“The End User Is a Dollar Sign, It’s Not a Child”: How Private Equity and Shareholders Are Reshaping American Child Care
By Elliot Haspel
Editor's note: Over the past two years, there have been more and more stories arising about the role of investors, especially private equity firms, in child care. Given Early Learning Nation's mission to illuminate "journalism from, and for, the early learning field," I eagerly agreed when Elliot Haspel approached me about doing a long-form look at investor-backed child care chains.
Elliot is a well-known child care policy expert and author, as well as a freelance journalist and opinion writer who has published stories with The Atlantic, The New York Times, and The Washington Post (among others), and a longtime ELN contributor and columnist. For this story, he employed investigative journalism techniques to provide a deep look into the workings and implications of growing investor and private equity influence.
Here on Substack, we’re sharing the introduction, in order give you an overview of this comprehensive article. Read the full investigation on EarlyLearningNation.com.
It should be noted up front that Elliot has an established perspective about private equity in child care which leans toward skepticism, and he has also conducted research and analysis on the subject. As such, this article should be considered "reported opinion," which former ProPublica editor-in-chief Paul Steiger once defined as "where fact gathering takes place in service of advocacy." That said, this piece has been thoroughly vetted by an experienced, independent fact checker.
As usual, this piece and all opinions therein are Elliot's alone, written in his capacity as a freelancer, and do not necessarily reflect the views of Early Learning Nation or any organization with which Elliot may be affiliated.
--Linda Shockley, Early Learning Nation
Introduction
In January 2024, the Yale New Haven Hospital system (YNHH) announced a change at the two child care centers they run for employees and community members. Per the Yale Daily News, YNHH would no longer operate the centers themselves but were instead entering into a "partnership with Bright Horizons," the second-largest U.S. corporate chain and the only one traded on the stock market. The Daily News reports that, "Without advance warning, daycare educators were told to reapply for their current positions. In response, many employees have since left, leaving the center short-staffed and at risk of state closure." A parent who attended a call with YNHH leadership reported the leaders "told them that the hospital was losing money on the daycare and had been looking for ways to cut costs. As a result ... the hospital had zeroed in on no longer managing the daycare."
The question of how allowing Bright Horizons to take over the centers would cut costs—while still making Bright Horizons a profit—is becoming apparent: the company has moved to alter employee benefits and increase classroom group sizes. In addition to requiring long-tenured educators to reapply for their jobs, the Daily News reports leadership told staff that "during the rehiring process ... the staff members would lose their YNHH benefits and paid time off." Moreover, "center leaders gave parents flyers informing them that some of the daycare’s infant rooms would be combined. [Parent Jon West] told the News that each classroom previously had three teachers for every six to seven kids. Now, there are two to three teachers for every eight kids. Parents also described how the facility’s receptionist and the daycare supervisors were also taking on educator roles to meet the state educator-to-student threshold."
Cast in America as a pay-to-play system with limited public funding, child care has long struggled with issues like difficult budgetary math, low educator pay, and highly variable quality. Some argue that the presence of investor-backed chains offers economies of scale, business know-how, and an injection of capital into a starved sector. The reality appears to be much more problematic. An unprecedented degree of investor activity—especially from private equity firms, which now own 8 of the 11 largest U.S. chains by capacity (a ninth, Bright Horizons, was previously private equity-owned), as well as several smaller chains—is creating a cascade of risks for the sector. These risks threaten the path toward an inclusive child care system which works well for all children, parents, and early educators.
Rebecca Gale, a writer with the Better Life Lab at New America where she covers child care, will interview author Elliot Haspel in a one-on-one conversation about the role investors, especially private equity firms, play in the American child care sector.
Don't miss it: Monday, April 29th, 2024 at 12:00pm ET. Registration is free, and required.
This piece draws on interviews with current and former chain employees and child care experts, reviews of scholarly research, and analysis of financial records and legal filings. The picture it paints is one of a sector increasingly captured by excessive profit-seeking behavior and systemic vulnerabilities that can come at a human cost to one of the most vulnerable populations imaginable: young children who often have, literally, no ability to speak up for themselves.
Ultimately, says Melissa Boteach, vice president for Income Security and Child Care/Early Learning at the National Women’s Law Center, the issue is whether investor-backed chains can ever overcome an inherent conflict of interest. “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,” she explained, 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.”
Boteach added that such reactions are “not necessarily because they're bad people, but because they have an obligation of profit for their investors. And I think we should talk about it like that. It's not a dirty thing to want to make money if you're in business. The question is whether an investor-backed business model–and in the case of private equity, a heavily financialized model focused on short-term profit—is the appropriate model for something that is a public good.”
Boteach’s comments nod to a discontinuity between how America treats early care and education versus K-12 education. Elizabeth Leiwant is director of Government Relations at Neighborhood Villages, a Massachusetts-based nonprofit that focuses on improving the state’s child care system. She mused in an interview, “how would you feel if I told you that, say, Morgan Stanley owned your child’s elementary school?” Leiwant continued, “It would just seem ludicrous to anyone that these companies and investment firms are making decisions about how your child is educated. And yet people either don't know that's going on in early care and education, or they somehow feel comfortable about it, because they don't associate early education with education in the same way that they do with K-12.”
This article is split into six sections: First, how private equity firms and shareholders manage to make money in a sector that is well-known to struggle financially; Second, the systemic risks from debt-driven growth and consolidation; Third, the political risks to universal child care efforts posed by rising investor influence; Fourth, what clientele investor-backed chains seek to serve and how they treat their employees; Fifth, the implications of profit maximization for program quality, health, and safety; and Sixth, what actions policymakers have or might take to put up guardrails against excessive profiteering -- particularly as more public funding becomes available. One way or the other, what decisions those policymakers make in the coming years will indelibly shape the future of American child care.