The North Carolina Division of Child Development and Early Education (DCDEE) partnered with the American Institutes for Research® (AIR®) to develop three alternative market models for setting child care subsidy rates in the state. Child care subsidy rates are currently based on the market rate, or what providers charge for their services. The market rate reflects what families in the community can pay for child care, not necessarily what the child care services actually cost to provide. The federal Office of Child Care (OCC), administrator of the Child Care and Development Fund (CCDF), which funds child care subsidies, provides flexibility to states in how subsidy rates are set and an option to use an alternative model to set subsidy rates. The purpose of this study was to research subsidy approaches in other states and other types of markets, consult with stakeholders, and gather data from providers about the resources currently used for child care and those that would be needed to consistently provide the highest quality care (as measured by requirements for a 5-star license in North Carolina's Quality Rating and Improvement System (QRIS)). The project also included the creation of a cost estimation tool (the North Carolina Child Care Cost-Estimation Tool (NC CCCET)) that DCDEE can use to understand the per-child cost of care in different scenarios and a recommended phase-in plan to help the state prioritize where additional funding should be added in the short term. Finally, acknowledging that adequate child care subsidy rates are just one piece of a sustainable child care system, AIR explored and documented innovative practices in child care financing in other states and localities. The recommendations in this report are informed by all data collected and analyzed for this work, including a review of other subsidized markets in North Carolina, other state child care subsidy systems, and best practices in cost modeling; discussions with the North Carolina Subsidy Advisory Committee and the study's National Advisory Council; and, most importantly, input from providers and subsidy administrators through focus groups and surveys.