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Like Falling Off a Cliff

Iowans can fall off an income cliff when even a minimal pay increase costs them child care assistance — one challenge for the state’s working families.

Like Falling Off a Cliff
Trying to Get Ahead with the Help of Iowa’s Child Care Assistance Program

2-page PDF of this policy brief

By Peter S. Fisher

One of the most significant roadblocks on the path to self-sufficiency for low-wage working parents in Iowa is the cost of child care. The statewide average cost of care in a licensed center for a 2- to 5-year-old was $148 per week in 2013. Yet weekly pay before taxes for someone making $9.00 per hour (well above the minimum wage) is just $360; 41 percent of that pay would go to child care. With a minimum wage job, or with more than one child (or an infant), the percentage is even higher.

Fortunately for those with very low wages, Iowa has a program that pays for all or part of child care for working parents. The bad news is that Iowa has one of the lowest income eligibility ceilings in the country: 145 percent of the federal poverty guideline. Only six states have a ceiling equal to or lower than 145 percent, and in 19 states the threshold was at or above 200 percent.[1] When parents trying to provide for their families get a better job or one with more hours that pushes the family income above 145 percent of poverty, they find themselves worse off instead of better off. Their income falls off a cliff as the child care assistance disappears and they are suddenly left footing the entire bill.

Basic RGB

Table 1. Monthly Basic Needs Budget:
Single Parent with Two Children, 2013-14

To illustrate this fundamental problem with the Child Care Assistance Program, consider the basic needs budget for a single mother with two children, one age 2 or 3, the other 6 to 10. Table 1 illustrates the expenses such a family would face in Polk County (with high child care and rent costs) and in Southeast Iowa (with relatively low costs, except for health care), based on the cost of basic needs such as food, rent, utilities, clothing and transportation in 2013-14.[2] She would need to earn $24.09 an hour in Polk County, $22.70 in Southeast Iowa, to cover basic family needs without public supports.

131201-Fig2-ccacliff

The Cliff Effect:
How Net Resources Change as Earnings Increase

Figure 1. Single Parent with Two Children, Polk County

Figure 1 illustrates the various cliff effects that impact a family’s net resources — after-tax wages plus public supports — as earnings increase. The chart assumes that this family participates in every possible assistance program: TANF (Temporary Assistance to Needy Families), SNAP (Supplemental Nutrition Assistance Program, formerly Food Stamps), LIHEAP (Low Income Home Energy Assistance Program), and the federal and state EITC (Earned Income Tax Credit), as well as other credits available. (In fact, this is highly unlikely; for most of these programs only a third to two-thirds of those eligible actually participate, the exception being the EITC.) It also assumes the parent has no job-based health benefits, and relies on Medicaid and hawk-i, or on the premium and cost-share subsidies available under the Affordable Care Act.[3]

As earnings increase, the family loses TANF benefits (at a full-time wage well below minimum wage), then SNAP benefits. Each creates a small cliff effect. But when the family loses child care assistance (CCA), the cliff is huge, because child care costs are huge. At 144 percent of poverty the family will pay about 17 percent of the cost of child care, because the program requires a co-payment once income reaches the poverty level. But when income rises to 145 percent of poverty, benefits disappear all at once, leaving the family with 100 percent instead of 17 percent of the cost of caring for the two children.

As the hourly wage increase to $13, the family can just about cover the cost of a basic needs budget, with the help of the various assistance programs. But the loss of child care assistance when the hourly wage reaches $13.65 cuts their net resources by $9,320, and they do not achieve the basic needs budget level again until they earn $24 per hour. And most of the remaining assistance programs (including the EITC) disappear before that self-supporting wage is attained.

The Cliff Effect: How Net Resources Change as Earnings Increase Figure 1. Single Parent with Two Children, Polk County

Figure 2. Single Parent with Two Children, SE Iowa

The picture is pretty much the same in Southeast Iowa (Figure 2). The difference is that the lower cost of living means the family is able to generate net resources above the basic needs level (though only with the unlikely assumption that they take advantage of all available programs), until the loss of child care assistance punches a $7,831 hole in their budget. The family then faces a long and daunting climb from $14 to $24 an hour.

The cliff effect and the low ceiling on eligibility for Iowa’s Child Care Assistance Program create a serious disincentive for working families to increase working hours or seek a better paying job. They also create a huge hardship for those who do earn more than the limit despite those disincentives. An increase in the income limit, along with a phase-in of the co-pays, could reduce the cliff effect substantially and push it off to a higher wage level where the family is closer to self-sufficiency. 


[1] Karen Schulman and Helen Blank. Downward Slide: State Child Care Assistance Policies, 2012. National Women’s Law Center, Washington, D.C.

[2] Southeast Iowa includes Louisa, Des Moines, Henry and Lee counties. The basic budget does not include savings, loan payments, any entertainment or vacation, or meals outside the home. It is based on the actual county average child care costs for a registered home, the USDA low-cost food plan, the 40th percentile fair market rent for the county, average commuting costs, average cost of clothing and other necessities for a family at 200 percent of poverty, and the premium for the second-lowest-cost silver plan available for that county on the health care exchange plus out-of-pocket health care costs.

[3] The rules for all programs are based on eligibility criteria and benefit levels in effect for Fiscal Year 2014 (including the recent cuts to SNAP), or calendar 2014 in the case of health programs.

2010-PFw5464 Peter S. Fisher is research director of the Iowa Policy Project, part of the nonpartisan Iowa Fiscal Partnership. Learn more at http://www.iowapolicyproject.org.