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City tackles child care crisis, buys building for day care center

Subhead
Commercial business sought for former Tri-State building, subsidized by local partners
Lead Summary
By
Lori Sorenson

The city of Luverne will dive into the business of child care after years of shortage of local day care openings and numerous studies showing that independent day care businesses can’t succeed on their own.
“No matter what, we have to fix this day care shortage in order to keep our economic development engine running,” Mayor Pat Baustian said Monday.
“Right now, we have a lot of people working in Luverne but living in Brandon and Sioux Falls because they can’t find day care here. There are also a lot of professionals who want to work here, but there’s no day care available.”
At their Tuesday night meeting, the Luverne City Council met in closed session to consider buying the Total Card Inc. building (formerly Tri-State Insurance) on North Blue Mound Avenue.
San Diego-based Vervant purchased the property in November 2020 for $944,700 and in March 2021 closed Total Card and listed the property for sale at $1 million.
The city, however, is negotiating a purchase price of less than a $600,000 with closing expected in March 2022. The building is appraised at $1,080,000.
The 1974 building has 30,000 square feet on 4.7 acres of land, which would provide adequate outdoor “green space” required by the state for day care centers.
It’s located next to the pool and fitness center and the city’s bike and walk path.
“The building itself is in good shape,” Baustian said. “It’s been well maintained.”
The city will pay for necessary retrofits and remodeling estimated at $1.5 million as well as furnishings and equipment at roughly $2.5 million.
The intent is for the city to own, maintain and insure the building, but not actually run the day care center. As a city-owned property there would be no property taxes.
“The primary goal is to have a commercial day care come in and run it,” Baustian said. “We’d say, ‘Here’s the building; we’ll take care of all of this. You take care of the rest.’”
He said “the rest” would be employing and retaining qualified child care professionals, which has been identified as the primary obstacle in cash-flowing a commercial day care center.
Baustian said local leaders understand that the subsidy will be a permanent commitment in order to keep the day care center in business.
“It’s like the pool and fitness center, library and other quality-of-life amenities that we subsidize,” Baustian said.
“If we can subsidize a pool and not local child care, we have bigger problems. This is a quality-of-life and economic must.”
The city currently subsidizes the pool and fitness center at $530,000 per year in order to keep memberships affordable for community members. That doesn’t include the $5 million remodeling and expansion currently in progress.
In many communities — even where building space has been donated — day care centers end up going out of business because it costs more to employ qualified staff than most working families can afford to pay in child care fees.
“It’s the same story in communities all over the state,” Baustian said. “You can afford the overhead and you can afford the employees, but you can’t do both.”
Personnel costs, in addition to taxes, maintenance and other expenses, were cost-prohibitive for profits, and day care centers often train employees only to lose them to school districts where benefits are more generous.
“Quality employees are key,” Baustian said. “By the city taking care of building costs, the hope is that child care center providers will be paid well with benefits.”
The city is working with the Luverne School District and Rock County Commissioners to seek some support for the project.
He pointed out that the city day care investments will be offset by recent economic development adding value to the local tax base. “We’ll be able to subsidize child care with minimal levy impact,” Baustian said.
 
Child care crisis
Ten in-home child care providers in Rock County left the profession in the past year, leaving roughly 120 children needing care elsewhere.
That’s in addition to nearly 200 slots already needed locally.
To illustrate the trending problem, there were 56 licensed child care providers in Rock County in 2016 compared with 37 in 2019 and 28 today.
This creates a rapidly widening gap between working families who need child care and the available slots with licensed providers.
And it all adds up to stifled economic growth, because if there aren’t places for workers’ children, it’s harder for businesses to find workers and it’s harder for the community to recruit businesses and industry.
 
Build it and they will come
The city, county, school and dozens of local economic partners for the past decade have recognized child care as an economic development driver.
Realizing a day care center would need to be subsidized, a physical location was needed to get the ball rolling.
After nearly a dozen other considerations, Luverne building inspector Chad McClure said the former Tri-State building represents the best option for many reasons.
“I can’t imagine a better option,” he said. “It’s by far the best one we’ve seen so far.”
He mentioned that the building has been well-maintained, the sprinkler system is up to code and the large break room will lend itself well to a cafeteria and kitchen area for the day care center.
It’s unclear how many children the center will be able to accommodate once renovations are complete and hiring is started.
“Do you build it for the number of children it can accommodate and hope they come, or do you build it with a certain number in mind with the option to expand?” McClure said. “I don’t think anyone’s had that conversation yet.”
He said it’s significant to have a viable building and local leadership willing to provide public support.
“I’ve seen young families move to Luverne from other areas for the small-town feel and impeccable quality of life,” McClure said. “Some of them now have a child with a local provider, but they’re not able to find care for their second child.”
Knowing Luverne has a day care center will be an important consideration for any young family moving to the community and for any business seeking an adequate local workforce.
Luverne EDA Director Holly Sammons has been at the helm of Luverne’s quest to remedy the day care crisis. and city finance director Barb Berghorst has pushed to keep it a city priority.
The two recently toured the vacated Total Card Inc. building with the local non-profit child care board.
“The TCI building is in an excellent location and favorably priced,” Berghorst said Monday.
“If the city is successful in acquiring the building, we are in a position to work with Rock County, the state and possibly the school and local employers to apply for grants to help with costs related to renovation and startup costs for a child care center in our county.”
Berghorst retired in July but has stayed on part time in order to assist the city with several project.
Workforce housing has long been an economic development priority, and that finish line is quickly approaching as two 27-unit PrairiE Loft market-rate apartments are under construction.
Child care remains her final project, and Berghorst said the city could be on its way to solving the complicated crisis.
“Costs to construct a new building were extremely high and finding a suitable building to renovate was unsuccessful until the TCI building was listed for sale,” she said.
“There are many details to work out to determine the best solution for the management of a child care center, and the city will work closely with the non-profit child care board to evaluate various options that are used in other communities.”
 
Built in 1974
The original Tri-State Insurance offices were built in 1974 and remodeled in 1995.
Tri-State gave the building to the city in 2002 after the business became Continental Western Group as part of Berkley Corporation and moved across the street to the north.
The city paid for the new building as an incentive to keep the business in town, and the Continental Western Group has been leasing it from the city since then.
Total Card Inc. bought the building from the city in 2004 as part of former Gov. Tim Pawlenty’s Job-Z incentives for businesses to expand into Minnesota.
TCI was forgiven property tax, income tax for major investors and sales tax for business improvements for 12 years.
The city offered incentives of its own, including a new roof for the building and financing the property’s mortgage of $500,000 for 20 years at 4.5 percent interest.
The credit card processing company occupied the building until late in 2020 when San Diego-based Vervant bought Total Card Inc. and closed the doors in March 2021, displacing 22 employees, half of whom worked at home.

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