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The vexing economics of child care in Minnesota, explained

The problem is especially stark in Minnesota. The state was ranked as the fifth least affordable in the U.S. for infant care, according to a 2017 report from the national Child Care Aware organization. 

DHS Commissioner Emily Piper and Cedar Mountain Elementary Principal Patti Machart
DHS Commissioner Emily Piper and Cedar Mountain Elementary Principal Patti Machart at the Cedar Mountain Cougar Cub Child Care Center in Franklin.
MinnPost photo by Walker Orenstein

Solutions for Minnesota’s lack of child care options have divided Republican Jeff Johnson and DFLer Tim Walz as they campaign for governor this fall, most recently at Tuesday’s debate in Willmar.

Johnson has argued for cuts to regulations and a softening of tough oversight practices, while Walz has pushed to expand preschool options and increase state dollars flowing toward subsidy programs.

The issue has also been a thorny one for state legislators, who have passed reforms and cut regulations in response to scarcity of child care providers in Minnesota. (The number of in-home providers dropped nearly 30 percent between 2005 and 2014, according to a 2017 legislative report.)

One big reason the problem has not seen a quick fix is because of its economic model. Namely, its workers aren’t paid well, which makes recruiting employees and starting new businesses a struggle, while tuition is painfully expensive for many parents, which limits price hikes and profit margins for providers.

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Research shows both problem are stark in Minnesota. The state was ranked as the fifth least affordable in the U.S. for infant care, according to a 2017 report from the national Child Care Aware organization, with an average cost of $15,340 per year (infants are children under 12 months old). To compare, that’s higher than in-state tuition for a University of Minnesota freshman.

Meanwhile, median wage for child care workers not employed in preschools or in special education is just $11.44 an hour, according to data provided by the state Department of Economic and Employment Development. And while wages for those child care workers have grown recently, not in leaps and bounds when considering increases in the cost of living, said Oriane Casale, assistant director of the Labor Market Information Office at the state Department of Employment and Economic Development.

High prices, low wages

When most people think of low-wage jobs they think of lower prices, too. For example, a fast-food restaurant may offer workers minimum wage, but they offer cheap meals at the same time.

Child care providers have specific limitations on their job, however, which changes that equation. Chad Dunkley, president of the Minnesota Child Care Association, said that child care centers need to have a high number of staff to serve a small number of children. He said that’s based in science on how to teach children before kindergarten and safety regulations. But it also drives up costs and restricts the amount of tuition that a center brings in from parents.

Dunkley is also CEO of New Horizon Academy, a child care company operating more than 65 schools in Minnesota and Idaho. Dunkley said his company estimates they employ one adult for every five children served, and the centers have to staff long hours to accommodate the schedules of parents.

As a result, a child care center spends on average 70 percent of its budget on staffing, according to the 2017 legislative report, with 20 percent being spent on the facilities and 10 percent on food and other costs.

In-home family child care services, which make up the majority of child care outside of the Twin Cities metro area, have faced similar bottom-line challenges with strict limits on how many children they can serve. A survey by First Children’s Finance of Minnesota, a nonprofit that gives financial and business help to child care providers serving low-income families, found average providers earned roughly $51,000 in net revenue per year, but took home just $24,600.

The survey found providers spend more than 65 percent of their income on occupancy expenses like rent and utilities, as well as food. The report also said providers work an average of 53 hours per week, too, since they need to clean, prepare food and activities and more. That makes their effective hourly wages even lower.

“It’s a really hard way for a person to make a living to be an in-home child care provider because you can only serve a more limited number of children because normally you’re there by yourself,” said DHS Commissioner Emily Piper.

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Stand-alone child care centers can serve more children per staff member, but building one in rural Minnesota is not always a viable alternative, according to the First Children’s Finance organization. Reaching a threshold of profitability and offsetting start-up costs requires serving a large number of children, which is not easy in less populated areas, the legislative report says.

What can be done?

Dunkley said increasing the number of children centers and in-home providers can serve hasn’t been anyone’s preferred solution.

Instead, he’s called for a boost in state resources to aid parents and child care centers. Minnesota has programs aimed at subsidizing child care for low-income families, including the Basic Sliding Fee and Child Care Assistance programs.

Funding for those programs has been volatile and plagued by wait lists, according to the 2017 legislative report. Piper said that can’t be the only solution, however, because making a bigger dent in the problem through those programs is “just really expensive,” she said.

“Investing in incremental increases in rates to the tune of tens of millions of dollars in it of itself for low income families is not going to be a magic bullet that solves the issue of daycare not being affordable enough for families or accessible enough otherwise for families of our state,” she said.

Piper said targeted grants for training and workforce development doled out by the state have been helpful, and she said the Legislature needs to make more construction money available through bonding so child care providers can get help building their work space. “One of the big barriers to establishing new daycare centers is the up front infrastructure expenses,” she said.

The report by First Children’s Finance said the average start-up costs for a 52-child center range from $200,000 to $450,000, not including any costs from acquiring property.

Election will determine direction

The town of Franklin offers a case study in the complexity of the issue. Three of the four in-home child care providers serving Franklin shut down in 2015 for various reasons, prompting community leaders to take enormous efforts to fix their child care shortage.

Joe Sullivan, president of the Cedar Mountain District School Board, told MinnPost on Thursday his district offered help with a number of barriers to starting up an in-home child care business to foster new growth in town. But after five months, “no one came forward at all.”

Town leaders instead opted to form a private corporation and used grant money and private funds to build a child care center of their own, said Joel Harmoning, who serves as the corporation’s president. The building, which opened in Dec. 2016, cost roughly $1 million, Harmoning said, and can serve about 42 children at capacity. The child care was honored by DHS for their innovation Thursday.

Piper also said while “ultimately government has a role to play” in easing the child care shortage, more businesses need to “deal with this issue in a more comprehensive way than I think we’ve seen so far.”

On the campaign trail for governor, DFLer Walz has highlighted a manufacturing company in Harmony he said converted a nearby building into child care. “They filled all of their positions by advertising one of the benefits is high quality child care where you can go have lunch with your kids,” he said at the debate in Willmar on Thursday.

Gov. Mark Dayton has pushed for universal pre-kindergarten during his tenure and has successfully expanded preschool programs.

Yet Dunkley said those ideas have drawn opposition from child care providers, who rely on preschoolers to meet their bottom line. In their survey of in-home providers, First Children’s Finance noted that tuition from pre-school age children made up an average of 54 percent of tuition income. “If family child care providers are not able to care for preschool children, many may be unable to generate adequate revenue to continue operating,” the study says.

The Legislature has recently focused on chipping away at regulations that some providers say have driven some out of the industry.

Johnson, the GOP candidate for governor, has supported that approach. Child care providers going aren’t closing down for bad business decisions or a lack of job satisfaction, he argued at the debate in Willmar. “They’re doing it because government is regulating them out of business,” he said.

November elections will play a large role in what approach the state and local governments take to fixing the shortage going forward. But many say the status quo creates a tough riddle for child care providers to solve.

Sullivan, who helped create the child care center in Franklin, said he put 1,000 hours of time into the project in six months and was having meetings about the center “every other day” for a stretch.That’s an enormous commitment, but one he said was worth it.

“No kids, no future,” Sullivan said.