When Daycare Costs More Than College

Parents are now paying up to $20,000 a year for childcare. One state's solution to this crisis could be a model for the nation.

By Eric Gardner, More Perfect Union

America is in the midst of a childcare crisis. Full-time care often costs more than university tuition, while childcare businesses struggle to break even. Many new parents face a choice: drop out of the workforce or spend 27 percent of their income on child care. 

The crisis is somehow even worse for childcare workers. The median worker earns around $14 an hour with minimal benefits. It’s a slow-moving national emergency. “If you squint and you look at the industry…it looks very dark,” Matt Bateman, vice president at a national childcare chain with over 100 schools, told Bloomberg.

Minnesota Democrats want to brighten the state’s industry through the Great Start Affordability program. The legislation, introduced by Rep. Carlie Kotyza-Witthuhn and Sen. Grant Hauschild, would expand state childcare subsidies to families making under $175,000 a year, with the goal of limiting overall payments to 7 percent of a family’s income (what the federal government declares affordable childcare). Currently, only families earning under $60,000 are eligible for childcare subsidies in the state.

The legislation is trying to address the industry’s flawed business model. Childcare is the backbone of the American economy, but safe childcare is expensive, and the workers earn little because most parents can’t afford to pay more. Rep. Kotzya-Witthuhn summed up the landscape in an interview with More Perfect Union: “Ultimately, the industry is broken.” 

The high cost of providing care is due to regulations called ratios that limit the amount of children a caregiver can watch. No serious person wants to get rid of ratios, but they do create a tough business because the staffing requirements are often unprofitable. Since there’s a ceiling to what parents can pay, providers are limited in what they can charge and pay employees. 

Even the largest childcare companies aren’t immune. Bright Horizons, a publicly held corporation with almost 400 locations across America, boasts a profit margin of under one percent for center-based child care. The company posted a profit of $80 million in 2022—entirely off the sales of ancillary services like educational consulting and emergency childcare for employees of big companies, not traditional parent-paid childcare services.

America is unique from most developed countries in that it does not try to bridge the gap between the cost of providing care and affordability through meaningful subsidies. In 2021, the U.S. government spent about $500 per child on early childhood care, compared to the average of $14,436 in other developed countries, according to data from the Organization for Economic Cooperation and Development and the Hamilton Project. During COVID, relief money was used to subsidize worker wages, but that expired last year. As of January twelve states have expanded the support, with Minnesota making it permanent. 

President Biden’s flagship Build Back Better plan aimed to expand childcare subsidies and introduce national paid family leave. The latter would allow parents to stay home with young children, providing invaluable bonding time and stripping the least profitable care from the system. Both were ultimately dropped. Instead, parents and under-paid childcare workers are left shouldering the burden, creating massive shortages throughout the nation. Currently, more than half of Americans live in a childcare desert. 

Warren, Minnesota was one of those communities. 

Located about 40 minutes east of the University of North Dakota, the small farming community had a dearth of in-home childcare providers and its own center (Lil Sprouts) was on the verge of bankruptcy. The government had a novel solution. What if the public funded the construction of a childcare facility through a small sales tax? Generally, 70 percent of childcare expenses are labor, with the remaining divided between real estate, supplies, and administration. The setup would allow the bankrupt non-profit to save on real estate costs, stabilizing childcare in the town. The referendum passed by 15 votes.

Publicly subsidizing the real estate costs ensures viable childcare for the town for the foreseeable future, but it doesn’t solve the underlying problem of high prices and low pay. That’s something that needs to be done at a higher level, which Minnesota’s proposed legislation is looking to solve. The goal, Kotyza-Witthuhn told More Perfect Union, is to “keep money in the pockets of Minnesota families, but at the same time stabilize the income of our childcare providers and early learning educators.”

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