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Session Recap: ‘Historic’ — not label of pride

Posted April 25th, 2017 to Blog

By

4/22/17

IFP Statement: ‘Historic’ session not a label of pride

Legislative session hits working families and traditions of good governance

Basic RGB

Statement of Iowa Fiscal Partnership • Mike Owen, Iowa Policy Project

To describe the 2017 Iowa legislative session as “historic” is not a label its leaders should wear with pride.

Iowans needed a legislative session that worked to raise family incomes and expand educational opportunity. Iowans had long demanded water-quality improvement measures. Many called for lawmakers to address the lack of fairness, adequacy and accountability in a tax system laden with special-interest breaks and costly subsidies to corporations.

Instead, Iowans got a continued ratcheting down of funding for PK-12 public education. There were significant and serious cuts in post-secondary education that will lead to tuition increases. We saw cuts to early-childhood education and other programs that serve our most at-risk children and neglect of the child-care assistance program that helps working families struggling to get by.

The Legislature continues to demand little or nothing of industrial agriculture in cleaning up the mess it has left in our waters. Lawmakers tried to dismantle the Des Moines Water Works board, limited neighbors’ right to complain in court about pollution, and eliminated scientific research at the Leopold Center. Their ultimate action on water merely diverts resources from other priorities, such as education and public safety.

Lawmakers largely left the tax issue to the next session. An overture in the House to reform Iowa’s reckless system of tax credits was a welcome acknowledgment that this issue needs attention, but devils in the details make further discussion of this issue during the interim even more welcome.

Perhaps as troubling as the destructive nature of policy content this session, Iowa’s image of adherence to good governance took a big hit. The most controversial policy changes came not through collaborative, public discussion in committee, let alone the 2016 political campaigns, but were often dumped into lawmakers’ laps with little opportunity for amendments.

In what could accurately be called a “session of suppression,” lawmakers achieved:

  • Wage suppression, with a bill to preempt local minimum wage increases while refusing to raise Iowa’s repressive, 9-year-old minimum of $7.25.
  • Workplace suppression, gutting collective bargaining protections for public employees, and making it more difficult for Iowans recover financially from injuries on the job.
  • Health-care suppression, achieved in workers’ compensation legislation while also refusing to reverse Governor Branstad’s disastrous move to privatize Medicaid.
  • Local suppression, whacking at local government control in a variety of areas: minimum wage, legal defenses against concentrated animal feeding operations (CAFOs), fireworks sales, and collective bargaining options.
  • Voter suppression, with a bill to make it more difficult for many citizens, particularly low-income and senior voters, to exercise their right to vote.
  • Suppression of children’s healthy development, with additional cuts to Early Childhood Iowa and Shared Visions that will reduce access to critical home visitation, child care and preschool services for some of our most at-risk youngsters.

Some legislators may boast of a “historic” session. History will mark 2017 as a low point in Iowans’ respect and care for each other, a legacy that will not be celebrated when future Iowans look back on this session and the closing act of Governor Branstad’s long tenure in office.

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The Iowa Fiscal Partnership is a joint public policy analysis initiative of two nonpartisan, nonprofit, Iowa-based organizations — the Iowa Policy Project in Iowa City, and the Child & Family Policy Center in Des Moines. Reports are available at www.iowafiscal.org, and on the websites of the two partner organizations, www.iowapolicyproject.org and www.cfpciowa.org.


On Labor Day, don’t forget single workers

Posted September 2nd, 2016 to Blog

Our focus at the Iowa Policy Project frequently emphasizes the impact of public policy on working families.

But the demand of meeting a household budget is faced by more than parents, whether in single- or married-couple families. Single workers without children also need to get by.

So, on Labor Day weekend, let’s make sure the spotlight hits those folks as well. Here are three areas:

•    the Earned Income Tax Credit (EITC);
•    the Cost of Living in Iowa; and
•    the minimum wage.

EITC
chuck_marr-5464A new report from the Center on Budget and Policy Priorities (CBPP) focuses on single working people who do not raise children and thus do not benefit from the Earned Income Tax Credit (EITC). Childless workers under age 25 are ineligible for that benefit, notes CBPP’s Chuck Marr, who states:

On Labor Day, many of these low-wage workers will be serving meals in restaurants, ringing up back-to-school supplies at the mall, or driving a truck down the highway. They deserve a decent day’s pay for a hard day’s work, but many of their paychecks are too small to make ends meet. An expanded EITC that targets this group would do more to help deliver a decent day’s pay.

There are bipartisan proposals on the table in Washington to extend the EITC to these workers, 7.5 million of whom are now “taxed into poverty,” Marr notes. The table below shows the Iowa impacts of these proposals.

Iowa Workers helped under Obama, Ryan plans Workers helped under Brown, Neal plans
Cooks  6,000  6,000
Cashiers  5,000  6,000
Waiters and waitresses  5,000  5,000
Retail salespersons  4,000  5,000
Custodians and building cleaners  4,000  4,000
Laborers and freight, stock, and material movers  4,000  4,000
Truck drivers  4,000  4,000
Nursing, psychiatric, and home health aides  3,000  4,000
Maids and housekeeping cleaners  3,000  3,000
Stock clerks and order fillers  2,000  3,000
Child care workers  2,000  2,000
Construction laborers  2,000  2,000
Food preparation workers  2,000  2,000
Grounds maintenance workers  2,000  2,000
Personal and home care aides  2,000  2,000

Source: Chuck Marr blog, Center on Budget and Policy Priorities

CBPP has done much work on this issue. See this earlier report and another report by Marr and his colleagues at CBPP.

Cost of Living in Iowa
2010-PFw5464As IPP’s Peter Fisher shows in Part 2 of our “Cost of Living in Iowa” report for 2016, more than a quarter of working single persons statewide (27.5 percent) do not make enough at work to meet a basic-needs household budget. In fact, for those workers who fall short, they fall more than $10,000 short, on average. It is worth noting that this basic needs gap is even more severe for single parents, who fall almost $23,000 short, on average.

Minimum Wage
One of the efforts being used to stop or hold down local minimum wage increases in Iowa is the issue of “cliff effects” in work support programs — particularly Child Care Assistance — in which benefits abruptly drop for a worker if he/she gets slightly higher pay.

This is a very real issue for some workers, but not for the vast majority of workers who would benefit from a minimum wage increase statewide to $12 (phased in over five years), because they do not have children.

It makes no sense to block a wage increase for the three-fourths or more of workers who are not affected by the child care issue.

Rather, Iowa could raise the minimum wage and, separately, improve access to its Child Care Assistance program so that the cliff effects are eased or erased. There are ways to do so. See Fisher’s report with Lily French from 2014, Reducing Cliff Effects in Iowa Child Care Assistance.

owen-2013-57Posted by Mike Owen, Executive Director of the Iowa Policy Project

mikeowen@iowapolicyproject.org


Fix both ‘cliff effect’ and low minimum wage

Posted August 3rd, 2016 to Blog

As the debate over a Polk County minimum wage continues, the so-called “cliff effect” is being cited as a reason to limit the increase in the wage. This is unfortunate. Capping the wage at a low level would hurt thousands of families, including many with burdensome child care costs.

cliffs3The “cliff effect” results from the design of Iowa’s Child Care Assistance program (CCA), which pays a portion of the cost of care for low-income families. Iowa has one of the lowest eligibility ceilings in the country: 145 percent of poverty. When a family’s income hits that level ($29,120 for a single mother with two children), benefits disappear.

While most work support programs, such as food assistance, taper off gradually, with CCA you just fall off a financial cliff — the “cliff effect.”

We do need to fix that program. But the failure of state lawmakers and the governor to address the CCA cliff effect is not a good reason to forgo needed wage increases for thousands of working families. An estimated 60,000 workers would benefit from an increase to $12 an hour in Polk County; 88,000 by an increase to $15 (phased in over several years).

Of those who would benefit from a higher minimum, 36 to 38 percent are in families with children. To put the CCA cliff in context, recognize:

•     Thousands have high child care costs and incomes below 145 percent of poverty but do not receive CCA. A 2007 study estimated that only about 1 in 3 Iowa families eligible for CCA were actually receiving it. The two-thirds with low wages but without assistance still need higher wages.

•     Second, a low wage cap would not help many families barely above 145 percent of poverty, but still facing child care costs of $4,000 to $5,000 a year per child. These families, in many cases married couples with one or both working at a low wage, can’t make ends meet.

•     Third, the other 62 to 64 percent of low-wage workers do not have children, and many families whose children are older do not need child care. A cap on the minimum wage hurts all of them.

Moreover, we need to keep in mind that the cliff is not as sudden as it appears. Because Iowa moved to one-year eligibility, a family whose income rises enough to push them above 145 percent of poverty can continue to receive assistance for another year. In that time, they may find ways to adjust, such as quitting the second or third job or reducing hours or overtime, to stay eligible for CCA but have more time with their children. This is surely a benefit from a higher minimum wage.

Policies that move families toward self-sufficiency are widely supported. We want workers to increase their earnings by furthering their education, finding higher paying jobs, gaining experience that earns them promotions — and have time to care for their families.

Yes, we should fix our child care assistance program, which can penalize all of those efforts. But we should also fix a minimum wage stuck at a level well below what even a single person needs to get by. Past failures to fix one problem should not end up as an excuse to fix neither.

2010-PFw5464Posted by Peter Fisher, Research Director of the Iowa Policy Project

pfisher@iowapolicyproject.org

Related:

“Reducing Cliff Effects in Child Care Assistance,” Peter Fisher and Lily French, Iowa Policy Project, March 2014, PDF


IPP’s Cost of Living: A better measure

Posted April 6th, 2016 to Blog

Cost of Living Threshold Is More Accurate than Federal Poverty Guideline

Why do we produce our Cost of Living in Iowa research at the Iowa Policy Project? One reason is accuracy — to offer a better picture of what it takes to get by, rather than a vague concept of “poverty.”

Federal poverty guidelines are the basis for determining eligibility for public programs designed to support struggling workers. But those official guidelines have challenges that we address with basic-needs budget calculations in The Cost of Living in Iowa.

The federal guidelines do not take into account regional differences in basic living expenses and were developed using outdated spending patterns more than 50 years ago.

For example, the calculations that compose the federal poverty guidelines assume food is the largest expense, as it was in the 1960s, and that it consumes one-third of a family’s income. Today, however, the average family spends less than one-sixth of its budget on food.

Omitted entirely from the guideline, child care is a far greater expense for families today with 23.5 million women with children under 18 in the labor force.[1] Transportation and housing also consume a much larger portion of a family’s income than they did 50 years ago.[2]

Considering the vast changes in consumer spending since the poverty guidelines were developed, it is no wonder that this yardstick underestimates what Iowans must earn to cover their basic needs. Figure 1 below shows that a family supporting income — the before-tax earnings needed to provide after-tax income equal to the basic-needs budget — is much higher than the official poverty guidelines.

Figure 1. Cost of Living is Much Higher than the Poverty Level

Fig 1 pov guideline comp

In fact, family supporting income in the absence of public or employer provided health insurance ranges from 2.1 to 3.3 times the federal poverty guideline for the 10 family types discussed in this report. Most families, in other words, actually require more than twice the income identified as the poverty level in order to meet what most would consider basic household needs.[3]

[1] Hilda L. Solis and Keith Hall, Women in the Labor Force: A Databook, Bureau of Labor Statistics (December 2011).
[2] Sylvia A. Allegretto, Basic family budgets: Working families’ incomes often fail to meet living expenses around the US, Economic Policy Institute (August 30, 2005).
[3] Even with public health insurance, the family supporting income exceeds twice the poverty level in all cases except the two parent family with one worker. (That family type not shown here.)
2010-PFw5464Posted by Peter Fisher, Research Director of the nonpartisan Iowa Policy Project and author of The Cost of Living in Iowa, 2016 Edition.
Peter Fisher is a nationally recognized expert on tax and economic development policy. He holds a Ph.D. in Economics from the University of Wisconsin-Madison, and he is professor emeritus in the School of Urban and Regional Planning at the University of Iowa.

 

 


Veto words ‘ring hollow’

‘Governor Branstad’s words ring hollow in his decisions to cut education funding and to prevent greater access to child care assistance.’

IOWA CITY, Iowa (July 2, 2015) — The Iowa Fiscal Partnership released this statement from Mike Owen, executive director of the nonpartisan Iowa Policy Project, about actions taken late today by Governor Branstad on school funding and legislation that would have expanded eligibility for child care assistance:

 
Governor Branstad’s words ring hollow in his decisions to cut education funding and to prevent greater access to child care assistance.
 
First, the Governor is whacking $55.7 million in one-time funding for local schools and area education agencies from a budget compromise reached over many months by legislators. To defend this and other vetoes, the Governor speaks of concern about across-the-board cuts, when there is no threat of that possibility. These one-time funds for education were designated for one-time uses — in deference to the Governor’s previously stated concerns. The veto leaves schools with only 1.25 percent growth in the cost per pupil for the new fiscal year, well below schools’ actual costs — a legislative decision that will drive up property taxes for many districts. Neither the Governor nor the Legislature can claim accurately that they have provided sufficient funds for Iowa’s public schools, and the conclusion to this question comes 16 months past the legal deadline.
 
Second, low- and moderate-income Iowans face severe “cliff effects” — a sharp loss of resources — when their income rises enough to end their eligibility for child care assistance. A vetoed provision of SF505 would have lessened this effect for an estimated 200 families and nearly 600 children each month. These families, whose incomes are just below 150 percent of the federal poverty level (about $36,400 for a family of four), would have become eligible for child care assistance. This would have been a small but significant first step toward reducing the cliff effect. The Governor talks about increased incomes, but his veto means families will not be able to accept or seek small pay increases if it means they could no longer afford child care. The Governor’s claim that an improvement would “perpetuate” the cliff effect is to totally misunderstand the impact of this important benefit for low-income working families. Child care costs are not going down, and incomes are not rising fast enough for families to recover.
 
These issues are only two pieces of the package of decisions announced at the end of the day by the Governor’s Office. There will be more for Iowans to consider as the Governor’s decisions are reviewed more fully.

 

The Iowa Fiscal Partnership is a joint public policy analysis initiative of two nonpartisan, nonprofit Iowa-based organizations, the Iowa Policy Project in Iowa City, and the Child & Family Policy Center in Des Moines. For more on the issues raised in this statement, see the IFP website at www.iowafiscal.org.

Job 1 for Day 1 — putting Iowa families first

Posted November 6th, 2014 to Blog

As election dust settles, priorities remain clear for Iowa families

Now that the votes are counted, the real work begins. Job 1? It could be any of a number of areas where solid research and analysis have shown better public policy could make a difference for a more prosperous, healthier Iowa. Take a step back from the TV ads and “gotcha” politics and these issues come clearly in focus.

In Iowa, research shows solid approaches to economic prosperity for working families include:

In Iowa, research shows a fiscally responsible approach to both find revenues and do better with what we have includes:

  • Stopping tax giveaways to companies that pay no income tax — which occurs at a cost of between $32 million and $45 million a year through one research subsidy program alone, even though there is nothing to show this spending boosts the Iowa economy or produces activity that would not occur anyway. http://www.iowafiscal.org/big-money-big-companies-whose-benefit/
  • Reining in unnecessary “tax expenditures” — tax breaks, tax credits and other spending done through the tax code — could bring in tens or hundreds of millions of dollars for public services. A five-year sunset on all tax credits would force lawmakers to review and formally pass renewals of this kind of spending, now on autopilot. The last attempt at real reform fell woefully short. http://www.iowafiscal.org/tax-credit-reform-glass-half-full-maybe-some-moisture/
  • Plugging tax loopholes — a $60 to $100 million problem — would pay for a 2 or 3 percent annual increase in state per-pupil funding of K-12 schools. Twenty-three states, including 4 of 6 Iowa neighbors, don’t permit multistate corporations to shift profits out of state to avoid Iowa income tax and contribute their fair share to local education and other state services. http://iowapolicypoints.org/2013/05/22/will-outrage-translate-into-policy/
  • Reforming TIF — tax-increment financing, which is overused and often abused by cities around the state, has caught lawmakers’ attention in the past and should again. Like many tools that provide subsidies to private companies and developers, it should be redesigned to assure subsidies only go to projects with a public benefit and only where the project could not otherwise occur. Further, it should be designed to assure that only the taxpayers who benefit are the ones footing the bill, which is a problem with current TIF practice. http://www.iowafiscal.org/category/research/taxes/tax-increment-financing-tif/

In Iowa, research shows a healthy environment and smart energy choices for Iowa’s future includes:

  • Putting teeth into pollution law — which means reforms in Iowa’s Nutrient Reduction Strategy to eliminate pollution in waterways. http://www.iowapolicyproject.org/2014Research/140717-nutrient.html
  • Allowing local government to regulate frac sand mining — When it comes to cigarettes, guns and large hog facilities the Iowa Legislature took away the right of local government to listen to citizen desires. The General Assembly and the Governor should let democracy thrive and not take away local control of sand mining.
  • Encouraging more use of solar electricity in Iowa — Jobs are created while we confront climate change if we build better solar policy in Iowa. http://www.iowapolicyproject.org/110325-solar-release.html
  • Promoting local food and good food choices with school gardens — and a pilot project to offer stipends to Iowa school districts could encourage both learning and better nutrition. http://www.iowapolicyproject.org/2014Research/140514-school_gardens.html

None of these issues are new and it’s not an exhaustive list. But these were big issues for our state before the election and remain so, no matter who is in charge.

Together, we can build on the solid research cited above and lay the foundation for better public policy to support those priorities.

Owen-2013-57   Posted by Mike Owen, Executive Director of the Iowa Policy Project


When Iowa Wages Fall Short, Do Policy Choices Fill the Gap?

What does it take to get by these days? The Cost of Living in Iowa, 2014 Edition, from the Iowa Policy Project answers this question, and connects the answer to public policy choices that are in the hands of state and federal lawmakers. We present this report in three installments, outlined below, with links to the three pieces and support materials.

Part 1 — Basic Family Budgets

View full report or download 22-page PDF
News release
County data (map, printable tables)
County and regional data (spreadsheet)

Iowans pay differing amounts for the basic living essentials depending on where they live. A family living in Linn County and a family living in Clay County will face different housing costs, commuting times and health insurance premiums; child care costs will differ as well. Part 1 of this report details how much families throughout the state must earn in order to meet their basic needs and underscores the importance of public work support programs for many Iowans, who despite their work efforts, are not able to pay for the most basic living expenses.

Below, see how costs compare for families in your county and neighboring counties; click on any county for the data.

map

Union Shelby Woodbury Ringgold Van Buren Wapello Scott Sioux Sac Tama Webster Warren Washington Wayne Wright Worth Winnebago Winneshiek Muscatine Mahaska Poweshiek Jasper Marion Monroe Lucas Page Montgomery Pottawattamie Mills Monona Marshall Story Humboldt Pocahontas Palo Alto O'Brien Plymouth Mitchell Hamilton Hardin Grundy Guthrie Franklin Madison Keokuk Louisa Iowa Lee Henry Fremont Ida Jones Linn Howard Kossuth Hancock Johnson Jackson Harrison Greene Jefferson Decatur Davis Emmet Floyd Delaware Dubuque Fayette Dallas Dickinson Des Moines Butler Buena Vista Boone Bremer Clayton Chickasaw Cerro Gordo Cass Crawford Calhoun Clay Cherokee Clarke Carroll Buchanan Black Hawk Benton Clinton Cedar Audubon appanoose Adair Adams Osceola Allamakee Lyon Taylor Polk

Part 2 — Many Iowa Families Struggle to Meet Basic Needs

View full report or download 6-page PDF
News release

Part 2 shows that over half the jobs in Iowa pay less than what is needed by many families to achieve basic self-sufficiency. How many Iowa families earn below the family supporting income levels reported here? How many families, in other words, must rely on work supports to get them closer to the basic needs budget level?

Fig 2 graph: basic needs vs. median

Part 3 — Strengthening Pathways to the Middle Class: The Role of Work Supports

View full report or download 21-page PDF
View executive summary or download 3-page PDF
News release or download 2-page PDF

Part 3 examines what are known as the “cliff effects” that occur when a family makes just enough to lose eligibility for various work support programs — creating an “income cliff” that costs far more than they gain from a meager pay increase.

Fig 2 graph: basic needs vs. median

Steps forward in ’14 — more ahead?

IFP News: Statement on 2014 Legislative Session

Iowa families took a couple of important steps forward in the 2014 legislative session, but those steps paled in comparison to lawmakers’ refusal to address long-term funding challenges for critical services.

PDF (2 pages)

IOWA CITY, Iowa (May 7, 2014) — The Iowa Fiscal Partnership released the following statement today about the 2014 session of the Iowa Legislature:

Iowa families took a couple of important steps forward during the just-completed legislative session, while more — and more significant — advancements will have to wait as the General Assembly and Governor continue to focus excessive attention on giveaways to business.

Steps forward paled in comparison to lawmakers’ refusal to address long-term funding challenges for critical services including K-12 and early childhood education, and Child Care Assistance, among others.

And, inexplicably, lawmakers left Iowa’s minimum wage at a paltry $7.25 — stagnant now for over six years. Failure to improve the livelihoods of Iowa’s low-wage workers puts greater demands on families because public supports are not sufficiently funded. Eligibility for Child Care Assistance in particular has been held too low to help many low-income working families — one of the lowest eligibility ceilings in the country — and lawmakers passed up an opportunity to improve that.

One bright note from the session was that lawmakers approved increased eligibility for child care assistance to working parents who also go to school part time. They also passed a small improvement in the child and dependent care credit. Iowa Fiscal Partnership research has shown child care is expensive for low-income families, and is a major barrier for parents seeking to improve their education.

Another bright spot is that the state will provide 4 percent increases to Iowa, Iowa State and Northern Iowa to meet a commitment by the Board of Regents to freeze tuition for a second straight year. Likewise, community colleges received a 4.1 percent funding boost to restrain tuition. It is important to note, however, that many more years of increased funding will be needed to reverse the long-term trends that have turned tuition into the majority source of support for the Regents institutions and the community colleges. This causes rising debt for families, reduces access to higher education and lessens Iowa’s commitment to opportunity for all.

On the other end of the education spectrum — 4-year-old preschool — only the Senate passed legislation to help eliminate waiting lists and expand access to more families, so it will be at least next year before that can be considered.

Funding is critical to improvements in many areas. For the environment, the Resource Enhancement and Protection Act (REAP) has been around for a quarter century but only once funded at its authorized $20 million. If the Governor signs improvements passed by the Legislature, conservation and environmental advocates will see it at $25 million.

No noteworthy gains were made or seriously attempted to reform corporate tax credits and other tax breaks that have become a significant and chronic drain on Iowa’s treasury with little apparent return.

While poorly targeted “incentives” to business remain a serious problem for Iowa, one limited credit for solar power improvements was expanded and should be able to stand the kind of return-on-investment review that needs to be applied to all business tax credits.

It remains a contradiction that lawmakers can give away tens of millions of dollars to profitable businesses that pay no state income tax — without a vote and without concern about the impact on the budget — yet leave town claiming they cannot set school aid as required by law because they don’t know how much money will be coming in. If education is a priority, the money can be found from the pool now being given away before it hits the treasury.

The Iowa Fiscal Partnership is a joint public policy analysis initiative of two nonpartisan, nonprofit Iowa organizations, IPP in Iowa City and the Child & Family Policy Center in Des Moines. Reports are available at www.iowafiscal.org.

Reducing Cliff Effects

Changes in child care assistance program could better help lower-income Iowa families meet basic needs.

Reducing Cliff Effects in Iowa Child Care Assistance

Policy brief, 7 pages (PDF)
Appendix
News release

By Peter S. Fisher and Lily French

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 does have 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. In 2013, only seven states had a ceiling lower than Iowa’s; in 30 states (and in parts of three others) the threshold was 165 percent of poverty or higher, including 16 states with a threshold at or above 200 percent.[1] When parents trying to provide for their families get a better job, a pay raise or more hours that pushes family income above 145 percent of poverty, they find themselves worse off instead of better off. Their total family resources fall off a cliff as the child care assistance disappears and they are suddenly left footing the entire bill with only a minor increase in income.

A previous report by the Iowa Policy Project demonstrated how the current operation of Iowa’s Child Care Assistance program creates barriers for low-income parents trying to further their education.[2] Several policy reforms were identified that would make it easier for low-wage workers with children needing child care to raise their earning ability and move closer to self-sufficiency. The authors also showed, in a 2009 report, Strengthening Child Care Assistance in Iowa: The State’s Return on Investment, that expanding eligibility limits in the CCA program would raise earnings and future tax payments of recipients, returning a significant portion of the cost to the state through higher lifetime tax payments.[3] This brief focuses on eligibility ceilings, co-pays, and the cliff effects in Iowa’s CCA program and how they might be reformed.

Basic Needs Budgets for Iowa Families

140310-COL-CCA-T1To illustrate this fundamental problem with the Child Care Assistance Program (CCA), we consider the basic-needs budgets for two families: a single mother with one child age 2 or 3, and a married couple (both working) with two children, one preschool age and one age 6 to 10 (needing care in the summer and before and after school). Table 1 shows the average expenses such a family would face in Iowa, based on the cost of basic needs such as food, rent, utilities, transportation, child care, health care, and clothing in 2013-14.[4] The single parent would need to earn almost $21 an hour to make ends meet without the help of any work support programs or tax credits. For the two-parent, two-earner family, each parent would need to make almost $17 an hour.[5]

The Cliff Effects

The charts below illustrate the various cliff effects that impact a family’s net resources — after-tax wages plus public supports — as earnings increase. The charts assume that the 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), Child Care Assistance (CCA) and the federal and state EITC (Earned Income Tax Credit), as well as other credits available.[6] (In fact, this is highly unlikely; for most of these programs only one-third to two-thirds of those eligible actually participate, the exception being the EITC.[7])

Figure 1. The Cliff Effect: How Net Resources Change as Earnings Increase, Statewide Average
Current Law

Single Parent with One Child                                   Married Couple (Both Work) with Two Children

cliffssingle cliffsmarried

 

  
 
Source: The Cost of Living in Iowa, 2014 Edition.

As earnings increase above the minimum wage, the families lose SNAP benefits (at 130 percent of poverty, which is an hourly wage of $9.71 for the single parent), and then switch from Iowa’s Medicaid expansion to premium subsidies under the Affordable Care Act (at 138 percent of poverty).[8] These benefit losses create small cliff effects — $500 to $800. But when the family loses child care assistance, the cliff is huge, because child care costs are huge: The single parent sees net resources fall by $4,890 as CCA disappears; for the married couple the cliff amounts to $8,905.

The single parent with one child will pay about 26 percent of the cost of child care if she earns 144 percent of poverty ($10.75 an hour full time), because the program requires a co-payment once income reaches the poverty level. But when her income rises to 145 percent of poverty, benefits disappear all at once, leaving her with the full cost instead of the previous 26 percent of child care costs.[9] The two-parent family will be responsible for about 17 percent of the cost of child care for their two children (one in all-day care, the other in a before- and-after-school program) if their income is just below the eligibility ceiling. When a small increase in wages or hours worked pushes them to 145 percent of poverty, they will suddenly be responsible for all $11,000 in annual child care costs out of their $34,200 annual income.[10]

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 their working hours, accept pay increases or advance to a better paying job. They also create a significant 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 and better able to pay for increased child care costs. 

Reducing Cliff Effects and Raising the Eligibility Ceiling

Raising the income eligibility ceiling closer to the average across U.S. states could help many Iowa families who work full time but earn considerably less than what is needed to achieve a basic standard of living. Below we show the effects for our two representative families if the ceiling were raised to 175 percent of poverty, while using the existing co-pay schedule. Under Iowa’s current CCA program, once a family’s income reaches 100 percent of the poverty guideline, a co-pay schedule takes effect, with a “unit fee” that rises with income. The existing schedule continues up to income equal to 200 percent of poverty for parents of children with special needs. We assume that this schedule, with cost sharing that increases (quite gradually) as income rises from 145 to 200 percent of poverty, is used for everyone under the 175 percent eligibility ceiling.[11]

Figure 2. The Cliff Effect: How Net Resources Change as Earnings Increase, State Average
175 Percent Option

Eligibility Ceiling Raised to 175 Percent of Poverty, with Existing Co-pay Schedule

Single Parent with One Child                                   Married Couple (Both Work) with Two Children

cliffssinglemarriedcliffs

 

 

 

 

 

 

The effect of the increase in eligibility to 175 percent of poverty is to increase the wage at which CCA disappears and reduce the size of the cliff somewhat. The single parent can earn up to $13.00 an hour instead of $10.82, a 21 percent increase, and still retain child care assistance. At $13.08, CCA is lost and family resources decline by $4,002 (Figure 2). The cliff is $882 shorter, but still sizable. For the two-parent family, the parents can now each earn $9.90 per hour, a 20 percent increase, without losing eligibility. Just a nickel higher, at $9.95, their net resources suddenly drop by $8,039. Still a sizable cliff, it is $866 lower than under current law, but the family is now in a better position to overcome this loss of assistance because they are earning more.

Making the Cliff Effect Disappear

Increasing the eligibility ceiling while using the existing co-pay system slightly decreases and postpones the cliff effect, but it is far from eliminated. The reasons are twofold: The increase in co-pays as income increases are quite modest and the unit fee applies only to hours of child care for the child in care for the most time. Families with more than one child in care will still face sizable cliffs as they would pay a smaller share of the total cost of care than a family with only one child.

Our final policy simulation, then, alters the unit fee structure for all families with income above 145 percent of poverty (but does not change the co-pay system for those currently eligible). There is only one unit fee based on income alone, not also on the number of children in care, but that fee is applied to the total units of child care for all children in subsidized care, instead of just the units of child care for the child who spent the most time in care. The income eligibility ceiling is raised to 200 percent of poverty to allow a longer and more gradual phaseout of benefits. (For a more detailed description of alternative ways to modify the co-pay schedule, see the appendix.)

The results are shown in Figure 3. The single parent with one child now faces a series of quite small cliffs and continues to receive some assistance up to an hourly wage of $14.95. When the eligibility ceiling is reached, the loss of net resources amounts to only $409. For the married couple with two children in care a cliff still occurs, but at an hourly wage of $11.35. The cliff amounts to just $1,581 compared to the $8,039 cliff in Figure 2.

Figure 3. The Cliff Effect: How Net Resources Change as Earnings Increase, State Average
200 Percent Option

Eligibility Ceiling Raised to 200 Percent of Poverty, Modified Co-pay Schedule

Single Parent with One Child                                   Married Couple (Both Work) with Two Children

figthreesingle140311-CCA-COL-F3b-3pt5

 

 

 

 

 

Conclusions

These simulations illustrate policy choices. If the eligibility ceiling is raised and co-pays increase as income rises above the current ceiling, child care assistance can help families who are still well below the income level needed to support basic needs. Those families between 145 percent and the new ceiling will be better off, and the disincentive effect of the cliff will be reduced. The ideal trade-off between higher benefits for those who would qualify under the new eligibility ceiling, and the size of the cliff when they hit that ceiling, is a matter of judgment. The higher the unit fee increase, the lower the benefits and the smaller the cliff. The lower the increase in co-pays, the greater the benefits for those eligible, but the higher the cliff when they lose that eligibility.

The gradual phaseout of benefits combined with a higher eligibility ceiling would not just eliminate, or nearly eliminate, the cliff effect. It would also allow families to continue to receive some benefits from CCA as their income approaches what is needed to support a family at a reasonable but basic level. Furthermore, it would do so at a much lower cost to the state than simply raising eligibility while leaving in place the current co-pay schedule. Raising eligibility to 200 percent of poverty while adopting something like our modified co-pay schedule would be much less expensive than the same eligibility ceiling with no change in the co-pay schedule.[12]


[1] Karen Schulman and Helen Blank.Pivot Point: State Child Care Assistance Policies, 2013. National Women’s Law Center, Washington, D.C. http://www.nwlc.org/resource/pivot-point-state-child-care-assistance-policies-2013 . In Colorado, Texas and Virginia, the threshold varies across the state, and in some areas exceeds 200 percent of poverty. These three states are not counted among the 16.

[2] Lily French and Peter Fisher. Child’s Play: Creating a Path to the Middle Class. Improving Child Care Assistance Can Facilitate Parent Education. The Iowa Policy Project, November, 2013. Executive summary at: http://www.iowafiscal.org/executive-summary-childs-play-creating-a-path-to-the-middle-class/. Full report at: http://www.iowapolicyproject.org/2013docs/131126-IFP-CCA.pdf

[3] Lily French and Peter Fisher. Strengthening Child Care Assistance in Iowa: The State’s Return on Investment. The Iowa Policy Project, March 2009.  See executive summary at  www.iowapolicyproject.org/2009docs/090909-CCROI-xs-rev.pdf

[4] These examples are drawn from The Cost of Living in Iowa, 2014 Edition, Part One: Basic Needs Budgets, published by the Iowa Policy Project in February, 2014, at http://www.iowapolicyproject.org/2014docs/140226-COL.pdf

[5] The table assumes that the parents have no health benefits from a job, and rely on Medicaid and Hawk-I, or on the premium and cost-share subsidies available under the Affordable Care Act, if eligible. While the availability of health insurance through the employer would lower the basic needs budget somewhat, it would not affect the size of the cliff effects, or the wage levels at which they occur, in the illustrations that follow. The Cost of Living in Iowa, 2014 Edition, has basic family budgets for families with employer sponsored insurance.

[6] 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. The availability of health insurance through the employer would lower the basic needs budget somewhat, but would not affect the size of the cliff effects, or the wage levels at which they occur, in the illustrations that follow.

[7] See the report Bridging the Gaps in Iowa, June 2007, at http://www.iowapolicyproject.org/2007docs/070626-BTG_Report.pdf‎

[8] Loss of TANF benefits occurs at a much lower level of earnings – about $10,800 annually, or 70 percent of poverty, for the single parent.

[9] The loss of $5,003 in child care assistance as income rises from $22,400 to $22,500 is offset by the $100 increase in earnings but only trivial increases in other benefits, leaving a loss of net resources of $4,890. The federal child and dependent care credit rises just $10, while the state credit is unchanged because the credit was already maxed out at an income level of $22,400. 

[10] The $9,107 loss in child care assistance as income rises to 145 percent of poverty (from $34,000 to $34,200) is offset by the $200 in greater earnings but tax credits increase only trivially, leaving a net loss of disposable income of $8,905. The federal child and dependent care credit rises $20, but the Iowa credit is unchanged, while gross taxes increase slightly.

[11] Once a family’s income reaches 100 percent of Federal Poverty Guidelines, a co-pay schedule takes effect where families begin to pay part of the cost of child care. The family contribution is based on the number of “units” of child care, with one unit equal to a half day. To determine the family’s contribution to the cost of child care, the units are multiplied by a “unit fee.” The unit fee, and hence the family contribution, increases as household income increases. For a married couple with two children and total income at 125 percent of poverty, for example, the unit fee would be $2.20 for one child in care. The unit fee increases by 25 cents for each additional child in care, up to three. If both children in our example were in child care, then, the family would pay a unit fee of $2.45. The number of units for the child receiving the most hours of care is multiplied by the unit fee to determine the total cost to the family.

[12] As family income rises from 145 to just under 200 percent of poverty, for a family with two children in care the state share of costs under the current unit fee schedule declines from 83 percent to 68 percent (average about 75 percent). Under the alternative schedule it declines from 83 percent to about 8 percent. For a family with one pre-schooler in care, the state share falls from 74 percent to 51 percent as income rises from 145 to 200 percent of poverty under the current schedule, but would fall from 74 percent to near zero in our alternative.

 

2009-LF25464 Lily French is Senior Policy Consultant for the Iowa Policy Project. She is Director of Field Education and a Clinical Assistant Professor in the School of Social Work at the University of Iowa.

2010-PFw5464Peter S. Fisher is Research Director of the nonpartisan Iowa Policy Project. He is Professor Emeritus of Urban and Regional Planning at the University of Iowa. 

We gratefully acknowledge the generous support of the Northwest Area Foundation, the United Way of Central Iowa, Mid-Iowa Health Foundation, United Way of the Quad Cities, United Way of East Central Iowa, United Way of Johnson County, United Way of North Central Iowa, and United Way of Story County. While these funders support the research that went into this report, they may not necessarily agree with policy recommendations that are included. Policy recommendations are solely the perspective of the authors and the Iowa Policy Project.

110929-ifp-newlogo10The Iowa Fiscal Partnership is a joint public policy analysis initiative of two Iowa-based nonpartisan, nonprofit organizations, the Iowa Policy Project and the Child & Family Policy Center. IFP is part of the State Fiscal Analysis Initiative, a network of state-level organizations and the Center on Budget and Policy Priorities to promote sound fiscal policy analysis. IFP work is supported by the Stoneman Family Foundation and the Annie E. Casey Foundation.

IFP News: Statement on Governor’s Address

Iowans cannot afford new raids on the General Fund when many public services have not been restored to pre-recession levels.

PDF (1 page)

IOWA CITY, Iowa (Jan. 14, 2014) — The Iowa Fiscal Partnership released the following statement today about Governor Branstad’s Condition of the State address in Des Moines:

Two high points stand out from Governor Branstad’s address today.

First, the Governor does not appear to be supporting new initiatives for general reductions in Iowa corporate or individual income taxes. These taxes already are low and quite competitive in the nation and region, as Iowa Fiscal Partnership analysis has demonstrated. Iowans cannot afford new raids on the General Fund when many public services have not been restored to pre-recession levels.

Second is a commitment to higher education, with the second year of a tuition freeze that will help undergraduate students at the state’s Regents universities. The Governor is right in targeting student debt as a challenge to an Iowa Dream of opportunity and prosperity.

The Governor did not close the door on — but also did not address — several other issues important to moderate- and middle-income Iowans.

Among those: improving the minimum wage, now starting a seventh year at $7.25; combating wage theft; boosting child-care assistance to make it easier for low-wage workers to take a job or seek new education or training. These issues have existed since before the Governor took office, and such moves to improve economic prospects for families and reduce poverty, would be a good followup to arguably the most important legislation he signed last year: doubling the Earned Income Tax Credit.

Despite recently strong revenues, Iowa faces critical fiscal challenges now and in the coming years due in part to the bipartisan property-tax cuts passed last year. While the Governor characterized this as “relief” for “middle-class families,” it is important to note that the property-tax package was almost exclusively geared to business — including large retailers that did not need the breaks. As IFP has noted,[1] these breaks and others pose many challenges for critical public services in the years to come.

The Iowa Fiscal Partnership is a joint public policy analysis initiative of two nonpartisan, nonprofit Iowa organizations, IPP in Iowa City and the Child & Family Policy Center in Des Moines. Reports are available at www.iowafiscal.org.


[1] “Iowa Budget Dilemma for 2014,” Iowa Fiscal Partnership, Jan. 13, 2014. http://www.iowafiscal.org/iowa-budget-dilemma-for-2014/