The tiered reimbursement system was instituted on July 1, 1997, as part of the welfare reform legislation passed August 26, 1996. The new system provides that any family child care home located in a low-income area (an area where at least half of the children live in families with incomes below 185 percent of the poverty level or an area served by an elementary school in which at least half of the enrolled children are eligible for free or reduced-price school meals) continues to be reimbursed as before, as are homes where the provider's income is below 185 percent of the poverty level. This group of homes is referred to as tier 1 homes. All other homes are reimbursed at substantially lower rates. This latter group of homes, referred to as tier 2 homes, includes homes that are neither located in a low-income area nor operated by a low-income provider. Tier 2 homes can receive the higher tier 1 reimbursement rates for meals served to children from families with incomes below 185 percent of the poverty level.

This is a cost reimbursable contract, jointly funded by the Economic Research Service (ERS) and Food and Nutrition Service. ERS manages the contract. The total cost of the project is estimated at $3,658,551 of which $1,959,007 is funded by ERS in fiscal 1998 and $1,699,544 is funded by the Food and Nutrition Service. The expected completion date is February 2001.