National Center on Child Care Quality Improvement Financing Strategies for Early Learning & Development Programs and Practitioners Finance Learning Table, Session 3 Louise Stoney and Anne Mitchell Alliance for Early Childhood Finance

ECE Revenue Consumer 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 39% of total, and is primarily portable $ (vouchers or tax benefits)

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 + 3 rd party funding) 3

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

Quantify the Gap in $

Quantify the Gap as %

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 2Star 3Star 4Star 5 CCDF + CACFP + Tuition$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 $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 Programs Total 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)

StepCriteriaPortable IncentivesDirect Incentives Start with Stars Apply for QRS & complete requirements (e.g. Health & Safety checklist) Child care subsidy (CCDF/TANF) at basic rate State child care tax credit at basic rate Start with STARS grant - one time only TEACH and CADFP available Access to T/TA -- prioritized Links 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 years TEACH, CACFP, T/TA, family support links same as Start with Stars Early 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 level State child care tax credit at basic +.50 refundable practitioner tax credit at base level (or Ed & Ret grants) STARS Support Grant - available for 3 years Ed & Retention Award (or practitioner tax credits ) Campus-based child care Star 2 level TEACH prioritized CACFP, T/TA, family support links same as Star One Early Childhood MH & Health consultation prioritized STAR 3 – AttainedMeets 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 level State child care tax credit at basic +.75 refundable practitioner tax credit at 1.5 of base level (or Ed & Ret grants) STARS Support Grant – ongoing Ed & Retention Award (or practitioner tax credits ) Campus-based child care Star 3 level TEACH & CACFP same as Star Two Training and TA available, as needed & appropriate Title 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-B Priority placement for children with disabilities STAR 4 – AttainedMeets 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 level State child care tax credit x 2 (double benefit) refundable practitioner tax credit at 2x base level (or Ed & Ret grants) STARS Support Grant - ongoing Ed & Retention Award (or practitioner tax credit) Campus-based child care Star 4 level Eligible for Head Start and/or State Pre-K Funding TEACH,CACFP, T/TA, Title IV-B, Family Support, MH & Health Consultation same as Star Three Priority placement for children with disabilities Hypothetical QRIS Supports -- Finance and 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

Shared Services 18 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: National Center on Child Care Quality Improvement