For-Profit Pre-K Providers Faring Reasonably Well … So Far

Topic: Child Care, Economics, Preschool

One of many fascinating articles by Roger Neugebauer at ChildCare Exchange provides a snapshot of how the top 50 for-profit child care companies are faring and their major concerns.

Like most of the rest of us, CEOs of the top 50 are most concerned about the state of the economy and the rising cost of health insurance. Economists are already looking at shifts from private schools to public as parents find themselves less able to pay for education. Out of work parents don’t qualify for child care subsidies and state’s will have a very hard time maintaining child care subsidies once the stimulus funds run out. Look for more and more states to press for additional help from the federal government for FY 2011 and beyond. Concerns about health insurance may be influenced by the pending health care reform legislation and its implications for businesses that do not currently provide insurance to their employees. Concerns about the pending legislation also tie into worries over state budget shortfalls as states worry about their future obligations for health care costs.

Number three on their list of concerns is competition from public pre-K in the public schools. A growing population has allowed for some noncompeting growth in both public and private sectors. However, in the long-run private child care should view public pre-K as an opportunity rather than a threat. For-profit as well as not-for-profit providers can be integral components of mixed delivery systems for high-quality public pre-K. States like New Jersey have shown that with firm adherence to standards, adequate funding, and a continuous improvement process, private providers can improve service quality, provide a better living for their workforce, and grow. They can reap substantial benefits from the supportive infrastructure that public education provides while bringing more choice and competition than the public schools alone would offer.

Seventh on the list of concerns for CEOs is lack of subsidies for middle-income parents. We share that concern. With most states looking at dire economic circumstances for the foreseeable future and Obama administration initiatives taking an approach primarily targeted to the poor, a broad swath of working families stand to lose access or face declines in the quality of early education.

Neugebauer points out another fact. The two largest providers, Knowledge Universe (founded by Michael Milken) and Learning Care Group, decreased their capacity somewhat in 2009. Far and away the largest for-profit providers, they account for a combined total of nearly 400,000 children served. No doubt this reflects the effects of the economic downturn on effective demand. However, we as a field need to think carefully about the advantages and disadvantages of such concentrations of market share. The quest for bigness that led these and other companies to embark on aggressive acquisition campaigns earlier in the decade can lead to big problems, and we don’t need to look to the financial sector to see them. In Australia, where the mega-chain ABC Learning Centres went into receivership, parents and communities across the country were left scrambling to keep local centers open. As of last month it looked as if the ABC story will have a happy ending, however. A new kind of non-profit social investment syndicate called GoodStart bought 678 ABC Learning Centres for a small fraction of the $3 billion market capitalization the company once had and promised to plow the profits back into services for children.

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