Pairing Child Care with Business Needs is No Child’s Play

Child care is having a public reckoning right now, fueled by the shifting employment landscape as a result of the COVID-19 crisis, and a labor market that gives potential employees more options. Child care centers have reported challenges in finding qualified staff, due to a combination of historically low wages and concerns about “frontline” work, at the same time that parents are desperate for care to return to work themselves–but still struggle to afford care.

The issue has received significant media attention, with a recent in-depth The New York Times piece, as well as a podcast released by the Times. The coverage examines the experiences of families and child care staff themselves, and walks through the details and unanswered questions of the current massive child care plan being considered in Congress.

Both are worthwhile reads that cover a range of issues facing families and the sector right now. In this blog, we’ll focus on one particular area: the complex business operations in the child care sector and the support providers need to truly benefit from any upcoming investments.

First, the question parents who have ever taken out their checkbook for child care are asking: How is it that child care costs so much out of pocket (on average, more than $9,000 annually) for families, and yet the employees providing that care are underpaid and struggling? Journalist Jason DeParle explains on the podcast:

“…[I]t’s what many people would just call a market failure. The fundamental economic laws don’t add up. You can’t charge people enough to pay for what it costs to provide the service. The American economy is really innovative. It can cut costs in lots of ways. It can make a cheeseburger that middle America can afford. It can’t really make a child care center that everybody can afford. It just costs too much to provide the service.”

In discussing the goals of the proposed child care bill, DeParle highlights the tensions that are in play. Can this investment really work to expand access for parents, and reduce out-of-pocket costs for families, and improve quality of care, and increase wages for the workforce?

Child care owners and directors are familiar with this juggling act. In ICS’s spring survey of child care providers in the early days of the COVID-19 pandemic, several centers requested full or partial payments from parents to hold a child’s slot while the center was closed to ensure revenue still came in for costs like rent/mortgage, but noted that many families were struggling with this request and could not pay.

Providers generally charge just enough to cover costs to ensure families can afford their services. While this keeps the lights on, it does not allow for building a “rainy day” fund. ICS conducted two surveys of child care providers in South Carolina early in the pandemic; the results were eye-opening:

• In fall 2020, less than a third of respondents were able to estimate how long their reserves would allow them to operate–and this was several months into the pandemic when centers had reopened for enrollment but still faced challenges related to supply access and COVID staffing for lower, safer ratios.
• Among those who could provide an estimate, reserves would hold them for only about 48 operating days if they were to receive another shock to their revenue stream.
• The high rate of providers in both the fall and spring surveys who could not estimate how long their finances could support them is a serious concern, which points to the need many child care providers have for back-end support for their small operation, ranging from accounting to communications. Many owners/directors enter the field based on their love of child development, not because of specific business acumen.

DeParle also raises the question of whether the funds an individual center could receive would be enough to achieve these goals. Given what we have seen regarding challenges in conducting full accountings in child care centers, he asks, “How are you going to know if that much money is enough to provide quality care?”

The good news here is that the early childhood research world has focused extensively on the question of the cost of care in recent years. These tools can offer a “crash course” on exploring the cost of quality:

• The Center for American Progress’s (CAP) interactive tool allows you to make adjustments to a sample program with different ages to see how costs are impacted, such as changing class size, adjusting teacher pay to the public school pay scale, and providing employment benefits. Another CAP resource also quantifies additional costs related to COVID-19 precautions, such as reducing class sizes and protective supplies.
• The federal Office of Child Care in the Department of Health and Human Services offers a cost of quality calculator (free account required) which considers drivers of cost, such as staffing, resources, and insurance, as well as revenue sources such as private-pay and child care subsidies. This tool provides options for both child care centers as well as home-based providers.
• The Center on Enhancing Early Learning Outcomes (CEELO) has a tool specifically focused on high-quality preschool classrooms, which allows for a deep dive into funding streams in addition to cost drivers.

ICS is excited to have this significant attention on child care in national media–the concerns of child care providers and parents must be heard to help build a system that meets the needs of all. These tools, and any potential federal investment, introduce an opportunity to expand access, improve quality, and to further professionalize the field.