Closing The Gap

Elizabeth Warren urges the SBA and Treasury to help keep child-care providers afloat

THEPALMER

Nearly half of day cares, preschools and child-care centers around the country were forced to temporarily close during the coronavirus pandemic. And many are struggling to reopen, especially those attempting to get back on their feet without any federal or state financial support. 

Concerned that child-care providers may permanently close without help, Senator Elizabeth Warren (D-Mass.), along with four other Democrats, sent a letter to the Small Business Administration and the Treasury Department on Wednesday urging the federal agencies to ensure that child-care providers are able to access relief funds made available through the SBA's Paycheck Protection Program. The program offers forgivable loans of up to $10 million to small businesses with less than 500 employees that were impacted by the coronavirus pandemic. The deadline to get a PPP loan approved is currently June 30, 2020.

The lawmakers, which also included Senators Tina Smith (D-Minn.), Jacky Rosen (D-Nev.) and Bob Casey Jr. (D-Penn.) and Rep. Katherine Clark (D-Mass.), urged the federal agencies to provide "clear and timely guidance" to child-care providers and banks administering the PPP loans to ensure that these small businesses are applying for and receiving the loans they need. 

Child-care providers "face uniquely significant obstacles to obtaining these funds," the letter states. Many in the industry are sole proprietors, so some may incorrectly think they're ineligible for the loans (they typically are eligible, even if they don't have other employees to pay).

Additionally, many providers do not have business checking accounts with banks, which could hamper their ability to get a PPP loan since some banks are only accepting applications from existing business customers. The lawmakers are hoping additional guidance from regulators will clear up any confusion and encourage financial institutions to work with child-care providers before it's too late. 

About half of child-care centers, and only about 1 in 4 home-based care providers, have even applied for the PPP loan program, according to a March survey conducted by the National Association for the Education of Young Children. At the time, 69% of respondents said that they either did not want loans or were too worried about having to pay back the debt to apply. 

Yet of those that applied only about 1 in 4 received PPP loans. As of mid-May, about 12% of child-care providers who had applied had been denied and another 33% had not heard back yet.

"We have heard from child-care providers in our states that they are facing significant obstacles to accessing the small business benefits created by the CARES Act, and we are deeply concerned that without additional support and guidance, many child-care programs will face permanent closures," the letter states

In addition to urging the agencies to provide guidance and increased access, the lawmakers are also seeking information on how many child-care providers have applied for PPP loans, how many received them and what types of facilities successfully received funds. 

"Our child-care system is on the verge of collapsing and child-care providers are getting shut out of crucial small business funds they're entitled to. Keeping child-care providers afloat is critical to our country's recovery – the SBA and Treasury need to act now," Warren tells CNBC Make It. 

The pandemic threatens to push many child-care providers 'out of existence'

Child-care experts say financial support for the industry is crucial right now. Due to the coronavirus pandemic, the U.S. could lose up to 4.5 million child-care slots if providers can't weather the shutdown and reopening process, the Center for American Progress estimates.

Even as states allow child-care facilities to reopen, providers may be slow to return because of strict capacity and operating rules that create financial burdens for providers. 

The Centers for Disease Control and Prevention issued a laundry list of guidelines that encourages providers to equip staff with appropriate protective gear, increase sanitation routines, provide training for teachers and facility employees and attempt to put social distancing procedures into place. While all of that may increase safety, it can be expensive to implement, especially when protective gear and sanitation supplies are in limited supply for many providers. 

"There is expense associated with all of that," says Lynette Fraga, executive director of Child Care Aware of America. "Equipment costs money, sanitizing equipment costs money," she says. Plus, the lower ratio of children to teachers and smaller group sizes has "flipped the business model upside down on its head." 

The child-care industry will need $9.6 billion per month in federal assistance to prevent providers from being forced to permanently shut down, according to an analysis by the Center for Law and Social Policy and the National Women's Law Center. So far, Congress has allocated $3.5 billion in emergency funding for child care in the CARES Act passed in March. 

"Child-care providers survive on thin margins. And the coronavirus economic crisis squeezes them — between falling demand and increased difficulty delivering services — threatening to push many out of existence," says Aaron Sojourner, labor economist at University of Minnesota's Carlson School of Management and researcher on the analysis. 

In addition to Wednesday's letter urging the SBA and Treasury to increase child-care providers' access to PPP loans, several Democratic lawmakers introduced the Child Care is Essential Act at the end of May.

The bill would create a $50 billion "child-care stabilization fund" to provide grants to help pay for personnel, sanitation, training and other costs associated with reopening and running a child-care facility right now. In the House of Representatives, the bill has been assigned to the House Budget committee and currently only has about a 4% chance of being enacted, according to predictive intelligence firm Skopos Labs.

"Now is the time [for large investment] if we want to have a child-care industry that is robust, that is able to survive this pandemic. We are worried about the very survival of this sector," Clark tells CNBC Make It. 

Don't miss more in this series: 

VIDEO3:4203:42
Here's how child-care facilities could reopen safely
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