Minimum wage increase will lead to less child care, centers say
The higher minimum wage in the city of Los Angeles may harm the very poor families it is intended to help, according to members of the child care planning committee that advises the county.
The L.A. City Council voted Tuesday to raise the minimum wage from the current $9 an hour to $10.50 on July 1, 2016 and then in annual steps up to $15 on July 1, 2020.
City leaders proposed the increase to address California's income inequality and its high cost of living. But there may be unintended consequences for both child care providers and the low-income earners many of them serve.
Most people in the child care field agree that preschool teachers and child care workers, among the lowest paid professions, need the higher pay. However, administrators of child care centers say they don’t receive enough money per child to cover the scheduled wage increases.
Richard Cohen, who chairs the Los Angeles County Childcare Planning Committee, said child care providers citywide don't have many options in covering the additional costs, particularly if they receive state payments to provide subsidized care for low-income families.
"We’re limited in what we can pay by the fact that the state determines the reimbursement rate [per child served]," he said.
Subsidized child care and preschool is a complicated picture.
If poor families earn less than an income threshold, they qualify for free or low-cost child care. Much of this care is provided by small, home-based, private providers. Because they typically employ only a few workers, they will not be affected by the new wage increases.
But across Los Angeles, large agencies with hundreds of employees provide infant care, toddler care, and preschool, in center-based settings.
The Los Angeles County Office of Child Care estimates that 449 child care centers in the city of Los Angeles serving about 28,000 children will need to raise the pay of its lowest paid workers. The centers may have some private-pay families to whom a rate increase can be passed on, but many receive the set reimbursement from the state to cover the cost of running their businesses.
The Child Development Consortium of Los Angeles is one child care agency that relies on state funding. Each day, it serves 500 children under five in 10 centers across the city. While the agency accepts private-pay families, the majority of its slots are paid for by the state, calculated on a set daily rate.
The reimbursement rate went up slightly last year, but experts agree it is far from enough to cover the costs of a quality program. That is why teachers are paid so little, according to Lisa Wilkin, executive director of the Child Development Consortium.
“Child care is a low-wage, labor-intensive industry,” Wilkin said. “So people with a lot of experience are not getting paid commensurate with people in other fields with [the] same education.”
Wilkin supports raising the minimum wage. “I absolutely and completely support increasing wages for everyone,” she said. “I would love to provide my employees with much higher wages.” The problem for Wilkin and other preschool directors is finding the money to pay staff more.
Wilkin said up to 85 percent of her organization’s income is spent on salaries and benefits. There's very little wiggle room to afford even the modest wage increase that will take place next year, she said.
During the recession when child care funding was cut, Wilkin said agencies like hers were forced to trim back every line item. "So when a wage increase comes into affect it has an incredibly significant impact on my ability to do the work," she said.
Wilkin said her agency could probably apply for the exemption from the minimum wage available to nonprofits and child care agencies. Yet she fears doing so will mean losing her qualified teachers to jobs that will have to pay more, like McDonald's. So her organization plans on implementing the minimum wage increase, even though they could be exempted.
It’s a problem that child care agencies will face across the city, according to Cohen, a veteran in the field who has run large child care agencies.
“Early care and education programs are in competition with other low-paying industries for able, qualified staff,” he said. “Even people who love the work leave when the financial pressures are too great, so that turnover rates in the field are extremely high.”
To avoid “wage compression,” when the lowest paid workers edge closer to the higher paid employees with a bachelor's or master's degree or even managers, Wilkin said her organization will need to increase everyone’s wages.
“We’re looking at whether we would be able to stay in business,” she said. “We would need to get a 9 percent per year increase in the [state] reimbursement rate just to cover the increased salary costs.”
The easiest solution would be to raise the state's per-child reimbursement rate, but that does not look likely any time soon. Gov. Jerry Brown's latest revised budget did not include any rate increase.
Michele Sartell, interim child care planning coordinator for the county, said there was a rate increase in 2014 after years of stagnation. But she called it a “nominal increase… lagging far behind the rate of inflation.”
The California Budget Project, a nonprofit that analyzes fiscal policies as they impact low and middle-income residents, said the reimbursement rate from the California Department of Education has lost 20 percent of its value since 1980-1981.
Unintended impact on families
Another Catch-22 of the minimum wage increase is that families who currently qualify for the subsidized child care because of their low earnings will be pushed above the income requirement in the coming years and so they will lose their child care subsidies.
Wilkin projects that in 2016-17, when the minimum wage rises to $10.50, a family of three with two full-time minimum wage earners will cross over the income eligibility threshold by about $1,400, meaning they will have to pay market rates for child care.
Cohen predicts that the wage increase will not be enough for families to afford going rates for child care and they will simply keep their kids at home.
"There’s no way a family that just squeaks over the eligibility limit suddenly would be able to pay for child care, particularly if they have more than one child, and particularly in L.A. where rental costs are already eating over 30 to 60 percent of their income," he said.
The California Budget Project said the income to qualify for subsidized care is “outdated” and based on 2005 numbers. If the rate were to be calculated based on 2012 levels, the income threshold would be raised by 12 percent, according to the CBP. That would heighten the threshold in annual income for a family of three -- two parents and one child -- from $42,216 to $47,320.
How child care agencies might cope
Child care agencies will have to find ways to keep going, according to Sartell.
Unfortunately, she said, much of that burden will fall back on to the workers. “Organizations will need to make decisions on how they will absorb these higher costs, such as increasing family fees, reducing benefit packages provided to their employees, reducing administrative staff and reassigning tasks to their professional staff, and/or compromising program elements,” she said.
Wilkin said her organization may make employees contribute to their benefits plan, something she is loathed to do knowing how little her staffers make.
But it could get worse, she said: "As it goes forward, then we would be looking at consolidating programs...which means there are some neighborhood we would have to leave."