Guess What Private Equity is Doing to Childcare

What Happens When You Try to "Maximize Profit" in a Daycare Center

Just an army of private equity jabronis coming to buy up your local daycare and squeeze money out of it

For certain subjects, there is a profile of the type of writer, journalist, or academic who does work on them. To be very basic: people who report about sports usually play or have played sports. This makes sense: you know a lot about it and you’re invested in it. It can also really help avoid various “gazes” that have historically been applied to other people’s lived experience. I ascribe to the belief that it’s better, as a general rule, to have Native people reporting about Native people, or disabled people reporting about disability.

But if you extend this thinking further, you can find yourself in the curious position where you get a whole lot of people writing with skill and precision about an issue, but that writing gets ignored — or is considered less important — because, to put it simply, they are not cis-gendered able-bodied white dudes. The things that those men write about are “important” and “affect us all,” so if they’re not writing about it, it must not be important (or affect us all). Bullshit, obviously, but this logic endures. But I also don’t think we should cede reporting on all subjects to white dudes, just to underline its importance.

What I like is when a white guy does really important work on a subject that very directly affects him — and underlines all the ways it is universal, and we should all care about it, but without asking for any laurels for being the Good Guy who writes about it. That’s Elliot Haspel, who’s been doing consistently incredible reporting on the state of childcare for years. He does this reporting because having access to high-quality, affordable childcare makes society better for everyone, regardless of gender or age or whether or not they themselves have kids.

I feel the same — which is why I write about care so much, even though I personally don’t have kids. And it’s why, whenever I see Elliot has a new piece, I rush to read it. After reading one of his latest, on what private equity is doing to the industry at large, I asked him if he’d be willing to talk a bit more about his reporting, where he thinks we’re headed, and if it’s ever going to get better. So read on, because I have a very strong feeling you’ll appreciate this work as much as I do.

You can find more of Elliot Haspel’s work here and buy his book, Crawling Behind: America’s Childcare Crisis and How to Fix It, here.

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I’ve read your work for many years now, but I want readers to understand your history at the intersection of the care industry and policy. How did you get into this work, and where has it led you? 

So I actually started my career in public education, I was a fourth grade teacher outside Phoenix. I was intensely focused on questions of educational equity: how do we ensure that a child’s zip code isn’t so deterministic of their life opportunities? And at the time, I thought schools were the answer (I was, it will probably not shock you to hear, part of Teach For America back in its heyday). I’ve always been interested in large systems-level questions — how do we change the odds altogether instead of just finding pockets that can beat the odds? So after teaching I went and got an education policy degree and spent quite a few years working on different facets of school reform.

But I started to get frustrated. Because even though schools are inarguably important, we were pouring all this time and attention and money and personpower into the school day, and we weren’t seeing anywhere in the whole country sustainably transforming their outcomes. I stepped back and started to question the theory of change — what was missing? And when you ask that question, you very quickly end up in the dual world of early childhood development and family stability/economic security: an intersection where child care lives.

So I shifted my full-time work to focus on child care & early education. The thing you quickly realize when going from K-12 education to the early years is that one has a LOT of money and the other has almost none. To put that into perspective, the U.S. spends over $800 billion a year in public money on K-12, and less than $40 billion on child care. And I started to question: why, why, why? Why do we treat the first five years of life, not to mention the hours/months outside of the school day & day, so radically differently? Why does it seem like we generally accept the premise that education is something to be provided for free, universally, to you and me and Jeff Bezos and whoever else, while care care is seen as an individual family obligation where you better not expect government help?

That’s what led me to write Crawling Behind, which tried to unpack these questions and posit a simple counter: what if child care were free? The book dropped in 2019 right in the middle of a Democratic primary where child care was a fairly prominent issue, and then of course COVID put care in a harsh spotlight, so I have had increasing opportunities to write and speak and engage around child care issues. And I’ve become convinced that even some of my earlier work still accepted faulty premises.

Child care isn’t just a program, it’s a human activity that undergirds all sorts of flourishing and freedom. Child care, in my view, should be seen as an American value and part of vital American social infrastructure right alongside schools and parks and libraries. Child care supports the healthy development of children, families, and communities. And when you start seeing child care in that light, it opens a whole different way of thinking and talking about the topic.

You recently published a big investigative piece on private equity and childcare in Early Learning Nation, and I was lightly amused by the prologue from the editor, which notes that you have an “established perspective about private equity in childcare.” I also have an established perspective about private equity in childcare, which is similar to my established perspective about private equity in pretty much every industry: it’s scorched earth capitalism. Can you lay out your own perspective and maybe get into why private equity investment can be particularly pernicious when it comes to childcare? 

Ha, yes; we wanted to make sure no one could accuse me of pretending I was entirely neutral! At its core, private equity firms — which differ from traditional investment firms in seeking very high returns over a burst of a few years before selling, and are insulated from legal consequences — have an inherent conflict of interest between kids & families and their profit motive. You know, I talked to Melissa Boteach, who heads up child care work for the National Women’s Law Center. And she explained it so well:

“The bottom line for private equity, and investor-backed chains more broadly, is profit for [investors]. The bottom line for child care should be early learning and care for children. And it’s not that you can’t ever reconcile those two things [but] when you implement standards, whether it’s living wages for early educators, low child-to-adult ratios, or other measures that affect the quality of that care, investor-backed chains will face external pressures to comply with these standards in the cheapest way possible, which in turn has implications for either lowering the quality of the care or raising the fees charged to parents.”

And she goes on to talk about how it’s not a dirty thing to try to make money in business, but is a short-term profit-maximizing model an appropriate one for child care?

You’re right to point out other industries, and we should be clear that just about every time private equity has touched a human service industry — nursing homes, autism services, even prison food delivery — the results have been largely disastrous for the people on the receiving end of those services. So it’s hard for me to concoct a scenario in which increased private equity ownership is going to be a positive for kids and families. (By the way, this is where I do my regular plug for a book I wish everyone would read: Plunder: Private Equity’s Plan to Pillage America by former Department of Justice special counsel for private equity, Brendan Ballou. Just don’t read it near breakable things.)

And indeed, my reporting and the reporting and research of others points to the standard private equity playbook being put into place in child care. They’re largely going to affluent areas and upcharging, they are pulling out all the stops to minimize operational costs — I quoted one former site director who said she was told to limit the amount of paper she gave out to kids for arts & crafts! — they are resisting removing teachers from classrooms despite allegedly horrific behavior because that would mean they could serve fewer kids, they’re forcing sites to sell off their real estate and lease back the building (with the proceeds going to the private equity firm, not the site), all of these strategies to squeeze every drop of profit out. That doesn’t mean every private equity-owned child care program is bad — plenty are of perfectly good quality — what it means is that there is a corporate structure layered on top, with executives that wouldn’t be doing their jobs if they didn’t prioritize making money, even at the expense of kids and families.

I’d like to zero in a part of the piece that is pretty straightforward but nonetheless felt like a switch flicking in my brain: that these companies have no obligation to serve “all” of the market, only the part of the market that is most profitable — and once they find that part of the market, they can keep eking out profit. Can you talk a bit more about that, and how it contributes to the feeling amongst middle-class families that they’re paying so much….and somehow the caregivers themselves are still making so little? 

Absolutely. So with only a few exceptions, these chains are not interested in serving low- and moderate-income families. Why would they? Those families can’t pay top dollar, the meager government aid that exists has a pretty low per-child reimbursement rate in most states, and in some cases you’d prefer to not give the government an opening to do oversight. I found an interview from the co-founder of one of the two private equity firms that owns Lightbridge Academy — and two-thirds of Lightbridge sites don’t even accept public subsidy dollars — and he says “we wanted to be on the premium end of the spectrum. It’s just very much more healthy unit economics, a lot more tailwinds, and a lot more insulation from come-what-may from the government.” This isn’t a subtle game. They’re trying to make money.

But the dastardly thing is that because we’ve neglected child care for so long, treated it as a private market good and not social infrastructure, we have this absurd supply-constrained system. Waitlists are miles long, especially in these middle-class areas with lots of two-earner families. So where else are the families supposed to go? They have to absorb the gut punch and the precarity. 

And then yes, you would like to think if private equity firms are returning 15 to 20 percent profits on their child care investments, they are reinvesting it in their employees. Ha ha ha. Chain employees are making wages on par with nonprofit or community-based child care educators; they might have slightly better benefits, but good luck paying your health insurance premium and co-pays when you’re making $14 an hour. A 2019 study from the federal government found that for-profit chain programs had the highest rates of “high turnover,” which they define as 20% or more of the student-facing staff walking out the door. Half of the chain programs had that kind of churn, versus only around a third of nonprofits (which is still high of course — pay child care educators more!), which I think speaks to working conditions.

(I’ll add, good luck unionizing: a few months ago Guidepost Montessori — which is backed by venture capital, not private equity, so a slightly less vulture model but still one with a financialized profit motive — allegedly shut down two Portland-area sites rather than deal with the staff unionizing)

I’ve become increasingly pessimistic about the chances for childcare reform for many reasons — including the legislative stranglehold of Christian Nationalists who staunchly oppose funding childcare because it will encourage women to work outside of the home. Your piece introduced a new reason for pessimism: these private equity groups are actively (if quietly!) lobbying against attempts to even partially invest in early childhood education, like the Build Back Better Bill. Can you talk more about the forces at play here? 

Imagine you’re the CEO of a private equity-backed child care chain (I can hardly imagine a role we’d be less likely to find you in, but go with it). The government has a proposal: they will pump tens of billions a dollar a year into the child care system in order to dramatically lower parent fees and raise educator wages and invest in facilities and so on. The tradeoff is that you have to agree to fee caps, limits on executive compensation and how much profit you can send back to your investors. What do you do? Here again we see the conflict of interest: I just described a vastly more effective and higher-quality child care system, but it poses an existential threat to the investor-backed, for-profit child care business model. 

So yes, we see the chains’ lobbying arm working behind the scenes with Joe Manchin to oppose Build Back Better and its $400 billion in child care investments, we see them working behind the scenes to try and strip out conditions on public funding in Massachusetts that would limit how much big chains could draw down and ensure they put a reasonable percentage of the funding into educator salaries, things like that.

Again, none of this is subtle! I quote Bright Horizons — publicly traded on the stock market, formerly owned by Bain — in their 2023 SEC filing:

“National, state or local child care benefit programs comprised primarily of subsidies in the form of tax credits or other direct government financial aid to parents provide us opportunities for expansion in additional markets. However, a broad-based benefit with governmentally mandated or funded child care or preschool, could reduce the demand for early care services at our existing early education and child care centers due to the availability of lower cost care alternatives, or could place downward pressure on the tuition and fees we charge, which could adversely affect our revenues and results of operations.”

Basically, free public money with no strings attached, great. You start making child care cheaper though… ruh roh. So you see why I think maybe we need to start erecting some policy guardrails before the chains’ market power —and, in turn, political power — gets too massive.

What have you noticed when it comes to trying to place stories about childcare? I feel like there was a massive appetite for CHILDCARE IS SHAMBLES stories during the pandemic, and now there’s almost a fatigue, like, oh it’s getting even harder to find and even more cost-prohibitive?? Cool cool I guess we’ll just deal. 

I would agree that we’ve perhaps reached a near-saturation point with stories about how terrible the status quo is (although I will immediately contradict myself by saying that if you do a quick Google News search, there are still a lot of articles being written about child care challenges), at least when it comes to big think pieces. Because on some level, you’re right: what else is there to say about the problem? You can take one of my articles, your Vox piece, Annie Lowrey’s pieces, and just update a few figures.

So that said, I think there is an openness to different angles. Private equity and financialization, to be sure. A lot of attention recently on the proper role of employers, as both political parties rush to use taxpayer dollars to incentivize employer-sponsored child care benefits (which I have another, shall we say, established perspective about). Interest in what other countries are doing — because I have to tell you, now that Germany, Canada, Australia, Ireland, and the U.K. have all started making some major child care reforms over the past 20 years (with varying success), we’re out on an island in terms of just letting the wildfire burn. Interest in what places like Vermont and New Mexico and D.C. are doing with large buckets of local and state money. Solving child care is complex but it’s not inventing a room-temperature superconductor; we know what we need to do.

Where I want to see more stories, and where my forthcoming book is going, is demonstrating all the varied ways that child care supports strong families and strong communities that go beyond just helping parents work or helping kids know their alphabet before Kindergarten. That’s how we’re going to get the mindset shifts we need to win the big policy victories. Let’s talk about the ways that child care programs are sources of social connectivity and help isolated parents find friends. Let’s talk about the fact that when the ambulance is five minutes too late to your house to save your loved one, they might still be alive if the ambulance service wasn’t short-staffed because of child care issues. Let’s talk about common-cause linkages between early child care, school-aged child care, and the needs of stay-at-home parents. Let’s talk about the fact that good child care helps reduce parental stress and improve their quality time with their kids and their marriages. We use far too narrow and instrumental a way of talking about child care; we need more stories of the ways it weaves into our social and community fabric.

6) A tough one to close: What about childcare infrastructure feels intractable to you for the next decade — and what feels like it could potentially change? 

I am an eternal optimist, and I see pockets of hope in localities, states, and other nations. That said, it’s going to be very difficult to move any national legislation at the level we need -- which is, to be honest, $150 billion a year at minimum, probably closer to double that (again, not that wild: $800 billion for K-12!) — with a divided and dysfunctional Congress. So I think our job now is twofold: work on developing a really effective and popular policy proposal that can move next time a window does open, whether that’s after the 2024 election or after the 2032 election, and also work on changing mindsets about the role of child care in society. 

I think there are a lot of interim changes that we could see spreading state by state, as well. One of which is hopefully guardrails against private equity expansion! But also, D.C. is the first jurisdiction to really pump money into raising the wages of early educators up towards elementary school teachers, and getting them health insurance benefits. Massachusetts is piloting these large operational grants to child care providers to help them stay strong and stable. New Mexico and Vermont are extending eligibility for public child care aid up into the middle- and upper-middle classes. Michigan and Colorado are doing some neat stuff around child care facility expansion. We’ve seen this story before: states blaze the path and build critical mass until the federal government finally gets its act together.

It all starts with pushing on these questions of what and who child care is for, though. Until we resolve those, until we pivot from seeing child care as a private market good where it’s OK to have rapidly growing private equity-backed, for-profit sites and not OK to have government intervention, to one where child care is seen as essential to the preservation of our American values and self-determination and democracy… well, every other path is going to run out of road long before we make it to the mountain. ●

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You can find more of Elliot Haspel’s work here and buy his book, Crawling Behind: America’s Childcare Crisis and How to Fix It, here.