CCDF State Plans are coming! In just over a year (summer ‘27), each state will need to lay out its plans for the next phase of its child care subsidy program, funded by the federal Child Care Development Fund (CCDF).

CCDF State Plans must be submitted every three years, although states can also make updates and changes in between deadlines. The state plan is an opportunity for state leadership to reflect on their child care subsidy program’s direction and lay out their priorities for the coming cycle. For advocates, it is an opportunity to push the state to demonstrate progress on shared goals.

This series is designed to support states preparing their CCDF State Plans, with a focus on payment rates and cost analysis.

Before we get into the nuances of this series, we need to cover some basics. If you work in ECE policy daily, some of this will feel familiar, but we think it’s worth taking time to lay out some definitions to get us all on the same page.

How childcare subsidies work

CCDF is the largest federal funding source that helps low-income working families pay for child care. It is a needs-based program for families meeting income and work/activity eligibility requirements. In the early childhood ecosystem, it exists alongside other funding sources such as private tuition, employer-sponsored benefits, philanthropy, Head Start, and state pre-K. The federal government sends money to states, and states distribute most of it as subsidies that families can use at a provider of their choice. States also use some funds for quality improvement and Child Care Resource and Referral agencies.

Every three years, states submit a plan to the federal government describing how their program works. That plan covers three areas:

1. Eligibility and Access (e.g. who qualifies, copayment structures),
2. Health, Safety, and Quality standards (e.g. licensing, provider qualifications, quality investments), and
3. Payment Rates and Cost Analysis (e.g. how the state determines what it pays providers).

This series helps state-level decision makers answer key questions on the third area: how states set payment rates and the methodology behind those decisions.

How Rates Have Traditionally Been Set

For decades, subsidy rates have been tied to the Market Rate Survey. States survey child care providers on what they charge families in private tuition. For instance, if a suburban Denver center charges private-pay families $1,600 per month for infant care, that number goes into the survey. Aggregate thousands of those data points statewide and you get a picture of the market. The federal benchmark has been to set subsidy rates at the 75th percentile, meaning a family with a subsidy could theoretically access 75% of providers in their area. Most states have never hit that benchmark, but that’s the target.

The problem is well documented at this point. Providers don’t set their prices based on what care costs to deliver. They set prices based on what parents in their community can afford to pay. In lower-income areas, tuition is lower not because care is cheaper to provide, but because families have less money. Staff in those programs earn less, margins are thinner, and the mortgage still needs to get paid.

The Market Rate Survey measures price. Price does not equal cost. Setting subsidy rates based on price bakes in the inequity.

The Historical Path to Cost + The Newest Guidance

In 2014, Congress recognized this gap and amended the Child Care and Development Block Grant Act to allow states to set rates using an “alternative methodology, such as a cost estimation model” instead of the Market Rate Survey. The idea is straightforward: figure out what it actually costs to run a quality childcare program and staff it appropriately, then set rates from that number. There are now 12 jurisdictions that have adopted federally approved cost estimation models.

The most recent HHS guidance in January 2025 laid out explicit evaluation criteria that spell out what the federal government looks for when reviewing a cost-based methodology. This gives states a clearer path to understand what is expected if they choose to pursue the alternative methodology path.

Why This Plan Cycle is Different

Two things have converged to make the 2027 CCDF State Plan cycle more consequential than usual.

First, the economics. The last time states wrote their CCDF plans, $52.5 billion in federal pandemic relief was still flowing into child care. That money is now gone. Since then, provider liability insurance costs have risen 30-50% in some markets, and the childcare workforce still earns a median wage of just $15.41 per hour. Any cost analysis built on pre-2024 data is working from assumptions that no longer hold.

Second, the federal on-ramp. The January 2025 guidance removed real barriers to cost-based rate-setting. States that were uncertain about the process or skeptical of the administrative burden now have clearer answers than at any previous point.

The combination means states have both more reason and more opportunity to take cost-based rate-setting seriously this cycle. Whether that means pursuing a full alternative methodology or simply doing a more rigorous narrow cost analysis depends on where your state is starting from. This series will cover the different possible approaches and their pros and cons.

What this series will cover

Each post focuses on one question and closes with questions you can bring into your next meeting.

1. Should my state pursue alternative methodology, or can we get where we need to go on the standard path? We’ll break down when the administrative lift is worth it, when it isn’t, and how to frame the decision for your team.
2. How much field engagement does our approach require, and how do we go from field input to costs and rates? We’ll cover what meaningful provider engagement looks like and a three-step process for going from family needs to cost estimates.
3. How outdated is our last cost analysis, and what specifically needs to be updated? We’ll walk through the cost drivers that have shifted most since 2024 and help you assess what’s still usable and what isn’t.
4. Are there populations our cost model doesn’t account for that it should? We’ll look at children with disabilities in community-based settings, dual language learners, and children needing overnight, weekend, or extended hours care, and what it would take to build in the true costs of serving them.

Each post stands on its own. Together, they map what thoughtful preparation looks like over the next year, so that your state can enter the next three years with a meaningful and intentional approach.