DAYCARE BUDGET
Springfield, a medium-sized city in an unnamed state (there is a “Springfield” in at least 38 states!),
has experienced a significant change in the municipal work force of 1,850
employees. Many more employees are responsible for caring for children than in
the past. In a recent survey of city employees, sixty percent of employees said
that “affordable day care for children” was important to them. Meanwhile, the
Director of the Office of Personnel, Jerry Stanwick, has become convinced that
the lack of affordable day care is one of the main reasons for absenteeism and
lateness among city employees. Mayor Maggie
Mazur, some of the members of the city council, and the leader of the major
city employees’ union, Janet Wright, have all agreed that something should be
done. The question is: what exactly should that be?
Mayor Mazur favors doing
something that does not result in a major expense for the city’s already
strained budget. She told Ms. Wright, who was negotiating for day care on
behalf of the city employees: “We’ll cover 50 percent of the cost of renting space
for the first year of a new center’s operations. It is up to you to come up
with a suitable daycare center that conforms to state and federal law.” The
only state and federal requirements specific to daycare centers are as follows:
1.
Centers need to
be licensed and inspected once a year, with a cost of annual inspection of $250
(assume such inspections occur in June);
2.
All new daycare
workers take part in a three-day state-certified training program, with training
costs at $660 per employee (assume employees are trained in the month that they
are hired, starting with January for the initial staff); and
3.
The child-to-daycare-giver
ratio can be no greater than 8 to 1.
Personnel Director Stanwick
was responsible for creating a daycare program for the children of city
employees. With Ms. Wright’s support, Jerry negotiated an arrangement with a
local nonprofit agency that was already providing daycare services in the
Springfield region. “Happy Children Centers” has two locations; the contract
with the city of Springfield would be the third daycare center for the agency. The
Director of Happy Children Centers, Kate Wilding, was enthusiastic about the potential
new center, because she would be able to spread administrative costs over a third
location. Ms. Wilding told Mr. Stanwick that, “We will not need any additional
administrative staff since my administrative secretary, Ms. Qudasi, and I could
handle the additional administrative work.” Ms. Qudasi earns $3,500 per month
and Ms. Wilding’s salary is $5,500 per month. Happy Children Centers also must
pay 7.65 percent of all salaries in the form of Social Security and Medicare
contributions, 8 percent for unemployment and disability benefits, and $120 per
month for health insurance for each employee.
The additional details of the
proposed daycare contract are as follows:
1. The daycare center will be open 21 weekdays every
month.
2. Parents will pay a monthly fee based on a 10-hour day
(8 a.m. to 6 p.m.). Fees do not vary for partial days or if less than a month
of daycare is used by the parents.
3. The city and Ms. Wilding agreed that the center would
have a 6:1 ratio of children to daycare workers for the first year of
operation.
4. Daycare workers earn $15 per hour. They work from 8 to
6, but have rotating two-hour breaks during the day, and thus get paid for just
8 hours. (Note: those breaks won’t affect the staffing ratio because all staff
will remain on-site and will be available as necessary.)
5. Children get a snack and lunch. The food cost is $6
per child per day.
6. The cost of supplies is $4 per child per day.
7. The city of Springfield has purchased certain
equipment (such as cots and desks) for the first 100 children. But for each
additional child, a one-time $150 per child cost will occur when the child
first enrolls. (The initial cost for the first 100 children won’t add to your costs.)
There are several other key factors that will affect
the budget of the daycare center. When it opens in January of 2020 it is
projected to have 120 children. Beginning in February, it is expected that the
number of children will grow by 10 percent per month through May, and then,
beginning in June, the monthly growth is expected to slow to only 2 percent. (Be
sure to add staff members as necessary to keep the 6:1 ratio.) Be careful about
rounding: both children and daycare workers need to be in “whole persons” of
course! You need to round up to get the number of kids enrolled in each
month and then use that integer number to apply the ratio and round up to get
the number of teachers. The formula to round up in Excel is:
=ROUNDUP(number to round up, 0) where 0 tells Excel to round up to the nearest
integer. Parents will pay $600 per month per child. The monthly cost of space
and utilities for the center is estimated to be $6,000 per month. (Remember the
city will provide a subsidy to cover 50%.) Ms. Wright says that the union will
contribute $6.00 per child per day to the center for the children of union
employees and 70 percent of children at the center are estimated to be children
of union members (you do NOT need to round up for the total number of children
of union members). The state has a subsidized daycare start-up grant for only
the first year of operation. The grant would be $100,000 for the first year,
and would be paid monthly. Since Ms. Wilding and Ms. Qudasi will be spreading
their time for the administration of 3 separate centers, you should allocate
exactly one-third of their salaries and other expenses (payroll tax,
unemployment/disability benefits, health insurance) to the new Springfield
location.
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