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View ProfilesPublished April 5, 2023 at 10:00 a.m.
Panic set in when Anna Prescott absorbed a March 1 email from Loveworks, her 2-year-old son's Essex childcare center, announcing a steep tuition hike.
Starting at the end of August, tuition for toddlers at Loveworks' Essex and South Burlington centers would jump from $352 for five days per week of care to $445 — a more than 26 percent increase. Similar tuition hikes were in store for infants and preschoolers. Despite the added costs, the center would close for about a dozen additional days a year for holidays, staff training and vacation.
Little Sprouts, the company that operates the two Loveworks centers as well as four Heartworks and STEAMworks preschools in Chittenden County, chalked up the changes to a rebranding effort that would improve the quality of education by streamlining all six centers under the Heartworks umbrella.
To Prescott and dozens of other blindsided families, CEO David Post's explanation didn't make sense. About 100 parents signed a petition, demanding to know how the decision was made to raise rates and scale back care.
"Not a single family or staff member has shown support for this decision," the petition stated. "Why do this to the most integral assets to your business — the customers, the clients and staff?"
Many who signed were likely unaware that Post and Little Sprouts, which operates 39 childcare centers serving more than 4,000 kids in New England, are beholden to a higher authority. Little Sprouts is a division of Babilou Family, a company that is the top private nursery operator in France, where it's based, and runs more than 1,000 childcare programs worldwide. In late 2020, Babilou was acquired by Antin Infrastructure Partners, a private equity firm with hubs in Paris, London and New York City.
For Vermont parents, that's not good news, according to Elliot Haspel, a national expert on early childhood policy. Private equity ownership is driven by profit rather than what's best for kids and families, he said. The firms are under no obligation to disclose their financial information, though a recent New York Times article cited industry analysts who said childcare chains typically make annual profits of 15 to 20 percent, while the average community-based childcare center operates on a razor-thin margin.
The private equity footprint in childcare is expanding nationally. Haspel recently wrote that such childcare chains grew by 8 percent between 2020 and 2022, primarily by acquiring smaller chains and independent programs, as the rest of the sector contracted during the pandemic. Seven Days has reported on similar private equity-backed takeovers in the eldercare business.
Though Loveworks, Heartworks and STEAMworks — which were locally owned until about five years ago — appear to be the first group of childcare centers in Vermont to be purchased by a private equity firm, they likely won't be the last, Haspel said. That's because Vermont has a relatively large number of affluent families who are willing to pay top dollar for childcare. (According to a recent RAND Corporation study, 19 percent of young families in Vermont have an annual income above 500 percent of the poverty line, or $150,000 for a family of four.)
The relatively new presence of private equity ownership comes while Vermont is poised to pass historic legislation that would increase subsidies for families and reimbursement rates for childcare providers. The bill, S.56, was passed by the Senate last week and is under consideration by the House. It would boost the state's reimbursement rate to childcare centers by 38.5 percent starting in 2024.
Currently, the state subsidizes full tuition for families making up to 150 percent of the poverty line — provided a childcare program doesn't charge more than the state's capped rate. Families earning up to 350 percent of the poverty line qualify for partial subsidies.
Under S.56, families with an annual gross income of up to 185 percent of the federal poverty line — or $55,500 for a family of four — would be eligible for fully covered tuition, while families making up to 600 percent of the poverty line — or $180,000 for a family of four — would be eligible for partial subsidies.
Haspel praised the Senate bill but said there's a risk the measure would attract more private equity-backed chains if protections were not built into it.
At the moment, there is no provision in the legislation that would prevent childcare providers from raising their rates beyond what the state subsidies would cover. Nor does the bill say that a specified percentage of tuition must go to teachers' pay. (S.56 calls for a committee to make recommendations on teacher compensation by the end of the year.)
"If you want to maximize the impact on kids and families, you don't want to be accidentally setting out catnip for investor-backed chains," Haspel said. Expanding income eligibility for childcare subsidies and reimbursing childcare centers at a higher rate "are elements of an effective childcare system, and they are also things that are going to look like investment opportunities to people who are seeking profit," he added.
In short, Vermont's attempt to bring down childcare costs by providing more subsidies might attract the very firms that would raise rates.
In his brief for Capita, a think tank, Haspel outlined some of the measures that governments, both federal and state, could employ to discourage the expansion of private equity-backed chains. Those include requiring public financial disclosures, imposing tuition caps and restricting the use of public funds for executive compensation. The legislature should consider adding such measures to the bill, he said.
Sen. Ruth Hardy (D-Addison), one of the architects of S.56, agreed, writing in an email that "further guardrails may be necessary." Hardy said the House should take testimony on the issue as it works through the bill.
"My intention certainly is that public funding for childcare would be used for the benefit of Vermonters, not to pad the profits of international corporations," Hardy wrote.
When it comes to Little Sprouts, the proposed tuition increase would apply only to the two Loveworks centers and would bring them in line with tuition at the company's other four Vermont centers, company spokesperson Amanda Goodwin said.
Goodwin said she is not familiar with the bill's specifics but that her company supports "making childcare as available to families as possible and also making working in this field as attractive as possible." She added that the company is committed to working with state leaders to create a more sustainable system.
She said the company has made "significant investments in employee wellness and experience" for all of its staff over the past few years and delivers high-quality care. Having more childcare providers benefits the state by increasing access for families, she said.
But the interests of private equity-backed childcare centers and working families can be at odds, as demonstrated during two virtual meetings that Little Sprouts held to hear parents' concerns.
In both sessions, which were recorded by a parent and shared publicly, CEO Post said tuition is increasing because Loveworks' financial model is unsustainable. He would not, however, answer a parent's question about how much money the centers were losing.
"We're not going to reveal our financials because we are a private company," Post told the parents. "I will say that the choice was between continuing to operate the school at a higher tuition level or the real potential of closing the school down because it was not making enough money."
Post also spoke about improvements the schools will be making, such as adding more arts, STEM and antibias curricula; improving the playground; painting the walls; and beefing up security systems. He said that in the past two years, Little Sprouts had expanded employee benefits and raised pay 15 to 28 percent to compete with other childcare centers. While Post added that the company will consider another pay increase at the end of the year, he declined to say whether the tuition increase would directly support school improvements or higher staff salaries.
When parents suggested they could chip in to upgrade the playground, paint the walls or donate instructional materials, Post made it clear that grassroots involvement was not in line with Little Sprouts' philosophy.
"There are places that say, 'Sure, parents, bring books in. Bring supplies.' We don't want parents to do that," he said. "It is our approach to do this in a more formal, more structured manner."
Jayson Durante, whose 1-year-old attends Loveworks in South Burlington, said he wasn't satisfied by Post's explanations. He drew a parallel to large companies such as Vail Resorts and Alterra Mountain Company that have bought up independent ski areas.
Post "is the CEO of Little Sprouts ... but not the boss," Durante said. "It's some rich guy in France who could care less about a childcare center in Vermont."
During the virtual meetings, Durante and other parents asked Post whether Little Sprouts would be willing to phase in the tuition increase. At the time, Post rebuffed the suggestion, saying, "We are committed to this path and committed to this schedule."
Last week, he changed course. On March 29, he wrote to families that, based on their feedback, the tuition hike would be rolled out in two steps — increasing by 17 percent on August 28, 2023, and then by about 15 percent on August 28, 2024. The announced changes to the school calendar, he said, would remain in place.
"While I recognize this is not a perfect solution, I hope it provides families more time to make their next steps," Post wrote.
Some parents welcomed the news. Talena Companion, a Loveworks Essex parent, said even though tuition would still increase substantially, she felt that Little Sprouts was at least listening to families.
Durante said his family will likely stick with Loveworks for now, but he sees the need for more regulation of childcare tuition.
Other families have already decided to leave. Margot Phillips, whose son attends Loveworks in South Burlington, has secured a preschool spot for him elsewhere next year. She noted that her Loveworks center isn't approved to receive public preschool dollars, which was another deciding factor for her. (Goodwin, from Little Sprouts, said the company is in the process of applying for universal pre-K approval.)
Prescott has also managed to find an opening at a different center. She said the number of added days off in the new calendar is unmanageable for her family.
When shopping for childcare programs back in 2021, Prescott said, her primary consideration was finding a place where her son would receive quality care. She assumed Loveworks was part of a locally owned chain.
"It never occurred to me to look at if they were owned by someone bigger," Prescott said. "It wasn't on my radar."
Correction, April 7, 2023: Loveworks has a center in Essex, not Essex Junction. And earlier version of this story contained an error.The original print version of this article was headlined "Tots for Profits | A French private equity firm now owns six Vermont childcare centers.Is it a harbinger of what's to come?"
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