Editor’s note: This story led off this week’s Early Childhood newsletter, which is delivered free to subscribers’ inboxes every other Wednesday with trends and top stories about early learning.   

Last week the Massachusetts Senate unanimously passed a child care bill that would significantly expand state investment in child care. 

Less publicized: The bill also includes provisions that could make it harder for private equity-owned child care providers to expand significantly in the state.

Specifically, the bill takes steps to ensure that any given for-profit provider operating more than 10 programs in the state consume no more than 1 percent of the $475 millions in grants being proposed.

Investor-backed chains now manage an estimated one in 10 child care centers in the country. That figure is likely to grow, according to several child care researchers, as states — and potentially the federal government — put new funding into the area, attracting investors interested in low start-up costs and access to public money.

As a result, advocates and experts are pushing for more extensive and widespread regulations of the kind that are moving forward in Massachusetts. “We need to make sure there are real guardrails,” said Melissa Boteach, the vice president overseeing child care and early learning at the National Women’s Law Center. Along with colleagues, she plans this June to release a report outlining recommended regulations and safeguards.

In making the push, Boteach and others cite private equity’s troubling record in managing other government-backed social services, including nursing homes and autism services. “Private equity’s track record in other sectors supported by public dollars – including home care, hospice care, and housing – foreshadows challenges the child care sector could face,” Boteach wrote in an email. In child care, profit-driven companies will take “money out rather than using that public funding to pay child care providers and teachers a living wage, upgrading facilities, [and] expanding into under-served communities,” she said.

In a written statement, Mark Bierley, CEO of the Learning Care Group, one of the largest for-profit child care operators in the U.S., offered a very different take, calling it “our duty to prepare children socially, emotionally and developmentally for their transition into K-12 education.”

“We have the resources to upgrade facilities, equipment and technology to ensure we fulfill that commitment,” he added.

Hot takes on the issue

“Private equity has no business in childcare centers. Its business model is completely contrary to the goals of providing quality childcare at affordable prices. It promises its investors ‘outsized returns’ in a short 5-year window – returns that considerably beat the stock market. It can only deliver on this promise by substantially increasing revenues or decreasing costs to the detriment of children, parents, and taxpayers.” – Rosemary Batt, co-author of Private Equity at Work and numerous other studies of private equity’s impact on different professions and industries

“Private providers bring decades of know-how and a tried-and-true approach to curriculum development. Our existing infrastructure is designed to meet the needs of specific age groups and is nimble enough to accommodate the ever-evolving needs of working families. It’s our duty to prepare children socially, emotionally and developmentally for their transition into K-12 education, and we have the resources to upgrade facilities, equipment and technology to ensure we fulfill that commitment.” – Mark Bierley, CEO of the Learning Care Group, one of the largest for-profit child care operators in the U.S.

The proposed regulations in Massachusetts follow a couple other related state efforts. Vermont recently put ownership disclosure requirements into its package expanding funding for child care, and also capped tuition hikes by providers. New Jersey limits for-profit programs that participate in its public pre-K system to a 2.5 percent profit margin.

But Elliot Haspel, a senior fellow at the think tank Capita, who has been tracking private equity expansion in child care closely, described the proposed Massachusetts measures as “the most targeted guardrails we’ve seen to date” against investor-backed companies consuming the lion’s share of new public investment. 

Haspel points out that there’s been similar momentum internationally, with British Columbia specifying that priority for public funding goes to public and nonprofit programs, and Australia requiring larger providers that manage more than 25 sites to submit more extensive financial reports.

The U.S. has historically spent very little on child care compared to other wealthy nations. Partly as a result, investor-backed, for-profit chains in the U.S. operate predominantly in middle-income and wealthier neighborhoods and communities, where they can often charge substantial tuition. That could change if more public funds flow into child care, leading to significantly increased government subsidies for lower-income children.   

Last year, President Biden’s administration pushed for greater transparency and accountability in nursing home ownership after research showed that private-equity owned facilities on average had worse outcomes, including more patient deaths. But there’s not much information that compares the quality of for-profit and nonprofit child care programs, which could hinder efforts to put restrictions and regulations on the companies.

Haspel said “the first step for the federal government is trying to get a lot more information” in a landscape where the quality can vary dramatically within all ownership types — investor backed or not. That said, he added that there’s no reason not to take such steps as ensuring a certain percentage of public funding is used to pay educators and requiring centers to disclose financial and ownership information.

“Some of the potential guardrails are common-sense,” he said.

This story about private equity and child care was produced by The Hechinger Report, a nonprofit, independent news organization focused on inequality and innovation in education. Sign up for the Hechinger newsletter.

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