Toddlers and Investors Aren’t Playmates: The Threat of Private Equity in Child Care
Idea in Brief
This brief focuses on the influence of private equity investment in the child care industry in the U.S. It explores the growing size and power of private equity-backed for-profit child care chains and their increasing political clout.
By Elliot Haspel
When a child care owner is making decisions, should they be thinking about what’s best for young children and families, or about what’s going to make the most profit for their investors?
Private equity-backed for-profit child care chains are growing in size and power in the United States. As most child care programs scrape to survive while raising parent fees only as a last resort, investor-backed chains make between a 15 and 20% profit while regularly hiking fees for parents.
These chains have increasing political clout. And they have proven themselves unwilling to support a child care system that would work for everyone: one that lowers parent fees, increases child care educator wages, and puts people over undue profits.
To date, the U.S. has not had a serious conversation about the threats posed by this profit-seeking subsector or potential policy actions to put guardrails around this model’s expansion.
It is time for that to change.
What can government do?
There is a menu of potential bipartisan actions U.S. government at various levels could take, including:
Holding Congressional hearings or commissioning an expert working group to review the existing evidence base, promote a research agenda for unanswered questions, and publish findings
Requiring public financial disclosures from all investor-backed chains—including their profit margins, fee structures, compensation practices, and beneficial owners—and making such disclosures easily accessible to parents
Prioritizing nonprofit programs, community-based programs, cooperatives, and independent for-profit programs in the distribution of public funding; independent programs could be statutorily distinguished from investorbacked chains by using definitions laid out in the Small Business Act
Requiring any program that receives public funding to cap fees and profits (otherwise, the cost of child care legislation will balloon) and to adopt wage scales for early educators
Considering regulatory and funding mechanisms that maximize the potential of nonprofit and community-based programs, as well as worker or parent cooperative-owned programs
Restricting the use of public funds to pay for executive compensation beyond a reasonable limit, and also restricting financialization activities (purchasing securities, paying dividends, etc.)
Requiring private equity firms to accept joint liability with companies receiving public funds (so they are liable for bankruptcy, etc.)
Capping the number of program licenses that investor-backed child care chains can operate or requiring such chains to convert to nonprofit status before gaining additional licenses
Passing an outright ban on private equity investment and public trading in the child care sector, requiring divestment by current private equity owners and shareholders.