American Relief Act (ARA) CCDF Discretionary Supplemental Funds
ACF-OCC-CCDF-IM-25-03
Information Memorandum
- Log No: ACF-OCC-CCDF-IM-25-03
- Issuance Date: January 14, 2025
- Originating Office: Office of Child Care
- Key Words: Child Care and Development Fund, CCDF, Fiscal Year (FY) 2025 funding
To
State, Territory, and Tribal Lead Agencies administering the Child Care and Development Fund (CCDF) program, as amended, and other interested parties.
Subject
Supplemental Child Care and Development Fund (CCDF) Non-Disaster Discretionary Funds Appropriated in the American Relief Act, 2025 (ARA; Public Law 118-158 (PDF)) signed into law December 21, 2024.
References
The Child Care and Development Block Grant (CCDBG) Act (42 U.S.C. 9857 et seq.); 45 CFR Parts 98 and 99; The American Relief Act, 2025 (ARA; Public Law 118-158).
Purpose
Provide an overview and guidance on the supplemental funding made available through the ARA.
Background
The ARA appropriated funding for child care through two funding streams. These include:
- $250,000,000 for supplemental CCDF Non-Disaster Discretionary funds, available until September 30, 2028.
- $250,000,000 for child care expenses directly related to major disasters and emergencies declared pursuant to the Robert T. Stafford Disaster Relief and Emergency Assistance Act (42 U.S.C. 5121 et seq.) occurring in calendar years 2023 and 2024, available until September 30, 2029.
Both funding streams have unique requirements and flexibilities. Therefore, the Office of Child Care (OCC) will be issuing separate guidance for each one. The information in each guidance document is only applicable to the funding stream discussed in the guidance, unless otherwise noted. This guidance applies to the CCDF Non-Disaster Discretionary funding.
Guidance
The Child Care and Development Fund (CCDF) program is a critical resource that lowers the cost of child care for 1.3 million children, each month improving family economic stability and well-being and supporting children’s development. Access to affordable high-quality child care strengthens families, communities, and America’s economy. High quality child care also provides enriching learning environments to support children’s well-being and development. CCDF ensures the health and safety of children in care, expands access to child care providers that meet families’ needs, and improves the quality of child care for all families.
CCDF program funds made available in the American Relief Act of 2025 (ARA) provide an important opportunity for states, territories, and Tribes to continue to make important improvements to the child care subsidy system to reduce costs for families, improve payment practices for child care providers, and make important systemic and technical upgrades so that providers are paid on time and families can more easily access subsidies. These policies reflect the requirements in the recent Final Rule. This IM is designed to help states, territories, and Tribes understand the flexibilities of these funds and to identify opportunities for Lead Agencies to leverage the ARA CCDF Discretionary supplemental funds ensure the CCDF program provides parents with the child care options they need at a price they can afford, pay providers using generally accepted practices, and comply with all CCDF requirements.
Funding
The supplemental CCDF Non-Disaster Discretionary grant funding in the ARA is in addition to the Fiscal Year (FY) 2025 appropriations levels and is meant to supplement, not supplant, other federal, state, and local public funds expended to provide child care services for eligible individuals. The ARA CCDF Non-Disaster Discretionary funds were awarded to CCDF Lead Agencies, as defined in the CCDBG Act, using the formula used to award CCDF Discretionary funding. Lead Agencies did not have to apply for these funds.
States
The ARA CCDF Non-Disaster Discretionary grants to states were allocated in the same manner as CCDF Discretionary funds are allocated to states, including the District of Columbia and Puerto Rico, based on a statutory formula that considers three factors: the number of children under age 5, the number of children qualifying for school lunch programs, and per capita income. States received $238,750,000 for supplemental grants under the ARA on January 13, 2025.
Territories
The CCDBG Act establishes the allocation for territories at up to ½ of 1 percent of the Discretionary allocation. Territories include American Samoa, the Commonwealth of the Northern Mariana Islands, Guam, and the U.S. Virgin Islands. In the same manner as CCDF Discretionary funds are allocated to territories, funding for ARA Discretionary grants was allocated among the territories based on a formula that considers the number of children under age 5 and per capita income. Territories received $1,250,000 for supplemental grants under the ARA on January 13, 2025.
Tribes
The CCDBG Act sets a statutory funding level of at least 2 percent of Discretionary funds for Tribal Lead Agencies. The Secretary has flexibility to set a higher level provided certain conditions are met. The Secretary has set the Tribal set-aside for Discretionary funds appropriated under the ARA at 3 percent. In the same manner as CCDF Discretionary funds are allocated to Tribes, funding for supplemental grants was allocated among Tribal Lead Agencies based on child counts. Tribal Lead Agencies were appropriated $7,500,000 for ARA CCDF Discretionary grants under the ARA on January 13, 2025.
Spending Flexibilities and Administrative Expenses
The ARA CCDF Discretionary supplemental funds are not subject to the minimum quality and infant and toddler set-sides or direct services spending requirements under section 658E(c)(3)(E) and 658G of the CCDBG Act (42 U.S.C. 9858c(c)(3)(E) and 9858e). The regular CCDF administrative cost cap (5 percent for states and territories and 15 percent for Tribes) applies to the aggregate amount of CCDF funds, including these supplemental funds (section 658E(c)(3)(C), 42 U.S.C. 9858c(c)(3)(C), 45 CFR 98.83(i)). While the ARA CCDF Discretionary supplemental funds are subject to the cap on administrative activities spending, certain activities integral to service delivery —such as the establishment and maintenance of computerized child care information—are not considered administrative costs and can be paid for with the ARA CCDF Discretionary supplemental funds. This flexibility provides tremendous potential for Lead Agencies to bring their systems and processes into compliance with the CCDF requirements.
Recommended Uses
OCC has identified several CCDF requirements that may benefit from the ARA CCDF Non-Disaster Discretionary supplemental funds to bring CCDF programs into full compliance with the regulations and help Lead Agencies meet the central purposes of the program.
Upgrading Systems to Align Provider Payments with Private Pay Practices
To ensure CCDF uses generally accepted payment practices to providers, which increases the ability of providers to serve children participating in CCDF, and improves parents’ choices in child care, Lead Agencies must pay providers in advance of or at the beginning of the delivery of services (45 CFR 98.45(m)(1)) and based on a child’s authorized enrollment (45 CFR 98.45(m)(2)). Updating provider payment processes may require planning and payment system changes, and can include costs of training child care providers on new billing software and processes. Ensuring payments are timely is particularly important for home-based child care providers because they operate on very thin margins and late payments may put them in a financially precarious position.
Implementing Grants or Contracts for Direct Services
To increase supply and parental choice, Lead Agencies must use some grants or contracts for direct services for children in underserved geographic areas, infants and toddlers, and children with disabilities (45 CFR 98.30(b)(1)). Lead Agencies that do not currently provide direct services through grants or contracts may face initial administrative and systems costs related to establishing a grants or contracts process or in assessing supply and expanding existing grants and contracts to these targeted groups.
Paying Child Care Providers Based on Cost of Providing Care
Lead Agencies must ensure that families receiving child care subsidies have equal access to the providers available to families who are not eligible for child care subsidies (45 CFR 98.45(a)). One way Lead Agencies can do this is to set subsidy payment rates closer to the actual cost of providing care based on actual operating costs. This amount may be higher than the price the provider charges private pay families, as child care prices are often constrained by what families in the community can afford to pay. This approach may require the Lead Agency to evaluate and compare current payment rates to the actual cost of care. These supplemental funds may be used to cover costs associated with completing cost of care studies as well as increasing payments to providers. Increasing rates to reflect operational costs improves families’ child care choices by expanding the pool of child care providers that can afford to accept subsidies. In addition, this approach can expand child care supply for all families by bolstering financial security for child care providers.
Lowering and Waiving Family Co-payments
Lead Agencies are required to periodically revise their family co-payment schedules (45 CFR 98.45(l)). OCC provided new flexibility to more easily waive co-payments for families living at or below 150 percent of the federal poverty level, families with children in foster and kinship care, families with children with disabilities, families experiencing homelessness, and children enrolled in Head Start or Early Head Start (45 CFR 98.45(l)(4)). Lead Agencies could use the ARA CCDF Discretionary supplemental funds to evaluate their effectiveness in serving these populations and ensuring that co-payments are not a barrier to accessing child care and revise their family co-payment schedules accordingly.
Reducing Bureaucracy for Families
Lead Agencies are required to develop procedures and policies that reduce bureaucracy for families applying for child care subsidies (45 CFR 98.21(f)). Lead Agencies may take a number of approaches that involve up-front costs, but in the long run will reduce bureaucracy for families, and ultimately reduce the costs of administering CCDF programs. For example, the ARA CCDF Discretionary supplemental funds could be used to develop and implement an online application that is accessible on mobile devices. Lead Agencies could also design a presumptive eligibility policy that allows families to begin receiving child care subsidies while the Lead Agency is processing their application. In addition, Lead Agencies could use the ARA CCDF Discretionary supplemental funds to identify bureaucratic barriers by learning more about the experiences of families and providers who interact with the subsidy program and fairly compensating these individuals for their input to make the system more consumer friendly.
Non-Supplantation Requirement
The ARA requires these supplemental funds be used to supplement, not supplant, federal, state, and local public funds expended to provide child care services for eligible individuals. The non-supplantation requirement also applies to territory and Tribal Lead Agencies. As this provision applies to federal funds, Lead Agencies may not supplant Temporary Assistance for Needy Families (TANF) funding used to pay for child care services, either directly or transferred to CCDF, or Social Services Block Grant (SSBG) funds used for child care. This means that Lead Agencies that spent TANF (either directly or transferred to CCDF) and SSBG for direct child care services in FY 2024 must spend the same amount in FY 2025-2027, unless a Lead Agency submits an accepted explanation for why a decrease in spending may not be supplantation. ACF oversight of this requirement will be consistent with monitoring, noncompliance, and complaint policies outlined in Subpart J of CCDF regulations. Additionally, Lead Agencies are subject to audit requirements at 45 CFR 98.65 of CCDF regulations.
ACF will consider a state, territory, or Tribe to have satisfied the “supplement not supplant” requirement if the state, territory, or Tribe has not made administrative or legislative changes to reduce the amount of federal, state, or local funds expended to provide child care services for eligible individuals below the amount that would have been spent under state, territory, or Tribal law and policies in place on the date of enactment of the ARA (December 21, 2024). If federal, state, or local funds for child care assistance fall below this amount, ACF will presume that such decrease constitutes supplantation, unless the state, territory, or Tribe can demonstrate that the reduction was unrelated to the availability of additional federal funds included in the ARA (e.g., states that made legislative or policy changes prior to the enactment of the ARA, but implemented these changes after December 21, 2024 are not considered to have violated the non-supplantation requirement). In addition, any reduction in drawing down CCDF federal matching funds due to a cut in state spending on Maintenance of Effort (MOE) or state match will trigger a presumption of supplantation. States, territories, or Tribes wishing to propose an alternative rationale demonstrating compliance with the non-supplantation requirement, including instances where TANF and SSBG spending declined, should submit a detailed justification in writing via email to the OCC regional program manager.
Making Changes to CCDF Plans and Policies
Lead Agencies must follow CCDF rules associated with CCDF Plan amendments when spending ARA CCDF Discretionary supplemental funds. A CCDF Plan amendment is required for any substantial program change (e.g., change in eligibility, rates, copays, etc.). A Plan amendment is required within 60 days of the effective date of the program change; Lead Agencies may proceed with implementing the program change and subsequently submit the amendment up to 60 days following the effective date.
Important Dates for Obligating and Liquidating Funds
All ARA CCDF Non-Disaster Discretionary supplemental funds must be:
- Obligated by states, territories, and Tribes by September 30, 2027 and
- Liquidated by states, territories, and Tribes by September 30, 2028.
The ARA requires CCDF Non-Disaster Discretionary supplemental funds to be obligated in FY 2025 or the succeeding two fiscal years. In other words, Lead Agencies must obligate supplemental funds by September 30, 2027. The ARA is silent on liquidation deadlines for the child care supplemental funds, therefore, CCDF Discretionary liquidation periods at 45 CFR 98.60(d)(1) apply. Lead Agencies have until September 30, 2028, to liquidate the funds.
Reallotment of Supplemental Funds
State and Tribal Lead Agencies must notify ACF by April 1, 2027, if they will be unable to obligate any part of their ARA CCDF Discretionary supplemental funding allotment1. In accordance with 45 CFR 98.64, in most cases, unobligated state funds identified by the April 1 deadline will be reallotted to other states in proportion to their original allotments, and any unobligated Tribal funds will be reallotted to other Tribes. To be eligible to receive reallotted funds, states must indicate their interest on their ACF-696 quarterly report due April 30, 2027 and Tribes must indicate their interest on their annual ACF-696T financial report due December 29, 2026.
Reporting and Monitoring
Although ARA CCDF Discretionary supplemental funding is supplemental to Lead Agencies’ regular FY 2025 CCDF funding, it must be tracked and accounted for separately to ensure compliance with specific requirements and authorities provided by the ARA. As with other funding streams, Lead Agencies should track spending of these funds separately and be prepared to report on obligations and liquidations and spending on direct services, quality activities, and administrative costs through the ACF-696 or ACF-696T (45 CFR 98.65(g) and (i)).
Questions
Please direct any inquiries to the Child Care Regional Program Manager in the appropriate OCC Regional Office. Contact information for Regional Offices can be found at https://www.acf.hhs.gov/occ/contact-information/office-child-care-regional-program-managers.
/s/
Ruth Friedman, Ph.D.
Director
Office of Child Care
1 The CCDBG Act at section 658(O)(f) defines “state” for the purposes of reallotment as “only the 50 states, the District of Columbia, and the Commonwealth of Puerto Rico.” (42 U.S.C. 9858m(f)). Therefore, territories are not eligible for reallotment.