Are Current Nonprofit Business Models for Infant/Toddler Care Viable?

June 5, 2017; Newsworks

As budgets and programs are slashed at the federal, state, and local levels, the recognition of early childhood/pre-K as an important investment, even worthy of increased funding, is on the rise. For the most part, this focus on pre-K programs and childcare targets the population of preschool children, ages 3 to 5. The gap comes in recognizing the importance and need for infant and toddler care and the lack thereof. And the reason is clear: While no less important in the developmental and socialization of the young, the costs associated with infant and toddler care make it a challenging investment for childcare/early childhood programs. As Martin Levine reported yesterday in a NPQ newswire:

Research for Action, a Pennsylvania-based nonprofit, recently published a study of the economics of early childhood in Pennsylvania and the struggle to afford excellence. The Philadelphia Business Journal summarized RiA’s findings in a few words: “Revenues were 30 percent lower than costs.” To cope, providers are forced to compromise their standards. Classroom size increases and teacher qualifications are lowered.

As one digs deeper, it is clear that costs for caring for infants and toddlers exceed those of caring for preschoolers. State regulations for caregiver-to-child ratios are understandably higher for younger children. More staff is needed, and childcare programs cannot cover these costs even as they pay subsistence wages. In their study of early education centers in Pennsylvania, Research for Action provided a detailed look into the costs of early childcare in six centers across the state.

Researchers found that for the average infant served, centers received 38 percent less money than needed to serve that child. For toddlers, revenues were 30 percent lower than costs.…To offset this high cost gap and make ends meet, providers often opt to serve more pre-K school children than infants and toddlers and maintain school age programs, which may help subsidize the true cost of infant and toddler classrooms.

Childcare programs are not the only ones caught in this web. Parents, particularly low-income parents who need to work and who often must return to work soon after giving birth to a child, struggle with costs. “About 60 percent of funding for child care in the United States comes directly from parents. In comparison, families pay only about 23 percent of the cost of a public college education, with the remainder subsidized by philanthropic contributions and state and federal funds.”

Further, “Many families—especially those with young parents—can’t afford the true cost of quality, center-based care. That means many centers can’t raise rates on tuition-paying parents when times get lean. If they do, parents are liable to opt for informal childcare arrangements.”

These informal options, referred to as “FFN,” for “family, friends and neighbors,” are becoming more widespread. The estimate for 2008 was that 33 to 53 percent of children under the age of five were cared for in an informal or FFN situation. While they do reduce costs, the quality and stability of these informal arrangements raise some questions, as informal care is typically subject to few, if any, regulations.

It is important to note that childcare providers are, in a way, subsidizing childcare themselves by offering services to parents below the actual cost of providing care.

In many cases, child care providers, particularly at larger centers, offer infant-toddler care at prices below actual cost by averaging expenses across all ages and supplementing parent fees with funds from a range of public and private sources. Smaller family-based programs, as well as unregulated programs, may also undercharge families in need of childcare in order to better serve their communities.

While this commitment to serving families and communities is admirable, there is a price to be paid. As we have discussed previously in our wage ghetto coverage, staff in these centers is often paid lower salaries and find themselves in the same situation as the parents they serve if they, themselves, need childcare.

The stability of childcare rests on a three-legged stool. Louise Stoney and Anne Mitchell at the Alliance for Early Childhood Finance demonstrate for providers and state-level policymakers the three legs of that stool. They describe an “Iron Triangle” of early childhood education financing, which describes three key components of a successful program:

• Leg 1: Full Enrollment. Because public childcare is subsidized on a day-to-day basis, it is imperative that programs are fully enrolled (95 percent) in every classroom every day they are open.
• Leg 2: Full Fee Collection. Programs may work out payment programs with parents, but full and on-time tuition payment is a necessity for childcare programs to be able to pay their own bills.
• Leg 3: Revenue Covers Per-Child Cost. When all is said and done, the program’s revenue from tuition, fees, and any third-party funding (subsidies, philanthropic contributions, etc.) must cover the per-child cost of child care.

This is easier said than done, especially when working with low-income families whose work may be sporadic and whose income eligibility for childcare subsidies may vary, causing their children’s enrollment and attendance to come and go. It is difficult because the care of infants and toddlers requires more staff, and while it may be a “calling” for some, others depart due to the low salaries. The stability of childcare centers and organizations is often at risk due to the slow pace of payments from state and federal sources, the failure of subsidies to keep pace with inflation, as well as limited options for other funding.

Quality, affordable childcare is often pointed to as a necessity for moving people out of poverty and ensuring equity in education. If this is the case, addressing the issues of costs for centers to provide care, the low pay scales for childcare workers, and the cost burden on families should be a higher priority. And this priority needs to extend to infant and toddler care.—Carole Levine