Gordon Cleveland

December 5, 2023

What the Australian Competition and Consumer Commission Can Tell Us About For-Profit Child Care

What would Canada’s child care system look like if we let it be dominated by for-profit child care providers? Particularly with Pierre Poilievre lurking in the wings, it’s an interesting question to ask.

So, into my inbox arrives a fascinating study from what they call the “A triple-C” (ACCC) or Australian Competition and Consumer Commission. When the new Labor Prime Minister of Australia – Anthony Albanese – arrived in office in 2022, he commissioned two big studies of child care. He asked the ACCC to examine how well or badly the market for child care was working. And he asked the Productivity Commission – a permanent body rather like the old Economic Council of Canada – to report on how best to make child care universally accessible and affordable in Australia.

Both of these bodies have now produced Interim Reports. This blog post will comment on the one from the ACCC. The ACCC report focuses on the cost of producing child care services, the nature of competition in child care markets and the effectiveness of Australian government attempts to regulate child care fees.

You don’t want to read the whole report, so let me cherry-pick some findings for you.

The cost of child care in Australia is pretty high. Centre-based child care fees per hour (averaged across ages 0-5) were $11.72 in 2022 or $117.20 for a 10-hour day.

Australia’s Child Care Subsidy system (like a tax credit for child care expenses) costs the government a lot but does not make child care affordable. For a couple on average wages with 2 children (aged 2 and 3) in centre based day care full-time, net child care costs came to 16% of net household income in 2022. In contrast, the average for OECD countries was 9%, with Australia ranked 26th out of 32 countries. This is despite the Australian Government contribution to fees being significantly higher than most other OECD countries – 16% in Australia compared to the OECD average of 7%.
From 2018 to 2022, gross fees in Australia increased by 20.6% in comparison to the OECD average of 9.5%.

Looking at detailed data on the cost of producing centre-based child care for children younger than school age, 69% was accounted for by labour costs, 15% by land/occupancy, and 9% by finance and administration costs. But these proportions are quite a bit different for for-profit and not-for-profit providers. 69% of centre-based child care services in Australia are provided by for-profit operators.

Land and occupancy costs are about 18% of the total of all costs for large for-profit providers compared to about 10% for large not-for-profit providers. This is not due to what the Aussies call “peppercorn rents” (i.e., below-market rents provided on a goodwill basis). As the ACCC report says, this may be due to non-arms-length transactions in land rental of for-profit providers (to be investigated in the final report).

Not-for-profit child care operators pay a higher proportion in labour costs for two reasons. They are much more likely to pay “above-award” wages – in other words, wages that are above the minimums set by the Fair Work Commission wage grid. About 95% of the staff in not-for-profit centres are paid “above-award” compared to 64% in for-profit centres. The second reason is that not-for-profit providers are much more likely to hire their staff on a full-time basis, whereas for-profit providers primarily rely on part-time staff. As the report suggests: “large not-for-profit centre-based day care providers invest savings from lower land costs into labour costs, to improve the quality of their services and their ability to compete in their relevant markets.” The ACCC finds that centre-based day care services with a higher proportion of staff paid above award and with lower staff turnover have a higher quality rating under the National Quality Standard.

The ACCC finds that parents and guardians typically prefer centr- based day care services located close to their home. Most households travel a short distance to child care – between 2 and 3 kilometres.

Parents’ and guardians’ perception of quality is a key factor driving decisions for selecting a child care service. As child care is an ‘experience good’, meaning it is difficult to accurately determine quality of a child care service without having used it, parents and guardians appear to rely on informal measures of quality over formal National Quality Standard ratings.
Providers’ decisions to establish child care centres are highly influenced by expectations of profitability within a particular area or market, which are driven by expectations of demand and willingness to pay. The willingness to pay for child care within a local area is heavily influenced by household incomes, as this influences the opportunity costs of not using child care services. These factors encourage supply to markets where demand for child care is highest, and parents and guardians are likely willing to pay higher prices. In particular, for-profit providers are more likely to supply these markets as the opportunity for profit is greater.
These markets tend to be in metropolitan areas of higher socio-economic advantage. This higher demand and greater willingness to pay explains why we find operating margins are higher in areas of higher socio-economic advantage and Major Cities of Australia. The child care sector is widely viewed as a safe and strong investment with guaranteed returns, backed by a government safety net

While providers’ supply decisions are generally driven by considerations of viability, we note that there are providers that supply some services at a loss. This reflects that – like many other human services – child care plays an important societal role. This results in not-for- profit providers accounting for a greater proportion of services in areas of very low advantage.
The nature of child care markets and the role played by price, as well as the impact of the Child Care Subsidy, also mean it is unlikely that market forces alone will act as an effective constraint on prices to ensure affordability for households (including households with low incomes and vulnerable cohorts) and to minimise the burden on taxpayers.
Large for-profit providers of centre based day care have consistently had higher profit and operating margins than not-for-profits since 2018. The average profit margin for large centre based day care providers was about 9% for for-profit providers and about 6% for not-for- profit providers in 2022.

In conclusion, the ACCC sees substantial benefit in a detailed consideration of supply-side models, the role of market stewardship and direct price controls for child care services. There will be a final report from the ACCC soon.

August 17, 2023August 20, 2023

HOW MUCH WILL IT COST TO RAISE THE WAGES OF EARLY CHILDHOOD EDUCATORS?

It is now widely acknowledged that the pay of early childhood educators is too low. Comparisons of ECE hourly wages to those in other competing occupations show that educators are paid as if they had a high school education rather than a college certificate or diploma. We can see the effects of this in the extreme shortages of fully-qualified ECEs for existing and new child care facilities. In most Canadian provinces and territories, growth in spaces is held back as much by the lack of staff as it is by the lack of organizational and financial support for planned and funded expansion.

The big questions for governments are (1) how much will it cost to raise wages? (2) how should they do it? and (3) who will pay?

Up till now, it’s been hard to answer the “cost” question because we haven’t had good data on how many program staff work in licensed services and what their average wages are now.

I’ve spent a large amount of time pulling together and analyzing the best publicly available data on this, province by province (sorry, I haven’t done the Territories yet). The details of this (staff numbers and typical wages by qualification level for each province) will appear in another blog on this site once I have finished crossing the t’s and dotting the i’s (lots of numbers and boring reading for most people). But, using those numbers, I can now make estimates of how much raising ECE wages will cost. If you have better numbers, I’m happy for you to send them to me so I can make revisions.

The table below shows my estimates of how much it would cost to raise the wages of fully-qualified ECEs across the country by 25% from whatever their current level is. For the average ECE, that would mean a raise of $5 to $7 an hour from current levels. I’m not trying to say that’s enough, or that this is the right way to raise ECE wages. If I look at the data on wage comparisons to other occupations, it very likely isn’t enough. But, it may begin to move the needle on the supply of early childhood educators. It may encourage more new ECE graduates and existing ECEs to stay in the sector.

Have a look at the last column province by province. Each cell shows the overall cost of raising qualified ECE hourly wages by 25% compared to what they are now (including the effects of wage grids, wage grants and wage supplements).

This is simply a simulation to give us all an idea of how much it will cost to have a significant rise in ECE wages. It is not a carefully thought out design for wage increases. What is needed will vary from one province to another; some provinces have done a lot already, others have done little. In provinces with generally high wage levels for all types of workers, a 25% rise in ECE wages may not do very much. In provinces that have already done a lot to raise wage levels and establish wage grids, a 25% wage rise might be very significant.

To see all of the columns, view the table below in a new window

ESTIMATED STAFF NUMBERS (0-12), CURRENT WAGE BILL, AND COSTS OF WAGE INCREASES FOR FULLY-QUALIFIED ECEs

Province	Number fully-qualified incl directors/ supervisors	Number of less qualified	Total program staff	Total FTE program staff	Current annual wage bill ($ mil)	Cost of 25% increase for fully-qualified ($ mil)
BC	16,800	6,800	23,600	20,600	$1,005.4	+$208.0
AB	13,000	10,750	23,750	21,000	$965.8	+$155.9
SK	1,650	1,300	2,950	2,600	$90.7	+$15.5
MB	3,400	3,000	6,400	5,700	$215.3	+$34.9
ON	35,000	20,000	55,000	51,000	$2,183.0	+$391.7
QC (0-4)	29,000	10,300	39,300	35,000	$1,576.0	+$315.9
NB	2,700	2,000	4,700	4,300	$186.0	+$29.9
NS	2,600	800	3,400	3,200	$142.4	+$29.9
PE	700	400	1,100	950	$42.3	+$7.3
NL	825	400	1,225	1,100	$48.2	+$8.9
CANADA	105,675	55,750	161,425	145,450	$6,455.1	+$1,198.0
CA – QC	76,675	45,450	122,125	110,450	$4,879.5	+$882.1

To see all of the columns, view the table above in a new window

Fully-qualified refers to ECEs with a 1-year college ECE certificate or a 2-year college ECE diploma, or more.
These calculations are produced by Gordon Cleveland, based on the estimated wages and staff numbers in Estimates of Staff Numbers and Wages in ELCC Centres, by Province, August 16, 2023. Numbers for the Territories are not yet included.
It is assumed that wages would have to rise equally for ECEs caring for children 6-12 years of age. However, in Quebec where fully-qualified staff caring for children 5-12 years are employed by the school system, numbers refer only to staff caring for children 0-4.

These numbers do not include the extra cost of compulsory benefits like contributions to pay for EI and CPP/QPP and vacation pay. That would add another 15%-18%, perhaps. However, these estimates do include an allowance for supply staff.

There is no magic in this 25% wage rise simulation. But, now, with data on current numbers of staff and on current wage levels, we can do whatever simulations we think are appropriate and estimate the costs of taking action (and compare them to the costs of inaction). That, I think, is a big step forward.

With these simulations in hand, we can turn to the next two questions. Question #2 was how exactly we should raise wages. That debate is too big for this blogpost, but let me make some observations. I believe that the big staff supply problem is centred in the inadequate supply of fully-qualified early childhood educators, whether that is a one-year ECE college certificate or a two-year ECE college diploma. Recruiting untrained staff or recruiting staff that need to take only an orientation course or two is not where the problem lies. That means we need to concentrate our scarce funds on raising the wages of qualified educators.

And once we have decided to concentrate our wage-raising efforts on fully-qualified staff, we need to avoid the Ontario mistake. Ontario decided to raise wages by concentrating their efforts on low-paid educators. In 2022, they boosted all early childhood educators earning less than $18 an hour up to $18, but they did nothing for anyone else. In 2023 and beyond, they are raising the pay of other educators by $1 per hour each year, but only if the educators currently earn less than $25 an hour; $25 is the top wage for this program. This focus only on low-paid educators ensures that ECE will continue to be a low-paid profession; even $25 an hour will keep educators well below competing occupations.

And, the Ontario wage supplement design ensures that most of the wage assistance will go to centres that previously were underpaying their workers, disproportionately those in the for-profit sector. The Doug Ford government is developing a bit of a reputation for favouring for-profit friends, whether it be the Greenbelt or child care, but this kind of wage supplement design will not do a good job of retaining the best-qualified and most experienced staff and making ECE an attractive profession.

Finally, there is the question of who will pay. I would be overjoyed if the federal government decided to come up with a billion dollars of extra annual funding, but I don’t think that will happen very soon, and wage rises do need to happen very soon. Some provinces may be willing to up their spending to solve wage problems, and that is welcome. But the most obvious immediate place to get funding for educator wages is to change priorities for the expenditure of federal dollars under the Canada-Wide Early Learning and Child Care Agreements. The very large majority of the federal funds under current Action Plans goes to lowering parent fees. Right now, many provinces are renegotiating Action Plans to cover the next three years. Why not allocate a larger portion of money in the next three years to cover wage increases for fully-qualified early childhood educators? And there should be provincial contributions to cover the wage increases for staff caring for 6-12 year-olds.

The numbers in the table above tell us about how much reallocation of dollars is needed in each province. Let’s get it done, or expansion will not happen and access to affordable child care will continue to be a dream for most families.

August 17, 2023August 17, 2023

British Columbia’s New Spaces Funding Program

My opinion of British Columbia’s New Spaces Fund is shaped by the context. It’s a valuable, if imperfect, source of capital funding for the expansion of not-for-profit and public child care.

The context is that we’re not doing a good job in expanding the availability of child care services in Canada. That’s disappointing, of course, but also a danger to the ultimate success of the Canada-Wide Early Learning and Child Care program.

Without rapidly expanded capacity, most parents will not be able to benefit from $10 a day child care. Women will not be able to enter the labour force. The economic growth benefits of child care will not happen. Parents will be angry and frustrated at governments that have promised them services they can’t deliver. A new government may come in and turn everything over to the for-profit sector, loosening staffing regulations, and allowing operators to surcharge parents for “extras” to make providing child care more profitable.

The decision of federal and provincial/territorial governments to rely on the not-for-profit and public sectors for child care capacity was good for the long-run, but it’s having lots of problems in the short run. Not-for-profit and public services are typically of higher quality with better effects on children’s lives. Not-for-profit and public services become trustworthy community assets, here for the long term, in a way that for-profits do not, always anxious to sell assets or property to the highest bidder.

But, not-for-profits need more help to expand than the for-profits do. For-profits have better access to capital funding from the private sector than not-for-profits do; many banks and financial institutions are unwilling to make construction loans and mortgages to not-for-profit organizations. Most not-for-profit organizations find it too risky to make expansion promises until future on-going operational funding arrangements for services are settled; some for-profit organizations are willing to take a gamble that future operational funding will be generous, or that costs can be slashed to ensure a profit. On top of all this is the shortage of qualified early childhood educators. Not-for-profits are typically unwilling to expand until they can hire enough fully-qualified educators to run good-quality programs. For-profits are often willing to plan to operate without a full complement of trained staff, hoping they can get exemptions from government regulations and be able to operate with unqualified staff.

British Columbia’s New Spaces Fund is not perfect. Yet, in the context I’ve just described, it provides some important support for child care expansion to not-for-profit and public organizations in B.C. And that’s a lot more than I can say for most of Canada’s provinces, outside Quebec. The New Spaces program provides capital grants only to not-for-profit and public organizations who are willing and anxious to expand the supply of child care services. Previously, it was available to the for-profit sector who did not need it; that was a big mistake that has since been corrected. The budget last year was $292 million, about $84 million from provincial funds and the rest from federal funding under the Canada-Wide ELCC program.

Some of the projects are for minor renovations, some for equipment only, but some are for much bigger projects. The new Ministry of Education and Child Care prefers to have projects that are funded for $40,000 or less per space, but this restriction can be waived. Since, construction costs have been rising rapidly, $40,000 per space is now below full cost for many projects. And applicants are expected to come up with 10% of the entire project cost from other sources.

It’s also a one-time capital grant, so you have to know a lot of detailed cost and design elements up-front when you apply. At the time you apply, you are guessing at much of this. This is a disadvantage. A capital program, instead of a one-time capital grant, can be more flexible.

Eligible costs for the New Spaces program include project management, design/engineering costs and site evaluations, architect and accountant fees, and business planning development (business case model and analysis). Also eligible are infrastructure costs – water, sewer, roads, sidewalks. And equipment. And GST/PST and a 10% contingency.) Not included are costs of purchasing real estate, or buildings or commercial space (however, modular buildings to be erected on site are an eligible expenditure).

Many of the applicants for New Spaces funding are local governments, school boards, health district authorities, public post-secondary institutions, and First Nations. This is a great use of the program. Many of these bodies may have access to land for building, and many will have considerable experience in managing large development projects.

The New Spaces Fund is application-driven. In other words, organizations have to take the initiative and plan child care expansion and apply for capital funding. The New Spaces Fund is therefore a capital grants program, it is not part of a program of capital expansion. In many ways, this is a weakness and this feature has been criticized. Advocates say that B.C. needs planned child care expansion, focused first on areas of higher need, with support for many aspects of expansion – not just capital grants. Most child care centres do not have the resources to take on major capital development, raising millions of dollars of capital funding and managing multi-year expansion projects. Capital expansion requires more than just money. It needs organizations that will take responsibility for development; it needs architects with knowledge of child care, it needs design standards. It also needs a much longer guarantee that facilities will stay in place than the current 10-year requirement of the New Spaces Fund. Manitoba’s Ready-to-Move program is a model to look at for how resources of different actors can be mobilized for child care expansion.

While that’s true, let’s give B.C. some kudos for having a program of capital grants at all. Believe it or not, most provinces apparently believe that (capital) money grows on trees (for not-for-profit and public organizations). Alberta offers $5,000- $6,000 per space. Ontario offers about $7,000 per space. In the context where the cost of new-build construction is often more like $50,000-$60,000 per space, that’s not a serious amount of capital assistance.

B.C. has much to do. They are planning development of a wage grid to attract early childhood educators, but there is no deadline for when this will happen.

B.C. has not yet developed a funding formula for the provision of operational funding when parent fees are an average of $10 a day for everyone. This means that future revenue streams are uncertain, so the planning of child care expansion for not-for-profit and public services is more risky than it needs to be.

B.C. has not yet developed mechanisms for planning and guiding the child care expansion that will have to happen. Based on current use patterns in Quebec where parent fees are now $8.75 a day, we can expect that B.C. will need to have spaces for 174,180 children 0-5. That would mean a need for about 77,750 additional child care spaces compared to 2021. So, B.C. needs to get its game on. As many other provinces do.

June 27, 2023June 27, 2023

Modular Child Care Expansion in Manitoba: An Idea Worth Looking At

This is a good-news story about the expansion of child care capacity.

Right now, there are not many good-news stories; child care expansion is happening much slower than it should be. And all the indications are that even the 250,000 additional child care spaces that provinces and territories have planned (but not funded!) by 2026 will not be enough. TD Economics, in its recent publication, calculates that at least 243,000 MORE spaces will be needed to satisfy demand for child care when it is available at $10 a day.

So, we had better get working on designing, funding and building extra child care capacity.

Manitoba has a good plan for how to expand child care services in rural, remote and northern communities. It’s called the Ready-to-Move project. Its origins were with the 2017 Canada-Manitoba ELCC agreement when the Department of Families in Manitoba developed three rural child care facilities through a modular construction project. The initiative was developed by the Department in co-operation with Manitoba’s Social Innovation Office which seeks innovative solutions for complex social and environmental issues. By the way, Early Learning and Child Care is , since 2022, part of the Department of Education and Early Childhood Learning.

The Winnipeg Metropolitan Region has an incorporated entity called JQ Built that is providing project management support to municipalities that wanted to be involved. The result is known by the name “Daycare in a Box”. It creates modular buildings with a pre-fabricated construction process. The child care centres are made in a manufacturing facility in Winnipeg and transported to a permanent site in the relevant municipality for assembly.

To date, there are 23 communities with projects approved and another 14 applications being considered for future rounds of development. The first batch of facilities began construction in February 2023, and the first facility is planned for opening on July 21, 2023. That’s quick!

Municipalities and First Nations communities that want to participate have to provide serviced land in their community rent-free for 15 years. And they have to agree to provide maintenance, snow clearing and repair services for this period.

The province is providing 100% of the capital funding for the centres. This is an investment of between $4 million and $6 million each depending upon the size of facility. A 74-space facility is about $4 million while a 104-space facility is closer to $6 million. The centres will become municipal assets.

So, let’s make a tally:

100% capital funding from the province – check

Municipalities and First Nations communities have serious skin in the game – check

There is an experienced public sector project manager to provide development services that child care centre leadership cannot readily do – check

The centres become municipal assets in perpetuity – check

The whole process is designed to provide new spaces quickly in areas that are currently underserved – check.

I like it.

Of course, it’s only a beginning. It is not the model for every situation. And attracting sufficient fully-qualified educators is still an unsolved problem. But, it’s a good initiative that deserves attention from other jurisdictions. Good on you, Manitoba.

April 23, 2023

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 5^th 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 28^th, 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 21^st, 2023