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.
This is my submission to the Parliamentary Committee studying Bill C-35 in Canada.
I am an economist who specializes in the analysis of child care systems and in the design of child care policies and their effects. I have taught economics at the University of Toronto for 24 years. I have published numerous articles analyzing issues related to child care in academic and policy journals. I was the economist for the Special Parliamentary Committee on Child Care established by the Mulroney government in 1986-87. I was the main author of a major report on child care reform in Ontario for the Ministry of Education in 2018. I am currently a member of the National Advisory Council on Early Learning and Child Care but this brief reflects my own opinions, and not those of the Council.
I wish to address the issue of for-profit, not-for-profit and public child care services, a topic which has generated some controversy.
The Legislation Bill C-35 expresses a clear intent that expansion of early learning and child care services should be predominantly in not-for-profit and public auspices but also that all existing services of whatever auspice should be supported to provide affordable child care services.
Bill C-35 says that the aim of federal investments is to facilitate access to early learning and child care programs and services “in particular those that are provided by public and not for profit child care providers”. The legislation describes this as a “guiding principle” for federal investments in early learning and child care.
This is in accord with the principles articulated in the 2021 federal budget, which said that child care is essential social infrastructure, like the health and education systems. According to that document, the immediate priority is “building the right foundations for a community-based and truly Canada-wide system of child care. This includes working with provinces and territories to support primarily not-for-profit sector child care providers to grow quality spaces across the country while ensuring that families in all licensed spaces benefit from more affordable child care.” (p. 103). All of the thirteen agreements signed by provinces and territories indicate the consent of these jurisdictions to these purposes in the expenditure of federal money – about $30 billion over 5 years.
What is not-for-profit child care? Not-for-profit child care is defined by its essential purposes. Not-for-profit child care services are those services that spend revenues to enhance the well-being of families and children rather than to enrich the owners of the service. As the Canada-Wide child care agreements say they are “services to a community for a purpose other than generating a profit, including publicly-delivered child care operations. Providers/operations may generate a profit, but the surplus earnings, or other resources, are directed towards improving child care services (for example, improving family or child well-being or development) rather than distributed for the personal benefit of owners, members, investors or to enhance asset growth.”
Why does the federal government favour not-for-profit and public child care? The federal preference for not-for-profit child care derives directly from its desire to follow the example of Quebec in building a publicly-managed child care service for families. This fixed-fee child care system has been effective and popular in Quebec since the late 1990s. Following this model, by 2026, early learning and child care in Canada will be a publicly-managed service available for $10 a day to families.
Centres de la Petite Enfance (CPEs) are the not-for-profit child care centres that are at the heart of Quebec’s system. These services had a fixed fee, originally of $5 a day (now $8.85 per day). Child care services are funded according to the services they provide rather than being funded through money or vouchers given to parents. Because the majority of funds come from government, these services are financially accountable for how they spend public dollars, and must provide detailed annual reports. There is monitoring and assessment of quality. These fixed-fee services are incredibly popular with parents, in much the same way that kindergarten as a guaranteed affordable and accessible service is very popular with parents in the rest of Canada.
Unfortunately, the organizations that claim to represent for-profit operators have made clear their rejection of this approach to funding and managing Canada’s child care services. They are apparently unwilling to accept the fundamental elements that are necessary components of a $10 a day system: fixed-fees, direct operational funding of services, financial accountability for government funding of nearly 90% of their ongoing costs, government monitoring of service quality, public planning mechanisms to determine direct expansion of services to underserved communities, together with parental choice amongst a variety of different child care service options for their child (e.g., full-time, part-time, forest schools, evening and weekend services, special supports for children with disabilities, etc.)
What’s wrong with for-profit child care? In some other industries, the profit motive is a beautiful thing. Most of the goods and services we consume day-to-day are sold to us by private businesses, competing with each other to attract consumer dollars, each business striving to succeed in producing the most attractive and useful product at the best price. Some of these businesses may get out of hand with false advertising or delivery of shoddy goods, but government regulation may be able to control these negative behaviours and leave us with mostly positive results.
Competition is the force in markets that tends to make the self-interest of entrepreneurs broadly consistent with the public interest of consumers. In many markets, it is competition that keeps prices lower, encourages quality improvements and stimulates innovation. For a series of reasons, competition does not play this same role in child care markets – the fact that effective markets for any family are geographically very small, the importance of external benefits and the difficulties of accurately assessing quality. And so, typically, in the child care sector, for-profit providers have charged higher fees and provided lower quality services. In child care markets, self-interest is not curbed by competition; left unchecked, the desire to maximize profit can be directly opposed to the best interests of children and families.
Early learning and child care is a service where minor regulation of private profit-seeking businesses is not enough to deliver good results. Early learning and child care is a sector that has much in common with education. In general, education is much better when providers are public or not-for-profit. Primary and secondary education are delivered in public schools for free. Tertiary education is delivered by not-for-profit community colleges and universities for fees that are subsidized with public dollars.
As a society, we think that a primary and secondary education system that is delivered by public institutions (schools) behaves differently than it would if it were dominated by private profit-seeking businesses competing for the consumer dollar. We think that tertiary education delivered by profit-seeking businesses would be different and worse than when delivered by not-for-profit community colleges and universities. We think that kindergarten would be different and worse than when delivered by public institutions. There are issues of quality, there are issues of trust in the behaviour of the provider, there are issues of equity of delivery and guarantees of access. All of these make us prefer not-for-profit and public delivery of educational services and not-for-profit and public delivery of early learning and child care.
As Margaret Norrie McCain and Roy Romanow wrote back in 2005: : We have nothing against profit making except when it comes to profiting off publicly subsidized children’s services. Child care like schools, libraries or hospitals is a community-based service, not a commodity. Whether a centre opens or closes, where it its located or who it serves are not merely business decisions. They require democratic input. While child care centres should be business-like in their efficiencies; it must be recognized that the business of these organizations should be total fixation on the well-being of children…. The ministers should grandfather those now operating, but restrict expansion dollars to public and non-profit child care providers. (“Stand on guard for child care”, Globe & Mail, 4 Feb 2005).
Is this position just ideological? The position is not ideological; it is practical. Not-for-profit and public child care services have a better track record in providing the levels of quality that will best support children’s development. The consensus on this is sufficient that the Globe and Mail editorial board recently wrote that “Research here and in other countries has consistently shown that, on average, non-profit child-care centres deliver better care than for-profit ones.” (Feb 13, 2023).
Child care systems dominated by not-for-profit and public providers operate differently than those dominated by commercial providers. Just compare co-ordinated child care systems in Norway, Sweden, Finland, and Denmark to wild-west markets for child care in England, Australia and the United States. In child care systems dominated by not-for-profit and public provision, low-income families are better served, the quality of services is higher and more reliable and the costs are lower.
When parent fees drop to an average of $10 a day by 2025-26, the effective role of competition will be even weaker than it is now. Over 80% of the funds for children 0-5 years will come from government. Parents will be paying less than 10-15% of the full costs of providing care. No matter how you deliver the government assistance, that means that the parent is no longer the main consumer who controls child care providers by voting with their dollars for better quality, more services or lower fees. The main consumer, the main driver of what happens in the child care “market” will be the government, as it is in all levels of education. So, it is, more or less, a purely ideological statement to say that competitive child care markets will make for-profit providers be more efficient, that they will serve parent needs better, that they will provide better quality care, that they will be more responsive to what parents and children need and want.
Notice that the federal legislation and provincial/territorial agreements do not seek to abolish or eliminate for-profit child care. The intention is only to have limitations on the amount of its growth and to regulate its quality and accountability for funds received. Under this legislation, growth will be predominantly in not-for-profit and public services including home child care. Many families now have their children in for-profit services that will continue to get federal government funding and will thrive. So far as I know, there is not a single for-profit service that existed before the rollout of the $10 a day program that has been refused entry to the program and the funding that goes with it.
What we need are producers of child care whose primary objective is the provision of quality experiences for children, producers who are willing to make constant quality improvement their watchword. These producers need to be financially transparent and open (because government will need to monitor costs and account for expenditures). These producers need to pay staff well according to established salary grids to ensure stability and quality of services. These producers need to have as a key objective making early learning and child care into a public service at good quality and affordable for all.
If existing for-profit providers are willing to accept these types of conditions on their operation, they are welcomed to continue operation in the $10 a day system, with operational funding.
We should be aware that there will be substantial downward pressures on quality as the child care sector expands rapidly, even if it is dominated by not-for-profit and public providers. There will be many new staff with little experience, there will be shortages of trained staff, and there will be inadequate numbers of experienced educators to properly mentor new staff. In this circumstance, to rely on providers whose fundamental objectives do not align well with the promotion of quality would be a serious mistake.
Doesn’t for-profit child care provide more “choice” for parents? Not really. The “choice” that parents want and need is choice of services that are more convenient for parents in terms of location and hours and better for children in terms of availability of special needs programming, variety in programming (such as outdoor-oriented programs), support for particular cultural and language learning etc. Most of these programs are more expensive to offer than standard child care. For-profit operators, seeking to maximize profit, are less likely to offer them when fees are controlled. For-profit operators will only provide more “choice” in offering ancillary services for which they may be able to charge extra fees.
Is there any evidence that the quality of for-profit child care is worse than not-for-profit child care? There is good academic evidence that for-profit provision tends to be of lower quality. And noted Canadian economist Professor Pierre Fortin has summarized the quality results from two Quebec studies very nicely in this chart.
This evidence is based on lengthy and detailed on-site quality evaluations using accepted scales for the measurement of the factors important to children’s development. As the chart shows us, children in not-for-profit CPEs in Quebec have been receiving good or excellent quality child care. Many children in for-profit full-fee child care centres have been receiving child care of inadequate quality.
An important part of the reason is that for-profit child care has historically paid much lower wages to staff than has the not-for-profit sector.
But isn’t it true that public and not-for-profit enterprises are inefficient and for-profit providers can produce services at lower costs? There is little evidence of this. The Canadian Centre for Policy Alternatives recently made over 9,000 phone calls to child care facilities across Canada, inquiring about the fees they charge to parents (Macdonald and Friendly, In Progress: Child Care Fees in Canada 2019, 2020). Their conclusion: “We found that for-profit centres generally charge more for preschool spaces than not-for-profit centres do. In 19 of the 25 cities for which we had data (76%) for-profit centres charged at least 10% more than not-for-profit centres. In the more extreme cases (Calgary, Richmond, Richmond Hill and Edmonton), for-profit centres’ preschool-age fees were 50% to 60% higher than their not-for-profit counterparts.” (pp. 20-21). The chart below from that publication shows that, in 15 of the 25 cities, for-profits charge on average over 20% higher parent fees.
It is worth noting that in Australia, with child care provision dominated by for-profit operators, the average cost of full-time care is over $27,000 a year for all ages of children and has risen by 41% over the last eight years, much more than inflation (Australian Government Productivity Commission Report on Government Services 2021).
But isn’t it true that for-profits can build spaces faster? When it comes to growth, for-profit child care providers have structural advantages over not-for-profits. Community-based not-for-profit child care centres have typically been unwilling to go into debt, so unless there is a program of capital grants, loan guarantees or social investment to pay for the costs of building new facilities or repurposing existing buildings, it will be hard for not-for-profits to expand.
The mission of for-profit businesses is to make a profit, so expansion is a natural fit, particularly when the government is paying over 80% of the operating costs and therefore guaranteeing a continuing 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.
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. Not-for-profits are allowed to borrow money, but most banks and other sources of funds are unwilling to lend because of perceived high risk of defaultrtt. But governments can and should guarantee the loans, because, after all, there will be ample federally-provided 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.
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 federal government should be open to expansions of kindergarten integrated with before-and-after school care. This is particularly true in Manitoba, Saskatchewan and Alberta that currently have only half-day kindergarten for 5-year-olds.
Ontario shows that rapid expansion of not-for-profit child care services is very possible. The information is available in the annual Ontario statistical report on early learning and child care (Ontario Early Years and Child Care Annual Report – various years). Over the last 10 years to 2019-20, centre spaces increased in Ontario by 198,600. Fully 85% of the increase (168,900 spaces) was in not-for-profit child care. As of 2020, there were 462,800 centre spaces in Ontario. Can not-for-profits expand rapidly? Given the right supports, yes they can and they have.
What about the growth of big-box corporate for-profit child care? Some for-profit child care providers are good, some are bad. This is not really a discussion about individual operators. Particularly when small for-profit operations are run by persons knowledgeable about early childhood education, they can sometimes do quite a good job providing child care services. The legislation in front of the Standing Committee does not and most of the provincial/territorial agreements do not exclude some expansion of for-profit care.
The real issue is “Should the early learning and child care systems that we are building in Canada be dominated by for-profit corporate child care operators?” We know that if government policy is agnostic between for-profit and not-for-profit, and generous operating funding for over 80% of costs is made available to both, we will quickly have for-profits dominate new provision of services.
We can look to Australia for evidence. In 2000, the Australian government introduced its Child Care Benefit, providing substantial child care funding for the first time. In 2001, ABC Learning began its corporate life with 43 child care centres. It quickly expanded, gobbling up existing centres and creating its own. By the time it collapsed in financial scandal in 2007, it had grown to over 1,000 centres – 25% of the entire child care market.
Now that there are billions of federal dollars on the table, corporations who never had any interest in children’s or families’ welfare are, all of a sudden, very anxious to be able to enter this market and profit from the financial bonanza. Now is the time to decide whether Canadian child care will be corporate or community-based. This legislation declares the intent of the federal government that federal funds should be used to create a community-based early learning and child care system.
Are for-profit operators being excluded from the new Canada-Wide child care system? That, of course, depends on the details of the agreements signed in each province and territory. However, in Alberta and Ontario where there has been the greatest clamour from the for-profit operators, it is clear that for-profit operators are not excluded. In fact, in both provinces, all existing for-profit operators have been invited to join and benefit from the funding guarantees provided by federal dollars.
In Ontario, the provincial government agreed that there could be growth in the number of for-profit spaces, but that the proportion of for-profits could not be greater than they were when the agreement was signed. Discrimination? Hardly. Instead, this is a policy preference of maintaining the existing predominantly not-for-profit and public balance of provision.
In Alberta, more than 60% of child care has been provided by for-profit operators. Most of the growth since the Canada-Wide child care agreement was signed has been in the for-profit sector. An opening for an additional 22,500 for-profit spaces has been recently announced. Does this sound like an ideologically-biased extermination of the for-profit sector? Hardly. If anything, the stick is bent too far in favour of for-profit provision. The federal legislation is a useful reminder that the intent is, over time, to create a child care system that provides a public service in which not-for-profit, public and home child care providers are the dominant group of providers dedicated to the public interest in child care.
Do for-profit child care operators in Canada support the $10 a day system? For-profit child care operators and their lobbyists want full access to federal dollars, but they don’t agree with direct funding of child care services to provide $10 a day care. They disagree with the fundamental design elements for the program that are laid out in the thirteen provincial and territorial agreements. Instead of accepting direct funding of services, the newly-formed National Advisory Council on Private Child Care says “The Council will advocate for a new approach to childcare that provides funding directly to families.”
That kind of tax-credit or voucher-type funding mechanism has been tried in Quebec and has been a failure. As a result of these failures, the current Quebec government has decided to convert up to 50,000 of the tax-credit-funded spaces (i.e., most of them) to fixed-fee spaces over the next five years.
The voucher-type funding model is similar to the one currently used in Australia where fee rises have been much higher than inflation and where there are few measures of financial accountability of operators for the ways they use over $10 billion of government money. Rising fees and few measures of financial accountability are very attractive to for-profit operators. But they are not good for parents, children or governments.
There’s a new Canada-wide organization of for-profit child care operators that has just been formed in Calgary. Appropriately enough, they were brought together by CIPR Communications, a PR and marketing company they have hired to state their case. They don’t like the new Canada-Wide Early Learning and Child Care system that the federal government and all provincial and territorial governments have agreed to create (to complement Quebec’s system). They don’t want you and other families to have $10 a day child care.
Instead, their new policy idea is the same as the much-tested and discredited old policy idea – fund the parents to buy child care at ever rising fees (if they can find it) instead of funding services to ensure that they are affordable and available for families. See discussion of these ideas here, here and here.
They are aggrieved that federal, provincial and territorial governments across the country have agreed that the preference should be for the expansion of not-for-profit and public child care services. These for-profit operators believe the preference for not-for-profit child care is ideologically driven. However, the Globe and Mail editorial this week told us why not-for-profits are preferred: “Research here and in other countries has consistently shown that, on average, non-profit child-care centres deliver better care than for-profit ones.” An important part of the reason is that for-profit child care has historically paid much lower wages to staff than has the not-for-profit sector.
And the private operators don’t like financial accountability. They are happy for the federal government to spend $10 billion a year on child care and for provinces and territories to pay a similar amount. But they don’t want the financial accountability that goes along with the new child care agreements. That’s why they prefer funding to go to parents – no need to report on or account for the 90% of your revenues that come from government. No limitations on profit earned. No limits on excessive spending. No need to account for the government money that buys you assets that you can then sell to others. Talk about pigs at the trough.
I recently gave a webinar presentation on behalf of Building Blocks for Child Care. Its focus was on expansion issues, but I talked quite a bit about the appropriate role of for-profit operators in building the new early learning and child care system. Let me quote at length from that presentation:
“There can be a role for for-profit operators in a universal system. Having a certain percentage of for-profits is not NECESSARILY a deal-breaker. … the key is that for-profits in our universal child care system must accept the rules of the game. What do I mean by rules of the game? Early learning and child care is becoming a public service somewhat like health and education. Child care will be largely publicly funded and must be accountable for the ways it spends public funds. Value for money received. Early learning and child care will be affordable to parents, will be of high quality, will be universally available in a wide range of forms suited to children’s and parents’ needs and will be delivered mainly by not-for-profit and public licensees, with some delivery of services by private for-profit operators.
“Something like 80%-90% of an operator’s revenues will come from government. Operators will have to be financially accountable for these funds and transparent about how they spend them. Some expenditures will not be legitimate and many will. There will be monitoring, quality evaluation, and extensive reporting requirements. That’s the way that a universal fixed-fee system has to work, but most for-profit operators seem not to accept these rules of the game.
“For-profit operators want very few controls on their spending and the costs that they can claim. They lobbied the Ministry [i.e., the Ontario Ministry of Education] successfully to get rid of most measures of financial accountability for the 2022 and 2023 funding guidelines. Yet, without financial accountability, they expect governments to compensate them for all of their costs above $10 a day. How can that work? It doesn’t. In fact, if you talk to for-profit operators for a little while, you find out that they don’t like a fixed-fee system at all. They want a tax credit scheme [i.e., funding provided to parents], in which for-profit operators charge whatever the market will bear, and governments give increasing amounts of money to parents to chase after the rising fees and try to make child care affordable. They don’t accept the rules of the game. And as long as they don’t accept the rules of the game, for-profit operators play a decisively negative role in our attempts to build a universal system of good quality child care services. “
These for-profit operators meeting in Calgary have just made clear what many of us already knew – many for-profit operators are unwilling to be participants in building an accountable, affordable, accessible, high quality system of child care as a public service for Canada’s families. They would prefer a child care funding system that enriches them without controls or accountability. Let’s ignore them and their PR company, but be willing to work with those for-profit operators that ARE willing to be part of building early learning and child care as a public service.
On average, not-for-profit child care centres reliably deliver better care than for-profit ones.
In Canada, we need expansion of spaces as a high priority.
This expansion must be accompanied by financial accountability for public money, caps on fees, higher wages, and better quality for children.
Around the world, we have prominent experiences where for-profit child care corporations feast on public money without accountability, drive up fees much faster than inflation, and slash wages to enhance profit.
Therefore, in Canada, we must resist limitations on the growth of for-profit child care and allow more entrepreneurs to enter the market.
It’s nice when opinion columns are logical; many people think it’s a requirement of the genre. But not so for the Globe and Mail. Their most recent editorial about not-for-profit and for-profit child care is insightful, but completely illogical.
Not-for-profit and public services are at the heart of Ontario child care. Overall, they care for more than three-quarters of our children in licensed child care. For children 0-5 years of age, that number has been 70% of children compared to 30% in commercial child care arrangements.
I guess that’s why Ontario didn’t fuss too much about agreeing with the federal government that this percentage – at least 70% not-for-profit and public – would stay the same when licensed child care moves to $10 a day by 2026. In March 2022, Ontario signed an agreement with the federal government to get about $10 billion over 4 years in order to transform Ontario’s child care into an affordable, increasingly accessible service provided predominantly by not-for-profit and public providers.
That Agreement is admirably clear on the limits to for-profit expansion. In Section 2.1.1, Ontario commits that “at the end of this Agreement, the proportion of not-for-profit licensed child care spaces for children age 0 to 5 compared to the total number of licensed child care spaces for children age 0 to 5 will be 70% or higher.” (emphasis added)
This commitment is repeated in Ontario’s Action Plan in Section 4.4.
However, there is increasing evidence that Ontario regrets the terms they agreed to in March of 2022. I have now heard from the Ministry of Education that Ontario no longer plans to respect this part of the Agreement.
Of course, the Canada-Ontario Agreement is a contract and payment of federal money depends on following its terms. So, the Ministry of Education is twisting itself into a pretzel trying to justify its new intentions. The Ministry of Education has now decided that the insistence upon a minimum of 70% not-for-profit services, despite the clear wording above, refers only to services that are in receipt of federally-provided operating funding and does not apply to all licensed child care. But – read the underlined section again – they are obviously wrong.
Why is this happening now? For-profit expansion was front-end-loaded by the current government. Many for-profit operators applied for licences over the months that Ontario was dithering about whether to sign an agreement to take billions of dollars of federal child care money. As a result in order to stick to the original 70% rule, the province could only license about 2,300 more spaces between now and 2026, according to my calculations. All the rest of the expansion, tens of thousands of spaces, would have to come from either not-for-profit or public operators.
Apparently, the government of Ontario, and the for-profit lobbyists that appear to dictate its recent policy changes, did not like this logic. Ontario now wants to be allowed to license dozens or hundreds more of these for-profit operators whose fees will not be controlled.
The Ministry of Education’s reinterpretation of the Agreement would mean more for-profit expansion than the current limit of 2,300 within federally-funded services. Plus, it would allow for an infinite amount of for-profit expansion outside of the funding agreement. Presumably, once this agreement ends in 2026, all these new for-profits outside the agreement could be welcomed by Ontario into a new five-year funding arrangement with the federal government.
For-profit expansion outside of the funding agreement will not be planned or controlled in any way. It will, no doubt, happen in the big population centres where most services are already located, not in priority underserved neighbourhoods.
This latest travesty comes on top of other instances of Ministry of Education fealty to Ontario’s for-profit operators. We need to make it clear that this is unacceptable. Parents want and need good quality, affordable child care. They will get that in a system dominated by not-for-profit logic. But they will not get good quality affordable child care if commercial interests are allowed to take complete control of Ontario’s child care policies.
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.
What’s the position of the federal government on for-profit child care? The fall economic statement and the federal budget made things pretty clear. The Quebec model based on not-for-profit Early Childhood Centres (CPEs) is the model to follow.
The 2021 Budget provides $30 Billion over 5 years for the building of a “Canada-wide, community-based system of quality child care.” (p. 101). A community-based system means publicly-planned and publicly-regulated not-for-profit and public services.
The budget compares this to public health care and the public school system: “Just as public school provides children with quality education in their neighbourhoods, the government’s goal is to ensure that all families have access to high-quality, affordable and flexible early learning and child care no matter where they live.” (p. 101).
In case those statements were not clear enough, the budget states that over the next five years, the federal government will work with provinces and territories “to support primarily not-for-profit sector child care providers to grow quality spaces across the country while ensuring that families in all licensed spaces benefit from more affordable child care.” (p. 103)
The position is not ideological; it is practical. Child care systems dominated by not-for-profit and public providers operate differently than those dominated by commercial providers. Just compare co-ordinated child care systems in Norway, Sweden, Finland, Denmark and New Zealand to wild-west markets for child care in England, Australia and the United States. Or look at the recent experience during COVID in for-profit long-term care homes in Ontario. In child care systems dominated by not-for-profit and public provision, low-income families are better served, the quality of services is higher and more reliable and the costs are lower.
Notice that the federal position does not say that for-profit child care will be abolished. Only that it will not be supported to grow. Many families have their children in for-profit services that will continue to get government funding. However, going forward, the federal government insists that the growth will be not-for-profit or public and that new federal money will not support the expansion of private, for-profit centre-based services. For-profit operators, and especially multinational corporate chains of child care services, will be vocal in their desire and willingness to build new services quickly. If the Government is mesmerized by this siren song and relies on for-profit child care operators for expansion, it will largely lose control over the evolution of and quality of the early learning and child care system.
What is needed are producers of child care whose primary objective is the provision of quality experiences for children, producers who are willing to make constant quality improvement their watchword. These producers need to be financially transparent and open (because government will need to monitor costs and account for expenditures). These producers need to pay staff well according to established salary grids to ensure stability and quality of services. Working conditions should include planning time and professional development. These producers need to have as a key objective making early learning and child care into a public service at good quality and affordable for all.
If existing for-profit providers are willing to accept these types of conditions on their operation, they should be welcomed to continue operation, with operational funding. However, new for-profit and corporate child care cannot be part of a new community-based system. THE KEY PROVISION THAT ALL BILATERAL AGREEMENTS MUST HAVE IS THAT NO OPERATIONAL FUNDING SHOULD BE AVAILABLE TO NEW OR EXPANDED FOR-PROFIT PROVIDERS.
Remember, there will be substantial downward pressures on quality as the child care sector expands rapidly, even if it is dominated by not-for-profit and public providers. There will be many new staff with little experience, there will be shortages of trained staff, and there will be inadequate numbers of experienced educators to properly mentor new staff. In this circumstance, to rely on providers whose fundamental objectives do not align well with quality promotion would be a serious mistake.
What’s wrong with for-profit child care?
In some other industries, the profit motive is a beautiful thing, IMHO. Most of the goods and services we consume day-to-day are sold to us by private businesses, competing with each other to attract consumer dollars, each business striving to succeed in producing the most attractive useful product at the best price. Some of these businesses may get out of hand with false advertising or delivery of shoddy goods, but government regulation may be able to control these negative behaviours and leave us with mostly positive results.
However, early learning and child care is a service where minor regulation of private profit-seeking businesses is not enough to deliver good results. Early learning and child care is a sector that has much in common with education. In general, education is much better when providers are public or not-for-profit. Primary and secondary education are delivered in public schools for free. Tertiary education is delivered by not-for-profit community colleges and universities for fees that are subsidized with public dollars.
We think that a primary and secondary education system that is delivered by public institutions (schools) behaves differently than it would if it were dominated by private profit-seeking businesses competing for the consumer dollar. We think that tertiary education delivered by profit-seeking businesses would be different and worse than when delivered by not-for-profit community colleges and universities. There are issues of quality, there are issues of trust in the behaviour of the provider, there are issues of equity of delivery and access. All of these make us prefer not-for-profit and public delivery of educational services.
The fundamental objective of for-profit institutions is to make profit for owners and shareholders. In child care, high profits come from hiring less qualified staff, paying low staff compensation, and raising fees. In economic theory, markets are supposed to control this behaviour. The “control” mechanism is supposed to be competition for consumers’ dollars, enforced by the willingness of parents to leave a low-quality high-fee child care facility and move their child to another one with better quality and lower fees. But it is difficult for parents to accurately perceive and measure the quality that their children receive, so it is difficult for consumers to hold producers to account using market mechanisms. And most parents are hesitant to move their children away from known friends and caregivers into a new arrangement, unless things are really bad.
Further, fees will soon be more or less the same everywhere at $10 a day, so the cost to parents will not be a big factor in parental decisions. There is overwhelming evidence from many countries that market mechanisms are completely inadequate to foster and promote good quality early learning and child care services.
Isn’t the preference for not-for-profit child care just ideological?
No, not really. In fact, it is more true that the preference for for-profit child care is ideological. What do I mean? Well, the argument for for-profit child care is based on what we all learned in Economics 101; that the profit motive leads businesses to serve the public interest because they have to compete for consumer dollars. But it is a fiction that consumers voting with their dollars will be controlling the price, quality and accessibility of child care going forward. When parent fees drop to an average of $10 a day by 2025-26, over 80% of the funds for children of these ages will come from government. Parents will be paying less than 20% of the full costs of providing care.
No matter how you deliver the government assistance, that means that the parent is no longer the main consumer, controlling child care providers by voting with their dollars for better quality, more services or lower fees. The main consumer, the main driver of what happens in the child care “market” will be the government, as it is in all levels of education. So, it is, more or less, a purely ideological statement to say that competitive markets will make for-profit providers be more efficient, that they will serve parent needs better, that they will provide better quality care, that they will be more responsive to what parents and children need and want.
Doesn’t for-profit child care provide more “choice” for parents?
Not really. The “choice” that parents want and need is choice of services that are more convenient for parents in terms of location and hours and better for children in terms of availability of special needs programming, variety in programming (such as outdoor-oriented programs), support for particular cultural and language learning etc. Most of these programs are more expensive to offer than standard child care. For-profit operators are less, rather than more, likely to offer them when fees are controlled.
It is a charade to suggest that “for-profit” is a type of choice that parents need. Parents have diverse needs. As we develop the early learning and child care system going forward, we all need to plan for the provision of a variety of services that serves the tapestry of parent and child needs. The federal government has made clear its willingness to fund “flexible” and inclusive forms of child care. This should be specified in the bilateral agreements that provinces/territories sign.
Is there any evidence that the quality of for-profit child care is worse?
Sure. There is good academic evidence that for-profit provision tends to be of lower quality. And noted Canadian economist Professor Pierre Fortin has summarized the quality results from two Quebec studies very nicely in this chart.
This evidence is based on lengthy and detailed on-site quality evaluations using accepted scales for the measurement of the factors important to children’s development. As the chart shows us, children in not-for-profit CPEs in Quebec have
been receiving good or excellent quality child care. Many children in for-profit full-fee child care centres have been receiving child care of inadequate quality.
But isn’t it true that public and not-for-profit enterprises are inefficient and for-profit providers can produce services at lower costs?
So far, there is little evidence of this. The Canadian Centre for Policy Alternatives recently made over 9,000 phone calls to child care facilities across Canada, inquiring about the fees they charge to parents. Their conclusion: “We found that for-profit centres generally charge more for preschool spaces than not-for-profit centres do. In 19 of the 25 cities for which we had data (76%) for-profit centres charged at least 10% more than not-for-profit centres. In the more extreme cases (Calgary, Richmond, Richmond Hill and Edmonton), for-profit centres’ preschool-age fees were 50% to 60% higher than their not-for-profit counterparts.” (pp. 20-21). The chart below from that publication shows that, in 15 of the 25 cities, for-profits charge on average over 20% higher parent fees.
It is worth noting that in Australia, with child care provision dominated by for-profit operators, the average cost of full-time care is over $27,000 a year for all ages of children.
But isn’t it true that for-profits can build spaces faster? We do need lots more spaces. 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 unless there is a program of capital grants to pay for the costs of building new facilities or repurposing existing buildings, it is hard for not-for-profits to expand. And the mission of not-for-profits is to provide good quality care that children and families need, rather than to expand.
The mission of for-profit businesses is to make a profit, so expansion is a natural fit, particularly when the government is paying over 80% 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.
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. Not-for-profits are allowed to borrow money, but most banks are unwilling to lend because of perceived high risk of default. But governments can guarantee the loans, and, in general, 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.
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 federal government should be open to expansions of kindergarten integrated with before-and-after school care. This is particularly true in Manitoba, Saskatchewan and Alberta that currently have only half-day kindergarten for 5-year-olds.
Ontario shows that rapid expansion of not-for-profit child care services is very possible. The information is available in the annual Ontario statistical report on early learning and child care. Over the last 10 years to 2019-20, centre spaces increased in Ontario by 198,600. Fully 85% of the increase (168,900 spaces) was in not-for-profit child care. There are now 462,800 centre spaces in Ontario.
On balance, what should we conclude about for-profit child care?
Some for-profit child care providers are good, some are bad. This is not really a discussion about individual operators. Particularly when small for-profit operations are run by persons knowledgeable about early childhood education, they can sometimes do quite a good job providing child care services.
The real issue is “Should the early learning and child care systems that we are building in Canada be dominated by for-profit corporate child care operators?” We know that if government policy is agnostic between for-profit and not-for-profit, and generous operating funding for over 80% of costs is made available to both, we will quickly have for-profits dominate new provision of services. You can bet that for-profits will move fast when generous profit opportunities appear. The federal and provincial/territorial governments when they are negotiating the bilateral funding agreements (which they are doing right now) have to explicitly decide to favour new not-for-profit and public providers for support. That means that new or expanded for-profit operations should not be eligible for operating funding going forward. The time to decide the future of the early learning and child care sector is now!
This study seeks to answer the question “What is the best way to improve the affordability of licensed child care for infants, toddlers and preschoolers in Ontario?” It seeks to provide a comprehensive analysis of alternative funding and policy options and to recommend steps forward that can dramatically improve child care affordability for families.
This is the final report of a 3-year project studying nonprofit and for-profit child care centres in Canada, by Gordon Cleveland, Barry Forer, Douglas Hyatt, Christa Japel and Michael Krashinsky. The focus has been to establish whether and under what conditions nonprofit operation of centres will lead to higher quality services. The authors use four different data sets to answer the question. Here is a very brief summary. And here are a few chosen excerpts from the Final Report. However, Chapter Two of the report provides a more fulsome summary. The report analyzes data from You Bet I Care! (six provinces and one territory), Grandir en Qualite (Quebec), the Quebec Longitudinal Study of Child Development (or ELDEQ; Quebec), and data from the City of Toronto. It includes a reasonably comprehensive survey of relevant literature and information about nonprofit and for-profit child care in other countries.
