The operational and financial impacts of COVID-19 on Pennsylvania child care providers and staff have been significant. Most child care programs closed, at least temporarily, in the initial weeks of the pandemic, eliminating income even while costs continued to accrue. Statewide, 86% of providers reported closing at some point, although the true rate of closure could be as high as 93% due to the unknown status of unresponsive providers. Throughout the closure, nearly all providers did not charge tuition, which had substantial financial impacts. Many child care providers need to make payments on expenses that continue to accrue during the COVID-19 pandemic. In order to reopen, many providers have or plan to extend their debt to cover the lag between payroll expense and the return of revenues.
This post provides an overview of a study designed to understand the impact of COVID-19 on child care providers in the Commonwealth and offers recommendations going forward.
Studying impact of COVID-19 on child care providers in Pennsylvania
The COVID-19 pandemic is an unexpected and rapidly changing event, which has shocked and strained critical services and basic operations within the commonwealth. The crisis unfolding now demands that state leaders have access to reliable and timely information about how child care services are responding. In partnership with the Pennsylvania Office of Child Development and Early Learning, the Institute of State and Regional Affairs (ISRA) at Penn State Harrisburg conducted a mixed-methods study initially designed to answer four questions:
1. How have child care providers responded to COVID-19, and what are the financial costs?
2. How many child care providers will remain operational without revenue in the next few months?
3. What level of investment is needed for continued operation of child care after restrictions on public movement are lifted?
4. What level of investment is needed to ensure that child care services are accessible to families during a transition period of low demand?
The intent of this study is to meet the requirements found in Act 24 of 2020, and provide a meaningful opportunity for state leaders to learn about the views, experiences, and challenges of child care providers in the commonwealth during the COVID-19 pandemic. The study included a detailed cost analysis, a representative statewide survey of child care providers, and in-depth interviews with child care providers and workers.
Operational impacts
Our study found that between mid-March and June 2020, most child care providers closed for some period of time. Those that remained open, or closed and reopened, operated with fewer children present than in usual operations. Providers were able to partially reduce costs in response to reduced demand or closure. Personnel costs, which are the largest share of provider costs, were decreased by furloughing staff at many programs. Facility costs, which are the second-greatest cost category, could not easily be altered. Lease and mortgage payments, utility bills, real estate taxes, and insurance premiums came due, despite the lack of revenue. A small center serving under 30 students, facility expenses alone exceeded $1,200 per month. Statewide, the financial impact of facility expenses which accrued during the state shutdown exceeded $56.6 million.
“I’m ready to go back. I miss the kids. I miss the atmosphere. I miss talking to the parents.”
"We're going to have to appoint somebody as a COVID-19 safety officer to make sure that people are following the procedures."
Financial impacts
To pay for obligations such as facility expense during the shutdown, providers used all available cash reserves, if available. Others extended their debt, sometimes using high-interest credit cards, or requested deferment. In either case, new debt will add to their expenses going forward, requiring additional revenue to remain in operation. The lack of revenue has also left providers without the liquidity needed to cover payroll as they reopen, further necessitating the use of debt alternatives. Making payroll during the reopening phase is a major concern for many providers. As attendance increases upon program reopening, tuition and subsidy revenues often lag behind expenses. Payroll is the largest of these expenses, and providers worry that they will have insufficient cash to rehire and pay teachers during the weeks following reopening. At the median program, statewide, a two-week payroll is approximately $1,400.
As of June 29, 2020, 125 providers that were operational at the onset of the pandemic have announced permanent closure. This corresponds with the percent of providers from the statewide survey which indicated they did not plan to reopen. Based on provider reports, without immediate assistance to offset ongoing costs associated with implementing COVID-19 guidelines and reduced enrollments, it is expected at least 4% of child care providers (280) will close permanently, with another 1,000 at risk of closure.
“The only way this business is staying afloat is out of my personal savings”
“I would hate to raise rates because the parents aren't making money and they need to go back to work. They're not going to be able to pay higher rates.”
Reopening
Staff and providers are still preparing to implement the Centers for Disease Control (CDC) guidance, including masking and social distancing with young children. As providers have reopened, they have experienced increased costs to comply with COVID-19 health and safety protocols. Additional personnel resources required will have the greatest cost implications. Providers report modified drop-off and pick-up procedures that involve program personnel stationed near or outside the front door at opening and closing times to limit contact of family members. Cleaning time is also adding to personnel costs, as teachers and other program staff are working extra hours to sanitize classrooms and equipment. Materials and resources such as cleaning supplies and personal protection equipment will also meaningfully affect costs. The estimated net impact will be an increase of slightly more than $22 per child per week. The large combined costs of the COVID-19 response have left providers reassessing whether they can afford to continue operation, or will need to close.
Recommendations
1. Additional financial assistance: Results of this study find that, at a minimum, providers require financial assistance for facility expense during the shutdown, sufficient liquidity to cover one two-week floating payroll, and assistance to implement COVID-19 health and safety guidelines. The combined costs of facility expense over fourteen weeks, a one two-week payroll, and two-months of implementing COVID-19 guidelines is approximately $209.4 million. While the COVID cost estimate is only for an eleven-week period spanning the start of reopening to Labor Day, it will facilitate initial implementation of health and safety protocols. The cost of implementing COVID-19 guidelines will continue. Pennsylvania should prioritize grants to offset costs of these impacted areas. Although the Commonwealth has distributed approximately $104.3 million in two rounds of CARES Act funds, it is recommended that Pennsylvania layer additional funding on top of the base funding.
2. Support in reopening to offset reduced enrollments: Providers are operating below capacity and expect to be doing so for at least several months, which has increased per-child costs of operation. For some of the largest programs, reductions in staff can partially offset the loss in revenue. In the scenario with small to moderate decreases in attendance, however, most programs could not reduce the number of teachers and still maintain the child-to-teacher ratios specified in code. In addition to the one-time investments needed as part of reopening, providers will need financial assistance to offset reductions in enrollments. It is unknown how long a period of low enrollment will continue. By the time the school year begins, the statewide financial toll of enrolling only five out of six children served prior to COVID-19 is estimated to be $115.7 million in increased costs per child that continue to accrue each month while operating at reduced enrollment.
3. Increase public awareness about importance of child care: Overall, the COVID-19 pandemic emphasized how essential child care is to working families and employers in addition to highlighting the fragility of the entire child care system. Public awareness of these challenges and support for the dedicated directors and staff is critical for ensuring that the industry succeeds. Without assistance, the impacts of the COVID-19 pandemic will surely continue to be felt for months or even years as child care providers try to re-open, rebuild, and traverse their new normal. It is critical that the Office of Child Development and Early Learning (OCDEL) implement a strong communication strategy to keep providers informed about policy changes and opportunities for assistance.