I'm not sure about the public need angle as I'm sure it's different for every municipality, but I doubt that private daycare falls under the umbrella of public need.
I'd go to the meeting to find out what they want. It may very well be that they just want you to have liability insurance. If they opt to continue to let you provide daycare services I'd ask for that decision in writing in case there are any more complaints from the neighbors.
If they decide to be difficult about it you might contact an attorney to see if the fact that they've been allowing you to operate with their full knowledge can work against them in any way.
Good luck, and let us know how it goes
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