Crisis continues for Minnesota’s child care sector

Minnesota’s child care industry remains in crisis, 80 percent of child care providers said in a spring survey conducted by the Federal Reserve Bank of Minneapolis and First Children’s Finance.

While that’s a large share of providers, it’s less than the 86 percent who said the industry was in crisis a year ago.

Overall, the survey shows conditions in the industry, from financial stability to changing business models, are still getting worse for many providers. But, by many measures, the share of providers for whom conditions are worse has not changed much.

For example, the share of providers who said the financial stability of their business had decreased was essentially unchanged, at 29 percent. A major exception was child care centers in the Twin Cities area, where 35 percent said their financial stability decreased, up 7 percentage points.

Many of the challenges providers cited were the same as in earlier surveys, including families being unable to afford tuition and competition with early childhood programs at public schools. Some providers, especially Twin Cities child care centers, mentioned new challenges. These include immigration raids scaring away immigrant families and the state’s new paid leave benefit allowing parents to delay infant enrollment.

“I have never wanted to leave the industry more than I do right now,” the long-time owner of a Twin Cities child care center said. “I’m afraid my hard work will be in vain when the time comes for me to retire.”

The 2026 Minnesota Child Care Business Survey is the sixth conducted by the Minneapolis Fed and First Children’s Finance, a nonprofit group assisting child care businesses. More than 760 providers took part.

Affordability limits growth

Overall enrollment trends in 2025 were little changed from a year ago with similar shares of providers reporting declining enrollment, the survey shows. For most, enrollment remained less than 85 percent of licensed capacity, which the industry considers to be a healthy level.

Enrollment of preschoolers continued to be much weaker than for other age groups (Figure 1); preschoolers are the largest age group for most providers. Child care centers (CCCs), especially in the Twin Cities, were increasingly reporting declines in infant enrollment.

The top reasons CCCs cited were parents couldn’t afford tuition or found less costly options, including care by family and friends. Among age groups, infant tuition is usually the highest. And among the main types of providers, CCCs charge the highest tuition, especially in the Twin Cities, according to Child Care Aware of Minnesota surveys.

Twin Cities CCCs are also more likely to rely on low-income families, who often have sporadic access to state child care assistance.

“All of our families receive some form of tuition assistance, funded by federal or state subsidies or our own scholarship fund,” said a respondent at a nonprofit CCC in the Twin Cities. “Once federal and state subsidies use up their dollars and put people on a waiting list, our new enrollments slow to a trickle.”

Compared with CCCs, fewer family child care providers (FCCs) reported declining enrollment. This may be because FCCs offer lower tuition and owners are less likely to raise tuition.

FCCs are small businesses usually operated out of the owner’s home with no other teachers. They don’t pay rent and can control labor costs by paying themselves less. CCCs are larger operations located in commercial or institutional spaces with many teachers whose wages must be competitive.

Overall, the share of providers raising tuition in 2025 was lower than the prior year (Figure 2). In addition, tuition hikes were much more likely to be less than 5 percent compared with 2024.

Competition with public schools

Among FCCs, the most-cited reason for declining enrollment was families choosing free or subsidized public-school programs, such as voluntary prekindergarten. This was the second-most-cited reason among CCCs.

“Schools are offering all day preschool with before and after care. The schools are also building child care centers and structuring their preschool offerings to try to get kids into their daycare,” said an FCC provider in central Minnesota. “Since we are not able to take very many infants/toddlers, when we lose preschool age children it impacts our ability to continue our business.”

Mandatory student-teacher ratios limit FCCs to three to four children younger than 2.

For some CCCs, enrollment is held back not by demand but staffing.

“Finding and retaining employees is the No. 1 struggle for me,” said a respondent at a Twin Cities CCC. “The families are looking and wanting to enroll but I can’t without staff. I just closed my infant program: no staff.”

Expenses still rising but for fewer

While providers are limited in how high they can raise tuition because of what families can afford, the rising costs of running their businesses aren’t so limited.

“It is getting more and more expensive to run a family child care,” said a southwest Minnesota provider. “Parent incomes are not keeping pace with the cost of inflation. Money has to come from somewhere. I just wish I knew where!”

But the share of providers who reported expenses increasing significantly fell across key expense categories, including food, the top expense for FCCs, and staffing, the top expense for CCCs.

Among FCCs, 66 percent reported significant increases in food costs in 2025, 13 percentage points less than in 2024.

Among CCCs, a vast majority increased wages and benefits in 2025. When asked if they could sustain those increases, 36 percent said yes. That’s a 10 percentage point increase. This change was driven entirely by Greater Minnesota CCCs. The “yes” share among Twin Cities CCCs was almost unchanged, at 41 percent.

Despite fewer providers reporting burdensome expenses, many took actions in 2025 that suggest financial difficulty, such as tapping into emergency business funds or personal savings and not paying themselves. For example, 23 percent of FCCs in Minnesota and 25 percent of CCCs said they used emergency funds, which were 8 and 6 percentage points higher, respectively, than the prior year (Figure 3).

Twin Cities CCCs had a tougher time. In 2025, 26 percent used emergency funds, a 17 percentage point increase.

Emerging challenges

In recent months, providers have seen some new challenges, the full impact of which may not yet be clear.

In general, a bigger share of CCCs than FCCs reported declining attendance and financial stability since the start of 2026. Twin Cities CCCs did notably worse (Figure 4).

Both FCCs and CCCs cited the same factors that affected enrollment in 2025, such as competition with public schools and affordability. But there were emerging factors as well. For CCCs, the top factor was Minnesota’s new paid leave policy, and for Twin Cities CCCs, another top factor was immigration raids.

“Infant enrollment lessened due to Minnesota paid leave, causing enrollment to drop in our infant program,” said a respondent at a nonprofit southeast Minnesota CCC. “That has taken a toll on the budget, and we have had to dip into savings to stay afloat.”

Paid leave, which went into effect January 1, 2026, is a state-mandated benefit allowing new moms to spend up to 20 weeks for medical recovery and to bond with their child. Parents using this benefit tend to delay infant enrollment and withdraw older children to save money. Providers also reported staff members using paid leave, which forced them to search for temporary staff.

In the Twin Cities, another top reason CCCs gave for worsening conditions was Operation Metro Surge. This was a series of U.S. Immigration and Customs Enforcement raids mostly focused on the Twin Cities between December 2025 and February 2026. Providers said their immigrant families went into hiding, causing them to skip tuition payments either because they weren’t using child care or because they lost their jobs.

“We are located in the heart of Minneapolis, where Metro Surge was a significant disrupter for the entire community,” a respondent at a nonprofit CCC said. “On average in January and February, only about two-thirds of students attended each day.”

Overall, despite facing many challenges, the vast majority of providers don’t expect to close any time soon. Over a longer time frame, however, expectations are shifting. The share of Twin Cities CCCs saying they’ll stay open indefinitely fell 18 percentage points to 44 percent compared with a year ago.

“If things do not improve, we will shut down in 2027,” a Twin Cities CCC owner said. “A pizza shop could earn more than a large child care center of our size.”