Why are child care/day care costs rising so fast?

[Matty]

I don't really want this to be a political thread where we complain about evil profit and government regulation. Is there anyone on here that is knowledgeable on the subject that can fill me in on what is going on? In 31 states, daycare costs MORE than college tuition. Is there a shortage of facilities?

Also, it is my understanding that daycare workers have wages that are only around 12 dollars/hour, but profit margins are still much lower for daycare providers than most industries.

What's going on here, basically?

[dead0man]

Supply and demand of course, but why, there don't seem to be a lot more babies now than say, 20 years ago.  Regulations, like you suggested.  And that's not to say they are bad.  Could probably use some massaging, but that's true of pretty much everything.

Here is Virginia's website on setting up a day care (random, feel free to find another state).  If you have a Center (instead of home based care), you need one fairly well trained (and vetted) adult for every 4 babies under 16 months.

You must be logged in to read this quote.

The home care list is pretty much the same (except for some reason older kids (10+) don't seem to count at all).  There is also fees and other requirements/hoops to jump through (seriously, read the pdf at the top titled Licensing Standards for Daycare Centers).  I don't believe the rules were that strict 20 years ago, but I could be wrong.  I also don't think anybody is getting rich running daycares for regular folk (I'm sure rich people day care's make a killing from stupid rich people).

(Edited to turn off unwanted smiley - TF)

[King]

Would deregulation really change those ratios? I feel like those are acceptable industry standards that would be followed without the law.  In fact, childcare law is one of the easiest to circumvent by simply establishing the business as a co-op.

I feel like this market may inadvertently correct thanks to what is usually a negative: the baby boomer retirement and declining LFP rate. Plenty of grandparents to watch the kids coming.

[Slander and/or Libel]

dead0man has pretty much got it right. I pay $250/week for my son's day care. When he's 2 years old, that'll drop to $205/week, and at 3 years it'll drop to $185/week. In Maryland, the ratios look like this:

<2 years: 1:3
2 years: 1:6
3-4 years: 1:12
5 years: 1:15

A bit more stringent, but the same basic thing. So for my 16 month old, he's in a class with 5 other kids of the same (ish) age, each paying $250 a week. That's $1500 a week. Each of those kids is in care for probably 40-50 hours a week. Let's lowball that and say 40 hours. They have to be cared for by two teachers. So splitting up $1500 between two teachers, we get an hourly rate of $18.75 (if we go with 50 hours per kid, then we get an hourly rate of $15; also, this doesn't really deal with the case where, let's say, you've got 4 kids there. You still need two teachers because there's more than 3 kids.)

But that's if all of the money went directly to the teachers, which we know is obviously not the case. Some goes to center upkeep and administrative costs. Some goes to the snacks and other food that are provided to the kids. Some goes to the toys and art supplies that the center provides. Etc. Even if the provider doesn't take a very big profit margin, we can still see how infant care makes almost no money for caregivers.

This is paradoxically why universal pre-K proposals have wound up driving up prices for day care, too. Because of these ratios, the kids who get covered by universal pre-K were previously the most profitable kids for centers to take, and centers could spread out their fee structure a bit more and take a bit more of a loss on infants. But if those older kids get free pre-K, then all of those costs have to shift up to compensate.

Basically, as I'm finding with my son (and my daughter, on the way in two months), day care is the worst of both worlds: insanely expensive for the customer, and barely subsistence-level earnings for the provider.

[t_host1]

I don't really want this to be a political thread where we complain about evil profit and government regulation. Is there anyone on here that is knowledgeable on the subject that can fill me in on what is going on? In 31 states, daycare costs MORE than college tuition. Is there a shortage of facilities?

Also, it is my understanding that daycare workers have wages that are only around 12 dollars/hour, but profit margins are still much lower for daycare providers than most industries.

What's going on here, basically?

 Too rule out 2 of the 3 interlopers of your equation is like reasoning with the why an obama administration still exists’ for the enducktion of the clinton rule.
Whatever you do in the search of your answer, do not enter free unaccountable Federal Reserve Notes for those that have no attached value for settling their wants, having any measurable impact. And, just as important, your findings cannot be described in any form and/or premise of economic inflation.  

Ohh, oh, my bad, my apologies for not pointing out the solution; you do not inform your income provider that accounting, payables, has been given notice  by the authority of your family, to a mandatory 145% increase to your compensation package, sighting governmental precedence as the standing order for your employer to comply.

[AggregateDemand]

I don't really want this to be a political thread where we complain about evil profit and government regulation. Is there anyone on here that is knowledgeable on the subject that can fill me in on what is going on? In 31 states, daycare costs MORE than college tuition. Is there a shortage of facilities?

Also, it is my understanding that daycare workers have wages that are only around 12 dollars/hour, but profit margins are still much lower for daycare providers than most industries.

What's going on here, basically?

It's probably exaggerated. The academic academies often cost as much as college tuition, and they are averaged into the data for daycare facilities. A crisis is manufactured to aid the formation of subsidy programs directed at daycare providers. Food programs are the big ones so agriculture is probably pushing the narrative.

Some states may have liability/insurance issues, and the child/care-provider ratio may be prohibitive.

In general, if both spouses want to work they should pay up for decent care. Single parents should get preferential tax credits, but that would go against our long-standing policy of treating single people like second-class citizens.

[Grumpier Than Uncle Joe]

Outrageous insurance costs don't help.  Insuring yourself against pedos isn't cheap.

[Beet]

I don't really want this to be a political thread where we complain about evil profit and government regulation. Is there anyone on here that is knowledgeable on the subject that can fill me in on what is going on? In 31 states, daycare costs MORE than college tuition. Is there a shortage of facilities?

Also, it is my understanding that daycare workers have wages that are only around 12 dollars/hour, but profit margins are still much lower for daycare providers than most industries.

What's going on here, basically?

What kind of college - public, private, or public out-of-state?

If we use private or public out-of-state numbers, then Figs' $185-$250/week (about $9,250 - $12,500 a year) is a lot less than college tuition.

[King]

Outrageous insurance costs don't help.  Insuring yourself against pedos isn't cheap.

It seems there was a bit of a spike during the late 80s child molestation at daycares scare. Interesting thing about this graph though is that it suggests that as a share of income, it's been fairly static.

[Indy Texas]

I was looking at the tax returns from last year for one of our clients, who is your archetypal single mom who politicians should at least pretend to care about. She's either divorced or broke up with her cohabitating boyfriend, I'm not sure which. She has three children who she must raise herself. She is a receptionist in a doctor's office and makes roughly $33,000 a year. Her two older children are in middle school but her youngest is two and is in day care during the day, which she has to pay for. According to her childcare expense deduction, she paid $7,500 for daycare for her youngest child last year. She spent almost 25% of her pretax earnings on childcare. Now, granted, the alternative in her case was staying at home and earning nothing or next to nothing, or perhaps working part time, but that almost inevitably involves working retail which would mean such an unpredictable schedule that she'd still have to rely on childcare to some extent. So basically, she has to work and her child has to be looked after.

She got all of this money back in the form of a tax refund. (Not because of the childcare expense deduction - that capped out at $600 because of her income level. The rest was due to the EITC.) But having to pay such a large chunk of one's income for childcare in hopes of getting the money back the following year isn't the same as having access to affordable childcare that the government simply subsidized "on the front end" rather than using tax refunds that keep childcare unaffordable up front for a lot of working parents.

[Matty]

I think we should perhaps make the childcare tax deduction more broad and expansive. It seems pretty damn insignificant if I am reading the criteria correctly.

One thing I have been told by others is that this issue is a tad bit over rated, because there is a fairly extensive black market for daycare that is not always unsafe and can be far cheaper. These are protective service and law enforcement folks who have said this.

I don't know how you could, policy-wise, increase the supply of daycare centers/in-home daycare.

[Slander and/or Libel]

What kind of college - public, private, or public out-of-state?

If we use private or public out-of-state numbers, then Figs' $185-$250/week (about $9,250 - $12,500 a year) is a lot less than college tuition.

I mean, bear in mind, of course, that we also looked at some KinderCare centers that cost something closer to $375 a week. I'm not sure what the average cost is. We got lucky to find a center that cost as little as ours did, and with open space for us when we needed it.

I think we should perhaps make the childcare tax deduction more broad and expansive. It seems pretty damn insignificant if I am reading the criteria correctly.

One thing I have been told by others is that this issue is a tad bit over rated, because there is a fairly extensive black market for daycare that is not always unsafe and can be far cheaper. These are protective service and law enforcement folks who have said this.

I don't know how you could, policy-wise, increase the supply of daycare centers/in-home daycare.

1) The child care tax credit is pretty insignificant, truth be told. If you have one kid, you get a refund of 20-35% of $3,000 of your child care expenses for one child, or 20-35% of $6,000 of your child care expenses for two or more children. The percentages shift down as income goes up. If your AGI for the year is over $43,000, you're down to 20% of those expenses. So, basically, in my case, we have to pay $13,000 a year for day care for my son, and we get $600 back through the child care tax credit. Not nothing, but certainly not much.

The other option that we use right now is a Dependent Care FSA (Flexible Spending Account). We can set aside $5,000 of pre-tax money to pay for child care (which doesn't cover nearly all of it, obviously). Our income puts us in the 25% or 28% bracket, so we save somewhere between $1,250 and $1,400. And then if we have two kids with qualifying expenses (which we will soon), we can claim the child tax credit on the amount of qualifying expenses that exceed our FSA election. That is, we could normally claim $6,000 for the child care credit. If we elect $5,000 into the FSA, then we can only claim the remaining $1,000 for the child care tax credit, netting us another $200.

Lots of employers offer fee assistance programs, which is good too, but messes with FSA stuff. Basically, you can only take $5,000 tax free into the FSA, but if you get fee assistance, that $5,000 gets reduced by the amount of the assistance. If your employer contributes, say, $2,000 a year to your child care, then you can only elect $3,000 into the FSA, and if you've elected more you can't change it and you have to settle up at the end somehow.

The FSA is nice, and it definitely saves us some money, but it's kind of irritating. We have to file a claim every two weeks to get the amount of our election deposited into our account.

2) As far as the black market for day care that is "not always unsafe," I don't know that that's even in the same universe as an acceptable level of risk for me, as a parent. Maybe some regulations could be tweaked, but as far as stuff like teacher to kid ratios, I'm exhausted after one day taking care of one kid. Increasing the ratio for the teachers for infants from 1:3 or 1:4 seems like a terrible idea to me.

The problem really is that it's very difficult to profitably and safely provide infant care without being prohibitively expensive to almost anybody. An expansion of tax credits would help, though it would still require that people be able to front the money and then recoup it come tax time.

[t_host1]

 
 The above data concludes that you the parent are the risk to which you must pay for, what’s worse, because the parent is a risk beyond its means to except the responsibility for which it delivers, it, the risk, the parent, expects, demands the community to be liable for they, the parents actions.

 If corrective compensation is recalled, not settling your wants, the other option trending is to resend your citizenship, forward your assets to the party, exit the country, re-enter as an illegal, Bam’o, everything is free and you will need no ID to vote for Hillary, all's square.

[AggregateDemand]

I was looking at the tax returns from last year for one of our clients, who is your archetypal single mom who politicians should at least pretend to care about. She's either divorced or broke up with her cohabitating boyfriend, I'm not sure which. She has three children who she must raise herself. She is a receptionist in a doctor's office and makes roughly $33,000 a year. Her two older children are in middle school but her youngest is two and is in day care during the day, which she has to pay for. According to her childcare expense deduction, she paid $7,500 for daycare for her youngest child last year. She spent almost 25% of her pretax earnings on childcare. Now, granted, the alternative in her case was staying at home and earning nothing or next to nothing, or perhaps working part time, but that almost inevitably involves working retail which would mean such an unpredictable schedule that she'd still have to rely on childcare to some extent. So basically, she has to work and her child has to be looked after.

She got all of this money back in the form of a tax refund. (Not because of the childcare expense deduction - that capped out at $600 because of her income level. The rest was due to the EITC.) But having to pay such a large chunk of one's income for childcare in hopes of getting the money back the following year isn't the same as having access to affordable childcare that the government simply subsidized "on the front end" rather than using tax refunds that keep childcare unaffordable up front for a lot of working parents.

Agreed. No working single parent should have to rely on the EITC to save them from dependent care costs. A single mother with 3 kids under 10 years old, who earns $60,000 won't even receive EITC despite having a genuine economic argument to avoid taxation.

Dependent care rules for single parents need an overhaul.

[King]

For the tax code issue, what do you guys think about simply adding daycare to the list of Health Savings Account expenditures?

It's a bit unconventional, but I think would have positive effects. The pledge for childcare would be a an easy way to use the existing system to give more of a tax break to parents. Plus, it would increase usage of the HSA program among younger Americans, which could drive down health insurance costs.

I don't even think a new law would need to be passed. It could be changed by executive order.

[Slander and/or Libel]

Like I said, you can already make use of a Dependent Care FSA, which functions largely like an HSA. You can elect up to $5,000 to be taken out of your paychecks pre-tax to use on qualified child care expenditures.

[King]

Like I said, you can already make use of a Dependent Care FSA, which functions largely like an HSA. You can elect up to $5,000 to be taken out of your paychecks pre-tax to use on qualified child care expenditures.

I know about the FSA, but the dependent care FSA isn't pre-funded (in HSA if you pledge $5,000 and get sick in January, you get $5000 paid even if you've only deposited $100 at that point) and limited in use. If we added it into the HSA:

(1) parents would get access to their pledge money greater than what they actually deposited, earlier in the year plus prior year tax refunds in April; this could make it easier to cover costs in the most expensive time of the year (I'm assuming) in child care: summer vacation. This doesn't solve the problem but would ease the feeling of it being a financial hardship.

(2) by adding it into HSA, the money now doubles as a medical emergency fund. This could allow parents to be more content with the Bronze plan as an individual or similar high deductible plan from their employer. It would increase  the amount of HSA dollars in the system and save everyone money on the health insurance side, savings which could be used by parents on childcare

It's not a solution to the problem, but could be an interesting part of one IMO.

[Slander and/or Libel]

Ah, ok, I wasn't really clear on the finer points. That's an interesting idea. So you're saying, then, to lump everything all into one account with a limit equal to the limits of the HSA and the DCFSA? Like I had the option of creating a $5,000 DCFSA and a $2,500 HSA (I didn't because my medical insurance is good and needs to be now because I have multiple sclerosis), so would your proposal just make one big $7,500 spending account, all of which could be used either for qualified health care expenditures or for dependent care, and would be pre-funded?

In principle I've got no problem with that. Expenses are expenses, whether predictable or unpredictable. If I know that I'm going to have at least $7,500 in expenses over the course of the year, it doesn't matter if they're predictable dependent care expenses or unpredictable health emergency expenses. The pre-funding is a nice feature, since it would allow (I'd think) for easier planning.

[DC Al Fine]

I was looking at the tax returns from last year for one of our clients, who is your archetypal single mom who politicians should at least pretend to care about. She's either divorced or broke up with her cohabitating boyfriend, I'm not sure which. She has three children who she must raise herself. She is a receptionist in a doctor's office and makes roughly $33,000 a year. Her two older children are in middle school but her youngest is two and is in day care during the day, which she has to pay for. According to her childcare expense deduction, she paid $7,500 for daycare for her youngest child last year. She spent almost 25% of her pretax earnings on childcare. Now, granted, the alternative in her case was staying at home and earning nothing or next to nothing, or perhaps working part time, but that almost inevitably involves working retail which would mean such an unpredictable schedule that she'd still have to rely on childcare to some extent. So basically, she has to work and her child has to be looked after.

She got all of this money back in the form of a tax refund. (Not because of the childcare expense deduction - that capped out at $600 because of her income level. The rest was due to the EITC.) But having to pay such a large chunk of one's income for childcare in hopes of getting the money back the following year isn't the same as having access to affordable childcare that the government simply subsidized "on the front end" rather than using tax refunds that keep childcare unaffordable up front for a lot of working parents.

Indeed. It would be better if subsidies were paid out similar to UCCB. In Canada, every family gets $100/mth for every child under 6. Something like that would be helpful. Maybe include a clawback so it only applies to the lower middle class and down, and you's have an excellent program.

[AggregateDemand]

For the tax code issue, what do you guys think about simply adding daycare to the list of Health Savings Account expenditures?

It's a bit unconventional, but I think would have positive effects. The pledge for childcare would be a an easy way to use the existing system to give more of a tax break to parents. Plus, it would increase usage of the HSA program among younger Americans, which could drive down health insurance costs.

I don't even think a new law would need to be passed. It could be changed by executive order.

It would be more effective to change the phaseout and limitation rules on Form 2441. The credit limitation rules are designed to be compatible with MFJ dual-income filers, which makes little sense because those are often the most affluent families.

They need to raise the credit percentage or raise the cap to protect single parents. Child support and alimony are the complication. No easy answer unfortunately.

[Matty]

why is there a lack of facilities?

[Slander and/or Libel]

Why are parents fiscally gullible? Who said there's a lack of facilities?

[Slander and/or Libel]

It looks as though you haven't actualy been reading the rest of the thread. I get supply and demand, but there is a point past which providers can't profitably drive prices lower. For infant care, we're often hovering at or even slightly below that point, especially for in-home providers. There's a home day care nearby that we didn't go with that charges $185/week for infants, which at 3 infants a week for 40 hours per comes to an average of less than $14/hour GROSS for the provider, out of which they have to pay insurance, facility costs, upkeep, supplies, administrative expenses, etc.

Child care is not a place where increased supply can reasonably keep driving prices down. Providers are squeezed at least as much as parents.

[Indy Texas]

It looks as though you haven't actualy been reading the rest of the thread. I get supply and demand, but there is a point past which providers can't profitably drive prices lower. For infant care, we're often hovering at or even slightly below that point, especially for in-home providers. There's a home day care nearby that we didn't go with that charges $185/week for infants, which at 3 infants a week for 40 hours per comes to an average of less than $14/hour GROSS for the provider, out of which they have to pay insurance, facility costs, upkeep, supplies, administrative expenses, etc.

Child care is not a place where increased supply can reasonably keep driving prices down. Providers are squeezed at least as much as parents.

Yeah, there's not a whole lot of opportunity for economies of scale in early childhood care. You want your infant being cared for by someone who is qualified to do so and you only want that person looking after a few other kids at the same time. Liability is a huge issue.

But most people would be shocked by how un-regulated daycare providers are. This isn't a case of government mandates driving prices up.

[DC Al Fine]

It looks as though you haven't actualy been reading the rest of the thread. I get supply and demand, but there is a point past which providers can't profitably drive prices lower. For infant care, we're often hovering at or even slightly below that point, especially for in-home providers. There's a home day care nearby that we didn't go with that charges $185/week for infants, which at 3 infants a week for 40 hours per comes to an average of less than $14/hour GROSS for the provider, out of which they have to pay insurance, facility costs, upkeep, supplies, administrative expenses, etc.

Child care is not a place where increased supply can reasonably keep driving prices down. Providers are squeezed at least as much as parents.

Yeah, there's not a whole lot of opportunity for economies of scale in early childhood care. You want your infant being cared for by someone who is qualified to do so and you only want that person looking after a few other kids at the same time. Liability is a huge issue.

But most people would be shocked by how un-regulated daycare providers are. This isn't a case of government mandates driving prices up.

Indeed.

A lot of my clients have childcare deductions on their taxes. Childcare for older children is actually pretty affordable, while care for babies is not, largely due to the worker:child ratios involved. Therefore, more generous maternity leave with perhaps a cash payment for parents of young children a la Canada's Universal Childcare Benefit would be an excellent solution.