BACKGROUND

The Appaloosa County Day Care Center, Inc. (ACDC) began operations in a vacant warehouse retrofitted with bathrooms and kitchen facilities. ACDC's mission is to provide quality, affordable childcare to the residents of the community and surrounding area. The service area is a rural, economically depressed county that continually ranks in the lowest 10 percent of per-capita income in the state. The organization's seven-member board of directors is comprised of volunteer representatives from various agencies throughout the community-the school district, community college, hospital, Department of Human Services, etc. The board members bring a breadth of human services experience to the oversight of the day care, but most do not possess an accounting or financial background. While they were committed to the financial viability of the day care, they initially focused on the center's mission-to provide affordable childcare to working-class families. As a result, the board set childcare rates to achieve their goal of affordability rather than assuring adequate revenues to provide high quality services while reaching breakeven points. From its founding, the center faced another significant challenge. The center was the first of its kind in the community, so negative perceptions about using "institutionally" provided day care were prevalent. Local families preferred to use in-home childcare provided by friends or relatives. These perceptions and preferences, coupled with poor administrative practices, caused the center to struggle continually to meet its financial obligations. ACDC was almost forced to close its doors on more than one occasion. The financial performance of ACDC is not unusual, as many community-based day care facilities struggle to remain open.

DAY CARE INDUSTRY REVENUE AND COST PATTERNS

As an industry, day care facilities generally operate with very low profit margins. Typical for-profit day care profit margins are approximately 4 percent, with about 70 percent of a center's total costs attributed to wages and other employee-related costs (Helburn 1995, 172, 176). The state's Department of Human Services' licensing regulations drive a significant level of employee-related costs. These regulations mandate a strict staff-to-child ratio that all licensed facilities must follow. For example, infant care (ages two weeks to two years) regulations require at least one staff member for every four children (see excerpt from regulations in Exhibit 1). Thus, if a center pays just the minimum wage (federal wage currently $7.25 per hour, $7.80 w/taxes), at least $1.95 per hour would need to be charged for each infant just to cover the cost of the employee. Additionally, one must consider how revenues are affected when there are fewer than four infants per employee scheduled in the nursery. When the ratio drops, income per hour drops; however, the full hourly wage to the employee remains the same and an immediate loss occurs. See Exhibit 1 for the complete Department of Human Service staff ratio requirements.

Exhibit 1 Department of Human Services Excerpt from Childcare Regulations Staff ratio. The staff-to-child ratio shall be as follows: Age of Children Minimum Ratio of Staff to Children Two weeks to two years One to every 4 children Two years One to every 6 children Three years One to every 8 children Four years One to every 12 children Five years to ten years One to every 15 children Ten years and over One to every 20 children Source: Department of Human Services. 2008. Child Care Centers and Preschools Licensing Standards and Procedures. Comm. 204, August.Table 1 Payroll Detail Total Wages Taxes Payroll Administrative $ 13,750 DOLLS $ 14,940 Kitchen 9.000 780 9,780 Infant care 19 250 1,665 20,915 Toddler care 38,500 3,330 41,830 Pre-K care 29.000 2,510 31,510 Totals $109,500 $ 9,475 $118,975Table 2 Operating Expenses Accounting & legal 900 Advertising 150 Bank charges 35 Continuing education 450 Depreciation 11,800 Food expense 5,500 Ins. - Bldg/property 860 Ins. - Officer bond 120 Ins. - Gen. liability 2,190 Ins. - Workers comp 400 Interest expense 13,086 Payroll -wages* 109,500 Payroll -taxes* 9.476 Repairs & maintenance 5,950 Sanitation Service 2,436 Supplies - Cleaning 366 Supplies - Program/art 3,676 Supplies - Office 2,900 Telephone 1,060 Utilities 4,000 Water sewer 1,100 TOTAL EXPENSES $ 175,950 *Son datail in Tabla 1Table 3 Revenues Tuition Infant care $ 28,530 Toddler care 68,710 Pre-K care 62 650 Rent School district 4,200 Head Start 6,350 TOTAL $ 170,450Table 4 Hourly Childcare Rates Infant care $ 2.00 Toddler care 1.76 Pre-K care 1.75 Table 5 Square Footage ACOC 3,600 School district 1,760 Head Start 2.650 TOTAL 8,000Table 6 Population Total Average Average Total number of Total daily daily students staff attendance stalling of daily enrolled employed of students employees population ACOC Administrator Kitchen 1 Infant care 11 10 Toddler care 35 22 26 Pre-K care 32 20 23 School district 12 18 Head Start 40 46 Total 78 14 102 23 125