InFocus: Highlights from our Q&A with P5 Fiscal Strategies and the Children’s Funding Project
On November 17th, the Collaboratory community hosted a discussion with Simon Workman and Jeanna Capito of Prenatal to Five Fiscal Strategies and Kate Ritter of the Children’s Funding Project. This conversation has been condensed and edited for clarity.
What are some best practices for cost modeling?
Jeanna Capito: Allow the time for strong, deep stakeholder engagement. Provider engagement is critical in all steps, from thinking about using a cost model, to the assumptions that inform the cost model, to the data collection. Think about how the engagement process might differ when you are conducting a cost model year-over-year when providers are used to just reporting their pricing data. Washington, DC is an example of how this can evolve and how providers can work with ECE leadership in this area. This can mean a modeling process is going to take longer.
Simon Workman: This toolkit can walk you through the steps of engagement and key considerations. One of the big considerations is being clear on what you are modeling. Are you modeling the current reality or an aspirational or future reality? Are you looking for the price of care, the cost of care, or the true cost of care? Price we get through market rate surveys. Cost of care is looking at program budgets and determining what it is costing business to provide care on a per child basis. True cost of care is seeking to understand what child care would cost if we didn’t operate with a scarcity mindset. What would it cost to operate a program in the interest of providing the most developmentally appropriate care for kids? Be clear which of these you are modeling and then align your inputs. Deciding what the aspirational model should be can be very hard to do when we’re all so used to a scarcity mindset.
Kate Ritter: It’s also really important to be clear about the time period you are going to look at, especially because data collection can be really different during the time of COVID. Be thoughtful about how you might use data averages from before COVID to think about projecting FY22 budgets.
How can CDFIs support states in distributing grants?
Lyals Battle, Washington Area Community Investment Fund (WACIF): In DC, The Office of the State Superintendent of Education (OSSE) supplied the funds, the list of grantees, and created the funding formula that determined the grant size for each grantee. WACIF created an automated process that allowed us to disperse the funds, collect demographic and business data, and will enable us to run analyses in the future.
Sara Meade, Washington, DC Office of the State Superintendent of Education: I can share more about how we used cost modeling for our stabilization grant formula. We took the estimated cost for each age group of children from the cost model and used that per child cost so that programs that served more infants and toddlers would get more money. We set the base funding amount at 4.5% of the estimated annual per child cost for that provider and then used the social vulnerability index to provide a need-based increment to, in some cases significantly, increase the grant amount in areas of high poverty. We wanted to have a formula that was simple for providers to understand while also based on costs. These formula-based grants are administered by WACIF.
DC also has another pool of stabilization grant funding set aside for more unique circumstances where the formula funding does not cover a program’s needs. These needs are surfaced during the intake process for the stabilization grants. Another CDFI, the Low-Income Investment Fund (LIIF) is administering these funds which have a more complicated formula and require more diligence and follow up work from grantees. Grantees tapping into this funding pool will receive additional support to address some of the reasons they require additional money to support their operations.
All of DC’s stabilization grants are being administered through an intermediary. It was the most efficient way for OSSE to distribute funding. We’ve realized providers throughout our communities are in really different places. Some are fully enrolled with waitlists and ready to grow, others are still struggling with enrollment. With these different grant programs, we are working to differentiate our approach to these different situations. Here's information on the stabilization grant: https://osse.dc.gov/page/dc-child-care-stabilization-grant
Laura Jackmen, Low Income Investment Fund (LIIF): LIIF makes large grants to providers to build facilities and then gets reimbursed by OSSE. They are making the payment upfront and monitoring progress throughout the project rather than the state or provider having to front the upfront costs, which can be barrier. LIIF (Low Income Investment Fund) is a national CDFI with programs in other states. We have partnered with states to disperse federal funding. You can read more about our ECE response here: https://www.liifeceresponse.org/
Molly Sullivan: FCF lends to child care providers in a dozen states: https://www.firstchildrensfinance.org/for-businesses/business-loans/ There will be a MN-specific loan fund for facilities launching soon!
How can alternative child care licensing impact costs?
Simon: Often one of the first steps of cost modeling is to look at the state licensing standards and assign which standards have a cost driver. For example, having a full-time director onsite can be really tough for smaller programs. Louise Stoney has been discussing the concept of a microcenter. Can you have an overarching network that is meeting some of those standards so that each program doesn’t have to individually shoulder those costs? For example, in Seattle their pre-k program required lead teachers to have bachelors. They wanted family child care providers to participate in the pre-k program, especially because there is a large Somali population that relies on family child care. However, they didn’t want to budge on the bachelor’s requirement. Instead, they developed a hub model where the “classroom” of pre-k could be shared across 5 family child care providers and one master teacher would travel from program to program to provide coaching and curriculum support. From a cost model perspective, that requires different thinking beyond per child costs, to costs at a network and program level. Then you ask, can this be done at the same rate, does it need to be a higher rate, or are there efficiencies that could lead to a lower rate?
How do you message the results of cost modeling to people outside of the ECE sector who may be skeptical of findings demonstrating that revenue does not cover expenses?
Jeanna: This comes up a lot. We talk about things like the amount of work that is done outside of what someone is compensated for, how low the wages are compared to the required work and educational qualifications, and how they compare to other jobs that require a bachelor in that community. They are taking a lower salary than what they could be earning in another industry.
Kate: This is balanced on the backs of the workforce through low wages as well as parents who are asked to pay additional fees above their state assessed copay. It’s not best practice, but providers may be balancing their budget through sliding kids around when there is low attendance and letting a teacher go, again balancing the budget through the teacher not getting those wages. There is a lot of nuanced balancing that goes on. We also know a lot of programs do their own fundraising, which once again is adding on hours and extra work. We also point out infants and toddlers are balanced by the pre-k and school-age classrooms.
Jeanna: When talking to external stakeholders it’s important to be clear on their assumptions about what is included in the costs. We make it clear that when child care costs what families can afford to pay, it is not a viable job for most people. A program might cobble their schedule together by having multiple people working 75% time to avoid paying benefits. That’s not the assumption members of the business community have when they think about the jobs that they have held and the benefits that come with those jobs. This leads into how hard it is to retain qualified staff in the industry. Be clear with stakeholders what it actually means to work in this field, what you are giving up, and having to sacrifice.
How should states be thinking about leveraging the American Rescue Plan Act (ARPA) in regards to cost modeling?
Simon: Currently in the Build Back Better legislation, by the three-year mark you have to be using a cost estimation model to set subsidy rates. This coming down the pike and starting to think about this sooner rather than later is beneficial. You need a cost model and once you have it, it is much easier to update it than starting from scratch. Having a model is not a one-time thing, it is an iterative process, but there is a startup cost to getting a model, getting people on the same page, and getting the assumptions laid out. So, this can be a good use of one-time American Rescue Plan funds. In states that are hesitant to make a significant ongoing investment, you can position this as just getting the knowledge right now to be able to make more informed decisions down the road.
How are states building up their data infrastructure to support cost modeling?
Angela Ben-Zekry, Colorado Office of Early Childhood: We are going through a whole data system analysis, thinking about how systems can be unified, and taking it one step further to hopefully allow for some APIs for child care management software to talk better with state systems. We are in the strategic planning process and trying to figure out what some of our costs are going to be, but very excited to embark on this conversation and interested in conversations about what other states are learning too.
Shallan Jones, Louisiana Department of Education: We are doing a huge data system build that we’ve called our EdLink project. Like in many states, our systems are extremely disjointed, and providers are having to log into many systems to just do one thing. We started to think about getting child care providers a CCMS, like ProCare, in their centers and thought about how we could fund that. We were connected through Louise Stoney to a company called Controltec out of California and started talking about APIs. They have helped us understand how we can have an impact at the provider level as well as build data systems at the community/network level so that our networks can push data to the state more seamlessly.
What initial steps should states be taking to build data infrastructure to capture ongoing costs?
Jeanna: Thinking about data specific to modeling, part of it is a shift in the type of data you are trying to capture from people. Providers are used to participating in market rate survey data collection, which is asking for different information than when you want to understand expenses. Especially because one of the most important things you want to understand is what they are paying and how it relates to where you are trying to head with compensation and benefits. There is a measure of needing to socialize the concept of needing to gather that kind of information so that providers aren’t feeling like, “why are you asking me that?” In situations where there are contracts in place or an operating grant, providers might not be as hesitant to share operating expense data. But when you think about having a source of data that is going to help you in an ongoing way with a cost model approach to rate setting, even though you don’t do the same data collection every time, you will need to go back to them and ask, “is this still accurate?” So, there is something to be said for thinking about the type of data you’ll want to collect in an ongoing way related to the cost of quality and beginning those conversations now.