This blog post is a summary of an evaluation by ChildCarePolicy.net, who recently reviewed the recently announced 2025 Child Care Funding Formula in Ontario. For a more in-depth analysis, please visit their site, ChildCarePolicy.net In January 2025, Ontario will roll out a new funding formula for child care, marking a significant shift in how operational funding is calculated and distributed to centers in the $10-a-day Canada-Wide Early Learning and Child Care (CWELCC) program. This change aims to address the gaps of the previous revenue-replacement model, but while the new formula shows promise, it comes with its own set of challenges.

What’s Changing?

The new funding formula moves away from the revenue-replacement model introduced in 2022, which tied funding to parent fees without considering the actual costs of running a center. This led many centers to operate at a loss, forcing closures or reduced services. The new formula, by contrast, is cost-based. It calculates funding based on a center’s projected operating budget, including factors such as:

• Number of licensed spaces and age groups served
• Location (community space, school, etc.)
• Geographic Adjustment Factor (e.g., Toronto centers will receive higher allocations due to higher operating costs, other regions will receive lower allocations)
• Days of operation per year

Key Features

• Legacy Top-Ups: Existing spaces with high operating costs will qualify for a Legacy Top-Up to ensure these costs are covered.
• New spaces are ineligible for the Legacy Top-Up but receive a Growth Top-Up to support expansion, with amounts varying by region.
• Flexibility in Spending: Centers can allocate funding across wages, benefits, food, materials, and other quality-related expenses, enabling them to tailor services to their community’s needs.
• Profit or Surplus Allocation: Centers receive a mark-up of approximately 8.5% to cover profit or surplus. For-profit centers take this as profit, while non-profits reinvest it into future needs like maintenance or staff compensation.
• Accountability Measures: Service System Managers (SSMs) oversee budget plans, conduct cost reviews, and ensure funds are spent appropriately, supporting transparency in public spending.

The Positives

• Cost-Based Approach: The formula uses benchmarks multiplied by number of spaces to approximate the actual costs of providing child care, replacing the outdated revenue-replacement model. This is a win for centers that previously struggled to cover expenses.
• Predictability for Growth: Centers can now forecast revenues more reliably, making it easier to plan expansions or open new locations.
• Support for High-Cost Centers: Legacy Top-Ups ensure that established centers with historically higher costs can continue operating without financial strain.
• Flexibility for Quality Improvement: Centers with lower-than-average costs can invest surplus funds into improving wages, benefits, and overall quality, benefiting staff and families.
• Streamlined Funding: Combining multiple grants into a single funding stream may reduce administrative burdens.
• Financial Oversight: Standardized reporting and audits ensure public funds are used to improve child care quality and access.

The Challenges

• No Wage Grid: The absence of a standardized wage grid means there’s no guarantee of fair, competitive pay for all staff. This risks low wages being used as a cost-cutting strategy, potentially affecting staff retention and quality of care.
• Regional Inequities: Geographic Adjustment Factors (GAFs) and Growth Multipliers vary significantly from one municipality to another, leading to uneven funding. For instance, centers in Toronto receive significantly higher allocations than those in regions like Lennox and Addington, even for similar amounts of child care services.
• Limited Quality Incentives: Unlike other provinces, Ontario’s formula doesn’t encourage centers to hire more qualified staff or invest in quality improvements beyond a certain benchmark. This could hinder efforts to attract and retain skilled educators.
• Kindergarten Revenue Issues: Funding for kindergarten-age children is insufficient, especially given the higher costs of full-day care during school breaks. The same daily rate applies regardless of whether care is part-day or full-day, creating financial strain for centers serving this age group.
• Potential for Exploitation: For-profit operators may find loopholes to increase earnings, such as leasing facilities to themselves at inflated rates or taking on additional paid roles within their centers.
• Inefficient Center Sizes: Funding for supervisory wages doesn’t scale with center size, potentially incentivizing smaller centers over larger, more efficient operations.

Moving Forward

The key question is whether the new funding formula will be enough to support new child care spaces. According to ChildCarePolicy.net’s analysis, the estimated daily revenue per child ranges from $130–$137 for infants to $65–$73 for preschool-age children, depending on whether the center is school-based or community-based. These figures, before geographic and growth adjustments, raise concerns about whether they can cover the operating costs of quality programs. If the formula doesn’t cover these costs, it will fail to support growth. Expansion also requires capital funding, which is currently in short supply.

By balancing financial accountability with the need for quality and accessibility, Ontario has the opportunity to create a sustainable child care system that works for everyone. The new funding formula may not be perfect, but it’s a foundation to build on—and a chance to get it right.

This post is based on an evaluation by ChildCarePolicy.net. For more information, visit their website.