Predictable Childcare Subsidy Fraud Makes Childcare Unaffordable

 The misspelled sign, “Learing (sic) Center,” hit a nerve with hard-working American families and taxpayers. It connected with them precisely because it so clearly signals a subsidy scam posing as a legitimate childcare facility. But beyond the injury of fraud itself, the insult is that these childcare scams in Minnesota, Ohio, and other states are driving up the cost of real childcare for working families who must spend time away from their own children to foot the bill for these kinds of programs.

Subsidies always drive up the cost of the thing being subsidized. As I wrote last month at Chronicles, subsidizing expensive things pours gasoline on the fire of the affordability crisis.

This is one of the most observable and repeatable economic truths. And subsidies are among the biggest drivers of America’s affordability crisis. From healthcare to college education to housing to childcare, government subsidies make everything they touch more expensive, leading to even more demand for subsidies and ever-higher prices.

Subsidy fraud accelerates this phenomenon. To understand how childcare fraud makes legitimate childcare even more unaffordable, consider the farm subsidy program, which pays farmers not to grow food.

The stated intention of the program was to increase commodity (food) prices, making it easier for farmers to make a profit. But it turns out that it’s highly profitable to get paid not to do something. There’s no labor cost. There’s minimal energy cost. It certainly requires less effort. In a very real sense, the Minnesota childcare subsidy fraud operates in the same way. It is like a government payment for childcare providers who are idling capacity by not providing childcare.

As YouTube journalist Nick Shirley exposed on video, the Minnesota childcare centers suspected of fraud received millions in subsidies while serving few or no children. But some of these centers had to pass inspections, which required some staffing, a building, and enough supplies to manage a token population of children. Beyond the minimal operations required to pass inspections, the daycares worked like farms paid by the government not to grow food. The fraud idled capacity while making it more difficult for legitimate, unsubsidized childcare centers to compete. Why would any childcare center be so foolish as to service subsidy-eligible children when the subsidies were available without doing the work?

In 2024, the federal government sent Minnesota $101 million for “Head Start” programs and $41 million for “Early Head Start” programs. This may explain why the suspected fraudulent childcare operation attempted (despite its spelling struggles) to call itself a “Learning” center.

In addition, the federal government allocated $162,801,389 in “CHILD CARE & DEVELOPMENT BLOCK GRANT” (CCDBG) funds. According to the Minnesota CCDBG factsheet, there are only 410,953 Children ages five and under in Minnesota.  Further, 

Under federal rules, children whose parents are employed or participating in training/education programs and whose household income is under 85% of the State Median Income (SMI) are eligible, as are children in need of or receiving child protective services. Lead Agencies have the flexibility to design their own subsidy programs and may also choose to set additional requirements or set lower income eligibility rates. In Minnesota, eligibility is capped at 47% of [State Median Income]. This means a family of three is eligible if they make: $3,716 or less per month ($44,592 per year)

Again, the childcare subsidy can be as high as 47 percent of the Minnesota SMI. It’s not hard to see how profitable it would be for fraudsters to skim from this subsidy. The mechanics of the suspected fraud remain under investigation. But there are several pools of money from which scammers can draw. In addition to the direct-to-facility grants and subsidies, parents may be eligible for a childcare “tax credit” that can exceed their income taxes. In other words, it’s just another taxpayer-funded subsidy.

If Minneapolis turns out to be the epicenter of childcare subsidy fraud, then one would anticipate the city having among the highest childcare costs in the country. And that is, in fact, the case. A Minneapolis Fox News affiliate, KMSP, reported that a study by the mortgage broker Lending Tree found that Minneapolis had among the highest childcare costs in the country. Further, “The average monthly cost of childcare in Minneapolis is $1,767, while the average monthly cost to rent a two-bedroom apartment unit is $1,622.” 

This leads one to ask, “Why the hell is it so expensive?” Are childcare providers highly compensated? Are they required to feed the children steak and lobster? Of course not.

The costs are driven by the very forces intended to make childcare affordable: Subsidies as accelerated by Minnesota’s unwillingness to confront subsidy fraud. Yet the vicious cycle persists. Democratic Party solutions to the “affordability” crisis are just more subsidies and government intervention. As prices rise, taxes and money printing further erode the purchasing power of the beleaguered wage earner. This creates more demand for subsidies, driving prices even higher. It’s a cruel system cloaked in false compassion. The laws of supply and demand cannot be repealed.

Adam Mill is the pen name of a Washington, D.C., attorney who specializes in labor and employment and public administration law. He graduated from the University of Kansas and has been admitted to practice in Kansas and Missouri. Mill has contributed to The Federalist, American Greatness, and The Daily Caller.

https://chroniclesmagazine.org/web/predictable-childcare-subsidy-fraud-makes-childcare-unaffordable/