National Center on Child Care Quality Improvement

Financing Strategies for Early Learning & Development Programs and

Practitioners

Finance Learning Table, Session 3Louise Stoney and Anne Mitchell

Alliance for Early Childhood Finance

ECE RevenueConsumer tuition is the largest source of revenue, roughly

57% of total industry receipts

Private sector revenue has increased dramatically, but still less than 4% of total

Government funding @ 39% of total, and

is primarily portable $ (vouchers

or tax benefits) Families

Gov't

PrivateSector

3

The Iron Triangle of ECE Finance

• Ensure full enrollment – every day, in every classroom

• Collect tuition and fees – in full and on-time

• Revenue covers per-child cost (tuition, fees + 3rd party funding)

The Recession Has Added New Challenges

• With recession, ECE programs– Lower enrollment– Insufficient fee collection– Pressure to lower prices

End result: Significant fiscal challenges for

higher quality programs

The Cost-Quality Gap

• Higher quality ECE costs more than most families can afford

• Market-based ECE encourages price competition – low tuition fees – and discourages investments in quality

• Cost-quality gap is primary cause of inadequate compensation

Example Provider-Level Output Center: 106 children, infants, toddlers and preschoolers

QUALITY Net Income as

% of ExpenseAnnual

Gap/ChildRegulated $828,943 Expense

$847,626 Revenue$18,683 Net Income 2% $176

Star 2 $846,319 Expense$847,626 Revenue

$1,307 Net Income 0% $12

Star 3 $890,845 Expense$855,825 Revenue($35,020) Net Income -4% ($330)

Star 4 $946,116 Expense$873,394 Revenue($72,722) Net Income -8% ($686)

Star 5 $1,014,520 Expense$882,765 Revenue

($131,756) Net Income -13% ($1,243)

Quantify the Gap in $

Star 1/Reg Star 2 Star 3 Star 4 Star 5

$1,400

$1,200

$1,000

$800

$600

$400

$200

$0

$200

$400

$176$12

$330

$686

$1,243

Annual Profit or Loss ($/Child)

Quantify the Gap as %

Star 3 Star 4 Star 50%

2%

4%

6%

8%

10%

12%

14%

4%

8%

13%

Revenue Increase Needed to Close The Gap as Percentage of Current Revenue

Current Gap-Closing Strategies in Use

Financial incentives commonly used in statewide QRIS programs:

• Child care subsidy payments at higher rates (tiered reimbursement)

• Child care subsidy payments only to programs that participate in QRIS or to those at higher levels

• Bonuses tied to quality levels

• Quality grants or merit awards for participating programs

• Practitioner wage initiatives

• Scholarships for practitioners or other professional development initiatives linked to QRIS participation

• Scholarships for families to use higher quality programs

• Loans linked to quality rating

• Tax credits linked to quality rating

Incentive Strategies

• Incent participation: funds linked to participation, e.g., equipment grants

• Incent quality: quality bonuses, achievement awards, wage/retention awards, health insurance matching fund…

• Share the cost of quality: Pre-K, CACFP, Head Start partnerships…

• Promote program efficiency: policy changes, Shared Service Alliances…

Impact of Cost Sharing on ELD Program Bottom Line

Revenue Regulated/Star 1 Star 2 Star 3 Star 4 Star 5

CCDF + CACFP + Tuition $847,626 $847,626 $855,825 $873,394 $882,765

Expense $828,943$846,319

$890,845 $946,116 $1,014,521

Net Profit/Loss $18,683 $1,307 $35,020 $72,722 $131,756

Additional Revenue

Pre-K (1 classroom) not eligible not eligible not eligible $78,000 $78,000

Head Start

QRIS Quality $ not eligible $4,253 $31,651 $79,524 $98,690

Net Profit/Loss $18,683 $5,560 $3,369 $84,802 $44,934

Financing ELD ProgramsTotal Revenue = Portable + Direct

Assistance

Total Program Revenue

linked to standards

Tuition/Fees + Portable Subsidy

(e.g. CCDF vouchers, scholarships, tax credits, etc.)

Direct, Institutional Support

(e.g. HS, Pre-K, ECE quality grants, industry-wide investments)

Step Criteria Portable Incentives Direct IncentivesStart with Stars Apply for QRS &

complete requirements

(e.g. Health & Safety checklist)

Child care subsidy (CCDF/TANF) at basic rateState child care tax credit at basic rate

Start with STARS grant - one time onlyTEACH and CADFP availableAccess to T/TA -- prioritizedLinks to family support and/or home visiting

STAR 1 – Attained Meets STAR 1 Standards

or in a points system has sufficient points

for Star 1

Child care subsidy at Star 1 level (tiered bonus)State child care tax credit at basic + .25

STARS Support Grant - available for 2 yearsTEACH, CACFP, T/TA, family support links same as Start with StarsEarly Childhood MH Consultation available Health Consultation available

STAR 2 – Attained Meets STAR 2 Standards

or in points system has sufficient points

for star 2

Child care subsidy at Star 2 level (tiered bonus) Private scholarships/grants at Star 2 levelState child care tax credit at basic + .50refundable practitioner tax credit at base level (or Ed & Ret grants)

STARS Support Grant - available for 3 yearsEd & Retention Award (or practitioner tax credits ) Campus-based child care funds @ Star 2 level TEACH prioritized CACFP, T/TA, family support links same as Star OneEarly Childhood MH & Health consultation prioritized

STAR 3 – Attained Meets STAR 3 Standards

or in points system has sufficient

points for star 3

Child care subsidy at Star 3 level (tiered bonus) Private scholarships/grants at Star 3 levelState child care tax credit at basic + .75 refundable practitioner tax credit at 1.5 of base level (or Ed & Ret grants)

STARS Support Grant – ongoingEd & Retention Award (or practitioner tax credits )Campus-based child care funds @ Star 3 level TEACH & CACFP same as Star Two Training and TA available, as needed & appropriateTitle IV-B - priority placement for protective/preventive Family support available & aligned with IV-B cases Early Childhood MH Consul aligned with IV-B Health Consultation prioritized & aligned with IV-BPriority placement for children with disabilities

STAR 4 – Attained Meets STAR 4 Standards/points

or National Accreditation or Head Start

(licensed integrated model)

Child care subsidy at Star 4 level (tiered bonus) Private scholarships/grants at Star 4 levelState child care tax credit x 2 (double benefit)refundable practitioner tax credit at 2x base level (or Ed & Ret grants)

STARS Support Grant - ongoingEd & Retention Award (or practitioner tax credit)Campus-based child care funds @ Star 4 level Eligible for Head Start and/or State Pre-K FundingTEACH,CACFP, T/TA, Title IV-B, Family Support, MH & Health Consultation same as Star Three Priority placement for children with disabilities

Hypo

theti

cal Q

RIS

Supp

orts

-- F

inan

ce a

nd TA

•Pre-K funding •Early Intervention•Professional Licensing•Early Childhood Food and Nutrition Programs

All linked to standards

Department of Education•Tiered Reimbursement Rates for child care• Training and quality grants

linked to standards

Dept of Human Services

Agreement with Federal Regional Office to create administrative/fiscal links to common standards

Head Start

Agreements with United Way, community foundations, etc. to link $ to common standards

Private Sector •Campus-based child care programs•Practitioner education

All linked to standards

Higher Education Funds for construction of ECE facilities linked to standards

Quasi-Public Construction Authority

Funds for child care centers at the courts or delinquency prevention linked to standards

Judiciary/ Court Administration

•Higher Dependent Care Tax Credit •ECE Occupational Tax Credit Other business or individual tax benefits

All inked to standards

Department of Tax and Finance

•Health & Safety training•Healthy Child Care America TA and supports

All linked to standards

Department of Health

Learning Guidelines (Outcomes for Children)

Standards for Practitioners

Standards for

Programs

QRIS Standards

Innovative Financing Strategies

• Tax Credits – LA, OR, CO, PA

• Land and Mineral Trust Funds

• Social Investment Bonds

• Strategic links to Child Welfare, Early Intervention, Home Visiting, EC Mental Health, etc.

Strategic Cost Sharing: Key Steps

• Leadership: Shared vision re standards (QRIS); Agreements for collaborative fiscal reporting/monitoring (cost modeling can demonstrate benefits)

• Change Management within Government: How to get contract managers on board regarding re-alignment of fund management?

• Change Management within ELDs: How to help ELDs focus more strategically on $ and relax focus on silos?

Change Management Within ELDs

• Sustainable quality requires strong leadership and sound financial footing

• Poor fiscal management is the #1 reason ECE programs fail

• Even programs with high QRIS/ERS scores may fail to see fiscal trouble until it is too late

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Shared Services

Services provided by Hub:• Administrative services• Classroom supports• Comprehensive services• Fundraising• Staff recruitment/screening• Bulk purchasing• Human resources• Research and development

Strategic Partnerships with Private Sector

• Focus on QRIS as accountability measure & funding standard

• Move away from ‘deficit financing’ toward leveraging change among funding partners and ELDs toward ‘cost-sharing’ support for quality

• Examples: Cite examples from states attending, e.g. United Way, William Penn, Merage, Kellogg, etc.

Summary

• Support financial stability (Iron Triangle)• Quantify the ‘cost-quality gap’• Link every funding source to quality – create

quality incentives• Share the cost of quality among funders• Support change management in programs to

share services

Thank You

NCCCQI does not endorse any non-Federal organization, publication, or resource.

Follow-up Contacts:anne.walsh.mitchell@gmail.com

louise.stoney@gmail.comDmathias@buildinitiative.orgOCCQualityCenter@icfi.com

www.qrisnetwork.org

National Center on Child Care Quality Improvement