Where Are Private Equity-Backed Child Care Programs Located?
Exactly where you think they would be
By Elliot Haspel and Randy Rosso
Here is one important, unanswered question about the growth of investor-backed for-profit child care chains in the U.S.: Who are these programs serving? These chains are gaining market share while other parts of the sector struggle to stay afloat. The makeup of their target clientele has implications for fair and equitable access to child care.
More information needs to be culled about where these investor-backed programs are located. Capita worked with data expert Randy Rosso to examine all the sites in 7 states owned by the five largest national chains. (Four of the five chains are owned by private equity companies; the fifth, Bright Horizons, is publicly traded.) Rosso cross-referenced the physical addresses of these child care sites with data about the census tract in which they are located.
What we found is both important and unsurprising: investor-backed chains mostly serve middle-class, upper-middle-class, and wealthy families. Across the 7 states–Arizona, Florida, Missouri, New York, North Carolina, Washington, and Wisconsin–the median household income surrounding these sites for a family of four is over $88,000. (For context, the national median income is around $71,000.) Only one in five sites are in census tracts with child poverty rates above 20%.
These averages hide quite a bit of variation. Kindercare sites have the lowest surrounding median income, at around $75,000, while the incomes around Primrose, Goddard, and Bright Horizons sites exceed $100,000. (Bright Horizons leads the pack at nearly $112,000.) Among 95 Goddard sites analyzed, none were in a census tract where 20% or more of households participated in the SNAP (food stamp) program. This comports with reporting from the New York Times that 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.
Our data thus further confirms the investor-backed model only works when programs serve a clientele that can absorb high fees. To be sure, that is not a shocking revelation. SEC filings by Bright Horizons and Kindercare are clear: they need to be able to keep tuition high and staff compensation low to maintain profitability. Richard Weissman, CEO of The Learning Experience, another large private equity-backed chain, has publicly discussed how his company chooses to expand: “It’s also an economic question, as most questions are. And that is, can we afford the costs?…can we afford the cost of real estate in comparison to the tuitions we can charge?”
A major challenge posed by this model is that millions of low- and moderate-income American families need child care too. So do families in communities without major concentrations of wealth. Whereas Washington State had 144 sites from the five analyzed chains, similarly sized but relatively more rural Missouri contained only 57. The difference, of course, is the affluence of the Seattle region.
As pandemic funding expires, most of the child care sector faces a rough road. But for investor-backed chains, the path is much smoother. Through a combination of factors– wealthy family and corporate clients, access to debt financing, economies of scale from snapping up independent programs, and other competitive advantages–investor-backed chains are the only ones poised for continued growth and increasing political influence. Given which communities these programs overwhelmingly serve and what their business model relies on, that’s bad news for many American families.
Elliot Haspel is a Senior Fellow at Capita, as well as an author and child care advocate.
Randy Rosso is a Senior Consultant at the Lewin Group, as well as an anti-poverty advocate and food program data expert. His work was done in an independent capacity and does not reflect the views of any affiliated organizations.