Cost Controls and Supply-Side Funding: What Does Quebec Do?

As provinces and territories move towards $10 a day child care, they have committed themselves to creating new funding systems that implement cost controls on child care operators.  You’re probably wondering what the heck that means.

Well, child care in Canada outside Quebec is being transformed from being funded mostly by parent fees to being funded mostly by direct funding from the government to child care operators.  In return for the provision of specific services, child care operators get operating funding, often known as supply-side funding.   These child care operators also commit to lowering their parent fees, eventually down to an average of $10 a day. 

$10 a day is a small fraction of the total true cost of providing child care services, which means that  80%-90% of the funding will have to come from governments.  But when governments are providing the lion’s share of the money, they need to know that the funds are being spent efficiently to deliver services and not being wasted or disappearing into corporate profits.  So, the federal government has insisted that provincial and territorial governments develop new funding systems that ensure that operators are only paid for service delivery costs that are reasonable and not excessive.

Designing a new funding system that controls costs while also promoting quality is not necessarily easy.  After all, what is a reasonable cost and what is an unreasonable cost?  Figuring this out requires a detailed knowledge of the variations in costs across providers in the licensed child care sector.  And some difficult judgements.

Funding arrangements can be a bit boring and technical so most people ignore them and just complain about the results.  But it is worth the investment of a bit of time to figure out some of the issues.

One approach is to look at what other jurisdictions do – the ones that already have very substantial supply-side funding and controlled fees.  Quebec is one of those jurisdictions. 

A large portion of Quebec’s licensed child care is available at a fixed parent fee – currently $8.85 per day.  Many of these fixed-fee services are in not-for-profit Early Childhood Centres or CPEs (Centres de la Petite Enfance).   Fixed-fee services are also found in for-profit garderies; others are in family child care homes.

Below, I describe how CPEs are funded currently for fiscal year 2022-23.  Here’s the document (in French) that describes most of this.

Quebec’s funding model seeks to cover the legitimate costs that an operator has in the delivery of services to children.  There is a base allocation of funding and then supplementary allocations; the largest share of funding is the base allocation.  To be eligible for the base allocation, the service must be closed fewer than or equal to 13 days per year and must pay all of its personnel for every day. 

The base funding allocation is composed of five elements: direct services, auxiliary services, administrative services, occupancy costs and service level optimization. 

Direct services – This refers to the care provided for children of different ages and there is a rate of funding per day based on the enrollment in each age category.  $66.49 is paid for each infant day, $41.85 for each day for a child 18-47 months of age, and $33.64 is paid for each day for a child 48-59 months of age.  These amounts are adjusted regularly to take into account changes in the bargained wage scales for CPE employees.

These amounts are intended to cover the general operating costs of care provided to children, in particular the remuneration of qualified child care staff, assistants and specialized educators, training and professional development, and educational and recreational materials.

There are adjustments to these daily rates based on a couple of things.  First, if the overall compensation bill in this centre is particularly high (because, for instance, many of the staff have many years of experience), the daily amount will be adjusted up.  The reference rate is currently $26.62.  The daily rates could also be decreased if the compensation bill in the centre is low relative to the reference rate.

Another adjustment is based on qualifications of staff in the centre relative to a reference rate.  This provides some incentive to hire more qualified staff.  There is another adjustment for the attendance rate of enrolled children in the centre.  There is another adjustment for the number of paid days off provided to employees.

Auxiliary Services – these are services (and corresponding costs) related to food preparation, cleaning, snow removal, purchases of minor equipment, etc.   To cover this, there is an allocation of $8.09 per enrolled child per day, with a supplement for small centres.

Administrative Services – to cover the administrative costs of the centre, there is an allocation of $2,217.10 per licensed space for the first 60 spaces and $1,958.85 for each space above 60. 

Occupancy Costs – There is a part A and a part B to this calculation.  Part A allocates $552.16 for each space.  Part B, which is for leased space, varies by region and reaches its maximum at $1,823 per space in Montreal.  The centre can get the sum of these allocations if its actual occupancy expenses are at least equal to this total.

The occupancy cost allocation is intended to cover rental payments, energy costs, fire and theft insurance, maintenance and repair costs, and property taxes paid by the tenant.

Service Optimization – Enrollment has to be at least 90% and attendance has to be at least 70% or else the funding allocation is reduced.

There are clear instructions in the funding guidelines about exactly how to calculate important parameters of this funding formula.  For instance, it may be necessary to calculate the number of licensed spaces according to a formula if the number of spaces has changed over the course of the year.  There are instructions on how to calculate the annual enrollment, the rate of annual enrollment, the annual rate of attendance and the number of weighted days of enrollment (weighted by child/staff ratios). 

All of the above relates to the base allocation of operational funding.  There are also supplementary allocations:

  • One covers Employment Insurance costs for the employer. 
  • Another covers the Quebec Pension Plan costs for the employer. 
  • There is a supplementary allocation to cover the missing parent fees for parents who, because of low income or other factors, do not have to pay the $8.85 per day parent fee.
  • There is supplementary funding for spaces that are reserved for children referred to the centre by integrated health and social services centres or integrated university health and social services centres (CISSS/CIUSS)
  • There is a supplementary allocation for centres that have more than 8% of their enrolled hours provided to children who come from disadvantaged environments (to cover extra costs)
  • There is a supplementary allocation for children of school age in the centre from April to August.
  • There is supplementary funding for the care of children who have disabilities.
  • There is a supplementary allocation for the proportion of enrollment that is for non-standard hours.
  • There is a supplementary allocation for enrollment for part-time child care.
  • There is a supplementary allocation for small centres that have fewer than 32 spaces.
  • There is a supplementary allocation to allow a bonus payment to cooks that have reached the maximum of the salary scale.
  • There is also an allocation for small investments and infrastructure (less than $50,000) for which the operator has to apply.

So, what should we in the rest of Canada conclude about the design of new funding systems?

First, in theory such a funding system is simple.  It is a payment schedule for services delivered by the centre, based on the legitimate costs of this service delivery.  In practice, this kind of funding system is complicated and you need a lot of data on legitimate cost variations to design a fair and workable system.  That’s why I have been recommending that centres annually provide detailed expenditure data to governments as a basis for calculating and adjusting funding rules.

Second, and perhaps not obvious, this funding system is a lot easier to design if staff in all centres are paid according to a uniform wage grid for base wages because it is then easier to project the average cost of child care services per space. See also this.

Third, if you read the full document it is obvious that these funding rules have to be updated every year to account for changed costs and changed institutional arrangements.