Daycares On The Brink

Most New York City childcare centers, like this one, were required to shut down from April to mid-July

MARCH 27 WAS HANDS down the worst day of Cathleen Farrell’s professional life. COVID-19 had hit the country like a tsunami a couple weeks before, prompting childcare centers, including the three she owns and operates in Medfield, Mass., to close until further notice. For two weeks, Farrell had continued to pay her 26-person staff, hoping the crisis would be over soon. But by the end of that month, her finances had become untenable. She reluctantly assembled her employees to deliver the grim news: everyone would be furloughed indefinitely. On the video call with her staff, Farrell cried.
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“I felt like I was doing it to them,” she says, her voice cracking in the retelling. Stopping people’s paychecks during a period of economic uncertainty cut against how she saw herself. “I’m a caretaker,” she says. “I take care of people.”

But Farrell’s decision to furlough her staff was just the beginning of her financial woes. In order to reopen her day-care centers in July, shortly after Massachusetts gave childcare directors the green light, she had to retrofit her facilities to keep kids safe and quell their parents’ fears. That meant purchasing thousands of dollars’ worth of new equipment: 18 air purifiers at $200 a pop; an $800 electrostatic sanitizing device; half a dozen $369 strollers to keep toddlers farther apart; and outside play equipment and tents that set her back well over $10,000. Farrell also doubled the frequency at which professional cleaners visited her facilities and began paying her staff more in overtime, in part because they had to pick up additional hours as their co-workers took more sick days. (Farrell sends home any employee who is not feeling 100%.)

Farrell was able to defray some of these costs with a $156,000 federal Paycheck Protection Program loan and a $100,000 federal Economic Injury Disaster Loan (EIDL) from the Small Business Administration. But seven months into the pandemic, that cash is nowhere near enough. In all, she tallies her losses to exceed $390,000. “Money is flying out the window,” she says. “It’s been heart-wrenching to see a thriving business collapse.” Enrollment at her facilities has yet to rebound. For weeks, her largest childcare center operated at 20% capacity. Until October, Farrell couldn’t even afford to pay herself.
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Not that it provides much solace, but Farrell is far from alone: 86% of childcare providers reported serving fewer children than they were before the pandemic, and 70% said they’re incurring “substantial” new operating costs, according to a July survey from the National Association for the Education of Young Children (NAEYC). Across the industry, enrollment has plummeted by two-thirds, while costs continue to soar. Day-care managers must hire more staff to handle smaller class sizes, spend more on legal fees to navigate the process of obtaining government loans and abiding by state regulations, and shell out more for sanitation supplies and cleaning personnel. Unless the government invests significantly in the industry—and soon—NAEYC predicts that 40% of the childcare businesses it surveyed will shutter. Permanently.

THE DEATH of the childcare industry as we know it may have a domino effect across the economy. If these businesses fail, owners like Farrell will face hardship, but so will the roughly 1.1 million people—96% of whom are women and 40% of whom are women of color—who work as caretakers. Mass closures across the industry will also have a ripple effect on parents, who depend on day-care centers to work outside the home. Without access to affordable and convenient childcare, many parents—and the burden falls disproportionately on mothers—will be forced to quit their jobs. It’s no longer a question of whether this will happen, but how pervasive it will be. From August to September, 865,000 women dropped out of the labor force, according to the latest jobs report; 216,000 men did too. This mass exodus is already hindering women’s advancement, exacerbating gender income inequality and putting a drag on the U.S. economic recovery. “If we had a panic button, we’d be hitting it,” says Rachel Thomas, the CEO of Lean In. “We have never seen numbers like these.”

Mass closures of day-care centers may also warp the childcare industry in the long term, experts say. Newly unemployed caretakers, who tend to make low wages in demanding settings, may never return to their profession, and childcare-center owners may choose to abandon their businesses for more lucrative ones. Families, meanwhile, may opt to keep a parent home to watch the kids. “Absent our collective investment in childcare, there really won’t be an effective community recovery,” warns Lynette Fraga, the CEO of Child Care Aware, an industry research and advocacy organization. “If we aren’t supporting childcare providers, there won’t be childcare to go back to.”

MILLIONS OF AMERICAN PARENTS, who already spend an average of about $10,000 per toddler per year for childcare, may wonder why their day-care center is in such dire financial straits. The answer, in part, is simple economics: operating a day care requires a lot of overhead—rent, utilities, staff salaries and equipment—while profit margins are relatively slim. COVID-19 has made those ratios even worse. “This was an industry that was really struggling before the pandemic,” says Simon Workman, the director of early-childhood policy at the Center for American Progress (CAP). “If you were struggling to get by before, then the chance of you closing now is pretty high.”

Lauren Brown, the director of World of Wonders Childcare and Learning Center in Marysville, Ohio, says her center spent 300% more on cleaning costs over the summer, while grossing $20,000 less in June and July compared with previous years, because of reduced enrollment. Annette Gladstone, the co-founder of Segray Eagle Rock preschool in Los Angeles, tells a similar story. She’s struggling to pay rent on her center’s building in part because many of the children her company usually cares for have yet to re-enroll. Segray Eagle Rock normally has 177 kids; in mid-October, it was still serving only 35 to 40 kids per day. And again with the costs: despite the blistering Southern California heat this summer, Gladstone kept the windows open and the air-conditioning on because the CDC indicated the practice could increase ventilation, thus decreasing viral transmission.

Stringent government regulations designed to safeguard child safety and development are also a factor. Most states require that day-care centers maintain high adult-to-child ratios and ample square footage. In some places, day-care operators are required to hire staff trained in early-childhood development. These measures are important. Research shows that early-childhood education shapes everything from adult brain volume to reading proficiency. “That has an impact on our future labor force and their economic potential, which ultimately is tied to our country’s economic potential,” says Katica Roy, a gender economist. But these requirements also have the effect of making day cares less nimble in the face of economic crises.
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While other enterprises can quickly cut down on costs by downsizing, going remote or skimping on staff, day cares don’t have that luxury. Caretakers who need to quarantine or call in sick also pose outsize problems for their bosses. Since most day cares are not currently allowing parents to enter the buildings, centers need to have enough staff to bring children inside in the morning and back to their parents outside in the evening. They also need to have enough staff to watch the children throughout the day—but not so many that they can’t cover payroll and other expenses, like purchasing personal protective equipment. That delicate calculus can create huge logistical problems for both childcare operators and the working parents who rely on them. “If I don’t have enough staff to operate safely,” says Meredith Kasten, who runs Early Childhood Center in Greensboro, N.C., “then I have to close the whole building.”

Even in the best economic times, childcare centers are hardly big moneymakers. The average day-care operator grosses $48,000 a year, according to the Bureau of Labor Statistics, while standard childcare workers make roughly $24,000. Usually these jobs come with little or no paid time off or other benefits. Only 15% of childcare workers receive employer-sponsored health insurance, according to a 2015 Economic Policy Institute report. (The lack of health care benefits can be problematic under any circumstances, but the stakes are particularly high during an ongoing pandemic.)

As COVID-19 restrictions loosen in some states, and parents begin to send their kids back to day care, some childcare operators have struggled to hire back their laid-off staff. Part of the reason has to do with the industry’s dismal compensation. Some childcare workers actually saw their incomes increase when they lost their jobs, thanks to the extra $600 per week in unemployment pay provided by the CARES Act—a provision that expired in July. This summer in Florida, an unemployed worker could have received as much as $875 per week from both state and federal unemployment benefits. That’s close to twice what the average childcare worker makes normally.
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But part of the problem facing child-care operators looking to rehire staff may also be widespread instability across the industry. The shaky economics of running a day-care facility combined with the uncertainty of the ongoing pandemic, which continues to worsen in many parts of the country, makes employment in the sector unsavory to some. It’s unclear if providers who are hired back now will still have a job in a month or a year. According to CAP data provided to TIME, the costs of providing center-based childcare have increased by an average of 47% since before COVID-19. In California, costs have jumped 54%, and in Georgia, they’ve skyrocketed 115%.

Home-based childcare facilities, which served up to 30% of infants and toddlers before the pandemic, are also suffering. Such facilities usually enroll fewer kids, which some parents may see as a benefit during COVID-19. But the sector has been in decline for years. From 2005 to 2017, the number of small licensed family childcare businesses dropped 52%, according to a government-funded report.
Ellen Dressman, the founder of Frog Hollow Nursery School, a home-based day care in Berkeley, Calif., has been in business for more than two decades and recruited her children to join it too. But when her state permitted childcare businesses like theirs to reopen over the summer, only two families planned to return—not enough to cover operating costs. If Dressman, 65, and her daughter lose the business, which covered their mortgage, they could lose the home that the day care operated out of, too. “I didn’t realize how much the industry really needs public support until now,” she says.

THE CALAMITY currently facing the childcare industry was both predictable and preventable, some experts say. After all, private day care is intrinsic to the functioning of the American economy. Parents of small children cannot participate in the labor force without childcare of some kind. For millions of American parents, that choice is stark: either they pay for private day care or they choose to stay home, thus giving up their income. But at the same time, American society has not rewarded the childcare industry for the vital role it plays. While Americans agreed long ago that children have a right to a public-school education—to which even nonparents contribute in taxes—there is no similar consensus on sharing the cost of caring for smaller kids.

The disparity is clear. While public-school administrators have also grappled with new COVID-19-related safety protocols and increased expenses, they are buttressed by government funding. Day cares aren’t—and are therefore left to sink or swim. Marcy Whitebook, the founding director of the Center for the Study of Child Care Employment at the University of California, Berkeley, says there’s no good reason why the U.S. does not provide public support for childcare in the same way other industrialized nations do. “Because we’re asking parents to foot the bill and it’s so expensive,” she says, “it means that the only way to really make that happen is to essentially exploit the people who are doing it.”

FARRELL, FROM MASSACHUSETTS, is acutely aware of that dynamic. After months of exorbitant expenses, she’s worried about the viability of her smallest childcare center—and about her retirement plans. Currently 57, she’d planned to bow out in the next eight years, but now worries she will have to stick around longer to pay back the debts she’s accrued. “Knowing that I owe that EIDL money back scares the hell out of me,” she says. She has 30 years to repay the loan, but can’t fathom working into her late 80s to do so. “I don’t even know if I am going to be on this earth in 30 years,” she adds.

Short of the pandemic miraculously ending and enrollment levels recovering, there’s a glimmer of hope for childcare-center directors like Farrell. On the presidential campaign trail, former Democratic candidates including Senators Kirsten Gillibrand and Elizabeth Warren floated tax breaks and universal childcare plans that would have pumped money into day-care centers while also reducing the cost of care for working-class families. Democratic presidential nominee Joe Biden has since taken up that mantle, calling for tax credits and subsidies that would ensure families earning less than 1½ times the median income in their state aren’t having to spend more than 7% of their incomes on childcare.

There’s also been some movement in Congress. In July, the Democrat-led House passed a bill appropriating $50 billion toward the Child Care Stabilization Fund to provide grants to childcare providers. But that bill is unlikely to pass the GOP-controlled Senate, and even if it did, it probably wouldn’t be enough to save childcare centers that are already underwater. The Center for Law and Social Policy estimates the industry would require nearly $10 billion per month to survive the pandemic, according to an April report. “It is short-term triage, but it may be too late,” Whitebook says of the House bill for emergency funds. “We’re in a fast-moving vehicle toward destruction of a lot of people’s lives, livelihoods and health. And kids are in that vehicle too.”
By Abby Vesoulis