Investing in the Future: Child Care Plays Important Role in Community Development
Working parents need safe, reliable and affordable child care. For low-income parents moving from welfare into the workforce, that can be hard to find. Many depend on friends and family to watch their children while they work.
Although this may be a good option for some parents, others may not have such support. In addition, children in home care may not receive educational and social opportunities that state-regulated child-care centers offer.
Nonprofit organizations can play a critical role in bringing child care to parents in low- and moderate-income areas. However, many nonprofits that operate child-care facilities lack the expertise or income to develop and fund a capital project and must look outside of their organizations for help. That help can come in the form of public-private partnerships with lenders.
Partnerships: Getting the Right People Involved in the Project
A public-private partnership exists when the public sector (federal, state and local officials and agencies) joins the private sector (families, employers, nonprofits, financial institutions, civic groups and service providers) to attain a shared goal. The partnership allows each sector to contribute its resources-including time, money and expertise-to complete the project.
The Department of Health and Human Services, which recognizes that collaborative efforts are needed to complete capital projects, established the Child Care Partnership Project. As a result, states are working to build and sustain partnerships with the private sector that bring together innovative efforts and technical and financial assistance. Those public-private partnership efforts have become an important vehicle to expand affordable quality child care.
The Growing Need
The need for more and better child care in low-income neighborhoods grew out of the 1996 Personal Responsibility and Work Opportunity Reconciliation Act. Congress realized that, in order for low-income people to move into the mainstream, the government needed to create programs that encouraged self-sufficiency. Temporary Assistance for Needy Families (TANF) and social service block grants are a result of those plans. TANF requires program recipients to have a job within two years of receiving benefits. The social service block grant programs allow states to create social programs, including child care, that work best in their communities.
Parents moving from welfare into entry-level jobs find that having a job doesn't mean earning a living wage. They also find that child care is the largest expense they have when joining the workforce.
States use portions of their social service block grants to ease the high cost of child care for low-income working parents, but that alone is not enough. Research has found that, even with assistance, low-income parents spend a much larger percentage of their income on child care than their middle-income counterparts. In 2003, a single parent who earned $8 to $9 an hour spent on average 15 percent to 22 percent of his or her income on child care, and those who earned minimum wage spent more than 28 percent. However, middle-income parents spent on average 8 percent to 10 percent of their take-home income on child care.
Creating a Haven for Little Angels
A child-care center in southern Illinois is a perfect example of a public-private partner-ship's success.
In 2001, Dr. G. Vincent Dudley and his newly formed congregation established New Life in Christ Interdenominational Church. The congregation created the framework for a holistic ministry that brings the spirit of community back to neighborhoods.
Church members envisioned building a church that would be more than just worship space. They wanted a community center where members would meet, learn, share, worship and care for each other. The congregation also knew the community would not be complete without a safe and affordable space for working parents to leave their children.
The young congregation quickly outgrew the space it was renting and began looking for land. After purchasing 11.5 acres of land in Lebanon, Ill., the congregation began working with a construction company that has experience in building faith-based facilities.
New Life in Christ Church was blessed with good cash flow and a growing membership, but it lacked experience in real estate and facility management. Members also found that, without a proven track record, traditional lenders were reluctant to loan them a large amount of money. Knowing they were struggling to find a way to build, their construction company told them about the Illinois Facilities Fund (IFF), a nonprofit organization that lends money to other nonprofits for facility building and renovation projects.
IFF is a community development financial institution (CDFI) and a partner in the Child Care Partnership Project. IFF works with nonprofits that serve low-income or special needs populations to assemble community stakeholders from both the public and private sectors to develop and complete capital projects. Currently, the CDFI is working with nonprofits in Illinois, Wisconsin, Iowa and Indiana. It plans to expand into Missouri in 2007.
IFF had the expertise the congregation lacked-experience in real estate development and management-and capital to get the project off the ground. After looking at the church's cash flow and vision, the IFF helped them develop a plan for a larger and more functional facility.
Dr. Dudley found that working with IFF was different from working with banks. The CDFI was willing to take risks that, due to safety and soundness matters, banks cannot. He said he was pleasantly surprised when IFF agreed to lend them money at a cheaper rate than they could get from a traditional lender. Although IFF does not lend money for worship space, it could lend the congregation $1 million for a child-care facility. The cost for the entire church facility, including the day care, was $3,800,000.
Because IFF was willing to take the second position on the loan, the capital project was more attractive to Regions Bank, which then became the lender in the first position on the loan, creating a layered financing package.
Today, New Life in Christ Church and Little Angels Day Care Center stand on part of the 11.5 acres the congregation purchased. The community worship center includes a sanctuary, gym, bookstore, snack bar, industrial kitchen, offices and an education and meeting space. Future development plans include a school, family center and housing.
Little Angels Day Care Center is a bright, colorful, interactive and state-certified facility that serves children aged 6 weeks through preschool. In addition, parents of school-aged children can take advantage of a before- and after-school program. Current enrollment at the center is 53 and quickly growing to full capacity of 105 children. While the center offers market-rate child care, it also works with the Children's Home and Aid Society of Illinois to provide free or greatly reduced care to low-income families.
Bridges is a regular review of regional community and economic development issues. Views expressed are not necessarily those of the St. Louis Fed or Federal Reserve System.
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