North Carolina Alternative Market Rate Study and Cost Model Development

Four children of about 1 years of age seated on a play mat and playing with toys

In North Carolina, like many states, child care subsidies are currently based on the “market rate,” which is the amount that child care programs charge parents for child care services. Market rates represent what families in the area can afford to pay, not necessarily what child care services actually costs to provide. North Carolina is exploring alternative ways to set the child care subsidy rate to better meet federal guidelines and the needs of the state’s child care landscape. 

Researchers from AIR’s Center for Economic Evaluation supported the state’s efforts by developing three alternative models in consultation with the Division of Child Development and Early Education. AIR described the potential benefits and drawbacks of each model, recommended a single model with the highest likelihood of increasing equity of child care access and stabilizing the field of child care, and made other recommendations to enhance the state’s existing child care system. 

AIR also developed North Carolina Child Care Cost Estimation Tool (NC CCCET) to inform state decisions around child care policies, including setting the subsidy rate. As a part of the study, AIR leveraged the following critical data sources to increase the transparency around the development of this comprehensive cost-estimation model: 

  • Focus groups and surveys of child care provider across the state;
  • Subsidy administrator surveys;
  • Discussions with the state’s Subsidy Advisory Committee;
  • Discussions with a National Advisory Group, including experts from child care policy, banking, healthcare, military operations, and the Chamber of Commerce Foundation;
  • Extant literature; and
  • Publicly available pricing databases.