‘We’re going to have to start from scratch’: How COVID-19 could wipe out the child care industry in Minnesota

In late March, with many of Minnesota’s child care providers on the brink of economic collapse due to the COVID-19 pandemic, the Legislature voted to provide $30 million in grants to help owners stay in business — and serve children of essential workers.

Suzanne Pearl, Minnesota Director of First Children’s Finance, a nonprofit focused on the economics of the industry, said the cash influx made the state a “national leader” in helping struggling providers. And yet, at a recent hearing in the Minnesota House, Pearl told lawmakers the money still won’t be enough to save many of the businesses.

Pearl is one of many in the industry now asking for larger government intervention, even as the first installment of state cash is being distributed across Minnesota. Without additional funds, industry leaders say, they may not withstand the crisis, much less be around after. 

Yet while state lawmakers are sympathetic, they are also becoming increasingly worried about what help they can provide: Minnesota’s tax revenues are falling even as the state has been forced to increase spending in response to the coronavirus crisis.

The industry’s only other hope for a larger bailout may come from the federal government. Congress has distributed some cash to the states, but U.S. Sens. Tina Smith of Minnesota and Elizabeth Warren of Massachusetts are trying to make child care a higher priority through an ambitious, longshot proposal: to make $50 billion in grants available through Congress’ next coronavirus response package.

How long will state money last? 

The emergency child care grants Minnesota passed in late March offer monthly payments to providers that range from $4,500 to $15,500, based primarily on the number of children served at a facility. About $9.8 million was awarded last Tuesday to more than 1,200 providers, and there will be a second and third round later this year to distribute the remaining $20 million.

While the money was aimed at keeping enough capacity in the state to serve the children of essential workers, there was greater need than the Legislature budgeted for: about 6,000 providers applied, or roughly two-thirds of the providers in the state.

The flood of applicants underscores growing desperation inside an industry that some argue is in danger of implosion. “There’s just so much need out there even when we try to zero in on helping our essential workers,” Ann McCully, executive director of Child Care Aware of Minnesota, which is administering the state grants and rates the quality of child care programs in Minnesota, told the House panel in April.

Even before coronavirus, the economics of the child care industry were already tough for providers, leading to a severe shortage in many parts of the state. “I think you’ll see a lot more child care businesses close and that in turn is going to make it more difficult for whenever we are able to start putting people back to work,” Pearl said. “We’re going to have to start from scratch, then, in building back child care supply.”

Normally, Pearl said about 70 percent of revenue for a child care center goes to labor, yet because of low staff-to-student ratios, pay for workers is often dismal. Another 20 percent of income is used to cover overhead costs, leaving little for other expenses like curriculum and materials. Long hours are constant. Profits are slim. And to top it off, tuition is often painfully high for parents.

Pearl said that owners of smaller, family-run child care businesses average revenue that equates to less than $25,000 a year in salary. She said about half of providers make less than $8 an hour before taxes. In Greater Minnesota, it’s closer to $6.50.

Now, as parents who have been laid off or are working from home pull students out of child care, providers are losing revenue. Plus, costs for cleaning and other accommodations are increasing. “Their income has dropped off a cliff,” Pearl said. “One provider told us that instead of being paid to provide child care, she is actually paying to provide child care.”

Pearl said that it was too early to tell how many providers in Minnesota have received money through the recent Paycheck Protection Program (PPP), part of the CARES Act, the $2.2 trillion congressional stimulus package. But historically, the child care industry has struggled to qualify for such loans because the business model is so risky, Pearl said. 

Karen DeVos, owner of Little Learners child care center in Ada, told the House panel she did get a PPP loan. But even so, her business would “probably be better off closing” if she didn’t have a moral duty to help the children of essential workers, DeVos said.

She would have fewer expenses, workers would be safer, and they could collect expanded unemployment. Pearl said staff elsewhere are also asking some providers to close because they’d be safer — and perhaps make more money because of the current unemployment benefits.

While state lawmakers said they were sympathetic to the plight of child care providers, they’re also facing their own financial predicament: the prospect of state budget deficits brought on by the pandemic. Rep. Mary Franson, a Republican from Alexandria, cautioned advocacy groups against raising hopes of massive state intervention. “We have no money,” she said. “We have to be realistic that we are heading into a major deficit.”

A bailout plan emerges in Congress

The federal government has allocated money specifically for child care programs beyond what providers are eligible for through the PPP. The CARES Act also included $3.5 billion for the industry, distributed through an existing Child Care and Development Block Grant (CCDBG), which provides money to improve the quality of child care and help low-income families pay for it. Minnesota’s child care providers are expected to receive around $48 million from the CARES Act, according to the U.S. Department of Health and Human Services. 

Chad Dunkley, president of the Minnesota Child Care Association, represents larger child care centers. He said that money is helpful, but nowhere near enough. Around 60 to 70 percent of child care teachers in the state have been furloughed and fixed expenses like rent are “burying” providers. 

Dunkley is also executive director of New Horizon Academy, a giant in the industry with more than 70 centers in Minnesota, Iowa, Idaho and Colorado. But even his business has laid off three-fourths of its corporate staff.

In March, Dunkley met with U.S. Sen. Tina Smith to ask for a “massive effort” to make sure child care centers stay open during the crisis, but also after. “And that was really the inspiration for what Elizabeth and I started working on,” Smith said of Massachusetts U.S. Sen. Elizabeth Warren.

Smith and Warren’s eventual proposal was indeed massive: $50 billion in emergency funding for providers to help children of essential workers, keep employees on their payrolls and invest in child care for the long term. 

Smith said she tried to get the full amount of money into the CARES Act and a smaller funding bill that followed, but Republicans have been resistant. She said she remains optimistic about the next COVID-19 legislative package, whenever it emerges from the negotiation process. In the last bill, Smith said, “none of us knew exactly what was going to be included,” but said she continued to push for “childcare all the way through.”

Dunkley said that the lack of attention so far is expected: child care rarely tops the priority list in Congress. “We do our best to advocate,” he said. “We’re up against some pretty mighty industries that just have a little bit stronger voice in Washington.” 

Smith framed it in a different context: “Childcare workers are disproportionately low-income workers. They are disproportionately women … These are not people who have strong voices in our political process.”

But Smith said the current status quo approach to funding childcare is ridiculous. “A lot of people said ‘$50 billion, that’s unbelievable — that is just such a big number!’ But at the same time, we were talking about $60 billion for a bailout out of Boeing, and $50 billion to help the airline industry with loans and grants,” she said. 

“Elizabeth and I are both extremely worried about how this disproportionately and especially affects families in rural communities, families in native communities, and families and communities of color, especially with Latinx communities,” Smith said. “So that sort of shared worry and both of us understanding that if you don’t have child care … then your job doesn’t work. Your household economics don’t work.”

That has been the case for Kate Petersen, a sergeant with the Pequot Lakes Police Department. During a Minnesota House hearing in mid-April, Petersen told state lawmakers the two biggest problems for her office right now are getting enough personal protective equipment and ensuring child care. All four officers that work under their chief have kids, as well as partners who are essential workers, Petersen said.

Recently, the child care provider that serves her “almost 3-year-old” kid shut down on short notice. “I will be honest, I cried for an hour,” she said.

Petersen was able to get her kid into the other child care provider in town, but others around the state may not be so lucky. “For myself not to be able to come into work I would be draining my comp time, vacation time, sick time … and not be able to assist my chief with running the department in the way that it needs to be,” she said. “So it means the world to me and my daughter to have her in a safe place. I’m hoping that the daycare that she’s at now doesn’t close their doors either.”