Regulatory compliance overview for KLC OpCo early childhood education centers

reapply for a license on an annual basis, and that process may include a visit from the applicable state regulator. Renewal of a license is generally a fairly routine process. In addition, each ECE center or school program is subject to a variety of state and local regulations. Although these regulations vary greatly from jurisdiction to jurisdiction, governmental agencies generally review the safety, staff qualifications, fitness and adequacy of the buildings and equipment; the ratio of staff to children; the dietary program; the daily curriculum and compliance with health and transportation standards. In most jurisdictions, these agencies conduct scheduled and unscheduled inspections of locations. Repeated failures by a location to comply with applicable regulations can subject it to sanctions that might include probation or, in more serious cases, suspension or revocation of the center's or program's license to operate and could also lead to sanctions against the Company's other centers or programs located in the same jurisdiction. In addition, this type of action could lead to negative publicity extending beyond that jurisdiction. KLC OpCo generally seeks to operate centers and school programs in states with strict regulations in order to avoid unexpected expense and market disruption that may be caused by compliance with regulations adopted in states that previously lacked such regulations. KLC OpCo believes that its operations are in substantial compliance with alt material regulations applicable to its business. However, a licensing authority may determine that a particular center or school program is in violation of applicable regulations and may take action against that center or program and possibly other centers in the same jurisdiction. In addition, there may be unforeseen changes in regulations and licensing requirements, such as changes in the required ratio of child center staff personnel to enrolled children, which could have a material adverse effect on KLC OpCo’'s operations. States in which KLC OpCo operates routinely review the adequacy of regulatory and licensing requirements and implement changes which may significantly increase its costs to operate in those states. The SES programs are operated in substantial compliance with the federal No Child Left Behind Act, as well as applicable state Department of Education regulations that vary from state to state, but generally regulate curriculum, staff qualifications, and program quality and effectiveness. KLC OpCo must receive approval from each state's Department of Education in order to qualify as an SES provider. The length of approval to be an SES provider varies, but is typically from one to five years. Repeated failure by an SES provider to comply with regulations or its request for proposal documentation may cause the provider to lose its approval. Federal regulations and licensing requirements require compliance with minimum standards in order to qualify for participation in federal assistance programs. Under the Social Security Act, the U.S. federal government has established programs fo assist low-income families with early childhood care and education expenses. These programs include the Childcare and Development Block Grant and At Risk Program. Funding is typically provided through block grants to states and counties, which then administer the programs through local agencies. The federal Americans with Disabilities Act, referred to as the ADA, and similar state laws prohibit discrimination on the basis of disability in public accommodations and employment. Compliance with the ADA requires that public accommodations reasonably accommodate individuals with disabilities and that new construction or alterations made to commercial facilities conform to accessibility guidelines unless structurally impracticable for new construction or technically infeasible for alterations. Non-compliance with the ADA could result in the imposition of injunctive relief, fines, an award of damages to private litigants and additional capital expenditures to remedy such noncompliance. KLC OpCo has not experienced any material adverse impact as a result of these laws. Section 21 of the U.S. Internal Revenue Code of 1986, as amended (the "Code"), provides for an income tax credit ranging from 20% to 35% of certain child care expenses subject to certain maximum limitations. The fees paid to KLC OpCo for early childhood care and educational services by eligible taxpayers qualify for the fax credit, subject to the limitations of the Code. In addition, Section 45F of the Code provides 96 HOUSE_OVERSIGHT_024523