News: Downtown daycare seeks loan from city seven months after opening

by Jordan Green

If the city approves an operating loan to a daycare near the Wake Forest Innovation Quarter, the incurred debt could total $500,000. It’s part of the city’s effort to leverage its investment in downtown revitalization.

The extent to which Winston-Salem has staked reinvention of its downtown on the historically black Goler neighborhood, which ties the area around the Wake Forest Innovation Quarter to a new Entertainment District, was attested in the handling of an item on city council’s St. Patrick’s Day agenda: a request for a $200,000 operating loan by a daycare adjacent to the parcel set aside for new housing.

“When I look at the project of Goler and we look at the area we’ve made a tremendous improvement there,” Mayor Pro Tem Vivian Burke told her colleagues on city council during a finance committee meeting on St. Patrick’s Day. “That is a plus for us.”

Mudpies Downtown East, one of three daycares operated by the nonprofit Northwest Child Development Centers in Winston-Salem, opened in August 2013 on land provided by the city with financing assistance and a $300,000 loan to construct the building.

The nonprofit burned through $150,000, or $30,000 per month, in its first five months of operation. As of March 28, the facility — described by CEO Tony Burton as “the most technology-enriched childcare center in North Carolina” — had 70 children enrolled. Burton said enrollment needs to reach 127 to break even, and the facility is licensed to serve just under 200.

The agency has faulted a combination of factors for the daycare’s financial troubles: an interruption in funding during the federal government shutdown last year, recent layoffs that have prompted parents to reconsider daycare and a loss of state subsidies because licensing, which is a requirement for qualification, took about six months. Burton publicly owned up to that lapse.

“That was something that was missed by our organization and by me personally,” he told city council on March 24. “I can’t blame it on anybody else but me, knowing that we could not receive subsidy until we received our star rating.”

Burton added that the daycare missed the opportunity to enroll children because their parents simply couldn’t afford tuition without the state subsidy.

While giving a tour of the facility last week, Burton also acknowledged that given a do-over, he would have put more resources into marketing when the daycare opened in August. The agency has hired the Reuben Rink Co., a marketing and advertising firm formerly known as the Bloom Agency, to launch a more aggressive marketing campaign to reach potential customers.

Northwest Child Development Centers received notification from the state that its Mudpies Downtown East facility has received a five-star rating — the highest possible — on March 24. Burton said the stellar rating is based on its relatively low teacher-child ratio. The facility has a state-of-the-art security and surveillance system with video monitors of each classroom that parents can remotely access. Burton said the facility provides older children with a minimum of 10 minutes a day of personal computer time, and each teacher has a classroom computer so that they can communicate with parents by email. Other amenities at the daycare include a commercial kitchen and playgrounds for three separate age groups.

Burton characterized the daycare’s loan request as consistent with the city’s overall investment in downtown.

“With the city’s focus on work, live and play, when you increase density for housing one of the things that’s going to happen is children are going to be made,” he said. “There’s a tendency to move back out to the suburbs when you can’t get the services you need. You have a big conversation happening right now about transportation, grocery stores and childcare.”

The city’s investment in downtown has shown some signs of fruition with the steady growth of businesses in the Innovation Quarter. Most notable among them is the online marketing and supply-chain firm Inmar, which began moving 900 employees downtown in February and celebrated its arrival with a parade on Monday. Burton said Mudpies Downtown East has already picked up five children whose parents work at Inmar, and he has been talking with the company’s human-resources director to get a sense of how many employees have children with unmet childcare needs.

At the city council’s most recent meeting on March 24, Councilman Robert Clark, chair of the finance committee and the sole Republican serving on council, proposed approval of a third of the requested $200,000 loan so that the facility can continue to operate for at least two months while city staff reviews its finances. His motion died for lack of a second.

Burton told council that an incremental loan would not be adequate.

“The reason that we made the request for $200,000 is because that is the amount that we actually need today to continue our operation,” he said. “We based everything going forward on what we knew we would be able to enroll based on our new star rating. So the $66,000 would only put a small dent in the $30,000 that we’ve lost since we’ve started losing those funds, which was about in November. So it’s going to be a minimal impact and it’s not really going to be able to get us to where we need to be to be able to maintain ourselves.”

At least four council members — including Mayor Pro Tem Vivian Burke, Denise D. Adams, James Taylor and Molly Leight — indicated on March 24 that they were prepared to support the full request.

“We need to understand the dire need,” Adams said. “We’re talking about children.”

But Clark made a motion for no consideration, a parliamentary maneuver that automatically cuts off debate, and postpones the item to the next meeting. The request will be heard again on April 7.

“I find it incomprehensible that we have a business that’s lost $150,000 and we’re going to give them $200,000 without even looking at their business plan,” he said.

On Tuesday, Clark said he hopes to have the opportunity to review the agency’s monthly financials before the next vote. He suggested the agency might have to make some difficult decisions, including reducing its workforce to make its break-even threshold more attainable.

But the agency is literally disincentivized to do that. Burton said the original $300,000 loan was approved as part of an incentives package in which the city forgives a portion based on the number of people that the facility employs.

And if the agency defaults on the second loan, the city will have a daycare built on a piece of prime downtown real estate as collateral.