Bring In the Guardrails
NWLC's Melissa Boteach on what to Watch for with Private Equity Groups and Child Care
Exciting news from our team at Better Life Lab - Brigid Schulte’s new book is coming out this month, OVER WORK. Expect to see a lot more about this book and the hows and whys of what about American culture drives us to work so intensely - and also what we can do to change it.
If you’re local to DC or NYC and up for a book event - two are coming up.
But this Substack today is about another badass woman and the work she is doing. I’d seen Melissa Boteach bylines many times before we met in person. But when we did meet, at the day-long event where she presented her report: “Children Before Profits’ Constraining Private Equity Profiteering to Advance Child Care as a Public Good,” I can see why this topic can fill a room. This report represents the fine line that child care walks in our economy - while it should be a public good with government support, it’s currently a private good that has little elasticity - meaning that nearly every family with working parents needs child care to function.
Melissa Boteach, Left, with Rep. Sara Jacobs (D-Calif.) and co-author Audrey Steinon at the event launching their report.
Melissa serves as the Vice President for Income Security and Child Care/Early Education for the National Women’s Law Center. When she and I talk, she tells me that until she started doing this deep research, she wasn’t really sure what private equity did. Sure, she knew it was something in the finance field - something where people got rich - but the mechanics of how private equity makes people rich is very different from other financial services. Private equity companies are built on short term returns - they have the ability to take on significant debt and purchase companies, drain them of resources and then pass the debt and liability back over to the companies they purchase, either selling them off for a profit, or declaring bankruptcy and washing their hands clean.
Much of this is above board - we are a capitalist nation that loves the story of the individual who can strike it big - but PE firms have a spotty record in entering service industries where there are significant taxpayer dollars involved like nursing homes and hospice.
So what happens when they come for child care?
Because it’s not an IF they come for child care, it’s a WHEN.
Boteach teamed up with Audrey Stienon at the Open Markets Institute for their report, which details the risks of private equity coming to child care AND the guardrails needed if and when they do. If child care does get that influx of government funds (as it will in some states) then the interest is likely to grow.
Q+A with NWLC’s Melissa Boteach
My Q and A with Melissa is here, lightly condensed and edited for clarity.
Q. Private equity has been around a long time in various industries. What has shifted so that PE firms have more interest in child care now?
Melissa: Money is the language that private equity speaks, and as more money comes for child care programs, from the American Rescue Plan, etc, you’re going to see more private equity. When you look at any other sector where there is a lot of public money, nursing homes and Autism services, that’s when interest from private equity spikes.
One of the reasons we have chosen to do the report now is because we have not yet won a child care guarantee where there are 100s of billions of dollars flowing in to shape child care in this country. We saw during Build Back Better that there was a large interest from private equity on how that money is shaped and what parameters are put on it. But right now, we are still very much an appropriated program. We want to use this child care sector as an example of what happens when you put guardrails in place and lay out rules preemptively.
Q. So what are the rules that your report lays out?
We lay out four categories for policy solutions.
Rules of the road, safety regulation for how child care should work.
Public funding conditionality. If you want public dollars [as a private equity firm], this is what you have to do.
Empowering small, medium and community-based providers. We have a major supply problem in child care. We need to be building the right kind of supply.
Building countervailing power. Everything from industry boards to leveraging financial transparency and accountability and enforcement. We need rules to avoid making it a pay-to-play model.
We want to avoid a situation in which a private equity company is buying up all of the individual parts: a system for setting standards, for billing and accounting, for curriculums. We want to make sure they are not setting the standards for their own compliance.
Q. I can appreciate the optimism of your report - the idea that by laying out a framework for how child care should be a public good, that private equity firms may be more likely to value such principles. But in your experience, is this something that private equity firms typically do? Wouldn’t we need regulation or guardrails in place for such a takeover?
Melissa: I’ve never seen a corporation do something because someone asked nicely. A big part of this is aligning incentives, and right now the big thing for private equity is to maximize their profits. That is not incompatible with providing quality child care as long as there are rules and regulations that put children first. That is why the name of our report is “Children before Profits.”
One private equity lobbyist said that we are attacking them for doing what businesses do. But it’s not an attack. We are very clear that [child care] is a public good that is often privately provided. There is nothing dirty about making a profit. The question is that when you are so extreme-profit maximizing, you aren’t going to center children and families without the proper guardrails. What can we do so that maximizing profits is not at the expense of the well being of children?
We want these providers to be profitable; 80 percent of the child care market is private right now and [our report is] very clear in distinguishing between small businesses and community-based providers from private equity backed chains.
Q. So many parents seem to have no idea that a private equity firm has a stake in their family’s child care center, and yet this happens all of the time. How can we make consumers more aware of this, and once they are made aware, how can they take action to prevent the sort of anti-competitive marketplace tactics you mention in your report?
Melissa: One of the biggest things parents can do is to advocate more broadly for money with guardrails for child care. There is not a big supply for child care. If you get into one of these spots, you are likely ok. My kid has a slot and it was really hard to find a slot! Most parents won’t look a gift horse in the mouth if they found a spot that works. That is part of the problem - it’s not individual, it’s structural.
So we suggest that parents advocate to the decision makers and/or boards that their child care has the highest quality standards and pay the providers well. This problem didn’t appear out of nowhere. This is a structural issue that came out of years of underfunding a sector. I don’t want to poo-poo that people can’t make a difference individually - people can advocate with their local providers. But we need mass mobilization and people to join movements to change the direction of child care in this country.
Melissa with her own child, though her work on this issue long predates having her own kids (photo from Melissa Boteach)
Q. It’s been said multiple times that our country is willing to tolerate such profit-maximizing behavior in child care in ways that we would never allow in K-12 education. Why do you think that is?
Melissa: I don't think people know about it in child care. If they did know, I think they would want to create a different and better system. I will be honest - I didn't really know what private equity was until 2-3 years ago. I knew it was a “kind of finance thing.” So for many families, not only do they not know what private equity is, they also don’t know it’s in their child’s education. If people actually knew, at scale, what went on, and we were able to communicate clearly what it has done in other sectors where businesses have been shut down, like Red Lobster and local hospitals and vet clinics, they might feel differently.
Q. For people who care deeply about the people and families who work in and rely on child care, and have serious concerns about what private equity could do to the already-precarious industry, what should we be watching for next?
Melissa: There are a couple of things people can do.
1) Work to secure significant funding for child care so more small and community based providers can compete and the government is paying for the cost of care. Most child care centers make a one percent profit margin, so it’s really hard for them to stay in business without other sources of funding. But we want that money to come with guardrails.
2) Work with your local CDFI and banks to empower local providers and make sure they can compete in their local markets.
3) Work with the state legislators and administrators to make sure that there is a voice for parents and early educators.
4) Join local grassroots organizations that are fighting for a fair child care system - because it’s a long fight, such as MomsRising or Family Values at Work partners in states.
Some of what happens is going to depend on the outcome of the election and the tax bill next year. We want to make sure that we are not giving away billions of tax dollars to billionaires and corporations. We need to be raising revenues to invest in our families - including guaranteed access to child care.
Excellent interview-thank you for this! I’ve long admired Melissa Boteach and the NWLC work and am so glad to see this report is in the world!