Child Care is the Small Business Investment Our Economy and Nation Needs

Daniel A. NissenbaumDecember 17, 20200 Comments

While economists and mental health experts have shared their predictions for the long-term effect that the coronavirus pandemic will have on our nation’s children, it remains much less clear how our early child care providers will recover from the effect on their businesses.

Early care and education (ECE) small business owners are a critical underpinning to our nation’s economy and wellbeing. Family-run, home-based ECE owners provide care to more than 7 million children in the U.S. And yet, they have historically been among the least invested-in businesses in the U.S., with less than 5 percent of total lending through the Paycheck Protection Program (PPP) having been allocated to the child care sector. These entrepreneurs, predominantly women and people of color, provide jobs, enable parents to work, and support our nation’s essential workers. We will not be able to fully recover from the pandemic and rebuild our economy without them.

Simply investing in the same way as before the pandemic won’t be sufficient. We must acknowledge and address the unique challenges the sector faces, including declining enrollment during the COVID-19 health crisis, additional expenses for health and safety measures, and limited access to public funding or traditional banking capital. Without adequate resources, nearly half – 4.5 million ECE spaces – are at risk of permanent closure. Well before COVID-19 entered our consciousness, our nation already faced a gap in meeting the need for quality ECE spaces for children and losing this many more would be a significant blow to families and the broader economy.

If we look toward longer-term recovery, the case for investing in ECE is just as strong. Quality ECE has a significant impact on the trajectory of a child’s life. Academic studies have shown that investments in ECE have a 13 percent return across society in terms of higher incomes over a child’s lifetime and lower utilization of social supports. That is a strong “return ON equity” that investors should appreciate. It is also an essential “return TO equity” because these benefits are most profound for low-income children and children of color.

Before we can return TO equity, however, we must change the way we invest in ECE to retain and expand the supply of high-quality ECE options for our nation’s children and working families. The good news, a shift is already underway.

At the local level, cities are rapidly increasing their investments in ECE providers because they understand that an ounce of prevention is worth a pound of cure. Philanthropy increasingly sees investments in ECE providers to achieve their missions across a range of demographic, geographic and social dimensions. And here at The Low Income Investment Fund (LIIF), we have raised $23 million in six months from governmental and philanthropic partners to support emergency grants to ECE entrepreneurs.

“Family child care providers’ businesses run in our own homes,” said Angelica Guerrero, the sole proprietor of a home-based childcare business in San Francisco. “The lack of income will make us lose two things at once: our jobs and our homes,” she explained to our team, noting how critical the $12K PPP loan she received was to her business and family during months of reduced revenue and increased operating expenses resulting from the coronavirus pandemic.

The federal government has also taken some early steps to support the sector by including ECE in the CARES Act and by designating CDFIs, like LIIF, as PPP lenders. The Treasury Department has helped to make sure that these neighborhood-based businesses can receive support. These are moves to be celebrated. But much more is needed to ensure future resources are not pumped out through the same systems that already exclude or overlook ECE businesses.

As we move toward eventual economic recovery, these small but mighty businesses cannot be left behind by mainstream financial institutions. In the short term, Congress must ensure that any future PPP resources consider ECE an essential service, and a priority for public funding. Advocates say at least $50 billion is needed immediately to sustain and stabilize ECE small businesses. Congress must also invest in the long-term infrastructure of our nation’s ECE sector in a way that values it for the public good that it is. Representative Katherine Clark’s (D-MA) Child Care is Infrastructure Act (H.R. 7201) provides an effective blueprint to invest $10 billion in the ECE sector. These resources would improve the quality and supply of ECE spaces while helping to build a market for private financing.

In this time of uncertainty and reassessment of priorities, ECE has emerged as an essential public service that has gone underfunded and undervalued for too long. We now have an opportunity to reimagine the way early care and education is financed and build a system that appropriately values these essential small businesses. Our economy and families require we act now.