When I picked up the newspaper on Monday, I was extremely disturbed to read about the decision by the Minnesota Supreme Court that a small day care center (which I will refer to from now on as child care, as the centers provide care for children, not days) is not entitled to property tax exemptions unless it offers a sliding fee scale to parents. Just Cause editor Skye Kilean already covered the basics of the case in her post, Nonprofit, or Not Really?, but I would like take the case a step further and illustrate how this decision specifically affects the child care field.

First, a quick refresher on what constitutes a nonprofit. As Skye wrote in her introductory post about non-profit organizations:

"Nonprofit" isn't just another word for a company that isn't doing very well. Nonprofit organizations are a specialized type of corporation registered with the IRS. Section 501(c) of the Tax Code controls the tax treatment of these organizations, which is why some people know the term 501(c)(3) as another term for nonprofits.

When an organization is registered as a nonprofit, it gets certain perks. It doesn't have to pay taxes on its income, the way individuals and businesses do. It can also accept donations from individuals and corporations who can then deduct the charitable contributions from their taxable income. Property taxes are lower for nonprofits, and they get a break on postage for mailings above a certain size.

In exchange for this favorable tax treatment, nonprofit organizations solemnly swear that they are making positive contributions to society rather than for private benefit. They beautify public spaces, teach children to read, provide health care, and more. Nonprofits basically strike a deal with the taxpayer. They don't pay taxes, so we all pay a bit more to cover their share. In return, they do provide goods and services that make the world a better place.

So as a taxpayer, you make the existence of nonprofits possible by footing the bill.

Another important aspect of a non-profit business is not that they are forbidden to make any profit. What differentiates non-profits from other corporations, however, is that the are not allowed to distribute their earnings to shareholders or other stakeholders in the business. Just like a person, any organization needs money in the bank to get them through hard times, cash flow issues resulting from delayed payments, and other situations in which a savings account is essential to survival. If we expect organizations to have a zero cash balance every year, we set them up for disaster. And the child care sector is a prime example.

For ten years, I worked to help develop more quality child care facilities in New York City. Like many areas in the US, New York has a severe shortage of affordable, high quality, center-based care. The laws of supply and demand might make one wonder why there is not enough child care if there is such a high demand for it. Just build it and they will come, right? Not so fast. The main reason for this serious market failure is that the cost of providing care for young children is extremely high. Fight Crime, Invest in Kids reports that good quality child care costs for infants more than public university tuition in every single state in the US. Merely adequate care for two children adds up to more than $12,000. Most families can't pay for this. So how do child care centers "make" money? They don't.

According to Child Care Cost and Quality, a study by Suzanne Helburn and Carolee Howes, almost all child care centers subsidize the cost of care in one way or another because parents cannot pay what the true cost of care is. This is done through a variety of ways, and many child care operators are very proud of how they have learned to "make do" and offer wonderful early childhood settings with the scant resources they access. At the same time, these essential money saving methods often lead to staff burnout, low quality facilities, and no savings for emergency situations. By disallowing nonprofit child care centers to benefit from property tax exemptions, the Minnesota court removed a critical unofficial subsidy that helped keep costs lower to parents. Programs cannot afford to pay these taxes without significantly raising tuition, and most parents cannot afford a tuition increase. This is bad news for everyone.

Another problem with the court's decision is that they based it on the fees that the center charged parents and public subsidy programs. However, the rules around public subsidies, which come from the federal Child Care and Development Block Grant (aka Child Care Development Fund), specifically state that center's may NOT charge privately paying families a lower fee than they receive from government funding. Hence: centers must charge parents who pay from their pocket (rather than with a government child care subsidy) the exact same amount that they charge the government to care for kids enrolled in subsidy programs. There are complicated ways to get around this, but most child care administrators do not have the legal skills or accounting knowledge to do so. By refusing to acknowledge the extensive subsidies that most child care programs offer parents - not to mention completely disregarding the enormous public benefit that results from quality child care that allows parents to work and prepares children for success in school - what the Minnesota court is asking child care programs to do is break the law so that they can qualify for property tax-exemptions that they require to stay in business.

Child care operators are stressed out, dedicated professionals who want to help children learn and develop into responsible, functional adults. Certainly there are some elite programs that are able to charge top dollar and do, in fact, generate many profits for their services. However, most programs are barely make ends meet as it is. If they are not nonprofit service providers, I do not know who is.

Suzanne also blogs about life at Campaign for Unshaved Snatch (CUSS) & Other Rants and about feminism & gender at BlogHer.