Summary of the Updated CWELCC Formula and What You Need to Know
The Canada-Wide Early Learning and Child Care (CWELCC) program is entering a new phase with the introduction of the cost-based funding model, effective January 1, 2025. This transformative change replaces the revenue-replacement model introduced in 2022 and attempts to align funding with the costs to operate childcare centers. Below, we’ll break down the components of this model, its impacts, and what childcare operators need to do to prepare.
The New Cost-Based Funding Model: A Breakdown
Effective January 1, 2025, daily parent fees for CWELCC children are capped at $22, including all mandatory fees (e.g., registration fees), and Regions across Canada have implemented the new cost-based funding model for centres enrolled in CWELCC.
The key components of the cost-based model include:
Program Cost Allocation
Benchmarks for Funding: The model introduces standardized cost benchmarks that are meant to reflect the typical expenses for program staffing, accommodations, and operational costs. These benchmarks were calculated based on data collected from childcare centres across Ontario, and consider factors like capacity and service days.
Geographic Adjustments: A built-in geographic adjustment factor is used to reflect regional cost differences, to adjust for higher-cost areas.
Legacy Top-Up Allocations: Centers that experience higher-than-average costs or are expanding their capacity through new spaces or active homes can qualify for additional funding. Legacy centers may also receive transitional support to adapt to the new funding approach.
Allocation in Lieu of Profit/Surplus
The funding model includes a provision for amounts "in lieu of profit." This ensures centers can account for business risks, reinvest in their facilities, or enhance their services. The allocation is approximately 8% of funding, and more specifically consists of:
Base Rate: A percentage (4.25%) of the program cost allocation.
Premium Rate: An additional 3.5% applied to benchmark funding.
Flat Amount: A flat allocation of $6,000 per calendar year.
Base Fee Revenue Offset
The funding is partially offset by the revenue collected from families through base fees. Effectively, the total funding required by the centre, as determined by the Program Cost Allocations, is met through a combination of CWELCC and parent fees.
In-Year Adjustments and Flexibility
Payments may be adjusted during the year in response to operational changes or emergency repairs. Centres should monitor their finances on a regular basis to understand their available funding as well as operating needs.
Reconciliation and Surplus Management
End-of-Year Reconciliation: at the end of the year, a center’s actual costs will be reconciled against their allocated funding. If a year-end surplus exceeds the "allocation in lieu of surplus" amount, the surplus amount may be classified as an overpayment and recovered by the Regions and returned to the Ministry of Education.
No Carry-Forward Policy: surpluses cannot be carried forward, emphasizing accurate budgeting and expenditure planning.
Future Funding Impacts: Significant or persistent surpluses may result in adjustments to future funding and prompt reviews to ensure compliance with eligible cost guidelines.
Improvements Compared to Prior System
The new cost-based funding model is designed to address several challenges faced by childcare operators under the previous system:
Transparency: funding calculations are formula driven, offering clear insights into how allocations are determined.
Fewer Sources of Funding: instead of numerous funding envelopes for revenue replacement and various expense categories, the new formula combines funding into a single, larger bucket that allows centres to better understand how much funding they can expect to receive.
Flexibility: funds can be used as required on eligible expenses. Expenses are deemed eligible if they are appropriate, attributable, and reasonable.
However, the model also introduces more robust reporting and compliance requirements, emphasizing the need for strong internal controls and financial oversight.
Impact and Next Steps for Operators
To prepare for the cost-based funding model, operators should:
Understand the Guidelines: familiarize yourself with the benchmarks, cost components, and eligibility criteria outlined in the CWELCC funding guidelines.
Plan Budgets and Operations: revise operational plans and budgets to align with the funding model. Ensure that program costs and parent fee revenue align with funding caps and guidelines.
Strengthen Financial Oversight: implement or upgrade accounting systems to support accurate financial reporting, regular monitoring, and compliance with reconciliation requirements.
Communicate with Service Managers: maintain open communication with CMSMs/DSSABs to navigate funding adjustments, resolve potential discrepancies, and secure top-up allocations if applicable.
If you have any questions about the new CWELCC formula, or would like to discuss how we can help, please reach out! You can also email us at hello@childcarecpa.ca.