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Bill Summary · HB 1158

HB 1158 (Session 2025, North Carolina) — Increase Market Rate/Rate Floor/Child Subsidy

Overview
- Purpose: Increase child care subsidy rates to a target level, establish a statewide rate floor, and provide funding to implement these changes.
- Sponsor: Representative Lofton (with co-sponsors Prather, Crawford, von Haefen).
- Effective date: July 1, 2026.
- Fiscal effect: Substantial recurring funding appropriations starting in FY 2026-2027.

Key Provisions

1) Increase in Market Rate Subsidies
- Starting July 1, 2026, the Department of Health and Human Services (DHHS), Division of Child Development and Early Education (DCDEE), must raise child care subsidy market rates to the 75th percentile of the 2023 Market Rate Study.
- Applies to children served in three-, four-, and five-star-rated licensed child care centers and homes.
- Automatic annual updates: Whenever new market rate study recommendations are issued, DCDEE must automatically increase subsidy rates to the 75th percentile of those recommended rates, effective July 1 of the next fiscal year.

2) Statewide Rate Floor and County Adaptation
- Beginning July 1, 2026, payment rates for providers in counties with a county rate below the statewide rate will be set at the statewide 75th percentile rate for birth through age 5, for licensed centers and homes.
- Exception: If a county (with fewer than 50 children per age group) demonstrates that applying the statewide rate would reduce the county’s ability to purchase care for low-income children, the county market rate may be used instead.
- This creates a statewide rate floor while allowing county-level adjustments in certain low-volume counties.

3) Funding and Appropriations
- General Fund: $60,000,000 (recurring) beginning in FY 2026-2027 to implement the market rate increases described in Section 1.
- Child Care and Development Fund (CCDF) Block Grant: $20,000,000 (recurring) beginning in FY 2026-2027 to support the same rate increases.
- Additional funding for the statewide rate floor: General Fund transfer of $160,000,000 (recurring) beginning in FY 2026-2027 to enable the statewide rate floor under Section 2.

4) Effective Date
- The act becomes effective July 1, 2026.

Impact and Implications

  • Providers: Higher subsidy payments to participating child care centers and homes, potentially improving compensation and program sustainability for providers serving low-income families.
  • Families/Children: Increased subsidy support may expand affordability and access to higher-quality child care for low-income households, particularly in centers rated three to five stars.
  • Counties: Counties with smaller enrollments may rely on the county rate if it better matches local market conditions; otherwise, a statewide rate floor is used.
  • State Budget: Recurring General Fund and CCDF funding are dedicated to implementing the rate increases, indicating ongoing fiscal commitments beyond a one-time adjustment.

Notes
- The 75th percentile is based on the 2023 Market Rate Study, with automatic updates aligned to future market rate studies.
- The bill specifies three-, four-, and five-star-rated centers/homes; it does not explicitly mention one- or two-star facilities in the rate change language, suggesting applicability primarily to higher-rated providers.

Compiled from official sources — confirm details with the bill’s official record.

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