Simplified: The childcare industry in South Dakota is facing an increasing gap between what parents can afford to pay and the actual costs to care for children. New data from the Sioux Falls Childcare Collaborative estimates that gap in affordability is around $636 million per year statewide.
Why it matters
- Childcare costs in the state are already more than double what's deemed "affordable" by federal definitions, and without help from the community, those costs will continue to go up, the data shows.
- South Dakota also has a high rate of households in which all parents are in the workforce – about 74 percent, compared to 66 percent nationally. That means the vast majority of parents rely on some type of childcare.
- Meanwhile, childcare workers' average pay rate is $10.39/hour, far below what a person can make in most fast food or other entry-level jobs as wages skyrocket amid workforce shortages and inflation.
"What people don't understand in the childcare world are the limitations on the revenue side," said Kerri Tietgen, CEO of EmBe, one of the organizations in the childcare collaborative and the main force behind the data released Wednesday.
Ok, so what do we mean when we say 'affordable' child care?
Yeah, let's start there.
By federal definitions, "affordable" childcare costs no more than 7 percent of a household income.
- In South Dakota, the median household income is $59,896. Seven percent of that median income is $4,192.
That's affordable. In reality, the average cost of a year of childcare for one child in South Dakota is $10,000.
So, we're starting with a gap of $5,808.
"The industry was in crisis before Covid," said Rebecca Kiesow-Knudsen, president and CEO of Lutheran Social Services.
Here's where the math gets trickier
The $10,000 per year average cost depends on an average pay of $10.39/hour for childcare providers.
If wages were to increase to $18/hour – which providers say needs to happen in order to compete with fast food restaurants and other entry-level jobs – the annual tuition per child jumps to more than $15,800 per year.
Keep in mind, we've defined affordable at around $4,200 per year.
- If tuition costs raise to nearly four times that, the gap between what parents can afford and what they're actually paying jumps to more than $11,600 per year.
Take that gap multiplied by the more than 54,000 children in South Dakota who rely on childcare, and we get to the grand total affordability gap:
- $636 million per year.
Wow, ok, so, what do we do about that?
That's the $636 million question right there.
Childcare providers don't really have a way to increase their revenues outside of raising tuition.
- They can't just add more kids to make more money because the state Department of Social Services has set student-to-teacher ratios to ensure kids are in a safe environment.
- They also can't keep absorbing all of the increasing costs to hire workers, feed children, keep the lights on, etc.
"I think what this math tells us is we need other minds around the table, other people around the table to help us figure out what the solution is," Tietgen said. "It's really gotta be a community, statewide response."
What happens next?
The Sioux Falls Childcare Collaborative's first goal is to educate the community about these numbers and how significant the affordability gap is – and could be – if action isn't taken to help.
The group is also meeting with community leaders – including a meeting with Mayor Paul TenHaken this week, said Michelle Erpenbach, president of Sioux Falls Thrive.
One of the obstacles to overcome in all of this is getting the issue on the radar of people who do not have kids in childcare, Kiesow-Knudsen said.
"This isn't just a problem for families with young children," she added.
For Tietgen, the hope is this data generates a lot of questions and a lot of conversation.
"Economic growth and development for our state and our community, workforce – it all depends on our ability to have good care for all families," she said. "Employers that aren't finding workforce, ask why."