Despite strong state support in the form of emergency grants, more than 40% of child-care providers in Minnesota say they are still unsure if they can remain in business if current conditions continue.

That was one of the major findings of a recent survey by the Federal Reserve Bank of Minneapolis and the nonprofit First Children's Finance.

Suzanne Pearl, the Minnesota director for First Children's Finance, said that shows there's still a high level of unpredictability for child-care businesses that have grappled with declining enrollments, cash flow struggles and staffing challenges during the pandemic.

If some of those providers end up closing, she said it could mean businesses will have a harder time staffing as the economy rebounds.

"If people can't find child care, they can't go to work," she said. "It's as simple that. We talk a lot about child care being the workforce behind the workforce. This sector is foundational for the success of every other economic sector in the state."

Pearl added that the state of Minnesota has done a "great job, and better than most states" in propping up the child-care sector by providing grants that have been critical to helping keep many providers open during the pandemic. But she said there's some uncertainty about how long that support will continue.

Rob Grunewald, an economist with the Minneapolis Fed, noted that more child-care funding is heading to Minnesota from the federal government via the American Rescue Plan, which is fueling some optimism.

"But nevertheless, when we see the respondents reply back to that question that they're concerned about going forward, that does cause us to pause and to take note that there is some fragility," he said.

Before the pandemic, it was a challenge to find child care in many parts of the state. Right now, there appears to be a decent number of child-care slots available since enrollment is down, he said.

"The question will be as the economy continues to open, the caseload decreases in terms of the pandemic and those spaces get filled up, what will the market look like in three months or six months from now," he said.

Even though nearly all providers in the survey had received some sort of grant funding, about a fourth of them reported having to resort to high-interest financing, such as credit cards or payday loans, during the pandemic.

Child-care providers operate with thin margins. The pandemic brought added costs for personal protective equipment and increased cleaning. Many also have struggled with temporary closures from COVID-19 exposure and with having to reduce capacity to maintain smaller group sizes.

On top of that, the survey showed that more than 50% of providers have experienced enrollment declines during the pandemic. Many parents initially pulled their children out because of concerns of the virus. Others continued to do so if they had lost their jobs and couldn't afford it or if they were working from home and had older kids at home who could help with care.

"In child care, enrollment equals revenue so decreases in enrollment went directly to the bottom line of these businesses," Pearl said.

The enrollment declines were felt across the state, but at a slightly higher rate in the seven-county Twin Cities metro area. The declines were also larger at child-care businesses owned by people of color.

More than 25% of child-care centers in the survey said they were struggling to make payroll.

"We know some center directors who didn't take a paycheck so they could pay their employees," said Pearl. "And we know of at least a couple of providers who took out loans to keep their centers open, but ended up having to put up their own house as collateral to get that financing."

At the same time, more than 90% of child-care providers said it has been difficult to find qualified workers. Hiring and retaining staff was a challenge before the pandemic given the sector's relatively low wages and a wave of retirements. During the pandemic, they have faced additional challenges of maintaining staffing with some workers being wary of being exposed to the virus or having trouble securing their own child care.

The Minneapolis Fed has been studying for years the link between having high quality early care and education programs with children being better prepared to succeed in school. Grunewald said the bank's regional outreach team has also been hearing a lot recently about the importance of access to child care in allowing people to return to work.

"The availability of quality child care can have a substantial impact on parental workforce participation, jobs stability and wages," he said.

Kavita Kumar • 612-673-4113 Twitter: @kavitakumar