NIEER

Building EarlyChildhood FacilitiesWhat States Can Do to Create Supply and Promote Qualityby Carl Sussman with Amy Gillman

The early care and education field continues its decades-longexpansion, experiencing a new phase of educationally orientedgrowth. Most states now fund preschool programs and enrollmentcontinues to rise. Yet the field remains fragmented and insufficientlyresourced. It lacks the institutional frameworks necessary to addressbasic challenges to continued growth and development. The design,development, finance and maintenance of facilities are key issues.State governments will need to more actively stimulate facilities investments —building the supply of facilities and making sure thesespaces are designed to support programmatic quality. Otherwise,the benefits of early education—academic achievement and long-term savings in remedial programs to name just two—will not be fully realized.

April 2007, Issue 14

What We Know:• Well-designed facilities enhance child

development and program quality.

• An adequate supply of facilities is needed to support rapidly increasing preschooleducation programs.

• The quality and location of the facilitiescan encourage enrollment and parentinvolvement.

• Facilities can help promote a positiveworkplace in an industry challengedto retain experienced teachers.

• Child care program income is typicallymeager, especially when compared with the full cost of delivering quality early education services.

• The cost of constructing facilities designed specifically for young children is relatively high when compared withstandard commercial space.

• Few centers have the experience or personnel to handle the complexities of real estate development tasks.

Policy Recommendations:• Facilities development policies need to

address issues related to financial barriers,design and real estate development, andthe policy and regulatory environment.

• Capital subsidies must be available in orderfor child care programs to substantiallyrenovate or construct a state-of-the artfacility.

• If providers use debt to raise capital, itmust be affordable to preschool programswith limited means.

• Technical capacity needs to be developed—organizational, real estate development,and architectural to build early educationfacilities.

• Facility standards that address programquality, in addition to health and safety,need to be in place.

• A reliable system and supportive policyand regulatory environment are needed to enable the early education field to meet its physical capital needs.

National Institute for Early Education Research

120 Albany StreetSuite 500New Brunswick, NJ 08901Tel 732 932-4350Fax 732 932-4360www.nieer.org

A joint publication with the Local InitiativesSupport Corporation

501 Seventh AvenueNew York, NY 10018Tel 212 455-9800Fax 212 682-5929www.lisc.org

April 2007, Issue 14

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This policy brief examines facilityissues related to financial barriers,design and real estate developmentpractices, and the policy and regulato-ry environment. It is a summary of alonger, much more comprehensiveonline report located on the NIEERwebsite. The online report lays outeach strategy in much more detailand discusses the advantages and dis-advantages of each policy option. Toview the online report with full refer-ences, go to http://nieer.org/resources/research/facilities.pdf.

Today, preschool programs havemoved beyond the role of child care,acquiring another compelling earlyeducation function. Where economic

necessity, welfare reform and women’sincreasing participation in the work-force fueled child care’s growth dur-ing the last half of the 20th century,science and economics stoke its suc-cessor: high-quality early educationprograms. Relying on strong researchfindings of the developmental bene-fits for children and substantial eco-nomic gains for society from an“invest early” strategy, families, educa-tors, policymakers and business lead-ers are driving the current movementto improve the quality of preschooleducation programs. Early educationhas also become a staple reform strat-egy for underperforming schools. Forall these reasons, early education has

moved toward the center of the pub-lic policy stage.

States are increasingly takingresponsibility for addressing the needfor high-quality early education pro-grams—now engineering policies forblending funding streams, standardiz-ing reimbursement policies, designingprofessional development systems,and setting quality standards. Facilities,the physical places that house earlycare and education programs, are akey “infrastructure” issue that stateshave either begun to address or willneed to address as they build an earlycare and education system.

Comprehensive public policies areneeded to ensure an adequate supply

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The Need for Comprehensive Facility Policies

State early childhood facilities devel-opment policies need to addressfinancial barriers, design and realestate development practices, and policy and regulatory issues. Themost obvious policy challenge is tobridge the gap between the cost ofquality facilities and the tough finan-cial realities of delivering early careand education services. A second andless apparent challenge is the limited

organizational capacity and real estatedevelopment, design and constructionexpertise in facility development forearly education programs. Few cen-ters have either the experience or thepersonnel for the time-consumingand frustrating complexities of a majorbuilding project.

Finally, it is not enough for statefacilities policies to make possible theconstruction of isolated projects. The

objective is to create a reliable system—an infrastructure—and a supportivepolicy and regulatory environmentthat enable the early education fieldto meet its physical capital needs.Thus, facilities policies should addressthe full spectrum of capital, technicaland regulatory barriers that preventthe development of a sufficient supplyof quality early care and educationsettings.

Facility Policies

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of facilities. Equally important, spe-cially designed facilities can supportchild development and program quality. To encourage enrollment and parent involvement, the qualityand location of the facilities are key.And finally, in an industry challengedto retain experienced teachers, facili-ties can contribute to a positive work-place environment, enhancing jobsatisfaction.

The need for sufficient physicalspace is obvious. Classroom spaceneeds to be available to house grow-ing enrollment. Lack of supply canforce policymakers to trade qualityfor access by shortening the programday or funding lower quality pro-grams. Moreover, available space,such as in elementary schools withdeclining enrollment, requires modi-fications to accommodate outdoorplay needs, different drop-off andpick-up arrangements, and classroomsorganized around activity areas.

Well-designed facilities enhancechild development and program qual-ity. Young children learn through playand by exploring and interacting withtheir environment, both social andphysical. They need classrooms andoutdoor play space that are markedlydifferent from conventional elemen-tary school classrooms and play-grounds. Preschool programs subdi-vide classrooms into well-definedactivity areas. Achieving this type of

environment requires architecturalelements specifically designed andconstructed to support active learning.

The National Association for theEducation of Young Children (NAEYC)accreditation acknowledges the impor-tance of a quality environment.

“The physical environment setsthe stage and creates the contextfor everything that happens inany setting—a classroom, a playyard, a multipurpose room. It is a place where children and staffspend long hours each day;where routine needs are met;where relationships develop, skillsare learned, abilities are enhancedand attitudes toward school andlearning are formed. For all thesethings to happen well, programplanners must carefully designthe physical environment.”

—NAEYC

To promote parent engagement,programs need to be located whereparents will use the services—nearhomes, workplaces and commutingroutes. If not, parents may forgo theopportunity to enroll their childrenor substitute lower quality for moreconvenient child care arrangements.

Further, facilities need to appeal toparents who naturally want their children to attend safe, physicallyattractive and well-maintained cen-ters. Moreover, centers that featurespace where parents can linger andinteract with staff and other parentsand provide places to confer privatelywith teachers are much more conduciveto parent involvement. Increasinglycenters include parenting resourcerooms and windows between corri-dors and classrooms so that parentscan observe their children at playwithout disrupting the class.

Facilities policies can also promoteworkplace satisfaction. Staff retentionis one of the greatest challenges earlycare and education programs face.Low compensation is the most obvi-ous reason the industry has difficultyretaining experienced staff. Improvedwages and benefits will help attractand hold more highly qualified teach-ers. Another strategy to foster reten-tion is through better quality facili-ties, creating physically and psycho-logically comfortable workplaces andfacilitating professionally rewardinginteractions with young children,parents and coworkers.

Because facilities play such animportant role in achieving educa-tional objectives, public policiesdesigned to build a system of qualityearly education cannot afford to over-look them.

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Research on the Early Childhood Environment

In an influential review of research on early childhood development,Jack P. Shonkoff and Deborah A. Phillips conclude that “the positiverelation between child care quality and virtually every facet of children’s development that has been studied is one of the mostconsistent findings in development science.” The research has foundcorrelations between positive outcomes for children and specific program characteristics such as adult-child ratio and group size, toname just two.

However, as Shonkoff and Phillips note,“…other dimensions of quality…are rarely measured…” and “are, in all likelihood, importantingredients along with the structural dimensions of care that dominatethe research literature.” The physical environment is certainly one ofthese. As the authors go on to say, “Without attention to some ofthese subtle, but potentially powerful, influences on quality, it is diffi-cult to predict how much can ultimately be accomplished by policyactions that focus on only one or two structural dimensions of care.”1

Although the major research studies in the early childhood field have neglected the physical environment as a critical contributor to the quality equation, there is evidence to support this proposition. The fields of environmental psychology and architecture have produced numerous applied research studies demonstratingcorrelations between school design attributes and both student achievement and teacher retention. Much of this literature is available on the U.S. Department of Education’s National Clearinghouse for EducationalFacilities web site and in collections of academic journal articles such as Spaces for Children: The BuiltEnvironment and Child Development edited by Carol Simon Weinstein and Thomas G. David (1987).

Among the many studies linking early childhood settings to positive behavioral and developmental outcomesfor preschoolers are a number asserting that the widely accepted 35-square feet per child standard for pre-school classrooms is neither supported by research nor sufficient.2

Many other aspects of the physical environment have been scrutinized. For example, a Pacific Oaks OccasionalPaper written in 1976 by Elizabeth Prescott and Thomas G. David explores the effects of the physical environ-ment—acoustics, density, climate control, lighting, bathrooms, sleeping areas, room layout and much more—on child care. The much admired Reggio Emilia preschools treat the physical space as one of the defining characteristics of its pedagogy. Finally, based on field observations, academicians and practitioners in the childdevelopment field have concluded that the physical environment exerts an obvious influence on program quality and teacher job satisfaction. Perhaps the most noteworthy example of expert opinion applied to thephysical environment is Anita Rui Olds’ 2001 book, Child Care Design Guide.

1 Jack P. Shonkoff and Deborah A. Phillips, Editors, From Neurons to Neighborhoods: The Science of Early Childhood Development,National Research Council Institute of Medicine, National Academy Press, Washington, DC 2000, p. 318-320.2 Randy White & Vicki Stoecklin, “The Great 35 Square Foot Myth,” 2003, White Hutchinson Leisure & Learning Group, http://www.whitehutchinson.com/children/articles/35footmyth.shtml

Overcoming Financial Barriers

Preschool Policy Brief | April 2007

The most obvious barrier to facilitiesdevelopment is financial. The chal-lenge is on both sides of the financialledger: revenue and expense. On therevenue side, with the exception ofniche markets where operating mar-gins are healthy, child care programincome is typically meager, especiallywhen compared with the full cost ofdelivering quality early educationservices. This section describes vari-ous state policy responses, whichinvolve anything from a very shallowto a very deep capital subsidy.

On the expense side of the ledger,the cost of constructing facilitiesdesigned specifically for young chil-dren is relatively high when comparedwith standard commercial space. Theearly care and education industry haslong faced a difficult problem: with-out access to scarce grants or fortu-itous sources of additional funding tosupplement parent fees and modestpublic operating subsidies, programsmake painful trade-offs, economizingin ways that compromise quality. As a result, most centers contain justenough space and receive only thosemodest improvements required tosatisfy minimum licensing standards.

Exceptions to this pattern exist, suchas centers serving relatively prosper-

ous families, larger nonprofit organi-zations with the capacity to mount amajor fundraising campaign, someHead Start grantees, and large busi-nesses that provide on-site child careto attract and hold employees. Accessto capital—either in the form of grantsand internal subsidies (like those pro-vided by a corporation to their on-sitechild care centers) or a revenue streamto support long-term debt—is the keydifference between those organizationsand businesses that invest and achievesignificantly higher quality standardsfor facilities and those that do not.

To substantially renovate a build-ing or construct a state-of-the-artfacility requires access to a substantialamount of capital. To the extentproviders use debt to raise that capi-tal, it must also be available on termsthat are affordable to preschool pro-grams with limited means.

Access. Organizational size, owner-ship structure, and sources of operatingrevenue are important factors influ-encing access to capital. For example,a for-profit company can issue stockwhile a nonprofit cannot, and a non-profit can receive tax-exempt gifts whilea for-profit cannot. A large organiza-tion is more likely to accumulate net

assets whereas a small organization isless likely to. Early education programsserving a high proportion of publiclysubsidized children have tighter oper-ating budgets than those catering tochildren from high-income house-holds. Public school-based programscan sometimes tap tax revenues andaccess tax-exempt bond debt. In gen-eral, nonprofit organizations, espe-cially smaller ones and those servinglower-income populations, are lesslikely to qualify for debt than pro-grams that are larger, serve higher-

Capital takes the form of equityor debt. “Equity” sources includeselling shares in a company, fund-raising by nonprofit organizations,and investing business, personal,or organizational assets. “Debt”includes borrowing funds andrepaying the lender over timethrough periodic loan payments.An important distinction betweenthe two types of capital is thatloans impose an operating cost in the form of monthly principaland interest payments while equity does not.

What Level of Capital Subsidy?

The ability of centers serving lower-income communities to support debtis extremely limited. One method nonprofits use to reduce debt is tosubstitute equity in the form of grants and donations. However, mostchild care centers have a very limited ability to mount a successful capi-tal fundraising campaign. As a result, early care and education programscommonly face a financing gap between the amount of capital they cangenerate and the cost of a facility. The only way to fill the gap is with asignificant public sector capital subsidy. Policymakers often refer to thelevel of capital subsidy as being “deep” or “shallow.” How does onedefine deep and shallow? One way to think about the level of capitalsubsidy is to calculate it as a percentage of a facility’s total developmentcost. Deep and very deep capital subsidies are the most effective way tomake the development of early care and education facilities affordable.

Very Deep Subsidy

Deep Subsidy

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income children, or operate on a for-profit basis. After setting policy objec-tives, public leaders need to designfinancing programs that overcomethe unique debt and equity barriersfaced by the various types of organi-zations targeted for assistance.

Affordability. Whether a child careprogram owns or rents its space, tosupport quality programming mostcenters need to make significant capi-tal investments. The high cost of facil-ity projects and their long useful lifemake loans a logical and necessarycomponent of any financing package.But many child-serving organizationsare unable to afford debt. “Affordability”in this context refers to the impactloans have on the borrower’s operat-ing budget.

The same three factors that a home-buyer considers in arranging a mort-gage influence facility loan affordability:The principal amount of the loan; theinterest rate charged on the loan; andthe term of the loan. Policymakers cancombine these measures. For instance,financing programs can substitute equity or equity-like capital for debt to lower monthly loan payments. Theycan also decrease the impact of debt onthe usually tight operating budgets of

early childhood programs by extendingrepayment schedules and providinginterest rate subsidies.

Policy Response: Offer Grants. A grant is the simplest means of pro-viding capital and reducing the effectof a major facility investment on acenter’s future operating budget.Since improving real estate is expen-sive, grants need to be large in rela-tion to the total project cost to have asignificant impact.

States can design grant programsto create the desired level of subsidy.However, because grant makers dis-burse funds in a “lump” sum, upfront,grant programs have a large budget-ary impact relative to the number ofcenters assisted. As a result, capitalgrant programs can be politically andfiscally challenging. Nonetheless, fromtime to time, the political will existsto make capital grants for facilities.

Between 2002 and 2004, the Penn-sylvania Departments of Communityand Economic Development and PublicWelfare collaborated in making ChildCare Challenge Grants totaling $10million per year. Providers were requiredto match the state’s grant with one-quarter of the project’s cost. During the first year, grants could be up to $1

million. In subsequent years, the maxi-mum grant was $500,000. The programresulted in the construction or renova-tion of 55 centers licensed to serve 3,365children.

While capital grants are straight-forward, as a matter of capital financeit makes more sense when possible touse debt to finance construction proj-ects: Debt is a tool used to spread thecost over a capital project’s long use-ful life.

Policy Response: Access toPrivate Debt. Offering grants hasthe greatest short-term fiscal impacton public sector budgets while assist-ing centers to access commercialsources of debt has the least. But com-mercial loan underwriting standardsmake it hard for many early childhoodprograms to qualify for large loans. Avehicle frequently used to bring con-ventional bank debt within the reachof marginally creditworthy businessesis to offer lenders a loan guarantee.Without removing all of the lendingrisk, some state agencies guaranteepart of a loan (typically 50-80 percent)to reduce the bank’s risk. Well-designedloan guarantee programs can be eco-nomical for the state. The primarypurpose of a loan guarantee is toreduce risk enough to induce a lenderto make an otherwise marginal loan.In doing so, the guarantee should alsotranslate into a very shallow interestrate subsidy because interest rates arein part a function of risk.

Self-Help, Inc., a non-profit com-munity development finance institu-tion, partnered with the state of NorthCarolina to construct a creative way toguarantee child care loans using theChild Care and Development Fund,which is the federal government’s childcare subsidy block grant. The stateguarantees Self-Help’s loans to smallcenter-based and home-based childcare businesses. The state requires thatthe borrowers serve children whose careis subsidized by the state. By augment-ing the collateral available from bor-rowers, North Carolina’s guaranteeenables Self-Help to relax its under-writing standards and absorb greater

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risk. While this produces slightly greaterloan losses, it also produces more loans,most of which succeed and would nototherwise have been made. Since 1994,Self-Help has used the state’s assistanceto make 214 loans totaling $10 million.

As the North Carolina experiencedemonstrates, under the right set ofcircumstances, loan guarantees can be a cost-effective tool. However, aloan guarantee is only helpful in thosecases where the center has the finan-cial ability to support debt: Mostmajor facilities investments require a far deeper subsidy than a loan guar-antee provides. As a result, even withthe benefit of a guarantee, many earlycare providers cannot qualify for aloan large enough to complete amajor facility development project.

Policy Response: Provide Debt. It is good public policy to encourageearly education organizations to takeon debt, to the extent that they canafford to do so. First, it allows the stateto minimize its capital subsidy out-lays. Second, debt is the preferredmethod for raising large sums of cap-ital for long-term investments: it givesborrowers immediate access to thecapital they need while creating,through monthly “debt service” pay-ments of principal and interest, amechanism through which they canspread the cost over future years.Since a newly constructed or renovat-ed center has a useful life that spansdecades, loans enable the facilityowner to evenly allocate a portion ofthe cost to succeeding annual operat-ing budgets.

A more aggressive approach toproviding access to debt than throughguarantees is to make loans directly tochild care enterprises. In those statesthat make direct loans, a state eco-nomic development agency can serveas the lender. Unlike loan guarantees,the state as lender absorbs the entirerepayment risk. However, the borrow-er still bears the full capital coststhrough loan payments. The publicsubsidy is once again quite shallow.

As part of their economic develop-ment programs, most states offer

small business loans, and for-profitchild care businesses are typically eli-gible. However, relatively few stateshave loan products targeted specifi-cally to the early care and educationindustry. Maryland is an exception.

Since 1988, Maryland’s Departmentof Business and Economic Developmenthas made child care facility loans andloan guarantees to nonprofit and for-profit center-based programs. Its directloans can be as large as necessary butcannot exceed the “hard” constructioncosts. The state seeks private bank par-ticipation in the financing, and if thecenter can support the debt, it will sub-ordinate its loan to the private lender’s.The state charges market or slightlybelow market rates and writes the loansfor 15 to 20 years. While the depart-ment has received many inquiries,probably because of the challenges childcare programs face in supporting debt,demand tends to be weak.

Policy Response: SubsidizingDebt. Conventional lenders set loaninterest rates based on the cost ofmoney and the credit risk associatedwith each loan – adjusting the rate upor down depending on the perceivedrisk of a loan default. As a result,lenders charge a higher rate to thoseborrowers least able to support debt.States can create programs to reducethe interest rate burden on less credit-worthy borrowers to make repaymentmore likely and increase the chancethat the loan amount will be suffi-cient to meet the child care industry’scapital needs.

The Connecticut Health and Educa-tional Facilities Authority (CHEFA)partially guarantees private sector childcare loans to improve the creditworthi-ness of loan applicants who would nototherwise qualify for financing. CHEFAhas also sought to increase the feasibili-ty of child care borrowing by combiningan interest rate subsidy with its loanguarantee. Thus, if the banks make aloan at 8 percent, CHEFA provides a 3 percent interest rate subsidy, reducingthe borrower’s rate to 5 percent. CHEFAcovers the difference between what thebank charges on the loan and what the

borrower pays.Subsidizing debt is the right solu-

tion in a limited number of situa-tions, but most often it will be tooshallow to bridge the significantfinancial gap between the cost ofsecuring quality space and the revenueavailable to most nonprofit centers.Policy Response: Performance-Based Loan Principal Forgiveness.A less common form of capital sub-sidy in the early childhood industryinvolves forgiving loan principal toreward a provider for meeting statedpublic policy objectives. Loan forgive-ness programs can be structured tocreate the desired subsidy level.

The Self-Help Child Care RevolvingLoan Fund in North Carolina funded aloan forgiveness program to spur childcare programs to use borrowed capitalto rebuild child care facilities damagedby Hurricane Isabel and to create anincentive to improve program quality,Providers who maintain or increase thequality of their program, as measuredby the number of stars awarded underthe state’s Quality Rating System, areentitled to have 30 to 50 percent oftheir loan forgiven after four years.If program quality deteriorates, theprovider bears the full cost of theimprovements. This tied the subsidy to the public policy objectives based on future program performance.

Loan forgiveness provides anattractive incentive to improve thequality of early care and education.However it only benefits providerswho qualify for loans, leaving outmany providers who might be equallydeserving based on the quality oftheir program.

Policy Response: Debt-ServiceSupport. The strengths and draw-backs of the various policy responsesreviewed thus far suggest that becauseof the economics of early educationprograms, the importance of reachinglow-income children, and the signifi-cant need for and high cost of newquality facilities, states will have tocombine deep subsidies and debtfinancing. To achieve scale while dra-matically reducing the immediate

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budgetary impact, a few states haveprovided capital subsidies by makinglong-term commitments to “debtservice support.” Using this mecha-nism, the state’s annual investment ismodest relative to the capital cost ofthe facilities because they pay annualdebt service rather than the totalupfront cost of the new facilities. Butthe states are able to deliver a deep orvery deep subsidy to the child carefield by paying a significant propor-tion of the facility debt on behalf ofnonprofit early care and educationprograms until the loan is completelyrepaid. The proportion of public debtservice support determines the depthof the subsidy.

Illinois and Connecticut haveimplemented this model using tax-exempt bond debt to achieve an espe-cially low interest rate and long loanterm. This enables providers withlimited financial capacity to repayenough debt to support a modestproportion of the bond debt. Thecapital subsidy in these examples isvery deep – covering 100 percent ofproject costs in Illinois and roughly70 percent in Connecticut—enoughto induce providers to invest in facili-ties and encourage other public andprivate entities to contribute equity.

Illinois, in partnership with thenonprofit Illinois Facilities Fund (IFF),pioneered the debt service supportmodel in 1992. Through a pilot ChildCare Facility Development Program,the state made a one-time commitmentto service 100 percent of the debt toretire a ten-year tax-exempt bondissued on behalf of seven nonprofitagencies serving low-income children.With IFF’s assistance, each agency con-structed or renovated a center.

Five years later Connecticut enactedthe School Readiness Act that statutori-ly created a debt-service support pro-gram patterned on Illinois’ pilot.Connecticut used tax-exempt bondsand secured bond insurance to guaran-tee the lowest interest rates available.Moreover, by issuing 30-year bondsthat permitted a long amortizationperiod, the state’s modest $2.5 millionannual debt service appropriation

resulted in the immediate constructionof a significant number of facility proj-ects. Low monthly payments meanproviders can shoulder a share of thedebt, and in turn, their debt paymentsallow the state’s investment to supportmore projects. For a typical center,Connecticut covers 70 percent of thecapital cost. Meanwhile, each of thepreschool programs pays the remaining30 percent, including roughly 12 per-cent in project equity raised from phil-anthropic and public sector grants andgifts. The combined state and providerdebt payments supported $41.6 millionin bond proceeds and yielded 18 high-quality centers serving 3,150 childrenin some of the state’s most distressedcommunities. Since that initial appro-priation, the state twice increasedspending on the program by $1 million,bringing the annual debt service sup-port for early childhood facilities to$4.5 million.

Policy Response: RateEnhancements. States are increas-ingly adopting rating systems toreward child care program quality. Insome states, centers receive an annualgrant based on the level of qualitythey have earned.

In Maine, providers who haveearned a “quality certificate” are eligible for a variety of state financingincentives as well as a 10 to 15 percentbonus over the state child care subsidyfee.

States could apply the same con-cept to facilities financing. By offeringselected providers a facility develop-ment rate enhancement, states supplya supplemental revenue stream withwhich to secure and service a loan.The rate enhancement might beawarded competitively based on acenter’s quality rating and the need toexpand supply or improve physicalenvironments in a particular geo-graphic area. For the program totranslate into new borrowing capaci-ty, states would need to provide therate enhancement for a period ofyears equal to the term of the loan theborrower takes out to pay for facilityimprovements. Without a multi-year

commitment from the state to pro-vide the rate enhancement, a loanslated to be repaid with that revenuewould become too uncertain and alender would be less likely to extendcredit to the child care program.

Policy Response: Public SchoolFinance. Growing public support forearly education rests on the now well-established link between quality pre-school experience and later schoolachievement. There are now a grow-ing number of preschool programsoperating in public schools. To housethese programs, school districts oftenneed to build new facilities or reno-vate existing ones to meet the needsof younger children. To institute thesechanges, districts turn to establishedschool financing mechanisms. Manystates subsidize school construction,with programs that vary considerablyfrom state to state. Covering the costof preschool classrooms under stateschool financing programs makessense given the contribution earlyeducation programs make to the edu-cational mission of public schools. Atleast one state that subsidizes schoolconstruction has gone one step fur-ther for preschool classrooms.

Connecticut’s School ConstructionProgram includes a 5 percent bonus onthe proportion of the costs attributableto early childhood classrooms. Thebonus is in addition to the state’s rou-tine school construction grants.

A Final Word on Financing. Thestate financing programs described inthis section are illustrative of the toolspolicymakers can assemble to makefacilities development possible. Indesigning a subsidy program, statesneed to be sure that the approachprovides the depth of capital subsidyneeded given the size, location andcharacter of the programs buildingthe facilities. And, as with any long-term capital investment, borrowingmuch of the money needed for thesefacilities makes sense: it spreads thecost over the useful life of the newfacilities and over multiple state fiscalyears.

Promoting Sound Design and Real Estate Development Practices

The need to address the capital side ofthe facility development equation isobvious. Less apparent, however, arethe demand side barriers to facilitiesdevelopment. However, there are twoproblems. First, because of a lack ofresources in the early childhood field,most directors have learned to “makedo” with physical space that complieswith minimal licensing requirementsbut falls short of meeting best prac-tices in quality design. Second,because of historically weak marketdemand for child care facilities, devel-opers with appropriate experience arescarce. Once a provider decides torenovate, relocate, or expand, theymust either supervise the projectthemselves or manage a developerwithout prior early childhood facili-ties experience. There is a similar lackof architects experienced in designingbuildings to meet the developmentalneeds of young children or familiarwith the functional requirements of ahigh-quality early education program.This section reviews strategies foraddressing these paradoxical barriersto facilities development.

Creating Effective DemandA sufficiently deep capital subsidy will generate applications for funds.However, given the small size of manyearly care programs and the lack ofreal estate development expertise, willthe pool of applicants be sufficientlybroad to ensure state resources pro-duce the highest public return? What“pump-priming” measures should betaken to stimulate demand? This sec-tion outlines some proposed policyresponses to create effective demandfor facilities capital and ensure morestrategic use of public resources.

Policy Response: Training andAwareness Campaign. Professionaldevelopment opportunities that exposeearly childhood educators to well-designed facilities and emergingresearch about the relationship between

facilities and quality can help kindle avision of quality that leads to action.States seeking to stimulate facilitiesdevelopment or planning to offer capi-tal subsidies should accept the need tospur interest in order to ensure abroad-based pool of quality providerscompeting for its financial resources.

The Children’s Investment Fund inMassachusetts, a nonprofit affiliate of astate quasi-public authority, adopted aconcept pioneered by New JerseyCommunity Capital and offers anintensive, one-week, off-site traininginstitute for teams from child care andHead Start centers. The Fund aggres-sively solicits applications, and conductssite visits and interviews before accept-ing organizations into the program. Inaddition to teaching facilities develop-ment skills, the curriculum emphasizesleadership abilities, organizationaldevelopment, and financial manage-ment skills. Participants view slide pre-sentations of quality facilities, visit amodel center, hear from other centerdirectors who have successfully com-pleted major construction or renova-tion projects, meet architects and devel-opment consultants, and learn aboutthe development process and its demandson organizational time,energy, and resources. AlthoughMassachusetts does not offer any capital subsidy, 50 percent of programparticipants complete a significantfacility improvement project withinthree years of the training institute,and 70 percent do so within five years.

Policy Response: Funding Tech-nical Assistance Intermediaries.To stimulate provider interest in fac-ilities and introduce the technicalresources needed to guide theirefforts, some states have identifiedand supported intermediary organi-zations capable of delivering technicalassistance tailored to the needs of theearly childhood field. The experienceto date indicates that, with outsidetraining, existing community devel-opment intermediaries are strong

candidates to become a state’s earlychildhood facilities intermediary. Afew states devote a portion of the 4percent quality enhancement set-asidefrom their federal Child Care andDevelopment Fund grant to contractfor the services of a technical assis-tance intermediary.

Vermont contracts with the statewidenonprofit Vermont Community LoanFund to provide facilities development-related technical assistance to center-and home-based child care and HeadStart programs. The contract includesthe administration of a capital grantprogram funded by a modest annualstate appropriation and sales of a spe-cial “Building Brighter Futures” childcare license plate.

In Rhode Island, a public-privatefunding collaborative that includes thestate’s human services agency, founda-tions, corporations, and individuals,supports the Rhode Island Child CareFacilities Fund, a program

of the nationalnonprofit LocalInitiatives SupportCorporation(LISC). TheFund advisescenters who arerenovating,expanding, or con-structing new facili-ties; offers planninggrants; conductstraining workshops;and produces resourceguides on how tofinance, design, anddevelop early childhoodfacilities.

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The Real EstateDevelopment FunctionHow facility development is carriedout can influence the rate at whichfacilities are completed; the quality ofthe final product; the state’s ability tomeet policy objectives; and the cost-effectiveness of the capital program.

Policy Response: The Public WorksApproach to Development. Anestablished mechanism for planning,developing and operating public realestate projects like airports, bridgesand redevelopment districts is thespecial-purpose quasi-public authority.States can adopt the same approachto develop, lease and maintain earlychildhood facilities. By centralizingthe development function in thismanner, a state can realize savings bycontracting simultaneously for multi-ple projects. However, creating a newdevelopment authority for child carefacilities can be complicated and con-troversial, lead to bureaucratic stan-dardization, and discourage creativityand variety.

Policy Response: The Do It Your-self Approach to Development. A do-it-yourself or bootstrappingapproach puts the burden of develop-ing facilities primarily on child careproviders. Providers participating inConnecticut’s School Readiness

financing program and Pennsylvania’sChallenge Grant program have beenexpected to put together their owndevelopment teams.

While this mechanism givesproviders greater control over thefinal product, it is unrealistic to expectearly childhood educators to bear somuch of the real estate developmentresponsibility without access to well-resourced and capable technical assis-tance intermediaries. Connecticut hasrecently funded technical assistanceand Pennsylvania is addressing thisneed in its current policy planning.

Policy Response: The TurnkeyApproach to Development.The turnkey approach theoreticallyoffers the advantage of balancing theprovider’s influence over key develop-ment decisions while offering thecomfort of having experienced realestate developers oversee planningand construction activities. Becausefew early educators have experiencewith complex real estate transactions,retaining a nonprofit developer, espe-cially one familiar with early child-hood education, can be less riskysince the missions of the partnersmay be more closely aligned. TheIllinois Facilities Fund played this rolefor seven nonprofit child care centersthat participated in the debt servicereimbursement program describedearlier in this paper.

Physical Design PracticesStates currently investing in earlychildhood facilities are on the leadingedge of a new specialty in the build-ing industry. Once states commit toprovide capital subsidies for earlychildhood facilities, they need toensure a thoughtful and well-informed design process. States cantap the expertise of specialized non-profit technical assistance intermedi-aries to support all the followingactivities.

Policy Response: ProfessionalDevelopment Workshops. Statesshould themselves, or through collab-orations, conduct professional devel-opment workshops for architects andeven require attendance for thosehired to design state-financed centers.

Policy Response: Design Reviews.The state’s process for awarding deepcapital subsidies should incorporatedesign reviews conducted by archi-tects experienced in early childhoodfacility development.

Policy Response: Practice-Oriented Research and ResourceDevelopment. The state agencyadministering the facilities develop-ment program should commitresources to design research andknowledge development.

It will take decades to expand andupgrade the existing supply of center-based programs. Therefore, policy-makers should focus on long-termstrategies and financing structuresand on institutionalizing the capacityto develop high-quality facilities overtime.

Policy Response: Integrated Early Childhood Policies. A state’soverall approach to expanding andimproving the early care and educa-

tion system should incorporate facili-ty development policies. Moreover,facilities should be initiated at theearliest possible stage of early child-hood policy development because ofthe time it takes to develop them.Further, state policies should createan orderly system for determining the appropriate mix of public schoolsand community-based programs.

Facilities development takes years and an enormous investment of organizational effort and money.

Therefore, to generate a flow of proj-ects and achieve scale, states mustfashion a sustainable process. There-fore, facility development policiesshould be legislated, not funded astemporary or one-time initiatives.Finally, to be most effective, facilitydevelopment policies need to be com-prehensive, providing the institutionalinfrastructure—financing agencies,technical assistance intermediaries,policy frameworks, and interagencyplanning bodies—with clear public

Creating a Supportive Policy and Regulatory Environment

ConclusionThe most straightforward approachto improving the supply of earlychildhood facilities would be to fundearly education and care at a levelthat reflects the full cost of quality. Ifprogram revenues were sufficient tohire and retain well-trained and expe-rienced teachers and to build centersthat are larger, better equipped, anddesigned specifically to meet theneeds of young children, marketforces would accomplish those objec-tives. However, despite evidence ofincreased state government action tomake quality preschool experiencesmore broadly available, full fundingremains a distant prospect.

States are intervening at multiplepoints with incremental measuresdesigned to create greater coherenceand quality in the emergent earlyeducation system. From the patch-work of public programs and privateinitiatives to improve early childhood

physical environments, states canstitch together the elements of a com-prehensive strategy.

Comprehensiveness in this contextconstitutes a strategy that includes asustained effort and mix of deep capi-tal subsidies; gap-filling design anddevelopment capacity building; and aregulatory and standards-settingframework that consciously changesexpectations of an optimal qualityearly childhood environment. Thismulti-pronged strategy has the poten-tial to transform the industry’s physi-cal infrastructure over time and tobring about meaningful improve-ments in quality.

Investing in the physical capitalneeds of this growing industry is partof the process of building a system ofquality early care and education. Statefacility policies are in their infancy.However, stimulated by the nationaltrend toward expanded state-supported

preschool education and the emphasison elevating program quality, earlyfacility development efforts, such asthose described in this policy brief,will continue to be replicated andadapted state by state. These meas-ures, along with new state administra-tive structures and better-funded pro-fessional development systems, areforming an emerging infrastructurethat will gradually change the face of the fragmented and unevenlyresourced array of publicly supportedchild care, Head Start, and early edu-cation programs. That system will beincomplete without public policiesand investments that result in facili-ties purposefully designed to supportquality programming and to house agrowing number of young childrenwho need and deserve the very bestservices.

Preschool Policy Brief | April 2007 11

mandates and resources to producehigh-quality programs and facilities.

Policy Response: Quality RatingSystems. A very important trend inthe early care and education arena isthe adoption of state-administeredrating systems that grade programquality. Facility standards should be incorporated into these QualityRating Systems to encourage earlychildhood programs to aspire towardfacilities that exceed regulatory mini-mums. Rhode Island prioritized theinclusion of facilities standards in thedevelopment of its Quality RatingSystem. It is currently the only statethat has included a set of specificguidelines related to the physicalstructure and design of the facility.

Policy Response: Setting Higher Program or RegulatoryStandards. States should also reviselicensing regulations to raise mini-mum standards for facilities and

reflect the ways in which facilities canpromote a child’s emotional and cog-nitive development. States should also

ensure that inspectors appropriatelyinterpret and consistently enforceexisting and revised requirements.

120 Albany Street, Suite 500 New Brunswick, New Jersey 08901(Tel) 732-932-4350 (Fax) 732-932-4360

Website: nieer.orgInformation: info@nieer.org

by Carl Sussman with Amy Gillman

Carl Sussman is the principal of Sussman Associates, a Massachusetts-based management and community

development consulting practice. For the past 11 years he has served as Senior Technical Consultant to LISC’s

Community Investment Collaborative for Kids (CICK). Mr. Sussman is a founder of the National Children’s

Facilities Network, the former executive director of the Children’s Investment Fund in Massachusetts, and a

board member for several child care industry organizations. Previously he served as executive director of a

quasi-public development agency in Massachusetts. Mr. Sussman writes, speaks and conducts professional

development training workshops on the design, development and finance of early childhood facilities and

consults on state early education facilities policies.

Amy Gillman is the Senior Program Director of LISC’s Community Investment Collaborative for Kids (CICK).

Ms. Gillman created CICK 12 years ago to improve the supply and quality of early care and education

facilities in low-income neighborhoods throughout the country. Since then the initiative has spurred over

$200 million in new investments in quality facilities nationwide. Ms. Gillman is a frequent presenter on

early childhood facilities issues at national conferences, and has played a leadership role in the

National Children’s Facilities Network.

Building Early Childhood Facilities: What States Can Do to Create Supply and Promote Qualityis issue 14 in a series of briefs developed by the National Institute for Early Education Research. It may be used

with permission, provided there are no changes in the content.

Available online at nieer.org.

This document was prepared with the support of The Pew Charitable Trusts. The Trusts’ Advancing Pre-Kindergarten for Allinitiative seeks to advance high quality prekindergarten for all the nation’s three-and four-year-olds through objective,policy-focused research, state public education campaigns and national outreach. The opinions expressed in this report

are those of the authors and do not necessarily reflect the views of The Pew Charitable Trusts.

NATIONAL INSTITUTE FOREARLY EDUCATION RESEARCH