Minnesota child care industry remains in “crisis”

Minnesota’s child care industry is in “crisis,” and for some child care businesses, it’s getting worse.

In a survey conducted by the Minneapolis Fed and First Children’s Finance in February and March, 86 percent of child care business owners and managers agreed there is a crisis. That share of respondents is about the same as in the 2024 survey.

What’s different this time is child care centers—which account for most of the growth in the state’s child care capacity—are more likely to agree. In 2024, 64 percent of centers said the industry is in crisis. This year, that share increased to 87 percent.

“I can’t keep opening my doors at a loss,” said the owner of a northeast Minnesota child care center. “We are pushing families out by increasing our rates just to maintain our current business operations. We service almost 100 kids of our community and all of them would be without care if we close our doors because there are no spots available in our area.”

Most Minnesota centers and other child care providers now receive some form of state aid. But the survey found they still struggle with staffing, rising expenses, and competition with school-based programs. It doesn’t help that liability insurance availability and costs have recently emerged as new challenges.

The 2025 Minnesota Child Care Business Survey is the fifth conducted by the Minneapolis Fed and First Children’s Finance. More than 600 respondents took part.

Signs of stress

In Minnesota, most child care businesses are either licensed as child care centers or family child care providers. Centers are larger establishments with many employees, and family providers are smaller and usually home based.

In past surveys, centers were less likely to report financial and operational challenges compared with family providers. The 2025 survey found that gap has narrowed. Many family providers still struggle, but the share that struggles is not much larger than in the 2024 survey. On the other hand, significantly more centers struggle now than they did before. By some measures, times are harder for centers than for family providers.

Compared with a year ago, the share of centers reporting decreasing financial stability increased 13 percentage points, to 35 percent (Figure 1). Family providers reporting decreasing stability was slightly lower, at 29 percent.

Over the same period, the share of center owners and managers reporting that business losses had hurt their household income increased 20 percentage points, to 45 percent (Figure 2). More than half of family providers reported decreasing household income, but that share was slightly lower than a year ago.

Respondents reported not being able to replace old cars or pay medical bills on time. Some depended on their spouses for all household expenses. Many said they stay in the business because child care is as much a calling as a business.

“My husband’s job supports our family. My job supports our community,” said the owner of a central Minnesota center.

Rising wages, benefits, and other expenses

A major challenge for child care centers is staffing, which can account for about 70 percent of their total operating costs.

The 2025 survey found more centers reported struggling to maintain required staffing levels and significantly more reported maintaining higher staffing levels than required compared with 2024.

Survey comments suggest that some providers struggle more than others to offer competitive wages and benefits. A key constraint respondents noted is how sensitive they think their clients are to tuition increases that are needed to improve compensation. Providers who maintain more staffing than required may do so because they want to offer more time off for teachers. Some said their enrollment fluctuated, leaving them with more teachers than needed at times. Others said they couldn’t hire experienced teachers so they hired more to reduce each teacher’s workload.

Competing for teachers in a tight labor market stressed center finances. Despite widespread tuition increases, the share of centers reporting that their compensation is unsustainable increased by 11 percentage points, to 29 percent, between the 2024 and 2025 surveys (Figure 3). The share of those expressing uncertainty also increased significantly.

Several other categories of expenses increased significantly for child care businesses, including food, insurance, and utilities. Family providers were slightly more likely than centers to report significant increases, though the gap has narrowed since 2024.

Liability insurance in particular has emerged as a major challenge for providers nationwide. The 2025 survey found a significant increase in Minnesota centers reporting difficulty securing insurance. Companies still willing to insure child care businesses are charging more.

“The cost of insurance went up 16 percent in 2023, 27 percent in 2024, 51 percent in 2025,” said a provider at a Twin Cities center who had never filed a claim. “We shopped around for different policy providers with a broker and there were none.”

School-based care challenges business model

As in past surveys, child care businesses continued to report high demand for care of infants and toddlers and less demand for preschoolers and school-age children (direct comparison of enrollment trends is not possible because of changes to survey questions in 2025).

In most child care businesses, caring for infants and toddlers costs much more than caring for older children because mandated student-teacher ratios are lower for young children. To make tuition affordable to parents, providers subsidize tuition for younger children with tuition from older children.

The lack of older children has made this business model less viable.

Providers blamed the growing number of school-based preschool programs, which are often free or subsidized, for the lack of older children. The share of providers who reported losing families to these programs have increased in recent years.

“They are destroying family child care,” a central Minnesota provider said. “I have a hard time filling my preschool spots so I have to lower my rates. I already do not make a great living. I have nothing left over to save for retirement.”

Outlook uncertain

Many providers said in the survey that they are only able to remain open with grants.

In fact, most Minnesota providers receive grants of some kind. The most common is the state’s Great Start Compensation Support Payment Program, which 99 percent of centers and 90 percent of family providers said they receive.

But many providers also said they need more help to offset expenses and the loss of families to school-based programs. Centers, in particular, reported being limited by Great Start’s requirement that funds be used only for teacher pay when other expenses, such as maintenance, also need to be addressed. The pandemic-era federal grants that preceded Great Start were more flexible.

The challenges that providers face have many of them questioning how they can remain in business (Figure 4).

More respondents said they expect to close within a year or two or are less certain about how long they’ll be open.

“I do not know if I can afford it anymore,” said a respondent with a southwest Minnesota center. “It is so stressful keeping up with bills and licensing.”