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.

Give Them an Inch and They’ll Take a Mile: The Story of For-Profit Child Care in Ontario

The Ministry of Education in Ontario is beginning to understand that they really can’t satisfy for-profit child care providers with anything less than the full cake and eat it too.  The Ontario government has bent over backwards to accommodate the for-profit child care operators; they want them to opt into the Canada-wide Early Learning and Child Care (CWELCC) system.  What has the Ministry done so far for the for-profit operators?

  • It changed the regulations so that municipalities (mandated to be Service System Managers) no longer have the discretion to sign purchase-of-service agreements only with not-for-profit providers (16 of the 47 had this type of provision);
  • It changed regulations so that measurement of quality in a centre could not be used as a criterion for eligiblity for CWELCC sign-up;
  • It completely gutted the new Management and Funding Guidelines for 2022 which the Ministry itself had established back in April.  The April version of the guidelines affirmed that municipalities should judge whether the funds given to operators in 2022 were based on actual costs.  In other words, the municipalities should judge whether operators had ineligible expenditures or excesssive profit claims.  The August Guidelines eliminated these provisions.
  • It ordered municipalities to collect very little financial data from operators.  The April version of the Guidelines said that “CMSMs/DSSABs are required to collect sufficient and detailed financial information from Licensees…. CMSMs/DSSABs will review all financial components including cost and expense line items for reasonability and eligibility, while ensuring CWELCC System objectives will be achieved….”  The August version of the Guidelines said “Information collected from Licensees to support implementation should be kept to the minimum amount necessary to meet the reporting requirements outlined in the CWELCC Guidelines….”

As of October 18th, the Ministry of Education has announced that the August 2022 Guidelines will continue for 2023; there will be few controls over how child care operators spend the revenues they receive from the CWELCC program.  Information collection will be kept to a minimum.  All of this despite the fact that, with a 50% cut in fees at the end of 2022, more than twice as much government money will be going to operators.

Ontario’s Action Plan (part of the CWELCC Agreement with the federal government) said there would be a revised allocation methodology in 2023.  That didn’t happen. Now, the new costs-based funding system will be in place for 2024.

But that’s not enough concessions as far as the for-profit operators are concerned.  They want more.  Sharon Siriboe, the director of the Ontario Association of Independent Childcare Centres wants guaranteed funding rules before for-profit operators will join the system.  “How can any small business remain viable and be asked to make such significant changes with only 14 months of clarity?”

What is the problem here?

Ontario signed an agreement with the federal government back in late March of 2022 – the Ontario-Canada Canada-wide Early Learning and Child Care Agreement.  In it, Ontario committed itself to the vision of building a largely not-for-profit system of accessible, affordable, inclusive child care services of high quality with federal money – $10 Billion of it over 4 years.

In Section 4.1 of that agreement, it states that “Ontario intends to maintain and build upon its existing robust accountability framework by introducing a further control mechanism. Ontario proposes to implement a cost control framework following the signing of the agreement that will be in place for all providers that opt into the Canada-wide ELCC system. The Parties are interested in approaches to ensure the sound and reasonable use of public funds, ensuring that costs and earnings of child care licensees that opt-in to the Canada-wide ELCC system are reasonable and that surplus earnings beyond reasonable earnings are directed towards improving child care services.”  

I don’t really like calling it a “cost control framework”.  It would be better to call it a “wise spending of public dollars” framework.  The objective is not to have costs that are as low as possible; the objective is to spend public dollars sensibly to achieve the objectives of affordability, accessibility and quality.  Ontario has agreed with the federal government that there will be a mechanism that ensures that all providers spend public funds wisely and that both the costs claimed by these providers and the earnings (profit) claimed by these providers are reasonable in achieving the objectives of this new child care system.

What is this new cost control/wise spending of public dollars framework?   Ontario tries to claim they have one already, but they don’t.  They have what we could call a fee control framework.  In other words, base fees for every operator are frozen at whatever their value was on March 27, 2022.  Each operator will get revenue from government equal to 25% of this base fee if they join CWELCC in 2022.  The operator will use these funds to backdate a 25% fee reduction to parents.  There will be another cut to fees at the end of December.  This will take fees down by 50% compared to the level they had in 2020. And, in 2023, operators will get revenues from government to cover these fee reductions for parents.  These rules control the fees charged by operators, but they in no way validate the costs and earnings that are covered by the new government revenues.  There is effectively no reporting on what these costs and earnings are.  There is no way to calculate the amount of surplus taken by operators, or to see how it is used.

That’s the way the for-profit operators like it.  No requirement for reporting on how the public funds they receive are spent until well into 2024.  Even then, only a requirement for an annual audit. No need to justify the salaries paid to management.  No need to justify the profits they claim each year, which are built into the fees they charge.  We know from the CCPA fees survey that for-profit operators in cities across Ontario charge higher fees than not-for-profits.  Their median fees are between 8% and 40% higher than the not-for-profits, depending on the municipality. Why?  Are these fee (and revenue) differentials justified?  The for-profit sector would prefer not to tell.  They don’t want detailed accountability for the public funds they receive.

I have recently argued that the Ministry of Education should be requiring all operators in 2023 to submit detailed budgets of planned expenditures.  These would be reconciled against actual spending (and profit) at the end of the year.  This, along with related operating data, could provide the detailed costs and spending information the Ministry of Education would need to design a new costs-based funding system.  But the Ministry doesn’t want to do that.  Instead they are giving the for-profit child care operators a free pass for another year.  The Ministry plans to develop a new costs-based funding system for 2024 with virtually no costs data upon which to build it.  And, the for-profit operators are even objecting to this.  They apparently want the free pass to continue for ever.

Why, you might wonder?  From an economic point of view, the position of the for-profit operators is quite rational.  They have a licence to provide child care services in Ontario and many of them make good money providing these services.  From now on, having a licence to provide child care services to children 0-5 in Ontario is going to mean receiving hundreds of thousands of dollars a year in guaranteed government funding; by September 2025, government-provided revenues will cover over 80% of the per-child costs of most centres. Access to this kind of government funding is scarce; not everyone can get a licence   In a similar situation in Quebec, some fixed-fee centres have been able to sell their licences to new operators for over a million dollars.  That’s not selling equipment or real estate; that’s just the price of buying the licence.  In Ontario, the fewer the reporting requirements, the fewer the controls over how operators spend their money, the fewer the controls on profit, the higher will be the price when you come to sell your licence.  Large big-box for-profit child care chains may be willing to pay top dollar for existing licences of small for-profit operators if there are very few controls on the reasonableness of costs and earnings.  So, the demands of the for-profit operators are rational; they’re just not very good for Ontario children, families and for the building of a financially accountable child care system.

My Recent Presentation on Child Care Affordability

The Institute for Gender and the Economy recently sponsored a workshop on Care Work in the Recovery Economy. I did a short presentation with slides looking at Alberta’s new child care policies – following on the funding agreement with the federal government. Do the new policies get us to $10 a day? Are low-income families still disadvantaged with the burden of child care costs? I thought you might like to see the slides and draw conclusions.

And how about this neat graphic provided to me after the workshop by the workshop organizers!! It summarizes some of my main themes.

Another Poorly Conceived Child Care Proposal from C.D. Howe

I believe we need a child care system across Canada that is as dependable, beneficial for children and accessible as the public school system and nearly as affordable.  I think that is what the Finance Minister promised in the Fall Economic Statement when she said that “Quebec can show us the way on child care.”

Ken Boessenkool and Jennifer Robson offer a different perspective on how to build a child care system in a C.D. Howe Commentary entitled “Aggressive Incrementalism: Strengthening the Foundations of Canada’s Approach to Childcare”. They argue for an incremental approach – “building on what exists”.   This contrasts with what they call the “big bang approach” of universal childcare services at low or no cost to parents, fuelled by substantial federal financial contributions and leadership. 

What they offer is a strange mixture of refundable tax credits, increased operating and capital grants to licensed providers, and a permanent federal transfer of funds to the provinces and territories.   They don’t like principles-based child care funding agreements with provinces, but they, perplexingly, want this new permanent federal funding to be conditional on provincial efforts to expand licensed child care.

Unfortunately, in my opinion, this is a poorly thought-out, poorly informed set of recommendations for addressing the current child care crisis that families face. 

First of all, their proposals do not really build on what exists.  They want to dramatically transform the Child Care Expense Deduction into a refundable tax credit, which breaks with what has existed since the early 1970s.  And they want to break with bilateral agreements, which was the federal funding approach under Paul Martin and now under the Trudeau government.  

A “big bang” approach would, instead, keep the bilateral approach for funneling child care assistance to provinces and territories.  Those agreements would probably direct increased funds towards operating and wage enhancement grants that already exist (perhaps with new conditions).  And quite possibly, the existing Child Care Expense Deduction would be maintained.  So, Boessenkool and Robson’s proposals break from existing funding arrangements more than building on what exists, and possibly more than the “big bang” approach would do.

The biggest problem with the Boessenkool and Robson piece is that they scarcely seem to recognize the centrality of the affordability problem.  As they write, “Our focus here is … on incremental and structural reforms to increase the quantity and quality of childcare in Canada.” (p. 3).  They emphasize over and over the need for more spaces, but affordability gets a very light touch.  The problem is that without very dramatic moves to improve child care affordability, the majority of new spaces will stay empty.  Affordability and availability of child care are not separate problems; they have to be solved together. 

Boessenkool and Robson’s main instrument to improve affordability is a refundable tax credit for child care expenses.  This would replace the existing Child Care Expense Deduction.  They believe the Child Care Expense Deduction is regressive and patriarchal and should be replaced with this tax credit.  The truth is that they do not understand the Child Care Expense Deduction (CCED) at all.  It is not a child care funding mechanism; never was, never will be.  The CCED is part of the definition of income in the tax system.  For our tax system to be fair (horizontally equitable), we allow the lower earner in the family to deduct his or her (but mostly her) necessary costs of employment from the income she earns, before we apply tax rates to determine how much tax she should pay.  If we don’t do this, this lower earner in the family will face punitive tax treatment when she seeks employment.  Getting rid of the Child Care Expense Deduction would do more to reinforce the patriarchy than to smash it.

Boessenkool and Robson think that the tax credit will solve the affordability problem.  How much money will the refundable tax credit give you?   Well, to judge from Doug Ford’s child care tax credit in Ontario, it won’t give you much. 

Conservative politicians selling tax credits in the 2018 Ontario election announced that tax credits would cover up to 75% of a family’s child care costs.   In the cold light of day after the election, the Financial Accountability Office of Ontario (FAO) studied what the likely impact of the tax credit would be in Ontario.  The FAO estimated that only 300 families across Ontario, or one-tenth of one percent of all families claiming the tax credit, would be eligible for the maximum benefit – the 75% assistance promised.  And, although there was much talk during the election of $6,000 or $7,000 of financial assistance to Ontario families, the FAO estimated that the average family receiving a tax credit would get $1,300 worth of help.  So much for the wonder of tax credits to deal with the child care affordability problem, let alone issues of accessibility, quality, special needs, etc.   Of course, Quebec has experienced the other negative effects of using tax credits: dramatic expansion of for-profit child care of considerably lower average quality.

If you do the math, you will find that most Canadian families would be only a few hundred dollars per year better off with this tax credit, and many mothers would face higher tax rates.  What Boessenkool and Robson don’t get is that it will take a “big bang” to dramatically improve child care affordability.  And improving child care affordability is the key to solving the child care crisis that families face.

I am pleased that Boessenkool and Robson recognize the importance of providing direct operating grants and capital grants to child care providers.  However, they don’t seem to realize that operating grants are already a major funding mechanism in provinces and territories.  And, they seem to believe that, having solved the affordability problem with their tax credit, the purpose of these more generous grants to providers is to expand the number of child care spaces.  In fact, operating grants have two primary effects: first, to lower parent fees, and second, to increase staff compensation.  And therefore, these grants primarily impact affordability and quality of services.  The grants do not directly fund the expansion of spaces, although increased affordability means that the economics of space expansion will work out better.

Having misunderstood the purpose of these operating grants, Boessenkool and Robson then develop odd suggestions for the distribution of these grants – they should be based on the birthrate in a neighbourhood, or based on the existence of child care deserts, or they should be allocated by parents to their favoured child care provider.   Some of Boessenkool and Robson’s suggestions could be interpreted as a belief that there should be more planning in the child care system – that facilities should be grown most in the neighbourhoods that need them most.  Others, like the suggestion that these grants should take the form of a child care voucher, head in the opposite direction.  It is a confusing mish-mash.

Boessenkool and Robson suggest that the federal government should transfer child care funding to the provinces and territories in the form of a permanent block grant rather than through bilateral agreements with conditions for the expenditure of funds.  This seems unrealistic and undesirable at this stage.  It is unrealistic because solving affordability, accessibility and quality issues in child care will take Billions of dollars of annual funding.  The federal government will need reasonable assurance that this money is being spent to deliver affordability, accessibility and quality, rather than, for instance, to enrich private corporate interests in different jurisdictions.  Once a good and effective child care system is established across different jurisdictions, block grants could be a viable funding mechanism.

To state it succinctly, I think the primary federal government objective is that there comes to be, in each jurisdiction, a planned, coherent and diverse system of community-based high-quality early learning and child care services that are affordable and accessible to families.  The federal government needs to be respectful of provincial/territorial jurisdiction (which has important benefits).  But the federal government also needs to ensure that funding goes towards achieving this multi-faceted objective.

Gordon Cleveland

March 31, 2021

Full Report: Affordable for All

Here is the full final report “Affordable for All: Making Licensed Child Care Affordable in Ontario” as submitted to the Ontario Ministry of Education. This report is still being translated into French, so it is possible that page numbers will change in the final version released by the Ontario Government. Those who intend to reference this report in an academic publication should refer back here in a few weeks for the absolutely final version.

Continue reading “Full Report: Affordable for All”