[House Hearing, 116 Congress] [From the U.S. Government Publishing Office] TAKING CARE OF BUSINESS: HOW CHILDCARE IS IMPORTANT FOR REGIONAL ECONOMIES ======================================================================= HEARING before the SUBCOMMITTEE ON RURAL DEVELOPMENT, AGRICULTURE, TRADE, AND ENTREPRENEURSHIP OF THE COMMITTEE ON SMALL BUSINESS UNITED STATES HOUSE OF REPRESENTATIVES ONE HUNDRED SIXTEENTH CONGRESS SECOND SESSION __________ HEARING HELD FEBRUARY 6, 2020 __________ [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT] Small Business Committee Document Number 116-070 Available via the GPO Website: www.govinfo.gov ______ U.S. GOVERNMENT PUBLISHING OFFICE 39-604 WASHINGTON : 2020 HOUSE COMMITTEE ON SMALL BUSINESS NYDIA VELAZQUEZ, New York, Chairwoman ABBY FINKENAUER, Iowa JARED GOLDEN, Maine ANDY KIM, New Jersey JASON CROW, Colorado SHARICE DAVIDS, Kansas JUDY CHU, California MARC VEASEY, Texas DWIGHT EVANS, Pennsylvania BRAD SCHNEIDER, Illinois ADRIANO ESPAILLAT, New York ANTONIO DELGADO, New York CHRISSY HOULAHAN, Pennsylvania ANGIE CRAIG, Minnesota STEVE CHABOT, Ohio, Ranking Member AUMUA AMATA COLEMAN RADEWAGEN, American Samoa, Vice Ranking Member TROY BALDERSON, Ohio KEVIN HERN, Oklahoma JIM HAGEDORN, Minnesota PETE STAUBER, Minnesota TIM BURCHETT, Tennessee ROSS SPANO, Florida JOHN JOYCE, Pennsylvania DAN BISHOP, North Carolina Melissa Jung, Majority Staff Director Justin Pelletier, Majority Deputy Staff Director Kevin Fitzpatrick, Staff Director C O N T E N T S OPENING STATEMENTS Hon. Abby Finkenauer............................................. 1 Hon. Jim Hagedorn................................................ 3 WITNESSES Ms. Cindy Cisneros, Vice President, Education Programs, Committee for Economic Development of the Conference Board (CED), Arlington, VA.................................................. 5 Mr. Dan Levi, President, Levi Architecture, PLC, Cedar Falls, IA, testifying on behalf of the Black Hawk Child Care Coalition.... 7 Ms. Sarah Piepenburg, Owner, Vinaigrette, Minneapolis, MN, testifying on behalf of Main Street Alliance................... 8 Dr. Veronique de Rugy, Senior Research Fellow, Mercatus Center, George Mason University, Arlington, VA......................... 10 APPENDIX Prepared Statements: Ms. Cindy Cisneros, Vice President, Education Programs, Committee for Economic Development of the Conference Board (CED), Arlington, VA....................................... 21 Mr. Dan Levi, President, Levi Architecture, PLC, Cedar Falls, IA, testifying on behalf of the Black Hawk Child Care Coalition.................................................. 33 Ms. Sarah Piepenburg, Owner, Vinaigrette, Minneapolis, MN, testifying on behalf of Main Street Alliance............... 38 Dr. Veronique de Rugy, Senior Research Fellow, Mercatus Center, George Mason University, Arlington, VA............. 43 Questions for the Record: None. Answers for the Record: None. Additional Material for the Record: First Five Years Fund........................................ 50 TAKING CARE OF BUSINESS: HOW CHILDCARE IS IMPORTANT FOR REGIONAL ECONOMIES ---------- THURSDAY, FEBRUARY 6, 2020 House of Representatives, Committee on Small Business, Subcommittee on Rural Development, Agriculture, Trade, and Entrepreneurship, Washington, DC. The Subcommittee met, pursuant to call, at 10:08 a.m., in Room 2360, Rayburn House Office Building. Hon. Abby Finkenauer [chairwoman of the Subcommittee] presiding. Present: Representatives Chabot, Finkenauer, Craig, Hagedorn, and Stauber. Chairwoman FINKENAUER. Good morning. The Committee will come to order. I want to make sure I thank everybody this morning for being here, especially those who flew a long distance from Iowa or Minnesota. It means a lot that you are here to talk about this very important issue facing our country. In Iowa, when I talk to employers about workforce development and ways to bring new investment into our region, access to affordable childcare almost always comes up and it is almost always at the top of the list. Parents are turning down raises and promotions because they are afraid to lose childcare assistance benefits or just leaving the workforce all together because it is less expensive to stay home. Our businesses are losing thousands of dollars due to employee turnover because their workers cannot find reliable childcare. Jobs are going unfilled, and employers are struggling to attract talent because of the lack of affordable childcare in our communities. It is feeding our state's workforce shortages, and our entrepeneurs are feeling the effects as well. I met a young mom named Phoebe, who recently moved back to Iowa and opened a restaurant in Cedar Rapids with her husband. Her heart is in the business, but they are struggling to find childcare for their new little one. They actually had to hire front-house help that used to be Phoebe, which is kind of disappointing because she wanted to be part of the business as much as possible and now has had to step back partly because of the lack of childcare. Fortunately, they actually have family in the area, so they have been able to step up and help. But that is not the case for everybody, and it should not have to be. In Iowa in particular, more than 350,000 kids live in communities where they do not have access to childcare, meaning that thousands of parents are being forced out of the workforce. With the lowest unemployment rate of any state in the nation, this is an issue that we cannot afford to ignore in Iowa, and Mr. Levi, we are grateful you are here to talk about that. When parents cannot access affordable childcare, the effects are felt across the entire economy. This issue is especially pronounced in rural communities. In Iowa, more than one-third of our rural residents are living in areas considered childcare deserts, places where demand for childcare exceeds supply by more than three to one. For our rural businesses that already struggle to attract talented employees, access to childcare is another challenge they have to overcome when it comes to recruitment and retention. Even in areas where there are enough providers, childcare is so expensive that some families cannot afford it. Over the last decade, the cost of childcare has increased by 25 percent. A family of four in Iowa is paying as much as $1,300 a month to cover the cost of childcare. Some of my colleagues here today are from states where the average cost is much higher. In some parts of the country, the cost of childcare is even as high as college tuition. When I talk to business owners about access to affordable childcare, they want to be part of the solution. They do not want people to have to choose between a paycheck and starting a family. They know that a strong workforce is not just good for business--it is good for the future of their community. During today's hearing, I hope to explore how childcare can drive economic growth and help our small businesses thrive. We will look at how access to childcare, along with policies like paid family leave, can contribute to improved productivity and retention in the workplace. Our witnesses will also speak to some of the challenges and opportunities for small business owners who want to improve access to childcare, not only for their employees but for their own families as well. Small businesses are much less likely than larger firms to offer childcare benefits. For some small operations with razor- thin margins, they might not have the resources or the expertise to even offer common benefits like childcare referral services or dependent care assistance plans, let alone onsite child care. Helping support small businesses and rural communities that want to improve access to affordable childcare will be an important part of our conversation here today. I also want to take this opportunity to announce that later today I will be helping introduce legislation led by my colleagues, Congresswoman Susie Lee and Congressman Pete Stauber, who sits on the Small Business Committee. This legislation would expand financing options for childcare operations through the Small Business Administration. Thank you for your leadership, Ms. Lee and Mr. Stauber. Today, we will also be hearing from Mr. Levi, who I talked about earlier, who came all this way from Iowa and we are grateful that he made the trip. His partnerships with nonprofit childcare centers is an example of how we can improve access to care. Lastly, I hope to touch on the importance of our childcare providers who are often small business owners themselves. Whether they operate a center or run their business out of their home, providers are the people on the ground trying to improve access. Federal proposals to increase access to affordable childcare will only further drive demand for childcare services. For example, the Child Care for Working Families Act would create 700,000 new jobs for childcare providers. We are going to need our small businesses to help meet this demand. Thank you all again so much for being here today. It means a great deal, and this is going to be a very important discussion and something that we need to be having in Washington and across our country. I would now like to yield to our Ranking Member for the day, Mr. Hagedorn. Mr. HAGEDORN. Well, thank you, Madam Chair. I appreciate your fine opening statement. And you holding this hearing. It is a very important issue. Something that many of us have been working toward. And I am also on that legislation with you, to make sure that we can focus SBA monies to loans and so forth to get providers going. Very important. So like health care, the childcare industry presents many challenges, especially for those in rural communities. Lack of access, lack of choice, and high cost consistently discourages parents from reentering the workforce. This reduces demand for the few childcare entities in those areas and raises costs while eliminating jobs. That is not good. Programs like Head Start or suggested universal childcare programs may only fill part of the gap, but a vibrant private sector option must be part of the calculus. And I think that is one of the things that we are going to focus on today is to make sure that that is available and there is great opportunity in those areas in the private sector. Each community, each parent, and each child has unique wants and needs that are better served when choices are expanded. With fewer restrictions and fewer regulations in those areas that do not increase health and that do not decrease or in any way get in the way of our health and safety outcomes for children, you know, more opportunities are often provided. So, when there are more choices for child care, parents are more likely to obtain full-time employment and promote economic developments in our communities. In my home state of Minnesota, child care costs are over $16,000 per child annually, and that comprises about 21 percent of median family income. I represent southern Minnesota, and in that our largest city is Rochester, and the average cost in Rochester is approximately $1,200 per child per month. So, it is pretty extraordinary when you think about it. According to the U.S. Department of Health and Human Services, child care is considered affordable if it costs no more than 10 percent of a family's income. Yet, Minnesota is not alone in being unaffordable. In fact, every state in the union, including D.C., is unaffordable by that standard. So that is quite something. These costs only increase when variables, such as additional children, medical requirements, and single parents are in the mix. So that is pretty much best-case scenario is $16,000 per child in Minnesota. That is best case scenario, and from there it gets higher. I look forward to hearing the challenges presented within the childcare industry and what we can do to reduce burdensome regulations and costs within this field. I would note for the record that there are people that have traveled even further from the great state of Minnesota. I am looking forward to all the testimony from our witnesses. And thanks again for holding this hearing. Chairwoman FINKENAUER. Thank you, Mr. Hagedorn. The gentleman yields back. If Committee members have an opening statement prepared, we would ask that they be submitted for the record. I would now like to take the opportunity to explain our timing rules. Each witness gets 5 minutes for testimony. There is a lighting system to assist you. The green light will be on when you begin, and the yellow light will come on when you have 1 minute remaining. The red light comes on when you are out of time, and we ask that you stay within the timeframe to the best of your ability. I would now like to introduce our witnesses who have taken time again away from their families and their businesses to be here today for this important hearing. Our first witness is Ms. Cindy Cisneros. Ms. Cisneros is the vice president of Education Programs at the Committee for Economic Development. She is responsible for leading their portfolio of education work, which includes early childhood education, K-12, postsecondary, and workforce development. Ms. Cisneros has in-depth experience providing technical assistance to state and district educators on the successful implementation of national education laws. She previously worked for the U.S. Department of Education. Thank you so much, Ms. Cisneros, for being here today. Our second witness is from my district, Mr. Daniel Levi from Cedar Falls. Mr. Levi is the principal and owner of Levi Architecture, an Iowa small business. Levi Architecture has worked on a variety of projects, including commercial, industrial, residential, and educational, with a special interest in childcare facilities. Mr. Levi has been instrumental in development of childcare infrastructure. Through his work as a board member of Exceptional Persons, Inc., and the Black Hawk County Child Care Coalition, which is an incredible organization and group of folks, Mr. Levi has been working alongside community partners, businesses, and childcare providers to address the need for childcare in northeast Iowa. Thank you for all that you do and for taking time away from your business and your family to be here. We look forward to hearing from you. Our third witness is Ms. Sarah Piepenburg. Ms. Piepenburg is the owner of Vinaigrette, a family-owned and operated food store in Minneapolis, Minnesota, with five employees. A former HR consultant, Ms. Piepenburg and her husband have firsthand experience struggling to find affordable childcare for their family, and they work hard to provide a supportive work environment for their employees. Ms. Piepenburg is the mother of three, a board member of Ripples of Kindness, the Minnesota Breastfeeding Coalition, and a member of Main Street Alliance. Thank you for taking time away from your business and your family and traveling all the way here. I would now like to yield to our Ranking Member for the day, Mr. Hagedorn, to introduce our final witness. Mr. HAGEDORN. Thank you, Madam Chair. I appreciate that. Our final witness today is Veronique de Rugy. Doctor, before I go any further, did I get that close? All right. That is not too bad. You know, for southern Minnesota, not too bad. A senior research fellow at the Mercatus Center at George Mason University, where I went to school, George Mason, a fine institution of higher learning. Her expertise includes the U.S. economy and taxation. Before her tenure at the Mercatus Center, she was a resident fellow at the American Enterprise Institute, a policy analyst at the Cato Institute, and a research fellow at the Atlas Economic Research Foundation. She also oversaw academic programs in France for the Institute for Humane Studies here, received her M.A. in Economics from Paris Dauphine University, and her Ph.D. in Economics from the Pantheon-Sorbonne University. All that pretty good so far? Good. In addition to her extensive knowledge and expertise in economics, she is an acclaimed writer with articles published in the New York Times, the Wall Street Journal, and many others. She was named one of Politico's Top 50 Thinkers, Doers, and Visionaries Transforming American Politics in 2015. Thank you for taking time to speak with us. We look forward to your testimony. Chairwoman FINKENAUER. Thank you, Mr. Hagedorn. Now I would like to recognize Ms. Cisneros for your opening statement. STATEMENTS OF CINDY CISNEROS, VICE PRESIDENT, EDUCATION PROGRAMS, COMMITTEE FOR ECONOMIC DEVELOPMENT OF THE CONFERENCE BOARD; DAN LEVI, PRESIDENT, LEVI ARCHITECTURE, PLC; SARAH PIEPENBURG, OWNER, VINAIGRETTE; VERONIQUE DE RUGY, SENIOR RESEARCH FELLOW, MERCATUS CENTER, GEORGE MASON UNIVERSITY STATEMENT OF CINDY CISNEROS Ms. CISNEROS. Good morning. My name is Cindy Cisneros and I serve as the vice president of Education Programs at the Committee for Economic Development, or CED, which is the public policy center of The Conference Board (TCB), and it is a nonprofit, nonpartisan, business member-driven organization. Our business leaders know that a skilled workforce is paramount to economic prosperity. From CED's perspective, access to quality affordable child care is a two-generation strategy. It helps fuel economic growth by supporting working parents and supporting the healthy development of young children. Americans are working today, including mothers of very young children. Over 15 million children under age 6 have working parents. In 2019, CED released a study, Child Care in State Economies, which reviewed the use of child care by families and the economic impact on states. We found that child care is an industry that plays a significant role in economic growth. The industry, which includes both center-based and home-based child care, had a total economic impact in 2016 of $99.3 billion. This includes $47.2 billion in revenue, plus another $52.1 billion in spillover in other industries. Service industries of comparable size include medical labs at $47 billion, and spectator sports at $46 billion. In terms of jobs, the spending of 1.5 million sole proprietors, or home- based providers, and wage and salary employees in the childcare sector, support more than 507,000 workers in other industry for a total jobs impact of over 2 million. CED's study analyzed the use of market-based care--that is paid childcare services using the U.S. Census Bureau Economic Census, County Business Pattern Data, as well as Non-employer Statistics data from 2016. Without access to child care, parents reduce their hours or opt out of the workforce, and 94 percent of those are women. The use of paid child care is highest among two-parent families working full time at 88 percent, and single-parent families working 35 hours or more per week at 83 percent. Both family types far exceed the overall usage rate of 59 percent. Families regularly struggle with the availability, affordability, and quality of child care. Employers are impacted, with some estimates by more than $4.4 billion per year in lost productivity. Just last week, the Center for the Study of Child Care Employment estimated that parents forego about $30 to $35 billion in income because of challenges with child care. The supply of child care is uneven across communities. Childcare centers open in areas where the population is dense enough and has sufficient income to sustain a viable business model. Of concern, particularly in rural areas is the decline in family childcare homes, which we estimated at 20 percent over the past 10 years. For home-based providers, the hours are long, and the fees charged to parents do not offer an economic incentive to stay in business. Average revenue is only about $15,000 per year, which is below the poverty line for even a family of two. The current business model for childcare centers, which also depends on parent fees, is challenged to keep rates low enough for parents to pay but high enough to hire and retain high-quality staff. This has led to a childcare workforce that earns low wages at about $11 an hour and has high turnover. And yet, the childcare workforce is critical as it is the workforce that literally supports all other workforces. There is no easy way to make quality child care more available and affordable. However, there are approaches that can be considered. First, the National Academy of Sciences released a report in 2018 suggesting ways to better finance our Nation's childcare system. CED was represented in a NAS public hearing to inform that report with a business leader perspective. This set of recommendations is worth reviewing. Second, to help fill the gap between what parents can afford to pay and a livable wage for individuals working in child care, Congress could enact a refundable workforce tax credit that is linked to achieved competencies in early childhood education. Third, expand Small Business Development Centers (SBDCs). Child care is a business, yet many who operate within the childcare industry know early childhood but not best business practices. SBDCs could be required to partner with state childcare agencies to offer business technical assistance for centers and homes. Thank you for your time today. I am pleased to answer any questions. Chairwoman FINKENAUER. Thank you, Ms. Cisneros. Now, Mr. Levi, you are now recognized for 5 minutes. STATEMENT OF DAN LEVI Mr. LEVI. Thank you very much. Appreciate the opportunity to speak today. My involvement with child care started through a very personal opportunity with a nonprofit we are associated with that houses our childcare resource and referral. We had a recruitment and retention problem. Part of that issue is the pay structure. We had opportunities but our community was not involved in the conversation that child care was a legitimate crisis in our area, and it is a crisis in our county. Over the last 5 years, the trends are we have lost 37 percent of the childcare centers in our area, and it is continually impacting my clients in my professional practice where they are unable to expand due to lack of talent. So, we decided to attack the problem through a coalition of volunteers called the Black Hawk County Child Care Coalition, specifically addressing the private sector, making this a bottom-line issue, a cost issue, a quality control issue, and a recruitment issue. The state of Iowa has record-low unemployment as we have seen across the Nation. We have had this conversation with CEOs, CFOs, decision-makers at small- and medium-size businesses across our area to try to impede on them what the impact is if they are willing to listen. And many businesses already had the data and are now looking into that data. Our coalition quickly expanded, and we were asked to expand our reach just beyond our county. We are now into counties all across the state of Iowa, and all of these small towns have the same thing. They say we have a lack of talent for our businesses to expand and we have moms and dads moving away from our small towns. It is hurting rural economies. It is hurting our communities. We are seeing school districts reduce in size. Child care can be one of those economic drivers in the smaller communities. We have a series of examples that we have been engaged with, one of which is work through the Iowa Women's Foundation where we created a Center in a Box. It is not a very creative name but what we did provide was communities an opportunity to see what a child care actually could look like on paper in terms of its size and its cost while meting all of the state requirement regulations. The most important piece to that is a business plan that goes along with that model so these communities can understand what it is going to take not only to start a center from a startup cost standpoint, but also sustainability. We cannot have centers that open and close. It hurts the economy. It hurts the vitality of our small communities. And leaves moms and dads in a very difficult position where they may choose not to be employed any longer. Mr. Hagedorn brought that up specifically in his opening statement. We see that on a regular basis. So, what we have done is when we get into these communities through volunteerism, we talk to them about the resources that they need and the resources that they may have available to them. They simply do not know in many of these communities, they have neither the expertise, the talent, or the experience to understand how to attack these problems. When we involve the private sector and we partner with our school districts and we partner with other nonprofits and foundations, rather than just adding together our resources of varying types, we actually can multiply those resources to create something much better than we could when we try to do it all on our own. The smaller the community, the more important the school district can be in that they have different types of resources. Businesses have different types of resources that they can bring to the table that moms and dads do not. And when we start to get the private sector to understand that this is a black and white issue for them, this is a bottom-line issue for them, they have willingly come to the table and enthusiastically get involved in our conversations. In one example in Cedar Falls we have a co-op opportunity where we have major businesses sponsoring, and in exchange, they take down one of the two significant barriers to child care, access. In Black Hawk County, the average center has 37 kids on the waiting list. It could take a year or more to get a child into your center. When businesses partner in this way, they have guaranteed slots in the center. Then, on top of that, if they choose, they have the flexibility to also supplement or provide benefits to their employees to reduce the cost, but we leave that up to the individual employer. So, we try to create a system where there are flexible options to bring on different resources, people with different talents, people with different interests and different scales at all times. We found that this model works very well, and it is scalable, and it has been very successful across the state of Iowa so far. Specific examples of how policy, not more money, can make significant change is the state of Iowa has tied the quality rating system to centers to change the reimbursement structure on childcare assistance, which encourages centers to either expand the number of children that they take on assistance, or it actually makes them break even on that, reducing the incentive to cap their childcare assistance. Thank you very much. Chairwoman FINKENAUER. Thank you so much, Mr. Levi, for being here. Ms. Piepenburg, you are recognized now for 5 minutes. STATEMENT OF SARAH PIEPENBURG Ms. PIEPENBURG. Chairwoman Finkenauer and members of the committee, thank you for this opportunity to testify today about how a robust infrastructure for child care would support my small business and other Main Street businesses. My name is Sarah Piepenburg, and I am a small business owner of Vinaigrette, a specialty oil and vinegar shop in Minneapolis, Minnesota. I have been running my business since 2009 and currently have five employees. I am a member of Main Street Alliance, a national network of more than 30,000 small business owners. In Minnesota, we have the fourth highest costs in the Nation for infant care with the average cost for enrolling a Minnesota infant in a childcare center running $310 per week, or over $16,000 per year. For 2 years after we had our son, we did our best to piece together daycare and work. We sat on countless waitlists. I even delayed taking a job until my son had aged out of the most expensive infant care category, which costs more than in-state college tuition. I then took a part-time job and put my son in part-time child care. Even with all our juggling, I was still only taking home $244 a paycheck after childcare expenses. It did not seem worth it. I quit my job to stay home, but I knew we would have to find another solution. My husband and I became small business owners for a reason that does not fit neatly into our marketing materials. We needed child care and we could not make it work any other way. For my husband and me, the best choice was to go into business ourselves, arranging our schedules as best we could, and getting help with child care from family and friends. We used the $16,000 we would have put into child care to launch our business. While this may seem like an extreme solution, it is more common that you might think. In a Small Business Majority survey of small business owners, 29 percent stated that lack of access to child care was a major reason for starting their own business, due to the need for increased flexibility in their work schedules. But an even larger portion of entrepreneurs surveyed, 36 percent, say the lack of access to affordable, high-quality child care is a barrier to their business. Small businesses like mine operate on thin margins and cannot match the more generous childcare benefits offered by larger employers, resulting in a hiring disadvantage. A more robust childcare infrastructure would level the playing field between small and large businesses. Even if parents can afford child care, they often cannot find it. In my state, for example, 44 percent of Minnesotans live in a child-care desert, where there are simply no spots for anyone. That is lower than the average. More than half of families in America live in childcare deserts, areas where licensed child care is scarce and does not meet the needs for the number of children in the area. Rural and low-income urban communities are hit hardest by this lack of childcare infrastructure. Creating childcare infrastructure in these communities would increase labor force participation among parents driving local economic growth. Work schedules are also a challenge. Most daycares close at 6 p.m., but my shop opens at 11 a.m. and closes at 7 p.m. Finding childcare coverage is even more complicated for shift workers and 24-hour employees in other industries. We need innovative solutions like the Child Care for Working Families Act to address the crisis from three fronts: maintaining quality, ensuring jobs, and capping costs for families. Passing Paid Family and Medical Leave would also help solve a key part of the childcare puzzle. A social insurance program like the Family Act would provide families with two caregivers up to 24 weeks of key bonding time with a new infant and 6 months less of expensive infant child care. That is why small businesses overwhelmingly support paid family and medical leave policies like the Family Act. All of these challenges affect a robust small business economy. If we believe in small business, we need our lawmakers to change this system. Child care is not only a family issue; it is an economic one, too. Chairwoman FINKENAUER. Thank you so much, Ms. Piepenburg. Again, we really appreciate that you came here all the way from Minnesota. Now we would like to recognize Dr. de Rugy for 5 minutes. STATEMENT OF VERONIQUE DE RUGY Ms. DE RUGY. Ms. Chairwoman, Mr. Ranking Member, and members of this Commitmtee, thank you for having me today to testify. Ensuring that a family can afford to raise children in America is an uncontroversial public policy concern. Many families have difficulty finding affordable and quality child care. In some places like Washington, D.C., daycare for infants and children younger than preschool age costs an average of $24,00 per child. This is a serious problem for most parents, especially for lower-income parents. Thankfully, not all states face the same childcare cost burden. But understanding what is driving the cost of child care in some areas and not others is key to designing the right policy. Before we start throwing more money at the problem or assuring new regulations, we must look at one important barrier to affordable childcare provision, and that is childcare licensing laws and requirements. I will share here three main findings from the academic literature on the issue. First, however well-intentioned, the imposition of strict licensing requirements actually restricts the supply of health care and make it harder for families by raising prices. Two, strict licensing requirements raise barriers to jobs for childcare workers. Three, this increase in cost is not accompanied by commensurable increase in quality or safety. So, what comes next in my testimony is an overview of the economic literature on occupational licensing across industries. So, first, licensing requirements generally restrict the supply of services in a licensed industry by prohibiting some perfectly competent workers from working as a provider. Occupational licensing laws also impose a high cost on the employees by forcing them to pay high fees, undergo many days of training or experience, or earn arbitrary certification. My written testimony includes some charts to that respect. By restricting competition between providers, occupational licensing also increases the price of goods and services for consumers. An often-cited report by the Obama Administration Council on Economic Advisors found that licensing laws can increase prices by 16 percent. Higher prices are hurting low-income consumers the most, obviously. Second, licensing hurts low-income workers as well. Economist Morris Kleiner found that restrictions from occupational licensing can result in up to 2.85 million fewer jobs nationwide and an annual cost to consumers of $203 billion. The Obama Administration's report noted that these costs fall disproportionately on certain segments of the population--immigrants, military spouses, and reformed convicts. Other research supports these findings. Licensing laws are also a serious impediment to income ability by making it more difficult for low-income Americans who reach the first rung in their climb out of poverty. In addition, these licenses also operate as a substantial barrier to interstate mobility; hence, better labor markets as the licensing requirements vary between states and cannot transfer usually from state to state. Third, licensing requirements are often justified on the ground of quality control and public safety, and in theory, licenses might increase quality if it acts as a well-designed screening system. But on the other hand, it might decrease quality by limiting competition. Reviews of the academic literature suggests that the two effects cancel each other out, though more studies find that licensing reduces quality then find that it enhances it. Finally, the occupational licensing literature that focuses on childcare industries specifically reveal exactly the same pattern. Excessive staff-to-child ratio education or parking requirements increase the cost to the supplier, restrict the supply, and ultimately increase the price for parents. The solution to the current shortage of affordable care is not to drive costs higher with more money and more regulations. The first step is for state and local officials to look at ways to reduce excessive regulations that contribute to the high cost of child care. For instance, estimates suggest that relaxing the average mandate staff-to-child ratio by just one child across all age groups would reduce childcare prices by 10 percent or more. In Minnesota, that is $1,600. In D.C., it is $2,400. I mean, it is important. In order to fight the high childcare costs and lack of child care availability, Arlington County where I live, the County Board adopted a change to allow small, in-home daycare providers to care for up to nine kids without having to go through the county's extensive use permitting process. They also reduced parking requirements for childcare centers after business owners complained they were extensive and county staff found parking spaces were often unused. Other state and local governments follow this example. But I want to leave you with one warning. While these reforms might not be the whole answer to the challenge of high childcare costs, a failure to make these challenges will make other reforms by the Federal Government ineffective. Thank you. Chairwoman FINKENAUER. Thank you, Dr. de Rugy, for being here today as well. Now we will start our questions. I yield myself 5 minutes, and I would like to start with Mr. Levi. One thing I know you talked about in your testimony was the fact that people are struggling to move back to Iowa, or they are even leaving, because they cannot find childcare. I have seen this firsthand. I am 31 now. I have a lot of friends that I graduated high school with who went off to college, would love to move back home, raise their family, and be close to mom and dad in Iowa. However, they are struggling to do it, facing barriers related to jobs or to childcare. This is such a huge issue, so thank you so much for all that you have done with the Black Hawk County Child Care Coalition. One of the things I know you talk about with the Black Hawk County Child Care Coalition is the ``Child Care Center in a Box,'' which offers sample budgets, business plans, and other resources for childcare centers. That is huge. Can you talk about the need for this type of support and technical assistance, how folks are reacting to it, and what you think we can be doing to make sure that more people have the assistance that you have been putting out there? Mr. LEVI. Sure. I would be happy to. Again, the Black Hawk County Child Care Coalition was formed to address the crisis in Black Hawk County specifically. And as we started to do some speaking engagements, as our childcare resource referral department headed through EPI is doing talks over 19 counties, they started to get more and more inquiries. We started to see that this was far beyond our issue of just Black Hawk County. To do that Child Care in a Box, we partnered with the Iowa Women's Foundation who was across the state and regularly fields these questions of we also have a childcare problem. What can we do about it? We do not know what the next steps are. A small community, again, lacks the expertise and the experience. They would be referred to our coalition. We would pile in the car and make a road trip. And so now we found ourselves over about two-thirds of the state now, which does not speak to our expertise. It speaks to the need and the lack of expertise and the lack of resources that small communities have, not knowing even how to address the problem. Chairwoman FINKENAUER. Yeah. Have you found federal resources to expand on these efforts at all? Mr. LEVI. No. Chairwoman FINKENAUER. No? Mr. LEVI. It is all at the state or volunteer level. Chairwoman FINKENAUER. Yeah. Thank you for everything that you are doing. This is where we really need to be stepping up in this area. Ms. Cisneros, I know you had the opportunity to hear from Mr. Levi as well about his efforts to partner with businesses to start childcare centers in northeast Iowa. We know that more investment from the federal level is needed to address the childcare crisis. However, we also need an ``all hands on deck,'' approach to solve this. Can you talk about successful public-private partnerships that have been implemented to address this issue similar to Mr. Levi's or in that same space? Ms. CISNEROS. Yes. It is inspiring to hear what Mr. Levi had shared. There is a lot of creativity happening out there in the states. And there really are some innovative public-private partnerships, and that is something that CED has also promoted in terms of problem solving. One aspect in terms of thinking about these issues is really bringing all stakeholders or nontraditional stakeholders, like the business community, together. So, we have an example from Minnesota that we wanted to highlight, and that is First Children's Finance, which is headquartered in Minneapolis. And it is a nonprofit financial intermediary that works not only in Minnesota but also in 12 other states throughout the Midwest. And First Children's Finance, they provide loans and grants to expand the supply of child care and improve the quality, and also provide that much- needed technical assistance on running a business and being a business owner. They work directly with communities in both urban and rural areas. They help actually launch new childcare businesses, and they help provide support, again, to better manage the business aspects of operating a childcare business. And they help businesses expand. I thought these were great details about the project, and it has involved 19 rural communities. It has created 533 new childcare slots, 583 participants came together in town halls to develop right size solutions to increase the supply of affordable child care, and 87 percent of childcare businesses that participated in the project improved their business model. Chairwoman FINKENAUER. Interesting. Well, we are running out of time here, but I do want to ask you one other question. How would you change or improve the Child Care Development Block Grant to improve access to childcare and better support public-private partnerships? Ms. CISNEROS. In brief, wow, that is a big question because it does not really address the supply of child care. But it could be considering different uses of the Child Care and Development Block Grant such as for construction and things related to facilities and the condition of facilities. So, while the reauthorization in 2014 did put a higher emphasis on safety and development for kids, there are other considerations for use of that money to states as well. Chairwoman FINKENAUER. Thank you so much. Again, I appreciate your expertise and being here today. With that, I am out of time, so I will yield to Mr. Hagedorn for 5 minutes. Mr. HAGEDORN. Thank you, Madam Chair. Like I said at the beginning, it is a very important issue, and we talk with folks all across southern Minnesota and elsewhere about how difficult it is across the board. Obviously for our families with the extreme cost. I mean, that is taking money out of their back pockets and it is putting enormous pressure on our families. And from that standpoint alone it is an issue that we are going to continue to work on this, but we should be focused on it very intently. The other part of it though is when you get into some of the rural areas that I represent, you can get into towns where they do not have any providers. And then you start to think, well, how is that town going to continue to thrive and maintain its schools, because it is tough to attract teachers in who might be of child-bearing age, for instance, if you cannot find anybody to take care of the kids and you have to travel 20-30 miles for that. Pretty soon they will want to go to some other town to teach. And on it goes. And so, you know, across the board, do we support the tax credits? Of course. Yes. And I think they need to be increased from even where they were under the tax bill. Individual Tax Reform is coming along so that is something that I am going to support wholeheartedly. But then we get into you talk about the different types of providers. So, Julie Eberhart of Rochester, she is an in-home provider as is another lady that I spoke with in Springfield. Two different towns. One is 115,000 people, the other is 2,000. But Ms. Eberhart tells me that these regulations in Minnesota are just unbearable. We started printing them out. There are 250 pages of them here. There is another 150 to 200 pages of them, just the state of Minnesota, what they have to comply. So, if you are an in-home provider, you need to figure out what is in all this paperwork and then you have to comply with it. And that is on top of the work that you do which is incredible. It is driving up your costs, making your life miserable. So, we are going to encourage the state of Minnesota to make sure that this is streamlined, and we can do everything possible. But Doctor, you mentioned this a little bit. Could you maybe expand upon the cost and the enormous problems that they face because of these regulations? Ms. DE RUGY. Yeah. I mean, it is unquestionably a real problem. And as I said at the end of my oral testimony, I actually think that this is the number one thing to focus on because you can subsidize, you can give tax credits, you can do all of that stuff. If you do not actually do the fundamental work to lower the cost of being a supplier and being willing to supply, because here you are talking about the cost for people who are already in the business. But what is harder to see is all the people who do not get into the business precisely because of these costs. And the academic literature seems to suggest that it is not insignificant. It does really shrink the supply of child care. So, this should be the number one priority. The question for the Federal Government is what can the Federal Government do? And that is the hardest question because these are state and local regulations. I do think that there is hope because there is a big bipartisan movement right now to try to kind of highlight the cost of these regulations, but it is certainly, I think, the number one problem. Let me just say, you are trying to expand child care or make child care more affordable by subsidizing it. The problem is, if you subsidize it, you may increase the demand, right, and that increase in demand may trigger an increase in the supply but it will not be enough if the regulations are so strict that no one wants to get in. And what you are going to have is basically an extra increase in the price of child care. So, it is going to be counterproductive. This is why it is important to focus on this first because it is going to make any other policies you are trying to put in place not effective. Mr. HAGEDORN. Point well taken. So, Mr. Levi, I appreciate what you are doing and encouraging, for example, businesses to partner up. The City of Luverne, I was just there a couple weeks ago. They have a childcare issue, and I was talking with the mayor and others and I said, you know, maybe one of the deals is, you have a very forward-thinking city here, maybe some of these businesses, they are expanding, about 400 jobs in a city of 5,000, so what are they going to do with the kids? So, you start getting the businesses to partner together, and I would open it up to anyone, what can we do at the Federal level to facilitate that? To make sure that that is possible and to encourage that? Because that seems to make a lot of sense. Mr. LEVI. The encouragement of getting, especially in small, rural communities, getting businesses to move to those communities or to expand, child care is obviously a significant issue. If you would tie dollars to mandated public-private partnerships, require communities to step up to the plate in a more significant way than they have been. That means the private sector needs to get involved because they have to understand this is affecting their bottom line. And if we want to get real movement on that, the private sector has to come to the table on this. This cannot be just the Federal Government paying for it, but it has to be something where we are tying any kind of assistance, be it CDGB funds or other programs, it has to be tied to a partnership. Mr. HAGEDORN. I do not know if I want to mandate and do those types of things. I just want to see that if they have the interest, that we do not stand in their way and we do everything we can to facilitate it. But I think the competition that the doctor and others were talking about makes the most sense. With that I will yield back. Thank you. Appreciate it. Chairwoman FINKENAUER. Thank you, Mr. Hagedorn. With that, I will recognize my good friend from Minnesota, Ms. Craig, for 5 minutes. Ms. CRAIG. Thank you so much, Madam Chair. I would just like to note for the record that we have perfect attendance from Minnesota on this Committee this morning. It is a great bipartisan delegation. So, it is great to be here. Honestly, I have four boys, and they are 22, 22, 21, and 16, and I am having flashbacks of multiple car seats in the back seats here this morning. So, thank you. Thank you for that anxiety-ridden morning, Madam Chairwoman. Look, this is a critical issue across my congressional district and across the state of Minnesota. And what is stunning is it is so interrelated to the other issues that we face in our local communities. For example, the great city of Red Wing in my congressional district, we have got good jobs. What we do not have is affordable, accessible housing and child care. In fact, my local businesses often tell me that they have got an employee who is willing to move from the cities to Red Wing and there is a 9 month waitlist for daycare or child care in that community, and that is just something that parents really struggle with in our community. So, I will start with Ms. Cisneros just with a question. Especially in our small cities and our rural communities, at the Federal level, what would you have us really focus on? And then I am interested in Mr. Levi's response to sort of the regulation question. And then Ms. Piepenburg, you, being from Minnesota as well, anything that you would have to add to that. Ms. CISNEROS. So I definitely agree, it is an issue trying to figure out how to really create additional supply in rural areas. And we have talked about this partnership approach is really a primary strategy. There are a number of states who have really just taken it upon themselves and their communities to figure out with employers because they know employers need to rely on employees. Employees need to know that there is available child care. That will help draw industry. So, it is really pulling together and problem solving at a very local level. And so, we would support that type of grassroots approach rather than trying to mandate something at the Federal level. There are a lot of communities, such as in Charlotte, North Carolina, who came together and the business leaders decided they wanted to expand these opportunities and create more access for children, for 4-year-olds in terms of pre-K, and they funded a feasibility study and they got together with the county and said we are going to invest in this. They ultimately provided funding for scholarships so that they could get more educators, early educators into the field to help increase the supply. Ms. CRAIG. Is there an increased role for SBA in financing and helping to start up these businesses? Ms. CISNEROS. I think we would need more information in terms of what is really the need. If it was available, how would it be utilized? And with loans, it is challenging because you have to present a viable payback plan. And so, for this type of industry, not a lot of income, not a lot of annual revenue, and that could be problematic, but I think it is worth exploring. Ms. CRAIG. Thank you. Mr. Levi, would you care to comment on the regulation point my colleague made a moment ago and just where I should be focused on this? Mr. LEVI. Certainly. There are two kinds of regulations. There is obviously the licensing, the programmatic side, and then there is the physical plan. And so obviously, as an architect, I am going to go into facilities existing and new facilities and look at the physical plan. The State of Iowa administrative code combined with the building code is pretty strict. It has some very significant barriers, especially on renovation of existing buildings. It makes it extremely hard to be cost effective. If you really want to make some change about competition and you want to make these businesses, people expand and get into the industry, it needs to be profitable. So, it is an actual career path for individuals. And the only way you are going to do that is you have to attack the number one cost and that is labor cost. We design buildings specifically, very detail-oriented, around the student-teacher ratio. Classrooms are exact minimum sizes to maximize those ratios. You cannot have six infants in a room when your ratio is one-to-four. That room has to be sized exactly for four or eight or 12. It has to be on that ratio. If you change that ratio, we can change room sizes. We can get more kids in the room and we can reduce the cost across the individual students. That is going to change the bottom-line profit and loss of a childcare center. Ms. CRAIG. Ms. Piepenburg, I did not leave you any time so maybe we will come back to you in a moment. With that, Madam Chair, I yield back. Chairwoman FINKENAUER. Thank you very much, Ms. Craig. We have the other Minnesotan. I would like to introduce Mr. Stauber, Ranking Member of the Subcommittee on Contracting and Infrastructure. Mr. Stauber, you have 5 minutes. Mr. STAUBER. Thank you, Chairwoman Finkenauer, and Ranking Member Hagedorn, for allowing me to speak at this Subcommittee hearing today. We all know child care is a pressing issue for many individuals in my district, and I am grateful to have the opportunity to be a part of this conversation this morning. With more and more parents choosing to dually work and raise their family, child care is hurting across the Nation now more than ever. Those in rural America are particularly impacted by this shortage, and we cannot continue to punish those who choose to live in our rural areas in the communities, like Minnesota's 8th Congressional District. That is why I was happy today to report that I, alongside Congresswoman Lee, and several members of this Committee, including Chairwoman Finkenauer and Congressman Hagedorn, to be introducing the Small Business Child Care Investment Act. This legislation will allow nonprofit childcare providers to apply for SBA loans. These loans will go a long way in keeping the doors open at childcare centers and providing for families that want to participate in the workforce. Additionally, I am also the cosponsor of the Family Care Act. This legislation will allow families with permanently or totally disabled dependents to claim the Child Tax Credit, which is worth up to $2,000 per qualifying dependent. Just another example where we are trying to help families as they try to provide care for their kids. I want to thank all the witnesses here today for sharing your testimony and expertise. It is you who help us as legislators create good public policy. I just want to ask a general question of each of you. What is the most pressing challenge regarding child care for future businessmen and women? And Doctor, you can go first. Ms. DE RUGY. So, I mean, as I said in my testimony, I think increasing the supply of child care is important and one of the ways to do it, and you have to do this, you know, first I think is to lower a lot of the requirements that are not, I mean, I am not saying just get rid of all the requirements but there are a lot of very strict requirements which do not add in terms of quality, increased costs, reduced supply, and then ultimately increase the price of child care. And this would be a priority. Mr. STAUBER. State and local rules and regulations? Ms. DE RUGY. Yes. And that is what makes this issue so difficult. That said, as I said, I think there is hope because there is a bipartisan consensus on this and I think President Obama's report on the issue got a lot of traction and is actually drawing a lot of attention to something that a lot of people were already talking about. And more half of this body in terms of information as opposed to regulation or money is worth doing. Mr. STAUBER. To your point, I know that the childcare provider for my four children is contemplating leaving the business because of the redundant rules and regulations, and so far their family has stayed in it but that is a real choice for her and her family to continue. Ms. DE RUGY. And it prevents new providers from entering. Mr. STAUBER. Stay that again? Ms. DE RUGY. It prevents new providers---- Mr. STAUBER. Sure, absolutely. Ms. DE RUGY.--from entering the market. Mr. STAUBER. Absolutely. Ms. DE RUGY. As people leave. Mr. STAUBER. I concur with you. Ms. Piepenburg from the great state of Minnesota, can you answer that question? What is the most pressing challenge for those businessmen and women who want to start up reference child care? Ms. PIEPENBURG. Well, as a small business owner and a mother, I mean, if businesses lose over $4 billion because of absenteeism, and as a small businessowner I need people to work in my store. I would like to expand my business, but we need help in getting child care and to level that playing field because I cannot compete with Delta Airlines that has a childcare facility. And so, I need actual bodies, and so I need people to be able to work in my store. Mr. STAUBER. So is it a combination of child care and lack of workforce? Ms. PIEPENBURG. Absolutely. Mr. STAUBER. Thank you. Mr. Levi? Mr. LEVI. I would say the number one issue facing child care is the fact that they are simply not profitable. It is a business model that, at least myself as a small businessowner, I would not get into when you look at the labor cost associated with it and the potential revenues that you can reasonably charge a mom and a dad, you can strip regulations and you can reduce any of the expenses you want, that labor ratio based on the amount of income you can bring in simply is math that does not work. So, others have to come to the table. It has to be a community solution to a community problem. Mr. STAUBER. Thank you. Doctor, I wanted to talk to you about the regulations. As Ranking Member Hagedorn just showed, these are Minnesota's regulations. And you talk about people looking at this, a lot of paperwork, to get into child care. That is daunting for them. These are just the State of Minnesota's. Ms. DE RUGY. It is. These regulations are often put in place in the name of the quality of service and safety. And unfortunately, at least the academic literature that has looked at this issue, both for the childcare industry and for all the other industries, shows that on average a majority of these requirements do nothing to increase quality for consumers and safety. And in fact, there are more regulations that harm that aspect. Now, quality is hard to measure, right, but so it is a real problem because among all these regulations, some of them may be extremely valid and important to have. But many of them are either poorly designed or they are driven actually by special interests trying keep out the competition. So there is a lot of problems and it would be so important for state and local governments to really go and check each one of these regulations and really assess what is it they are doing and what they are achieving really and the impact they have on costs because everyone talks about an educator as a childcare provider. This is well and fine if there is no cost at all, but everything is a matter of actually not driving providers out of the system in order to increase the degrees of educators or the number of educators in the field. It is a tradeoff. Everything is a tradeoff. Mr. STAUBER. Thank you very much for that answer. Ms. Cisneros, I am out of time, and I apologize. Chairwoman Finkenauer, thanks for the extra couple minutes. Chairwoman FINKENAUER. Thank you, Mr. Stauber. And again, I appreciate your work on the issue. I just cannot say thank you enough to all our witnesses for your expertise on these issues. As we have heard today, access to affordable childcare is not just a family issue--it is an economic issue. Ensuring that the youngest and most vulnerable among us are safe is also something that Democrats and Republicans can both agree on. States differ on how they regulate childcare providers, yet the cost of childcare has increased around the country over the last decade. Whether for a small home-based business, a licensed provider, or a large childcare center, regulations are there for a reason. There are bad actors, but most of our providers get into this business because they love our kiddos. They care about their health and well-being. In Iowa, however, seven children have died in childcare since the beginning of 2018. Many of those deaths are the result of safety and licensing standards not being met. It is important that we enforce those standards and make sure that folks are following them. At the same time, we must continue to look at ways to meet the growing demand for child care by supporting providers, helping communities invest in childcare solutions, and making it easier for our businesses to be part of the solution. I strongly believe that this is an area where we can find bipartisan agreement. We just heard from the President on Tuesday about the need to further expand access to childcare. I hope that he and our colleagues in the Senate are willing to work with the House represented here in a very bipartisan Minnesota and Iowa way today on this issue across the aisle and across chambers. It is incredibly important to address this crisis and bring down the cost of childcare for working families. Thank you again so much to our witnesses who in some cases have come a long way to share your perspective with us. I now ask unanimous consent that members have 5 legislative days to submit statements and supporting material for the record. Without objection, so ordered. If there is no further business to come before the Committee today, we are adjourned. Thank you. [Whereupon, at 11:10 a.m., the Subcommittee was adjourned.] A P P E N D I X [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]