Measuring costs to child care providers, economic benefits of child care in Colorado

The skyline of Denver, Colorado, set against the backdrop of the Rocky Mountains

Crane’s policy evaluation team recently completed a project for Colorado policy leaders, analyzing the costs and benefits associated with quality child care. Like Ohio, Colorado employs a Quality Rating and Improvement System (QRIS) – known as Colorado Shines – to assess and encourage child care quality through a five-level rating scale. Collaborating with the Colorado Evaluation and Action Lab at the University of Denver, Crane’s team spent 14 months conducting a comprehensive two-part analysis: first, investigating the costs for providers to obtain licenses and enhance quality across the five levels; and second, exploring the economic benefits of child care for children, families, the workforce, and the broader economy.

Led by principal investigator Dr. Lauren Jones and co-investigator Jamie O’Leary, the Crane team also included researchers Marialejandra Guzman Cruz, Amanda Grady, Tseyon Beyene, Nahae Kang, Yanqi Li, and Zixuan Liu. The project was funded by the Colorado Department of Early Childhood.

Costs for child care providers in attaining licensure and improving quality levels

While the financial burden of child care on families is well-documented, the price providers pay — in both dollars and labor hours/time — is somewhat harder to quantify. Providers, already operating on razor-thin margins and dealing with staffing shortages, must decide whether/how to invest in quality improvements while continuing to provide early care and education.

To quantify these costs, the Crane team created a detailed cost model that examined everything from teacher labor/time to necessary purchases for physical items within the classroom or home provider environments. Their goal was to illuminate the financial impact on providers as they navigate the Colorado Shines system and strive for higher quality levels. To measure the costs to providers, they reviewed existing policy documents and QRIS requirements, engaged with key policy stakeholders, and conducted focus groups with Colorado child care providers to better understand the costs and decisions they face.

“Time costs are immense,” Dr. Lauren Jones noted, “and they disproportionately affect home-based child care providers. In some cases, the time and effort required may outweigh the return on investment.”

The cost model developed for Colorado serves as a tool for state decision-makers to assess whether current incentives effectively encourage providers to pursue higher quality standards.

Examining the economic benefits of child care

It is well established in research that quality child care can create significant economic benefits. The development that occurs from birth to age five has a profound impact on a child’s future, influencing educational attainment and workforce participation. Access to reliable care empowers families to enhance their skills and join the labor force, leading to higher wages and reduced reliance on social safety nets. Moreover, a strong early care environment can bolster the economy through increased wages, tax revenues, and productivity while simultaneously lowering expenditures on K-12 education, child welfare, and social services.

To evaluate the economic benefits of quality child care, the team performed a literature review of rigorous research studies in the U.S. and Canada as well as a landscape scan of all 50 states and the District of Columbia to assess whether any are quantifying the benefits or return on investment (ROI) of child care. They found that despite the growing need to better understand ROI for child care investments, few states have undertaken formal analyses to measure its benefits, due to the complexity of this endeavor.

During this process and through interviews with several states — a consistent theme emerged: figures that demonstrate immediate financial returns to a state are compelling.

“Policymakers need clear numbers to understand the returns to their state’s bottom line when they invest in quality child care,” emphasized Jamie O’Leary. “While long-term savings are significant, it’s the immediate economic impacts — such as increased tax revenues that come when more mothers can enter the workforce — that show these investments essentially pay themselves off.”

One compelling example highlighted by the team comes from the Prenatal-to-3 Policy Impact Center at Vanderbilt University. Research showed that Virginia successfully illustrated that a $309 million investment in child care for 11,000 children yielded a return on investment of at least $364 million in the form of increased family earnings and disposable income. Of that, $30 million would return to the state in tax revenue in just a few years. Additionally, $63 million was saved by preventing grade retention and the need for special education services, along with $397.8 million in economic benefits from increased high school graduation and other lifetime savings for those 11,000 children.

Policy implications

Investments in child care yield a wide array of benefits, a fact acknowledged by policymakers and voters alike. However, as this evaluation shows, it is critical for states to understand both the costs of quality child care and the economic benefits beyond long-term returns on investment to garner political support and the will to increase funding. The Crane policy evaluation team remains committed to ongoing research and collaboration, providing essential insights for informed decision-making in early child care and education.