Category: Canadian policy

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Who’s To Blame For Child Care Shortages In Ontario?

Todd Smith is Ontario’s new Minister of Education and he has already decided who he wants to blame for Ontario’s child care shortages – it’s the federal government.  So, Todd Smith wants federal minister Jenna Sudds to release Ontario from the agreement it signed back in 2022 that limits expansion by for-profit enterprises to a maximum of 30% of the total expansion.  Ontario never wanted to limit for-profit expansion;  apparently they only signed the agreement under duress.

The problem of child care shortages is a real one.  We need a lot more child care expansion in Ontario and we need it now.  We will need even more child care when Ontario drops the parent fee down to $10 a day.

But Todd Smith doesn’t seem to understand why Ontario is facing such a shortage of child care spaces, so he’s coming up with solutions that are antithetical to the high quality universal child care we have been promised.  He’s new in his job, so let’s give him a primer:

  • Ontario knew very well that there would be a huge shortage of child care spaces.  The Financial Accountability Office of Ontario told them this in November 2022;
  • The solutions are well known. Ontario’s officials and politicians were told by many people – including me and the Financial Accountability Office – what steps they needed to take to make child care expansion happen;
  • Instead of implementing these solutions, Ontario has fumbled and delayed and prevaricated and done nothing, or very little, to facilitate the child care expansion that is needed;
  • Now, Ontario wants to blame the federal government for Ontario’s failures to provide new child care facilities for parents and children that need it.  Some blame is due to the federal government, but Ontario is the one with the responsibility and capacity to fix the shortages;
  • It is true that for-profit child care providers are quicker to assemble capital funding than non-profits, but there are serious long-term costs.  Ontario knows well how to facilitate non-profit and public child care expansion; its current child care system has been built primarily this way. 
  • Quebec’s experience makes it clear that  relying on for-profit child care can come at a substantial cost in child care quality, which Todd Smith is ignoring.

Ontario knew there would be a substantial shortage of spaces

In November 2022, the Financial Accountability Office of Ontario (FAO) reported to the Legislative Assembly that at $10 a day, Ontario parents would need 300,000 additional child care spaces.  Demand would increase by that much.  They compared that to the 71,000 additional spaces that Ontario was planning to add between 2022 and 2026.  The FAO’s conclusion was that when parent fees reach $10 a day “…the families of 227,146 children under age six (25 per cent of the projected under age six population of 919,866 children in 2026) would be left wanting but unable to access $10-a-day child care.”

I had published similar estimates in May 2021.

Ontario has promised an additional 86,000 new child-care spaces compared to 2019.  As Allison Jones article for Canadian Press tells us, so far there have been about 51,000 new spaces created in Ontario, with only half inside the $10-a-day system.

Ontario knew what to do to expand child care

The FAO, in its understated way, had already identified one key barrier to expansion that Ontario should deal with.  Its November 2022 report stated that “…uncertainties over some aspects of the $10-a-day child care program, such as the extent of ministry reimbursement of future cost increases to child care providers, could reduce incentives for child care providers to create spaces.”   In other words, if child care providers do not know whether revenues will be enough to cover their legitimate costs, they won’t decide to expand. 

Working with Building Blocks for Child Care (B2C2), I wrote and circulated widely a paper and a blog post laying out the steps needed to facilitate the expansion of non-profit and public child care:

  1. A system of capital grants and loan guarantees for not-for-profit and public operators
  2. Creating public planning mechanisms with provincial, municipal, school board and community members
  3. An inventory of publicly-owned lands and buildings suitable for child care expansion
  4. Mandate where possible the co-location of licensed child care services whenever business and housing developments happen
  5. Explore the use of Land Trusts to preserve the preservation of child care assets in public hands for future generations
  6. Use provincial legislation and regulations to control transfers of child care assets and ensure they are not controlled by big-box corporate child care chains
  7. Early guarantees of operational funding and licensing of not-for-profit and public operators that plan expansion following public plans.
  8. Development and implementation of a province-wide salary and benefits grid and much more funding to increase compensation of educators and other staff. Recruitment and retention of qualified educators is Job #1.
  9. Transparent and effective future funding guidelines to support expansion. Assistance to municipalities to implement financial accountability measures in a long-term funding model.
  10. Public funding of organizations such as B2C2 that support not-for-profit operators to negotiate hurdles associated with expansion of child care services

Ontario has done very little to facilitate expansion

Ontario thought that child care expansion would be a natural process, not requiring much government support.  Based on what Ministry of Education officials told the FAO “The ministry plans to create 71,000 net new spaces through what it terms natural growth (48,459 spaces) and induced demand (22,406 spaces)”  (FAO Report, 2022). Except the “natural growth” has not happened.  Here’s why.

In Ontario:

  • Operators do not know what their future revenues will be or what factors will generate more or less revenue.  Their future revenues will be governed by the new funding system which Ontario promised in 2023 and again in 2024 and now will come in 2025.    Ontario still has the funding arrangement it invented on-the-fly on day one of the new child care system.  Which was to just replace the exact amount of the fee that child care centres charged on March 27, 2022.  But as anyone who has lived through the last few years would tell you, the costs of everything have been changing a lot in the last while.  And since, in the child care sector, there are substantial shortages, costs of some things have been rising substantially. 
  • There is very little funding support for expansion of child care centres.  There is start-up funding to pay for toys and equipment, but no capital grant program for community child care.  There has been capital money for new centres on school board premises, first announced in 2019 (i.e., expansion planned before the $10 a day program), but now even expansion in 56 of these school board centres has been cancelled by the Ontario government. 
  • In the midst of a huge shortage of early childhood educators – estimated by the Ministry of Education as a shortage of 8,500 new educators by 2026  – the support by the Ontario Government for staff wages is stingy at best.  In Ontario the base wage rate for an early childhood educator is $23.86 per hour, while the average hourly wage of all Ontario employees is $36.14 per hour.  In PEI, the base wage rate for an early childhood educator is $28.36 per hour, and the average hourly wage of all PEI employees is the same – $28.36 per hour.  There are huge child care staff shortages in Ontario, but not in PEI.

We know that Ontario is able to expand capacity quickly if it were to be a priority.  In 2010-2014, Ontario provided expanded classroom space for about 280,000 children who moved from half-day kindergarten to full-day kindergarten.  All of that expansion in only 5 years.  Because it was a priority.  The financial and personnel resources were mobilized to make it happen.  But, the expansion of child care for the tens of thousands of Ontario children who want access is clearly not a priority for this government.

Having committed itself to building an affordable, accessible child care system largely with federal money, the Ontario government decided to sit on its hands and let the system fall apart.  They did the easy part.  They lowered parent fees, initially by 25% and then approximately by another 25%, so that parent fees are much lower than they were.  So, demand for child care has skyrocketed.

But the Ontario government has not done the hard parts – reducing workforce shortages by raising compensation, providing substantial capital and management supports for child care expansion, and implementing a funding system to provide guaranteed operating revenues for providers.

So, now there are shortages.  And the Ford government has been sitting on its hands, waiting for the crisis to get worse. 

Ontario wants to blame the federal government

This was a sweet deal for Ontario, because the federal government committed to turning over a huge whack of money to Ontario to make this happen. In the first  year (which was virtually over by the time Ontario had signed the agreement), the federal government provided $1.1 billion for Ontario child care.   In every year after that the federal contribution to child care in Ontario has risen and will reach just less than $3 billion in 2025-26.  By this time, the federal government will be paying about $3 for every $2 spent by Ontario to support providing child care for Ontario’s children and families.

There are elements of blame that the federal government should wear.  The reforms should have been phased in more slowly, so that demand did not ramp up so fast.  And, the federal government will need to provide more money – there is not enough to support child care for an additional 300,000 children that the FAO predicts will want child care.

But the federal government has now put over $1 billion on the table in reduced-interest loans and another $625 million distributed to provinces for capital grants to support child care expansion. Ontario will get the largest share of those amounts.

If Ontario does not do the hard work of…

  • reducing workforce shortages,
  • providing supports for child care expansion by nonprofits and public agencies, and
  • providing operating revenues with an equitable and sufficient funding system,
    then sufficient child care expansion will not happen in either the for-profit or the non-profit and public sectors.

For-profit expansion is easier but more dangerous

When it comes to growth, for-profit child care providers have structural advantages over not-for-profits.  Not-for-profits are frequently unwilling to go into debt, so there needs to be a program of capital grants and encouragement to access low-interest loans to pay for the costs of building new facilities or repurposing existing buildings.

The mission of for-profit businesses is to make a profit, so expansion is a natural fit, particularly when the government is paying  80%-90%  of the operating costs and providing a guaranteed demand for services.  Shareholders or banks are always willing to ante up when the government is willing to provide guaranteed funding for profit-making businesses.  They are not used to providing similar supports for non-profits in the child care sector.

But there are ways around these structural barriers faced by not-for-profits.  Not-for-profits need two main things if they are to build new capacity quickly.  First, is access to capital.  Some of this should come in the form of capital grants to not-for-profits or municipalities or school boards who are willing to move quickly.  Some of this can be in the form of low-interest loans, like those that will soon be available from CMHC.  Governments should guarantee the loans, but most importantly, the Ontario government needs to ensure that there will be ample operating funding for child care centres to pay back the loans over time.

The second thing that not-for-profits need is a development champion – a development agency that specializes in handling all the details involved in building new capacity or renovating existing capacity.  This is familiar territory for co-operative housing or not-for-profit housing developments.  There are specialized agencies that handle the housing development and then turn the housing over to co-ops or not-for-profit housing agencies to manage and operate.  This should be the case for child care as well.

Neither of these barriers is particularly insurmountable, but they do require governments to facilitate surmounting them.  In many cases, public agencies such as municipalities, school boards, and community colleges can help a great deal in supporting not-for-profit and public developments.  And the provincial and federal governments should be open to expansions of kindergarten integrated with before-and-after school care. 

Ontario shows that rapid expansion of not-for-profit child care services is very possible.  Over the 10 years up until 2019-2020, centre spaces increased in Ontario by 198,600.  Fully 85% of the increase (168,900 spaces) was in not-for-profit child care. 

Quebec shows us the terrible cost of expanding mostly in the for-profit sector

Todd Smith should talk to Mathieu Lacombe, Minister of Families in Quebec from October 2018 to October 2022 in the conservative government of François Legault.  Andrew-Gee in the Globe and Mail quotes Mathieu Lacombe: “Allowing for the expansion of private daycare, he said, was the ‘biggest mistake the Quebec government committed in the last 25 years.’”  

Of course, Todd Smith could also decide to read the Auditor-General’s report for 2023-24 in Quebec.  This report looked at measured quality levels in child care centres serving children 3-5 years of age.  It also looked at what percent of front-line child care staff are qualified early childhood educators.  The Auditor-General investigated the performance of three types of child care centres – the nonprofit CPEs, the for-profit child care centres that charge a fixed fee, and the for-profit child care centres that are funded by a parental tax credit for child care expenses (and do not have fixed fees).

For-profit operators are always looking for a way to save money and increase profits.  In child care, saving money generally means cutting back on staffing, because staffing takes up the large majority of the costs of providing care for your children.  Before the pandemic, the required ratio in Quebec was that 2/3rds of front-line staff would be qualified staff – early childhood educators with a diploma.  This ratio was lowered to 1/3rd of staff during the pandemic as an emergency measure but raised to ½ in March 2023.  It  was supposed to return to 2/3rds by March 2024, but the Quebec government had to delay this due to widespread shortages of early childhood educators.

The table below gives the full story for 2023 in Quebec.  It tells us what percent of the three types of child care centres were below three benchmark levels of child care staffing.  The first benchmark is one-third of staff who are qualified as early childhood educators.  The second benchmark is one-half and the third benchmark is two-thirds of staff qualified as early childhood educators.

As you can see, the nonprofit centres score much better on the percent of early childhood educators than either of the for-profit categories.  Shockingly, 19% of the for-profit tax-credit-funded centres do not even have one out of every three staff qualified as an early childhood educator.  Over half of these centres do not meet the currently required ratio of one-half of staff being early childhood educators.  And 86% of these for-profits do not meet the 2/3rds requirement that Quebec has been trying to re-establish. 

Percent of Front Line Staff Who are  Qualified Early Childhood Educators in Non-Profit, For-Profit Fixed Fee, and For-Profit Variable Fee Centres in Quebec, 2023

% of nonprofit centres% of for-profit fixed-fee centres% of for-profit tax-credit-funded centres% of all centres
Less than 1/3rd of staff qualified as educators1%3%19%7%
Less than 1/2 of staff qualified as educators5%19%55%23%
Less than 2/3rds of staff qualified as educators18%53%86%46%


Staffing has a big effect on quality, of course.  Quebec has had a program of testing quality in 3-5 year-old classrooms in Quebec centres since 2019.  The Auditor-General summarized the results.  Over the period 2019 to 2023,  36% of “garderies subventionées” – for-profit child care centres that charge a fixed fee – failed the quality examination. In other words, they showed quality levels that had some important problems and were unacceptably low.   Worse than that were the “garderies non-subventionées” – the tax-credit-funded child care centres that are able to set their own fee levels and wages.  47% of these – very nearly half of all centres tested – failed the quality examination over the period 2019-2023.  In line with their greater reliance on qualified early childhood educators, only 11% of CPEs – the nonprofit child care centres that are the heart of the fixed fee system – failed the quality test.

There is no such thing as a free lunch.  Todd Smith should learn that lesson.  In the short run, you might save money by relying on for-profit child care expansion, because they will find their own capital money, especially corporate child care with deep pockets and those supported by private equity capital.   Pretty soon, however, you will have built a child care system that is offering poor quality services to your province’s children and their parents.  And you know that you will end up paying for the for-profit’s capital expansion in the long run, so you might as well do the work now to encourage non-profit and public child care to take up its 70% share.

What we have in Quebec is a demonstration of the pernicious effects of unleashing the profit motive in child care – which is what Quebec did especially from about 2009 onwards.  I am not trying to say that all for-profit operators provide poor quality child care or that all of them skimp on child care staffing.  Some small for-profit operators provide good quality care and devote themselves to quality improvements.  You can have a certain percentage of for-profit providers in a publicly-funded child care system, but there need to be strong measures of public management that limit the ability of for-profit enterprises to extract profit at the expense of quality.  The measures of public management are obviously insufficient in parts of Quebec’s child care system.  And Todd Smith cannot be trusted to ensure strong public management in Ontario.   

Who’s to blame for child care shortages in Ontario?  Look in the mirror, Mr Smith.

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The Fraser Institute’s Evaluation of the $10 a Day Child Care Reforms

This is not his best work.  Phillip Cross has had a notable career at Statistics Canada.  He’s an expert in macroeconomic trends.  But, one thing that he knows very little about is child care.    Unfortunately, he has written a short paper for the Fraser Institute evaluating the success or failure of the Canada-Wide Early Learning and Child Care reforms so far. 

It’s bad. Almost everything in the paper is either wrong or misleading.

So what does Phillip Cross say?

  • He says that the Canada-Wide early learning and child care program had 3 goals:

(1) providing more jobs in the child care industry,

(2) enabling mothers to join the labour force, and

(3) providing better care for young children. 

His paper will look at the first two.

  • He looks at some evidence and concludes that there has been no change in the employment trends in child care staff.
  • Then, he looks at evidence about women’s labour force participation and concludes that it has hardly changed since 2015.
  • Having concluded that the Canada-Wide child care reforms are a failure, he goes on to take pot shots at Quebec’s child care system concluding that its universal child care system doesn’t really help low-income families, wasn’t really responsible for the boost in its labour force participation, has long waiting lists due to inadequate supply, and isn’t really universal.

Phillip Cross is wrong on all counts, contributing yet more false information to child care discussions in Canada.  There are many problems with the rollout of the Canada-Wide program across the provinces and territories – particularly slow rates of growth in child care capacity.  However, the Fraser Institute paper does not grapple with real issues and propose real solutions.

Phillip Cross, believe it or not, ignores improving the affordability of licensed child care in his list of goals of the Canada-Wide program.  This, of course, is the greatest success of the program so far.  Hundreds of thousands of children and families have benefited from less expensive child care.  Their very high child care costs have been cut by half or more.  These parents are very happy with the marvellous success of the program.


Employment in the Child Care Industry

There has been substantial growth in employment in the day care industry (NAICS Code 6244) since April 2021 when the Canada-Wide program was announced.  By my reckoning, the number of persons employed in Canada outside Quebec has risen by 36.9%, a total of 32,885 additional persons employed.  Phillip Cross hides this growth in two ways.  First, he looks at Canada including Quebec, which is inappropriate.  Quebec has a mature child care system and its employment of child care staff is not growing quickly.  The focus of growth in the Canada-Wide program is on the provinces and territories outside Quebec.

Second, Phillip Cross ignores the collapse of child care employment during the pandemic and assumes that child care employment should have grown as if the pandemic did not happen.  In fact, child care employment in Canada outside Quebec collapsed from over 100,000 at the beginning of 2020 to less than half of that a few months later.  Employment did not climb above 100,000 until March of 2022.  So, the Canada-Wide program has helped the revival of employment in the child care industry and gone well beyond.  We should celebrate this, rather than hiding it.  This evidence can be found in Statistics Canada CANSIM Table 14100201.


Mothers in the Labour Force

Phillip Cross concludes that the Canada-Wide program has also shown no progress in supporting mothers to enter the labour market.  According to him, labour force participation hit its peak in 2015 and even after all this money spent on child care, it has only just about reached the same level.  As he notes, the participation rate was 61.7% in 2015 and now it is just 61.5%.

But, Cross is not looking at the right statistics.  He is looking at the labour force participation of all women 25-54 years of age.  However, most women do not currently have a child 0-5 years of age.  Women without young children would not have their labour force participation affected by the Canada-Wide child care program.

The Fraser Institute report should instead be looking at labour force participation of mothers with children 0-5 who are the target of the program.  Here, participation rates are up by several percentage points from April 2021 to now (from 76.9% to 79.9%) even though expansion of child care has been slower than it should be.  And compared to 2015, which the Fraser Institute cites as the high water mark, the labour force participation of mothers with children 0-5 is over 6 percentage points higher now than it was then.  So this evidence of “failure” is false news and should not be left to become conventional wisdom.  This data can be found in Statistics Canada CANSIM Table 14100397.


Quebec’s Universal Child Care System

Phillip Cross would presumably be very surprised to hear that Quebec’s child care system is very popular with parents and with the Quebec government.  He believes that low-income families have been squeezed out of access to child care.  In fact, there is good evidence that a much higher percentage of low-income families in Quebec have been able to access child care than was true for low-income families in the rest of Canada in the period before the Canada-wide system[1]. The universal system of child care in Quebec encouraged many more low income mothers into the labour force and into using child care.  It is true, and a problem, that on average low-income families are more likely to have their children in the lower-quality for-profit child care services.  The Quebec government is expanding not-for-profit centres as a partial remedy.

Cross claims that Quebec’s child care system is not universal.  His evidence for this seems to be that there are 51,000 families on a waiting list for child care services.  Here his lack of child care knowledge is really showing.  This is a waiting list to get into one part of their child care system – the preferred part with a fixed fee and many better quality services. 

There is no overall shortage of child care spaces in Quebec; in fact there are many empty spaces in the for-profit child care services funded by a tax credit.  But parents don’t prefer these for-profit spaces where there is no guaranteed parent fee.  These services have been shown to be much poorer quality than the not-for-profit spaces in CPEs (early childhood centres).  So, yes, there are 51,000 children on a waiting list to get out of these tax-credit-funded spaces and into the fixed-fee services that they prefer.

Finally, Phillip Cross tries to deny that the universal child care system in Quebec has been responsible for dramatic increases in labour force participation of mothers.  He writes that “proponents attribute the increase in female participation in Quebec to its childcare program” and “Clearly, some determinants of female labour force participation are not understood by researchers, who nevertheless loudly endorse Quebec’s initiative.”  This is a bit strange, because if there is one thing that all economic studies of the Quebec child care program are agreed upon, it is that there was a substantial boost to mothers’ labour force participation and hours of work as a result of universal child care.

A summary of the results of one of the many studies goes like this:  “Lefebvre and Merrigan[2] (2008) use Statistics Canada’s Survey of Labour and Income Dynamics (SLID) annual data from 1993 to 2002. Using the sample of all Canadian mothers with at least one child aged 1 to 5, they find that the policy had substantial effects on a diversity of labour supply indicators (participation, labour earnings, annual weeks and hours worked). In 2002, the effects on participation, earnings, annual hours and weeks worked of the childcare policy are respectively between 8.1 and 12 percentage points, $5,000 to $6,000 (2001 dollars), 231 to 270 annual hours at work, and 5 to 6 annual weeks of work.“   

The Fraser Institute is not noted for the complete accuracy of its studies, but this is a bit ridiculous.  As an evaluation of the success or failure of the Canada-Wide Early Learning and Child Care program, the Fraser Institute study is worse than useless. It is, perhaps deliberately, misleading. 

Instead, we should conclude that:

  • Hundreds of thousands of children and families have benefited from more affordable licensed child care
  • There are now nearly 33,000 more persons working in the day care industry than there were when the program was announced in April 2021 – an increase of nearly 37%.  Many more qualified educators are needed, but this is a good start.
  • Even though the growth in the number of child care spaces has been too slow, there has still been a rise of 3 percentage points in the labour force participation rate of mothers with children 0-5 since April 2021.  Again, only a start, but definitely a start.
  • Quebec does have a universal child care program and many families access child care for less than $10 a day.  It is a very popular program with families.  There is no overall shortage of child care spaces in Quebec, but many families want to get into the fixed-fee part of the child care system, especially the better-quality not-for-profit CPEs.  Many of these families are on a waiting list.  A large number of low-income families have benefited from the universal child care program in Quebec, a much larger percentage than benefited from Canada’s targeted child care assistance.  There is still important work to do to ensure that low-income families also benefit equally from better quality in child care services.

[1] Cleveland, G. (2017) “What is the Role of Early Childhood Education and Care in an Equality Agenda?” pp. 75-98 in Robert J. Brym ed. Income Inequality and the Future of Canadian Society ISBN-13:978-1-77244-044-7 Oakville, ON: Rock’s Mills Press. Proceedings of the inaugural S.D.Clark memorial symposium.  That study found that:” In Quebec, 61.8 percent of children 1-5 years with an employed or studying mother with a high school education or less use licensed child care. Including children with a mother who is not employed, 43.1 percent of Quebec children whose mother has a high school education or less are using licensed child care — about 30 percentage points higher than the comparable figure in the rest of Canada.“

[2] Lefebvre, P., Merrigan, P. (2008). Childcare policy and the labor supply of mothers with young children: a natural experiment from Canada. Journal of Labor Economics 23, 519–548.

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What  the Australian Competition and Consumer Commission Can Tell Us About For-Profit Child Care

What would Canada’s child care system look like if we let it be dominated by for-profit child care providers?  Particularly with Pierre Poilievre lurking in the wings, it’s an interesting question to ask.

So, into my inbox arrives a fascinating study from what they call the “A triple-C” (ACCC) or Australian Competition and Consumer Commission.  When the new Labor Prime Minister of Australia – Anthony Albanese – arrived in office in 2022, he commissioned two big studies of child care.  He asked the ACCC to examine how well or badly the market for child care was working.  And he asked the Productivity Commission – a permanent body rather like the old Economic Council of Canada – to report on how best to make child care universally accessible and affordable in Australia.

Both of these bodies have now produced Interim Reports.  This blog post will comment on the one from the ACCC.  The ACCC report focuses on the cost of producing child care services, the nature of competition in child care markets and the effectiveness of Australian government attempts to regulate child care fees.

You don’t want to read the whole report, so let me cherry-pick some findings for you.

  • The cost of child care in Australia is pretty high.  Centre-based child care fees per hour (averaged across ages 0-5) were $11.72 in 2022 or $117.20 for a 10-hour day. 
  • Australia’s Child Care Subsidy system (like a tax credit for child care expenses) costs the government a lot but does not make child care affordable.  For a couple on average wages with 2 children (aged 2 and 3) in centre based day care full-time, net child care costs came to 16% of net household income in 2022. In contrast, the average for OECD countries was 9%, with Australia ranked 26th out of 32 countries. This is despite the Australian Government contribution to fees being significantly higher than most other OECD countries – 16% in Australia compared to the OECD average of 7%.
  • From 2018 to 2022, gross fees in Australia increased by 20.6% in comparison to the OECD average of 9.5%.
  • Looking at detailed data on the cost of producing centre-based child care for children younger than school age, 69% was accounted for by labour costs, 15% by land/occupancy, and 9% by finance and administration costs.  But these proportions are quite a bit different for for-profit and not-for-profit providers.  69% of centre-based child care services in Australia are provided by for-profit operators.
  • Land and occupancy costs are about 18% of the total of all costs for large for-profit providers compared to about 10% for large not-for-profit providers. This is not due to what the Aussies call “peppercorn rents” (i.e., below-market rents provided on a goodwill basis).  As the ACCC report says, this may be due to non-arms-length transactions in land rental of for-profit providers (to be investigated in the final report).
  • Not-for-profit child care operators pay a higher proportion in labour costs for two reasons.  They are much more likely to pay “above-award” wages – in other words, wages that are above the minimums set by the Fair Work Commission wage grid.  About 95% of the staff in not-for-profit centres are paid “above-award” compared to 64% in for-profit centres.  The second reason is that not-for-profit providers are much more likely to hire their staff on a full-time basis, whereas for-profit providers primarily rely on part-time staff.  As the report suggests: “large not-for-profit centre-based day care providers invest savings from lower land costs into labour costs, to improve the quality of their services and their ability to compete in their relevant markets.”  The ACCC finds that centre-based day care services with a higher proportion of staff paid above award and with lower staff turnover have a higher quality rating under the National Quality Standard. 
  • The ACCC finds that parents and guardians typically prefer centr- based day care services located close to their home. Most households travel a short distance to child care – between 2 and 3 kilometres.
  • Parents’ and guardians’ perception of quality is a key factor driving decisions for selecting a child care service. As child care is an ‘experience good’, meaning it is difficult to accurately determine quality of a child care service without having used it, parents and guardians appear to rely on informal measures of quality over formal National Quality Standard ratings.
  • Providers’ decisions to establish child care centres are highly influenced by expectations of profitability within a particular area or market, which are driven by expectations of demand and willingness to pay. The willingness to pay for child care within a local area is heavily influenced by household incomes, as this influences the opportunity costs of not using child care services. These factors encourage supply to markets where demand for child care is highest, and parents and guardians are likely willing to pay higher prices. In particular, for-profit providers are more likely to supply these markets as the opportunity for profit is greater.
  • These markets tend to be in metropolitan areas of higher socio-economic advantage. This higher demand and greater willingness to pay explains why we find operating margins are higher in areas of higher socio-economic advantage and Major Cities of Australia.  The child care sector is widely viewed as a safe and strong investment with guaranteed returns, backed by a government safety net
  • While providers’ supply decisions are generally driven by considerations of viability, we note that there are providers that supply some services at a loss. This reflects that – like many other human services – child care plays an important societal role. This results in not-for- profit providers accounting for a greater proportion of services in areas of very low advantage.
  • The nature of child care markets and the role played by price, as well as the impact of the Child Care Subsidy, also mean it is unlikely that market forces alone will act as an effective constraint on prices to ensure affordability for households (including households with low incomes and vulnerable cohorts) and to minimise the burden on taxpayers.
  • Large for-profit providers of centre based day care have consistently had higher profit and operating margins than not-for-profits since 2018. The average profit margin for large centre based day care providers was about 9% for for-profit providers and about 6% for not-for- profit providers in 2022.

In conclusion, the ACCC sees substantial benefit in a detailed consideration of supply-side models, the role of market stewardship and direct price controls for child care services. There will be a final report from the ACCC soon.

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British Columbia’s New Spaces Funding Program

My opinion of British Columbia’s New Spaces Fund is shaped by the context.   It’s a valuable, if imperfect, source of capital funding for the expansion of not-for-profit and public child care.

The context is that we’re not doing a good job in expanding the availability of child care services in Canada.  That’s disappointing, of course, but also a danger to the ultimate success of the Canada-Wide Early Learning and Child Care program. 

Without rapidly expanded capacity, most parents will not be able to benefit from $10 a day child care.  Women will not be able to enter the labour force.  The economic growth benefits of child care will not happen.  Parents will be angry and frustrated at governments that have promised them services they can’t deliver.  A new government may come in and turn everything over to the for-profit sector, loosening staffing regulations, and allowing operators to surcharge parents for “extras” to make providing child care more profitable. 

The decision of federal and provincial/territorial governments to rely on the not-for-profit and public sectors for child care capacity was good for the long-run, but it’s having lots of problems in the short run.  Not-for-profit and public services are typically of higher quality with better effects on children’s lives.  Not-for-profit and public services become trustworthy community assets, here for the long term, in a way that for-profits do not, always anxious to sell assets or property to the highest bidder. 

But, not-for-profits need more help to expand than the for-profits do. For-profits have better access to capital funding from the private sector than not-for-profits do; many banks and financial institutions are unwilling to make construction loans and mortgages to not-for-profit organizations.  Most not-for-profit organizations find it too risky to make expansion promises until future on-going operational funding arrangements for services are settled;  some for-profit organizations are willing to take a gamble that future operational funding will be generous, or that costs can be slashed to ensure a profit.   On top of all this is the shortage of qualified early childhood educators.  Not-for-profits are typically unwilling to expand until they can hire enough fully-qualified educators to run good-quality programs.  For-profits are often willing to plan to operate without a full complement of trained staff, hoping they can get exemptions from government regulations and be able to operate with unqualified staff.

British Columbia’s New Spaces Fund is not perfect.  Yet, in the context I’ve just described, it provides some important support for child care expansion to not-for-profit and public organizations in B.C.  And that’s a lot more than I can say for most of Canada’s provinces, outside Quebec.  The New Spaces program provides capital grants only to not-for-profit and public organizations who are willing and anxious to expand the supply of child care services.  Previously, it was available to the for-profit sector who did not need it; that was a big mistake that has since been corrected. The budget last year was $292 million, about $84 million from provincial funds and the rest from federal funding under the Canada-Wide ELCC program. 

Some of the projects are for minor renovations, some for equipment only, but some are for much bigger projects.  The new Ministry of Education and Child Care prefers to have projects that are funded for $40,000 or less per space, but this restriction can be waived.  Since, construction costs have been rising rapidly, $40,000 per space is now below full cost for many projects.  And applicants are expected to come up with 10% of the entire project cost from other sources. 

It’s also a one-time capital grant, so you have to know a lot of detailed cost and design elements up-front when you apply.  At the time you apply, you are guessing at much of this.  This is a disadvantage.  A capital program, instead of a one-time capital grant, can be more flexible.

Eligible costs for the New Spaces program include project management, design/engineering costs and site evaluations, architect and accountant fees, and business planning development (business case model and analysis).  Also eligible are infrastructure costs – water, sewer, roads, sidewalks.  And equipment. And GST/PST and a 10% contingency.)  Not included are costs of purchasing real estate, or buildings or commercial space (however, modular buildings to be erected on site are an eligible expenditure).

Many of the applicants for New Spaces funding are local governments, school boards, health district authorities, public post-secondary institutions, and First Nations. This is a great use of the program.  Many of these bodies may have access to land for building, and many will have considerable experience in managing large development projects.

The New Spaces Fund is application-driven.  In other words, organizations have to take the initiative and plan child care expansion and apply for capital funding.  The New Spaces Fund is therefore a capital grants program, it is not part of a program of capital expansion.  In many ways, this is a weakness and this feature has been criticized.  Advocates say that B.C. needs planned child care expansion, focused first on areas of higher need, with support for many aspects of expansion – not just capital grants.  Most child care centres do not have the resources to take on major capital development, raising millions of dollars of capital funding and managing multi-year expansion projects.  Capital expansion requires more than just money. It needs organizations that will take responsibility for development; it needs architects with knowledge of child care,  it needs design standards.  It also needs a much longer guarantee that facilities will stay in place than the current 10-year requirement of the New Spaces Fund.   Manitoba’s Ready-to-Move program is a model to look at for how resources of different actors can be mobilized for child care expansion.

While that’s true, let’s give B.C. some kudos for having a program of capital grants at all.  Believe it or not, most provinces apparently believe that (capital) money grows on trees (for not-for-profit and public organizations).   Alberta offers $5,000- $6,000 per space.  Ontario offers about $7,000 per space.  In the context where the cost of new-build construction is often more like $50,000-$60,000 per space, that’s not a serious amount of capital assistance.

B.C. has much to do.  They are planning development of a wage grid to attract early childhood educators, but there is no deadline for when this will happen. 

B.C. has not yet developed a funding formula for the provision of operational funding when parent fees are an average of $10 a day for everyone.  This means that future revenue streams are uncertain, so the planning of child care expansion for not-for-profit and public services is more risky than it needs to be.

B.C. has not yet developed mechanisms for planning and guiding the child care expansion that will have to happen.  Based on current use patterns in Quebec where parent fees are now $8.75 a day, we can expect that B.C. will need to have  spaces for 174,180 children 0-5.  That would mean a need for about 77,750 additional child care spaces compared to 2021.  So, B.C. needs to get its game on.  As many other provinces do.

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Do You Want to Know How to Make Child Care Expansion Happen in Ontario?

I’m done some work recently with Building Blocks for Child Care (B2C2) on how to facilitate the expansion of not-for-profit and public child care in Ontario. They are an organization that knows a lot about all the different steps necessary to expand child care services – planning, design, rules and regulations, financing. With their advice, I wrote a primer called How to Make Child Care Expansion Happen in Ontario, giving 10 recommendations for action in Ontario to make not-for-profit and public child care grow.

Briefly, they are:

  1. A system of capital grants and loan guarantees for not-for-profit and public operators
  2. Creating public planning mechanisms with provincial, municipal, school board and community members
  3. An inventory of publicly-owned lands and buildings suitable for child care expansion
  4. Mandate where possible the co-location of licensed child care services whenever business and housing developments happen
  5. Explore the use of Land Trusts to preserve the preservation of child care assets in public hands for future generations
  6. Use provincial legislation and regulations to control transfers of child care assets and ensure they are not controlled by big-box corporate child care chains
  7. Early guarantees of operational funding and licensing of not-for-profit and public operators that plan expansion following public plans.
  8. Development and implementation of a province-wide salary and benefits grid and much more funding to increase compensation of educators and other staff. Recruitment and retention of qualified educators is Job #1.
  9. Transparent and effective future funding guidelines to support expansion. Assistance to municipalities to implement financial accountability measures in a long-term funding model.
  10. Public funding of organizations such as B2C2 that support not-for-profit operators to negotiate hurdles associated with expansion of child care services.

It’s not rocket science. These are some obvious steps to help the necessary expansion of not-for-profit and public child care services. Parents and children will suffer when expansion doesn’t happen. Soon there will be long waiting lists to get into child care facilities in Ontario if the government does not act now.