The Boom of For-Profit Child Care - And Where That Takes Us

Elliot Haspel understands that child care is in chaos: The sector is still down 100,000 educators from pre-pandemic levels, nearly 10 percent of the workforce. Parents with young children are facing waitlist after waitlist. Thousands of programs have shuttered permanently, further exacerbating the lack of care in child care deserts, and giving parents fewer reliable options.

But there is one child care provider that continues to expand - the large, for-profit chains. In a recent piece in The New Republic, Haspel argues that these chains cannot be left to run rampant with unchecked authority. “The road to a universal, affordable childcare system cannot run through earnings calls and quarterly reports,” he writes. “Mixing toddlers and the profit motive is a dangerous brew.”

Where other countries are pushing back on the motives of for-profit child cares, the United States has let these industries grow without much oversight. In this BLL Deep Dive, Haspel goes into more detail on the ramifications of the rapid growth of for-profit child care chains and what oversight is needed to ensure quality while allowing smaller child care centers to thrive.

BLL: Many advocates have been pushing for universal or near-universal child care for years. In the 1970s, a bipartisan Congress passed legislation to do so, only to have it vetoed by President Nixon. Build Back Better included funds for child care which were stripped out to get the legislation to pass. How does the rise of for-profit childcare change the political landscape for providing more federal child care funds or creating a more universal system?

EH: I don’t want to paint with an overbroad brush, but it seems to me investor-backed for-profit chains face a hopeless conflict of interest. Let’s do a thought experiment. Suppose the federal government came out and said, “OK, here’s the deal: we’re going to make child care universally free, just like public schools; the government will pick up the tab for the parent fees. And we’re going to give every child care program a grant that will allow them to operate sustainably and pay their staff with solid salaries – $40,000 and way up – and benefits. In exchange, programs have to cap how much they charge.” Now, I think it’s fair to say that 100% of non-profit programs and 98% of small for-profits are going to jump for joy at that deal. But are investor-backed chains? You just killed their entire investment case. So it’s very, very fraught when you think about the politics and how these chains are using their political influence and lobbying dollars.

We can actually see this in action: in Ontario, for-profit providers, mainly the chains, made a huge concerted effort to fight the regulations of Canada’s new universal system. The for-profits basically threatened to restrict the supply of slots if the government went ahead with a clause barring “undue profits” and a clause restricting the use of public funds for CEO bonuses and things like that. And the Ontario government caved! So the political implications are quite real.

BLL: In other human service industries, notably K-12 and elder care, the rise of for-profit institutions has not improved outcomes, and, as you pointed out in your New Republic piece, in some cases the results have been disastrous. If for-profit child care continues to grow, what are ways to take the lessons of these other industries and ensure that children can still receive quality child care?

EH: I think we should start with a caveat: unlike elder care and K-12, there’s more of a quality floor for the chains, and that’s because of the mandatory child:adult ratios they are subject to. So there’s a bit more oversight. That said, it’s already fairly clear that average quality is lower among the chains. That’s not a knock on the hard-working educators, it’s about the extent to which they are set up for success from a management perspective.

Part of the challenge, though, is that we have such little data and such little attention to the question in America. I would really like to see an expert panel convened to examine the existing evidence, come up with a research agenda, and issue policy recommendations. I think Congressional hearings could also be in order, to really get the chains on the record about the practices and philosophies. And I think everything should be on the table: at bare minimum, there needs to be more oversight and transparency. I mention in the piece that some experts have called for private equity to be disallowed from investing in – and forced to gradually divest from – nursing homes. I wouldn’t reject that option out of hand for child care.

BLL: You mention in your TNR piece that some for-profit chains do have high accreditation ratings and provide good service - yet many still pay their employees low wages. Staff turnover is crippling the child care industry - how do you see this playing out in the for-profit space? Bright Horizons had a $400 million stock buyback in 2021, did any of those funds make their way to the employees working with the kids?

EH: My understanding is that the chain programs are indeed having staffing struggles like other types of child care programs. But because they have deeper pockets and access to investor dollars, chains do tend to offer decent benefits, although their wages remain quite low. They’re also the only [child care providers] who have the option to follow suit of McDonalds or Walmart and really push wages, and they can deploy that in specific geographic markets to basically outbid the smaller and nonprofit programs for what staff is out there. Bright Horizons’ leadership was clear on a recent earnings call that their staffing shortages aren’t crippling, and my read is that they are doing better than other types of programs. There’s a reason the chains are still expanding while decades-old independent programs fail!

BLL: In a future where the United States gets the political will to create a universal child care system (or even in places like New Mexico and Vermont, which are marshaling funds and legislation to create near-universal systems), what role do big for-profit chains have to play? Do you see this as being a similar system to the private schools in the k-12 model, where for-profit actors operate independently, or more ingrained actors who can receive public funds for their work?

EH: I want to take pains to distinguish between small for-profit providers and investor-backed chains. I believe strongly that we need a mixed-delivery early care & education system, because parent preferences and needs are so variable and we know quality can be delivered in any type of ECE setting. A wholly publicly-delivered system will not accomplish the goals we seek; it’s why I oppose California going to their universal pre-K entirely through the public schools. Almost every family child care provider in America is technically for-profit. So are a lot of the independent centers with one or two sites. These actors have an enormously important role to place in a future system.

Chains that are private-equity backed or publicly traded, though, are a different question. At the very least, non-profit, community, and non-investor-backed for-profits should be prioritized when handing out public funding. But to be entirely honest, I would like to see the investor-backed chains phased out over time. They can convert to non-profit status, they can sell to a non-profit agency, whatever needs to happen to get investors and shareholders out of the picture. That’s not going to happen overnight, and it probably won’t happen in the next decade. But I’m not afraid to say that their fundamental conflict of interest is so inescapable that we need to start talking about an exit strategy.

BLL: At the end of the day, parents are exhausted trying to find quality care that has a spot open for their kid, and most families spend far more than the 7 percent of their income that is recommended to be designated for child care. For a family who relies on a for-profit child care center, what steps can they take or questions to ask to ensure they’re receiving quality care?

EH: I get it, options are scarce and parents often need to take what’s available! We should also differentiate between the philosophical and political challenges of the chains – and their average quality – versus assessing an individual program and an individual family. For that narrow of a question, parents should be taking the same steps they would take for any kind of child care program: ask about child:adult ratios, ask how they respond when a child is upset or has a conflict with another child, ask to spend some time in the center and the classroom (if schedules allow), ask about staff turnover. Looking up the center in the state’s database to see if they’ve had licensing violations can be useful, as can seeing if they participate in the state’s quality rating system and what their rating is. But quality starts with caring and attentive relationships between the educators and the children, and you can’t fake that. Nothing beats spending an hour in that center. Trust your gut.

Read Haspel’s full piece at The New Republic here.

Rebecca Gale is a writer at the Better Life Lab at New America.