Tag: early learning and child care

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ONTARIO’S NEW FUNDING FORMULA – AN EVALUATION

Ontario’s new funding formula is, of course, new. To be implemented in January 2025.  So, everyone is feeling around it like the proverbial seven blind men around the elephant.  There are different opinions depending upon which part you are touching.

What we do know for sure is that this is a cost-based funding formula, seeking to take into account the different cost situations facing different child care centres.  It will replace the revenue-replacement model which began in March 2022, which was based only on what parent fees were charged by a centre, not on their costs.  For many centres, the revenue-replacement model failed to cover true costs, driving centres into debt as a result, or forcing them to close rooms.

This evaluation is based only on the funding formula for child care centres, not for home child care.

THE FUNDING FORMULA – A THUMBNAIL SKETCH

Ontario’s new funding formula will deliver operational funding to centres that are in the $10 a day program (CWELCC).  Each centre will have to come up with a projected operating budget that identifies how many licensed spaces they have in each age group, how many of these spaces will be operational in the coming year, whether the centre is located in a community space or a school, the location of the centre, and the number of days of operation for each age group per year.  These data will be fed into a funding formula to determine how much revenue the centre will receive for operations in the coming year (to cover wages, salaries and benefits of program staff and supervisors, food, accommodations, administration, materials and so on).    

The calculated numbers will be affected by the geographic location of the centre, with centres in Toronto getting a boost and many others having their calculated allocation reduced a bit.  This is intended to reflect differences in the costs of operation in different locations around the province.

If the spaces are existing spaces (part of the CWELCC $10 a day program as of August 14th, 2024) and the calculated revenues do not cover their projected costs, they will be eligible for a Legacy Top-Up to revenues.  As long as the centre can show that its projected costs reflect the (relatively high) legitimate historical costs of operating this centre, it will receive this extra revenue through a Legacy Top-Up.  New spaces are not eligible for a Legacy Top-Up, but they will get a Growth Top-Up.  A Growth Top-Up boosts up the amount calculated by the funding formula for new spaces, by different amounts based on geography.

A centre can spend its allocation on any eligible cost, and nearly all costs that are clearly related to the provision of quality child care for children will likely be eligible.

On top of this, there is an allocation for profit or surplus.  It’s called an “allocation in lieu of profit or surplus”. It’s about an 8.5% markup on top of other revenues.  For-profit centres will take this as profit.  Non-profits will take it as a surplus to be used to cover emergency shortfalls in the future or to cover expected repairs and maintenance, or to improve compensation and quality.

Service System Managers (SSMs) are the gatekeepers of the system.  They hand out funding according to submitted budget plans for the coming year.  They will adjudicate issues related to the “eligibility” of certain expenditures.  They will assess the reasonableness of expenditures in an annual cost-review process.  They will also continue to administer the child care subsidy system.  There will no longer be operating grants and wage enhancement grants for spaces that are part of the $10 a day system, but there will continue to be such grants for child care for children 6-12. 

For more details about how the new funding formula works, see my blog from September 23rd, 2024.

OK, on to the evaluation:

POSITIVES OF THE FUNDING FORMULA

Let’s emphasize the positives first.  The Ministry of Education has made a serious attempt to develop a cost-based funding formula – a funding formula that will cover the legitimate costs of operators seeking to provide quality services for children.  It begins the process of developing public management of child care operations with financial accountability for the money spent.  It is not perfect, as you will see below; there are some serious problems that remain.  But first, here are some of the positives:

  1. Finally, we are getting rid of the stopgap “revenue-replacement” funding model which was not based on the true costs of operating a child care facility, but was based on whatever your parent fees for children 0-5 happened to be on March 27, 2022.  For some centres – those who had kept fees low, or those who used higher school age fees to cross-subsidize parent fees for younger children, or those seeking to attract more staff – revenue-replacement was extremely unfair.  These centres went into deficit and many shut down rooms.  So, having a funding model which purports to be based on costs is a big step forward.

2. For those centres seeking to expand and licensees seeking to set up new centres, it is now possible to forecast what your annual revenues will be.  This is indispensable to support growth.

3. For centres that have historically had costs of operation that are higher than the Benchmark Allocation (what the Ministry believes the underlying costs of operation truly are), there is a Legacy Top-Up.  That means that these centres, for their existing spaces, will not go out of business.  Their costs (for existing spaces, but not new ones) will, apparently, be covered at their current level going forward.

4. For centres that have operating costs that are lower than the province’s Benchmark Allocation (apparently 50% of the centres in the province), they will have revenues that are greater than their costs (i.e., they will receive the Benchmark Allocation).  So, these centres could and should spend additional revenues on improving quality, including wages and benefits to attract and retain staff.  If they don’t fully spend their allocation, the surplus will be taken back at the end of the year.

5. There are important measures of financial accountability built into the new funding system – standardized financial reporting, audited financial statements, a cost review process at the SSM level for selected centres and agencies and an external compliance assessment process for a 5% sample of centres/agencies.  Financial accountability is a key aspect of public management.  If 90% of revenues are coming from government, we need to know that these revenues are being spent sensibly improving the lives of children and parents.

6. The new funding formula determines the total amount of revenue a centre will get, but gives a very large measure of flexibility to the centre on how it spends this money.  Instead of having multiple different spending envelopes generated by multiple different granting programs, nearly all centre operating revenues will be in one envelope.  This is positive, because we want centres to have the capability to tailor their programs to the character of their community and the needs of their children and families.  Centres should not have cookie-cutter programs – the same for everyone.  This funding formula enables diversity.

7. There is some limitation on the amount of revenues that can be taken out “in lieu of profit”.  There is a formula for the amount “in lieu of profit/surplus”.  This guarantees operators a minimum amount of profit or surplus but this is also a maximum.  I will have more to say about this below.

NEGATIVES

8. The funding formula is not based on a wage grid.  Instead, there is a wage floor for RECEs – currently $23.86 per hour.  A wage grid would establish wages to be paid to all certification levels of staff, including untrained staff, cooks, supervisors, etc., with increases in this hourly wage based on experience and qualification level.  Many Canadian jurisdictions now have wage grids. 

A wage grid is designed to attract and retain educators and other staff.  The absence of a wage grid means that paying low wages is an attractive competitive strategy for some operators – low wages will potentially leave them surplus revenue to spend in other ways.  For instance, for-profit operators could use these freed-up revenues to pay accelerated mortgage costs so that they end up owning child care assets sooner.

9. Geographic Adjustment Factors (GAFs) and Growth Multipliers (GMs) play a very large role in determining how much annual revenue any centre will get.  And yet the justification for the GAFs and GMs is clouded in mystery.  Geographic Adjustment Factors vary from 0.79 (Kingston, Lennox and Addington, Hastings, Renfrew) to 1.07 (City of Toronto).  In other words, for the same size of centre, a child care centre in Kingston will receive a Benchmark Allocation that is about 74% of the Benchmark Allocation in Toronto ((i.e., (0.79/1.07)*100).  Since wages and benefits are the lion’s share of child care costs, we have to ask whether compensation is that much lower in Kingston than in Toronto.  And if it is, should it be?


For new centres, a Growth Multiplier builds new revenue variation on top of the Benchmark Allocation.  Growth Multipliers are sometimes very small, for instance between 0.00 and 0.03 in City of Cornwall, Lennox and Addington, and Cochrane DSSAB, and sometimes much larger (for example, the multiplier is 0.30 in County of Lanark, United Counties of Prescott and Russell, County of Renfrew).   Lanark and Lennox and Addington are very close to each other.  It’s hard to believe that a centre in Lanark deserves a 30% supplement to its allocation in order to fund new growth, whereas a new centre established in Lennox and Addington has to get by with only a supplement of 2% to the regular Benchmark Allocation.  If you do a bit of math, you can figure that the amount of revenue available to a new centre in Toronto will be over 50% higher than to a new centre in Lennox and Addington.  That seems oddly disproportionate.

10. In the market economy, profit is a reward to the successful entrepreneur.  In other words, it is a reward to the entrepreneur who takes a risk, starts a business, and is successful in selling a product or service that people want to buy.  Not all entrepreneurs will make a profit, but the desire to earn a profit encourages entrepreneurs to spend time figuring out what people want and how to design and produce it for a price that consumers can afford.  That’s the theory, anyway.  And we put up with some producers earning big profits because we believe that profit encourages (some) entrepreneurs to try to satisfy consumer demand.

However, in this funding formula, profit has very little to do with desirable behaviours.  Every provider will earn a profit of something like 8% of revenues as an automatic result of the funding formula.  And that will be true for providers who work hard on improving quality and those who do not know much or care much about quality. 

11. I said above, under the list of positives, that the funding formula limits the amount of profit that can be earned (actually called the allocation “in lieu of profit/surplus”).  Formally, that’s true, but there appear to be other ways that unscrupulous for-profit operators could increase their takings.  For instance, operators that own their own facilities can lease them back to themselves as the centre owner. And, a centre owner can do management and supervisory work in her own centre and get paid for it.  The financial accountability measures in the funding plan are supposed to ensure that the amount of lease payments and the amount of owner’s compensation are reasonable, but that will be a difficult thing to do.

12. The allocation for wages and benefits of supervisory staff does not depend on the size of the centre.  However, large centres need more supervisory staff than small ones do.  A centre with 150 children will need both a supervisor and an assistant supervisor, at least. Therefore the new funding rules, that base the revenues for supervisor compensation only on the number of days of service operation rather than on the number of children, will encourage the licensing of many smaller centres which may not make sense.  It might actually be a more efficient use of resources to encourage larger centres, within reason.

13. The most general and perhaps most serious critique of the funding formula is that it does not effectively incentivize quality improvements by operators.  PEI’s funding formula encourages centres to hire staff with higher levels of qualifications – a centre’s funding gets multiplied when they hire better paid staff.  Quebec’s funding formula gives supplementary funding to centres that have higher costs because staff have greater amounts of experience or higher qualifications.  Ontario’s funding formula ensures that an extra dollar spent on quality or staff wages is a dollar taken away from something else.  As point 4 above notes, there is some encouragement to spend on quality for centres that have costs less than their Benchmark Allocation.  But, there is no encouragement to spend on quality for the 50% of centres that have costs higher than this.

BAD BITS

14. The revenue allocation for children of kindergarten age appears to be too low.  I’ve done calculations of the amount of revenue (including parent fees) that the formula allows for kindergarten-age child care.  If you have a centre with 78 kindergarten children, located in a school, the formula gives an average revenue per child per day, from all sources, of only $26.66.  This would need to cover wages and benefits of staff and supervisor and all operational costs. This figure then gets multiplied by the Geographic Adjustment Factor.  So in Toronto, multiplying by 1.07, the revenue for kindergarten-age children would average $28.53 per child.  In Kingston, multiplying by .79, the revenue for kindergarten-age children would average only $21.06 per child.  All other locations will be somewhere in between.

And this daily revenue allocation is the same for the (approximately) 191 days per year when a centre has to pay the costs of part-day care (before-and-after school care) and for the (approximately) 71 days when a centre has to pay the costs of full-day care required on professional development days, March and Winter Breaks, during summer school holidays, and for some statutory holidays.  But clearly, there are many more hours of staff time required for full-day care than for before-and-after school care.  How can it make sense to get the same revenue allocation for both?  Centres will have incentives to shut down any summer programming for sure.  Creating more service shortages.

15. The kindergarten problem with “hours” is also a problem across the system.  The funding formula does not take into account the daily number of hours of service a centre provides.  A preschool that operates only 2 ½ hours per day will get the same revenue allocation as a full-day centre open 11 hours per day.  If a centre cuts its hours to provide 9 hours a day instead of 11 or 12, the funding formula will still give it the same daily revenue.  The funding formula incentivizes cutting hours of care, for no obvious purpose.

This will be particularly problematic for any centre that seeks to provide non-standard-hours care, such as staying open in the evenings, or opening early in the mornings.  The extra hours of service will not deliver any additional revenue to the centre, so centres providing non-standard-hours care will be incentivized to close.

16. The funding formula is silent about what is happening with the child care subsidy system.  As we know, the subsidy system, reduces or eliminates parent fees for families with particularly low levels of income.   Apparently, the Ministry intends to provide sufficient funds to Service System Managers to at least keep the number of subsidized families at current levels, but it would be good to have assurances of this (or better) within the funding formula document itself.

17. The funding formula is similarly silent about the funding of services for children with special needs.  Funding and provision of services to children with special needs is an essential part of a publicly-managed child care system, but it is unclear how this will happen.

18. The funding formula is also silent about funding for professional development of staff.  Professional development is central to maintaining and enhancing quality of services, but is professional development now to be an optional activity for centres that have extra funding available, and not for others?

OVERALL EVALUATION

Designing a funding formula in a complicated province like Ontario is not easy.  And the near complete absence of cost data before the 2023 data collection process did not help.  The Ministry of Education has made a serious attempt to produce a cost-based funding formula that will permit Service System Managers to publicly manage child care centres and family child care agencies in their areas.  Service System Managers have many new roles – providing interpretation of new funding guidelines, judging the appropriateness and reasonableness of expenditures, managing processes of financial accountability, etc. – and will require additional resources to carry them out.

The speed of implementation of this funding formula is causing significant upset and chaos.  Technical documents that explain how benchmarks, adjustment factors and growth top-ups were calculated are not yet available, nor are standardized reporting forms.  Centres are having to plan next year’s budget without sufficient time to understand the new revenue rules.  This is unfortunate and increases the cacophony of criticism of the program, some of which could have been avoided.  However, the revenue-replacement model this replaces was even worse for centres, so we do not want to pause or reverse the transition to a new cost-based formula for centre revenues. In 2025 we will have to do the best we can to implement this new funding system.  There will be mistakes and inconsistencies this year.  There will be, and have been, different interpretations of what costs are eligible from different SSMs.  The Ministry will have to provide enhanced resources to help and to solve problems.

The funding formula would be much better if based on a compulsory wage grid – there would be much less variation in expenditure levels from centre to centre and compensation would be mostly removed as a form of competition between centres.

Revenue amounts for care of kindergarten-age children are too low and will incentivize dropping or reducing these programs.

Failure to take hours of service into account in determining revenue allocations is highly problematic and will incentivize shortening the daily hours of service provided. 

We need information about the funding of subsidies, special needs and professional development.

Many centres have run deficits in the last couple of years due to the shortfalls of the revenue-replacement model.  Is there going to be a special funding program through the SSMs to wipe out these debts, or are they somehow handled by Legacy Top-Up funding?  This is unclear.

The new funding formula is based on providing revenues for individual centres, not for groups of centres.  However, there are a significant number of multi-site providers in Ontario, particularly not-for-profits or municipal providers.  There is no provision in the new funding formula for multi-site planning and operation.  A multi-site agency cannot use surplus revenues in one centre to cover shortfalls or emergency repairs in another.  Going forward, the funding formula will need to be amended to encourage and facilitate multi-site operation rather than to discourage it.

Legacy Top-Ups will allow all current child care centre providers to fund all eligible costs at current levels, which is a way of avoiding immediate crises that would threaten the whole system.  This is a smart feature of the funding formula.  No existing centre will have to go out of business because the funding formula will not cover its current legitimate costs.

I haven’t yet looked at the funding formula as it applies to family child care agencies and family child care homes.  Reportedly, this is a mess, but I can’t know that yet for sure.

The biggest question going forward will be whether there is sufficient funding from this formula to support new spaces.  I have done some modelling that gives me approximate numbers.  What I have done is to look at centres that only have children from one age group and estimate the revenue per child that would be available through the Unadjusted Benchmark Allocation.  The Unadjusted Benchmark Allocation is the calculated revenue available to the centre before Geographic Adjustment Factors are included.  This Unadjusted Benchmark Allocation is different for a centre in a community compared to those centres that are school-based.

When I do these calculations, I find that for infants the total average daily revenue per child is between about $130 and $137 per day (lower for school-based than for community-based).  For toddlers, the total average daily revenue per child is between $87 and $95.  For children of preschool-age, the total average daily revenue is between $65 and $73.  For children of kindergarten-age, the daily revenue is between $26 and $39.  To know for your centre how much funding would be available, these numbers would have to be multiplied by the relevant Geographic Adjustment Factor and, for new spaces, by the relevant Growth Multiplier.  Is this enough funding to support growth of new spaces?  The jury is still out.  We need to compare these revenue figures to expected costs of good quality programs.

If the new funding formula does not support the operating costs of new centres, it is a failure, so this is a central issue.  I am happy to hear from you about whether the funding formula will support expansion in your community.  And, let us not forget that expansion also requires capital funding, which is in very short supply from this government.

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HALLELUJAH!  ONTARIO FINALLY HAS A NEW FUNDING FORMULA

Hallelujah!  As of August 14th, 2024, there finally is a funding formula to provide some revenue-certainty for child care providers in Ontario. Not a moment too soon, in fact, a year or two too late. As of January 2025, this formula for the provision of operational funding to providers will be implemented to replace the inequitable revenue-replacement model that has existed since April 2022. As the new funding guidelines admit “[w]hile a revenue replacement approach is transparent and simple to implement, it is not responsive to the true cost of providing child care in Ontario.” (p. 7).  Revenue replacement was not equitable and it did not facilitate growth of capacity, so we will not mourn its passing.

This marks a new stage of development of the $10 a day child care program in Ontario.  And, I am sure that other provinces will be looking closely at this example to see if they should model their funding formulas on this one.  Together, we need to assess whether the funding formula is any good and what its strengths and weaknesses are.  As with any funding formula, there are many details and understanding how the system will work is not easy.  This blog post is a start.  In this post, there is a lot of description and only a small amount of opinion.  More opinion will follow soon.

I think a question and answer format will be best.  And, I will, in this blog post, only describe funding for centres, not for home child care agencies.  I will get to family child care in a later post. 

  1. B2C2 and others have called for a funding formula similar to the one in Prince Edward Island; is Ontario’s new funding formula like PEI’s?

Ontario’s funding formula is not like PEI’s.  The allowed costs in PEI are based on the provincial wage grid for child care staff with wages varying by qualification level and experience.  PEI’s formula encourages hiring of staff with higher qualifications because operating funding is increased to cover actual wage costs.  Then, PEI has an allowance of 20% for benefits and there is a provincially-funded pension plan.  And PEI’s formula provides the same revenues across the Island for similar centres.

In contrast, Ontario does not have a wage grid for child care staff.  Ontario’s new funding formula gives flexibility to a centre to spend its allocation in different ways, but does not, in particular, reward the hiring of more staff who are fully qualified RECEs.  Ontario’s benchmark for benefits is only 13.4% for staff and 16.2% for Supervisors and there is no provincially-funded pension plan.  And operational funding for centres under the new funding formula in Ontario will be highly variable across different locations.

2. How is the Funding Formula structured?

The structure of the new Ontario child care funding formula is relatively simple, getting more complex as you get into the details.  The funding formula is based on calculation of what is called a “Benchmark Allocation”.  A Benchmark Allocation, as the Ministry of Education’s funding rules make clear, is supposed to represent “the typical costs of providing quality child care in a geographic region, based on planned operating spaces.”  (p. 9) . One of the Ministry’s goals with the new funding and accountability processes is “to gradually shift the overall cost of providing child care … towards more standardized costs, as represented by the benchmark allocations.” (p. 48).  On top of the Benchmark Allocation, there is also an allocation for profit or surplus.

Benchmark Allocations, which vary across the province, are designed so that about 50% of existing licensees will have their expected eligible costs fully covered.  The other 50% of licensees will not have their costs covered by the regular (benchmark) funding allocation, but legacy centres (those currently and continuously in CWELCC) with higher costs will be eligible for a Legacy Top-Up to this funding.  This top-up formula evaluates the 2023 cost structure of centres, along with 2025 evidence of some fixed costs such as rent, insurance and property tax. There is also a provision for cost increases since 2023.

Calculation of the Benchmark Allocation for a centre involves two parts:

  • Calculation of the Unadjusted Benchmark Allocation (total of four components)
  • This is multiplied by a Geographic Adjustment Factor (GAF) which can move the total up or down. 

Once adjusted in this way, our calculation is called the “Benchmark Allocation” for your centre. 

3. What About Top-Ups?

That’s not the end of it, though.  When the Ministry canvassed existing centres about their actual costs, they found lots of variation.  To account for this cost variation, the Ontario funding formula includes a Legacy Top-Up to provide additional revenue for legacy centres with costs higher than their Benchmark Allocation. 

In addition, there is another revenue top-up that applies only to new spaces or new centres.  This is called a Growth Top-Up and recognizes that the Benchmark Allocation will not necessarily be sufficient to cover operational funding of new capacity.  The Growth Top-Up will provide some increased operating revenues to most centres that are new or growing in capacity. 

Details on the Top-Ups

  • Legacy Top-Up – If you are a legacy centre (you were signed up to CWELCC when this funding formula was born and still are) and your proven costs (according to a formula) are higher than that Benchmark Allocation, your SSM will provide a Legacy Top-Up to cover these supplementary costs. 
  • Growth Top-Up – In the first year of any expansion, you will be eligible for a Growth Top-Up which recognizes the (higher than benchmark) program costs associated with new spaces that come on stream during the year.
  • In years after 2025, a centre that received either of these two top-ups will receive a “Rolling Top-Up” based on the calculated top-ups that were received in 2025.  In other words, these top-ups will become permanent in revenue calculations after 2025.

The “Program Cost Allocation” is the name the new funding system will use to describe the sum of your Benchmark Allocation plus any top-ups for which you are eligible

All of the above calculations are based on an annual operating plan for the coming year that each centre submits to its SSM.  Funding is determined based on the plans for each centre. 

Amongst other things, the operating plan will specify the planned number of operating service days for each age group and the planned number of operating spaces for each age group.  In order to calculate the amount of operating money the SSM will give you, the SSM must then subtract the amount of fee revenue (adjusted for enrollment shortfalls) you expect to receive from parents, or on behalf of parents who receive Child Care Subsidy.

It is important to note that funding is not aggregated across centres that have the same licence-holder, so that the funding allocation for a centre has to be spent on the costs of that specific centre.  This will, no doubt, cause problems for multi-site operations who are used to planning and funding activities across the group of centres, rather than treating each centre separately.

4. More details about Top-Ups

The funding guidelines describe Legacy Costs this way: “Legacy costs are costs that are consistent with legacy centres’/agencies’ 2023 cost structures, adjusted for eligibility, cost escalation, and changes to operating practices and fixed costs.”  Legacy Top-Ups are designed to ensure that Legacy Costs are covered going forward.  In applying for a legacy top-up, centres would provide an audited 2023 Statement of Operations and other financial information to their SSMs to calculate the cost of eligible services (e.g., for children 0-5 rather than 6-12) at the level of an individual licence.  From these costs, ongoing costs would be scaled up to reflect cost increases between 2023 and 2025.   This would allow the calculation of the amount by which Program Cost revenues need to be scaled up  to cover higher costs.  This is the Legacy Top-Up.  The Legacy Top-Up will take account of changes in spaces, days and hours of service over this period.

There is also a Growth Top-Up for all centres that are adding new spaces.  Before the calendar year begins, the annual revenues of each centre are determined by their SSM based on operational plans filed with the SSM.  For centres that expand licensed capacity during the year, an adjustment needs to be made.  This is the Growth Top-Up.  The calculation of revenues for these new spaces is largely similar to the calculation of the Benchmark Allocation, but applied only to the new spaces and with the allocation raised by a Growth Multiplier.  Importantly, there is no Legacy Top-Up on new spaces, even if other centres operated by the same licensee receive Legacy Top-Ups because of elevated costs.   The new Benchmark Allocation is multiplied by a Growth Multiplier.  This Growth Multiplier may add as little as 0% to the funding for these new space (City of Cornwall) or as much as 30% (County of Lanark, United Counties of Prescott and Russell, County of Renfrew, Rainy River DSSAB), based on geography. The typical value of the Growth Multipliers is about 15%.

Once these top-ups are added to the Benchmark Allocation for an eligible centre, the total is called the Program Cost Allocation.

5. What about Profit or Surplus?

The new Ontario funding formula has one more major component.  It builds in a separate allocation which goes as profit for owners or as surplus for non-profit or public child care centres.  Profit/surplus therefore does not depend on good performance, but is a guaranteed payment.  On the other hand, the formula provides a limitation on the amount of profit that can be earned in any year out of the government portion of revenues.

There are three parts to the calculation of profit/surplus (which the Ministry guidelines call “allocation in lieu of profit/surplus”).  There is a base amount, a part that is 3.5% times the amount of the Benchmark Allocation and a part that is 4.25% times the Program Cost Allocation (which is the sum of the Benchmark Allocation and the top-ups).  These three parts are added together to get the total Profit/Surplus allocation.  Both the Benchmark Allocation and the Program Cost Allocation are influenced by the Geographic Adjustment Factor.  That means that the amount of Profit/Surplus is also affected by this GAF.

6. How are the individual parts calculated that make up the Benchmark Allocation?

There are four components that are summed together to get the Unadjusted Benchmark Allocation: the Program Staffing Component (related to the wages and benefits of program staff), the Supervisor Component (related to the wages and benefits of the Supervisor), the Accommodation Component, and the Operations Component (related to all other costs, including wages and benefits of non-program staff).  These are calculated based on the number of licensed spaces for different age groups, the operating capacity this year for different age groups, the proportion of staff in your centre that are delivering CWELCC-eligible services, the number of service-days of child care you provide to each age group over the year and a few other things.  All of these calculations are based on your plans for your child care program in the coming year, not on past numbers.

In effect, each of the four components is adjusted according to a Geographic Adjustment Factor, although this calculation is  done at the end after the four components are summed together.  In other words, if you are in what the Ministry’s data says is a high cost area, the amounts for each element of this allocation will be boosted.  If you are in what the Ministry’s data says is a lower cost area, the amounts for each element of the allocation will be lowered. 

For example, centres in Toronto have a Geographic Adjustment Factor of 1.07; centres in Kingston have a Geographic Adjustment Factor of 0.79.  So, the benchmark revenue allocation in a Toronto centre will be boosted by 7%.  The benchmark revenue allocation in Kingston will be reduced by 21%.  These Geographic Adjustment Factors are said to represent differences in the costs of providing child care services in different parts of the province.

7. Can you provide a  simple example of how the Benchmark Allocation is calculated?

(There are some helpful worked-out examples from page 55 onwards in Schedule D of the Funding Guidelines.  But, the example below provides some additional words of explanation).

As an example, think of a child care centre in a community setting in Toronto that has 48 preschoolers and no other children, just to make calculations simple.  We will assume that the licensed capacity and actual operating capacity of the centre is 48 children.  The per-diem benchmark allowed in the funding formula for 2025 for preschoolers (full day child care for children over 2.5 years) is $39.23.  Assume the centre will be in operation 261 days per year.

To get the amount of the Program Staffing component, we multiply 48 preschoolers X 261 service-days per year X a per-diem of $39.23. X an ancillary costs multiplier (13.4% to cover mandatory benefits like CPP/EI/EHT/WSIB).  In the case of our example, that gives us an amount of $557,330.88. 

To get the Supervisor component of the Program Costs, we multiply 261 service-days per year X a Supervisor per-diem of $301.38 X a Supervisor ancillary costs multiplier (16.2% to cover mandatory benefits).  That gives us a total of $91,403.13.

The allowance for Accommodation costs is based on the number of licensed spaces, independent of current operating capacity.  In our example, there are 48 licensed spaces.  The annual per-space benchmark varies according to the age category of these licensed spaces, but also by whether the centre is in a community setting or is located in a public school.  For preschool spaces in a community setting, the benchmark is $1,735.54 per space.  For this centre, the Accommodation costs component would be 48 X $1,735.54 = $83,305.92.

The Operations Costs component has both a fixed and a variable part to the calculations, and varies according to whether the centre is in a community setting or a public school. The fixed part is based on the number of licensed spaces and the annual number of days of service and this varies by age category of children.  The variable part is based on the planned operating capacity and the number of days of service and this also varies by age category of children.  The community-setting benchmark for fixed operations costs for preschoolers is $15.09 per licensed space-day.  The community-setting benchmark for variable operations costs for preschoolers is $1.64 per operating space-day.  So, for our example, the fixed part of operations costs would be 48 X 261 X $15.09 = $189,047.52.  The variable part of operations costs would be 48 X 261 X $1.64 = $20,545.92.  The total allocation for operations costs would be $209,593.44.

If we sum the allocations for the four components in our example, we get $557,330.88 + $91,403.13 + $83,305.92 + $209,593.44 = $941,633.37.  This is the Unadjusted Benchmark Allocation.

This calculation would be the same for any centre with 48 preschoolers anywhere in the province.  However, the Geographic Adjustment Factor (GAF) will change this allocation in every location.  Toronto has a Geographic Adjustment Factor of 1.07 (i.e., relatively high typical costs) so multiply the Program Costs number by 1.07 to get $1,007,547.71.  With the GAF applied this is called the “Benchmark Allocation”.  To see the importance of this Geographic Adjustment Factor: if this same centre was in Kingston, the Benchmark Allocation would be $743,890.36.

It is important to note that this allocation can be spent in any way the centre thinks best to provide services for children.  It can pay lower or higher wages,  more or less in benefits, more or less to the Supervisor, more or less in mortgage or rental costs, more or less in the costs of operations, as long as these expenditures are judged to be eligible expenditures.  The flexibility in spending is potentially positive, but without a wage grid (there is only a wage floor for RECEs), it means that unscrupulous operators could cut corners on compensation and quality in order to spend money in other ways.  That would be undesirable, of course.

8. What about the calculation of profit/surplus for this centre?

The base amount of profit/surplus is $6,000 annually.  For our example centre of 48 preschoolers in Toronto, the part based on the Benchmark Allocation would be 0.035 X $1,007,547.71 = $35,264.17.  Because we are assuming no Legacy or Growth Top-Ups for this centre, the Program Cost Allocation is the same as the Benchmark Allocation.  Therefore, the part of profit/surplus based on the Program Cost Allocation is 0.0425 X $1,007,547.71= $42,820.78.  The sum of these three parts is the allocation in lieu of  Profit/Surplus, which is $84,084.95.

The total revenue of this centre during the year would be the Benchmark Allocation of $1,007,547.71 plus the Profit/Surplus allocation of $84,084.95, which equals $1,091,632.66.  Profit/Surplus would be 7.7% of total revenue.  Another way of thinking of it: profit in this example is a markup of 8.3% over the Benchmark Cost Allocation.

Not all of this revenue would come from the SSMs of course.  The planned amount to be received from parents or on behalf of parents (adjusted for enrollment) would be subtracted from this total revenue calculation to get the annual funds received from the SSM.

9. Does the new funding formula provide enough funding?

This, of course, is the big question.  I need you to help me answer this.  I have some examples in the table below and they give calculations of the total amount of revenue centres will have, based on their size and location in the province.  The examples are simple and do not include provision of before-and-after school care for kindergarten children.  There are three centre sizes:

  • 49 children: 10 infants, 15 toddlers, 24 preschoolers
  • 73 children: 10 infants, 15 toddlers, 48 preschoolers
  • 88 children: 10 infants, 30 toddlers, 48 preschoolers

These centres are located in Toronto, Ottawa and Windsor.  Toronto has a Geographic Adjustment Factor (GAF) of 1.07.  Ottawa has a GAF of 0.94.  Windsor has a GAF of 0.80. These Geographic Adjustment Factors play a big role in the revenue totals that centres will receive and these examples are a good indication of the range of revenue values that will affect centres across Ontario, urban and rural, north and south.   The other factor that affects funding is whether the centre is located in a community or in a publicly-funded school.  This affects funding allocations for Accommodation and for Operations.

This table calculates the total annual revenue of these centres. Total revenue includes both the amount to cover costs and the amount to cover profit or surplus.  Some of total revenue will come in funding from the SSM and some will come from parent revenue (or child care subsidy revenues provided on behalf of parents).  As parent fees go down, a greater percentage of revenues will come from government and a smaller percentage from parents, but the total revenue would remain the same (unless benchmarks are changed).


Table 1: Total Annual Revenues of Centres of Different Sizes and Locations

Under Ontario’s New Funding Formula – Community-Based and School-Based Centres

Toronto Ottawa Windsor
Community-based or School-based centreCommunityCommunityCommunity
Geographic Adjustment Factor - GAF1.070.940.8
Total Revenue – 49 space centre$1.394m$1.226m$1.044m
Total Revenue – 73 space centre $1.884m$1.656m$1.410m
Total Revenue – 88 space centre$2.283m$2.006m$1.709m
TorontoOttawa Windsor
Community-based or School-based centreSchoolSchoolSchool
Geographic Adjustment Factor - GAF1.070.940.8
Total Revenue – 49 space centre$1.291m$1.135m$0.967m
Total Revenue – 73 space centre $1.731m$1.522m$1.296m
Total Revenue – 88 space centre$2.098m$1.844m$1.570m

Notes:

  • Total Revenue figures in the table are in millions of dollars of revenue annually, including both operating funding from governments and parent fees.
  • 49 space centre has 10 infants, 15 toddlers, 24 preschoolers, all full-day
  • 73 space centre has 10 infants, 15 toddlers, 48 preschoolers, all full-day
  • 88 space centre has 10 infants, 30 toddlers, 48 preschoolers, all full-day

Notice that for the same sized centre, a location in Toronto will get revenues which are hundreds of thousands of dollars higher than a location in Windsor (or many other places across the province).  Are true underlying costs that different in different locations? 

And, are these amounts of total revenue enough to operate centres and provide good quality child care?  I don’t have enough evidence yet to draw a conclusion, but I’m happy to hear from centre directors about your example and experience.

These calculations are based on Ontario’s 2025 benchmarks.  Benchmarks can change in future years.  Current centres will be potentially eligible for Legacy Top-Ups.  And, allocations for new centres will be affected by Growth Multipliers (but not Legacy Top-Ups).

10. What is the role of the SSMs?

The SSMs have many roles in relation to planning and operationalizing growth plans and assisting and communicating with child care providers in a range of different ways.

If we focus specifically on their role in relation to funding in 2025, the SSMs have to:

  • Receive operational plans from each operator/each centre.  Operating plans will include planned operating spaces for each age group, planned number of service days for each age group, number of hours of service for each age group, copy of parent handbook. 
  • Collect legacy data from those operators claiming a Legacy Top-Up.  Legacy data in 2025 will include specific evidence of any fixed costs (especially accommodation costs), the operating budget for 2025, 2023 audited financial statements and any related financial reports to support claim.
  • Calculate the Program Cost Allocations for each centre including the Legacy Top-Ups, the Growth Top-Ups and the Profit/Surplus for each centre.
  • Schedule advance payments for each centre based on these calculated Allocations
  • Select centres that will have their reported costs reviewed in a cost review (not the same as the Direct Engagements on Compliance) and carry out cost reviews
  • Accept and process applications for in-year changes in funding
  • Collect spending attestations and standardized financial reports from each centre
  • Compare Allocations to Actual Costs/Spending and promptly recover overpayments to centres and refund these to Ministry.

11. What are the key issues with this new funding formula?

The biggest issue with the funding formula is one that is not yet answered.  In new centres and new spaces, will there be enough funding available for providers to fund the provision of good quality care with educators and other staff that are fairly and reasonably compensated?

The Legacy Top-Ups in the funding formula are designed to ensure that existing centres with costs that are higher than the median will not have to close their doors; their costs will apparently be compensated by revenue supplements that become permanent through Rolling Top-Ups.  That’s obviously a good thing, but Legacy Top-Ups are not available to new centres or even to new spaces in existing centres. 

So, in judging the adequacy of revenues provided by this funding formula going forward, we need to ignore Legacy Top-Ups.  They exist for Legacy centres (i.e., current centres), but not for new centres.  The real question is “for new spaces (growth), will the revenues be adequate to provide good child care?”.   At this point, we don’t have a clear answer.  What we do know is that new spaces will only be eligible for the Benchmark Allocation  plus the Growth Top-Up plus the Allocation in Lieu of Profit/Surplus. 

As for the rest of the key issues with this new funding formula, that’s a topic for another blog.  Coming soon.

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Affordable Child Care Services vs Money for Parents

Those who oppose the $10 a day program often argue that there is a simple and better program to replace it – give money directly to parents instead.  The logic is, at first glance, persuasive.  If you give parents money, it seems like they should be able to purchase exactly the child care they need.  And competition among different providers should, you might think, keep fees down.  Programs that directly fund child care services, like the $10 a day program, are said to be bureaucratic and inflexible and to create huge shortages and long waiting lists. 

There is some truth here, but much falsehood, and much deliberate ignoring of the evidence on the impact of a “family allowance” approach.  I have just written a report for The Prosperity Project that examines the likely impacts of giving parents money instead of funding and providing child care services that parents can use.  I unearth a lot of new data about families that are using child care in Canada and the number of parents who want access to affordable, accessible, high quality child care. 

The evidence shows that this type of “family allowance” fails as public policy because it:

(a) isn’t what most families want

(b) doesn’t address families’ needs for child care

(c) would be much more expensive than the $10 a day program

(d) would have negative effects on women’s employment and the economy, and would increase the gender-based child penalty that mothers pay with reduced earnings

(e) has been tried before and hasn’t solved child care issues, and

(f) ignores the very large child benefit programs that already provide money to parents.

You should read the report in full (19 pages), or at least its Executive Summary (3 pages).  Below, I provide a few tidbits to encourage you to dig deeper.

  • As of 2023, when Statistics Canada collected large amounts of data from parents about child care and employment, there are 938,000 Canadian children using licensed or accredited child care services – the kind of services supported by the federal government program.  In fact, over three-quarters of children using any kind of child care are in licensed care.   In 8 of Canada’s 13 jurisdictions, average fees for this child care is down to $10 a day or less.  Other jurisdictions have lowered fees by at least half relative to fee levels in 2019-20.  In other words, although the press scarcely covers it, a very large number of Canadian children and families are already benefiting from licensed child care that is subsidized to be affordable and more accessible.
    • Licensed child care is not the only part of the set of services and benefits that will make up a fully developed early learning and child care system.  Many children benefit from full-day or part-day kindergarten at ages 4 and 5 years.  Many children and families benefit from paid maternity and parental leave for up to 12 or even 18 months.  If we put these all together, it is already true that in 2023 over 1.5 million children currently benefit from Canada’s early learning and child care and leave arrangements.  That is about 2/3rds of all children 0-5 years of age.  
    • Some people think that the reason some parents don’t currently use child care is because they don’t want to.  But, outside Quebec, most families (58%) that currently do not use any child care would like to use some type of non-parental child care if they can find what they need and want.  And, of these, the lion’s share – 62% – would like to use licensed child care, largely as a means to join or rejoin the workforce. 
    • Some people argue that it is mostly affluent parents that benefit from universal child care programs and that marginalized families and those from diverse backgrounds are left behind.  That is certainly true of market-based child care systems when fees are not controlled; high parent fees are only affordable by affluent families and many vulnerable families do not qualify for income-based subsidies.  However in fixed-fee systems like the $10 a day program, families from all backgrounds gain access.  I show a series of charts from Quebec making this point.
    • A family allowance program would have to give parents an amount of money that was equivalent, on average, to what they gain by having $10 a day child care.  This family allowance program would cost the federal government just over $28.5 billion annually and its net cost would be three times as much as the cost of providing child care services.  
    • Women who have children suffer substantial losses in earnings after the birth of a child.  Economists have found that mothers’ earnings decrease by 49% in the year of a child’s birth.  Even ten years later, women suffer from an average earnings loss of 34% relative to their earnings before childbirth. Universal child care has been found to substantially reduce these “child penalties”.  In other words, accessible child care services make an important contribution to increasing gender equity.

    Please read the full report and executive summary. 

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    Ontario Is Violating the Early Learning and Child Care Agreement

    Most child care in Ontario is provided by non-profit or public operators.  This has been true for years.  A full 70% of the licensed/regulated child care spaces for children 0-5 were non-profit or public back in 2022, when Ontario signed the Canada-Wide Agreement with Ottawa. 

    So, two things are not in doubt.  First, it is obviously possible for non-profit and public child care services in Ontario to grow and expand, given the right conditions.  They have done it successfully in the past, more successfully than the for-profit child care operators.  Second, the Ontario government, with the support of municipal governments and school boards, knows exactly how to facilitate and co-ordinate the expansion of non-profit and public child care, because it has done this in the past.

    So, if non-profit and public child care are not expanding rapidly in Ontario, it must have to do with the failures of Ontario government policy (as described in my recent blog post). 

    • Ontario has failed to fix shortages of early childhood educators.  Starting wages in Ontario are $5.00 an hour less than in P.E.I.!
    • It has failed to provide or enable sources of capital funding for expansion of community non-profit child care. 
    • It has starved child care providers of revenue in the $10 a day program and has failed to provide any certainty about future revenue streams for operators.
    • Ontario has failed so comprehensively that you have to wonder if the failings are deliberate. 

    To cap it all off, we now find that Ontario is deliberately violating the terms of the Canada-Wide Agreement that it signed with the federal government back in March 2022.   Ontario promised to increase child care capacity by at least 86,000 spaces, and it promised that a maximum of 30% of these new spaces would be operated by commercial for-profit operators.  The balance would be community-based or school-based non-profit and public child care.  It also promised that it would prioritize development of child care in underserved areas and amongst families with greater needs. 

    Instead, about 75% of the expansion that has occurred has been in for-profit spaces.  And at least half of the new spaces are in areas of greater profitability rather than areas of greater need.  Half of the new spaces can charge whatever fees they want, rather than being affordable spaces. 

    We know some details about Ontario’s expansion because of good journalism by Allison Jones of Canadian Press.  She has recently written:

    “Ontario’s deal committed the province to 86,000 new child–care spaces since 2019, though the deal was signed in 2022. But so far while there have been about 51,000 new spaces since 2019 for the kids five and under, the age group covered by the national program, only 25,500 of those are within the $10-a-day system.”

    So, let’s do the math:

    • Pretty well all of the new spaces that are outside the $10 a day system (without any controls on fees) are for-profit, so that is already half of the 51,000 spaces. 
    • Much of the growth inside the $10 a day system is also for-profit.  When Ontario published its Action Plan in 2022 it told us that 15,000 spaces had  opened since 2019 and 45% of this was for-profit. 
    • A further 21,200 spaces were said to be “in the pipeline” and 66% of this was for-profit. 
    • I estimate therefore that about half of the growth since 2019 that is inside the $10 a day system is for-profit (the Ministry of Education has these figures and is shy about releasing them, which tells you that they know they have something to hide). 
    • In other words, about 75% of the total of 51,000 new spaces in Ontario since 2019 are in the for-profit sector.

    This is a clear violation of the Canada-Wide Agreement Ontario signed in 2022.  In that agreement it promised 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).  The agreement clarifies the purpose of this clause: “to ensure that the existing proportion of not-for-profit licensed child care spaces for children age 0 to 5 will be maintained or increased by the end of this Agreement.”

    In case there was any doubt, the “definitions” section of the agreement refers to the Child Care and Early Years Act, 2014 in defining licensed child care.  In other words, it refers to all licensed child care governed by that act.  

    So, Ontario is taking federal money intended to build a publicly-managed, affordable and accessible high quality child care system and it is not doing what is necessary to provide spaces for children and families.

    Of course, parents who are desperate for child care spaces right now don’t care if the spaces are for-profit, non-profit or public.  They  just want a space for their child and they want it now.  The negative effects of relying on for-profit child care without sufficient controls won’t show up for a while. 

    That’s what happened in the early 2000s when the Government of Quebec, under Jean Charest, tried the same trick – relying on for-profit child care for expansion.  The results were disastrous for the quality of child care services, with nearly half of the new for-profit centres failing quality assessments sponsored by the Quebec Government.  Similar quality problems are what led  Mathieu Lacombe, the Quebec Minister of Families from 2018 to 2022 to say that allowing for the expansion of private daycare, was the ‘biggest mistake the Quebec government committed in the last 25 years.”  

    As I wrote in that recent blog:

     I am not trying to say that all for-profit operators provide poor quality child care or that all of them skimp on child care staffing.  Some small for-profit operators provide good quality care and devote themselves to quality improvements.  You can have a certain percentage of for-profit providers in a publicly-funded child care system, but there need to be strong measures of public management that limit the ability of for-profit enterprises to extract profit at the expense of quality. 

    That was the spirit of the Agreement that Ontario signed up to  in 2022.  If Ontario were to implement this agreement in good faith, it would adopt a generous funding formula to cover actual costs, it would make expansion of child care into an all-of-government priority with a range of provisions for capital financing, it would develop a wage grid for child care educators that is at least as generous as the one in PEI and it would implement the agreement it signed on the balance of non-profit and for-profit expansion.  Ontario’s parents and children need the $10 a day child care system they were promised.

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

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

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

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

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

    Ontario knew there would be a substantial shortage of spaces

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

    I had published similar estimates in May 2021.

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

    Ontario knew what to do to expand child care

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

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

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

    Ontario has done very little to facilitate expansion

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

    In Ontario:

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

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

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

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

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

    Ontario wants to blame the federal government

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

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

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

    If Ontario does not do the hard work of…

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

    For-profit expansion is easier but more dangerous

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

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

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

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

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

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

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

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

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

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

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

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

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

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


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

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

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

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

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    New Support for the Economic Benefits of Universal Child Care

    I met Sebastien Montpetit at the Canadian Economics Association meetings in Winnipeg last year.  He is a Canadian and Quebecer who has been studying for his PhD in economics at the University of Toulouse.  And he, with co-authors, has come up with a really fascinating analysis of the impacts of Quebec’s universal child care program ushered in the late 1990s and the early 2000s. 

    The paper is complex, has multiple parts, and the latest version of it is available here.  It has been selected as one of three finalists for the Canadian Labour Economics Forum prize at the upcoming Canadian Economics Association meetings in Toronto.  I’ll give you the main take-home points right away, and then delve into where the results come from.

    Sebastien’s main conclusions?

    • The importance of the supply of child care services has been underrated.  Greater supply of child care – availability – is as important as improvements in affordability.  In Quebec, the regions that had the largest increases in child care supply had the biggest impacts on mother’s employment and increased child care use.  Lowering fees without increasing coverage has modest effects on the benefits to families.  The bottom line: increasing local child care supply is key to the effectiveness of child care reforms.

    • The economic benefits from improved maternal labour supply in Quebec have been well studied and Sebastien confirms them.  But, there are very substantial non-monetary benefits for mothers too.  Think of this as work-family balance, things like the reduced search time for child care, the shorter distances that have to travelled each day when child care is much more available and affordable. 

    • When all the benefits are summed, benefits total more than 3.5 dollars of benefit per dollar of net government spending – more than twice the benefit that comes from looking only at increased mothers’ earnings.
    • Earnings gains for mothers impacted by Quebec’s child care reforms are concentrated in the fifth through the eighth decile of income. In other words, many of the fiscal benefits to governments of a universal child care reform come from mothers who can earn moderate to reasonably high incomes.  These are mothers who will not be reached by a targeted approach to child care spending.  A universal approach may therefore be more fiscally responsible than targeted child care initiatives.
    • Michael Baker, Kevin Milligan and Johnathan Gruber became renowned for their paper concluding that there were a range of negative effects on children who lived in Quebec during the early years of Quebec’s child care reforms (and may have participated in child care).  Sebastien looks at data on those children many years later and assesses whether their educational development was negatively impacted.  He finds no evidence of this; educational attainment of students in Quebec and the rest of Canada is very much the same.
    • Michael Baker, Kevin Milligan and Johnathan Gruber gained some additional notoriety for a follow-on paper that found increased juvenile criminality amongst Quebec children who were exposed to Quebec’s child care reforms.  Sebastien Montpetit looks at the evidence on juvenile crimes and finds that most of the increased juvenile crime that may have occurred was very minor and that the societal cost is relatively small.

    The main data source for all of his analyses is the National Longitudinal Study on Children and Youth.  He also uses data from the Canadian Censuses of 2016 and 2021. 

    There are four types of analysis that compose this complex paper.  First, with new data on regional child care coverage rates, Sebastien uses a difference-in-differences approach to compare mothers in Quebec to those in the rest of Canada.  He finds that in regions where child care supply increased the most, employment and child care use increased much more when other factors are controlled.

    In particular, in regions where child care supply expanded more, the child care reforms boosted mothers’ labour force participation by 40% more than in other regions

    Further, Sebastien finds that mothers with low levels of education also respond more in these regions with high levels of expansion.

    Results suggest that for high educated mothers with a post-secondary qualification, the main incentive to take up employment was the fee reduction.  For mothers without a post-secondary qualification, access to a space was key. 

    Sebastien uses a non-linear difference-in-differences model to estimate earnings gains across mothers’ income distribution.  Mothers’ earnings gains from the child care reforms are found to amount to $1.42 per $1.00 of net government spending.

    Baker, Gruber and Milligan found that eligible children in two-parent families experienced worse developmental outcomes and lower consistency in parenting.  Other researchers found substantial heterogeneity in these results.  Haeck et al (2015,2018, 2022) found that most negative impacts on children and parental behaviour fade away over time.

    In order to look at children’s educational attainment later in life, Sebastien employs a triple-difference model which compares education levels of same age individuals born before or after the reforms in Quebec to similar individuals in the rest of Canada.

    The paper concludes: “We find no evidence of negative effects on educational attainment of eligible children in the long-run. This pattern is true for each educational level, namely for university, high school, and college completion….

     As a result: “…the negative impacts on child behavior documented by Baker et al. (2008, 2019) do not translate into depressed economic outcomes later in life.” (p. 2)  “…this evidence thus suggests the absence of negative fiscal impacts stemming from eligible children’s economic outcomes in the long run.” (pp. 2-3).[1]

    Triple-difference estimator compares same-age individuals who vary in eligibility status based on the census year and their province of birth.   He finds no evidence of negative effects on educational attainment of eligible children in the long run.  This pattern is true for every educational level. 

    Sebastien Montpetit takes Baker and colleagues’ estimates of increases in youth criminal activity (2019) and estimates what the victimization costs and productivity losses would be.  Using recent estimates of the costs of crime, he finds that these social costs are small.

    Difference-in-differences estimates seek to use good control groups to help judge the effectiveness of some policy change.  So, for instance, children 0-4 years of age in the rest of Canada where there was no major child care reform, might be considered to be a good control group to compare to what happened with children 0-4 or the mothers of those children in Quebec.  Why is it called difference-in-differences?  Because this statistical technique does not compare the level of a variable (like mothers’ labour force participation) in Quebec to the same level in Canada.  Instead, it compares the change in mothers’ labour force participation (called a difference) in Quebec to the change over a few years (another difference) in the mothers’ labour force participation in the rest of Canada.  This analysis is done in a regression framework including other variables, so that we can see the impact of those variables on the policy result.

    Montpetit then estimates a structural model of maternal labour supply and child care choice in order to make inferences about the size of the non-monetary benefits that mothers receive from Quebec’s universal child care system.  The non-monetary benefits are found to be substantial.  Using the model to do additional simulations, Sebastien concludes that these non-monetary benefits are particularly closely related to the availability of child care services in the local area.  He concludes that universal child care policies for children 0-4 can generate substantial social returns.  And he concludes that increased availability of child care is particularly important to these returns.

    Sebastien notes that the quality of Quebec child care in this period was very uneven with CPEs having higher quality and other child care centres having lower quality.   Sebastien is not able to include quality measures in his analyses. 

    Altogether a very interesting, carefully crafted and timely paper.  Congratulations Sebastien and co-authors!

    [1] Montpetit, S., Beauregard, P., & Carrer, L. (2024). A Welfare Analysis of Universal Childcare: Lessons From a Canadian Reformhttps://drive.google.com/file/d/1dDWvj2e08YodXAWd5zdmBKP3j-kxt1Uj/view

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    Supply-Side or Demand-Side – A Contribution to the Australian Discussion

    John Cherry, from Goodstart Early Learning, has written an evaluation of child care in Quebec and New South Wales.  Apparently his purpose is to determine whether supply-side funded systems (like Quebec’s) are better or worse than demand-side funded systems (like in Australia). 

    To summarize briefly, John finds that Quebec does better on workforce participation and affordability, NSW does better on child care accessibility and quality.  So, John concludes that Australia’s system is pretty good.  His conclusion appears to be that Australia shouldn’t flirt with Quebec’s fixed-fee, supply-side-funded system. 

    It’s a problematic paper for several reasons.  First, some of the details about Quebec are wrong.  Second and more fundamentally, only part of Quebec’s child care system is supply-side funded and charges parents a fixed fee of approximately $10 a day.  The other part (about 20% of the total) is demand-side funded like in Australia.  In the demand-side-funded part, child care providers can set whatever parent fees the market will bear and some of this later gets reimbursed to parents.  So, some of John’s comparisons, particularly on affordability and quality, are actually comparing a mixed system (Quebec) to a demand-side-funded system (New South Wales).  These comparisons don’t tell us much about how a supply-side funded system would perform in Australia.  Third, John does not explain how a demand-side funded child care system can deliver what we want from a universal child care system – dependably low fees, financial accountability for public funds, and planned expansion of capacity according to need.  Let me explain.

    Much of John’s paper is captured in Table 1 – Summary of ECEC Indicators.  There’s a column for Quebec and one for New South Wales, comparing results on different indicators of ECEC health.  I reprint it below.

    Workforce Participation
    John agrees that Quebec does a better job than New South Wales in workforce participation.  Absolutely true.  85% labour force participation for Quebec mothers with young children vs 71% in Australia.  Add on top of that the fact that most Quebec mothers work full-time vs. Australian mothers mostly part-time and it does appear that a fixed low parent fee really does have a very substantial impact on mothers’ employment. 

    Affordability
    John then presents comparisons of affordability, but his numbers are too generous to New South Wales and not generous enough to Quebec.  The differences in parent fees between supply-side funding and demand-side funding are much bigger than he admits.  On NSW, John calculates that for a family with average income, the parent fee for a first child is $29.50 per day and for a second child it is $10.05 per day.  In fact, the Productivity Commission draft report says that the average per child out-of-pocket parent fee across Australia (and therefore likely in NSW) is just shy of $45 per day. That includes the extra charges for centres open more than 10 hours per day, where parents have to pay the full fee for these extra hours even though they don’t use them.

    And the Quebec numbers on parent fees are too high.  In the supply-side funded centres and family homes, the daily fee for every child in 2024 is CA $9.10 (or about AU $10).  The figure John quotes for Quebec of  CA $17.20 per day includes the children who pay $9.10 but it also includes the high parent fees paid by demand-side funded parents before the tax credit reimburses them.  In a fair comparison, Quebec’s child care is cheaper than in NSW by a considerable amount, not just by a little bit.  That helps us understand why mothers’ employment has been so responsive in Quebec.

    Accessibility
    Then there is accessibility.  According to John, NSW scores high on accessibility of child care.  But, he chooses a strange way of measuring it.  He chooses the growth in the number of centre-based child care spaces in the last 5 years.  NSW has added more child care spaces so therefore he concludes that accessibility is better in NSW.  

    A much better measure of accessibility would have been the coverage rate – what percent of the child population could be accommodated in approved services (licenced services in Canada).  John provides these numbers on page 6 of his paper, but not in Table1 and not in his conclusions about accessibility.  In fact, as he records, about 75% of  children 0-5 in Quebec are in early childhood services.  This compares to about 60% in New South Wales.  John makes a big deal about services growing in New South Wales and not growing in Quebec.  Of course, that’s what you would expect if accessibility was already better in Quebec; it wouldn’t need to grow its services as fast.  The current rate of growth of services is not a good measure of current accessibility.

    And if you compare the number of days of child care attended in Quebec and NSW, the accessibility in Quebec is even stronger.  Over 90% of the children in Quebec who attend ECEC do so on a  full-time basis, compared to about 30% in Australia (with another 25% in Australia attending 4 days a week).

    Quality
    Finally, we get to a part of the comparison between Quebec and NSW on which John and I agree.  The quality of child care in Quebec is lower than it should be, and probably is lower than it is in NSW.  The most obvious indicators of this are the child-staff ratios.  5 children to 1 staff member for very young infants in Quebec vs. 4 to 1 in NSW.  Personally, I think both of these ratios are too high for the very young, but I agree that a 5 to 1 ratio is shocking.  As is a ratio of 8 to 1 in Quebec after children turn 19 months of age. 

    Quebec is an outlier here in Canada too.  In Ontario, the required ratios are 10 children to 3 staff members for children 0-17 months, 5:1 for children 18 months to 35 months, and 8:1 for children 3 years to 6 years (except for before-and-after school care for kindergarten children).  NSW’s ratios are comparable to Ontario’s. 

    Similarly, the wage rates paid to educators in Quebec are worse than in New South Wales.  John is right on this.

    John overstates the differences in percent of educators required to be qualified.  He says it is 50% in Quebec and 100% in New South Wales.  The regulated percent in Quebec is really 66.6% or 2/3rds.  It was temporarily lower due to staff shortages during the pandemic. And the requirement in NSW is for 100% of front-line staff to be certified.  But this is a bit misleading because only 50% of the front-line staff in NSW must have an ECE Diploma or above.  The other 50% can have a Certificate III which is a qualification well below what is needed to provide good quality care for children on one’s own.

    However, the inadequate quality of Quebec’s child care system is not really evidence that supply-side funding does not work.  Instead it is evidence that Quebec services have not been adequately funded.  The history of Quebec’s system explains this.  Back in the 1990s, Quebec struck out on its own to build a universal child care system, without any funding from Canada’s federal government.  Relying only on its own funding, Quebec ended up cutting corners on quality.  If New South Wales were operating either a demand-side funded or a supply-side funded system with no Commonwealth funding – relying only on state funds – I am sure that quality would suffer too.  But Quebec’s history is not New South Wales’ inevitable destiny.  With strong Commonwealth commitment to spending on universal child care, New South Wales can have both supply-side funding and good quality care.  As you can see in John Cherry’s Table 1, public funding of child care in New South Wales is already 50% higher than in Quebec – AU $5.7 bn vs. AU $3.7 bn annually.

    What Conclusions Should We Draw From This Comparison?
    I understand John Cherry and Goodstart’s hesitation about a switch to supply-side funding.  It would be a big transformation of funding arrangements and would constrain the power of child care operators to set their own fee levels.  If it was done badly, it could have negative effects. 

    However, I think John and Goodstart need to explain how they will build a publicly-accountable universal low-fee high-quality child care system on Australia’s existing demand-side funding base.  In my opinion, they need to answer (at least) three questions.  How would they guarantee that the system will have low child care fees in the future?  How can they build financial accountability for public funds into the existing system?  And, what mechanisms of public planning for location of new services can ensure an equitable and efficient growth of new services in Australia?

    Australia has seen parent fees rise consistently as public funding has increased over the years.  The average parent fee per child is now about AU $135.00 per day.  Every time the Commonwealth government pours more money into the system, out-of-pocket child care fees fall temporarily.  After a short while, these out-of-pocket costs gradually rise back to previous levels.  Nothing has worked to keep fees down in the long term.  Supply-side funded systems guarantee low dependable out-of-pocket fees.  Until Australia’s demand-side-funded child care system can provide the same guarantee, it cannot be considered a good basis for a universal system.

    In a universal child care system, the vast majority of operator revenues come from governments.  It is unacceptable to continue to have no public accountability for these substantial amounts of public funds.  Currently, child care operators do not have to justify the fees they charge or show that public moneys are spent on legitimate costs of service provision.  Goodstart should explain how this will be remedied in their plans for a universal child care system built on the existing demand-side foundations.

    Finally, an equitable universal system of child care services needs to plan where new child care services will be located.  It cannot leave this to the whims of private investors who all want to crowd their new services into higher income areas.  How will this be accomplished within Australia’s demand-side funded system?  These are the tough questions that need to be answered by the champions of a continuation of demand-side funding for Australian child care. 

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    The story coming from the CSELCC survey – I don’t think we’re going to make it…not even close!

    We know that child care affordability is improving dramatically because of the $10-a-day program (otherwise known as CWELCC or the Canada-Wide Early Learning and Child Care Program).  But what about access and availability?  It’s difficult to know.  There is some activity, and lots of announcements, but are there actually more children using licensed child care?  A really important question, because most of the social and economic benefits of the $10-a-day program come from improving access to children and families that haven’t used child care before.

    Finally we have some solid answers.  Statistics Canada just completed a massive survey of parents across the country that tells us how many children have access to centre-based child care (the overwhelming bulk of licensed child care in the CWELCC program is in centres).  We can compare this to the situation before the pandemic in 2019.  Unfortunately, the picture is not positive.

    Looking only at the provinces and territories that are part of the CWELCC program (i.e., leaving out Quebec), there are 521,800 children 0-5 using centre-based child care in 2023.  There were 483,200 children 0-5 using centre-based child care in 2019.  That’s an increase of centre-based spaces in the provinces and territories participating in CWELCC of 38,600 spaces over the course of the last 4 years, an increase of about 8%. 

    However, the agreements signed between the federal government and the provinces and territories promised that there will be 250,000 additional child care spaces available by March 31st, 2026.  That would be an increase of over 50% compared to the spaces that were available in 2019.  That’s just over two years away.  I don’t think we’re going to make it.  Not even close!

    The CSELCC survey indicates that 49% of parents using child care reported difficulty finding it.  Up from 36% in 2019. 

    In 2023, 26% of parents with children 0-5 who are not using child care reported that their child is on a waitlist for child care, up from 19% in 2019.  Almost half (47%) of infants younger than one year who are not using child care are on a waitlist!!!  That’s up from 38% in 2022.

    Yes, the affordability problem has improved.  But availability or access is either worse or not much better depending on your point of view.  And accessibility is improving at a snail’s pace compared to the promised additional 250,000 spaces.  Hurray for Statistics Canada giving us a clear picture of this problem.  Now federal and provincial/territorial governments have to seriously address the problems of how to grow our wonderful child care system in the not-for-profit and public sectors that are the priority.

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

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

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

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

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

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

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

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    HOW MUCH WILL IT COST TO RAISE THE WAGES OF EARLY CHILDHOOD EDUCATORS?

    It is now widely acknowledged that the pay of early childhood educators is too low.  Comparisons of ECE hourly wages to those in other competing occupations show that educators are paid as if they had a high school education rather than a college certificate or diploma.  We can see the effects of this in the extreme shortages of fully-qualified ECEs for existing and new child care facilities.  In most Canadian provinces and territories, growth in spaces is held back as much by the lack of staff as it is by the lack of organizational and financial support for planned and funded expansion.  

    The big questions for governments are (1) how much will it cost to raise wages? (2) how should they do it? and (3) who will pay? 

    Up till now, it’s been hard to answer the “cost” question because we haven’t had good data on how many program staff work in licensed services and what their average wages are now. 

    I’ve spent a large amount of time pulling together and analyzing the best publicly available data on this, province by province (sorry, I haven’t done the Territories yet).  The details of this (staff numbers and typical wages by qualification level for each province) will appear in another blog on this site once I have finished crossing the t’s and dotting the i’s (lots of numbers and boring reading for most people).  But, using those numbers, I can now make estimates of how much raising ECE wages will cost.  If you have better numbers, I’m happy for you to send them to me so I can make revisions.

    The table below shows my estimates of how much it would cost to raise the wages of fully-qualified ECEs across the country by 25% from whatever their current level is.  For the average ECE, that would mean a raise of $5 to $7 an hour from current levels.  I’m not trying to say that’s enough, or that this is the right way to raise ECE wages.  If I look at the data on wage comparisons to other occupations, it very likely isn’t enough.  But, it may begin to move the needle on the supply of early childhood educators.  It may encourage more new ECE graduates and existing ECEs to stay in the sector. 

    Have a look at the last column province by province. Each cell shows the overall cost of raising qualified ECE hourly wages by 25% compared to what they are now (including the effects of wage grids, wage grants and wage supplements).

    This is simply a simulation to give us all an idea of how much it will cost to have a significant rise in ECE wages.  It is not a carefully thought out design for wage increases. What is needed will vary from one province to another; some provinces have done a lot already, others have done little.  In provinces with generally high wage levels for all types of workers, a 25% rise in ECE wages may not do very much. In provinces that have already done a lot to raise wage levels and establish wage grids, a 25% wage rise might be very significant.

    To see all of the columns, view the table below in a new window

    ESTIMATED STAFF NUMBERS (0-12), CURRENT WAGE BILL, AND COSTS OF WAGE INCREASES FOR FULLY-QUALIFIED ECEs

    ProvinceNumber fully-qualified incl directors/ supervisorsNumber of less qualifiedTotal program staffTotal FTE program staffCurrent annual wage bill ($ mil)Cost of 25% increase for fully-qualified ($ mil)
    BC16,8006,80023,60020,600$1,005.4+$208.0
    AB13,00010,75023,75021,000$965.8+$155.9
    SK1,6501,3002,9502,600$90.7+$15.5
    MB3,4003,0006,4005,700$215.3+$34.9
    ON35,00020,00055,00051,000$2,183.0+$391.7
    QC (0-4)29,00010,30039,30035,000$1,576.0+$315.9
    NB2,7002,0004,7004,300$186.0+$29.9
    NS2,6008003,4003,200$142.4+$29.9
    PE7004001,100950$42.3+$7.3
    NL8254001,2251,100$48.2+$8.9
    CANADA105,67555,750161,425145,450$6,455.1+$1,198.0
    CA – QC76,67545,450122,125110,450$4,879.5+$882.1
    To see all of the columns, view the table above in a new window
    • Fully-qualified refers to ECEs with a 1-year college ECE certificate or a 2-year college ECE diploma, or more.
    • These calculations are produced by Gordon Cleveland, based on the estimated wages and staff numbers in Estimates of Staff Numbers and Wages in ELCC Centres, by Province, August 16, 2023.  Numbers for the Territories are not yet included.
    • It is assumed that wages would have to rise equally for ECEs caring for children 6-12 years of age.  However, in Quebec where fully-qualified staff caring for children 5-12 years are employed by the school system, numbers refer only to staff caring for children 0-4.

    These numbers do not include the extra cost of compulsory benefits like contributions to pay for EI and CPP/QPP and vacation pay.  That would add another 15%-18%, perhaps.  However, these estimates do include an allowance for supply staff.

    There is no magic in this 25% wage rise simulation.  But, now, with data on current numbers of staff and on current wage levels, we can do whatever simulations we think are appropriate and estimate the costs of taking action (and compare them to the costs of inaction).  That, I think, is a big step forward.

    With these simulations in hand, we can turn to the next two questions.  Question #2 was how exactly we should raise wages.  That debate is too big for this blogpost, but let me make some observations. I believe that the big staff supply problem is centred in the inadequate supply of fully-qualified early childhood educators, whether that is a one-year ECE college certificate or a two-year ECE college diploma.  Recruiting untrained staff or recruiting staff that need to take only an orientation course or two is not where the problem lies.  That means we need to concentrate our scarce funds on raising the wages of qualified educators.

    And once we have decided to concentrate our wage-raising efforts on fully-qualified staff, we need to avoid the Ontario mistake.  Ontario decided to raise wages by concentrating their efforts on low-paid educators.  In 2022, they boosted all early childhood educators earning less than $18 an hour up to $18, but they did nothing for anyone else.  In 2023 and beyond, they are raising the pay of other educators by $1 per hour each year, but only if the educators currently earn less than $25 an hour; $25 is the top wage for this program.  This focus only on low-paid educators ensures that ECE will continue to be a low-paid profession; even $25 an hour will keep educators well below competing occupations.

    And, the Ontario wage supplement design ensures that most of the wage assistance will go to centres that previously were underpaying their workers, disproportionately those in the for-profit sector.  The Doug Ford government is developing a bit of a reputation for favouring for-profit friends, whether it be the Greenbelt or child care, but this kind of wage supplement design will not do a good job of retaining the best-qualified and most experienced staff and making ECE an attractive profession.

    Finally, there is the question of who will pay.  I would be overjoyed if the federal government decided to come up with a billion dollars of extra annual funding, but I don’t think that will happen very soon, and wage rises do need to happen very soon.  Some provinces may be willing to up their spending to solve wage problems, and that is welcome.  But the most obvious immediate place to get funding for educator wages is to change priorities for the expenditure of federal dollars under the Canada-Wide Early Learning and Child Care Agreements.  The very large majority of the federal funds under current Action Plans goes to lowering parent fees.  Right now, many provinces are renegotiating Action Plans to cover the next three years.  Why not allocate a larger portion of money in the next three years to cover wage increases for fully-qualified early childhood educators?  And there should be provincial contributions to cover the wage increases for staff caring for 6-12 year-olds. 

    The numbers in the table above tell us about how much reallocation of dollars is needed in each province.  Let’s get it done, or expansion will not happen and access to affordable child care will continue to be a dream for most families.