The Importance of High-Quality Child Care Facilities
Investments in early care and education (ECE) creates both immediate and long-lasting benefits for individuals and society, in the form of:
Children’s social and intellectual development,
Parents’ ability to participate in the workforce, and
Providers’ ability to operate a business and create jobs.
An important component of high-quality child care is the physical quality of the facility – research shows that developmentally appropriate environments improve learning and development among children. Despite the well-known importance of the physical space in which children learn and teachers teach, there is currently no dedicated source of federal funding for ECE facilities.
The Difficulty Financing High-Quality ECE Facilities
The current economics of building and maintaining high-quality ECE facilities creates significant barriers to providers entering and staying in the market.
Child care providers tend to operate at exceptionally thin margins, leaving very little room to support debt on the property. This inhibits providers’ ability to acquire and/or develop facilities, as well as renovate existing facilities to meet the needs of a high-quality center.
Most ECE providers – like other small businesses – should expect to see operating losses during their startup phase. This is prohibitive to providers entering the market or expanding, especially given the thin operating margins and inability to take on additional debt.
Many providers also experience barriers to participating in the real estate and finance aspects of the facilities process, including creating an operating budget, developing and implementing information systems, working with an architect, and engaging with the regulatory bodies that oversee building codes.
These barriers are prevalent across markets, including urban, suburban and rural communities.
In high-cost markets, providers are often priced-out from acquiring land or existing facilities, both because of the significant up-front purchase costs, as well as the capital needed to hold the land until the center is ready to open.
And in rural areas, many of which have depressed economic markets, extreme unemployment, and dispersed populations, it is simply not economically viable to build a high-quality center when it is unclear if enough families will be able to attend, or if they will be able to pay a rate that supports the facilities’ operations. Family-based child care is often the only option in rural areas, but these providers are also constrained by the depressed economic markets and dispersed populations in rural areas.
To address these systemic barriers, ECE providers need technical assistance, business capacity building support, and working capital that can be used to cover the facility requirements of running their business.
Successful Facility Financing Strategies
Several NCFN members are engaged in innovative efforts to build the supply of high-quality, affordable child care nationwide.
San Francisco
In San Francisco, the Low Income Investment Fund (LIIF) is using the successful federal New Markets Tax Credit program to create a ‘Fund for San Francisco Early Care and Education’ in partnership with the San Francisco Office of Early Care and Education (OECE). The Fund provides flexible, low-cost financing for the development or preservation of ECE facilities. Loan sizes range between $1 million to $4 million and are interest-only payments over a 7-year loan term. LIIF also offers ongoing technical assistance for ECE providers.
Philadelphia
The Fund for Quality in Philadelphia uses child care mapping data to target investments to the most needed areas and provides business and organizational planning and facility predevelopment support coupled with grant and loan funds to finance high quality expansions. To date, the Fund for Quality has created over 2,200 high-quality child care seats predominately serving low-income children and families. The Fund for Quality planning process includes individualized technical assistance on business and financial management for child care providers. Through this critical technical assistance, a provider is able to receive consultation including cost modeling, understanding QRIS requirements upfront in regard to staff credentials, training, furnishing and materials, etc. The Fund for Quality is made possible by private foundation grants and loan capital made available through Reinvestment Fund in its capacity as a CDFI.
Detroit
IFF’s very first loan was to a child care center in Chicago, and since then IFF has become a leader in creating high-quality early education spaces throughout the Midwest. IFF’s needs assessments determine where there is the greatest need for quality early education services, and IFF’s finance and real estate solutions help create beautiful spaces for children to learn and grow in those communities. IFF also lends its voice to policy efforts and works collaboratively with stakeholders to implement systems change. One example of a place-based, data-driven response is IFF’s Learning Spaces, a grant program designed to increase capacity and improve access to quality early childhood education across the Detroit area. Providers can receive technical assistance, consulting services, and grants to improve facility quality.
Rhode Island
In Rhode Island, the Local Initiatives Support Corporation (LISC) is working with two partners; a non-profit Community Development Corporation and a non-profit child welfare organization that manages the state’s largest Head Start program along with providing quality child care and robust pre-k programming to develop co-located affordable housing and early education services. The King Street Commons initiative uses housing-related resources (Low Income Housing Tax Credits, state bond funds, and HOME Investment Partnerships Program dollars) to construct a set of new residential buildings with Early Learning Facility space reserved on the first floor of one of those buildings. Creative uses of housing-related resources can enable the construction of building envelopes and systems, but cannot support all of the needed build-out / finish work of the Early Learning Facility space itself. That’s where private investment comes into play -- in this case through LISC, a CDFI.
LISC provided a planning grant, predevelopment financing and a permanent loan to help support all of the steps and build out needed for a high-quality space that will offer five classrooms for children ages birth-five. Housing and child care constitute the most significant pull on family’s incomes. They are also currently two of the most unmet community needs. Co-location has allowed for more creative use of resources, while also jointly bringing online more of what families need to succeed, particularly in marginalized neighborhoods.
North Carolina
In North Carolina, Self-Help provides term loans with flexible underwriting to home- and center-based child care businesses (including Head Start programs). Self-Help leverages both internal and external programs to help mitigate common credit issues such as limited equity or lack of collateral, thus bringing responsible financing options within reach for many child care businesses that may not be able to qualify for a traditional bank loan. For NC-based child care businesses, there is no minimum or maximum loan amount. Through a partnership with the North Carolina Division of Child Development and Early Education, Self-Help can offer a 5% fixed interest rate for up to $75k to be used for equipment purchases, working capital, and/or minor renovations.
With a deep, 25+ year history of lending to child cares, Self-Help has become a child care business specialist. To share business and financial best practices, Self-Help developed the Child Care Business Basics course. This comprehensive guide to starting, expanding, and running a successful child care business in North Carolina introduces child care business owners and operators to everything they need to know about the business side of child care, including best marketing practices, tax considerations, and how to create and monitor financial statements. Self-Help maintains a list of qualified trainers across the state that can administer the course to business owners. While the content is developed specifically for NC-based businesses, much of the material proves relevant to child care businesses in any geography.
New Hampshire
New Hampshire Community Loan Fund serves as a lender and technical assistance provider working with a child care program in a very rural community in the most northern county in New Hampshire. NH Community Loan Fund was instrumental in helping this provider identify solutions to keep this vital, accredited program open in their community by guiding them through a process to transition from a for-profit to non-profit operation, and then to provide timely financing for the purchase of the property when needed. NH Community Loan Fund is continuing to provide targeted technical assistance to this program to help strengthen business skills and financial stability – typical supports that a CDFI is able to provide. In this instance, financing alone would not have been sufficient to maintain the program as critical technical assistance support was needed to create long term viability for the program. New Hampshire has an estimated need for 6,000 - 8,000 child care slots, with the need particularly urgent in rural communities where quality, affordability, and accessibility of child care options are limited.