Supporting Childcare: Question 5 aims to help childcare facilities with their thin margins

In early 2020, Jenni and Dennis DeLoach were about to expand their business.

They started Joyful Hearts Childcare in 2008; it functioned originally as a home daycare. Three years later, they opened their first center-based facility inside of the First Baptist Church on Cotter Street in Pawtucket. They are licensed for 39 kids inside that center, and it quickly filled up. Jenni and Dennis started looking to open a new location. Leasing would be easier than purchasing a new building for their business. 

“With childcare, your margins are very slim,” says Dennis. “From a leasing standpoint, not a problem. From a purchasing standpoint when you’re trying to buy a building, it’s very difficult.”

The Deloaches found a new location in East Providence on Robinson Street. A prior daycare had vacated for a more central location in town, closer to the city. The previous tenants had been there for almost 50 years, and the facility was overdue for some updates. Childcare centers come with strict guidelines from the state. Most older ones are grandfathered into whatever new regulations state officials write. If a new childcare company took over the Cottage Street location, for example, estimated costs to bring them up to code is somewhere in the upper $50,000 range. 

The new East Providence location isn’t far off from that. The Deloaches estimate they put $30,000 into improvements into Robinson St, just to get their childcare license for the new space. They put in a handicap-accessible ramp, new flooring, windows and stairs for a fire exit among other structural improvements. The kind of money required to bring spaces up to code requires debt service. Commercial lenders expect debt service, and aren’t keen to approve loans without sufficient profit margins. 

They found themselves in the same catch-22 many childcare facilities find themselves in. Current profit margins are too thin, so they can’t get financing to increase capacity and increase the profit margins to acquire the financing.

“That’s where we were getting crushed,” said Dennis.

Question Five on Tuesday’s ballot aims squarely to solve that problem. It sets aside $15 million for childcare facilities. Centers can use it toward renovating, expanding, remodeling or restoring spaces use for childcare, like Joyful Hearts. According to a 2019 needs assessment from Local Initiatives Support Corporation Rhode Island (LISC for short), 87% of operators surveyed said their facilities needed improvements or upgrades to improve the quality of their program. A further 88% said they would need funding in order to do so. 

“These programs operate on extremely tight margins,” says Jeremiah O’Grady, Lending Program officer at LISC. “There’s very few that actually have sufficient capital on hand to even deal with emergencies.” The actual statistic is 18%, less than one-fifth of childcare providers surveyed report they have enough cash on hand to pay for a facility emergency.

Rhode Island has a statewide issue of a deficit in childcare spaces. The problem isn’t limited to the rural or urban areas. Woonsocket, Newport, Westerly, Richmond are all in need of additional childcare. Many of these towns are considered childcare deserts, when a town has an excess of 10 children or more than it has seats.

“In Pawtucket, honestly, I turn down between seven and 16 kids a week,” says Jenni. Before COVID, there were seven other competitor daycare centers within a one- to two-mile radius around the Cottage St location. Three closed in the last year. “There’s definitely a shortage of daycare in town,” she says.

They get parents calling them from Cumberland or as far away as Woonsocket. Dennis attributes it to their location along the 95 corridor, with parents wanting to drop kids off on their way to work in Massachusetts. “That phone never stopped ringing [during COVID],” says Jenni.

A 2020 study by Child Care Aware, a national nonprofit, estimated the average cost for a year of childcare for infants to be $11,152, 11% of the median household income of a married couple. A family that requires two children with places on average would cost $21,121 for a year of childcare. The median household income in 2019 was around $61,000. 

“Here you are childcare cost-burdened before you even talk about housing or food or transportation or anything else,” said O’Grady. “There’s simply not enough spaces.”

The bond, if passed, could help operators like the Deloaches. Originally planning on opening the East Providence location in March, COVID threw a spanner in their plans. They weren’t officially licensed until August, and then they only had a handful of kids for the rest of the year, significantly below capacity. Kids started coming again two months ago, and their East Providence location is up to 30. Jenni attributes it to school being back in session and vaccinations ramping up.

If the bond passes, and Joyful Hearts receives funds, Jenni and Dennis intend to put the money toward opening a third location; exact space is yet to be determined, but they want to open another location in Pawtucket, since demand is so high. The new location would have a child capacity between 80 and 100 kids, helping alleviate the childcare problem and any future financial margin problems.

Although $15 million seems like a lot, it’s a little toward a long way of fixing one of Rhode Island’s undercover crises.