Where is the funding formula?

KimHiscott
November 29, 2023

While the recent Ontario Workforce Strategy that raises the RECE “floor” to $23.86 is welcome news for some, but not all (many not-for-profit operators already compensate higher than that) we are still waiting for news about the 2024 funding formula and that is problematic.

Ninety-two percent of Ontario’s licensed child care programs signed on to the Canada-wide Early Learning and Child Care agreement and celebrated lowering parent fees, even though it meant we could not increase fees going forward. We even got excited about the opportunity to address our growing waiting lists by expanding our centres. We expected a new funding formula effective 2024 that would address the historical short-falls that were accumulated as we kept fees low to maintain affordability for parents, typically at the expense of appropriate compensation and make us “whole”.

No real funding formula

Revenue replacement is not a funding formula. Capped regional fees are not a funding formula. While some, typically for-profit-operators, might suggest that maintaining the current revenue replacement model is fine (suggesting that their parent fees as of March 2022 were sufficient to meet their expenses) , this approach penalizes operators who kept their parent fees low, year over year, often at the request of their Service System Manager (these were typically not-for-profit operators) . A quick search of the daily rates charged by some for-profit sites compared to the not-for-profits in the same community will highlight the difference. The recently released Measuring matters – Assessing Canada’s progress toward $10-a-day child care for all, David Macdonald and Martha Friendly, reports that:

“The implementation of the CWELCC fee reductions has widened the gap between the higher average fees of for-profit operators compared to not-for-profits.” Check out figure 7 (below) in their report. For example, the gap in Ottawa is identified at 51% (for-profit fees higher by this amount). Meanwhile, not-for-profits often receive General Operating funding, which we can estimate lowers fees by about 20% – meaning for-profit fees are still over 30% higher.

Moving to a publicly funded system

What also needs to be recognized, as we attempt to adapt a market system to one that is more public in its funding and approaches, is that because each operator has negotiated differing levels of expenses based on their unique circumstances, there is no uniformity in the way this is applied. Some differences that affect expenses are significant (eg. compensation and programming practices for example) while others may have less financial impact (eg. negotiated rates for insurance). What remains consistent, however, is that the not-for-profit sector has typically balanced their budgets by managing expenses based on the revenue available versus identifying what revenue is needed first. Developing budgets based on actual costs, which is a more typical business practice, would have raised fees beyond what parents were able to afford. Some of our levers to manage expenses, like being able to plead for lower rents to maintain affordability are also now at risk. Landlords’ question why they should not be charging market rates if we are funded by the government. Many operators across Ontario have already received notice of significant increases, some even from school boards!

Principles for a funding formula that works

Revenue replacement does not / is not working but will a funding formula be better? Let’s hope so! A recent conversation with Dr. Gord Cleveland highlighted the principles that we should be expecting a funding formula will include:

General

Cover all the legitimate operating costs of a centre providing quality licensed child care services at or above regulatory minimums for children age 0-5 across Ontario
Give operators discretion in decisions about the expenditure of allocated funds (ability to transfer funds across grant categories), but also require operators to report in detail at year-end about how funding has been spent in an auditing process that establishes clear accountability for all money received
Recognize sources of additional legitimate costs, such as providing care to a large number of children with special needs, even if not diagnosed, or caring for a large number of subsidized children living in disadvantaged circumstances or providing extended hours of care
Recognize higher costs per child that come from operating a small centre in a rural or remote area
Allow for building up a three-month cash-flow operating surplus and a separate maintenance and repairs surplus
Not include a line item for profit. Profit, if any, will come from an especially efficient use of resources and maintenance of full enrolment, not as an extra gift from governments
Vary payments based on operating capacity
Provide incentives for the provision of higher quality child care services

Staffing

Provide funding that varies with the number of staffing hours of child care provided and allows for planning/preparation/meeting time, time spent communicating with parents, and time spent on children’s diaries
Cover compensation costs for Registered Early Childhood Educators and assistants at wage and benefit rates that are competitive with other occupations requiring similar education, training and practicum requirements such that early learning and child care in Ontario is not characterized by staff shortages and widespread director’s approvals
Cover the compensation costs of supervisory staff and directors of child care centres
Cover the compensation costs of housekeeping, maintenance and food preparation staff as required
Reward and encourage ongoing professional development and increased educational qualifications of both early childhood educators and assistants
Provide for extra compensation for early childhood educators with special qualifications, such as special needs qualifications and pedagogue qualifications
Provide for staff absences in calculating expected annual work hours and provide, in addition, for the expected costs of replacement staff, both for staff holidays, sick leave, pregnancy leave and other absences
Adopt a desired wage grid and, perhaps, a timeline over which to achieve it. The funding formula should reward operators who pay wages and benefits according to the timeline of recommended wage and benefit rates

Occupancy Costs

Be willing to fund both principal and interest for mortgages of not-for-profit child care centres and agencies on the understanding that these funded assets will stay in the child care sector
Be willing to fund only interest payments (not principal) on mortgages of for-profit child care centres, agencies and organizations who will retain ownership of assets if leaving the sector
Establish and regularly update a geographic-based set of expectations about the level of “normal” occupancy costs, together with a process for validating occupancy costs above these norms. In particular, legitimate legacy costs should be respected.
Distinguish between legitimate and illegitimate reasons for having higher than normal occupancy costs

Other

Encourage expansion, especially within existing facilities. So, for instance, the formula should be based on either licensed capacity or the expected number of enrolled spaces over the next year as opposed to past enrolment (i.e., past operating capacity)
Provide for minimum expected amounts to be spent on extra care for children with diagnosed or undiagnosed special needs
Provide for minimum expected amounts to be spent on food and food preparation, and on toys and supplies
Provide an adequate allowance for administrative costs

From the CCPA Report Measuring Matters

Playing the waiting game

And we wait! While we understand that implementing CWELCC is a huge piece of work, in the meantime not-for-profit operators are being asked to not only continue to operate with funding uncertainty but ALSO embrace and start planning for expansion – this is a big ask and very unsettling. We’ve heard that there are conversations in not-for-profit Board meetings across Ontario about whether the operator can afford to stay in CWELCC and / or should be considering expansion. Something must be done before those conversations become votes and participation in CWELCC is at risk!

Releasing the funding formula parameters ASAP would go a long way to support operators with their short-term, medium term, and long-term planning, even if implementation is not until later in 2024. Let’s be consistent in asking for that, at the very least, because CWELCC is what we’ve advocated for and is changing the lives of families, who have a space, for the better. We want this same opportunity for all families, and not-for-profits want to expand.