Section 7: Economic development strategies for child care: from analysis to policy change

from Measuring the Regional Importance of Early Care and Education: The Cornell Methodology Guide, by Rosaria Ribeiro and Mildred Warner, Ph.D.

A healthy economy requires strong businesses and productive workers. Child care not only fuels that strength, it is an industry that provides positive, short-term returns. Regional economic analysis tells the story of a sector composed of thousands of small businesses, which employ thousands of workers and serve thousands of children. Not only is the sector important economically in its own right, it is also a critical component of the social infrastructure that supports parent workers and their employers. New definitions of economic development emphasize more than jobs and income; they recognize the importance of investments in human capital, quality of life and sustainability. Economic investments focused on the child care sector achieve all of these goals.

By broadening the framing of child care to include economic development, we broaden the framing of economic development policy as well. When child care is recognized as part of the economic development infrastructure, it opens the way for more sustainable economic development policies focused on improving quality of life and social infrastructure in communities. Investments in the child care sector support families, businesses, and society as a whole.

State and local economic development policy is typically focused on tax abatements and infrastructure investment (Warner, 2001; Bartik, 1991). Tax abatements have been criticized for their limited effects on economic growth (Lynch, 1996). However, government investment in social infrastructure and quality of life is now being recognized for its positive impact on economic growth (Bartik, 1996; Florida, 2002). Child care, because of the nature of the service it provides to the economy, has a positive economic development effect.

Economic development strategies can be used to promote investment in early care and education:

• To strengthen the competitive position of the many small business providers,
• To improve retention and quality among its teachers,
• To enhance access for all families, and
• To support employers by providing care at the times and locations most needed by working parents.

Researching the economic impact of the child care and early education sector has been a learning process for all the teams involved. Many exciting new policy approaches are being explored as a result of these studies. This is the promise of an economic development approach. The Cornell University Linking Economic Development and Child Care Research Project is currently tracking policy innovations. Examples are provided on our website and are highlighted below.

SUPPORTING CHILD CARE BUSINESSES

Economic development strategies can be used to improve facilities and management of child care providers.

Support for Small Business

It is useful to compare child care to other small businesses that receive economic development attention to promote entrepreneurship, and improve business management. Access to economic development incentives geared to small businesses—loans, business management training and support—could assist child care providers with upgrading facilities and reducing operating costs.

Several community development organizations have developed initiatives to support child care businesses. For example, the Rhode Island Local Investment Support Corporation (www.liscnet.org/rhode_island) has established a Child Care Facilities Fund (RICCFF), which invested more than $2 million in Rhode Island in 2002 for low-interest loans and small grants to support facility improvement of centers and family child care homes. These investments help child care businesses improve the quality of their service. The Enterprise Foundation has established a financing model to provide support for child care facilities and works with partners across the United States to provide grants and loan support (http://www.enterprisefoundation.org/solutions/childcare/index.asp).

Developing Economies of Scale

Enabling small child care businesses to reach some economies of scale could help these businesses operate more efficiently and bring some stability to an industry that is often economically fragile. Mechanisms used in other industries to streamline billing, marketing, and purchasing might help strengthen cash flow and reduce overhead in the child care industry. The field already has some examples of efficiencies in staffing, food service and collection management. Helping child care programs spend less time on back-office tasks and more time delivering quality care, while maintaining the diversity of providers and parent choice in the market, is an important step.

In Ohio, a child care resource and referral agency has recently launched a new initiative, “Centers that Care”: an integrated employment marketing program for participating providers. Centers that Care will recruit, screen, interview, and profile potential child care employees and provide participating centers with a computerized data base of qualified job applicants. The goal of this initiative is to facilitate the hiring of child care workers saving time for center directors who would normally have to recruit and screen staff themselves (Stoney, 2004a).

Using Zoning, Land Use, and Transportation Policies to Address Shortage of Licensed Child Care Facilities

The needs of child care businesses should be reflected in land use and economic development policies. In some states, child care homes are exempt from small business zoning rules restrictions, but in other states (e.g. California) zoning rules can pose an impediment to expansion of child care supply. One of the goals of the California county studies was to expand planning policies to include a supportive approach to child care. The Child Care Planning Council in Alameda County, CA, prepared a child care facilities planning report, as well as a case study for a developer agreement that links land use and child care (Freeman, Dektar, and Garling, 2002). The City of Bakersfield, CA has also included child care as a priority in the “City’s Consolidated Plan 2005.” This major planning document directs the city to set aside Community Development Block Grant monies and other funds to build child care centers and increase family home provider services to accommodate over 1,000 children (Hildebrand and Upp, 2001b).

Bringing Informal Providers into the Regulated System

Bringing more providers into the regulated system can be beneficial. Parents will benefit from increased market information on the availability of child care in their area, providers will have access to licensing agency services, and CCR&Rs and policy makers will be able to address the needs of the sector more effectively. Whereas regulatory policy often sets up barriers to entry, an economic development approach might identify incentives needed to entice child care businesses to become licensed. For example, Maine established a child care tax credit that gave a premium to parents who use licensed child care. Many states provide start up grants for equipment, but funds are typically insufficient to attract family providers. In addition, bringing informal providers into the regulated system expands child care sector data to include more of the children in non-parental care. All parts of the child care and early education system need to commit to and invest in comprehensive data collection; bringing informal providers into the system is just one step in this critical process.

SUPPORTING THE CHILD CARE WORKFORCE

Economic development strategies can be used to reduce turnover rates among child care employees, improve wages and educational levels, and improve quality of care.

Scholarship Programs to Improve Educational Standards

Scholarship programs help cover the costs of higher education or training for early care and education workers. One such program, the T.E.A.C.H. Early Childhood Project, is currently being implemented in 23 states. T.E.A.C.H. provides scholarships for teachers in regulated child care centers and homes (Center for the Child Care Workforce, 2003).

Wage Supplement Initiatives

Several states and local governments have designed programs to supplement the wages of child care providers. North Carolina’s Child Care Wage$ Project provides salary supplements to low paid teachers based on their educational level. The project is designed to reward teacher education and continuity of care (Mitchell et al., 2003). In San Francisco (CA), WAGES PLUS has set a predetermined wage floor for various staff and provider categories. Providers who receive salaries below the threshold for their particular category receive government funding to fill the wage gap (Hildebrand and Upp, 2001b).

INVESTING IN CHILDREN

Investments in quality have both short and long-term impacts on economic development. In the long-term, quality child care can help children be ready for school and lead healthier, more productive lives. In the short-term, investment in quality will strengthen the child care sector without raising the cost for working parents.

Tiered Reimbursement Rates

Tiered child care subsidy reimbursement rates can provide economic incentives for providers who serve low-income children to offer high-quality care. A total of 34 states have linked higher reimbursement rates to quality standards (Center for the Child Care Workforce, 2003). Quality rating systems establish tiered reimbursement rates for child care subsidies, improve links to various public and private grant programs, and increase awareness among parents about the quality of a particular child care program. One example is the Colorado Educare Quality Rating System described in the box above.

Licensing and Regulations

States can use licensing regulations to improve the quality of care through lower child–staff ratios and higher training requirements for providers. A report by the Children’s Defense Fund points out that only 10 states meet national recommendations for staff–child ratios in center-based care, and most states do not require all family care providers to meet regulations. (Ewen et al., 2001). However, simply raising licensing and regulation requirements without giving attention to cost and price constraints faced by child care providers and parents can have the adverse effect of driving child care providers and parents out of the regulated care system.

Public Investment in Early Care and Education

Improvements in the quality of care require an investment beyond that expected from parent fees. States can expand investment in programs such as Head Start, Early Head Start, and pre-kindergarten to improve quality of early care and education. These programs are particularly important for low-income children who cannot afford quality private care. Long-term studies have found high societal returns from investments in early education (Barnett, 1995). Between 1992 and 1999, state spending in pre-kindergarten initiatives has expanded from $0.7 billion to $1.7 billion, an increase of 243 percent (Schulman et al., 2003).

SUPPORTING EMPLOYERS AND WORKING PARENTS

Increasingly, economic developers and businesses are recognizing the importance of social and educational investments, which promote a high quality of life (Florida, 2002; Warner et al., 2003). Investment in child care builds the social infrastructure that helps employers attract and retain workers. Reliable child care contributes to economic productivity by supporting working parents, and by reducing employee absenteeism and turnover rates (Hofferth and Collins, 2000). Parents are the primary purchasers of child care and the high costs prevent many parents from purchasing the quality care their children need.

Flexible Spending Accounts

The employer community can help families pay for child care by creating Flexible Spending Accounts (FSAs) where employees can place up to $5,000 of their earnings in a pre-tax account. Employees withdraw the money by submitting receipts for child care services. Since FSAs are non-taxable, the result is a significant tax savings for the worker and the employer (Early Education Partnership, 2002c).

Unfortunately, the FSA is not indexed to inflation and the maximum yearly contribution of $5,000 has not been raised since the inception of the federal FSA program in 1983. The business community can play a critical role in pointing out to government the economic benefit of increasing the maximum level to reflect the actual price of care.

Many employees hesitate to use the FSA because it operates by reimbursement and any money left in the account at year-end is forfeited. Nationwide, only 2-4% of workers participate in such programs when offered (Early Education Partnership, 2002c). Some employers have addressed this problem by starting the plan year in February so employees will have reimbursable expenses immediately, or by supplementing employee contributions. For example, New York State government made its FSA more employee-friendly by ensuring that refunds are processed quickly and by not withholding money the first or last month of the year in order to aid their employees’ cash flow. Con Agra helps employees pay child care costs. Company contributions along with payroll deductions are placed in employee FSA accounts (Mitchell et al., 1997).

Tax Credits

Governments can use tax credits to help parents pay the costs of child care. The federal government and 27 states offer a Dependent and Child Care Tax Credit (DCTC) (Donahue et al., 2002). However, the amount of allowable credit is still very low and the Federal Dependent and Child Care Tax Credit has not been raised sufficiently to cover the cost of care. Of the 27 states with credits, only 10 have made the DCTC refundable. The federal DCTC is also non-refundable. Making the DCTC credits refundable would help low income working parents who do not earn enough income to owe taxes. The DCTC also can be linked to child care quality. Maine, for example, doubles the credit for taxpayers who enroll their child(ren) in a program that meets the state’s quality standards.

Tax Abatements for Employers

Tax abatements for businesses are used as motivation for locating or staying in a regional area. When tied to child care, tax abatements can be designated to reduce working parents’ expenditures on child care. Austin, Texas, has recently earmarked 20% of a tax abatement package for work force development and child care (Mitchell, Stoney, & Ditcher, 2001). By including child care as an up front provision, employers understand that their tax reduction pays a double benefit in the care infrastructure it helps develop.

Child Care Subsidy Programs

Since welfare reform, government subsidy support to low-income working parents has increased over 250% (Mezey et al., 2002a). Unfortunately, only 15-30% of eligible children currently receive child care subsidies (Mezey et al 2002b). Child care subsidies “make work pay” for low income parents and support business and employment growth in the regional economy.

In Tompkins County, NY, the Early Education Partnership launched an initiative to increase utilization of subsidies by involving area employers in helping to advertise subsidies to eligible employers. Such business community support also enabled the Department of Social Services to successfully advocate for expansion in the county’s state subsidy allocation. Framing child care as an infrastructure that supports local businesses was key to securing business leadership and sustaining interest in the group (Warner et al., 2003).

Subsidy programs also can be fashioned as public-private partnerships so that employers match government funds in order to ensure child care for their employees. In states that have engaged the private sector, innovative policy has resulted in expanded funding for child care. For instance, the State of Florida approved legislation (The Child Care Partnership Act) that encourages businesses to help low income parents pay for child care. Based on this law, the state government will match the funds used by employers to subsidize child care. Since 1996, Florida’s Child Care Partnership Act has attracted $19 million in private sector support for subsidies to low income employees (Mitchell, et al. 2001).

NEW VISIONS FOR ECONOMIC DEVELOPMENT POLICY

In recent years, economists and policymakers have begun to realize that growth in jobs and income, the traditional measures of successful economic development, are insufficient to gauge a society’s true level of progress (United Nations, 2003; Sen, 1999). Business and economic developers in the US increasingly recognize the importance of “quality of life,” which includes environmental, educational, and recreational amenities, in attracting and retaining businesses in a community (Bartik, 2003; Florida, 2002; Warner et al., 2003).

The business community is beginning to recognize the value of the child care sector. The report released in 2002 by the influential Committee for Economic Development called for “the United States to acknowledge society’s stake in and responsibility for early education.” Employers have long recognized the importance of quality child care as it relates to increased employee productivity. There is now an opportunity for the business and economic communities to join with the child care and early learning community to enhance the quality of early education and, in turn, strengthen the regional economy.

Economic development arguments can help us to broaden the collective responsibility for care. While framing child care as economic development can open up the field to new sources of support and to new ideas, we do not want to undermine the educational and social values of child care. Investing in children now will benefit society later by creating a better-educated and more productive workforce, ensuring that more people are able to care for themselves without government support (Lakoff and Grady, 1998). Public surveys show that the majority of people rank early education programs as a high priority (Brandon, 2003). The US is increasingly becoming a knowledge economy and investments in the future workforce are critical to our long-term economic competitiveness.

The economic importance of the early care and education sector includes three components: human development of children which builds the foundation for our future workforce, support for working parents and their employers, and child care’s role as an economic sector in the regional economy.

This methodology guide has focused on the regional economic importance of child care – the regions petal in our trillium flower. However, as child care policymakers work to measure the field’s contribution in the traditional economic development terms of jobs and income, they should not forget the field’s importance for human development and the long-term economic returns from quality.