The Economic Impact of the Child Care Industry in Southeast Wisconsin

Lately, mention of child care is likely to evoke recollections of scandal and fraud. What sometimes gets ignored is that child care is an industry in its own right that makes a sizeable contribution to the regional economy.

The Public Policy Forum’s latest report from its three-year research project on early childhood care and education, “The Economic Impact of the Child Care Industry in Southeast Wisconsin” quantifies the size, impact and characteristics of the industry.

The aim is twofold: to provide policymakers and economic development officials with a sense of the economic magnitude of this industry, and to lay the groundwork for a follow-up report – to be released later this year – that will enumerate the costs and benefits of a potential high quality early childhood care and education system in southeastern Wisconsin. Taken together, these reports will provide insight for policymakers as to the scope of investments that would be required to achieve a high quality system, and the returns that might be generated should those investments materialize.

Key findings:

• Southeast Wisconsin’s child care industry employs roughly 12,400 people. It also creates and sustains approximately 7,000 other non-child care jobs in the region by generating additional employment in related industries.
• The region’s child care industry generates an estimated $661 million in gross receipts annually.
• Economic modeling using industry “multiplier” figures suggests that the child care industry’s purchases generate another $648 million in sales in other industries.
• Southeast Wisconsin’s child care industry frees up an estimated 15,914 parents of children under age 6 for work, who earn an estimated $742 million annually.

These findings indicate that the child care industry is a significant creator of jobs and economic activity in the region. Furthermore, they suggest that the industry functions as an element of economic infrastructure, meaning it might best be viewed similarly to roads, transit and electricity as a critical infrastructure component that enables people to participate in the workforce and the economy.

In light of this economic importance, policymakers who are considering regulatory changes and/or quality enhancements for the child care system must consider how such initiatives not only will affect providers and children, but also the larger economy that depends on this industry as a vital source of infrastructure and economic activity.

Click here to view the other research stemming from the Forum’s early childhood education project.

The least objectionable of several undesirable options?

The Journal Sentinel's Dan Egan and Larry Sandler did a nice job in Monday's newspaper summarizing the issues surrounding a potential long-term lease of the Milwaukee water utility.

The story aptly captures the overriding concern likely to be associated with the proposal: relinquishing control of a public asset to a profit-driven private entity will result in higher costs for users. That concern is exacerbated by the fact that such control would need to be relinquished for a lengthy period of time - perhaps 75 to 100 years - to make the economics of the deal work.

It is those economics, of course, that have led city policymakers to consider this option, as it is thought that a long-term lease could attract an upfront payment in the range of $500 million. City Comptroller Wally Morics wisely has proposed that, if such a deal were to go forward, those funds would serve as a pseudo-endowment that would produce a significant, ongoing source of revenue to city government, as opposed to a short-term revenue boost.

It is far too early to evaluate whether the water works proposal or the other huge privatization proposal that has been floated for Milwaukee - a long-term lease of General Mitchell International Airport - will be in the best interest of the taxpaying public. But should these proposals reach the point of serious deliberation, then it is critical to keep in mind why they are being contemplated in the first place.

In the case of the city, a key factor is the lack of revenue options available to address its extraordinary expenditure pressures. City officials face a huge increase in the required pension fund contribution resulting from the stock market collapse, annual employee and retiree health care costs that significantly exceed the rate of inflation, and steady or even increased demand for its various services (including, most notably, police and fire). In the meantime, the state revenue streams upon which the city heavily depends are being cut because of state budget woes, and the state has blocked its ability to consider new local revenue options.

In fact, in comparing Milwaukee to 10 other similar-sized cities (as part of a fiscal assessment of city government to be released this summer that will be similar to our recent assessment of county government), the Forum found that Milwaukee essentially is the only one that does not utilize a city-specific sales, income, hotel or food service tax to complement the property tax. Milwaukee officials increasingly have turned to increased fees (e.g. solid waste and snow/ice) as an alternative revenue source, but even that source is limited because of state policy prohibiting service fee revenue from exceeding the direct cost of providing the service and being used to support other aspects of city government.

Few would argue that relinquishing public sector control of critical assets is an optimal approach. But with state funding being cut, property taxes capped, and their hands largely tied on both the fixed cost and new revenue side, it was inevitable that city leaders would have to consider this option.

So, those who are rightly concerned that public-private lease deals could increase costs for users and allow profit motive to outstrip the public good must weigh those concerns against those associated with major cuts in government services and/or major increases in other fees or taxes. Indeed, decisions on privatization may come down to choosing the least objectionable of several undesirable options.

PPF Pearls: Some deficits are structural and not caused solely by recession

There’s no question that the fiscal condition of many local governments has weakened as a result of the compounding effect of the poor economy. Private and public job reductions lower income tax revenues, diminished consumption decreases sales tax revenue, foreclosed properties and drops in home values stress property tax collection, and increased service demand stemming from higher rates of unemployment puts upward pressure on social services budgets. However, any analysis of the scope of local government fiscal problems and potential solutions must take into account the structural problems that existed prior to the recession and must not let government officials off the hook for developing long-term, structural solutions.

Take Milwaukee County, for example. A recent Journal Sentinel editorial, while effectively urging responsible action to respond to the county's projected budget deficit for this year ($15 million) and the anticipated gap in 2010 ($90 million), links those deficits largely to the recession. A keen eye to the past should reduce the temptation to make that link, however.

As laid out in a Public Policy Forum report released in March of this year, the county has an immense built-in structural deficit that has gone unaddressed for years, and that results largely from the county’s overreliance on external revenue sources and rapidly escalating fringe benefit costs, as well as short-term budget fixes that have ignored longer term problems. Yes, recession-induced factors such as lower sales tax revenue, a much larger Pension Fund payment and sizable cuts in state revenues make the problem more acute, but the county would be facing at least a $41 million shortfall heading into 2010 even with no recession, as we pointed out to supervisors in a budget report and budget testimony last fall. Immediate fixes such as furloughs may be required to address this year's deficit, but long-term thinking and tough decision-making are required to permanently put the county back on track.

A resolution recently put forward by Milwaukee County Supervisor Patricia Jursik might be a start. The resolution, similar to one of the policy options we outlined in our budget analysis, would create an independent county controller and revive efforts for strategic planning. While these steps will not immediately produce savings and efficiencies, they hold promise for establishing the type of honest, collaborative, and constructive debate that can effectuate sustainability for Milwaukee County.

A different path toward regional decisionmaking?

A recent article by Alan Ehrenhalt, editor of Governing magazine, suggests an interesting approach to bring metro areas closer to the elusive dream of regional government. The piece may be particularly provocative for those areas that have dabbled with the notion of regional government but appear to have little hope of achieving it - places like metropolitan Milwaukee.

Ehrenhalt starts his piece by discussing Buffalo, where city and county governments have failed to develop new business models despite a declining population and new and different economic challenges. He asserts that "both the city and county need a thorough bureaucratic housecleaning that would save money and make the whole region more competitive in attracting the new business it badly needs".

Ehrenhalt describes the failed effort of a former Erie County executive to solve the problem by creating "a regional government that would eliminate all the duplication and phantom agencies and place the area on a sound fiscal footing for the first time in a generation". He also cites the dozens of other metro areas that "have been engaging in the same debate for years, understanding at some level that cities and suburbs have to function together as regions, but unable or unwilling to make the sacrifices that could help bring it about".

Acknowledging that this parochialism likely will persist and preclude a shift to regional government in most metro areas, Ehrenhalt instead proposes to vest more power with the one regional governmental entity that currently exists: the metropolitan planning organization (MPO). He argues that if the federal government "figured out a better way to use these entities," metro areas could reap more of the benefits of regional planning and decision-making without having to motivate dozens of municipal governments to disband. Among other things, MPOs could directly receive and distribute transportation and economic development dollars from the feds, thus bypassing state and local governments and allocating those dollars based on regional planning and strategies.

Would such an approach be tenable and beneficial to southeastern Wisconsin? Clearly, there would be obstacles, not the least of which would be addressing the concerns that already have been voiced by City of Milwaukee officials, among others, regarding inequitable urban representation on our MPO, the Southeastern Wisconsin Regional Planning Commission (SEWRPC).

Ehrenhalt notes that the one-county, one-vote approach currently employed by SEWRPC and many other MPOs, as opposed to proportional representation by population, likely would be challenged in court if real regional decision-making power were granted to the MPO. This suggests that a change in representation might be a prerequisite to implementing such an approach in southeastern Wisconsin, which of course would engender its own political controversy.

But putting aside the legitimate issue of composition, could a SEWRPC that was the direct recipient of federal dollars and that was empowered to enforce its regional land use and transportation plans inch us closer to a regional approach to governing that would make us more cohesive and competitive? The answer largely depends on whether one believes that our existing government structure is ineffective and outdated, and that the collective needs of the region should trump the desires of existing municipal and county units of government.

That being said, perhaps we learned an important lesson recently that giving more decision-making authority to SEWRPC at least could enhance cooperation. After weeks of disagreeing over the proper allocation of $38.7 million in federal stimulus money for area road projects, a SEWRPC advisory committee (whose composition is proportionally based on population) accepted a compromise brokered by SEWRPC staff. The final vote reflected support by both Milwaukee and suburban representatives.

Yes, it was messy and time consuming, but at least a difficult regional issue eventually was resolved in a manner that neither side found objectionable. For that matter, SEWRPC has been distributing various state-allocated transportation funding streams for years with little controversy. And in today's political environment, how often does that happen?

Affordable housing efforts hampered by fragmented approach

The housing bubble burst and subsequent foreclosure crisis have brought the need for affordable rental housing into sharp and immediate focus for many affected families locally. However, even before home prices crashed, the rental housing market in Milwaukee did not meet the needs of many households at low income levels.


In the Public Policy Forum’s latest report, commissioned by the Local Initiatives Support Corporation, we explore the affordable rental housing landscape in Milwaukee County; what it will take to create a sound and sustainable infrastructure to support the development of affordable housing in the county; and how existing publicly funded affordable housing programs might be coordinated more effectively. Our report, entitled Give Me Shelter: Responding to Milwaukee County’s Affordable Housing Challenges, can be downloaded here. Among our key findings:

• Milwaukee’s affordability crisis is driven by low household incomes, not high rents. When compared to other large counties in the United States, Milwaukee is not an expensive rental market. Its average household income, however, was 103rd lowest out of the country’s 112 most populous counties at the time of the last Census.


• Milwaukee’s housing affordability crisis is most severe among extremely low income households—those households making less than 30% of the Area Median Income.


• The vast majority of Milwaukee County’s low-income renters do not receive public rental subsidies. In fact, public subsidy programs help less than one out of every three extremely low income and very low income renter households in Milwaukee County.


• The health of Milwaukee’s current private rental stock is failing. More than 40% of renters in Milwaukee County are living in housing that is inadequate either because it is too expensive, too crowded, or, in fewer instances, does not have adequate plumbing and kitchen facilities.


• Public efforts to address the housing needs of low-income residents in Milwaukee County are fragmented, and the multiplicity of public programs is confusing for both housing developers and investors, as well as for low-income renters. This suggests the need for more unified governance in select programmatic areas to help increase service quality and impact.

Addressing Milwaukee’s affordable rental housing needs will require greater public sector coordination, greater private sector participation, and recognition of the need for an integrated strategy that addresses both the supply side of the equation (i.e. building or rehabilitating low-income units) and the demand side (providing additional rental assistance). Hopefully, the data collected and analyzed in this report, and its conclusions and policy options, will encourage policymakers to tackle affordable housing needs with increased urgency and a greater sense of collaboration and innovation.