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.