The Paradox of Child Care Costs: A Case for Multiple Payers

The high cost and demand of child care and the financial struggles of child care providers may first appear as a paradox: How do child care providers struggle when families are paying so much and demand is so high?

At CPPR, we’ve been focusing on these questions. The financial needs, career choices, and long-term earning potential of families and child care providers are deeply intertwined with the demand for quality child care. If Kansas families and child care providers continue to bear the brunt of rising child care costs—in both receiving and providing care—the state will face long-term implications in its larger economy and workforce.

Kansas is not alone in this dilemma. Today's equation simply doesn’t work, and there needs to be multiple payers in designing a robust child care ecosystem that meets the needs of families, child care providers, and employers. Employers across the country are recognizing how child care strengthens the overall workforce and are increasingly offering child care as a family benefit. For example, 56% of employers now offer some type of benefit compared to 36% of employers in 2019.

Child care supply-demand challenges are impacting nearly all families in Kansas, but most hard hit are those seeking care with lower incomes. Nearly one in five children or 19.6% live in a Kansas household making below 125% of the federal poverty threshold. In CPPR and the Institue for Policy and Social Research’s Child Care Desert Map, we’ve learned that 37 percent of Kansans also live in a child care desert, which the Center for American Progress defines as any census tract with more than 50 children under age 5 that contains either no child care providers or so few options that there are more than three times as many children as licensed child care slots. Even with expanded access to child care assistance, families across income levels are navigating both the rising costs of child care and the increasing difficulty in finding quality care.

Average annual cost for child care for a family in Kansas

It just so happens that child care providers also face the same financial challenges. They, too, maneuver variable shifts that affect their finances and struggle to sustain under the expenses required in quality care and in hiring a trained professional to provide that care. According to the Economic Policy Institute, more than one-third of child care workers live in families with income below twice the poverty threshold and the Bureau of Labor Statistics reported there are 100,000 fewer child care workers than there were before the coronavirus pandemic.

Estimated annual revenue/expense for medium child care centers in Kansas*

Children's Learning Center Explains the Dilemma

The child care supply-demand gap and market was already broken before the pandemic, and the pandemic continues to create stress and additional expenses from coronavirus-related safety concerns and disruptions, all of which combined makes recruiting and staff retention more difficult says CeCe Courter, executive director at Children’s Learning Center in Lawrence, Kan.

Children’s Learning Center is intentionally operating below their capacity due to challenges related to the pandemic, which is a trend identified in the 2021 update to the All In For Kansas Kids Needs Assessment. In July of 2021, licensed child care providers in Kansas reported they were operating at 77% capacity, due in part to “health and safety concerns, staffing shortages, and other revenue shortfalls.” In 2022, Child Care Aware of Kansas reported that care capacity overall has been steadily trending downward annually in Kansas, with licensed providers meeting only 44% demand.

To shed light on why Children’s Learning Center operates below capacity, CeCe Courter met with CPPR in August to share what it takes for Children’s Learning Center to operate for over 50 years, how the new school year affects the center’s finances, and her career as a provider and business executive.

The interview has been edited and condensed for clarity.

What determines enrollment at Children’s Learning Center?

With COVID, we cut back quite a bit on enrollment. We have had a very difficult time recruiting new teachers and the pandemic was an experience in education that no one was really prepared for. We've done great with sustaining the teaching staff that we have so our turnover rate is pretty low, but we are trying to keep at lower class enrollment to provide a higher level of education and quality of care for the students and less stress for our staff.

To have more students at the small class size we prefer, we need more teachers. Our average wages for our teachers before the pandemic and our wage adjustment were probably between $10 and $12 an hour. And that’s just not livable with all the price increases for food and gas and everything that's gone up.

We also offer discounts, which can help with enrollment. Enrollment was fairly low when I started as a director in 2018, and one of the ways we raised our enrollment was offering a 12% discount to Lawrence Memorial Hospital employees. They're only a couple blocks from us, so it's a convenient location. And then we offer a sibling discount, so if a parent has two children here, they receive a 5% discount on the eldest child.

Are there annual patterns in the new school year that affect your revenue and enrollment?

With August, there’s always an overlap where we're getting our new enrollment and when we're saying goodbye to our students who are moving on to public school. Our revenue can be lower or higher depending on enrollment. Our infant and toddler rooms also stay waitlisted for a year, sometimes a year and a half in advance. Infant care always operates at a deficit, which sounds crazy because if you're an infant parent, you're paying $1,200 a month. That's a lot of money, but the state licensing ratio is one to three—one teacher for three infants.

We have an infant room that has a capacity of six infants with two teachers whereas for three, four, and five-year-olds you can have 12 students with one teacher, but we prefer to keep our class sizes smaller to 10 students per class. The biggest influence on our revenue is our ratio between infant and toddler care, and how quickly we can balance the loss of students leaving for public school.

Infant care doesn’t make money, but they can feed into the population of other rooms. It can take us a couple of months to get that enrollment back up to where we would need to absorb that deficit from infant care. Also, there aren’t a lot of schools that provide infant care, mainly because it loses money and they just can't sustain that, but there’s a great need for infant care in our community.

In terms of expense, what has affected Children’s Learning Center the most so far this year?

In August, we redid our wage scale. It was about a 20% average increase in our current teacher wages, which gave us about a $98,000 deficit for the year. Over the last four years, my program director and I've been working really hard to cut costs where we can so we can build a savings account as a safety net. That [account] will last us about four years through the deficit if we were to do nothing else. But of course, with grant writing and fundraising, and if in the future we raise tuition, then obviously that safety net will last longer.

Also, some of our teachers are in the process of getting their Child Development Accreditation, a nationally recognized program where they go through 120 hours of formal education and additional training. For teachers who have worked at Children’s Learning Center for a year and if they have their CDA, their wage is $15 an hour. Some of our teachers already have it and soon more will be [receiving] a $15 hour wage once they complete their accreditation.

Any other notable events that happened in August that impacted your expenses or revenue?

One thing that helped our budget was when the CDC guidance for quarantines changed in August 2022. Over the past two and a half years, if anybody was closely exposed, which in early childhood would be a whole classroom because they're so young and they touch everything and each other, we would have to close classes for quarantine. We were dedicated to refunding tuition for the time when we were managing quarantines, so we were losing money frequently. The quarantine guidelines changing has helped us a lot.

Children’s Learning Center has been operating since 1969. What do you credit for this long tenure of care?

We started occupying this building in 1993, and the building is paid off. It comes with a fair amount of maintenance, which we keep to a pretty high standard. Since I've been here for four years, we've replaced the roof, we've had to redo the playground because of flooding, and we replaced four out of five of the commercial HVAC units. So it comes with a lot of big line items in our budget for maintenance and repairs, but the fact that we don't have rent or mortgage payments is a huge benefit for our overhead expenses.

From what I've heard, just talking to different people that were part of Children’s Learning Center’s history, there have been some ups and downs where they've thought about closing the doors but were obviously able to pull out of that. I think it’s because of three factors. First, any time you have a long-standing leadership it helps because a lot of times the turnover in early childhood makes it difficult to sustain the longevity of your five-year plan or ten-year plan.

Another factor is us being nonprofit. We can tap into more funding sources and also as a nonprofit we have a board of directors. Our board has ten people and is made up of five current parents who have children enrolled and five members of the community. Just the structure of how the board is made up helps us tap into resources for fundraising, marketing, web development, etc., and the board develops an investment and commitment that Children’s Learning Center can rely on.

There's also a higher education level at Children’s Learning Center. Our program director has a bachelor's, and I have my master's. It doesn’t take a degree to be qualified to lead an early childhood program, but frequently a center’s leadership is based on someone who was great in the classroom but doesn’t have administration-type skills or training. And it's a lot to deal with. You're doing the budgeting, the payroll, the taxes you take on demand quite a bit of time, etc. So when you jump in and you're not ready, that can be devastating.

What financial challenges have you seen in families?

We've seen challenges of parents who can't afford to get their child here because something happens with their car or the rising increase in gas prices. We've had a lot of parents reach out for funding sources, which we can provide as a nonprofit. And even through the pandemic, we’ve been able to get grant money we can use as a scholarship fund.

Besides professional development opportunities and revisiting wage scales, what helps keep your staff turnover low?

Any of our employees who have children enrolled at the school, we give a 50% discount in child care. And even though that takes off our revenue, it helps us provide longevity in our teachers because if you're happy at your job and your child has a discount, you're happy with the school. They're going to stick through being here for five years, if not for their child, but for their own enjoyment in their career. Teacher satisfaction and having teachers interested in staying around longer helps our revenue in the long run.

What would help reduce staff turnover?

With turnover, the fact of the matter is that a lot of times we can't keep teachers because we can't provide competitive pay. We're fortunate to have teachers who are passionate about child care, but often they'll do their training and continue their education and move on to teach in public schools. In an ideal world, we would have the money and the benefits to recruit people who are invested in early childhood care as a lifelong career. With all the people I know working in early childhood, there’s always a good split of people who work more than one job. Right now, I'm still on the waitlist to start teaching as an adjunct again. Almost everyone at some point has to pick up a second job in order to make ends meet

How did Children’s Learning Center survive during the pandemic?

We were able to participate in the Paycheck Protection Program, which we were able to get turned into a grant instead of a payback. We received funding from the Hero Relief Program and sustainability grants provided by the Department for Children and Families through the Child Care Development Fund. We also partner with DCF’s Child Care Subsidy Program to help families who need financial assistance with child care and have a total household income of up to 250% of the federal poverty level. CLC was also able to tap into local funds for crisis relief that were funneled through the Douglas County Community Foundations. This organization has grants that we apply for regularly and that were available pre-pandemic. During the pandemic, there were funds that targeted businesses within Douglas County for crisis relief.

When we were shut down for six weeks, we were still able to pay our teachers and have them when it was time to reopen. Without that, we would have wiped out our safety net for emergencies. None of us could have predicted an emergency like a pandemic. So, without all the funding, we definitely would be cutting classrooms and probably having to shut the doors after 53 years. It would have been a devastating hit. 

How do you think the pandemic has affected the work of child care?

The stress of the pandemic got to where the enjoyment of the job was really low because, you know, they have to sit home for two weeks because somebody got sick or parents are upset because we have to send their kid home or teachers are worried about the health of their families when they work in child care. There was just a lot of stress involved in COVID and with the political discord of ‘masks or no masks’ or ‘vaccines or no vaccines.’ A lot of the reasons why we love this job fell against that. And on top of that, the pay is really low and now there are opportunities to make more money with less stress. It’s really easy for people to be like, ‘This is not worth it.’”

Even before the pandemic there was this disrespect towards early childhood professionals and teachers, like ‘They're just babysitting. Why would they need more money for this?’ And then some people think we are getting a lot of money, but the fact of the matter is that the fees are being paid by parents, who can't afford a whole lot more, and the costs of running a child care business is high. If you look at the liability insurance, taxes, workers compensation, the utilities, and the benefits package if it exists, teachers can’t be paid more. Most child care businesses are barely making the overhead costs and don't have the money to pay teachers more. It's not that they don't think they deserve it or they don’t want to, it's that the money is just not there.

What is the difference between a child receiving professional care vs receiving care in their household or family?

The crucial social developmental milestones are learning how to socialize and following directions. Simple skills like washing your hands, standing in line, getting along with other people—these are huge for children in the three to five-year-old age. In order for a child to be ready for school, they need to figure out how to get along with 25 other children who are sharing their space, who have different personalities, all while listening to different figures of authority. If a child has never listened to anyone other than a parent or grandparent, then you’re putting them in a situation where they are suddenly expected to keep up with the social standards for learning. That's a lot. Any kindergarten teacher I've talked to wants a student to come in with social skills and self-help skills like putting their own shoes on and how to go to the bathroom, and then the academics can fall into place. At Children’s Learning Center, we walk through these skills with our students daily and we're talking them through how we can help ourselves, how to get along with a group of people who have different personalities. We help students to learn about the differences the world creates. Of course we facilitate a learning environment that builds a foundation for all areas of development; including cognitive (academic skills). However, children are naturally curious and their brains are wired to learn. Gaining social and self-help skills is much more difficult outside the confines of a preschool program.