The CCDF regulations establish allowable uses of CCDF funds related to the provision of child care services, activities to improve the quality of child care, and administrative costs.

In addition, the rules establish matching fund requirements, restrictions on the use of funds, and cost allocations. The matching requirements were discussed in the previous section under Allocation Formulas, and restrictions on use of funds are described in the Restrictions section. Consult with your Lead Agency fiscal staff regarding cost allocation requirements related to CCDF (for example, cost allocation plans, subgrantee negotiated federal indirect rate, and the like) to determine how they affect decision-making regarding CCDF funds.

Child care services: The state must provide direct child care services as follows:

Funding parameters:

• At least 70 percent of the mandatory and combined federal and state share of matching funds must be used to meet the child care needs of families who are
  • receiving Temporary Assistance for Needy Families (TANF),
  • making efforts through work activities to transition off of TANF, and
  • at risk of becoming dependent on TANF.
• From the discretionary allotment, states must
  • reserve the minimum amount to be spent on the required spending levels for quality activities (12% = 9% quality + 3% infant and toddler quality) and no more than the 5 percent for administrative costs; and
  • spend, from the remainder, at least 70 percent to fund direct services provided by the Lead Agency.
• Of all funds remaining after meeting the spending requirements outlined in the final rule, a substantial portion of the funds must be used to support direct child care services for families with lower incomes who are working or in training or education.

Services for children experiencing homelessness: The Lead Agency must spend funds on activities that improve access to quality child care services for children who are experiencing homelessness. Activities that improve access include the following:

• Procedures that permit enrollment (after an initial eligibility determination) while required documentation is obtained
• Training and technical assistance for providers and appropriate Lead Agency (or designated entity) staff to increase their understanding of identifying and serving children and families experiencing homelessness
• Specific outreach to families experiencing homelessness

If, after obtaining all documentation required for eligibility, a family experiencing homelessness is found to be ineligible for subsidy, the Lead Agency must pay any amount owed to the child care provider for services that were provided as a result of the initial eligibility determination. As a reminder, payments made prior to the final eligibility determination will not be considered an error or an improper payment. For additional information on serving children who are experiencing homelessness, refer to Families Experiencing Homelessness.

Child care resource and referral (CCR&R) organization: The state may use CCDF funds to establish or support a system of local or regional CCR&R organizations that is coordinated, to the extent determined appropriate by the state, by a lead CCR&R organization. The lead organization may be a statewide public or private nonprofit, or a community-based or regional organization. For additional information, refer to Leadership & Coordination: Coordination with Regional CCR&R Systems.

Quality activities: Lead Agencies must spend a certain percentage of their total CCDF expenditures per fiscal year on activities designed to improve the quality of child care services and increase parental option for, and access to, high-quality child care. These funds may be used to improve the quality of care for all children, regardless of whether the children receive subsidy. Further, the activities are not limited to only providers serving children eligible for subsidy.

• The regulations set forth the amount that must be spent from the aggregated amount of funds expended by a state. The aggregate funds include the expenditures from the discretionary and mandatory funds as well as the federal and state shares of matching funds. Maintenance-of-effort amounts expended by the state are not subject to the required percentages. Unless expressly authorized by law, targeted funds and other set-asides for quality that may be appropriated cannot be used toward meeting the minimum quality expenditure requirements.
• Specifically, Lead Agencies must spend at least 9 percent in FY 2020 and subsequent years. Starting in FY 2017, and continuing each succeeding fiscal year, Lead Agencies must also spend 3 percent on activities to improve the supply and quality of care for infants and toddlers.
• In addition, Lead Agencies must prioritize increasing access to high-quality child care and development services for children in families that live in areas that have
  • A significant concentration of poverty and unemployment and
  • an insufficient number of high-quality programs.

Further information on the requirements for quality funding and the allowable activities can be found in Support Continuous Quality Improvement.

Limitations on administrative costs: No more than 5 percent of CCDF expenditures may be used for administrative costs incurred by the state to carry out all its functions and duties. The 5 percent limitation applies only to states. (Tribes and tribal organizations may spend up to 15 percent of total expenditures on administrative activities.)

Activities that may be counted toward administrative costs include the following:

• Salaries and related costs of Lead Agency staff or other agency staff engaged in the administration or implementation of the child care program. Program administration includes the following types of activities:
  • Planning, developing and designing the CCDF program
  • Providing local officials and the public with information about the CCDF program, including conducting public hearings
  • Preparing the application and CCDF Plan
  • Developing agreements with administering agencies to carry out program activities
  • Monitoring program activities for compliance with requirements
  • Preparing reports and other documents related to the program for submission to the HHS Secretary
  • Maintaining substantiated complaint files in accordance with the requirements
  • Coordinating the provision of CCDF services with other federal, state, and local child care, early childhood development, and before- and afterschool programs
  • Coordinating the resolution of audit and monitoring findings
  • Evaluating program results
  • Managing or supervising people with responsibilities for the activities listed above
• Travel costs incurred in carrying out the program
• Administrative services, which may include services such as accounting (performed by grantees or subgrantees or under agreements with third parties)
• The Lead Agency audit required by the final rule
• Other costs for goods and services required to administer the program, including rental or purchase of equipment, utilities, and office supplies
• Indirect costs as determined by an indirect cost agreement or cost allocation plan

Maintenance-of-effort amounts expended by the state are not subject to the 5 percent limitation. Administrative costs do not include the costs of providing direct services. The following activities are not considered administrative costs and do not count toward the 5 percent limitation:

• Establishment and maintenance of computerized child care information systems
• Establishing and operating a certificate program
• Eligibility determination and redetermination
• Preparation for and participation in judicial hearings
• Child care placement
• Recruitment, licensing, and inspection of child care providers
• Training for Lead Agency or subrecipient staff on billing and claims processes associated with the subsidy program
• Reviews and supervision of child care placements
• Activities associated with payment rate setting
• Resource and referral services
• Training for child care staff

[1] Child Care and Development Fund, 45 C.F.R. §§ 98.50–98.54 (2016).