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Luverne leaders are forging ahead with a $6.4 million plan to convert former office space into a child care center.
Costs are daunting and smaller models struggle with earning a profit, but research shows the long-term community benefits are well worth the investment.
“By having a facility that can provide quality early care education to your youngest residents, it’s going to relieve burdens from the school district and social service programs,” said Trisha Lien, business development specialist with First Children’s Finance.
“And this facility has the ability to break cycles that cost a lot of communities down the road.”
Lien addressed a room full of city and county leaders Wednesday night, Nov. 9, in City Hall council chambers.
Of all the day care projects she’s worked with over her career, Lien said Luverne’s day care center plans will stand out as a model to be replicated.
“There are a lot of people in your region who are dying to know what Luverne and Rock County are doing and how are they doing it,” Lien said.
“I can’t tell you the number of times in a month I get asked that specifically. ‘What are they doing over there? How are they getting this done?’ All I can tell them is watch and see. There are going to be a lot of communities that will replicate this if this comes to fruition.”
First Children’s Finance is a national nonprofit organization that provides loans and business development assistance to child care businesses serving low- and moderate-income families.
The organization has been working with Luverne and Rock County for the past six years.
Costs to build and operate
The city of Luverne purchased the 30,000-square-foot Total Card Inc. building for $515,000 last year — a “steal” at $17 per square foot, considering the original asking price was $1.1 million.
The city will renovate the building at an estimated cost of $6.4 million (including architect and engineering fees and center equipment) and lease it to a non-profit board for $1 per year.
The non-profit will acquire a license to operate the child care center for 186 kids (average 163 operating capacity). This is 24 infants in three rooms, 42 toddlers in three rooms, 60 preschoolers in three rooms and 60 school-age children in two rooms.
Operating at full capacity, the center will require a minimum of 35 full-time positions.
Among them will be a licensed director at $28 per hour,
“At this wage, you’re going recruit and retain a high-quality director,” Lien said. “You’ll get one to leave Sioux Falls and come to Luverne.”
An assistant director would be hired at $18 per hour, a teacher at $17, assistant teacher at $15, an aide at $13 and a cook/custodial person at $15 per hour.
Staffing represents more than 70 percent of a day care operation’s costs, and Lien said it’s the one thing a center can’t afford to compromise on.
‘Quality costs money’
“These wages and benefits packages are well above the average for the state of Minnesota, and it’s with good reason,” she said.
“It’s because you’re a state-of-the-art facility that exists nowhere else in the state of Minnesota for a model that currently doesn’t yet exist.”
She said South Dakota’s lower wages will allow Luverne’s facility to recruit quality staff.
“It creates a draw for people to leave Sioux Falls and come here,” Lien said
Tentative weekly rates proposed in Luverne would be $208 for infants, $194 for toddlers, $180 for preschoolers and $100 for school age kids during the school year and $160 during the summer.
These rates are proposed based on studies of local working family incomes.
Lien and other day care center planners said operating at full capacity with all profits accounted for, a center at these rates would be unable to show a profit.
That’s why a good share of Wednesday’s discussion centered on how Luverne’s day care center will be supported.
Funding sources
To pay for the $6.4 million renovation costs, the city is anticipating a federal grant of $2.6 million, contributions of $1 million each from the city and county, a $1.24 million countywide fundraising effort, and a $500,000 Minnesota grant.
The grants have not yet been realized, and county leaders have not yet agreed to the $1 million request.
And even after construction is paid for, the center will need help in order to cash flow until it is operating at full staff and at full capacity.
Working families’ wages can’t afford licensed day care salaries
To understand why it’s so difficult for day care centers in outstate Minnesota to succeed, Lien said it’s important to understand income demographics and economies of scale.
Day care centers in metro areas have access to families earning higher wages and there are more of them to utilize a day care center.
“The larger the center, the more profitable it is,” Lien said.
In the metro area, parents pay $427 per week for infant care. In outstate Minnesota, its $180.
“Keep in mind, throughout Minnesota, the cost to provide child care doesn’t change,” Lien said.
“Staff isn’t paid more in the metro, food doesn’t cost more in the metro, The difference is what you can charge based on the average household income. That’s why the model is so broken, and it requires public and private investment to make it sustainable in greater Minnesota.”
She said the annual price of child care in Minnesota for infants is $16,000 for a center.
“It has surpassed the average annual tuition and fees at a public four-year college or university,” she said.
Part of that is due to licensure and standards in Minnesota.
“South Dakota and Iowa have very different licensing requirements,” Lien said. “South Dakota doesn’t have a ‘Quality rating and approval system’ and licensing requirements are minimal.”
So, that means quality comes at a price, and it shows how we need outside investment.
For a center to succeed, communities need to subsidize operations
Mayor Pat Baustian said the long-term community benefits will be well worth the investment, and he said the city of Luverne is committed to the day care investment no matter what.
“We can’t afford not to,” he said. “Child care is a critical part of our social infrastructure in a healthy community.”
He said when local leaders first started looking at day care six years ago, there were 51 home day cares in Rock County. Today we have 31.
“Parents need access to day care to maintain a productive lifestyle and employment,” Baustian said. “Without quality day care and education for children, that directly impacts our area.”
He said businesses were coming to Luverne’s EDA saying they can’t get employees to work for a full eight hours because they have to leave early or come in late to pick up kids.
“As the county looks to recruit a new manufacturer, the non-negotiables that we know about are education, health care and day care,” Baustian said.
“We want to be part of the solution. Child care is essential for our continued economic development in our cities and county.”
Growing tax base means government can afford to subsidize day care
He also said Luverne and Rock County are well-positioned to afford the investment in child care.
“We have been fortunate to see economic development while struggling with a day care shortage,” Baustian said.
He mentioned Lineage Logistics $50 million cold storage warehouse and 80 new jobs. Also Premium Minnesota Pork’s $70 million smoke house will bring more than 80 jobs, and the county is currently courting a major manufacturer.
These multi-million-dollar projects add tax base, and their property taxes bring in extra income to support further growth and important city amenities.
In this case, Baustian said the growth will help the city subsidize day care operations to the tune of $50,000 per year
“This is an essential service,” he said.
“Property insurance, utilities costs, security costs, lawn care, snow removal … We need to cover those costs in order to make this as successful as we can. We know it will cost money, but it's an essential piece of our long-term continued growth.”
Baustian said he hoped the county and others will support the effort.
“If we’re looking at attracting and maintaining employees to Luverne and Rock County, this is a must.”
“Healthy communities need day care, health care, education … We cannot afford to kick this down the road any further. We would encourage the county to be our partner in the capital campaign as much as possible.”