experiencing 
homelessness is found ineligible,
    (i) The Lead Agency shall pay any amount owed to a child care 
provider for services provided as a result of the initial eligibility 
determination; and
    (ii) Any CCDF payment made prior to the final eligibility 
determination shall not be considered an error or improper payment 
under subpart K of this part;
    (2) [Reserved]
    (b) Training and technical assistance for providers and appropriate 
Lead Agency (or designated entity) staff on identifying and serving 
children experiencing homelessness and their families; and
    (c) Specific outreach to families experiencing homelessness.

0
30. Add new Sec.  98.52 to subpart F to read as follows:


Sec.  98.52   Child care resource and referral system.

    (a) A Lead Agency may expend funds to establish or support a system 
of local or regional child care resource and referral organizations 
that is coordinated, to the extent determined appropriate by the Lead 
Agency, by a statewide public or private nonprofit, community-based or 
regionally based, lead child care resource and referral organization.
    (b) If a Lead Agency uses funds as described in paragraph (a) of 
this section, the local or regional child care resource and referral 
organizations supported shall, at the direction of the Lead Agency:
    (1) Provide parents in the State with consumer education 
information referred to in Sec.  98.33 (except as otherwise provided in 
that paragraph), concerning the full range of child care options 
(including faith-based and community-based child care providers), 
analyzed by provider, including child care provided during 
nontraditional hours and through emergency child care centers, in their 
political subdivisions or regions;
    (2) To the extent practicable, work directly with families who 
receive assistance under this subchapter to offer the families support 
and assistance, using information described in paragraph (b)(1) of this 
section, to make an informed decision about which child care providers 
they will use, in an effort to ensure that the families are enrolling 
their children in the most appropriate child care setting to suit their 
needs and one that is of high quality (as determined by the Lead 
Agency);
    (3) Collect data and provide information on the coordination of 
services and supports, including services under section 619 and part C 
of the Individuals with Disabilities Education Act (20 U.S.C. 1431, et 
seq.), for children with disabilities (as defined in section 602 of 
such Act (20 U.S.C. 1401));
    (4) Collect data and provide information on the supply of and 
demand for child care services in political subdivisions or regions 
within the State and submit such information to the State;
    (5) Work to establish partnerships with public agencies and private 
entities, including faith-based and community-based child care 
providers, to increase the supply and quality of child care services in 
the State; and
    (6) As appropriate, coordinate their activities with the activities 
of the State Lead Agency and local agencies that administer funds made 
available in accordance with this part.

0
31. Revise newly redesignated Sec.  98.53 to read as follows:


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

    (a) The Lead Agency must expend funds from each fiscal year's 
allotment on quality activities pursuant to Sec. Sec.  98.50(b) and 
98.83(g) in accordance with an assessment of need by the Lead Agency. 
Such funds must be used to carry out at least one of the following 
quality activities to improve the quality of child care services for 
all children, regardless of CCDF receipt, in accordance with paragraph 
(d) of this section:

[[Page 67589]]

    (1) Supporting the training, professional development, and 
postsecondary education of the child care workforce as part of a 
progression of professional development through activities such as 
those included at Sec.  98.44, in addition to:
    (i) Offering training, professional development, and postsecondary 
education opportunities for child care caregivers, teachers and 
directors that:
    (A) Relate to the use of scientifically based, developmentally-
appropriate, culturally-appropriate, and age-appropriate strategies to 
promote the social, emotional, physical, and cognitive development of 
children, including those related to nutrition and physical activity; 
and
    (B) Offer specialized training, professional development, and 
postsecondary education for caregivers, teachers and directors caring 
for those populations prioritized at Sec.  98.44(b)(2)(iv), and 
children with disabilities;
    (ii) Incorporating the effective use of data to guide program 
improvement and improve opportunities for caregivers, teachers and 
directors to advance on their progression of training, professional 
development, and postsecondary education;
    (iii) Including effective, age-appropriate behavior management 
strategies and training, including positive behavior interventions and 
support models for birth to school-age, that promote positive social 
and emotional development and reduce challenging behaviors, including 
reducing suspensions and expulsions of children under age five for such 
behaviors;
    (iv) Providing training and outreach on engaging parents and 
families in culturally and linguistically appropriate ways to expand 
their knowledge, skills, and capacity to become meaningful partners in 
supporting their children's positive development;
    (v) Providing training corresponding to the nutritional and 
physical activity needs of children to promote healthy development;
    (vi) Providing training or professional development for caregivers, 
teachers and directors regarding the early neurological development of 
children; and
    (vii) Connecting child care caregivers, teachers, and directors 
with available Federal and State financial aid that would assist these 
individuals in pursuing relevant postsecondary education, or delivering 
financial resources directly through programs that provide scholarships 
and compensation improvements for education attainment and retention.
    (2) Improving upon the development or implementation of the early 
learning and development guidelines at Sec.  98.15(a)(9) by providing 
technical assistance to eligible child care providers in order to 
enhance the cognitive, physical, social, and emotional development and 
overall well-being of participating children.
    (3) Developing, implementing, or enhancing a tiered quality rating 
and improvement system for child care providers and services to meet 
consumer education requirements at Sec.  98.33, which may:
    (i) Support and assess the quality of child care providers in the 
State, Territory, or Tribe;
    (ii) Build on licensing standards and other regulatory standards 
for such providers;
    (iii) Be designed to improve the quality of different types of 
child care providers and services;
    (iv) Describe the safety of child care facilities;
    (v) Build the capacity of early childhood programs and communities 
to promote parents' and families' understanding of the early childhood 
system and the rating of the program in which the child is enrolled;
    (vi) Provide, to the maximum extent practicable, financial 
incentives and other supports designed to expand the full diversity of 
child care options and help child care providers improve the quality of 
services; and
    (vii) Accommodate a variety of distinctive approaches to early 
childhood education and care, including but not limited to, those 
practiced in faith-based settings, community-based settings, child 
centered settings, or similar settings that offer a distinctive 
approach to early childhood development.
    (4) Improving the supply and quality of child care programs and 
services for infants and toddlers through activities, which may 
include:
    (i) Establishing or expanding high-quality community or 
neighborhood based family and child development centers, which may 
serve as resources to child care providers in order to improve the 
quality of early childhood services provided to infants and toddlers 
from low-income families and to help eligible child care providers 
improve their capacity to offer high-quality, age-appropriate care to 
infants and toddlers from low-income families;
    (ii) Establishing or expanding the operation of community or 
neighborhood-based family child care networks;
    (iii) Promoting and expanding child care providers' ability to 
provide developmentally appropriate services for infants and toddlers 
through, but not limited to:
    (A) Training and professional development for caregivers, teachers 
and directors, including coaching and technical assistance on this age 
group's unique needs from statewide networks of qualified infant-
toddler specialists; and
    (B) Improved coordination with early intervention specialists who 
provide services for infants and toddlers with disabilities under part 
C of the Individuals with Disabilities Education Act (20 U.S.C. 1431. 
et seq.);
    (iv) If applicable, developing infant and toddler components within 
the Lead Agency's quality rating and improvement system described in 
paragraph (a)(3) of this section for child care providers for infants 
and toddlers, or the development of infant and toddler components in 
the child care licensing regulations or early learning and development 
guidelines;
    (v) Improving the ability of parents to access transparent and easy 
to understand consumer information about high-quality infant and 
toddler care as described at Sec.  98.33; and
    (vi) Carrying out other activities determined by the Lead Agency to 
improve the quality of infant and toddler care provided, and for which 
there is evidence that the activities will lead to improved infant and 
toddler health and safety, infant and toddler cognitive and physical 
development, or infant and toddler well-being, including providing 
health and safety training (including training in safe sleep practices, 
first aid, and cardiopulmonary resuscitation for providers and 
caregivers.
    (5) Establishing or expanding a statewide system of child care 
resource and referral services.
    (6) Facilitating compliance with Lead Agency requirements for 
inspection, monitoring, training, and health and safety, and with 
licensing standards.
    (7) Evaluating and assessing the quality and effectiveness of child 
care programs and services offered, including evaluating how such 
programs positively impact children.
    (8) Supporting child care providers in the voluntary pursuit of 
accreditation by a national accrediting body with demonstrated, valid, 
and reliable program standards of high-quality.
    (9) Supporting Lead Agency or local efforts to develop or adopt 
high-quality program standards relating to health, mental health, 
nutrition, physical activity, and physical development.

[[Page 67590]]

    (10) Carrying out other activities, including implementing consumer 
education provisions at Sec.  98.33, determined by the Lead Agency to 
improve the quality of child care services provided, and for which 
measurement of outcomes relating to improvement of provider 
preparedness, child safety, child well-being, or entry to kindergarten 
is possible.
    (b) Pursuant to Sec.  98.16(j), the Lead Agency shall describe in 
its Plan the activities it will fund under this section.
    (c) Non-Federal expenditures required by Sec.  98.55(c) (i.e., the 
maintenance-of effort amount) are not subject to the requirement at 
paragraph (a) of this section.
    (d) Activities to improve the quality of child care services are 
not restricted to activities affecting children meeting eligibility 
requirements under Sec.  98.20 or to child care providers of services 
for which assistance is provided under this part.
    (e) Unless expressly authorized by law, targeted funds for quality 
improvement and other set asides that may be included in appropriations 
law may not be used towards meeting the quality expenditure minimum 
requirement at Sec.  98.50(b).
    (f) States shall annually prepare and submit reports, including a 
quality progress report and expenditure report, to the Secretary, which 
must be made publicly available and shall include:
    (1) An assurance that the State was in compliance with requirements 
at Sec.  98.50(b) in the preceding fiscal year and information about 
the amount of funds reserved for that purpose;
    (2) A description of the activities carried out under this section 
to comply with Sec.  98.50(b);
    (3) The measures the State will use to evaluate its progress in 
improving the quality of child care programs and services in the State, 
and data on the extent to which the State had met these measures;
    (4) A report describing any changes to State regulations, 
enforcement mechanisms, or other State policies addressing health and 
safety based on an annual review and assessment of serious child 
injuries and any deaths occurring in child care programs serving 
children receiving assistance under this part, and in other regulated 
and unregulated child care centers and family child care homes, to the 
extent possible; and
    (5) A description of how the Lead Agency responded to complaints 
submitted through the national hotline and Web site, required in 
section 658L(b) of the CCDBG Act (42 U.S.C. 9858j(b)).

0
32. Amend newly redesignated Sec.  98.54 as follows:
0
a. Revise paragraphs (a) introductory text and (a)(6);
0
b. Redesignate paragraphs (b) and (c) as (c) and (d), respectively;
0
c. Add new paragraph (b);
0
d. Revise newly redesignated paragraph (d); and
0
e. Add paragraph (e).

    The revisions and additions read as follows:


Sec.  98.54  Administrative costs.

    (a) Not more than five percent of the aggregate funds expended by 
the Lead Agency from each fiscal year's allotment, including the 
amounts expended in the State pursuant to Sec.  98.55(b), shall be 
expended for administrative activities. These activities may include 
but are not limited to:
* * * * *
    (6) Indirect costs as determined by an indirect cost agreement or 
cost allocation plan pursuant to Sec.  98.57.
    (b) The following activities do not count towards the five percent 
limitation on administrative expenditures in paragraph (a) of this 
section:
    (1) Establishment and maintenance of computerized child care 
information systems;
    (2) Establishing and operating a certificate program;
    (3) Eligibility determination and redetermination;
    (4) Preparation/participation in judicial hearings;
    (5) Child care placement;
    (6) Recruitment, licensing, inspection of child care providers;
    (7) Training for Lead Agency or sub recipient staff on billing and 
claims processes associated with the subsidy program;
    (8) Reviews and supervision of child care placements;
    (9) Activities associated with payment rate setting;
    (10) Resource and referral services; and
    (11) Training for child care staff.
* * * * *
    (d) Non-Federal expenditures required by Sec.  98.55(c) (i.e., the 
maintenance-of-effort amount) are not subject to the five percent 
limitation at paragraph (a) of this section.
    (e) If a Lead Agency enters into agreements with sub-recipients for 
operation of the CCDF program, the amount of the contract or grant 
attributable to administrative activities as described in this section 
shall be counted towards the five percent limit.

0
33. In newly redesignated Sec.  98.55, revise paragraphs (e)(2)(iv), 
(f), (g)(2), and (h)(2) to read as follows:


Sec.  98.55  Matching Fund requirements.

* * * * *
    (e) * * *
    (2) * * *
    (iv) Shall be certified both by the Lead Agency and by the donor 
(if funds are donated directly to the Lead Agency) or the Lead Agency 
and the entity designated by the State to receive donated funds 
pursuant to paragraph (f) of this section (if funds are donated 
directly to the designated entity) as available and representing funds 
eligible for Federal match; and
* * * * *
    (f) Donated funds need not be transferred to or under the 
administrative control of the Lead Agency in order to qualify as an 
expenditure eligible to receive Federal match under this section. They 
may be given to the public or private entities designated by the State 
to implement the child care program in accordance with Sec.  98.11 
provided that such entities are identified and designated in the State 
Plan to receive donated funds in accordance with Sec.  98.16(d)(2).
    (g) * * *
    (2) Family contributions to the cost of care as required by Sec.  
98.45(k).
    (h) * * *
    (2) May be eligible for Federal match if the State includes in its 
Plan, as provided in Sec.  98.16(w), a description of the efforts it 
will undertake to ensure that pre-K programs meet the needs of working 
parents.
* * * * *

0
34. In newly redesignated Sec.  98.56, add a sentence to the end of 
paragraph (b)(1) and revise paragraphs (d) and (e) to read as follows:


Sec.  98.56  Restrictions on the use of funds.

* * * * *
    (b) * * *
    (1) * * * Improvements or upgrades to a facility which are not 
specified under the definitions of construction or major renovation at 
Sec.  98.2 may be considered minor remodeling and are, therefore, not 
prohibited.
* * * * *
    (d) Sectarian purposes and activities. Funds provided under grants 
or contracts to providers may not be expended for any sectarian purpose 
or activity, including sectarian worship or instruction. Assistance 
provided to parents through certificates is not a grant or contract. 
Funds provided through child care certificates may be expended for 
sectarian purposes or

[[Page 67591]]

activities, including sectarian worship or instruction when provided as 
part of the child care services.
    (e) Non-Federal share for other Federal programs. The CCDF may not 
be used as the non-Federal share for other Federal grant programs, 
unless explicitly authorized by statute.

0
35. Amend Sec.  98.60 as follows:
0
a. Revise paragraphs (b) introductory text, (b)(1), (d)(2)(i), 
(d)(4)(ii), and (d)(6) introductory text;
0
b. Redesignate paragraph (d)(7) as (d)(8);
0
c. Add new paragraph (d)(7); and
0
d. Revise paragraph (h).

    The revisions and addition read as follows:


Sec.  98.60  Availability of funds.

* * * * *
    (b) Subject to the availability of appropriations, in accordance 
with relevant statutory provisions and the apportionment of funds from 
the Office of Management and Budget, the Secretary:
    (1) May withhold a portion of the CCDF funds made available for a 
fiscal year for the provision of technical assistance, for research, 
evaluation, and demonstration, and for a national toll free hotline and 
Web site;
* * * * *
    (d) * * *
    (2)(i) Mandatory Funds for States requesting Matching Funds per 
Sec.  98.55 shall be obligated in the fiscal year in which the funds 
are granted and are available until expended.
* * * * *
    (4) * * *
    (ii) If there is no applicable State or local law, the regulation 
at 45 CFR 75.2, Expenditures and Obligations.
* * * * *
    (6) In instances where the Lead Agency issues child care 
certificates, funds for child care services provided through a child 
care certificate will be considered obligated when a child care 
certificate is issued to a family in writing that indicates:
* * * * *
    (7) In instances where third party agencies issue child care 
certificates, the obligation of funds occurs upon entering into 
agreement through a subgrant or contract with such agency, rather than 
when the third party issues certificates to a family.
* * * * *
    (h) Repayment of loans made to child care providers as part of a 
quality improvement activity pursuant to Sec.  98.53, may be made in 
cash or in services provided in-kind. Payment provided in-kind shall be 
based on fair market value. All loans shall be fully repaid.
* * * * *

0
36. In Sec.  98.61, revise paragraph (a) and paragraph (c) introductory 
text and add paragraph (f) to read as follows:


Sec.  98.61  Allotments from the Discretionary Fund.

    (a) To the 50 States, the District of Columbia, and the 
Commonwealth of Puerto Rico an amount equal to the funds appropriated 
for the Child Care and Development Block Grant, less amounts reserved 
for technical assistance, research, and the national hotline and Web 
site, pursuant to Sec.  98.60(b), and amounts reserved for the 
Territories and Tribes, pursuant to Sec.  98.60(b) and paragraphs (b) 
and (c) of this section, shall be allotted based upon the formula 
specified in section 658O(b) of the Act (42 U.S.C. 9858m(b)).
* * * * *
    (c) For Indian Tribes and tribal organizations, including any 
Alaskan Native Village or regional or village corporation as defined in 
or established pursuant to the Alaska Native Claims Settlement Act (43 
U.S.C. 1601 et seq.) not less than two percent of the amount 
appropriated for the Child Care and Development Block Grant shall be 
reserved.
* * * * *
    (f) Lead Agencies shall expend any funds that may be set-aside for 
targeted activities pursuant to annual appropriations law as directed 
by the Secretary.

0
37. In Sec.  98.63, revise paragraphs (b) and (c) to read as follows:


Sec.  98.63  Allotments from the Matching Fund.

* * * * *
    (b) For purposes of this section, the amounts available under 
section 418(a)(3) of the Social Security Act (42 U.S.C. 618(a)(3)) 
excludes the amounts reserved and allocated under Sec.  98.60(b)(1) for 
technical assistance, research and evaluation, and the national toll-
free hotline and Web site and under Sec.  98.62(a) and (b) for the 
Mandatory Fund.
    (c) Amounts under this section are available pursuant to the 
requirements at Sec.  98.55(c).

0
38. In Sec.  98.64, revise paragraph (c)(1) to read as follows:


Sec.  98.64  Reallotment and redistribution of funds.

* * * * *
    (c)(1) Any portion of the Matching Fund granted to a State that is 
not obligated in the period for which the grant is made shall be 
redistributed. Funds, if any, will be redistributed on the request of, 
and only to, those other States that have met the requirements of Sec.  
98.55(c) in the period for which the grant was first made. For purposes 
of this paragraph (c)(1), the term ``State'' means the 50 States and 
the District of Columbia. Territorial and tribal grantees may not 
receive redistributed Matching Funds.
* * * * *

0
39. In Sec.  98.65, revise paragraphs (a) and (g) and to add paragraphs 
(h) and (i) to read as follows:


Sec.  98.65  Audits and financial reporting.

    (a) Each Lead Agency shall have an audit conducted after the close 
of each program period in accordance with 45 CFR part 75, subpart F, 
and the Single Audit Act Amendments of 1996.
* * * * *
    (g) Lead Agencies shall submit financial reports, in a manner 
specified by ACF, quarterly for each fiscal year until funds are 
expended.
    (h) At a minimum, a State or territorial Lead Agency's quarterly 
report shall include the following information on expenditures under 
CCDF grant funds, including Discretionary (which includes realloted 
funding and any funds transferred from the TANF block grant), 
Mandatory, and Matching Funds (which includes redistributed funding); 
and State Matching and Maintenance-of-Effort (MOE) Funds:
    (1) Child care administration;
    (2) Quality activities, including any sub-categories of quality 
activities as required by ACF;
    (3) Direct services;
    (4) Non-direct services, including:
    (i) Establishment and maintenance of computerized child care 
information systems;
    (ii) Certificate program cost/eligibility determination;
    (iii) All other non-direct services; and
    (5) Such other information as specified by the Secretary.
    (i) Tribal Lead Agencies shall submit financial reports annually in 
a manner specified by ACF.

0
40. Add Sec.  98.68 to subpart G to read as follows:


Sec.  98.68  Program integrity.

    (a) Lead Agencies are required to describe in their Plan effective 
internal controls that are in place to ensure integrity and 
accountability, while maintaining continuity of services, in the CCDF 
program. These shall include:
    (1) Processes to ensure sound fiscal management;

[[Page 67592]]

    (2) Processes to identify areas of risk;
    (3) Processes to train child care providers and staff of the Lead 
Agency and other agencies engaged in the administration of CCDF about 
program requirements and integrity; and
    (4) Regular evaluation of internal control activities.
    (b) Lead Agencies are required to describe in their Plan the 
processes that are in place to:
    (1) Identify fraud or other program violations, which may include, 
but are not limited to the following:
    (i) Record matching and database linkages;
    (ii) Review of attendance and billing records;
    (iii) Quality control or quality assurance reviews; and
    (iv) Staff training on monitoring and audit processes.
    (2) Investigate and recover fraudulent payments and to impose 
sanctions on clients or providers in response to fraud.
    (c) Lead Agencies must describe in their Plan the procedures that 
are in place for documenting and verifying that children receiving 
assistance under this part meet eligibility criteria at the time of 
eligibility determination and redetermination. Because a child meeting 
eligibility requirements at the most recent eligibility determination 
or redetermination is considered eligible during the period between 
redeterminations as described in Sec.  98.21(a)(1):
    (1) The Lead Agency shall pay any amount owed to a child care 
provider for services provided for such a child during this period 
under a payment agreement or authorization for services; and
    (2) Any CCDF payment made for such a child during this period shall 
not be considered an error or improper payment under subpart K of this 
part due to a change in the family's circumstances, as set forth at 
Sec.  98.21(a).

0
41. In Sec.  98.70, add paragraph (d) to read as follows:


Sec.  98.70  Reporting requirements.

* * * * *
    (d) State and territorial Lead Agencies shall make the following 
reports publicly available on a Web site in a timely manner:
    (1) Annual administrative data reports under paragraph (b) of this 
section;
    (2) Quarterly financial reports under Sec.  98.65(g); and
    (3) Annual quality progress reports under Sec.  98.53(f).

0
42. Revise Sec.  98.71 to read as follows:


Sec.  98.71  Content of report.

    (a) At a minimum, a State or territorial Lead Agency's quarterly 
case-level report to the Secretary, as required in Sec.  98.70, shall 
include the following information on services provided under CCDF grant 
funds, including Federal Discretionary (which includes any funds 
transferred from the TANF Block Grant), Mandatory, and Matching Funds; 
and State Matching and Maintenance-of-Effort (MOE) Funds:
    (1) The total monthly family income and family size used for 
determining eligibility;
    (2) Zip code of residence of the family and zip code of the 
location of the child care provider;
    (3) Gender and month/year of birth of children;
    (4) Ethnicity and race of children;
    (5) Whether the head of the family is a single parent
    (6) The sources of family income and assistance from employment 
(including self-employment), cash or other assistance under the 
Temporary Assistance for Needy Families program under Part A of title 
IV of the Social Security Act (42 U.S.C. 609(a)(7)), cash or other 
assistance under a State program for which State spending is counted 
toward the maintenance of effort requirement under section 409(a)(7) of 
the Social Security Act, housing assistance, assistance under the Food 
Stamp Act of 1977, and other assistance programs;
    (7) The month/year child care assistance to the family started;
    (8) The type(s) of child care in which the child was enrolled (such 
as family child care, in-home care, or center-based child care;
    (9) Whether the child care provider was a relative;
    (10) The total monthly child care copayment by the family;
    (11) If applicable, any amount charged by the provider to the 
family more than the required copayment in instances where the 
provider's price exceeds the subsidy payment;
    (12) The total expected dollar amount per month to be received by 
the provider for each child;
    (13) The total hours per month of such care;
    (14) Unique identifier of the head of the family unit receiving 
child care assistance, and of the child care provider;
    (15) Reasons for receiving care;
    (16) Whether the family is experiencing homelessness;
    (17) Whether the parent(s) are in the military service;
    (18) Whether the child has a disability;
    (19) Primary language spoken at home;
    (20) Date of the child care provider's most recent health, safety 
and fire inspection meeting the requirements of Sec.  98.42(b)(2);
    (21) Indicator of the quality of the child care provider; and
    (22) Any additional information that the Secretary shall require.
    (b) At a minimum, a State or territorial Lead Agency's annual 
aggregate report to the Secretary, as required in Sec.  98.70(b), shall 
include the following information on services provided through all CCDF 
grant funds, including Federal Discretionary (which includes any funds 
transferred from the TANF Block Grant), Mandatory, and Matching Funds; 
and State Matching and MOE Funds:
    (1) The number of child care providers that received funding under 
CCDF as separately identified based on the types of providers listed in 
section 658P(5) of the amended Child Care and Development Block Grant 
Act;
    (2) The number of children served by payments through certificates 
or vouchers, contracts or grants, and cash under public benefit 
programs, listed by the primary type of child care services provided 
during the last month of the report period (or the last month of 
service for those children leaving the program before the end of the 
report period);
    (3) The manner in which consumer education information was provided 
to parents and the number of parents to whom such information was 
provided;
    (4) The total number (without duplication) of children and families 
served under CCDF;
    (5) The number of child fatalities by type of care; and
    (6) Any additional information that the Secretary shall require.
    (c) A Tribal Lead Agency's annual report as required in Sec.  
98.70(c), shall include such information as the Secretary shall 
require.

0
43. In Sec.  98.80, revise paragraphs (a) and (c)(1) and (2) and remove 
paragraph (f).

    The revisions read as follows:


Sec.  98.80  General procedures and requirements.

* * * * *
    (a) An Indian Tribe applying for or receiving CCDF funds shall be 
subject to the requirements under this part as specified in this 
section based on the size of the awarded funds. The Secretary shall 
establish thresholds for Tribes' total CCDF allotments pursuant to 
Sec. Sec.  98.61(c) and 98.62(b) to be divided into three categories:
    (1) Large allocations;
    (2) Medium allocations; and
    (3) Small allocations.
* * * * *

[[Page 67593]]

    (c) * * *
    (1) The consortium adequately demonstrates that each participating 
Tribe authorizes the consortium to receive CCDF funds on behalf of each 
Tribe or tribal organization in the consortium;
    (2) The consortium consists of Tribes that each meet the 
eligibility requirements for the CCDF program as defined in this part, 
or that would otherwise meet the eligibility requirements if the Tribe 
or tribal organization had at least 50 children under 13 years of age;
* * * * *

0
44. In Sec.  98.81, revise paragraphs (b) introductory text, (b)(1), 
(5), and (6), add paragraph (b)(9), and revise paragraph (c) to read as 
follows:


Sec.  98.81  Application and Plan procedures.

* * * * *
    (b) Tribal Lead Agencies with large and medium allocations shall 
submit a CCDF Plan, as described at Sec.  98.16, with the following 
additions and exceptions:
    (1) The Plan shall include the basis for determining family 
eligibility.
    (i) If the Tribe's median income is below a certain level 
established by the Secretary, then, at the Tribe's option, any Indian 
child in the Tribe's service area shall be considered eligible to 
receive CCDF funds, regardless of the family's income, work, or 
training status, provided that provision for services still goes to 
those with the highest need.
    (ii) If the Tribe's median income is above the level established by 
the Secretary, then a tribal program must determine eligibility for 
services pursuant to Sec.  98.20(a)(2). A tribal program, as specified 
in its Plan, may use either:
    (A) 85 percent of the State median income for a family of the same 
size; or
    (B) 85 percent of the median income for a family of the same size 
residing in the area served by the Tribal Lead Agency.
* * * * *
    (5) The Plan shall include a description of the Tribe's payment 
rates, how they are established, and how they support quality 
including, where applicable, cultural and linguistic appropriateness.
    (6) The Plan is not subject to the following requirements:
    (i) The early learning and developmental guidelines requirement at 
Sec.  98.15(a)(9);
    (ii) The certification to develop the CCDF Plan in consultation 
with the State Advisory Council at Sec.  98.15(b)(1);
    (iii) The licensing requirements applicable to child care services 
at Sec.  98.15(b)(6) and Sec.  98.16(u);
    (iv) The identification of the public or private entities 
designated to receive private funds at Sec.  98.16(d)(2);
    (v) A definition of very low income at Sec.  98.16(g)(8);
    (vi) A description at Sec.  98.16(i)(4) of how the Lead Agency will 
meet the needs of certain families specified at Sec.  98.50(e);
    (vii) The description of the market rate survey or alternative 
methodology at Sec.  98.16(r);
    (viii) The description relating to Matching Funds at Sec.  
98.16(w); and
    (ix) 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(y).
* * * * *
    (9) Plans for Tribal Lead Agencies with medium allocations are not 
subject to the following requirements unless the Tribe chooses to 
include such services, and, therefore, the associated requirements, in 
its program:
    (i) The assurance at Sec.  98.15(a)(2) regarding options for 
services;
    (ii) A description of any limits established for the provision of 
in-home care at Sec.  98.16(i)(2), or
    (iii) A description of the child care certificate payment system(s) 
at Sec.  98.16(q).
    (c) Tribal Lead Agencies with small allocations shall submit an 
abbreviated CCDF Plan, as described by the Secretary.

0
45. Revise Sec.  98.82 to read as follows:


Sec.  98.82  Coordination.

    Tribal applicants shall coordinate the development of the Plan and 
the provision of services, to the extent practicable, as required by 
Sec. Sec.  98.12 and 98.14 and:
    (a) To the maximum extent feasible, with the Lead Agency in the 
State or States in which the applicant will carry out the CCDF program; 
and
    (b) With other Federal, State, local, and tribal child care and 
childhood development programs.

0
46. Revise Sec.  98.83 to read as follows:


Sec.  98.83  Requirements for tribal programs.

    (a) The grantee shall designate an agency, department, or unit to 
act as the Tribal Lead Agency to administer the CCDF program.
    (b) With the exception of Alaska, California, and Oklahoma, 
programs and activities for the benefit of Indian children shall be 
carried out on or near an Indian reservation.
    (c) In the case of a tribal grantee that is a consortium:
    (1) A brief description of the direct child care services funded by 
CCDF for each of their participating Tribes shall be provided by the 
consortium in their three-year CCDF Plan; and
    (2) Variations in CCDF programs or requirements and in child care 
licensing, regulatory and health and safety requirements shall be 
specified in written agreements between the consortium and the Tribe.
    (3) If a Tribe elects to participate in a consortium arrangement to 
receive one part of the CCDF (e.g., Discretionary Funds), it may not 
join another consortium or apply as a direct grantee to receive the 
other part of the CCDF (e.g., Tribal Mandatory Funds).
    (4) If a Tribe relinquishes its membership in a consortium at any 
time during the fiscal year, CCDF funds awarded on behalf of the member 
Tribe will remain with the tribal consortium to provide direct child 
care services to other consortium members for that fiscal year.
    (d)(1) Tribal Lead Agencies shall not be subject to:
    (i) The requirement to produce a consumer education Web site 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 Web 
site;
    (ii) The requirement to have licensing applicable to child care 
services at Sec.  98.40;
    (iii) The requirement for a training and professional development 
framework at Sec.  98.44(a);
    (iv) 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);
    (v) 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);
    (vi) 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);
    (vii) The requirements about Mandatory and Matching Funds at Sec.  
98.50(e);
    (vii) The requirement to complete the quality progress report at 
Sec.  98.53(f);
    (xi) 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

[[Page 67594]]

    (x) The Matching Fund requirements at Sec. Sec.  98.55 and 98.63.
    (2) Tribal Lead Agencies with large, medium, and small allocations 
shall be subject to the provision at Sec.  98.42(b)(2) to require 
inspections of child care providers and facilities, unless a Tribal 
Lead Agency describes an alternative monitoring approach in its Plan 
and provides adequate justification for the approach.
    (3) Tribal Lead Agencies with large, medium, and small allocations 
shall be subject to the requirement at Sec.  98.43 to conduct 
comprehensive criminal background checks, unless the Tribal Lead Agency 
describes an alternative background check approach in its Plan and 
provides adequate justification for the approach.
    (e) Tribal Lead Agencies with medium and small allocations shall 
not be subject to the requirement for certificates at Sec.  98.30(a) 
and (d).
    (f) Tribal Lead Agencies with small allocations must spend their 
CCDF funds in alignment with the goals and purposes described in Sec.  
98.1. These Tribes shall have flexibility in how they spend their CCDF 
funds and shall be subject to the following requirements:
    (1) The health and safety requirements described in Sec.  98.41;
    (2) The monitoring requirements at Sec. Sec.  98.42 and 
98.83(d)(2); and
    (3) The background checks requirements described in Sec. Sec.  
98.43 and 98.83(d)(3);
    (4) The requirements to spend funds on activities to improve the 
quality of child care described in Sec. Sec.  98.83(g) and 98.53;
    (5) The use of funds requirements at Sec.  98.56 and cost 
allocation requirement at Sec.  98.57;
    (6) The financial management requirements at subpart G of this part 
that are applicable to Tribes;
    (7) The reporting requirements at subpart H of this part that are 
applicable to Tribes;
    (8) The eligibility definitions at Sec.  98.81(b)(2);
    (9) The 15 percent limitation on administrative activities at Sec.  
98.83(i);
    (10) The monitoring, non-compliance, and complaint provisions at 
subpart J of this part; and
    (11) Any other requirement established by the Secretary.
    (g) Of the aggregated amount of funds expanded (i.e., Discretionary 
and Mandatory Funds),
    (1) For Tribal Lead Agencies with large, medium and small 
allocations, no less than four percent in fiscal years 2017, seven 
percent in fiscal years 2018 and 2019, eight percent in fiscal years 
2020 and 2021, and nine percent in fiscal years 2022 and each 
succeeding fiscal year shall be used for activities designed to improve 
the quality of child care services and increase parental options for, 
and access to high-quality child care as described at Sec.  98.53; and
    (2) For Tribal Lead Agencies with large and medium allocations no 
less than three percent in fiscal year 2019 and each succeeding fiscal 
year 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 toddler.
    (3) Nothing in this section shall preclude the Tribal Lead Agencies 
from reserving a larger percentage of funds to carry out activities 
described in paragraph (g)(1) and (2) of this section.
    (h) The base amount of any tribal grant is not subject to the 
administrative cost limitation at paragraph (i) of this section, the 
direct services requirement at Sec.  98.50(f)(2), or the quality 
expenditure requirement at Sec.  98.53(a). The base amount may be 
expended for any costs consistent with the purposes and requirements of 
the CCDF.
    (i) Not more than 15 percent of the aggregate CCDF funds expended 
by the Tribal Lead Agency from each fiscal year's (including amounts 
used for construction and renovation in accordance with Sec.  98.84, 
but not including the base amount provided under paragraph (h) of this 
section) shall be expended for administrative activities. Amounts used 
for construction and major renovation in accordance with Sec.  98.84 
are not considered administrative costs.
    (j)(1) CCDF funds are available for costs incurred by the Tribal 
Lead Agency only after the funds are made available by Congress for 
Federal obligation unless costs are incurred for planning activities 
related to the submission of an initial CCDF Plan.
    (2) Federal obligation of funds for planning costs, pursuant to 
paragraph(i)(1) of this section is subject to the actual availability 
of the appropriation.

0
47. In Sec.  98.84, add a sentence at the end of paragraph (b)(3), add 
paragraphs (b)(3)(i) and (ii), and revise paragraphs (d)(1) through (6) 
to read as follows:


Sec.  98.84  Construction and renovation of child care facilities.

* * * * *
    (b) * * *
    (3) * * * The Secretary shall waive this requirement if:
    (i) The Secretary determines that the decrease in the level of 
child care services provided by the Indian tribe or tribal organization 
is temporary; and
    (ii) The Indian tribe or tribal organization submits to the 
Secretary a plan that demonstrates that after the date on which the 
construction or renovation is completed:
    (A) The level of direct child care services will increase; or
    (B) The quality of child care services will improve.
* * * * *
    (d) * * *
    (1) Federal share requirements and use of property requirements at 
45 CFR 75.318;
    (2) Transfer and disposition of property requirements at 45 CFR 
75.318(c);
    (3) Title requirements at 45 CFR 75.318(a);
    (4) Cost principles and allowable cost requirements at subpart E of 
this part;
    (5) Program income requirements at 45 CFR 75.307;
    (6) Procurement procedures at 45 CFR 92.36; 75.326 through 75.335; 
and
* * * * *

0
48. In Sec.  98.92, revise paragraph (a)(1) and add paragraphs (b)(3) 
and (4) to read as follows:


Sec.  98.92   Penalties and sanctions.

* * * * *
    (a) * * *
    (1) The Secretary will disallow any improperly expended funds;
    (b) * * *
    (3)(i) A penalty of five percent of the funds allotted under Sec.  
98.61 (i.e., the Discretionary Funds) for a Fiscal Year shall be 
withheld for any For Fiscal Year the Secretary determines that the Lead 
Agency has failed to give priority for service in accordance with Sec.  
98.46(a);
    (ii) This penalty will be withheld no earlier than the first full 
Fiscal Year following the determination to apply the penalty;
    (iii) This penalty will not be applied if the Lead Agency corrects 
its failure to comply and amends its CCDF Plan within six months of 
being notified of the failure; and
    (iv) The Secretary may waive a penalty for one year in the event of 
extraordinary circumstances, such as a natural disaster.
    (4)(i) A penalty of five percent of the funds allotted under Sec.  
98.61 (i.e., the Discretionary Funds) for a Fiscal Year shall be 
withheld for any Fiscal Year that the Secretary determines that the 
State, Territory, or Tribe has failed to comply substantially with the 
criminal background check requirements at Sec.  98.43;
    (ii) This penalty will be withheld no earlier than the first full 
Fiscal Year

[[Page 67595]]

following the determination to apply the penalty; and
    (iii) This penalty will not be applied if the State, Territory, or 
Tribe corrects the failure before the penalty is to be applied or if it 
submits a plan for corrective action that is acceptable to the 
Secretary.
* * * * *


Sec.  98.93  [Amended]

0
49. In Sec.  98.93(b), remove ``, 370 L'Enfant Promenade SW., 
Washington, DC 20447''.

0
50. In Sec.  98.100, add a sentence at the end of paragraph (d)(2) and 
revise paragraph (e) to read as follows:


Sec.  98.100  Error Rate Report.

* * * * *
    (d) * * *
    (2) * * * Because a child meeting eligibility requirements at the 
most recent eligibility determination or redetermination is considered 
eligible between redeterminations as described in Sec.  98.21(a)(1), 
any payment for such a child shall not be considered an error or 
improper payment due to a change in the family's circumstances, as set 
forth at Sec.  98.21(a) and (b).
    (e) Costs of Preparing the Error Rate Report--Provided the error 
rate calculations and reports focus on client eligibility, expenses 
incurred by the States, the District of Columbia and Puerto Rico in 
complying with this rule, including preparation of required reports, 
shall be considered a cost of direct service related to eligibility 
determination and therefore is not subject to the five percent 
limitation on CCDF administrative costs pursuant to Sec.  98.54(a).

0
51. In Sec.  98.102, revise paragraph (a)(5) and to add paragraph (c) 
to read as follows:


Sec.  98.102  Content of Error Rate Reports.

    (a) * * *
    (5) Estimated annual amount of improper payments (which is a 
projection of the results from the sample to the universe of cases 
statewide during the 12-month review period) calculated by multiplying 
the percentage of improper payments by the total dollar amount of child 
care payments that the State, the District of Columbia or Puerto Rico 
paid during the 12-month review period;
* * * * *
    (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) Milestones that clearly identify actions to be taken to reduce 
improper payments and the individual responsible for completing each 
action;
    (iii) A timeline for completing each action within 1 year of the 
Assistant Secretary's approval of the plan, and for reducing the 
improper payment rate below the threshold established by the Secretary; 
and
    (iv) Targets for future improper payment rates.
    (3) Subsequent progress reports must be submitted as requested by 
the Assistant Secretary.
    (4) Failure to carry out actions described in the approved 
corrective action plan will be grounds for a penalty or sanction under 
Sec.  98.92.

[FR Doc. 2016-22986 Filed 9-23-16; 8:45 am]
 BILLING CODE P