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According to the Federal Reserve Bank of Minneapolis, "Investing in high-quality early care and education (ECE) can achieve a high financial return for the public. Groundbreaking studies of these investments demonstrate that early learning programs targeted to children from disadvantaged environments can improve child development outcomes, with benefits extending well into adulthood… The programs yielding the largest benefits tend to have relatively well-paid and prepared teachers, low child-teacher ratios, and a research-based curriculum. However, high-quality program elements often cost more than providers receive in revenue through tuition payments and government funding."

The national nonprofit First Children's Finance affirms this, noting, "Studies have shown that for many child care businesses, the price of tuition does not reflect the cost of providing care. Many providers set tuition rates based on what local families can afford and may balance their budgets by offering low wages, or by not paying themselves. Setting subsidy rates based only on price, without understanding costs, can perpetuate the underfunding of child care, especially in low-income and historically disenfranchised communities."

Analyzing the difference between either tuition rate and actual costs or revenue per slot, which includes subsidies, grants etc., provides very useful decision-making data for early childhood administrators and directors. In the Exchange Essentials, "The Business of ECE Finance," Louise Stoney and Libbie Poppick note to calculate the cost-per-child, administrators need to take into account the total Full Time Equivalent wages and fringe/benefit costs for all classroom personnel (by class or age), non-classroom ­personnel, and non-personnel costs. In addition, ‘bad debt’ or fees not collected must also be taken into account.

Thanks to Karen Foster-Jorgensen for contributing to this ExchangeEveryDay.

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