Minnesota child care centers struggling with rising costs, enrollment shifts

Enrollment is rising again at Minnesota child care operations but the counts remain below pre-pandemic levels, according to a new statewide survey that also found providers facing challenges with staffing and operating costs.

The survey by the Federal Reserve Bank of Minneapolis and the nonprofit group First Children’s Finance also revealed family child care providers and child care centers are struggling at the same rates for the first time in the survey's five-year history. 

Much of that has to do with rising operating costs and a loss of preschool enrollments to free, school-based programs.

According to First Children’s Finance, state programs are running at about 77 percent licensed capacity. That’s below the industry standard of 83 percent, but better than last year.

“I think we see very clearly that while we continue to have concerns about the reduction of licensed family child care programs across the state we're starting to see a much higher percentage of our child care centers being concerned for their financial viability as well,” said Suzanne Pearl, Minnesota director at First Children’s Finance. 

“There have been several high-profile center closures around the state and we've learned that there is concern from those remaining in business,” she added.

Aside from moving or being unable to afford tuition, the largest reason for families leaving a child care program was moving into a voluntary preschool or other no-cost child care program. Pearl said that while it’s good for families to have more affordable options, it can lead private child care providers as a deficit.

“We hear from providers … that they are at a competitive disadvantage as school-based programs often have lower overhead and operational costs because those can be shared with the schools,” she said.

Among the 602 providers who responded from across the state, many cited a significant decrease in the enrollment of older, preschool-aged children. While enrollments are up for infants and toddlers, a decrease in older children makes it harder for providers to keep tuition costs low. 

The tuition from older children often serves as a subsidy for the cost of care for younger children. “And when those older children leave programs, providers have a hard time breaking even with the remaining enrollment,” Pearl said.

About 40 percent of family child care providers and centers reported feeling optimistic about the future of their businesses, although about one-quarter of child care directors reported being unable to pay themselves at times.

Survey data showed providers across the state had 215 open teaching positions resulting in 1,745 unavailable child care slots. Considering that this survey represents about 8 percent of the total child care sector, it is likely the number of unavailable slots due to staffing is much larger.

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