How money aimed at helping Minnesota’s child care industry ended up pitting large and small providers against each other

When Christy Hanson reopened her in-home child care business in Owatonna last summer after closing during the early stages of the COVID-19 pandemic because of a sharp drop in enrollment, a $1,200 monthly grant from the state for roughly six months helped immensely.

“It kind of helped build back up all the money I had lost from being closed for the few months,” Hanson said.

That program has since expired. And while the industry is still facing obstacles like higher costs because of the pandemic, Hanson and most small in-home providers are now eligible for a different program, albeit one offering much lower payments paid out of the state’s share of the American Rescue Plan: just $430 a month.

The lower monthly payments have frustrated many of Minnesota’s in-home child care businesses, which make up a greater share of the industry in rural parts of the state and have been declining in number for years. The change has also pitted the smaller providers against larger child care centers, typically located in cities — a split that burst into public view during two committee hearings in the Minnesota Senate. 

“I think the thing is we just feel this huge inequity between us and the centers,” Hanson said.

How the new child care provider grant program works

Those $1,200 checks for in-home child care providers, usually referred to in the industry as “family” providers, were part of what the state called its Public Health Support Funds. About $200 million was distributed over three rounds of grantmaking in the 10 months between July of 2020 and May of 2021, a process bankrolled through federal COVID relief plans, including the $2.2 trillion CARES Act passed by Congress in the spring of 2020.

The cash was meant to help the industry ensure higher safety standards by dealing with pandemic expenses for things like extra cleaning. Under the initiative, most child care centers were eligible for a maximum award of $8,500 each month.

This year, the Legislature received more than $500 million from the federal government for child care, much of which — $304 million — was required by the feds to be used on “stabilization grants” for the industry.

There were few limits on the two-year program. The grants are not competitive, meaning people can get cash as long as they apply and meet basic requirements, and 70 percent of the money must be used to give more compensation, such as bonuses or better benefits, to employees that work regularly with children. The Minnesota Department of Human Services also reserved a quarter of the stabilization funds for grants given to child care providers that have experienced “extreme financial hardship.”

After two months of “transition grants” between the programs, DHS determined each provider would be initially eligible for $430 every month for each full-time employee they have. That means a child care center with eight employees working with children could get $3,440. After one year, that base grant will decline some, though the agency has yet to determine by how much because it depends in part on how many providers get money initially.

Centers push back on criticisms of program

That $430 per employee figure provoked anger among many in-home child care providers, which often have just one worker: the owner. More than 140 in-home providers wrote to the Legislature before a Senate hearing on the issue, saying they felt the money was not enough to cover the cost of care for even one child. In-home providers can care for up to 10, 12 or 14 kids, depending on the type of license they have. 

“The previous funding childcare has received has allowed me to continue providing care,” said Janell Hartjen, an in-home provider in Moorhead, in a letter to a Minnesota Senate committee. “Yet with the new proposed rate of $430 I am not sure that I will be able to continue care.”

Many in-home providers also claimed child care centers get more attention and resources from the government. “Our costs continue to go up at a faster pace than we can raise rates for our families,” wrote Kimberly Horn, a family provider in Eyota, in a letter to Senate lawmakers. “Center[s] may have more employees but they also charge way more than I do. It seems that centers are taken care of way more than homes.”

DHS said a full-time employee is considered to be someone who worked 32 hours a week, even though many family providers said they can work far more than 40 hours a week and would get counted as one worker all the same.

In October, after the outcry, DHS proposed options for tweaking the grants, including allowing people to count for up to two employees if they work more than 32 hours per week with children. The changes also would have front loaded more of the money in the first year and increased the share of cash for family providers, DHS estimated.

But child care centers pushed back on any notion that they were getting a better deal, saying employees — regardless of how big an operation they worked for — should be treated the same, and that it would be unfair for DHS to change the structure of the program now. “We had this plan set forth, we were told how it was going to progress, how it was going to move forward,” said Karen DeVos, owner of the Little Learners child care center in Ada, during an Oct. 6 hearing in the Senate’s Human Services Reform Finance and Policy Committee. “I told my staff they’re getting these bonuses every month based on what we were told was happening.”

In the end, DHS kept the grants as they are. 

Notably, DHS said in an Oct. 12 letter to providers that the 7,900 family child care workers make up roughly 18.5 percent of 42,700 people caring directly for kids in the industry, but are estimated to receive 21 percent of the “base” funding from the grant program. The 26,700 employees at licensed child care centers make up 62.5 percent of the child care workforce, but centers will get 58 percent of the base funding, according to the agency. (A third, smaller category of “certified” centers gets the last 21 percent of the money.)

DHS also said that 24 percent of children are enrolled in family child care, while 76 percent are enrolled in the two types of child care centers, according to DHS. Department officials also said the “hardship” grants can help boost in-home providers in a particularly tough spot.

Part of larger issues with the industry 

State Sen. Jim Abeler, an Anoka Republican who chairs the Senate’s Human Services Reform Finance and Policy Committee, said he was disappointed by DHS’ decision not to change the definition of a full-time employee.

Abeler said the state and federal government has spent a “tremendous” amount of money on child care since the start of the pandemic. “I am surprised that $304 million to spend to help out the child care industry has become a problem, where nobody is happy,” he said.

State Rep. Dave Pinto, a St. Paul DFLer who chairs the House’s Early Childhood Finance and Policy Committee, said the earlier grant program — in which family providers were eligible for up to $1,200 and centers $8,500 — actually gave a disproportionate benefit to family child care providers and said the current stabilization grants are generally fair. 

“Why are we pitting one against one another?” Pinto said. “It’s putting them in competition with one another instead of recognizing that we spend so much less on young kids.”

Hanson, the child care provider in Owatonna, said even though child care is in huge demand in her area, many providers are struggling to turn a profit due to higher pandemic expenses and what she said are burdensome regulations. As a result, companies won’t come into town because there’s not enough child care, Hanson said. “I get calls every single day from desperate parents, especially with infants,” Hanson said. “I have had a wait list for infants for the last five years.”