Tag: Ontario 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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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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Ontario’s 2024 Funding Formula

Ontario’s new funding formula should be providing clarity about guaranteed operating funding going forward.  It should provide for significantly increased staff compensation to deal with the obvious crisis in retention and recruitment.  It should give guarantees of sufficient future funding to make possible the rapid growth in not-for-profit and public facilities.  It should provide spending discretion to operators to spend funds in ways that are most appropriate to their program and community.  It should make clear that there will be ongoing and detailed financial accountability at the end of the funding year. 

Further, the funding formula should be designed to give a key role to CMSMs and DSSABs to adjust annual funding of services to meet local priorities.  And, the funding formula should ensure that child care services serving low-income, prioritized and underserved communities have the extra resources needed to serve them equitably.  Otherwise, access to child care services may be monopolized by more affluent families.

However, it is not clear that any of these objectives will actually be met.  Comments on the proposed funding formula can be made here until May 5th 2023.


What’s Wrong or Unclear About the Proposed Formula

  • It would be preferable to base the funding formula on its outputs rather than on its inputs.  In other words, the funding should be based on a target per diem for projected annual enrollment of infants, toddlers, preschoolers, kindergarten children etc., with funding adjustments for facilities with extra costs and unusual situations.  The proposed funding formula, which is based on inputs, is excessively bureaucratic and does not give much discretion to operators about how best to spend money to achieve desired goals in their circumstances.  Hopefully, this current proposed funding formula is a step along the road towards a better design.  However, a better funding formula based on a target per diem requires that wage rates and other compensation are reasonably uniform across all operators – that means that operators are paying staff according to a wage grid.  This is where the future of the funding formula should lie.
  • It is unclear what the meaning of “average base wage rate” is for RECEs and non-RECEs.  Is this some kind of average across the CMSM/DSSAB?  That would not make any sense; for many operators, it would not even cover current costs.  Instead, it seems to be the facility-specific current average wage before any wage supplements as reported on the most recent child care operator survey. 
  • The first problem is that these average wages have not generally been reported on the child care operator survey.  Instead numbers of staff in different wage ranges are reported. The new operator survey with responses due in early May has narrower wage ranges for reporting.  Is this going to be used to calculate average wages?  In any case the average wage should be taken only across staff providing care for children 0-5, and this is probably not the case on the most recent operator survey.  And the average wage should be calculated as a weighted average wage for RECE staff with the weights being the different number of hours worked by different staff.  That would be more appropriate than a simple average, but the proposed funding formula ignores this.
  •  The second problem is that there are clearly very significant retention and recruitment issues at prevailing wage and benefit rates.  Average wage rates for ECEs in Newfoundland and Labrador will be considerably higher than in Ontario for the foreseeable future!  This is ridiculous and unsustainable, as the cost of living is much higher in Ontario.  The funding formula should be based on a target wage grid at considerably higher wages than currently and operators should be invited to calculate compensation costs based on this wage grid.
  •  The program staffing grant funding formula is based on 260 days rather than 261. In fact, 2024 will have 262 days of operation.
  •  The staffing grant is not based on the expected number of hours worked but on the expected number of hours and days that the centre will be open.  This is an issue for kindergarten children where the formula seems to assume full-year attendance though many children of this age do not actually attend during summer hours and days.  In general, the government’s proposed formula will advantage centres where children attend less than full-time hours because the formula will pay for the number of staff required as if the child was present for all hours the centre is open.   
  •  The annual wage cost increase is part of the formula but has not been specified.  This should be inflation plus some percentage. Of course, some collective agreements and other commitments made by School Boards will already specify an annual increase that needs to be respected.
  •  The program staffing grant formula is based on the percentage of program staff who are RECEs and the percent that are not RECEs.  Instead, it should be based on the percent of the projected number of hours worked by RECEs and by non-RECEs, not the simple numbers of staff of each kind.  Variations in staffing costs are based on hours worked, not just the numbers of staff hired.
  • Are director’s approvals staff working in RECE positions considered to be RECEs for wage calculation purposes?  Is this an incentive for operators to seek director’s approvals in future hiring?
  • The program staffing grant does not include any allowance for training and professional development, or covering absences for professional development.  It is important to provide strong incentives in the funding formula towards increased and regular professional development.
  • The program staffing grant does not make any explicit allowance for planning time for RECEs and staff meeting time.
  • Only one FTE supervisor is allowed (e.g., for 7.5 hours per day) and no assistant supervisor.  This does not account for all the hours a centre is open in a day, let alone the need for more supervisory staff in larger centres.
  • There is no allocation for pedagogues that are above required ratios.
  • The supervisor’s wage appears to be based on some kind of average across centres in a previous survey, rather than the past wage or necessary future wage received by the supervisor in this centre.  In the future, there will need to be a salary scale for supervisory staff.
  • The accommodation grant formula is based on gross floor area.  Does this include playground space?   
  • How will this accommodation formula take into account capital renewal and capital maintenance?  Will the typical rental rate be based on new facilities, old facilities or what?
  • The accommodation (i.e., occupancy cost) formula should distinguish between for-profit and not-for-profit auspices.  For-profits may own their own building or may have an non-arms-length interest in the value of the property.  Accommodation funding may increase the value of their real estate in private hands.  Not-for-profits do not accrue these increases In value because their assets stay in public hands.  This suggests there should be very tight rules on accommodation grants for for-profits that have any financial interest in their premises, and looser rules on accommodation grants for not-for-profits.
  • There does not appear to be any recognition of the considerably larger costs going forward that are due to administration and reporting requirements.  This should be an explicit part of the operating grant.
  • The funding formula is silent on what will happen to future funding for children whose families receive child care subsidy.  This is a big problem.  There is no explicit commitment in the funding formula about the amount and distribution of money or number of families who will benefit from child care subsidies directed at low-income families and families otherwise in need.  We know that as the parent fee for licensed services is lowered, a larger and larger percentage of available spaces will be taken by families whose incomes are above subsidy-eligible levels. We also know that providing high quality care for subsidized children may take extra staff time and result in higher costs.  If the funding formula does not reward centres who take subsidized children with extra funding, subsidized children will tend to get squeezed out.  It may also be necessary to take other measures, such as reserving spaces for subsidized children, to ensure that children receiving child care subsidies and other prioritized children are at the front of the line for available spaces.
  • The proposed funding formula makes CMSMs and DSSABs into flow-through agencies for the distribution of funds, rather than service system managers.  Previously, CMSMs and DSSABs have played a key role in defining and funding local child care priorities.  The new funding formula should restore some of this local funding discretion, allowing municipalities with long subsidy waiting lists to direct more funding to these families, allowing other municipalities to direct more funding to children with special needs, to centres serving Indigenous children, to centres increasing accessibility for rural families, etc.

Principles Upon Which the Funding Formula Should Be Based

The funding formula should:

  • cover all the legitimate operating costs of a centre providing quality licensed child care services at or above regulatory minimums for children 0-5 across Ontario;
  • cover compensation costs for Registered Early Childhood Educators and assistants at wage and benefit rates that are competitive with other occupations requiring similar education, training and practicum requirements such that early learning and child care in Ontario is not characterized by staff shortages and widespread director’s approvals;
  • reward and encourage ongoing professional development and increased educational qualifications of both early childhood educators and assistants;
  • provide for extra compensation for early childhood educators with special qualifications such as special needs qualifications and pedagogue qualifications;
  • give operators discretion in decisions about the expenditure of allocated funds (ability to transfer funds across grant categories), but also require operators to report in detail at year-end about how funding has been spent, and adjust funding amounts as necessary;
  • adopt a desired wage grid and, perhaps, a timeline over which to achieve it.  The funding formula should reward operators who pay wages and benefits according to the timeline of recommended wage and benefit rates;
  • recognize sources of additional legitimate costs, such as providing care to a large number of children with special needs, even if not diagnosed, or caring for a large number of subsidized children living in disadvantaged circumstances or providing extended hours of care;
  • recognize higher costs per child that come from operating a small centre in a rural or remote area;
  • distinguish between legitimate and illegitimate reasons for having higher than normal occupancy costs;
  • encourage expansion, especially within existing facilities.  So, for instance, the formula should be based on either licensed capacity or the expected number of enrolled spaces over the next year as opposed to past enrollment (i.e., past operating capacity).

General Comments on the Funding Formula

The agreement signed between Ontario and Canada sets Ontario on the path to charging approximately $10 a day for licensed child care by 2025-26.  For those operators who have chosen to become part of the CWELCC system, fees charged to parents are already more than 50% lower than the fees charged on March 28th, 2022 when Ontario signed the agreement.  It is likely that all providers will charge a regular parent fee of $12 per day in 2025-26.  Because the fees for children in low-income subsidized families will be at or close to zero, the average parent fee across the province will average $10 per day.

The agreement moves licensed child care in Ontario towards a public service largely funded by government, so that it is affordable to families.  Over time, the amount of licensed child care for children 0-5 in Ontario will expand, so that the service is essentially universal.  However, right now, there are supply shortages of all types of care in all parts of the province.

The purpose of a funding formula is to determine the amount of funding needed by each participating operator in each facility to cover the reasonable costs of providing child care services to children 0-5.  These services will include full-day and part-day care for infants, toddlers, preschoolers, and children of kindergarten age.  There will be some services that are open for non-standard hours or perhaps even overnight.  There will be special support for children with special needs.  There will be some centres that offer a forest school experience or services that are enriched in other ways. 

There are two components of the cost of providing child care that are highly variable across operators – costs of compensating staff and accommodation costs.

In other jurisdictions that have wage grids, either bargained by unions or through an awards system or by government fiat, compensation levels are more similar across different providers.  This makes it easier to, for instance, work out the approximate variation in costs of providing care for infants, toddlers, preschoolers etc.  If there is a wage grid, as in Quebec, a funding formula will be based on the services delivered, with a standard amount of funding for each unit of service.  In Quebec, the largest component of the funding formula is based on projected enrollment in spaces for each age category.   There are adjustments to these gross amounts to take account of higher costs in centres with higher wage and benefit levels, differences in enrollment and attendance, etc.

Ontario does not have a wage grid that defines expected wage and benefit levels and it has not historically collected information about legitimate variations in costs across providers.  As a result, Ontario has chosen to design a funding formula based on expected or current staffing costs, rather than on the amount and detail of services provided. The 2024 Funding Formula Discussion Paper indicates that there will be four separate grants relevant to the costs of child care centres:

  • The program staffing grant
  • The program leadership grant
  • The operations grant
  • The accommodations grant

In addition there will be a home child care grant and a grant to cover the administration costs of service system managers.

All of these grants refer only to CWELCC services for children 0-5 in facilities that have become part of CWELCC.  They will not fund services to children 6-12 or the staff that care for them.  They do not explicitly cover the financing of child care subsidies and there is no commitment in the funding formula to maintain and expand the number of children who receive additional subsidized assistance with child care costs. They do not cover funding of facilities that have not joined CWELCC.  All of the existing grants including wage enhancement and other grants for services covering children 0-5 are rolled into the new funding formula and disappear as separate grants.

The new funding formula will have to cover staffing costs, operating costs and occupancy costs for child care facilities across the province in very different situations.  The funding formula is not intended to cover capital costs of expansion or start-up costs.  However, the funding formula is intended to provide a guarantee of future funding amounts upon which a child care facility’s decisions about expansion will depend.

The funding formula paper is supposedly a formula for determining the amount of funding that will be allocated to each CMSM/DSSAB.  However, the funding directed to CMSMs and DSSABs is based on the aggregation of the amounts of funding that facilities in the CMSM or DSSAB will get.  So the funding formula apparently determines funding both at the level of the individual facility and of the CMSM/DSSAB.

The Ministry sponsored a mini-survey of child care costs designed to help calculate amounts needed to cover the costs of each facility.  The degree of detail on costs collected is insufficient to fill holes in the funding formula.  However, the funding formula paper says that this mini-survey is “foundational to building this cost-based model” and that “Those cost structures, including their variability, are captured through weighted averages and benchmarks at the CMSM and DSSAB level in the funding formula.”   In apparent contradiction to this talk about data at the CMSM and DSSAB level, the document also says that “Funding from CMSMs and DSSABs to licensees would consider the cost structure of each individual licensee and, since the formula captures high and low cost structures, the funding allocations would support the financial viability of licensees.”  Greater clarity is needed about these apparent conflicts in description.

The formula for the Program Staffing Grant is described in simple terms as “multiplying the number of program staff working hours by the compensation cost per hour, and adding a supply staffing allocation (for coverage during absences).  This calculation would be done at the child care centre level and then aggregated to derive the program staffing grant amount for each CMSM/DSSAB….”

The actual formula looks somewhat different to this simple description, however.

Instead of actual hours worked by staff, the formula calculates the number of staff that should be required (according to legislated child-staff ratios) times the number of hours the centre would be open if it were open every day of a 260 day year.   That means if a centre is “over-staffed”, the extra staff is not included in the funding formula.  If the centre is located in a particularly disadvantaged area or has children with substantial extra needs, you can easily imagine a centre being staffed above the ratios.  This might be an issue in rural areas with small centres where the required number of staff is fractional.  The formula does not account for this.

The formula presumes that all children attend the centre for the full number of hours it is open each day (e.g., 11 hours per day), rather than some arriving after opening and some leaving before closing.  It is presumed that the total number of operating days per year is 260 (rather than 261 or 262).  And it assumes that the daily staffing costs do not vary on statutory holidays, when the centre may be closed, which could be an issue especially for workplace-based extended-hours care.  Further, the formula is based on “operating capacity”.  The glossary defines operating capacity as “the number of children the centre/home child care is planning to serve as per the licensee’s staffing complement and budget, to a maximum ceiling of the licensed capacity.”  In other words, it is the capacity that the centre is staffed for.  Operating capacity is an intention or plan.   It is not clear how operating capacity is related to enrolment.  The actual costs of staffing are likely to be closely related to enrolment.

This calculation of the number of hours of staffing required (which is calculated separately for different age categories with special complications for children of kindergarten age), is then multiplied by a composite average compensation amount per hour.  This average compensation amount per hour is calculated as the sum of (a) average wage plus benefits of RECE program staff in the centre times the percent of staff that are RECE and (b) the average wage plus benefits of non-RECE program staff in the centre times the percent of staff that are non-RECE. 

This calculation of the average program staff compensation per hour has many problems.  First, it is said to be based on average wage information from the most recent child care operator survey.  However, the annual operator survey in Ontario does not collect information about average wages; instead it collects information about the numbers of staff whose hourly wage is in different ranges (e.g., $17.50 to $20.00 per hour).  The mini-survey did not collect this information either.  So, there is apparently no accurate basis for calculating the average wage or average compensation in a centre from existing provincial data.

Second, it is based on the percent of RECEs and non-RECEs in the centre.  It should be based on the number of hours worked by RECEs and hours worked by non-RECEs.  And, as long as there are going to be presumed RECEs based on Director’s Approvals that generally earn less per hour than RECE’s, there probably should be three categories of average compensation levels.  And, there does not appear to be any recognition of the need for specialized staff, whether they be related to children with special needs or whether they be pedagogues supporting other staff.  Where does the compensation of these staff fit in?  And where does planning time fit in?

Calculating the average compensation per hour for different groups will not be trivial.  The hourly base wage for each staff member (presumably this means the actual wage directly paid by the operator to each staff member) may be reasonably straightforward if staff are hourly paid, but a little less straightforward for staff earning a salary.  On top of this needs to be layered the various wage enhancement grant amounts whether part of CWELCC or from before.  Then there will be an annual wage cost increase allowed.  Plus the cost of benefits.  And all of this has to be stated as an average per hour compensation amount for each program staff and then this hourly amount will be averaged over all the RECE staff and the non-RECE staff separately.  The cost of many benefits does not necessarily vary directly with hours worked, so that can be a problem.  

And then there is an allocation for supply staff, based on a benchmark somehow calculated.  What about coverage for staff who go on maternity/parental leave, or disability leave, and top-ups paid for these leaves in some centres?  How does a general benchmark cover this?

There is no discussion in the formula about how to handle rising wage costs over the course of the year, presumably related to the rising wages that need to be paid to recruit new staff.  This will be a real problem if expansion is to occur. 

In general, it is unclear how new centres will be funded.  There is no existing base of wage information for these centres on which to base staffing grants.  Their wages and costs are likely to be higher than other centres because (a) they have to recruit staff in a situation of labour shortage and (b) many new centres are located in underserved communities where per-child costs may be high.  How can expansion happen if there is no clarity about future funding guarantees?

Amongst other things, It is obvious that the province should have been collecting much more detailed financial data from operators before trying to design a funding formula.  It will need to ensure the collection of detailed financial data going forward in order to make changes to the funding formula over time.

Gordon Cleveland

April 21st, 2023