[Federal Register Volume 91, Number 2 (Monday, January 5, 2026)]
[Proposed Rules]
[Pages 207-215]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2025-24272]
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DEPARTMENT OF HEALTH AND HUMAN SERVICES
45 CFR Part 98
RIN 0970-AD20
Restoring Flexibility in the Child Care and Development Fund
(CCDF)
AGENCY: Office of Child Care (OCC), Administration for Children and
Families (ACF), Department of Health and Human Services (HHS).
ACTION: Notice of proposed rulemaking.
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SUMMARY: The Department of Health and Human Services, Administration
for Children and Families proposes to amend the Child Care and
Development Fund (CCDF) regulations (45 CFR part 98) to reduce costs
and burden for states and territories administering the CCDF program.
It proposes rescinding the requirements to limit family co-payments to
7 percent of family income, to provide some direct services through
grants or contracts, to pay providers based on child's enrollment, and
to pay providers prospectively that were added to the CCDF regulations
in the March 2024 final rule, Improving Child Care Access,
Affordability, and Stability in the Child Care and Development Fund
(CCDF) (89 FR 15366). The docket on https://www.regulations.gov will
include a plain language summary of the NPRM as required by 5 U.S.C.
553(b)(4).
DATES: In order to be considered, written comments on this proposed
rule must be received on or before February 4, 2026.
ADDRESSES: You may submit written comments, identified by docket number
ACF-XXXX-XXXX and/or RIN number 0970-AD20, by one of the following
methods:
Federal eRulemaking Portal: Go to https://www.regulations.gov. Follow the instructions for submitting comments.
Email: [email protected]. Include the docket
number ACF-XXXX-XXXX and/or RIN number 0970-AD20 in the subject line of
the message.
Instructions: All submissions received must include the agency name
and docket number or RIN number for this rulemaking. All comments
received are a part of the public record and will be posted for public
viewing on www.regulations.gov, without change. Please be advised that
the substance of the comments and the identity of individuals or
entities submitting the comments will be subject to public disclosure.
Anonymous comments are accepted.
FOR FURTHER INFORMATION CONTACT: Megan Campbell, Supervisory Child Care
Program Specialist, Policy, Data, and Planning Division, Office of
Child Care, Administration for Children and Families, Department of
Health and Human Services, Washington, DC 202-690-6499 or
[email protected].
SUPPLEMENTARY INFORMATION:
Contents
I. Statutory Authority......................................... 4
II. Background................................................. 4
III. Executive Summary......................................... 6
Effective Date............................................. 9
Costs, Benefits, and Transfer Impacts...................... 9
IV. Discussion of Proposed Changes............................. 10
Subpart B--General Application Procedures.................. 11
Subpart D--Program Operations (Child Care Services) 12
Parental Rights and Responsibilities......................
Subpart E--Program Operations (Child Care Services) Lead 13
Agency and Provider Requirements..........................
Subpart F--Use of Child Care and Development Funds......... 20
Subpart I--Indian Tribes................................... 21
V. Regulatory Process Matters.................................. 22
Paperwork Reduction Act.................................... 22
Executive Order 13132...................................... 23
Assessment of Federal Regulations and Policies on Families. 24
VI. Regulatory Impact Analysis................................. 24
VII. Tribal Consultation Statement............................. 28
List of Subjects in 45 CFR Part 98......................... 28
I. Statutory Authority
This proposed regulation is being issued under the authority
granted to the Secretary of Health and Human Services by the Child Care
and Development Block Grant Act of 1990, as amended (42 U.S.C. 9857 et
seq.), hereafter referred to as the ``Act,'' and section 418 of the
Social Security Act (42 U.S.C. 618).
II. Background
The Act (42 U.S.C. 9857 et seq.), together with section 418 of the
Social Security Act (42 U.S.C. 618), authorize the Child Care and
Development Fund (CCDF), which is the primary federal funding source
dedicated to supporting working families with low incomes to afford
child care and to increasing the quality of child care for all
children. CCDF funds child care services in the 50 states, the District
of Columbia, 5 territories, and 264 Tribal organizations. Federal
Fiscal year (FFY) 2025 enacted CCDF funding is $12.30 billion awarded
by formula to States, Territories, and Tribes. CCDF child care
subsidies, primarily administered through vouchers, help working
families with low incomes access child care that best meets their
needs. In FFY 2022, the most recent year for which data is available,
CCDF provided subsidies to over 1.4 million children from 870,000
families each month.\1\ CCDF also promotes the quality of child care by
requiring CCDF Lead Agencies to spend at least 12 percent of their CCDF
funding each year on activities to improve child care quality for all
children in care. In FFY 2021, states spent $3 billion on activities to
improve
[[Page 208]]
the quality of child care and an additional $570 million on improving
the quality and supply of infant and toddler care.
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\1\ https://acf.gov/occ/data/fy-2022-preliminary-data-table-1.
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Congress last reauthorized the CCDBG Act in 2014 (Pub. L. 113-186),
and HHS published regulations implementing the new provisions of the
Act in September 2016 (81 FR 67438). The 2016 regulations built on the
priorities Congress included in the reauthorization. In July 2023, HHS
proposed changes to a limited number of provisions in the CCDF
regulations (88 FR 45043). In response to proposed changes, HHS
received over 1,600 public comments with many commenters, including
CCDF Lead Agencies, noting concerns about the timing and costs
associated with the proposed changes (89 FR 15372-3). The changes were
codified in a final rule published by HHS in March 2024 (89 FR 15366).
Since publication of the March 2024 final rule, several States and
Territories have reiterated to HHS that some of the requirements added
in the March 2024 final rule are more costly and difficult to implement
than HHS had estimated. This feedback has been shared through State and
Territory CCDF plan appendices, in-person meetings and focus groups
with CCDF administrators, and technical assistance inquiries. The
numerous barriers to implementing these requirements are also evidenced
by the fact that all States and Territories have two-year transitional
and legislative waivers because they all needed additional time to
implement at least one of the new requirements. More recently, some
States have requested to renew these transitional and legislative
waivers for two additional years to implement the changes because of
the high cost and extensive systems changes necessary to come into
compliance.
This NPRM proposes to rescind the four most onerous requirements.
The changes proposed in this NPRM align with the text of the Act,
including the first purpose enumerated by Congress: ``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.'' 42 U.S.C. 9857(b)(1). If the proposed changes are finalized,
States, Territories, and Tribes will continue to have the option to
adopt policies based on their own assessment of what works best for
children, families, and child care providers in their communities.
By proposing to remove these overly prescriptive requirements, this
NPRM responds to Executive Order 14192, Unleashing Prosperity through
Deregulation and would restore State, Territory, and Tribal flexibility
for designing and operating their CCDF programs as they deem most
appropriate. Under this Executive Order, ``It is the policy of the
executive branch to be prudent and financially responsible in the
expenditure of funds, from both public and private sources, and to
alleviate unnecessary regulatory burdens placed on the American
people.''
This NPRM also responds to Secretary Robert F. Kennedy Jr.'s
directive to ``launch the most sweeping deregulatory initiative in the
history of the Department'' of Health and Human Services by
``eliminating bureaucratic red tape and ``aggressively deregulating to
return the freedoms eroded over decades by unnecessary and burdensome
regulations.'' \2\ 90 FR 20393-94.
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\2\ https://www.federalregister.gov/documents/2025/05/14/2025-08393/notification-of-hhs-documents-identified-for-rescission.
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III. Executive Summary
This NPRM proposes to rescind four requirements added in the March
2024 final rule that are costly, burdensome, and overly prescriptive,
especially compared to other block grant programs. All four rescissions
would impact States and Territories. Only the repeal of the family co-
payment limit would impact Tribal Lead Agencies, as Tribal Lead
Agencies are already exempt from the requirements related to payment
practices. As is standard with block grant programs, Lead Agencies
would continue to have the flexibility to implement the policies
required by the March 2024 final rule, but HHS would no longer require
implementation of the rescinded requirements.
Repeal the federally mandated cap on family co-payments at
Sec. 98.45(l)(3). This proposed change removes the mandatory 7-percent
cap that was imposed in the March 2024 final rule. With this change,
CCDF policy would revert to the previous requirement that matches the
statutory language that co-payments cannot be a barrier to families
receiving child care assistance. In the preamble to the 2016 final
rule, ACF established an optional Federal benchmark for family co-
payments of no more than 7 percent of family income based on 2011 data
from a U.S. Census Bureau report that showed families, on average,
spent 7 percent of income on child care. 81 FR 67467-68. Despite no new
evidence that showed higher co-payments were a barrier to accessing the
child care subsidy, the March 2024 final rule changed the benchmark
into a federal requirement. This limit on Lead Agencies' ability to set
co-payment amounts based on the needs of children, families, and
providers in their State is counter to the first statutory purpose of
CCDF, which is ``to allow each State maximum flexibility in developing
child care programs and policies that best suit the needs of children
and parents within the State.'' 42 U.S.C. 9857(b)(1). This proposed
change would restore Lead Agency flexibility to decide how best to
balance the trade-offs between reducing child care costs for families
participating in CCDF and serving additional families with higher co-
payments.
Repeal the requirement to use some grants or contracts for
direct services at Sec. 98.30(b)(1). The March 2024 final rule
mandated States and Territories to use some grants or contracts to
provide direct services for infants and toddlers, children with
disabilities, and children in underserved geographic areas. HHS
believes that this requirement is excessively prescriptive by mandating
grants or contracts for particular populations and is difficult to
implement. The stringent requirements mean that even some states that
have a long history of using grants or contracts for direct services
must make significant changes to meet the requirements of the March
2024 Final Rule. The proposed change to repeal this requirement will
ensure that parents can use federal funding through certificates or
vouchers to access the providers of their choosing, including faith-
based providers.
Repeal the requirement to pay child care providers
prospectively at Sec. 98.45(m)(1). The March 2024 final rule required
provider payment in advance of or at the beginning of the delivery of
service (i.e., prospectively) with limited exceptions. This NPRM
proposes to rescind this requirement, which only six States have
implemented to date, and would revert to the option for States and
Territories to pay providers prospectively or on a reimbursement basis,
which was the standard set forth in the 2016 final rule. As required by
the Act at Section 658E(c)(4)(B)(iv) (42 U.S.C. 9858c(c)(4)(B)(iv)),
States and Territories must still ensure that child care providers are
paid in a timely manner, which is critical for providers to participate
in CCDF and increases the options available to parents.
Repeal the requirement to pay child care providers based
on a child's enrollment rather than attendance at Sec. 98.45(m)(2).
The March 2024 final rule required States and Territories, with limited
exceptions, to pay providers based on a child's authorized enrollment.
This policy, once fully
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implemented, was estimated to cost $16.5 million per year. With its
proposed repeal, States and Territories would have greater flexibility
and multiple allowable options to meet the statutory requirement to
delink provider payments from a child's occasional absences. HHS
believes that delinking payments is important to support providers'
fixed costs of delivering child care services and to encourage
providers' participation in CCDF.
Effective Date
ACF expects all provisions included in the proposed rule, if
finalized, to become effective 60 days from the date of publication of
the final rule.
Costs, Benefits, and Transfer Impacts
By rescinding several of the mandatory provisions added by the
March 2024 final rule, this NPRM would prevent the occurrence of the
estimated transfers and costs reported in the 2024 Regulatory Impact
Analysis (RIA), with the exception of the anticipated economic impacts
in the first year. 89 FR 15400-11.
Over a 5-year time horizon covering 2025 through 2029, ACF
estimates annualized transfers of $23.4 million using a 3-percent
discount rate and $22.8 using a 7-percent discount rate; and annualized
costs of $6.7 million using a 3-percent discount rate and $6.6 million
using a 7-percent discount rate. Negative costs represent cost savings
and negative transfers represent a reversal of the direction of
transfers compared to the 2024 RIA. In this context, transfers under
the March 2024 final rule that represented increases in Lead Agency
payments to child care providers represent reductions in Lead Agency
payments to child care providers.
To produce an estimate of cost savings under Executive Order 14192,
we assume the impacts of the proposed changes on costs in 2029 will
extend in perpetuity. We estimate that this NPRM will generate $6.1
million in annualized cost savings at a 7-percent discount rate,
discounted relative to year 2024, in perpetuity.
Severability
The provisions of this NPRM, once it becomes final, are intended to
be severable, such that, in the event a court were to invalidate any
particular provision or deem it to be unenforceable, the remaining
provisions would continue to be valid. The changes address a variety of
issues relevant to child care. None of the provisions contained herein
are central to an overall intent of the proposed rule, nor are any
provisions dependent on the validity of other, separate provisions.
IV. Discussion of Proposed Changes
This NPRM would not alter the overall structure and organization of
the current CCDF regulations. The preamble in this NPRM discusses the
proposed changes to current regulations. Where language of previous
regulations remains unchanged, the preamble explanation and
interpretation of that language published with all prior final rules
would also be retained, unless specifically proposed to be modified in
the preamble to this NPRM. (See 57 FR 34352, Aug. 4, 1992; 63 FR 39936,
Jul. 24, 1998; 72 FR 27972, May 18, 2007; 72 FR 50889, Sep. 5, 2007; 81
FR 67438, Sept. 30, 2016; 89 FR 15366, March 1, 2024; 89 FR 90605,
November 18, 2024).
Subpart B--General Application Procedures
Sec. 98.16 Plan Provisions
Supply of child care. This NPRM proposes to amend Sec. 98.16(x)
and remove paragraphs (y) and (z) to align with the previous regulatory
language added in the 2016 final rule and conform with the proposed
changes at Sec. Sec. 98.30 and 98.50 to remove the requirement to use
some grants or contracts for direct services. The proposed change at
Sec. 98.16(x) would restore language from the 2016 final rule 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. Identification of supply gaps of high-quality care is
a critical step of building supply and quality for certain populations,
as required by the Act.
The proposed language at Sec. 98.16(x) is based on statutory
language at Section 658E(c)(2)(M) of the Act (42 U.S.C.
9858c(c)(2)(M)), which requires the Lead Agency to describe strategies
to increase the supply and improve the quality of child care services
for children in underserved areas, infants and toddlers, children with
disabilities, and children who receive care during nontraditional
hours. As described in the Act, the strategies may include alternative
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. In addition to alternative payment rates and contracts, Lead
Agencies may consider other strategies, including training and
technical assistance to child care providers to increase quality for
these types of care.
With these proposed changes, Sec. 98.16(aa) through (ll) would be
redesignated as Sec. 98.16(y) through (jj).
Payment practices. The NPRM proposes minor changes to language at
Sec. 98.16(ee) (redesignated as Sec. 98.16(cc)) to match the language
of the 2016 final rule and conform with changes made at Sec. 98.45(m).
The revised provision requires Lead Agencies to describe in their CCDF
Plans payment practices applicable to child care providers receiving
CCDF, pursuant to Sec. 98.45(m), including practices to ensure timely
payment for services, to delink provider payments from children's
occasional absences to the extent practicable, and to reflect generally
accepted payment practices.
Subpart D--Program Operations (Child Care Services) Parental Rights and
Responsibilities
Sec. 98.30 Parental Choice
This NPRM proposes to rescind the requirement at Sec. 98.30(b)(1)
for States and Territories to provide some portion of the delivery of
direct services via grants or contracts, including at a minimum for
children in underserved geographic areas, infants and toddlers, and
children with disabilities. The current requirement to use some grants
or contracts for direct child care services was added in the March 2024
final rule. 89 FR 15381-83. These requirements are administratively
burdensome and too restrictive to allow States to manage the CCDF
program in a manner that appropriately addresses their supply needs.
Based on the FFY 2025-2027 CCDF State and Territory Plans, the vast
majority of States and Territories have not implemented grants or
contracts for child care services that met the specific requirements
previously included in the CCDF regulations. As of October 1, 2024,
only six States and one territory had implemented grants or contracts
for children with disabilities, 10 States and one Territory had
implemented grants or contracts for infants and toddlers, and nine
States had implemented grants or contracts for children in underserved
geographic regions.
The Act requires that a State CCDF Plan provide assurances that
parents participating in CCDF be offered ``the option either- to enroll
such child with a child care provider that has a grant or contract for
the provision of such services; or to receive a child care
certificate.'' 42 U.S.C. 9858c(c)(2)(A). Therefore, this proposed
rescission would not impact a Lead Agency's
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ability to choose to use grants or contracts for direct services.
Subpart E--Program Operations (Child Care Services) Lead Agency and
Provider Requirements
Sec. 98.45 Equal Access
Demonstrating Affordable Co-Payments. The NPRM proposes a
conforming change at Sec. 98.45(b)(5) to remove the requirement for
Lead Agencies to describe in their CCDF Plans how co-payments ``do not
exceed 7 percent of income for all families.'' Lead Agencies would
still be required to demonstrate in their CCDF Plan how their co-
payments are based on a sliding fee scale and are not a barrier to
families receiving CCDF assistance. This proposed change aligns with
the proposed elimination of the requirement at Sec. 98.45(l)(3) to
limit family co-payments to 7 percent of family income.
Family Co-payments. The NPRM at Sec. 98.45(l)(3) proposes to
rescind the requirement for States, Territories, and Tribes to
establish co-payment policies for families that are ``not to exceed 7
percent of income for all families, regardless of the number of
children in care who may be receiving CCDF assistance.'' Section
658E(c)(5) of the Act requires Lead Agencies to establish and
periodically revise a sliding fee scale that provides for cost sharing
(i.e., co-payment) that is ``not a barrier to families receiving'' CCDF
assistance. 42 U.S.C. 9858c(c)(5). The Act does not specify what
constitutes ``a barrier.'' The preamble of the 2016 final rule noted
that ``Lead Agencies have flexibility in establishing their sliding fee
scales and determining what constitutes a cost barrier for families''
and established 7 percent as the federal benchmark \3\ for an
affordable co-payment for families receiving CCDF. 81 FR 67515. Despite
no additional data indicating that co-payments above 7-percent were a
barrier, the March 2024 final rule transformed that 7 percent federal
benchmark into a requirement for all States, Territories, and Tribes.
89 FR 15387-90. This lack of evidence therefore does not support
turning a non-enforceable federal benchmark into a requirement.
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\3\ The benchmark is based on data from the U.S. Census Bureau
that showed on average families spent 7 percent of income on child
care, and that poor families on average spent 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.
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This NPRM proposes to revert to the statutory language that matches
the 2016 final rule requirement. Based on FFY 2025-2027 CCDF State and
Territory Plan data, 22 States and one Territory do not limit all co-
payments to 7 percent or less of family income. By rescinding the
requirement to cap co-payments to 7 percent of a family's income, this
NPRM supports State and Territory flexibility to determine what is
affordable and what constitutes a barrier for the CCDF families they
serve. Reverting to the statutory and 2016 final rule language would
not impact Lead Agencies' ability to limit co-payments to 7 percent of
a family's income or adopt a lower threshold that supports
affordability.
The NPRM proposes to remove Sec. 98.45(n)(5) which currently
requires States and Territories to demonstrate in their CCDF Plan how
they are ensuring they are not reducing the total payment (subsidy
payment amount and co-payment) given to child care providers when
implementing the requirement to limit co-payments to 7 percent of
family income and the option of waiving co-payments for some families.
A more detailed discussion of this proposed deletion is later in this
preamble at the section titled Restructuring to Align with Previous
Regulations, detailing changes to Sec. 98.45(n).
Payment Practices. This NPRM proposes to rescind the requirements
at Sec. 98.45(m) for States and Territories to pay providers
prospectively and by authorized enrollment. These requirements were
added in the March 2024 final rule. 89 FR 15391-93. Lead Agency payment
practices are an important aspect of ensuring families participating in
CCDF have equal access to care as private pay families. Payment
practices also support the ability of providers to participate in CCDF
so that parents have choice in affordable child care options for their
children. The proposed rescissions would give States and Territories
more options for establishing provider payment practices that better
balances the need for providers to receive stable payments to support
parental choice while limiting burden on States and Territories.
Timely Payments to Providers. The NPRM proposes to amend language
at Sec. 98.45(m)(1) to eliminate the requirement for States and
Territories to pay providers in advance of or at the beginning of
delivery of child care services, commonly referred to as prospective
payments. Section 658E(c)(4)(B)(iv) of the Act (42 U.S.C.
9858c(c)(4)(B)(iv)) requires Lead Agencies to describe how they will
provide for the timely payment for child care services provided by CCDF
funds. To better ensure timely payments and meet statutory
requirements, this NPRM proposes returning to the requirement of the
2016 final rule which gives Lead Agencies the option to either pay
prospectively prior to the delivery of services or pay providers
retrospectively within no more than 21 calendar days of the receipt of
a complete invoice for services. This proposed change supports Lead
Agency flexibility to determine the timely payment policies and
procedures most appropriate for the State or Territory's context. Based
on FFY 2025-2027 CCDF State and Territory Plan data, 45 states and four
Territories do not pay all provider types prospectively. The proposed
changes would not impact a Lead Agency's ability to choose to pay
providers prospectively, and Lead Agencies that currently pay providers
in advance of delivering child care services may continue to do so.
The proposed change to allow Lead Agencies to pay child care
providers on a reimbursement basis supports Lead Agency flexibility and
addresses concerns about the systems changes needed to implement
prospective payments, which HHS estimated could cost up to $10 million
each year in the first two years of implementation. This NPRM proposes
to require payment within 21 days of receiving a completed invoice for
services. The 21-day deadline was established in the 2016 CCDF final
rule. 81 FR 67516-17. However, some child care providers continue to
express concerns about receiving payments so long after services were
provided and noted they sometimes choose not to participate in CCDF or
limit the number of children receiving CCDF that they will care for
because of delays in payments, harming parental choice.\4\ Therefore,
we request comment on whether a different deadline, such as seven days
or 14 days after receiving a completed invoice, would more effectively
balance the need to provide Lead Agency flexibility while also
supporting provider stability.
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\4\ U.S. Department of Health and Human Services. Office of the
Inspector General. (August 2019). States' Payment Rates Under the
Child Care and Development Fund Program Could Limit Access to Child
Care Providers (Report in Brief OEI-03-15-00170). https://oig.hhs.gov/oei/reports/oei-03-15-00170.pdf.
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Delinking Payments from Absences. The NPRM proposes to eliminate
the requirement at Sec. 98.45(m)(2) for States and Territories to base
payments on a child's authorized enrollment and would return to the
options included in the 2016 final rule. By returning to previous
regulatory language, Lead Agencies would have more options to meet the
statutory requirement at Section 658E(c)(2)(S)(ii) of the Act (42
U.S.C. 9858c(c)(2)(S)(ii)) to support the fixed costs of providing
child care
[[Page 211]]
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. Paragraph 98.45(m)(2), as proposed,
would specify that Lead Agencies may meet this statutory requirement
by: (1) Paying providers based on a child's enrollment, rather than
attendance; (2) providing a full payment to providers as long as a
child attends for 85 percent of the authorized time; (3) providing full
payment to providers as long as a child is absent for five or fewer
days in a four week period; or (4) establishing an alternative approach
justified in the CCDF Plan. Based on FFY 2025-2027 CCDF State and
Territory Plan data, 28 States and one Territory do not pay all
provider types based on enrollment. The proposed changes would not
impact a Lead Agency's ability to choose to pay providers based on a
child's authorized enrollment, and Lead Agencies that currently pay
providers based on enrollment may continue to do so.
This NPRM proposes to provide additional flexibility for Lead
Agencies in how they meet the requirement to delink provider payments
from absence days by reverting to the four options established in the
2016 final rule. In the time since publication of the 2016 final rule,
child care providers have expressed that the uncertainty of whether
they will be paid for a child's absence days makes it difficult to
budget and manage business expenses, leading them to opt-out of
participating in the CCDF program.\5\ State subsidy policies like
paying for absence days can increase revenue and improve budget
stability for child care programs. These policies may result in higher
rates of participation in the CCDF program among providers, leading to
more choices for families using CCDF voucher payments for care.\6\ As
with timely payments, we are seeking comment on whether a different
number of paid absences, such as ten days instead of five days in a
month, and/or different attendance rate, such as 75 percent of
authorized time instead of 85 percent of authorized time, would
increase child care provider participation in the CCDF program, while
ensuring Lead Agency flexibility.
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\5\ U.S. Department of Health and Human Services. Office of the
Inspector General. (August 2019). States' Payment Rates Under the
Child Care and Development Fund Program Could Limit Access to Child
Care Providers (Report in Brief OEI-03-15-00170). https://oig.hhs.gov/oei/reports/oei-03-15-00170.pdf.
\6\ Slicker, G., Areizaga Barbieri, C., & Hustedt, J.T. (2023).
The Role of State Subsidy Policies in Early Education Programs'
Decisions to Accept Subsidies: Evidence from Nationally
Representative Data. Early Education and Development, 35(4), 859-
877. https://doi.org/10.1080/10409289.2023.2244859.
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Restructuring to Align with Previous Regulations. This NPRM
proposes to revise Sec. 98.45 to revert to the paragraph structure of
the 2016 final rule. First, the NPRM proposes to move language from the
introduction at Sec. 98.45(m) requiring provider payment practices to
reflect generally accepted payment practices to Sec. 98.45(m)(3). This
proposed change aligns with regulatory language in the 2016 final rule,
which included this text when describing the requirement to pay
providers based on a part-time or full-time basis and to pay for
reasonable mandatory fees. This paragraph structure change would not
change requirements related to paying providers on a part-time or full-
time basis or to pay for reasonable mandatory fees. Second, the NPRM
would remove language at Sec. 98.45(n)(4) that indicates Lead Agencies
are able to take ``precautionary measures when a provider is suspected
of fiscal mismanagement.'' This language was added to clarify
flexibility available to States and Territories to adjust policies for
required prospective payments and paying by enrollment when providers
are suspected of fraud. Given this NPRM proposes to give States and
Territories more flexibility with payment practices, the language will
not be necessary once these changes are finalized. Lead Agencies would
have sufficient flexibility in the revised regulatory language for
payment practices to adjust payment policies in response to suspected
provider fraud. Lastly, the NPRM proposes to remove paragraphs Sec.
98.45(n)(4) and (5), combine Sec. 98.45(m)(3) and (4) under a revised
Sec. 98.45(m)(3), and redesignate the provisions at Sec. 98.45(n)(1)-
(3) as Sec. 98.45(m)(4)-(6).
Clarification on Total Payment to Providers. The NPRM proposes to
remove language at Sec. 98.45(n)(5) to require Lead Agencies to
demonstrate in their CCDF Plan that the total payment to a provider
(subsidy payment amount and family co-payment) is not impacted by cost-
sharing policies. In other words, Lead Agencies had to describe how the
provider's subsidy payment would not decrease because of the lower
family co-payments. This clarification was included in the March 2024
final rule in response to comments on the requirement at Sec.
98.45(l)(3) to limit family co-payments to 7 percent of family income
and concerns that reductions in family co-payments could reduce the
amount received by child care providers. Given that the proposed
changes would remove the requirement for States and Territories to
limit family co-payments to 7 percent of family income, this
clarification would no longer be needed. Lead Agencies would continue
to be required to set payment rates at levels that provide CCDF
families equal access to child care services that are comparable to
care provided to children whose parents are not eligible for CCDF.
Subpart F--Use of Child Care and Development Funds
Sec. 98.50 Child Care Services
This NPRM proposes to revise Sec. 98.50(a)(3) by deleting
``including grants or contracts for slots for children in underserved
geographic areas, for infants and toddlers, and children with
disabilities. Grants solely to improve the quality of child care
services like those in (b) of this section would not satisfy the
requirements at Sec. 98.30(b).'' This proposed deletion conforms with
the proposed rescission at Sec. 98.30(b), discussed earlier in this
preamble, that would remove the requirement for Lead Agencies to
provide some child care services through grants or contracts.
This NPRM also proposes conforming changes at Sec. 98.50(b) by
deleting ``the following designated amounts cannot be used to satisfy
the requirements at Sec. 98.30(b)'' from the introductory language and
deleting (b)(4) completely. This regulatory language would no longer be
relevant if the proposed change to remove the requirement for grants or
contracts is finalized.
Subpart I--Indian Tribes
This subpart addresses requirements and procedures for Indian
Tribes and Tribal organizations applying for or receiving CCDF funds
and serves as the Tribal summary impact statement as required by
Executive Order 13175.\7\ The proposed amendments in this subpart are
conforming changes and would not change requirements for Tribal CCDF
Lead Agencies.
---------------------------------------------------------------------------
\7\ https://www.federalregister.gov/documents/2000/11/09/00-29003/consultation-and-coordination-with-indian-tribal-governments.
---------------------------------------------------------------------------
Sec. 98.81 Application and Plan Procedures and Sec. 98.83
Requirements for Tribal Programs
Paragraphs 98.81(b)(6) and 98.83(d)(1) specify from which
provisions all Tribal Lead Agencies are exempted. All Tribal Lead
Agencies are already exempted from the previous requirement to provide
some direct services through grants or contracts. Because this NPRM
would rescind the requirements for States and Territories to provide
services through grants or contracts, the provisions exempting Tribal
Lead
[[Page 212]]
Agencies from the requirement would no longer be necessary. Therefore,
this NPRM proposes to remove Sec. Sec. 98.81(b)(6)(x), 98.83(d)(1)(i),
and 98.83(d)(1)(x).
The NPRM does not propose changes to Sec. 98.83(d)(1)(vi), which
exempts all Tribal Lead Agencies from the requirement for a sliding fee
scale at Sec. 98.45(l). However, as discussed above, the proposed
change would remove the requirement for Tribal Lead Agencies with
medium and large allocations that choose to implement cost-sharing and
require family co-payments for their CCDF programs to cap family co-
payments to 7 percent of the family's income. Currently, no Tribal Lead
Agencies with medium or large allocations set their family co-payments
above 7 percent of the family's income. Therefore, this proposed change
would have no immediate impact on Tribal Lead Agencies. Tribes with
small allocations were already exempt from the requirement to limit
family co-payments to 7 percent of income. If the proposed change is
finalized, all Tribal Lead Agencies would have maximum flexibility in
establishing those co-payment amounts.
V. Regulatory Process Matters
Paperwork Reduction Act
Under the Paperwork Reduction Act of 1995 (44 U.S.C. 3501 et seq.,
as amended) (PRA), all Departments are required to submit to the Office
of Management and Budget (OMB) for review and approval any reporting or
recordkeeping requirements inherent in a proposed or final rule. As
required by this Act, we will submit any proposed revised data
collection requirements to OMB for review and approval.
The proposed changes would modify the previously approved ACF-118
CCDF State and Territory Plan information collection, but ACF has not
yet initiated the OMB approval process to implement these changes. ACF
will publish a Federal Register notice soliciting public comment on
specific revisions to this information collection and the associated
burden estimate and will make available the proposed form and
instructions for review.
----------------------------------------------------------------------------------------------------------------
Relevant section in OMB control Expiration
CCDF title/code the proposed rule No. date Description
----------------------------------------------------------------------------------------------------------------
ACF-118 (CCDF State and Territory Sec. 98.16 (and 0970-0114 03/31/2027 The NPRM proposes to
Plan). related provisions). rescind requirements
which States and
Territories are
required to report
in the CCDF Plans.
----------------------------------------------------------------------------------------------------------------
The table below provides current approved annual burden hours and
estimated annual burden hours for the existing information collection
that would be impacted if the proposed changes are finalized.
Annual Burden Estimates
--------------------------------------------------------------------------------------------------------------------------------------------------------
Current
Total number Total number of approved Estimated average Estimated annual
Instrument of responses per average burden Current annual burden hours per burden hours
respondents respondent hours per burden hours response based on based on NPRM
response NPRM
--------------------------------------------------------------------------------------------------------------------------------------------------------
ACF-118 (CCDF State and Territory Plan).......... 56 0.33 150 2,800 150 2,800
--------------------------------------------------------------------------------------------------------------------------------------------------------
Executive Order 13132
Executive Order 13132 requires federal agencies to consult with
State and local government officials if they develop regulatory
policies with federalism implications. Federalism is rooted in the
belief that issues that are not national in scope or significance are
most appropriately addressed by the level of government close to the
people. This proposed rule would not have substantial direct impact on
the States, on the relationship between the federal government and the
States, or on the distribution of power and responsibilities among the
various levels of government. This NPRM would not pre-empt State law.
The changes proposed in the NPRM are increasing flexibilities in
administering the CCDF program. Therefore, in accordance with section 6
of Executive Order 13132, it is determined that this action does not
have sufficient federalism implications to warrant the preparation of a
federalism summary impact statement.
Assessment of Federal Regulations and Policies on Families
Assessment of Federal Regulations and Policies on Families Section
654 of the Treasury and General Government Appropriations Act of 1999
(Pub. L. 105-277) requires federal agencies to determine whether a
policy or regulation may negatively affect family well-being. If the
agency determines a policy or regulation negatively affects family
well-being, then the agency must prepare an impact assessment
addressing seven criteria specified in the law. HHS believes it is not
necessary to prepare a family policymaking assessment because the
actions proposed in this NPRM will not have any impact on the autonomy
or integrity of the family as an institution.
VI. Regulatory Impact Analysis
Introduction
We have examined the impacts of the NPRM under Executive Order
12866, Executive Order 13563, Executive Order 14192, the Regulatory
Flexibility Act (5 U.S.C. 601 et seq.), and the Unfunded Mandates
Reform Act of 1995 (2 U.S.C. 1531 et seq.).
Executive Orders 12866 and 13563 direct us to assess all benefits
and costs of available regulatory alternatives and, when regulation is
necessary, to select regulatory approaches that maximize net benefits.
This proposed rule was determined to be significant under Section 3(f)
of Executive Order 12866. Executive Order 14192 requires that any new
incremental costs associated with significant new regulations ``shall,
to the extent permitted by law, be offset by the elimination of
existing costs associated with at least ten prior regulations.'' This
NRPM is considered an E.O. 14192 deregulatory action. We estimate that
[[Page 213]]
this NPRM will generate $6.1 million in annualized cost savings at a 7
percent discount rate, discounted relative to year 2024, over a
perpetual time horizon.
The Regulatory Flexibility Act (RFA) requires agencies to consider
the impact of their regulatory proposals on small entities. Consistent
with certification of the March 2024 final rule, the Secretary
certifies that the changes proposed by this NPRM would not have a
significant economic impact on a substantial number of small entities.
The Unfunded Mandates Reform Act of 1995 (UMRA) generally requires
that each agency conduct a cost-benefit analysis; identify and consider
a reasonable number of regulatory alternatives; and select the least
costly, most cost-effective, or least burdensome alternative that
achieves the objectives of the rule before promulgating any proposed or
final rule that includes a Federal mandate that may result in
expenditures of more than $100 million (adjusted for inflation) in at
least one year by State, local, and Tribal governments, in the
aggregate, or by the private sector. Each agency issuing a rule with
relevant effects over that threshold must also seek input from State,
local, and Tribal governments. The current threshold after adjustment
for inflation is $187 million, using the most current (2024) Implicit
Price Deflator for the Gross Domestic Product. This NPRM will not
result in an expenditure in any year that meets or exceeds this amount.
Background and Summary of Economic Impacts
On July 13, 2023, ACF published a notice of proposed rulemaking
(NPRM) that proposed revisions to Child Care and Development Fund
(CCDF) regulations.\8\ After considering the public comments, on March
1, 2024, ACF published a published a final rule that made regulatory
changes to CCDF (``March 2024 final rule''),\9\ which contained a
regulatory impact analysis (2024 RIA) that reported monetary estimates
of the economic impacts. Through this NPRM, ACF is proposing to rescind
or modify several of the mandatory provisions of the March 2024 final
rule including those relating to enrollment-based payment, 7 percent
cap on co-payments, prospective payments, and grants or contracts for
direct services. As a starting point for analyzing the impact of this
NPRM, we adopt the estimated economic impacts in the March 2024 final
rule as capturing the baseline scenario of no further regulatory
action. Table 1 reports yearly transfers and costs associated with the
relevant requirements of the March 2024 final rule.\10\ While the
prospective payments policy does not appear as a separate line item in
this analysis, its impacts were accounted for in the ``systems'' cost
estimate included in the March 2024 final rule.
---------------------------------------------------------------------------
\8\ Office of Child Care, Administration for Children and
Families, Department of Health and Human Services. July 13, 2023.
``Improving Child Care Access, Affordability, and Stability in the
Child Care and Development Fund (CCDF)'' notice of proposed
rulemaking. Federal Register. 88 FR 45022.
\9\ Office of Child Care, Administration for Children and
Families, Department of Health and Human Services. March 1, 2024.
``Improving Child Care Access, Affordability, and Stability in the
Child Care and Development Fund (CCDF)'' final rule. Federal
Register. 89 FR 15366.
\10\ These estimates replicate Table 3 of the 2024 RIA, with all
dollar values adjusted to 2024 dollars using the GDP deflator.
Bureau of Economic Analysis. National Income and Product Accounts.
Table 1.1.9. Implicit Price Deflators for Gross Domestic Product.
April 30, 2025 revision.
Table 1--Relevant Requirements in the March 2024 Final Rule, Transfers and Costs
----------------------------------------------------------------------------------------------------------------
2025 2026 2027 2028 2029
----------------------------------------------------------------------------------------------------------------
Transfers by Year:
Enrollment-based Payment.... $8.8 $8.8 $17.5 $17.5 $17.5
7% Co-Payment Cap........... 8.4 8.4 16.7 16.7 16.7
-------------------------------------------------------------------------------
Total Transfers......... 17.2 17.2 34.2 34.2 34.2
Costs by Year:
Grants and Contracts........ 3.3 3.3 6.5 6.5 6.5
Systems..................... 10.9 10.9 0.0 0.0 0.0
-------------------------------------------------------------------------------
Total Costs............. 14.2 14.2 6.5 6.5 6.5
----------------------------------------------------------------------------------------------------------------
By rescinding and modifying specific regulations added by the March
2024 final rule, this NPRM would prevent the occurrence of the
estimated transfers and costs reported in the 2024 RIA, with the
exception of the anticipated economic impacts in the first year. For
the purposes of this analysis, we assume those impacts have already
occurred and cannot be recovered, or did not occur as the result of a
temporary transitional waiver of the requirements granted to some
States. Thus, when considering the economic impacts of this NPRM, we do
not report any impacts on transfers or costs in 2025. In subsequent
years, we report the inverse of the monetary estimates identified in
Table 1 as the impacts of the NPRM. Table 2 reports these estimates,
where negative costs represent cost savings, and negative transfers
represent a reversal of the direction of transfers compared to the 2024
RIA. In this context, transfers under the March 2024 final rule that
represented increases in Lead Agency payments to child care providers
represent reductions in Lead Agency payments to child care providers.
Table 2--Economic Impacts of the Proposed Changes
----------------------------------------------------------------------------------------------------------------
Year 2025 2026 2027 2028 2029
----------------------------------------------------------------------------------------------------------------
Total Transfers................. $0.0 -$17.2 -$34.2 -$34.2 -$34.2
Total Costs..................... 0.0 -14.2 -6.5 -6.5 -6.5
----------------------------------------------------------------------------------------------------------------
[[Page 214]]
Over a 5-year time horizon covering 2025 through 2029, we estimate
annualized transfers of -$23.4 million using a 3-percent discount rate
and -$22.8 using a 7 percent discount rate; and annualized costs of -
$6.7 million using a 3-percent discount rate and -$6.6 million using a
7 percent discount rate. To produce an estimate of cost savings under
E.O. 14192, we assume the impacts of the proposed changes on costs in
2029 will extend in perpetuity. We estimate that this NPRM will
generate $6.1 million in annualized cost savings at a 7 percent
discount rate, discounted relative to year 2024, in perpetuity.
VII. Tribal Consultation Statement
Executive Order 13175, Consultation and Coordination with Indian
Tribal Governments, requires agencies to consult with Indian Tribes
when regulations have substantial direct effects on one or more Indian
tribes, on the relationship between the Federal government and Indian
tribes, or on the distribution of power and responsibilities between
the Federal Government and Indian Tribes. The discussion in subpart I
in section IV of the preamble serves as the Tribal impact statement. We
intend to notify Tribal Lead Agencies about the opportunity to provide
comment on the NPRM no later than the day of publication.
(Catalog of Federal Domestic Assistance Program Number 93.575, Child
Care and Development Block Grant; 93.596, Child Care Mandatory and
Matching Funds)
List of Subjects in 45 CFR Part 98
Child care, Grant programs-social programs.
For the reasons set forth in the preamble, ACF proposes to amend 45
CFR part 98 as follows:
PART 98--CHILD CARE AND DEVELOPMENT FUND
0
1. The authority citation for part 98 is revised to read:
Authority: 42 U.S.C. 618, 9857 et seq.
* * * * *
0
2. Amend Sec. 98.16 by:
0
a. Revising paragraph (x);
0
b. Removing paragraphs (y) and (z);
0
c. Redesignating paragraphs (aa) through (ll) as paragraphs (y) through
(jj): and,
0
d. Revising newly redesignated paragraph (cc).
The revisions read as follows:
Sec. 98.16 Plan provisions.
* * * * *
(x) A description of the Lead Agency's strategies (which may
include alternative payment rates to child care providers, the
provision of direct grants or contracts, offering child care
certificates, or other means) to increase the supply and improve the
quality of child care services for children in underserved areas,
infants and toddlers, children with disabilities as defined by the Lead
Agency, and children who receive care during nontraditional hours,
including whether the Lead Agency plans to use grants and contracts in
building supply and how supply-building mechanisms will address the
needs identified. The description must identify shortages in the supply
of high-quality child care providers, list the data sources used to
identify shortages, and describe the method of tracking progress to
support equal access and parental choice. If the Lead Agency chooses to
employ grants and contracts to meet the purposes of this section, the
Lead Agency must provide CCDF families the option to choose a
certificate for the purpose of acquiring care;
* * * * *
(cc) A description of payment practices applicable to providers of
child care services for which assistance is provided under this part,
pursuant to Sec. 98.45(m), including practices to ensure timely
payment for services, to delink provider payments from children's
occasional absences to the extent practicable, and to reflect
generally-accepted payment practices;
* * * * *
0
3. Amend Sec. 98.30 by revising paragraph (b) to read as follows:
Sec. 98.30 Parental choice.
* * * * *
(b) When a parent elects to enroll the child with a provider that
has a grant or contract for the provision of child care services, the
child will be enrolled with the provider selected by the parent to the
maximum extent practicable.
* * * * *
0
4. Amend Sec. 98.45 by:
0
a. Revising paragraphs (b)(5), (l)(3), and (m); and
0
b. Removing paragraph (n).
The revisions read as follows:
Sec. 98.45 Equal access.
* * * * *
(b) * * *
(5) How co-payments based on a sliding fee scale are affordable, as
stipulated at paragraph (l) of this section; if applicable, a rationale
for the Lead Agency's policy on whether child care providers may charge
additional amounts to families above the required family co-payment,
including a demonstration that the policy promotes affordability and
access; analysis of the interaction between any such additional amounts
with the required family co-payments, and of the ability of subsidy
payment rates to provide access to care without additional fees; and
data on the extent to which CCDF providers charge such additional
amounts (based on information obtained in accordance with paragraph
(d)(2) of this section);
* * * * *
(l) * * *
(3) Provides for affordable family co-payments that are not a
barrier to families receiving assistance under this part; and
* * * * *
(m) The Lead Agency shall demonstrate in the Plan that it has
established payment practices applicable to all CCDF child care
providers that:
(1) Ensure timeliness of payment by either:
(i) Paying prospectively prior to the delivery of services; or
(ii) Paying within no more than 21 calendar days of the receipt of
a complete invoice for services.
(2) To the extent practicable, support the fixed costs of providing
child care services by delinking provider payments from a child's
occasional absences by:
(i) Paying based on a child's enrollment rather than attendance;
(ii) Providing full payment if a child attends at least 85 percent
of the authorized time;
(iii) Providing full payment if a child is absent for five or fewer
days in a month; or,
(ii) An alternative approach for which the Lead Agency provides a
justification in its Plan.
(3) Reflect generally accepted payment practices of child care
providers that serve children who do not receive CCDF subsidies, which
must include (unless the Lead Agency provides evidence that such
practices are not generally-accepted in the State or service area):
(i) Paying on a part-time or full-time basis (rather than paying
for hours of service or smaller increments of time); and
(ii) Paying for reasonable mandatory registration fees that the
provider charges to private-paying parents.
(4) Ensure child care providers receive payment for any services in
accordance with a written payment agreement or authorization for
services that includes, at a minimum, information regarding payment
policies, including rates, schedules, any fees charged to providers,
and the dispute
[[Page 215]]
resolution process required by paragraph (m)(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; and,
(6) Include timely appeal and resolution processes for any payment
inaccuracies and disputes.
0
5. Amend Sec. 98.50 by:
0
a. Revising paragraphs (a)(3);
0
b. Revising paragraph (b) introductory text; and
0
c. Removing paragraph (b)(4).
The revisions and addition read as follows:
Sec. 98.50 Child care services.
(a) * * *
(3) Using funding methods provided for in Sec. 98.30; and
* * * * *
(b) * * *
(4) [Removed]
* * * * *
0
6. Amend Sec. 98.81 by:
0
a. Removing paragraph (b)(6)(x);
0
b. Redesignation (b)(6)(xi) and (b)(6)(xii) as (b)(6)(x) and
(b)(6)(xi); and,
0
c. Revising newly redesignated (b)(6)(xi).
Sec. 98.81 Application and Plan procedures.
* * * * *
(b) * * *
(6) * * *
(xi) The description of provider payment practices at Sec.
98.16(cc).
* * * * *
0
7. Amend Sec. 98.83 by:
0
a. Removing (d)(1)(i);
0
b. Redesignating (d)(1)(ii) to (d)(1)(ix) as (d)(1)(i) to (d)(1)(viii);
0
c. Removing (d)(1)(x); and,
0
c. Redesignating (d)(1)(xi) to (d)(1)(xiv) as (d)(1)(ix) to
(d)(1)(xii).
Robert F. Kennedy, Jr.,
Secretary, Department of Health and Human Services.
[FR Doc. 2025-24272 Filed 1-2-26; 8:45 am]
BILLING CODE 4184-87-P