Colorado’s struggling childcare sector got a win Tuesday with the death of a bill it opposed. But providers say they continue to suffer from regulatory burdens and taxpayer-funded competition and warn that help is needed to avert mass closings.
Those closures have begun. Between April 2024 and mid-February, 54 childcare centers shuttered across the state, taking with them more than 4,300 openings, said Dawn Alexander, Early Childhood Education Association of Colorado executive director. Even with the opening of new centers, the state has roughly 1,000 fewer slots for care, leaving parents too often to choose to stay at home rather than return to the workforce, she said.
The reasons leading so many childcare providers to throw in the towel — some after decades in the business — vary, but it generally comes down to costs of providing the service outweighing the revenues they can gain. Even as they must keep child-care fees relatively low to serve most of the population, providers are paying much more in regulatory compliance, property taxes, supply costs and other expenses that don’t go directly to care for the children they oversee.
Problems increased with universal preschool
That cost imbalance has grown significantly since 2022, when Colorado launched its Universal Preschool program of free care for four-year-olds and some three-year-olds through 148 new programs in school districts. That siphoned numerous children from existing providers, leading 47% of childcare centers to report losses of revenue over the past two years, according to the ECEA.
Nicole Riehl is president and CEO of childcare-focused business group EPIC.
While there are many benefits of free schooling, Nicole Riehl, president/CEO of Executives Partnering to Invest in Children (EPIC), noted that those older children typically are the source of care centers’ profits, as centers can have larger ratios of adult supervisors to kids. When that group goes away, childcare centers struggle to cover costs with just infants and toddlers — a group that public schools aren’t equipped to watch and that may have no options (leaving no options to work for parents) if more care centers close, she argued.
“The reality is that the math doesn’t math for a lot of childcare businesses and providers these days,” Riehl said in an interview. “At the end of the day, this is a business, and it’s a business model — revenue in, expenses out. And the childcare industry is an industry on the edge of demise.”
Colorado already has severe problems in its childcare sector. Sen. Cathy Kipp, D-Fort Collins, said that studies have pinpointed a shortage of 75,000 childcare slots — one reason that Colorado ranks fifth nationally for the average cost of childcare. Numerous studies have shown that a lack of childcare will keep mothers who want to return to jobs out of the workforce, depriving the state of billions of dollars in economic impact.
Attempts to address Colorado childcare struggles
Since the pandemic, the Legislature has passed several laws to try to alleviate this shortage. In 2022, it created $100 million in new grants to help launch and grow childcare centers and to train sector professionals, and it offered property owners new tax exemptions for leasing space in their buildings for childcare facilities. Then last year, it passed a bill creating programs that offer technical and financial assistance to property developers, aspiring childcare-center operators and local governments on how to launch centers and meld them with other types of development.
None of that, however, alleviated some of the biggest regulatory burdens on childcare providers. The industry is not alone in its regulatory concerns — a study commissioned by the Colorado Chamber of Commerce found that Colorado is the sixth-most regulated state in America. But what makes those burdens particularly frustrating, Riehl and Alexander said, is they are imposed by officials who are trying to boost childcare slots statewide.
A December report from the ECEA noted that it can take three to six months to complete licensing for a new childcare center, plus an additional seven months to change a license anytime a provider wants to add a new age group of children. Providers also experience significant delays in completing state-performed background checks for new employees, meaning that those workers can’t be alone with children and that centers must double-staff some rooms and leave other potential care slots open.
How childcare regulations are burdensome
The bigger problem, though, is the punitive approach that state regulators take to enforcing operating rules, leaving many nationally accredited and award-winning centers on probation locally and unable to get license changes needed to grow capacity, officials said. And while Riehl credits Polis and the Department of Early Childhood for being good partners at a high level, they and providers say the way the rules are enforced negate the gain from new tax breaks and grant programs.
The ECEA report noted that CDEC can assess licensing violations based on complaints — sometimes from disgruntled former workers or unnamed parents — without giving centers a chance to prove their innocence. Any of these founded complaints, which can be assessed on centers also for the actions of individual employees, can result in adverse actions that drive up insurance costs and put new requirements on programs.
Jennifer Knott, a 10-year operator of five Western Slope childcare centers, said she was hit with numerous violations once because of complaints from one parent — violations that it took her four months to overturn, costing her significant time and resources. Inspectors can come into a center unannounced whenever they want and require staffers to drop what they’re doing, disrupting learning and burning out teachers who have been written up for actions like leaving a child alone in a room for eight seconds, she said.
Examples of regulatory problems
New Horizon Academy CEO Chad Dunkley, who operates 106 schools in multiple states, said one of his teachers was hit with a violation when she set down a cleaning product on a table within reach of children when an inspector entered the room. His Centennial location has been on probation since 2020 — probations extended beyond set timeframes are an issue identified in the ECEA report — and his wait lists are extensive because the probation bars them from getting license to add new centers for toddlers or other age groups.
State officials have told New Horizons officials and others who complained about the enforcement that Colorado is just looking to hold those taking care of people’s young children to the highest standards of safety. Even critics of what they call excessive regulation acknowledge that the government needs rules in place to protect kids.
But Dunkley, who operates facilities in four other states, said that what Colorado is doing crossing a line from enforcing safety to being detrimental to the industry.
“There’s a large variety in licensing standards. We lean toward being in states with high standards because we want to do well for kids, so Colorado was attractive for us,” he said, noting his schools won Favorite Child Care this year from Colorado Parent magazine. “But there’s a big difference in our experience in Colorado. It’s really anti-provider. There are some things that have really discouraged us.”
Two bills sought more childcare regulations
Colorado state Reps. Emily Sirota and Lorena Garcia explain their bill to regulate private-equity-backed childcare providers to the House.
Childcare providers got even more discouraged this year with the introduction of House Bill 1011. The bill sought originally to bar private-equity firms that operate childcare centers from owning the real estate for the facilities — a provision later removed — and sought to place new regulations on those centers, including disclosure of some financial information and advanced notice of program closings or changes. Cosponsoring Rep. Emily Sirota, D-Denver, said the rules were necessary because “the particular profit motive for this kind of investment” leads to cost-cutting and industry consolidation and requires the state to offer extra protections for workers and clients.
EPIC and ECEA led the fight against the bill, saying that at a time when childcare providers look to investors to help fund operations, the bill would discourage childcare money from flowing into Colorado, leave struggling centers without options and target certain providers. Demanding some private operators provide financial statements is “government overreach to the core,” Riehl said, adding that HB 1011 would exacerbate childcare shortages.
On Tuesday, the Senate rejected the bill on a vote of 18-16, with seven Democrats joining with Republicans to kill it after the sponsors had yanked out a provision added during a committee hearing that would have applied the same rules to all childcare providers. While Kipp, the Senate cosponsor, had argued the bill would require “minimal” transparency from private-equity providers, Sen. Scott Bright, a Platteville Republican who operates 35 childcare centers, said it would have caused some providers to pull out of Colorado.
Continuing problems with universal preschool
Polis on March 27 did sign Senate Bill 4, which requires that private childcare providers offer transparent fee schedules to parents upon registration and that they refund wait-list fees to anyone who remains in limbo for six months and requests their money back. Childcare-sector leaders worked to change several provisions as SB 4 advanced, including removing a $25 waitlist-fee cap.
Colorado state Sens. Faith Winter and Janice Marchman explain Senate Bill 4 to the Senate.
While childcare providers believe they may get through this legislative session without facing more untenable regulations, though, they still need to address the issue of how they can continue to function alongside Universal Preschool. The ECEA report indicated that most programs had reported losing anywhere between 10% and 80% of their participants to the state-funded program.
Private childcare centers can participate in Universal Preschool and receive state funds, but to do so, they will have to lower staffing ratios from 12 children per adult to 11 by June 2025 and then again to 10 by June 2026. Alexander warned those ratios are too low to make sustainable revenues.
The ECEA report is blunt: “Child care cannot function by offering child care only for infants through 2 years of age.” Members say that if more centers caring for kids ranging from newborns up to 4-year-olds shutter, working mothers will have a much harder time finding accessible and affordable care for kids until schools can take them in Universal Preschool.
“Open and honest conversation” needed
Ben Bloise, who operates three Denver-area early-childhood-education centers, said the state should limit the opening of new childcare programs in public schools and work more closely with existing public and private schools to fill Universal Preschool slots. Most providers have vacancy rates of between 20% and 40% right now, and that oversupply of slots quickly will turn into larger shortages if more private centers close.
“We’re now in direct competition with the public schools,” Bloise said of an industry that formerly was seen as a pipeline for moving kids from home- and center-based care into the educational system. “There is a new crisis happening in childcare, and that is the elimination of the local childcare center and owner.”
Riehl believes the best outcome for both the sector and the state will come if the private and public sectors can work together more closely to define their roles and make it easier for private centers to continue offering the services they’ve always provided. To do that, though, state officials need to review their regulations, reconsider the shrinking ratios for Universal Preschool and stop allowing rulemaking to be a constant process.
“I think there is definitely an opportunity for the state regulatory partners to sit down and have a very open and honest conversation with industry partners about, say, ‘What are the top 10 things we can address this year to make sure you can keep your businesses open and your businesses solvent?” she said. “These are businesses that are trying to comply on a day-to-day basis … There are always opportunities to improve.”