Minnesota child care finances stabilize, but the business remains in flux

ST. PAUL — A new statewide survey shows fewer child care operators struggled financially last year in Minnesota, but changes in the child care business model and steeply rising costs still pose problems.

The survey of more than 1,200 child care providers found many optimistic about rising enrollments and more confident than they were in 2022 that they can sustain their businesses.

“We are definitely moving past pandemic conditions,” said Suzanne Pearl, director of First Children’s Finance Minnesota, a nonprofit that conducted the survey along with the Federal Reserve Bank of Minneapolis.

“There was a lot of churn, a lot of difficulty in the child care sector during 2020, ‘21, and even into 2022,” she added. “We’re starting to see things stabilized.”

Conducted in March, the survey found the state government’s big funding commitment last year helped buoy the child care sector. Lawmakers backed a record $300 million to make child care more affordable, including grants for families and providers that helped keep doors open as COVID-19-era federal aid expired.

Despite that, some operators continue to struggle with the expenses and demands of running child care.

“Every year, I’m sad to see about 20% of family child care providers are using high-interest financing to cash-flow their business,” said Pearl, whose group helps child care operations serving low- and moderate-income families. “They’re putting their expenses on a credit card. They may be using a payday loan.”

The survey found more than half of family child care providers and about 25 percent of child care center owners reporting that their business losses had hurt their household income.

While business expenses haven’t increased as much as previous years, they are still on the rise, especially food costs for in-home child care providers. This sometimes causes them to raise tuition prices, negatively affecting affordability for families.

Monique Stumon, director of the School Readiness Learning Academy in Minneapolis, said she was able to use the state aid to raise wages for her staff but that her rising expenses overall have forced her to make hard decisions.

“Everything is more expensive now, Stumon said. “We did have to cut our scholarships that we were awarding people because private donations went down. So the scholarship funding that we had before wasn’t available like it was in previous years.”

The survey also found operators struggling with child care’s continually changing business model.

Minnesota made waves with its investments in state-funded preschool programs like Head Start, Early Head Start and an expansion of the voluntary pre-kindergarten program that offers free preschool through public school systems.

However, the survey found privately owned child care businesses, whether in-home or at centers, struggle when the most profitable age group of the child care market — toddlers ages 3 to 5 — move into public child care.

“We have seen some drop-offs in preschool and school-age” children, said Amanda Schillinger, director of Pumpkin Patch Childcare and Learning Center in Burnsville, noting the increase in free or reduced-cost school programs for those kids financed with public dollars.

Kyra Miles / MPR News

“We can’t compete with that, as hard as we try to keep our prices down. You can’t compete with that,” she added. “They just have access to funding we don’t.”

It’s a dilemma the state has yet to address.

“This is something we're gonna be watching over the next few years,” Pearl said. “What is the impact then on local child care programs who may have been serving those same kids, but now they're moving to another type of delivery? Or a different type of child care? And then what does that mean for the market that's available to those other businesses?”