The childcare industry needs regulatory reform

Due to the coronavirus pandemic, one thing has been made clear: the childcare industry is in crisis. This crisis will continue to grow more severe.  On July 7th, Governor Walz July 7th, Governor Walz announced an extra $56.6 million in relief to childcare providers. This is in addition to funds provided earlier to providers to ensure they stayed open to provide emergency childcare services.

However, looking at the structure of the childcare industry, funding itself will not be enough to get Minnesotans out of affordable childcare shortage. The state needs to dedicate efforts toward relaxing regulations that affect the operations of providers.  Funding, though helpful, can only do so much.


The CARES Act included $3.5 billion in emergency funds for the Childcare and Development Block Grant. In most states, these funds were used

to ensure providers that serve children who receive child care subsidies can continue to operate or reopen; to provide child care assistance to essential workers during the COVID-19 response regardless of income; and to support eligible child care providers, even those not receiving CCDBG assistance prior to the pandemic, with cleaning, sanitation, and other activities necessary to maintain or resume program operation.


Minnesota received $48.1 million supplemental CBDG funds through the CARES Act. The state used $30 million to support a peacetime emergency childcare grant to licensed providers who were providing care to kids of emergency responders.  Grants were offered on a monthly basis with additional funds for programs providing “non-traditional hours care, care for children whose first language is not English, and/or who have special needs”.

Providers were also eligible for extra funds if they have extra capacity. Additionally, the state provided subsidy payments for children who were absent at open facilities and also to providers who had temporarily closed, for up to one month. Here are the details for the subsidy applications:

Approximately $9.75 million was allocated in the first month of the grant, between April 18 through May 18. Rounds two and three will occur in subsequent months. The state received 5,401 applications or nearly 60% of all eligible providers. Of these, 84% were home-based or family care providers, and 16% were from centers. The state awarded grants to just 1,287 applicants, or about a quarter of those programs that applied.

Childcare is in hot water

Before the pandemic, childcare was in crisis; parents could rarely access high-quality affordable care. But the coronavirus undoubtedly made things worse for the industry. Many providers have closed due to a combination of factors. Due to the stay at home orders, demand for childcare decreased, which decreased revenue for most providers. At the same time providers have been spending more on staff and cleaning in order to adhere to new distancing as well as sanitization rules. A lot of providers have had to dig into their own savings or rely on volunteer help just to stay open during the pandemic.

This is bad for kids, parents, and the economy. Without the usual childcare arrangements, families and parents suffer, and so do work arrangements. Parents face difficulty juggling school and childcare. Most of them quit work or reduce work hours which reduces their income. Children also lose since they fall behind in learning and social development. The economy additionally suffers when parents miss work or become less productive due to issues with childcare.  The coronavirus has guaranteed that it is going to be hard for parents to go to work if schools are closed and childcare is hard to find.

Reopening should focus on reforming regulation

There are a lot of issues with childcare that go beyond financial fragility. These issues will plague the childcare industry long after the pandemic is gone. Unfortunately, the state of Minnesota has not made much effort into addressing some of these issues.  While the additional funds will be helpful for the successful few applicants selected, these funds can only do so much even for the eligible providers. Sooner or later the state will have to grapple with the need to reform regulation. Overregulation has been one of the leading reasons for the exit of many providers in the last couple of years.

In the few weeks that providers were operating under strict rules, we saw that a lot of their operations were disrupted. According to Joe Kirchner,  the CEO of Primrose Schools which operates in many states including Minnesota,

Providers can’t keep facilities open and operate with such low occupancy, and then if they were to have to drop tuition, they would go out of business. In fact, there’s grave concern right now [over] what’s going to happen to childcare infrastructure in the future. … Many of them worked hard to survive these couple of months, but many childcare center providers are small businesses that won’t have the bandwidth for the additional expenses of lower group sizes and all the policies and procedures and regulations and cleaning and additional supplies it took.

If strict regulations introduced during the pandemic have driven some providers out of the market, we can make the same conclusion regarding the already existing strict regulations in the state of Minnesota. A lot of providers in Minnesota have the capacity to care for more kids, but they are legally not allowed to. This reduces the revenue for most providers, especially family childcare providers who care for the lowest number of kids. Nobody wants to stay in an industry where they cannot be profitable but instead face punitive and strict regulations.