ADMINISTRATION REPORT
Date: July 12, 1999
Author/Local: P. Coates/6042
RTS No. 0329CC File No. 2402
CS&B: July 29, 1999
TO:
Standing Committee on City Services and Budgets
FROM:
Director of Community Services, Social Planning
SUBJECT:
Childcare Endowment Reserve Report 2 of 2
RECOMMENDATION
A. THAT Council direct Social Planning to strike a task force on infant/toddler care sustainability to report back within six months on viable funding options including the building of a specific or broader endowment;
B. THAT Council set the maximum 1999 infant/toddler operating subsidy for the 3 eligible childcare operators at $2,100 per space. Source of funds: The Childcare Endowment Reserve;
C. THAT Council direct the Law Department to provide new Operating Agreements to the Vancouver YWCA, Vancouver Society of Childrens Centres and Collingwood Neighbourhood House for a one year term.
GENERAL MANAGERS COMMENTS
The Childcare Endowment Reserve is being drawn down at a rate that will not allow the City of Vancouver to continue the current level of subsidization for infant/toddler spaces. The City Manager supports the proposal from the Director of Social Planning to create a task force to look at enhancing the Childcare Endowment Reserve.
It will be critical to do this work in the time frame outlined, in order that Council can determine future funding directions. Affordability is a continuing dilemma. While the City of Vancouver can be proud of its contributions to the expansion and stabilization of childcare to date through its Civic Childcare Strategy, the ongoing sustainability of childcare remains a significant issue.
The City Manager supports Recommendations A, B and C.
POLICY
The Civic Childcare Strategy, approved by Council October 1990, recognized the need to ensure the availability of start-up and operating subsidies to sustain those new childcare facilities being opened in high density neighbourhoods, as a result of rezoning negotiations or City initiated projects. In May 1991, Council approved the creation of the Childcare Endowment Reserve.
On December 15, 1994 Council approved the terms and conditions of the Childcare Endowment Reserve, including eligibility criteria and the process of accessing these funds. In April 1996, Council clarified that the City Childcare Endowment Reserve was to be established as an interest bearing fund.
PURPOSE
The purpose of this report is to update Council on the status of the City Childcare Endowment Reserve, to propose further work on sustainability options and to recommend an immediate reduction of 30% to the maximum operating subsidy available for eligible infant/toddler spaces for 1999.
BACKGROUND
Although the primary mandate for childcare rests with the Province, the City has had a long history of involvement in childcare. Prior to 1990 the Citys role focused mainly on providing land and buildings to childcare operators at nominal cost. The City provided grant funding to city-wide childcare support services like Information Daycare and occasional emergency funding to prevent childcare centre closures. On a one-off basis, Council also included childcare in new housing developments, e.g. South False Creek, Eight Oaks Housing Co-op in response to community requests that childcare be part of the amenity package.
In 1988, the Mayors Task Force on Children identified the lack of affordable, accessible good quality childcare as a key issue facing children and families in Vancouver, given the unprecedented numbers of mothers with young children returning to the paid labour force and the documented benefits of early childhood education for children, particularly those living in inner-city neighbourhoods. In October 1990, Council adopted the Civic Childcare Strategy. The Strategy and the approved action plan established a more comprehensive and consistent childcare policy framework for the City, but continued to recognize that addressing the childcare needs of children and families must be undertaken in partnership with senior levels of government, other public partners, business, community groups and families. Through the Strategy, the City has not only helped to expand and stabilize childcare programs in Vancouver but has been instrumental in pushing the Province to increase their support for childcare by over 400% since 1990 (see Appendix A).
One of the key goals of the Civic Childcare Strategy has been to create new childcare spaces. By including childcare as a standard requirement in rezoning negotiations, the City has worked with developers to construct and equip childcare facilities in new neighbourhoods like False Creek North. As with the negotiations for parks and community centres, when the facilities are built by the developers at no cost to the City and then conveyed to the City outright or under a nominal long term lease, the City agrees to ensure that facilities are operated to meet on-site and broader community needs. In the case of childcare centres, the City agrees to give first priority to families living or working on-site in the particular development. The developers include childcare as part of the list of amenities which they market to prospective buyers.
Affordability was identified as a key principle of the Civic Childcare Strategy and in the absence of adequate provincial childcare funding for direct operating costs or for fee subsidies to low and moderate income families, it remains an ongoing issue. To address the concerns about operating funding for the new childcare centres developed through rezoning initiatives, back in 1990, Council approved in principle, that specific developer contributions should be negotiated for payment at time of enactment, to support annual childcare operating subsidies for these new childcare facilities.
From the beginning, this operating subsidy policy has been challenging from both the perspective of the City and the developers, thus a number of different approaches have been tried:
· For the Bentall V development, a contribution by the developer in lieu of construction was approved, and the YWCA agreed to raise the capital funds necessary to build the facility.
· For False Creek North and Coal Harbour, Council approved a small one-time start-up contribution of $2,000 per space and then cashed-in approximately one third of theoriginally negotiated childcare spaces (Combined value in 1999 - $30,000 per space). The resulting start-up and pay-in-lieu contributions received to date, are held in a City Childcare Endowment Reserve and generate interest to provide operating assistance.
· For Collingwood Village and Library Square developments, the issue of operating subsidies was not addressed.
· For Bayshore, the developer negotiated to maintain control of childcare operations.Because the Childcare Endowment Reserve has only been accruing interest since 1996, it has not had time to become a solid mechanism for addressing the childcare operating funding requirements. In December 1994, it was decided that apart from start-up monies, Reserve funds should only be used to assist with the ongoing infant/toddler costs of those childcare centres built in high density new neighbourhoods. This was to limit the draw-downs on the Reserve, yet recognize the financial challenges associated with operating infant/toddler care. As per the terms and conditions approved by Council, operating agreements were signed with each of three eligible childcare operators for the period 1995 - 1998. Each year, Social Planning has reported back to Council on the actual expenditures from the Reserve and has sought Council authorization to release the dollars for the following year.
Initial one-time start-up dollars of up to $2,000 per space and ongoing operating subsidies of up to $3,000 per space per annum have been paid out to three childcare operators to support the total of eighty-four childcare infant/toddler spaces opened since September 1995. As of 1999, this will increase to 108 spaces as the second Concord facility comes on line. No other new centres are in the design stage at this time, although up to 120 more eligible infant/toddler spaces are planned in the downtown core as part of rezoning agreements, CAC and DCL contributions. (Childcare programs at Bayshore and the Trade and Convention Centre are not a part of this calculation because there is currently no expectation that the City will have any involvement in their start-up or operating costs).
As of January 1999, the Reserve (excluding outstanding 1998 commitments) totals approximately $1,3000,000 plus it receives annual interest from the $850,000 Bentall contribution. With the economic slowdown, it is not expected that there will be any further contributions into the fund from developers for several years unless Council chooses to cash in more spaces. Under existing agreements, a further $3.7 million will be forthcoming as the False Creek North and Coal Harbour developments build out, but as noted above these additional funds also come with more infant/toddler spaces so the operating funding challenges will remain.
DISCUSSION
With the operating agreements up for renewal starting 1999 and increasing concerns about the Endowment Reserves financial position, the General Manager of Community Services felt it was important to examine the factors contributing to the funds sustainability difficulties and to bring forward specific recommendations for Councils consideration. During 1998, financial projections were undertaken and some preliminary options for building the fund were explored. A financial study of infant and toddler care in Vancouver was also reviewed and informal discussions were held with the three childcare operators and with representatives within senior levels of government.
The Key Issues
1. The Endowment Reserve is being eroded. The size and earning power of the existing fund is inadequate to support the current level of pay-outs, even though the subsidy has been limited to only eligible infant/toddler spaces and operators have tried not to draw down their maximum level of contribution. The major factors contributing to the funds fragility are:
· pay-outs of up to $3,000 per eligible space were provided for three years to create stability and to give time for the Province to address infant/toddler funding issues,
· Collingwood Village and Library Square were not required to contribute to the Reserve but their infant/toddler spaces have been eligible for pay-outs,
· the first Bentall payment to the City did not earn interest from 1994 - 96, instead the earnings went into general revenue,
· interest rate earning have been significantly lower than originally anticipated in 1991,
· the sub-area rezonings requiring construction of childcare centres with eligible infant/toddler spaces, are proceeding more quickly than those which are linked to the pay-in-lieu contributions to the Reserve.Financial projections have shown that if the status quo is continued, the fund will be depleted in less than five years. Gradual reductions of the subsidy would extend the life of the Reserve but still eventually result in depletion. A drastic and immediate cut of the subsidy by 70% could make the Reserve sustainable but it would result in the closure of the infant/toddler spaces.
2. A drastic or sudden reduction to the Endowment Reserve infant/toddler subsidies cannot be absorbed by the childcare operators without seriously destabilizing the services and risking closures. The service delivery issues facing operators of infant/toddler care are challenging. Demand for the service is extremely high and waitlists for infant/toddler care in the new neighbourhoods are extremely long. Parent fees are high ($750 - $860 per month) and typically represent a young familys second highest monthly expenditure. Yet the differential between the monthly childcare fee that can realistically be charged and the actual cost of providing the service, remains significant. Operators are relying on a number of strategies to cover their deficits in addition to the City monies, including subsidized building occupancy costs, internal subsidization of programs, provincial government funding, and fundraising.
In childcare there is a delicate balance between affordability, complying with licensing standards, meeting parents expectations of quality, and maintaining enrollment levels. An immediate decrease in City funding will result in raising parent fees. Experience has shown that if the fee increase is too large, it leads to an immediate drop in enrollment and no waitlist. Given that most childcare programs must strive for a year-round 97% occupancy level to meet their basic budget needs, even one unoccupied space for two or three months can put the whole service in jeopardy. This is further complicated by the fact that centres must maintain certain staff: child ratios at all times and so fluctuations in enrollment and parent fees, the primary source of revenue, cannot necessarily be matched by complementary fluctuations in the largest area of expense - personnel. It is clear that any reduction of the infant/toddler subsidy needs to be carefully phased over at least three years to give operators and parents time to make adjustments and look for/lobby for sources of replacement funding. During 1998, the Childcare Co-ordinator did make the operators aware that a first phase reduction of the subsidy would likely occur in 1999.
3. Senior levels of government and other funders seem to have no immediate plans to address infant/toddler funding and affordability issues. Primary responsibility for the core funding of childcare rests with senior levels of government, in particular, the Province. (See Appendix A for information about current provincial and federal funding for childcare.) The specific funding for infant/toddler care, the infant/toddler incentive grant has not increased over the past four years although there has been some increases in the funding available for wages across the childcare sector and the overall provincial childcare budget has doubled due to increased uptake in the childcare subsidy program. The federal governments only involvement in infant and toddler care remains the childcare expense deduction as part of the income tax calculation. However, given the provincial/federal discussions about a national childand youth agenda and the increased evidence of the importance of investing in the early years to optimize school readiness and child health, negotiations with senior levels of government over the next year may have some chance of success.
Other sources of community funding tend to focus on family supports for young families outside of their childcare needs, e.g. parenting programs, nutritional programs. It has been identified that there may be opportunities for the City to work closely with the philanthropic community to increase support childcare/early childhood development initiatives. The United Way Initiative which focuses on children birth to six has specifically identified childcare as a priority area.
4. The Endowment Reserve cannot support further expansion of eligible infant/toddler spaces until the sustainment issues of the endowment are resolved or funding from alternative sources lowers the subsidy requirements of the existing eligible services. The Quayside facility, scheduled to open September 1999, is already under construction as part of a larger social housing project. Concord has already made the required start-up contribution, so this project has been accounted for in all financial projections to date. However there is an opportunity to review the plans that call for the opening of another 120 spaces of infant/toddler care in the downtown area over the next five to twenty years depending on the pace of overall commercial and residential development. It should be noted that eventually there will also be a further $3.7 million (February 1993 dollars) of developer contributions plus some interest forthcoming for the Endowment Reserve but the timing is linked to cashed in spaces and not the opening of constructed spaces. (These statistics do not include the Bayshore or Trade and Convention developments as noted earlier.)
To avoid further strain on the Endowment Reserve, it is necessary to place limitations on development of new services which require subsidies from the Childcare Endowment Reserve. Given the need for more infant and toddler spaces particularly in the downtown core, a freeze on spaces will result in greater awareness of the issue for families, businesses and senior levels of government.
5. Council direction is required if the per space dollar value of developer start-up and pay-in-lieu contributions at time of rezoning enactment, is to be indexed to reflect increased costs since February 1993. The original estimates for developer contributions of $2,000 start-up per space and $25,650 per cashed in space assumed a 1993 dollar value. A recent paper on Financial Growth noted that an equivalent combined value in 1998 would be $30,000 per space. To date, this has not been a significant issue because most of the rezonings resulting in delivery of childcare spaces, occurred in the early/mid 1990s. However given the sub-arearezoning delays now being experienced, it is critical to make annual adjustments to protect the future value of the Reserve contributions.
Developing a Sustainability Strategy
Council could choose a number of options:
a) to continue to deplete the Reserve at the existing rate
b) to simply extend its life by slowly reducing the subsidy pay-outs
c) to rely solely on City resources to stabilize the Reserve
d) to set up a task force which includes all the stakeholders involved and ask them to report back on a sustainability strategy.Staff are recommending Option d). It is our assessment that the City has a commitment to make the Endowment Reserve sustainable yet the discussion needs to be broader than the specific programs currently eligible for the Citys Endowment Reserve. It may even mean placing the infant/toddler sustainability issue within the context of a larger Early Years Investment/Family Support strategy and making links with the Windows of Opportunity project and the United Way initiative Future of our Communitys Children. This will involve focused discussion with other stakeholders such as the Ministry for children and Families, the Vancouver Richmond Health Board, Health Canada, HRD Canada, community foundations, operators of infant/toddler care and other municipalities. These discussions will increase the general level of understanding about the dilemmas of providing affordable infant/toddler care for families and develop other funders commitment to find innovative solutions. It is anticipated that this work will require consultant expertise in resource development and public/private partnerships.
It is recommended that Council direct Social Planning to strike a stakeholders task force on infant/toddler care sustainability and report back on viable funding options including the building of a specific or broader endowment fund. The task force will be chaired by Social Planning. If this recommendation is accepted by Council, Social Planning will proceed with setting up the task force and then report back on the funding required for the resource development expertise.
Meantime it is also recommended that Council direct the Law department to provide new Operating Agreements to the three eligible childcare operators for a one year term and that the current annual infant/toddler subsidy be reduced from a maximum of $3,000 per space to $2,100 per space for 1999. This 30% decrease will help to stem but not stop the erosion of the existing Childcare Endowment Reserve while the task force undertakes its work. It will also underline for all stakeholders how truly serious the situation is. Council shouldhowever recognize the childcare operators will likely have to raise parent fees by as much as $75 a month. This will impose a financial hardship for families and may lead to the withdrawal of some children from the programs. It is the Childcare Co-ordinators best assessment that the reduction though substantial, will not lead to closure of programs within this fiscal year.
CONCLUSION
The existing City Childcare Endowment Reserve is not sustainable as currently established. As an immediate measure Social Planning is recommending that the pay-outs for the annual infant/toddler operating subsidies be reduced by 30% to $2,100 per space and that new operating agreements for a one year term be provided to the three eligible operators. It is also recommended that a task force on infant/toddler sustainability be struck, to report back within six months on viable funding options including the building of a specific or broader endowment fund. All the key stakeholders including the three operators, community funders, childcare advocates and senior levels of government, will be asked to participate on this task force.
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APPENDIX A
Provincial Government Child Care Spending - 1988-1999
Spending in 1988/89
1998/99 Budget
Provincial Child Care Subsidy
$38.2 million
$123.3 million
Operating and Other Funding
$0.4 million
$36.1 million
Total
$38.6 million
$159.4 million
The figures do not include the dollars available for special needs children attending childcare settings. In 1998/99 the budget for the Supported Childcare initiative was $29.1 million.
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Federal Government Support for Child Care
· Maternity and Parental Benefits ($1,171 million) -- Employment Insurance
· The Child Care Expense Deduction ($520 million) -- Income Tax system
· Aboriginal Child Care ($18 million) -- Indian and Northern Affairs
· First Nations and Inuit Child Care ($40 million)
· Aboriginal HeadStart programs ($18 million) -- Health Canada
· Child Care Visions ($6 million) -- HRDCThrough the Canada Health and Social Transfer (CHST), the federal government also transfers block funding to assist provinces with the cost of health, post-secondary education and social services. In 1997/98, it is estimated that $201 million of the CHST will be spent on child care in Canada. Since the early 1990's, the value of federal transfer payments for social programs in BC have been declining.
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(c) 1998 City of Vancouver