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If Increasing Need and Billions Of Dollars Haven’t Fixed It, Is Childcare Really An Industry?

The case for focused government support for local childcare centers.

Authors: Justin De Souza, Portfolio Associate

It’s no secret that the childcare workforce has been declining since well before the pandemic hit—something we discussed last year. The sizable amount of aid distributed by our government has not been nearly enough to provide the level of care needed by families across the country. 

In 2020, families received billions of dollars—$239 to be exact—in long overdue federal funding to help alleviate swelling costs digging deeper into parents’ pockets. This funding was designed to give families room to breathe, as basic household expenses have more than tripled over the past 25 years with childcare continuing to top the list. But despite the millions of families who benefited from that desperately needed support, the funding wasn’t renewed. 

As a result, the child poverty rate doubled overnight—leaving thousands of families without a safety net. In fact, what families spend on childcare has doubled to the tune of about $2.4 billion spent per year on early childhood care and services. As the cost of care continues to skyrocket, the early educators who staff childcare centers across the country have yet to see their wages catch up—leaving nearly half of childcare workers to rely on public benefits to survive. Now that federal pandemic funding has ended for childcare providers, it is expected that over 3 million children will be left without childcare due to provider business closures. 

The Biden administration has proposed more funding in 2024, which includes $22.1 billion for existing early care and education programs, but it is hard to plan around sporadic funding for businesses and there are no guarantees that his administration—or a new one—will be able to implement new policies, or how accessible the funds will be for small businesses. The funding solutions that have come through have been strictly at the state level, led by New Mexico becoming the first state to create a permanent fund for childcare in 2022. The few other states providing funds for childcare include Alaska, California, the District of Columbia, Illinois, Kentucky, Maine, Massachusetts, Minnesota, New Hampshire, Vermont, and Washington, meaning outside those states the funding and support opportunities will be deeply limited.

Common Future and Childcare

Over the past three years, Common Future dove into the world of childcare to determine what could be done to expand worker income and power. We spoke with a group of cooperative support organizations (Coop Cincy, Wellspring, Coop Santa Ana) about their ideas and efforts to stand up a national childcare cooperative. We started working with childcare cooperatives ChildSpace and Sunshine Cooperative to identify barriers providers were facing around the country. The childcare providers and cooperative representatives we worked with shared learnings and challenges they were facing in the field, and highlighted a need for supporting small business childcare providers. Exploring solutions like new contract models and potential policy changes led us to partner with Care That Works (CTW) to explore collective contract models and other options. At the time, our hypothesis was that these contracts could increase wages and support employee retention for small business childcare providers. 

Could organizing to win large-scale service contracts provide a lifeline to small scale childcare providers and point us toward a solution to the childcare crisis? 

While collective contracts are still being explored by the CTW team, this solution turned out to be much more complicated than it sounds: collective contracts have not yet been successful. Common Future engaged with the partners as they undertook the monumental task of organizing small businesses to build a new collective capable of servicing a contract. Many large-scale service contracts from governments, corporations, and other groups only want to deal with one provider—one contract with one set of terms. This keeps costs and overhead low for the service seeker, but logistically results in larger companies or organizations getting the contracts as they are the ones with enough scale to meet the need. There were many learnings that can be useful for the care space and elsewhere, and we look forward to the CTW team’s continued efforts. 

A few key highlights: 

  • To get a big contract, it takes big work. Organizing dozens or even hundreds of small childcare centers to align on shared legal language, goals, and payment minimums is a monumental task. It takes big, long term organizing.  
  • Big contracts don’t have (that) big of a payout. While a big contract with a union, corporation, or government agency can stabilize a childcare center with constant funding, it doesn’t often provide a big enough payout to substantially increase workers hourly pay. Given the amount of work needed to secure a contract, it may not be worth it in the end.
  • The burden is unfairly on those with the least power. Small-scale childcare providers work long hours caring for children. They also don’t make big profits or salaries. Requiring them to do the hard work and emotional labor of organizing for large contracts is unfair. Especially since that time isn’t paid and isn’t billable to their current clients. 

While shared contracts could provide a lifeline or even a long-term solution to childcare, there needs to be a big investment in ensuring the work of making them successful and possible isn’t pushed onto the care businesses themselves. We need to design care solutions that let them focus on quality care, not troubleshooting bigger systemic failings. Philanthropy could play a bigger role in alleviating the stressors of this particular solution, providing much needed capital to organize these businesses fairly, develop open-source tools around fair childcare service contracts that uplift small scale providers, and funding public campaigns that call for more permanent childcare solutions. Long-term, we are left wondering if childcare is meant to be a business at all? 

Childcare Providers Want to Do Just That: Provide Care

If you ask any childcare provider what brought them into this work, the answer will likely be that they love children and want to dedicate their lives to working with them. We asked. Throughout our partnership with CTW we engaged with small business childcare providers to understand more from their perspective. In addition to their love of children, their answers ranged from moving into this work out of necessity, or looking for an opportunity to earn a living while caring for their own children. They also shared their educational backgrounds including masters degrees, discussed their journey building years of experience in their profession, and highlighted joys of the job including watching their kids grow and learn.

"I started because I love kids. I used to work in a restaurant, and my colleagues saw that I loved interacting with babies. I had a 2 year old, and needed to find a job that I could dedicate time to my son. I wanted to find another way to be with my son and to do something that I love. I began researching a way and have been here for 4 years."—Adriana Giraldo, Translated from Spanish and condensed.

Large for-profit childcare chains are experiencing growth and increased profits, but this doesn't translate into benefits for workers or affordability for low-income families. The big chains are able to compete for big contracts, cycle through lower-paid labor, get deals on real estate, while often not focusing on education or enrichment families want in care services. The expansion of such chains has led to the closure of many smaller, home-based childcare programs. Family childcare (FCC) providers constitute almost half of available childcare, and face difficulties attracting workers and maintaining enrollment due to market constraints and lack of public support. Smaller providers struggle with limited resources and systemic barriers, impacting BIPOC women educators who dominate the workforce in this sector. Factors that already impact small businesses and lead to a whopping 70% failure rate by the fifth year are exacerbated when what you can charge for your services and how many kids you can legally and safely care for is dictated by a market of parents who can’t afford care. 

The Crushing Weight of Overhead Costs

Running a childcare small business presents deeply unique challenges that any business would struggle to navigate, but the people running these businesses got into this work from a love of providing quality care—and not running a business. FCC and other home based care-workers have all the responsibilities of entrepreneurs: they need to make a large enough profit to afford space to conduct business, pay for office supplies, buy food and snacks for the kids, cleaning supplies, get help with taxes, hire accountants, cover loans and debts, and all the other things necessary to keep a business alive and growing. 

This speaks to the real need for systemic shifts in how care work is organized and managed as caring for children is demanding, but so is running the logistics of a business. Right now, childcare small business owners rely on a patchwork of intermediaries like Clarendon to provide back end services, which is convenient when available but cannot provide enough support to meet the gap we face in childcare as a nation. 

Policy could address a major barrier to accessing government funding—which requires that providers file monthly documentation, predominantly in English—when (27%) of the early childhood workforce speak a language other than English at home, compared to 14% of the U.S. adult population. However, even with reducing the access issues for this funding—which could increase stability for the business and allow providers to care for more low-income children who are mostly targeted by the funding—there simply isn’t enough subsidy to make the small childcare centers families love profitable enough to pay workers a decent salary. 

Similarly, policy could address the cost of rent, which has steadily increased nationwide. A 2023 survey found that 40% of small businesses struggled to pay rent as prices continued to rise after 2020 and with interest rate hikes, ownership for many was out of the question. The cost of rental space to simply run a childcare business is a significant barrier, and that’s before accounting for approval from landlords, or addressing the regulations required to operate from homes—which in turn drives the cost up further.

In lieu of much-needed policy support, funders have a real opportunity to step in and support interim solutions like tailored loan products, startup/accelerator focused on providing technical knowledge of running a business, among others. For example Mission Driven Finance is offering funding for providers to purchase their own homes that fit regulations, giving access to both affordable housing and a place to conduct business. However once more, policy changes are needed for solutions like these to scale.

Less Business, More Care

At the end of the day, for care providers to truly do their best work, they need to have the support to focus on care. We cannot treat care as a market good, and that’s evident by the landscape of factors that make running the business of childcare so daunting—made no easier with billions of dollars spent to do so. Legislation needs to remove the very obstacles facing the care world, as the market has proven over and again that it cannot do so on its own. Further, challenging the systems that push care work into the business category that centers profit over the very essential and very skilled job of caring for our loved ones is essential to solving our ongoing care crisis. 

With 94% of care workers identifying as women, 40% as BIPOC, and one in seven living under the poverty line, we must build large-scale solutions that center power, choice, and ownership in the most impacted communities, and care for our collective future.

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