Daycare providers need to learn business

Canada's $10 a day childcare plan won't stop the spiralling cost of daycare

Canada has promised $10 per day institutional childcare for parents. But are daycare managers able to deliver quality care at that price? PHOTO: Bigstock

With Ontario now signed on to the federal government’s national $10-a-day childcare plan, parents with kids in daycare are thrilled at the prospect their lives will become a little bit more affordable. Taxpayers, on the other hand, are right to fear how much this will cost them. The political irony, of course, is that those two groups include the same people.

Subsidized daycare makes sense

I grew up in a household where a family of five could live reasonably comfortably on a single middle class salary. With one parent working, the other managing the home front, we could take a vacation every summer and travel to spend a week with grandparents at Christmas. My parents had a car, a modest mortgage on a three bedroom house and a miserable marriage. The kids stayed home with mom until Kindergarten at age 5. Then, we walked to school, which wasn’t far away. We couldn’t afford luxuries, but we did OK.

To live as well today, both my parents would have to hold down full-time jobs and maybe an additional part-time side hustle. Neither would be home to care for kids. So, either they wouldn’t have had kids (and I wouldn’t be here writing this) or they’d need some form of institutional daycare so they could go to work. Without daycare, there would be no work. Without work, there would be no income taxes to fund federal and provincial governments.

For those who argue people shouldn’t have kids if they can’t afford them, it’s important to understand that if Canada’s population doesn’t continue to grow, our economy doesn’t work. Right now, Canadians are failing to reproduce in sufficient numbers to maintain our population. Immigration has been our salvation. If we don’t make child-rearing affordable, there will be no growth. Without growth, Canada will stagnate. That’s not an attractive outcome. So, affordable childcare is important.

I used daycare for both my sons at various points in our lives. It’s hard to find – there simply are not enough spaces for the kids whose parents want them. And, it’s prohibitively expensive. You need a very good paying job to make daycare and economical option. For many years, it was cheaper for us to hire a full-time nanny than put one, let alone two, kids in daycare.

Canada’s cities spend a ton of taxpayer money subsidizing childcare – only because they can’t wriggle out of it and most councils sympathize with socialist ideals. The problem is, there’s no economic pay off for cities to fund daycare. Cities make money on property taxes, so their income doesn’t rise or fall when people can afford childcare. The provincial and federal governments have a vested interest in daycare because, done right, they can recoup their investment: if affordable daycare allows people to work and earn more money, the government will get a slice of that through income taxes.

The cost of daycare didn’t go away

Even though the government’s plan promises parents they’ll only have to pay $10 per day per child, that’s not enough money to actually care for their kids. The daycare centre isn’t going to eat the loss and the childcare workers aren’t going to work free, so somebody has to pay the difference. That somebody is you – the taxpayer – who may also be a parent.

Ontario signed a six-year deal with the federal government for this subsidy to come largely from the federal purse. That’s great. But, remember: that purse is still filled with your money.

What happens now? Presumably, the childcare industry will begin receiving government subsidies and they’ll start expanding to create more spaces for kids. Inevitably, that means their costs will go up. Who pays for that increase? Taxpayers.

The other thing that will happen is that, given a more predictable revenue flow from governments, childcare centres will start spending more than they have before. Part of that will be inflation. Another part will be comfort – with reliable revenue they’ll be able to buy some of the nice-to-haves they couldn’t afford before. Costs will rise.

Daycare centres are managed poorly

Daycare operators love children. They’re passionate about providing exceptional care for other people’s kids. They’ll do everything in their power to care for them. Everything, that is, except one thing.

On no account, will many daycare operators manage their operations efficiently. Too many patently refuse.

I know this, because I tried to help daycare operators when I worked in the Toronto mayor’s office from 2010 to 2013. Daycare operators wanted more subsidy money from the city. There was no money to give them, but I sat down with many of them in multiple meetings to explore how we could help them in other ways.

My inquiries were shaped around this premise: we couldn’t hand out more cash. We didn’t have it. But, maybe we could help reduce the cost of operating a childcare centre – which would provide the same benefit. We were ready to be very creative. We had ideas.

None of the managers of these centres understood what I was saying. Neither did any of the childcare industry advocates lobbying Toronto’s city hall at the time. All they wanted was a larger per-child cash subsidy. They genuinely needed the money to pay rising costs.

However, they simply refused to even discuss ways to reduce those costs – which would accomplish the same goal: quality childcare on a balanced budget. Either they couldn’t grasp the basic relationship between revenue and expenses, or they simply didn’t believe any discussion of cost controls wouldn’t just be a “slash and burn” exercise. I understand the cynicism. But the dogmatic insistence that “no cost reduction can even be discussed” was a purely political posture that did a disservice to the children they cared for.

Anyone who’s earned money and paid bills understands that costs are as important to financial survival as revenues are.

If your expenses are consistently $100 more than your expenses, you can either increase your revenue by $100 or you can decrease your expenses by $100. Or, you can do a bit of both.

Without exception, the childcare centre managers, staff and advocates insisted the only solution was to increase their revenues – by increasing their government cash subsidy. Not a single one would consider innovative ways to reduce expenses without cutting the quality of care they provided. Perhaps they didn’t believe it was possible. But, their willful blindness does not augur well for a national program predicated on the ability of daycare operators to manage their centres effectively.

This is a problem.

As an aside, you may be asking: how could we have reduced their costs? Well, we were very open-minded. The city controls property taxes, so one way would be to reduce or even waive taxes on properties used for childcare. We could have used the city’s ability to bulk-buy commodities and equipment daycares need to reduce those costs. We could also have lobbied federal and provincial governments to reduce income tax rates for daycare businesses and childcare workers so they wouldn’t need to earn as much money to take home better pay.

We could have done a lot of things. Some may not have worked out. But the refusal to even open their minds to the possibilities then gives me great cause for concern now. If managers – of any endeavour - don’t constantly review all their options, the chances of them magically alighting on the right path is very, very slim.

The only answer they would consider then was more money. That can’t continue to be the only answer now, or in the future.

What can government do?

The people managing the childcare industry are great at caring for kids, but lousy at managing their operations. Now, government has guaranteed them a perpetual subsidy that will cover all their expenses, save $10 per day which they will get from parents. What controls will there be over those expenses? What incentives will motivate prudent management?

Now that our provincial and federal governments have guaranteed a limitless subsidy for daycare operators, they need to encourage better management practices. Encourage management training for operators. Set reasonable standards for business practices. Require participating in networking groups that share best practices. Create a centre of excellence to study management in the childcare industry.

Governments must look now for innovative ways to reduce costs in the sector, before they spiral out of control under the leadership of well-meaning people who have never before had to properly manage their operations. If not, $10-per-day childcare will be as unaffordable as “free” healthcare in 10 years.

It will become unsustainable.