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The
Next Stage in Childcare Facilities Development
by
Noni Ramos, Director of Child Development and Education, Low Income
Investment Fund and Chief Credit Officer of Community Facilities,
ABCD Fund
"One of the
charges of the district Fed banks is to provide analysis and
insight into regional economic development. State and local governments
have been debating how to best use public funds to encourage
economic growth, and research has shown that early childhood
development programs should be viewed as economic development.”
What’s At Stake?
The
socioeconomic impact of inadequate child care, in terms of lost potential
to promote healthy growth and development, cannot be underestimated.
According to the Chicago Longtitudinal Study (2000), quantitative
savings in terms of crime, welfare dependency, and special education
will result in a return of more than $7 for every $1 invested in quality
early-intervention child care. The study calculated a potential savings
of $2.6 billion for every 100,000 children participating in the programs.
Limited Supply
Lack of facilities is probably the greatest challenge facing early childhood
programs. In California, the supply of licensed child care, estimated at
nearly 900,000 spaces in more than 40,000 child care businesses, meets only
22 percent of spaces needed. The
child care needs of the estimated 2.3 million California children in poverty
are particularly acute with more than 200,000 low-income children on waiting
lists for subsidized child care. The alarming shortage of affordable, high-quality
child care is a significant barrier to families aiming for economic self-sufficiency.
Child care is frequently financially out of reach for low-income families,
and there simply are not enough child care spaces to meet the demand for
children of any income. The problem is not prevalent just in California,
but nationwide.
The need for a stable and efficient source of capital
to finance the development of child care facilities across the nation
is critical. Without sufficient funding for high-quality facilities,
low-income families are forced either to refrain from working in order
to care for their children, or place their children in unlicensed and
perhaps unsafe child care environments. Ultimately, the critical need
and value of child care spaces, particularly for low-income families,
is clear, as is the necessity for a well-developed financing system to
support the continued development of high-quality child care facilities
throughout the nation. Seeking to address this shortage, the David and
Lucile Packard Foundation, and its partners, launched the Affordable
Buildings for Children’s Development (ABCD) initiative in 2002.
Addressing the Need
The overarching goal of the ABCD initiative is to build a comprehensive and
sustainable financing system for high-quality child care facility development
with the objective of creating 15,000 spaces in five years with a particular
focus on low-income communities. The initiative adopts a four-pronged approach
of finance, technical assistance, construction advice and advocacy to achieve
this goal. The Low Income Investment Fund (LIIF), a community development
financial institution, was chosen to assume leadership of the initiative
in 2003 (see box 1).
The ABCD initiative adapts a proven model drawn
from the affordable housing financing system of using private capital
to leverage public funds. Even in good economic times, it is doubtful
that the public sector could sufficiently supply the capital investment
to support construction of the number of child care facilities required.
As such, ways must be found to attract and sustain new sources of private
investments, including loans. The ABCD initiative operates from the hypothesis
that increased involvement of private capital will expand public dollars
and increase the commitment of lenders and investors who have historically
been involved in other areas of community development such as housing
and small business. As the financial industry increases their commitment,
their overall support and interest in children and child care will become
not simply philanthropy but “good business.” In other words,
just as private investors have joined government funders for today’s
affordable housing initiatives, the private sector will come to value
the investment potential in child care facilities development through
ABCD.
Since its inception in January 2003, ABCD has made
solid progress, including:
- committing approximately $4 million in grants
and loans that will support development of nearly 1,800 child care
spaces;
- raising $10 million from a consortium of insurance
companies for the ABCD Fund, through the New Markets Tax Credit program;
and
- receiving a $3 million grant over three years
from the First 5 California Commission for ABCD Constructing Connections
(see box 2).
Getting Involved
In order for the ABCD Initiative to be successful, LIIF will require the participation
of financial institutions in the following ways:
- lending the ABCD Fund, low cost, flexible capital
to be used to make child care center loans;
- providing grants to LIIF for re-granting to
child care centers for planning facility projects; and
- providing grants to LIIF for the operations
of the ABCD Fund.
The ABCD Fund is currently capitalized at $10 million
with an additional $10 million currently being closed with a consortium
of insurance companies. LIIF’s goal is to grow the Fund to between
$30 and $40 million in capital available for lending.
Because traditional financial institutions do not
typically have experience in making loans for the development of child
care centers, LIIF can play a critical role in serving as the intermediary
between the financial institutions that have the capital to lend and
the borrowers developing child care centers. In most instances, the borrowers
are first time borrowers, unfamiliar with the loan underwriting process.
Over the years, LIIF has developed an expertise in lending for the purpose
of child care center facilities development and by lending to LIIF --an
established CDFI with a strong track record-- rather than to individual
child care center, financial institutions can take advantage of this
experience and expertise. Additionally, such characteristics as often
being unsecured, having high loan-to-value ratios when secured by real
estate, lower than typical debt service coverage ratios, and cash flow
that is dependent on annual appropriations of child care subsidies tend
to make them weaker than usual borrowers from a financial perspective.
By lending to LIIF, many of these risks can be mitigated because of LIIF’s
expertise in lending to this field.
The ABCD Initiative as a Model for Other
States
The ABCD initiative is most concerned with putting into place key elements
that will ensure a sustainable system for child care facility financing and
serve as the underpinning of affordable child care facilities development for
years to come. These elements include:
- enlisting new and diverse partners such as employers,
health care providers, and housing owners to provide support such as
sites or other resources;
- working to ensure that investors see childcare
center financing as an attractive community development opportunity;
- mobilizing substantial new public and private
dollars for facility development and organizational support of the
child care sector; and,
- increasing financing options for childcare providers.
The four components of the ABCD Initiative
summarized in Box 2 are an attempt to address the elements that are
believed to be critical to the system building that we have identified
as being necessary for accomplishing the overall goals of the ABCD
Initiative.
Box 1
Who is
LIIF?
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| Since its inception
in 1984, LIIF has provided capital and technical assistance totaling
over $353 million in 35 states across the nation to hundreds of
community organizations serving the nation's hardest-to-reach populations.
LIIF's assistance, in turn, has leveraged investments in poor communities
of more than $3.2 billion.
LIIF, which operates nationally, has developed
expertise in lending to borrowers with unconventional revenue
streams and provides financing for all phases of a development
project (including permanent mortgages), as well as operating
lines of credit for nonprofit organizations. A prominent board
of directors, drawn nationally from the banking industry and
the national housing development and policy fields, governs LIIF.
To learn more about LIIF’s role
in facilitating community development finance and investments,
visit their website at www.liif.org
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Box 2
The
Four Components of the ABCD Initiative
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Experience has shown that it takes more than just funding to accomplish
these goals. That is why the ABCD Initiative utilizes the expertise
and capacity of existing community organizations while employing four
interrelated strategies:
ABCD Fund – Provides technical assistance,
grants and loans for child care centers, feasibility planning,
acquisition, and construction costs, and long-term real estate
financing needs.
ABCD Development Assistance – Utilizes
the expertise of regional community developers to increase statewide
the construction of child care facilities within educational,
health, and housing facilities. Partners include Bridge Housing,
Los Angeles Community Design Center (LACDC), Mercy Housing California
and Child Development, Inc. (CDI).
ABCD Constructing Connections – Strengthens
the facilities development expertise of child care center operators
and intermediaries, and improves the regulatory and funding environment
to support child care facilities as a priority.
ABCD Campaign to Sustain Child Care – Brings
together new coalitions of representatives of a variety of sectors
to advocate for increased child care program operating subsidies
from state and local governments.
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Link
to proceedings from the The Economics of Early Childhood Development:
Lessons for Economic Policy conference. (http://www.mcknight.org/cfc/news_detail.aspx?itemID=
355&catID=55&typeID=2)
The
Chicago Longitudinal Study (CLS), a report completed by the University of Wisconsin
and published in August of 2000, investigates the educational and social development
of 1,539 low-income children who grew up in high-poverty areas in Chicago.
(http://www.waisman.wisc.edu/cls/index.html)
Child
Care Portfolio, 2001; a bi-annual report analyzing the supply and demand for
child care by county in the state of California created by the California Child
Care Resource and Referral Network. (http://www.rrnetwork.org/rrnet/index.htm)
For more information, you may contact Noni
Ramos at the ABCD Fund, 510-893-3811, ext. 319, or via email.
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