Private equity's role in hospitals, physician practices, and nursing homes has attracted considerable attention from lawmakers in recent years. Now state and federal legislators are turning their attention to private equity's involvement in childcare.
States are taking different approaches to regulating private equity investment in childcare, from new disclosure and reporting requirements to restrictions on public funding, acquisitions, and operational decisions. Massachusetts and Vermont have already enacted requirements affecting childcare providers, Michigan and Minnesota impose ownership disclosure and change-of-ownership rules through licensing, and lawmakers in other states have introduced or considered measures targeting private equity ownership. At the federal level, Congress is considering transfer restrictions and increased data collection. Taken together, these laws and proposals suggest that scrutiny of private equity in the childcare sector is likely to continue to grow.
Key Takeaways
- Ownership disclosure thresholds can be as low as 5% (Michigan, Minnesota, and New York's pending bill), reaching indirect and minority interests
- New York's bill would bar closures and layoffs for 24 months, and add-on acquisitions for 12 months, for publicly funded providers with significant equity investors
- The federal Protecting Childcare from Private Equity Act would prohibit resale of an acquired childcare business for four years and restrict dividends, distributions, and share repurchases during that period
- Access to public funding is increasingly tied to ownership, as in Massachusetts' grant cap and Connecticut's endowment proposal
Regulation of Private Equity in Other Care Sectors Provides the Model
In recent years, several states have expanded oversight of private equity investment in health care, including Massachusetts' 2025 expansion of its transaction review regime to cover private equity investors, management services organizations (MSOs), real estate investment trusts (REITs), and certain sale leasebacks; Oregon's restrictions on MSO control of medical practices; and California's 2026 expansion of its healthcare transaction notification requirements to expressly cover private equity groups, hedge funds, and MSOs. At the federal level, nursing-home rules require disclosure of certain private equity and REIT ownership interests.
The proposed and enacted childcare legislation targeting private equity addresses many of the same issues, including ownership disclosure, financial arrangements, and oversight of investor-backed providers.
States Have Enacted Disclosure Requirements and Funding Restrictions Affecting Private Equity Investment in Childcare
Massachusetts has restricted public funding for large for-profit childcare providers. Under legislation enacted in 2024, providers operating more than 10 center-based programs in the state generally may not receive more than 1% of annual state childcare operational grant funds. The commissioner of Early Education and Care may waive the limit if doing so is in the Commonwealth's best interest. The state also requires state regulators to collect data, to the extent feasible, on multistate for-profit childcare chains operating in the Commonwealth. Although these provisions do not specifically target private equity, they address public funding and ownership transparency for large childcare operators.
Vermont has enacted ownership disclosure requirements affecting childcare providers. Under Act 76 of 2023, providers receiving funding through the state's Child Care Financial Assistance Program must disclose their business structure, owners, principals, and affiliated entities' owners and principals. The law defines control to include direct or beneficial ownership of at least 10% of an entity.
Michigan requires childcare center license applicants to disclose who owns the center, and what they must disclose depends on how the owner is organized. A privately held corporation must disclose all shareholders, officers, and directors. A publicly held corporation must disclose its officers and directors, plus any shareholder holding a direct or indirect interest greater than 5%. For partnerships and limited liability partnerships, all partners must be disclosed; for limited partnerships and limited liability limited partnerships, both general and limited partners must be disclosed. A limited liability company must disclose all of its members and managers.
Minnesota defines an owner of a licensed childcare program to include persons or organizations holding at least a 5% direct or indirect ownership interest. Owners are treated as controlling individuals for licensing purposes and are subject to background-study requirements. Separately, Minnesota requires advance notice and a new license application for transactions that constitute a statutory change of ownership, including certain sales or transfers, mergers, consolidations, and changes in controlling individuals.
Current State Legislative Activity
New York
New York's A11613, introduced in July 2026, would establish new requirements for childcare providers and their investors. A "significant equity investor" would include private equity funds with direct or indirect interests in a provider, investors holding at least 5% equity, and entities exercising control through ownership, leases, management agreements, or operating agreements. Providers with significant equity investment who received certain public funds generally could not close programs or lay off employees for 24 months or acquire an equity interest in another New York childcare provider for 12 months. The bill would restrict the use of covered public funds for executive bonuses and severance, management or franchise fees, affiliate payments, capital distributions, and certain executive compensation.
Under the bill, all childcare providers would have to disclose basic ownership, operating, and tuition information. Providers receiving specified public support would also report employee compensation, fees, profits, and staff turnover. Those with both public support and significant equity investors would face additional reporting requirements covering public funds, beneficial ownership, debt, executive compensation, acquisitions, closures, and changes to franchise or management agreements.
Providers with five or more employees would have to give regulators 60 days' notice before mergers, consolidations, or facility closures. Certain acquisitions, changes of control, real estate transactions, and significant reductions in services would require additional reporting.
The Office of Children and Family Services could seek repayment of public funds, impose monetary penalties, issue cease-and-desist orders, and restrict or revoke licenses. Controlling private funds, their interest holders, and affiliates that facilitate violations of the public-funds provisions could face joint and several liability, including for reasonable attorneys' fees and costs.
Pennsylvania
In June 2026, the Pennsylvania House adopted HR 363, a resolution introduced in October 2025 directing the Joint State Government Commission to study the state's early-childhood education system, including the role of the public and private sectors, and report its findings and legislative recommendations within 12 months. The resolution originally focused on private equity practices, including concerns about rising fees and low wages. Those findings were removed when the resolution was broadened in committee to examine other issues, including liability-insurance costs. Separately, Senator Amanda Cappelletti circulated a February 2026 co-sponsorship memorandum announcing planned legislation addressing private equity ownership of childcare providers. As of October 2026, substantive legislation does not appear to have been introduced.
Earlier State Legislative Proposals
Connecticut
Connecticut's SB 266 would have restricted access to funding from the state's Early Childhood Education Endowment for childcare programs controlled by private equity entities. As amended and passed by the Senate in April 2026, the bill generally would have placed providers controlled by private equity behind other eligible providers in the distribution of endowment funds. Such programs could receive funding only after other eligible providers had been funded and subject to additional conditions. The proposal addressed private equity control exercised through ownership, contractual arrangements, or other means. Unlike New York's bill, which would impose extensive reporting and operational requirements, Connecticut's proposal focused primarily on access to public funding. The bill did not pass the House before the legislative session ended.
Colorado
Colorado's HB25-1011 would have imposed conditions on childcare centers owned by specified institutional investors, including investment companies and venture-capital funds holding at least a 20% interest in a center or a company operating or franchising centers. As introduced, the bill generally applied to investors owning five or more centers. The original bill would have capped childcare waitlist fees at $25 and restricted sale-leaseback arrangements as conditions of receiving state childcare funding. Those provisions were removed during the legislative process. The House-passed version retained online pricing disclosure requirements and advance notice to employees and families before certain post-acquisition layoffs or changes to enrollment or eligibility requirements. Regulators also could have required investor financial information. The bill failed in the Senate in April 2025.
Congress Considers Federal Restrictions
In July 2026, H.R. 9875 was introduced in the U.S. House of Representatives. The "Protecting Childcare from Private Equity Act" would require the Securities and Exchange Commission, in consultation with the Department of Health and Human Services, to collect information about certain private funds' ownership and transactions involving childcare providers. It would also prohibit the sale of an acquired childcare business for four years and restrict dividends, capital distributions, and share repurchases during that period. The comptroller general would study the effects of private equity ownership on quality, availability, tuition, and wages.
At a Glance: Childcare Measures Affecting Private Equity
- Massachusetts (enacted 2024): Providers with more than 10 center-based programs; generally capped at 1% of state operational grant funds; data collection on multistate for-profit chains
- Vermont (enacted 2023): Providers receiving Child Care Financial Assistance Program funds; disclosure of structure, owners, principals, and affiliates; control includes 10% ownership
- Michigan (in force): Licensing disclosure of owners by entity type; publicly held corporations disclose shareholders above 5%
- Minnesota (in force): Owners of 5% or more are controlling individuals subject to background studies; change of ownership requires advance notice and a new license application
- New York A11613 (pending): Significant equity investors (including 5% holders and contractual control); expanded reporting; 60-day notice of mergers and closures; closure, layoff, and acquisition freezes and limits on uses of public funds; joint and several liability for controlling private funds.
- Pennsylvania HR 363 (adopted June 2026): Study of the early-childhood education system, including the role of the private sector in that system; report due within 12 months
- Connecticut SB 266 (died 2026): Would have placed providers controlled by private equity behind other providers for endowment funds
- Colorado HB25-1011 (failed 2025): Investors holding 20% or more; pricing disclosure and advance notice of post-acquisition layoffs or enrollment changes
- Federal H.R. 9875 (pending): SEC data collection on private fund ownership and transactions; four-year resale bar; limits on dividends, distributions, and share repurchases.
Implications for Childcare Investors and Operators
These proposed state and federal measures would more directly target private equity investment in childcare, moving beyond the more general disclosure requirements, licensing rules, and funding restrictions already in place in states such as Massachusetts, Vermont, Michigan, and Minnesota. They would affect childcare investors and operators at each stage of the investment life cycle, from limits on public funding to reporting obligations and restrictions on acquisitions, staffing changes, and affiliate transactions. New York's proposal is particularly broad, reaching investors with relatively small equity interests and entities exercising control through contractual arrangements.
- Diligence. Buyers should assess a target's reliance on public funding, its licenses and prior change-of-ownership filings, and whether existing management, franchise, or lease arrangements could be treated as control.
- Signing and closing. Notice and licensing requirements, such as New York's proposed 60-day notice and Minnesota's advance notice and new license application, can affect deal timelines and closing conditions.
- Holding period. Restrictions on management and franchise fees, affiliate payments, capital distributions, and dividend recapitalizations could affect value creation and return assumptions.
- Exit. The proposed federal four-year resale bar and New York's limits on acquisitions could constrain exit timing and buy-and-build strategies.
What Ownership Thresholds Mean for Fund Structures
Because several regimes measure ownership on a direct or indirect basis at thresholds as low as 5%, sponsors should consider whether interests held through fund vehicles, co-investment vehicles, or minority investments could be attributed up the ownership chain. Disclosure and background-study obligations may extend beyond the sponsor to principals and certain fund investors, and New York's bill would also reach entities exercising control solely through contractual arrangements. Fund managers may want to map their ownership structures against each regime before investing.
What to Watch
Investors should monitor the progress of New York A11613 and H.R. 9875, the Pennsylvania Joint State Government Commission's report and any legislation following Senator Cappelletti's memorandum, and possible reintroduction of the Connecticut and Colorado proposals in future sessions. Additional states may follow the models already in place.
Venable's attorneys regularly advise private equity sponsors, investors, and childcare operators and can assist with reviewing licensing and public-funding exposure of portfolio companies and targets; structuring transactions and negotiating representations, covenants, and closing conditions that address these regimes; mapping fund ownership against disclosure thresholds; and monitoring emerging state and federal legislative developments.