Minnesota has worked one side of the child care problem. The next step is to copy Iowa.

Minnesota this month started its most generous assistance program for low income families seeking child care. That's a wonderful step forward, and yet it's not nearly enough to solve a problem that is hurting Minnesota families individually and the state's economy broadly. Today, in Minnesota and much of the U.S., the child care industry is becoming a market failure.

The costs of providing child care have simply outrun the benefit of providing the service. As well, many families cannot afford child care, and some parents choose not to work as a result. Now, it's time for Minnesota to copy a solution from Iowa. Since 2021, Iowa created more than 11,000 slots for child care by incentivizing businesses to build their own child care centers or purchase seats at existing ones.

Republican Gov. Kim Reynolds announced a third round of grants to businesses last fall. New York Gov. Kathy Hochul, a Democrat, last month unveiled a similar approach on a Empire State sized scale, with $50 million in tax incentives to businesses that open child care operations. Massachusetts is looking at the idea , too.

Minnesota has been working on the child care problem almost exclusively from the demand side, by offering families help to pay for child care. The fast success of Iowa's program shows that it can also be worked on from the supply side, by making more child care available. There are risks to working on the demand side only.

One is that, as more families receive state financial help, child care providers raise their prices and absorb the money themselves. There's also a "benefits cliff" that can lead people to stop working when their pay approaches a threshold that would reduce their financial aid for child care.

Right now, a relative handful of employers in Minnesota directly operate child care centers for employees. Last summer, Hormel Foods got a lot of attention when it announced it would spend $3 million to build a child care center with 130 slots in Austin for use by employees and the public. "We'll get calls from private businesses saying 'Hey, we want to do this.

What does it look like?'" said Suzanne Pearl, Minnesota director for First Children's Finance, a Minneapolis based consulting firm that works with hundreds of child care businesses in several states. "And then we say 'OK, here is what it looks like. It's heavily regulated.' And a lot of them don't want to take it on.

They certainly don't want to take on a line of business that's going to lose money," Pearl said. A cost report produced last October by the Minnesota Department of Human Services, with help from First Children's Finance, found that nearly all child care providers outside the Twin Cities lose money.

Unsurprisingly, hundreds have left the business in recent years. Around the state, small towns are taking unprecedented steps to make sure they will still have child care services in their communities. "The ultimate benefit of child care businesses accrues to more than just the businesses or the families that use them," Pearl said.

"It's about local economies being healthy and robust." It has taken a generation for Minnesotans to realize that. For a long time, people viewed child care as the necessary cost of a two income household and the business as glorified babysitting. In 2003, economist Art Rolnick and others at the Federal Reserve Bank of Minneapolis began arguing that early childhood development programs yield a sizable financial return when children become adults.

By the middle part of last decade, Minnesota policymakers had absorbed that view and debated precisely how to invest in early childhood education. Gov. Mark Dayton and public educators began advocating for universal pre kindergarten in the state's schools. "That was kind of a big moment in the conversation because we'd really been building toward something different," Ericca Maas, policy and advocacy chief at Think Small, a Minneapolis nonprofit organization that has worked on child care and achievement gap issues.

In 2015, the state came to the brink of a government shutdown because of that debate. Eventually, legislators experimented with both pre K programs and scholarships for child care. Last year's do everything at once Legislature went farther. "There was a significant investment made in child care in a variety of programs, including scholarships," Maas said.

The notion of expanding supply of child care hasn't gotten much attention through the years. Today, however, it's the simple availability of child care that most intersects with the challenge Minnesota faces of getting more people to work. Minnesota has a lower unemployment rate and higher labor participation rate than the nation as a whole.

It's got the third highest rate of labor participation by women, trailing only Nebraska and the District of Columbia. That means businesses and government in Minnesota are working to bring a narrow margin of people into the workforce — and prevent others from leaving. If child care is a barrier to them, all options should be on the table to remove it.

Making child care a healthy industry again would be a welcome benefit. In my next column, I'll introduce you to a person in a place that has child care all figured out..