September 03, 2015

How Foundations Can Give Children a Brighter Future

Early-learning programs are attracting new support from policy makers and philanthropists as research continues to confirm what experts have known for decades: High-quality care for children under age 5 is one of the most effective strategies for putting them on a path to academic achievement and success later in life. Outcomes have been shown to be particularly compelling for children living in poverty.

According to a report from the nonprofit Fight Crime: Invest in Kids, Pennsylvania Governor Tom Wolf’s proposed $120 million increase for pre-K programs stands to boost high-school graduation rates, reduce incarcerations, and save Pennsylvania taxpayers more than $350 million. The report details how early-learning programs reduce the disadvantages experienced by children growing up in poverty.

For example, by the time at-risk children get to kindergarten, many are already behind in vocabulary development, pre-literacy skills, and pre-math skills — and can have problems with behavior and impulse control, which make it hard for them to get along with other children and teachers. In many cases, early-learning programs eliminate the need for costly interventions down the road, such as special education and other services to help children who are not able to recover from the developmental gap.

Efforts across the country — such as universal preschool programs in New York City and Pay for Success in Chicago and Utah (in which investors pay for a program and get reimbursed by the government if the program demonstrates measurable outcomes) — recognize the long-term value of implementing high-quality early interventions. 

Despite the indisputable evidence of the importance of high-quality early-learning programs, low-income children continue to face significant barriers to accessing such programs — and high-quality early-learning providers continue to remain undercapitalized. 

One clear problem is the lack of supply: There are simply not enough high-quality “seats” for the children who need them the most. For example, Philadelphia has 15,000 high-quality seats for the 100,000 children under the age of 5. The shortage has a lot to do with the financial and business realities of operating early-learning programs.

NFF’s recent report “Overcoming Financial Barriers to Expanding High-Quality Early Care & Education in Southeastern Pennsylvania” sheds some light on these barriers, which include the prohibitive costs of delivering excellent care, the shortcomings of government reimbursements, narrow operating margins for care providers, and the mismatch between reimbursement policies and the educational outcomes demanded of such programs.

The way in which early-childhood learning is funded is ripe for overhaul. It needs far more than incremental increases in reimbursements or philanthropy-funded support for additional seats.

The financial model as it exists now presents many challenges, two of which are:

  • There is little understanding about the “full costs” of providing high-quality care.  According to NFF’s analysis, the estimated cost to deliver quality programs is upwards of $11,832 per child per year (and close to $13,000 per child for the hightest-quality programs) — far more than the $9,789 child-care subsidy reimbursement available for children that meet the poverty guidelines. With each additional enrollment, the gap between actual cost and revenue grows.  While the analysis is based on Pennsylvania data, the Nonprofit Finance Fund observes that the gap between costs and reimbursements is a universal problem across many states.
  • Tuition and many government reimbursements are tied to specific students and shift with changing enrollment. There is little funding available directly to organizations that want to increase quality. And for most providers, increases in quality do not correspond with increases in revenue, so even if they improve their programs, they are not rewarded under the current system.

Philanthropists who are committed to the educational goals of high-quality programs can best serve children through the following steps:

  • Provide the right kinds of capital, such as general operating support and money donated specifically to expand or improve the quality of programs. (Growth and higher standards both result in operating deficits until the new financial model stabilizes.)
  • Help programs pursue growth wisely and equip them with enough in reserves to prepare for the financial obstacles that often accompany growth.
  • Pave the way for systems that support and encourage parents to choose high-quality programs.

Provide more direct institutional funding to balance the risky nature of tuition and government reimbursements (which follow specific children when they may move from one program to another).

  • Work to help shift policies so the government pays the full cost of programs and provides incentives for good outcomes and high-quality programs. Philanthropy alone cannot take on the responsibility of covering the gap.

Improving access to quality care will take time, money, and a new approach to supporting direct providers. But as a single intervention proven to affect so many children, quality early learning offers a rare and compelling opportunity to change more lives — if we can reach more children early enough.

Philanthropists, in partnership with parents and policy makers, have a unique opportunity to work together for the benefit of children across the country. In the meantime, providers continue the Herculean feat of delivering excellent education and care on the backs of staff and teachers who are often underpaid yet committed to equipping young children with the tools they need to thrive in life.

Kristine Alvarez is director of Nonprofit Finance Fund.