Can Child Care Be a Big Business? Private Equity Thinks So. – The New York Times

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Some high-end chains are surprisingly profitable, and they are trying to shape child care policy in Washington.

The prices can rival college tuition: Bright Horizons charges up to $44,000 a year for child care in Seattle; at KinderCare in Manhattan, 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 work force 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 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.
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 higher-income 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 one million of the 12 million children under 5 in some form of child care.
This year, the 50 largest for-profit child care chains opened or acquired 537 new centers, an 8 percent 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 for-profit businesses. But while the typical community-based center operates with thin profit margins, the chain centers can expect annual profits of 15 percent to 20 percent 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 employer-subsidized care, is “profitable and throwing off cash,” Mr. Tong said, sometimes raising fees by as much as 7 percent a year. (The New York Times, like many other companies, offers employees access to discounts and emergency-care services at many of these providers.)
Mr. 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. Ms. 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.
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,” Ms. 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. Though 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.
Taylor Nabatoff and her husband were impressed when they toured a Bright Horizons outpost in Pittsburgh in 2019, seeking care for their son, now 4.
It was in a modern, sparkling building, had a warm director and lacked the signs of disorder Ms. Nabatoff had seen at other centers, such as overflowing diaper pails. It also charged twice as much as some nearby competitors.
Ms. Nabatoff, 31, who works in marketing, said she thought, “Either we’re getting into this place or I’m not going to work until we can get into this place.”
In Laurel, Md., Carolina Reyes, the director of a small child care center, said she had trouble competing for staff with the name-brand 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 a quarter of Ms. Reyes’s 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 Stephen Kramer, the chief executive. At Lightbridge Academy, about one-third of its 66 sites accept subsidized students, said Gigi Schweikert, the chief executive — and at those sites, subsidized students make up 20 percent 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, chief executive 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 that enroll children from low-income families.
But Mr. 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.
In 2021, liberal policymakers and activists put their hopes on Mr. Biden’s Build Back Better legislation, which they saw as the best chance in a generation to create a near-universal child care system, one that would limit child care payments to 7 percent 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 just 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 staffers who worked on Build Back Better and requested anonymity because of 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 Republican 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.
Other constituencies, such as some religious child care providers and the U.S. Chamber of Commerce, also opposed the legislation as written.
Mr. Dunkley of New Horizon Academy, and co-chairman of the consortium’s board, said that while at first he was “thrilled with the concept of Build Back Better,” he developed concerns about the ability of states to opt out of the program, and about the overall investment, which did not, in his view, equal the true cost of providing high-quality care to the wide swath of parents who would have been eligible.
“We got nervous,” he said.
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 staffers 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 “broad-based 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 Senator Joe Manchin, a centrist Democrat from West Virginia, essentially killed the legislation by opposing it, Mr. Dunkley and executives from several other consortium companies — including Bright Horizons, KinderCare, the Primrose School Franchising Company, Lightbridge Academy and Acelero Learning — made donations in January to Mr. Manchin’s campaign fund and his political action committee, Country Roads.
Shortly after, Mr. Dunkley and other chain child care leaders attended a dinner with the senator, where, according to Mr. 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 Senator Manchin, the Senate majority leader Chuck Schumer and the White House, included zero dollars for any family policy programs — nothing for child care, pre-K or paid parental leave.
Senator Manchin’s office declined to discuss its relationship with child care companies, but in a written statement, Sam Runyon, a spokeswoman, said Mr. 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.”
The consortium said it remained actively engaged in the fight to build bipartisan support in Congress for increasing funding by $1 billion for the Child Care and Development Block Grant, which subsidizes care for low-income families. The investment would be less than 1 percent of the size of the child care proposals in the Build Back Better bill.
“There is a chance in a year-end package to get something done,” Ms. Mohan said. “But it will take a monumental push.”
Dana Goldstein is a national correspondent for The Times, writing about family policy and demographics. She is the author of the bestselling “The Teacher Wars: A History of America’s Most Embattled Profession.” More about Dana Goldstein


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