Eva Pietri was at work when she got a notification from Pathways Learning Academy in Boulder. The infant care program where her 6-month-old son had been enrolled for a little more than a week would close temporarily.
“We were like, ‘Oh my gosh, what are we going to do?’” said Pietri, who had spent months looking for child care and was now scrambling to find help, booking babysitters from online ads and waiting to hear from the school about when it would reopen. “It’s so stressful.”
The daycare and preschool operates out of Grace Commons Church in Boulder, just a few miles from their home in East Boulder. The message, sent through Pathways’ parent portal, said the facility’s infant room would be shut down for two weeks. Then the closure was extended by a month.
Administrators never contacted Pietri, who eventually enrolled her now 13-month-old at a new day care.
That was September 2022. Pathways — owned by one of the largest private equity-backed child care groups in the country — has had five complaints filed against them since that time (as of July 2024) to the Colorado Department of Early Childhood. The facility has been placed on probation by the state twice since January 2023, according to Colorado Shines, the state’s quality rating and improvement system. Complaints include inadequate staff training, failure to background check employees and having too few workers for the number of children in their care.
Understaffing, lower quality of care and general disinvestment are common under private equity ownership in all kinds of service industries. Now private equity is moving into child care, and industry watchdogs and early childhood education advocates are sounding the alarm.
Earlier this summer, the National Women’s Law Center (NWLC) and Open Markets Institute, a nonprofit that lobbies against corporate monopolies, published a report on the risks of private equity investment in the child care sector and held a conference discussing the issue. Among their concerns are potential impacts on child safety and the stability of care.
“The question is whether an investor-backed business model — and in the case of private equity, a heavily financialized model focused on short-term profit — is the appropriate model for something that is a public good,” said Melissa Boteach, co-author of the report and vice president of child care and early learning at the NWLC.
‘People need it’
The Bell Policy Center puts Colorado’s total licensed capacity for child care at 156,691 kids. There are 231,993 children under 6 whose parents are in the workforce, according to Bell Policy’s research. As Pietri’s experience and the prevalence of facility waitlists demonstrate, that gap in availability leaves access to reliable care tough to find.
The high demand for child care can be part of the appeal for investors, said Stephen Billings, a researcher at CU Boulder’s Leeds School of Business.
“Private equity loves buying things with inelastic demand,” Billings said. “People need to have it, they’re willing to pay a lot for it. Child care is something people must have, or they’re not going to work.”
About 7.5% of Colorado’s total licensed child care capacity is owned by private equity, according to an analysis by Elliot Haspel, a nationally recognized child and family policy expert and the author of Crawling Behind: America’s Child Care Crisis and How to Fix It.
“We are not seeing a flood into Colorado yet,” Haspel said. “It’s grown about 1% of market share since 2019.”
But steady growth in other states can be a portent of things to come, he said. “If places like New Mexico are any sort of forecast, as more state money becomes available, it will be more and more attractive for programs to want to come into Colorado.”
Bad for kids, bad for communities
Three large private-equity-owned child care groups — KinderCare, Bright Horizons and Learning Care Group — operate in Colorado, according to Boteach. Together, they own approximately 70 daycare or education facilities.
Industry watchdogs worry that further private equity investment will exacerbate an already untenable situation.
As the NWLC and Open Markets noted in their report, “Families’ extreme need for child care, while in a shortage market, leaves them vulnerable to providers who maximize their prices.”
Based on a 2023 analysis featured in the Annie E. Casey Foundation’s Data Book report, Colorado is the fifth-most expensive state for child care, with an average annual cost of more than $1,300 per month. Center-based child care for a toddler is 14% of the median income for a married couple, on average, and 41% of the median income for a single mother in the state.
“We don’t have enough child care,” Haspel said. “It’s not widely available and affordable. That’s bad for kids, it’s bad for families, it’s bad for communities, it’s bad for ultimately the economy in the state.”
Haspel, along with data consultant Randy Rosso, analyzed facilities for the five largest private equity-backed providers of child care in the U.S. They found that centers were more likely to be located in census tracts where the median household income was $88,000, compared to the $71,000 median across the states studied.
As the study authors noted, the risk of consolidation under private equity could result in day care deserts, putting child care even further out of reach in low-income areas.
“Existing disparities in families’ ability to pay may incentivize companies who acquire smaller chains to shut down programs in lower-paying communities to divert those programs’ capital assets toward expanding services in wealthier areas,” they wrote.
There are also concerns about private equity’s practice of saddling businesses with debt, leading to bankruptcy and closures. This famously happened with retailer Toys“R”Us, and it’s happening in child care, too.
In Australia, ABC Learning, the previous owner of The Learning Group, which owns 24 child care providers in Colorado, required a government bailout to keep its 570 child care centers operational after the company’s stock price declined and it was unable to pay off its debts.
“The problem,” NWLC’s Boteach says, “is that private equity firms have a traditional playbook, whereby the firms collect the profits and pass the risk and liabilities back to the companies they’ve taken over.”
Bright Horizons in Longmont announced that it would close its doors at the end of May 2024. The center provided care for 100 children.
The company provided a written statement about the closure but did not address the reason behind it. Bright Horizons officials did not respond to a request for comment.
“If entire child care chains — or even just local franchisees — close due to bankruptcy,” the NWLC report states, “the families that depend on them for care get left in the lurch.”
Child care crunch
Colorado lost 347 licensed child care centers between March 2019 and March 2024, the latest date for which data is available, with the number of facilities declining each year. That trend stopped in 2023-2024, when the state actually gained providers for the first time as the first group of children enrolled in Colorado’s universal preschool program. But that’s not the case in all communities.
In Boulder County, 11 licensed child care centers closed between July 2023 and June 2024. New programs have opened, according to Kaycee Headrick, CEO of the county’s early childhood council, but demand still outstrips supply — particularly for the youngest children.
“We estimate in Boulder County that for every five infant/toddlers who need care,” Headrick wrote in response to emailed questions, “only one can access it.”
One of the most common reasons facilities give for closing is financial difficulty, Headrick wrote.
Private equity-backed groups may be better able to weather rising costs than private or family-owned facilities, CU’s Billings said. “Having deep pockets allows you to buy in bulk and get some savings.”
But, at least in other industries, those savings are rarely passed along to consumers.
A 2022 study published in JAMA Internal Medicine found that when anesthesia companies backed by private equity investors took over a hospital outpatient or surgery center, they raised prices by an average of 26% more than facilities served by independent anesthesia practices. A Washington Post investigation found that prices for services increased 30% after several anesthesiology practices were consolidated in Colorado.
“If they find opportunities to raise prices,” Billings said, “of course they will.”
Private equity firms make their money in a few ways, but a primary method is by restructuring the companies — often by reducing staff — to maximize their profit margin. Studies show that there are higher mortality rates and a lower quality of care in private equity-owned nursing homes, according to a 2023 British Medical Journey review of 926 studies published since 2000.
“These are institutions with major profit motives who fully own and operate the program,” said Haspel. “This is a company saying, ‘I am going to buy you. I’m going to own you for three to seven years to get as much money as possible out of you, and then I’m going to sell you to somebody else.’”
Warning call
A few states have started to put standards in place that restrict profit-making in preschools. In New Jersey, the state imposes significant budget requirements to limit profit-making in preschools that receive state funding. Work is being done in Massachusetts to limit the amount of state funding any large companies can receive.
Colorado state representatives like Lorena Garcia emphasize the need to, as the District 35 representative and CEO of the Colorado Statewide Parent Coalition said, “keep public dollars in public spaces.”
“What are guardrails we can put around child care providers that do accept private equity funds?” she asked. Some of those guardrails may include setting standards for care quality, limiting profit margins for state-funded programs and establishing protections against sudden closures.
Garcia, whose district includes Westminster and Federal Heights, is not currently planning legislation specifically to address the private equity investment in child care centers.
The NWLC and Open Markets report serves as a “warning for the child care sector,” authors wrote, so legislators like Garcia can be prepared to act and establish protections — such as state standards for quality, limits on for-profit operations or protections against sudden facility closures — as government dollars flow into the industry.
A universal pre-K program, which funds 15 hours of preschool care per week to children in their year before kindergarten, and proposed early childhood special districts have the potential to provide more support to families — and more tax dollars to daycares.
“With the influx of possible public funding,” NWLC report author Boteach said, “external investors should have guardrails in place to protect the child care industry and the families they serve.”
Shay Castle contributed reporting. This article was produced in collaboration with Colorado Sun.