Financing Child Care in the United States - Ewing Marion Kauffman ...

CAPITAL INVESTMENT
PARTNERSHIPS
SECURING FUNDS FOR CHILD
CARE FACILITIES
Most large and small businesses borrow funds when they
need to improve or expand their facilities. But child care
businesses—especially nonprofit programs located in
low–income neighborhoods—often have trouble securing
loans. There are several reasons for this lack of
credit–worthiness. First, many child care programs were
established in space that was donated or made available
to them at very reduced rent, and the rates they currently
charge are based on these low occupancy costs. In these
cases, incurring debt means raising parent fees or
securing increased reimbursement rates from the
government agencies that subsidize child care. Second,
child care programs often do not have the equity they
need to secure a loan. (Child care facilities are designed
for a very specific purpose, and as a result they do not
appraise well.) Third, child care operators typically know
more about teaching young children than they do about
financial management, fundraising or facility construction
or renovation.
Many state and local governments have established
initiatives to help child care businesses secure the capital
they need to build and maintain quality facilities and/or
programs. In some cases, these strategies are led by
government. Connecticut, for example, has made
long–term, low–interest construction and renovation loans
available through tax–exempt bond funding. Additionally,
the Connecticut Department of Social Services has
agreed to use state subsidy funds to repay up to 85
percent of the debt service on these bonds so that
selected nonprofit child care programs have the revenue
they need to repay the loans. More information may be
found on page 72.
Other states have chosen to root their capital investment
strategies in the private sector, primarily through
“intermediary” organizations that help to draw in funds
and support from many partners. The Massachusetts
Child Care Capital Investment Fund was initiated by the
United Way and now pools moneys from many sources,
including foundations, government, banks and insurance
companies. The City of San Francisco pooled public and
foundation dollars to seed a private sector child care
facilities fund that is now able to leverage additional
funding from the federal government and many other
sources.
The capital investment initiatives in North Carolina, Ohio
and Illinois are also led by private–sector intermediaries,
although government is a key partner.
In recent years local school districts have begun to enter
into new partnerships to finance facilities. The New York
City Board of Education worked with the City’s Agency
for Child Development (which administers child care
subsidy funds) to build four early childhood care and
education centers that serve children from 2 to 5 years
of age. The Fairfax County (Virginia) schools include
capital funding for school—age child care programs when
they issue general obligation bonds. The county operates
the programs and makes funds available to help repay
the debt. The New York City and Virginia efforts are
profiled in Chapter 2, “Allocating Public Revenues,” in the
section on local government.
The partnerships spearheaded by the Kennebec Valley
Community Action Program (KVCAP) in Maine are
forging new ground. These partnerships are not only
involving schools, local government, banks, employers and
others, but also are demonstrating that early childhood
programs are a community resource. For example, the
early childhood program in Hartland, Maine, is housed in
a community center attached to the local school. This
facility, which also houses a host of community services
and recreational programs, was jointly financed by Head
Start, the Irving Tanning Company, local banks, the Maine
Department of Economic Development, a community
capital campaign and a school district referendum.
Each of the partnerships described in this section
leverage funds from private sector lenders. Some states
are, however, taking the concept of leverage to a new
level and beginning to use capital funding to promote
stronger accountability and quality improvement. One
example is Florida’s Child Care Financial Assistance
Program, which is administered by Barnett Bank. The
child care providers who borrow these funds may receive
a rebate of up to 100 percent of their principle if they
becomes accredited or reach other quality milestones
within six months of loan repayment.
154