Does regulation raise child care costs?

Yes, but we should be realistic about the potential of regulatory change to increase affordability

Shortly before Memorial Day the Washington Post ran an article, by DC State Board of Education member Allister Chang, arguing excessive regulation is driving high child care costs in DC, and that DC elected officials (and Mayor candidates) need to focus on reducing regulations to help more families afford care. As someone who oversaw DC’s child care licensing system for the past five years, and who has spoken to Chang about the issues discussed in his article, I of course have some perspectives on this.

But, as Eliott Haspel (whose response to Chang’s piece ran as a letter to the Editor last week) noted in a recent article, Chang is hardly a lone voice in the wilderness here. A growing chorus of analysts and policymakers from a variety of perspectives have been drawing attention to regulatory hurdles as a barrier to child care access and affordability, and their analyses have been gaining traction.

Is this narrative correct? Will will taking an axe to federal, state, and local child care regulations solve affordability and access problems for families? Policymakers considering these questions should know a few things:

First, many of the regulatory hurdles that create the greatest barrier to child care supply or impose the greatest costs on operators aren’t childcare-specific, but are connected to broader zoning, permitting, and business licensing requirements that make it difficult to construct new commercial and residential buildings or open a variety of businesses. That’s true both in DC and other jurisdictions. Chang acknowledges this when he references the variety of agencies that operators need to engage in the process of opening a child care facility.¹ But none of the barriers he mentions are specific to child care licensing regulations or the child care licensing process. Many of them—challenges in navigating zoning, delays in getting fire inspections, or hurdles to getting certificates of occupancy or clean hands certifications—also affect entrepreneurs and organizations seeking to open restaurants, grocery stores, or other small businesses. Child care operators and leaders who want to expand child care supply and affordability should be working to address these barriers—and they will be most effective if they do so in coalition with a broader range of developers, business leaders, housing, and economic development interests seeking to make it easier to build new homes and commercial spaces and to open and grow new businesses generally.

Second, it’s important to be clear about the relationship between supply of child care, provider operating costs, and prices charged to families. Chang argues that, “the high price tag is largely driven by the lack of licensed child care providers,” and implies that growing supply will bring down costs for families. That’s getting causality backwards, though. Growing supply is key to lowering prices in other sectors—such as housing—where a mismatch between supply and demand drives up costs. But child care in DC isn’t expensive because there are too few child care facilities. The reason there are fewer child care slots District-wide than children with potential need for care is that the ongoing operating costs to run a child care facility are higher than what many families can afford to pay. Families who can’t afford to pay the going rate for child care and don’t qualify (or are on the waitlist) for public subsidies opt out of the market—choosing informal care from family members or neighbors, working split shifts or remotely to balance care and work without outside help, exiting the labor market, or moving out of DC. Contrary to popular “shortage” narratives, many child care facilities in DC (and other jurisdictions) are actually under-enrolled. Growing supply without increasing the number of families who can afford to pay not only fails to lower costs, but can actually make things worse, because maintaining full enrollment is one of the most important ways that child care facilities can keep costs down.

Three-quarters of the way into his piece, Chang acknowledges this elephant in the room, writing:

Even after you get through the process and open your doors, you face a different problem: staying open. The math doesn’t work. The city’s own cost model shows that it costs centers about $32,000 per infant each year to provide care. Median tuition is thousands of dollars lower, and even the most generous subsidy won’t cover the gap.

But tellingly, after spending eight paragraphs talking about how red tape makes it harder for child care providers to open their doors, Change doesn’t say anything about how DC leaders can lower ongoing operating costs. That’s likely because lowering ongoing operating costs for child care is a really hard problem (that’s why he couldn’t find a business model that works), which he doesn’t have clear recommendations to solve.

Other analysts haven’t been so reticent, however: DC Abundance’s Abi Olvera, among others, has argued that excessive child care educator requirements are contributing to high costs, and that DC should lower or eliminate education requirements for child care workers to lower costs. Some states have taken steps in this direction—eliminating high school degree requirements for child care workers and even considering legislation to allow teenagers to care for young children without supervision. Other analysts point to adult:child ratio requirements, arguing that increasing the number of children allowed per adult will enable child care facilities to serve more children with existing staff, growing supply and lowering costs.

There’s a grain of truth in these arguments: As Haspel notes, some research shows a relationship between more stringent adult:child ratio and child care educator requirements and higher child care tuition prices. It’s important to be clear about the limitations though: Even if there were no education requirements, there’s just not that much room to drive down child care staff pay. Child care workers rank in the lowest 5% of wages among all occupations, making less than maids, retail salespeople, and people who care for pets.² Even if there were no education or credential requirements for child care staff, child care employers would still need to compete for staff with other low-wage businesses, many of which offer less demanding working conditions. When Sheetz and CVS are paying $18-22 an hour for entry level workers, child care programs can’t recruit and retain staff at any education level without matching that. Since the creation of the Early Childhood Educator Pay Equity Fund in DC, wages for child care staff have risen, but the costs of those increases is born through public funding for the Fund, to avoid driving up costs for families.

Looping back to my first point about the impact of non-child care specific requirements, state and local minimum wages also put a lower bound on wages in many places. With DC’s minimum wage set at $17.95 an hour, scheduled to rise to $18.40 an hour this July, and an effort underway to put a measure on the November ballot that would raise it to $25, there’s just not much room for lower credential requirements to lower child care educator pay in DC. The $25 minimum wage initiative effort, in particular, poses an existential threat that would put many child care operators out of business if the DC Council doesn’t fund the Early Childhood Educator Pay Equity fund.

Ratios and groups sizes are a similar area where there’s less flexibility than many “overregulation” evangelists suggest. Young children, particularly infants and toddlers, require a high level of adult attention and interaction simply to meet their basic health and physical needs. Informal care providers who operate outside the licensed system often have lower adult:child ratios than licensed settings.³ There’s a reason the vast majority of state licensing regimes require one adult for every four infants and one adult for every four to eight toddlers, depending on age (with some states allowing higher ratios for children over two or two and a half). Even the state with the least stringent regulations requires one adult for every six infants.

Could states eliminate these requirements or allow higher ratios? Possibly, though likely with negative implications for child health and safety. Moreover, even if states allow child care providers to operate with very high numbers of children per staff, that doesn’t mean it will be feasible for them to do so. Employers may not be able to recruit staff to work in settings with higher ratios (particularly if they can make more working at Sheetz or CVS). Insurance companies may be unwilling to cover providers operating well outside ratios recommended by early childhood professional and medical organizations. Spaces built for current groups size and ratio maximums also can’t be easily or cheaply modified to fit more children.

There are almost certainly places where adjusting ratios can increase supply or lower costs: During my leadership, DC proposed loosening the required adult:child ratio for two-year-olds from 1:4 to 1:6. Similarly, allowing child care providers across New York State to operate at the less stringent ratios currently permitted in New York City probably won’t compromise children’s safety or development. But, while these common sense changes can lower child care costs on the margins, they’re not enough to make child care “cheap” or affordable for many low- and moderate-income families.

That’s because caring for young children safely is an inherently labor intensive enterprise—and no amount of deregulation changes that fundamental reality.

Because of this reality, staffing is the major driver of child care costs—accounting for 65-75% of the typical program’s operating budget, which means changes in other areas have limited potential to lower costs. Facilities—the next biggest area of expense—account for 10-25% of a typical program’s budget. And there is space for savings here. An analysis from the Searchlight Institute suggests that, in cities like Charlotte, N.C., and New York City, eliminating regulations that limit care for infants and toddlers to the ground floor of multi-story buildings could lower provider operating costs and thus tuition for families. But, while these changes could have meaningful impacts in the highest-cost urban areas, their potential to affect child care supply and prices in more suburban and rural areas, which often have the greatest shortages of care, is limited. Moreover, many of the requirements that increase facility costs for child care operators, including restrictions on the types of residential buildings in which home-based care can operate, requirements for child development facilities in single family homes to implement costly sprinkler systems, and the floor restrictions Searchlight identifies—come from building codes or zoning, not child care licensing rules.

Other policy options that could lower child care facility costs—encouraging developers to integrate child care in new developments, creating tax or other incentives for landlords to offer reduced rent to child care businesses, or making excess public space in schools or government buildings available to child care businesses at a reduced rent—aren’t deregulatory measures (though they could in some circumstances be helped by other regulatory changes that reduce barriers to building new housing supply) and require new public investments or changes in how public resources are used.

To be clear, I’m not arguing there isn’t overregulation in child care: with 50 states and thousands of jurisdictions playing some role in child care licensing, permitting, or other regulation, it’s inevitable that people who are looking for examples of excessive or overreaching regulation will be able to find them.⁴ Some states licensing regulations include “quality” requirements that go beyond ensuring basic health and safety. Moreover, in an area like early childhood, where the health and safety of vulnerable children are at stake, and unfortunate but rate events get a lot of attention, there are strong incentives for policymakers to add requirements without considering costs. It’s easy for regulators or legislators to respond to angry parents by imposing a new requirement on child care operators or schools. No one wants to be the legislator who authored a bill or the executive who approved a regulatory change that is later blamed for allowing a child to be harmed. We would have a healthier child care system if regulators and elected officials had more honest conversations about the actual costs and trade-offs involved in “prevent the latest bad story/worst case scenario” regulations and legislation. But critics of excessive regulation should be honest about the political, structural, and legal forces that cause these regulations to exist, as well as the potential costs (both to children and elected officials) of undoing them. Without efforts to seriously engage these issues, “overregulation” arguments seem much more like a way to distract attention form the need for greater investments in child care than an honest effort to advance affordability.

None of which means that child care system leaders shouldn’t be working with abundance advocates and pro-business groups to address regulatory barriers and systems fragmentation that make it harder to open and operate child care. I absolutely believe they should. Building those kinds of partnerships is likely to open up other avenues for collaboration and new solutions that can benefit child care operators, families, and local economic dynamism. Child care regulators and other agencies involved in licensing and permitting should be constantly working to identify ways to lower burden on child care operators—as my team tried to do in DC. But we should be honest about the limits of regulatory changes, on their own, as a child care affordability strategy. Regulatory is neither a silver bullet nor a substitute for investments that increase the resources families have for child care or help providers cover the full costs of delivering services.

I’ve been blessed to work—both in DC and with my team here at Afton—on a number of strategies to increase resources available for child care and use them more effectively. In the coming weeks I’ll be sharing more thinking about how federal, state, and local leaders can continue to help increase the resources available for child care even in the current fiscal landscape.

1. Since the Post didn’t give him space to list them, I’ll note that in DC this includes at least the Department of Buildings, Department of Consumer Protection and Licensing, Fire and Emergency Management, Department of Energy and Environment, and in some cases local Advisory Neighborhood Commissions, as well as the Office of the State Superintendent of Education, which actually licenses child care.

2. If it’s not obvious, I don’t think it’s a good thing that child care educators make less than people who care for pets! The skill required to do this work well, and its importance for children and families, are worthy of much higher compensation. I’ve been privileged to help support efforts to boost child care educator pay, and I’ll be writing more in the coming weeks about why these efforts are needed and how more states and jurisdictions can expand them in the current landscape. However, given the current reality of low wages for most child care workers, it’s just not the case that further lowering wages is a realistic strategy to make care more affordable.

3. Informal caregivers are cheaper in many, though not all, cases, primarily because those providing care are motivated in part by non-economic considerations (e.g. grandma wants to help her children and spend time with her grandbaby, stay at home neighbor mom is pleased to pick up some extra cash while caring for a friend’s child) that don’t carry over to a market child care context.

4. For example, I once visited a child care program (not in DC) that walked preschoolers several blocks down a busy city street because it couldn’t afford to overhaul an existing adjacent playground that was perfectly adequate but had some equipment that was only approved for children ages 5 and up. This was probably making children in its care less safe than using the playground would have.