Why is child care so expensive when child care providers are paid so little? Let's do the math - Marketplace (2024)

Melissa Colagrosso and her husband have struggled to make a profit during the nearly three decades they’ve owned A Place To Grow Children’s Center in West Virginia.

“We borrowed a lot of money. We found resources over the years to kind of dig ourselves out of holes, and then just keep making payments,” Colagrosso said.

She said the math doesn’t add up for her and the math doesn’t add up for families.

There’s a paradox that lies at the heart of the child care industry: parents dole out high fees, while child care centers make very little and workers don’t get paid much.

The annual cost of child care in 2022 stood at $10,853, according to Child Care Aware of America. Meanwhile, the median pay for child care workers in 2022 was just $13.71 per hour or $28,520 a year, according to Labor Department data.

This paradox raises the question: Where is that money going?

“The main reason that child care is so expensive has to do with just how many people you need in a classroom to make sure that little, little children are healthy, safe and learning every day,” said Susan Gale Perry, the CEO of Child Care Aware of America.

There are ratios that classrooms have to follow, which can vary from state to state and program to program. Federal guidelines show that adults at child care centers shouldn’t care for more than a few toddlers or infants at a time, with these restrictions becoming more lax the older the children.

Because of these limits, that means more staffing, which means higher payroll costs. Colagrosso said you also have to pay for supplies, insurance, utilities, equipment and advertising, among other expenses.

Colagrosso is blunt in her assessment about the state of child care: “It’s a failing business model,” she said.

Billions in federal child care funding allocated during the pandemic did end up helping providers like Colagrosso turn a profit, but most of that money has now expired.

To help us understand why the math doesn’t add up, Colagrosso broke down how much money child care businesses can pull in and what expenses they have to handle.

The math of child care

The West Virginia Department of Health and Human Resources subsidizes child care for qualifying low-income families, and pays a set rate to a center based on a tiered system. For example, the rate for an infant at a Tier III child care center stood at $42 a day, according to a document from the WVDHHR outlining the child care rate structure from March 1, 2021 to Sept. 30, 2023.

“Some families pay a part of that (called a parent fee) but the provider/center only receives that amount in total per day per child,” Colagrosso explained. (If a family’s care isn’t being subsidized, they will pay a higher rate.)Reaching a higher tier means you’ve demonstrated higher standards of care, according to the WVDHHR.

In West Virginia, the recommended ratio of staff to infants is 1-to-4. So if the center is looking after 4 infants whose care is being subsidized, and the rate of care for each infant is $42, that’s $42 times 4, which means the center will be making $168 a day for their care, Colagrosso explained.

Now let’s talk about what center is spending. If a teacher is working 10 hours a day, making $14 an hour, and the child care center is paying their salary along with payroll taxes, that amounts to $168 a day.

The center breaks even at this point.

But let’s say one of those infants needs care for 12 hours, and the center doesn’t want a teacher working 12 hours a day. The center might hire an assistant teacher to work a couple of hours. If they’re making $10 an hour and you add payroll taxes on top of that, the amount for that assistant teacher will be $24.

The payroll costs for the day then add up to $192, which means the revenue does not cover payroll. If 2 children don’t attend because they’re sick or visiting a grandparent, then the revenue will drop to $84, yet the center will still have to pay for those 2 teachers.

And these are just the payroll costs. Colagrosso shared with us a breakdown of her expenses this year:

Some of these are costs that can vary wildly year by year and can be tough to break down into a daily average. But for big-line items, here’s how much they’ve had in expenses this year:

Payroll has roughly been $886,000. Advertising, including efforts to hire staff, is $24,000.

Electric bill: $1,000 a month. Water bill: $350 a month.

Her total supplies, which include food and expenses for the restroom and the kitchen, have totaled more than $59,000. She also has to pay for general liability insurance for the center, building and business property insurance and auto insurance, which totals $20,000 a year. (Colagrosso said her center will transport kids to and from school if the parents need that extra help.)

Then there’s also equipment, which cost Colagrosso $19,000 this year. Colagrosso was able to buy sturdy playground equipment this year, thanks to federal funding, but this equipment is expected to last many years, which is why she won't consistently spend this much. There have been years where she’s spent maybe $5,000.

Pandemic funding is now gone

In 2021, lawmakers approved $24 billion in child care stabilization funds as part of the American Rescue Plan, on top of almost $14 billion in funding that was approved in 2020. Now that this money has run out, child care is expected to get even more expensive. (The American Rescue Plan also allocated an additional $15 billion for an already-existing child care program, which is set to expire in 2024.)

The additional funding allowed Colagrosso to pay staff members around $400 extra each a month, but now she has to cut back on those bonuses.

Those who work in child care centers say that they’re unable to hire the amount of people they need and are losing child workers to higher-paid jobs, which is leading to a staffing crisis. For comparison, kindergarten and elementary teachers throughout the U.S. had a median annual pay of $61,620, which is more than double the median pay of child care workers.

Colagrosso opened her center in 1995 because it was tough to find high-quality child care for her two kids.

She’s been close to giving up. She said if you want to open a child care business, any accountant or loan officer will tell you, “You want to do what?”

But her community needs child care.

“My daughter and her children are here. And at least half of my employees grew up here as kids, and they have kids. So we're on our second generation,” Colagrosso said.

Child care deserts, areas with few or no child care options, cause ripple effects throughout the economy. Fewer parents enter the workforce, while companies are reluctant to establish their business in that community because their employees rely on child care, Colagrosso said.

The pandemic highlighted the importance of child care and how proper funding can revitalize the industry.

“If you fund the system right, there's profit to be had and good quality child care,” Colagrosso said.