Putting profits before kids
National chains and private equity push child care out of reach for many parents
The prices can rival college tuition: Bright Horizons charges up to $44,000 a year for child care in Seattle; at KinderCare in the Manhattan borough of New York, it is up to $40,000.
And the services can be attentive. Parents often receive hourly updates: the exact time a baby dirtied a diaper, the number of raspberries a toddler ate at snack time, photos of 3-year-olds at the playground.
Millions of American families are coping with a child care shortage brought on by the coronavirus pandemic. But one end of the business is thriving: national chains, some charging silver-spoon prices.
That split reality is another marker of how income inequality shapes access to basic necessities like child care and how it has become harder for lower- and middle-income parents, usually women, to get back into the workforce after pandemic disruptions.
And in the debate over how to fix the country’s threadbare child care system, the big chains have lobbied and donated to politicians to assert their own interests in Washington. Through a lobbying consortium, they were particularly aggressive in negotiations over President Joe Biden’s Build Back Better bill, which ultimately did not pass. The consortium said publicly that it supported the bill’s child care proposals, which would have lowered costs for many families. But in lobbying meetings, it argued to policymakers that the bill’s numbers did not add up.
Haves and have-nots
The expansion of the chain child care sector as the rest of the industry shrinks means “you’re going to increasingly have the haves and have-nots — child care operating more as a luxury good and less as a public good,” said Elliot Haspel, a child care expert at Capita, a family policy group.
He noted that the chains were generally expanding in higherincome neighborhoods, while the greatest need for services is elsewhere — particularly in rural areas and low-income communities of color.
The companies, including KinderCare, Bright Horizons and Lightbridge Academy, serve about 1 million of the 12 million children younger than 5 in some form of child care.
This year, the 50 largest forprofit child care chains opened or acquired 537 new centers, an 8% increase from the previous year, according to an annual survey by Exchange, a trade publication covering the industry.
For 2023, the biggest players “have aggressive growth plans in place,” said Kathy Ligon, a consultant who worked on the survey. And several chains — including Bright Horizons, Lightbridge Academy, Goddard Systems and Primrose Schools — have in recent years attracted private equity investors or buyers.
There is nothing unusual about child care centers being run as forprofit businesses. But while the typical community-based center operates with thin profit margins, the chain centers can expect annual profits of 15% to 20% of revenue, according to industry analysts.
“Private equity likes this space because it’s so resilient,” said George Tong, a senior research analyst at Goldman Sachs who studies the sector. (Goldman Sachs has provided investment banking services to Bright Horizons.)
A company like Bright Horizons, which is publicly traded and specializes in providing employersubsidized care, is “profitable and throwing off cash,” Tong said, sometimes raising fees by as much as 7% a year. (The New York Times, like many other companies, offers employees access to discounts and emergency care services at many of these providers.)
Tong said he expected to see a number of child care chains go public, beginning with KinderCare, the nation’s largest for-profit provider, which operates 1,501 centers and has filed for an initial public offering.
None of the private equity firms agreed to interviews. Ligon, who connects midsize child care businesses to larger chains for acquisition, said investors “really like the benevolent focus of the industry. They like the public good. They like what it brings to communities and families.”
But by competing for workers, these child care companies can squeeze centers that charge lower rates and serve mostly middle- and lower-income families.
Labor crisis
The pandemic illuminated how access to child care affects parents’ ability to work.
When the pandemic began, “we thought we were going to shut down for two years,” Ligon said. “What actually happened was that the interest increased dramatically” among investors, as they became more attuned to the connection between the economy and child care.
But the entire industry has had to navigate a worker exodus. Since 2020, the child care industry has lost more than 80,000 workers — often to retail and office jobs — which has contributed to the closing of 12,000 programs.
Child care centers, where the typical worker makes $13 per hour, cannot easily raise salaries, since many of their customers, working parents, are close to tapped out.
The high-end child care businesses have added their own economic pressures. Although they do not always pay more — offering $14 to $26 an hour in cities like New York, Pittsburgh, Seattle and Austin, Texas, according to job listings — they can use their scale and higher prices to offer workers paid time off and some form of health insurance.
In Laurel, Maryland, Carolina Reyes, director of a small child
care center, said she had trouble competing for staff with the namebrand chains.
“They have the money to have a beautiful building,” she said. “They give you all the techniques and all the ways of how to run it — how to have everything set. In my case, I have done everything on my own.”
Her rates, however, are more affordable. She charges $290 a week for a 2-year-old. A branch of KinderCare in her region quoted a price of $350 a week for toddlers.
About one-quarter of Reyes’ students receive a state scholarship for low-income and middle-class families, she said.
Many national child care chains do not serve large numbers of poor families, since federal and state subsidies cannot compete with the fees that wealthier parents are able to pay.
The percentage of Bright Horizons students who qualify for government assistance is a “single digit,” according to CEO Stephen Kramer. At Lightbridge Academy, about one-third of its 66 sites accept subsidized students, said Gigi Schweikert, the CEO — and at those sites, subsidized students make up 20% or less of the center’s total population.
KinderCare described itself in a written statement as “the only national provider with a dedicated subsidy team to help support those families,” but it could not offer data on how many subsidized students were enrolled.
Chad Dunkley, CEO of New Horizon Academy, which has 100 centers in the Midwest and West, said that serving a socioeconomically diverse population was a “long passion” of his, citing centers in Minneapolis and Des Moines, Iowa, that enroll children from low-income families.
But Dunkley said that because of a lack of federal and state funding, New Horizon could not afford to expand such work.
“It’s too much to pass the cost onto other families,” he said.
Shaping policy
In 2021, liberal policymakers and activists put their hopes on Biden’s Build Back Better legislation, which they saw as the best
chance in a generation to create a nearly universal child care system, one that would limit child care payments to 7% of family income for all but the wealthiest families.
Under the proposal, a couple with two children in New York and a household income of $250,000 would have had out-of-pocket child care costs capped at $17,500 for both children — much lower than what the name-brand centers charge for a single child. The bill also would have required providers to raise workers’ pay to a “living wage.”
The federal and state governments would have helped providers shoulder the costs.
The chain child care industry, through its lobbying arm, the Early Care and Education Consortium, said, “We strongly urge Congress to pass the Build Back Better Act.”
But according to three Democratic Senate staff members who worked on Build Back Better and requested anonymity due to the sensitivity of continuing negotiations about child care, the consortium in meetings reacted skeptically to the idea of subsidizing tuition for upper middle-class families and preferred a plan that could pass with GOP support.
The consortium was not the only critic of the bill. The industry and some analysts on the right and the left argued that the bill’s math rested on a shaky foundation, underestimating the federal and state costs.
And other constituencies, such as some religious child care providers and the U.S. Chamber of Commerce, also opposed the legislation as written.
The consortium concluded that Build Back Better was based on “an incomplete cost analysis” and that it would have phased benefits in too quickly for higher-income families, said Radha Mohan, the group’s executive director and a lawyer at Brownstein Hyatt Farber Schreck, a Washington lobbying firm.
Senate staff members said they assured the consortium and other child care groups that through the regulatory process, Congress would provide enough federal dollars to make the plan workable for providers, including for the
chain companies.
Nevertheless, the legislation could have limited profits for the big chains.
The companies have said as much in their financial disclosures.
In its 2021 annual report, Bright Horizons wrote that a “broadbased benefit” for child care could “place downward pressure on the tuition and fees we charge, which could adversely affect our revenues.”
In a Nov. 10 filing with the U.S. Securities and Exchange Commission for its initial public offering, KinderCare warned that expanded government child care benefits could lessen demand for its services. “Our continued profitability depends on our ability to offset our increased costs through tuition increases,” the company stated.
After centrist Sen. Joe Manchin, D-W.Va., essentially killed the legislation by opposing it, Dunkley and executives from several other consortium companies — including Bright Horizons, KinderCare, the Primrose School Franchising Co., Lightbridge Academy and Acelero Learning — made donations in January to Manchin’s campaign fund and his political action committee, Country Roads.
Shortly after, Dunkley and other chain child care leaders attended a dinner with the senator where, according to Dunkley, the executives expressed their wish for federal child care funding to be included in the bill that became the Inflation Reduction Act but said it should be targeted toward lower-income families.
In the end, the targeted funding proposal also failed. The legislation, which was negotiated chiefly among Manchin, Senate Majority Leader Chuck Schumer of New York and the White House, included nothing for child care, prekindergarten or paid parental leave.
Manchin’s office declined to discuss its relationship with child care companies, but in a written statement, Sam Runyon, a spokesperson, said Manchin “clearly articulated his policy concerns with Build Back Better, which were rooted in rising inflation, the ongoing pandemic and the geopolitical uncertainty around the world.”