Editor's note: This story kicks off this week's Early Childhood newsletter, featuring trends and top stories about early learning. This newsletter is delivered free to subscribers' inboxes every other Wednesday.
Last week, the Massachusetts Senate unanimously passed a child care bill that would significantly expand the state's investment in child care.
Lesser known: The bill also includes provisions that could make it more difficult for private equity-owned child care providers to expand significantly in the state.
Specifically, the bill takes steps to ensure that certain for-profit providers operating more than 10 programs in the state spend no more than 1 percent of the $475 million in proposed grants.
Currently, the investor-backed chain manages about one in 10 daycare centers across the country. Those numbers are likely to rise as states and potentially the federal government pump new money into the region, attracting investors interested in lower start-up costs and access to public funds, according to several child care researchers.
As a result, advocates and experts are pushing for broader, more sweeping regulations of the kind underway in Massachusetts. “We need to make sure there are real guardrails,” said Melissa Boteach, vice president who oversees child care and early learning at the National Women’s Law Center. She and her colleagues plan to release a report outlining recommended regulations and safeguards this June.
In their push, Boteach and others cite private equity's problematic record in managing other government-funded social services, including nursing homes and autism services. “The performance of private equity funds in other publicly funded sectors, such as home care, hospice care and housing, foreshadows the challenges the child care sector may face,” Boteach wrote in an email. Profit-seeking corporations in the child care sector will “take the money out” instead of using public funds to pay child care providers and teachers a living wage and upgrade facilities. [and] It extends to underserved communities,” she said.
In a written statement, Mark Bierley, CEO of Learning Care Group, one of the nation's largest for-profit child care operators, offered a very different view. “It is our duty to prepare children socially, emotionally and developmentally. We transition to K-12 education.”
“We have the resources to upgrade our facilities, equipment and technology to deliver on this promise,” he added. (More on his statement below.)
Hot response to this issue
“Private equity funds do not do business in daycare centers. That business model is completely antithetical to the goal of providing quality child care at an affordable price. It promises investors 'outsized returns' – returns that significantly outperform the stock market within a period of as little as five years. “We can only deliver on this promise by significantly increasing revenues or reducing costs, at the expense of children, parents, and taxpayers.” – Rosemary Batt, co-author of Private Equity at Work and numerous studies of the impact of private equity on various occupations and industries.
“Private providers bring decades of know-how and proven approaches to curriculum development. Our existing infrastructure is designed to meet the needs of specific age groups and is agile enough to accommodate the ever-changing needs of working families. It is our obligation to prepare children socially, emotionally, and developmentally for the transition to K-12 education, and we have the resources to upgrade our facilities, equipment, and technology to help us deliver on that promise. .” – Mark Bierley, CEO of Learning Care Group, one of the largest for-profit child care operators in the United States.
The proposed rule in Massachusetts follows efforts in several other related states. Vermont recently added ownership disclosure requirements to a package expanding child care assistance and also limited tuition increases for providers. New Jersey limits for-profit programs participating in the public pre-K system to a 2.5% profit margin.
But Elliot Haspel, a senior fellow at Capita, a think tank that has closely tracked the expansion of private equity in the child care sector, described the proposed Massachusetts measure as “the most targeted guardrails we've ever seen” on investor-backed companies. It represents the largest share of new public investment.
Haspel noted there has been similar momentum internationally, with British Columbia specifying that public funding should be prioritized for public and non-profit programs and Australia requiring large providers that manage more than 25 sites to submit more extensive financial reports. do.
The United States has historically spent very little on child care compared to other wealthy countries. In part as a result, investor-backed for-profit chains in the United States operate primarily in middle- and wealthy neighborhoods and communities and can often charge hefty tuition fees. That could change if more public money flows into child care and government subsidies for low-income children increase significantly.
Last year, President Biden's administration pushed for greater transparency and accountability in nursing home ownership after a study found that private equity-owned facilities had worse outcomes, including more patient deaths, on average. However, there is not much information available to compare the quality of for-profit and non-profit child care programs, which may hinder efforts to restrict and regulate the businesses.
Haspel said that in an environment where quality can vary widely, “the first step for the federal government is to try to get more information.” every Type of ownership – investor backed or not. But he added that there is no reason not to take steps such as ensuring that a certain percentage of public funds are used to pay educators and requiring centers to disclose financial and ownership information.
“Some of the potential guardrails are common sense,” he said.
This story about private equity and child care was produced by The Hechinger Report, a nonprofit, independent news organization focused on inequality and innovation in education. Subscribe to the Hechinger newsletter.