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No income taxes, big checks from state

IFP NEWS /
Lucrative program lets big companies erase taxes, and get extra in checks

IOWA CITY, Iowa (Feb. 11, 2015) — More companies are benefiting from a lucrative tax subsidy that permits large, profitable corporations to get checks from the state without paying any Iowa income tax.

The latest annual report from the Department of Revenue on the use of the Research Activities Credit (RAC) shows that 248 companies claimed $51 million from the program in 2014, one-third more than the highest number of companies in the last five years.

Most of the credit claims — $34.8 million, or 68 percent — were paid out as checks, not as tax reductions.

“Most notable is that Iowa continues to give a lot of money to companies that aren’t paying income tax. There were 181 companies that received RAC checks from the state because their tax credits exceeded their income tax liability,” said Mike Owen, executive director of the nonpartisan Iowa Policy Project in Iowa City, part of the Iowa Fiscal Partnership.

“The $35 million that went to those 181 companies could have provided 1 percent supplemental state aid for public schools, or it could have gone to other public services, if it had been part of budget discussions. But the state does this kind of spending outside the budget process.”

The report, released Wednesday, also shows:
— Only 16 companies — or 6.5 percent — claimed 83 percent of the benefits and at least 75 percent of the checks.
— Those 16 companies each had at least $500,000 in claims, totaling over $42 million in 2014.
— The top five companies benefiting from the credit have been the largest beneficiaries over the last five years: Rockwell Collins, Deere & Co., Dupont, John Deere Construction and Monsanto.

“Those are highly profitable companies. We need to be asking whether it makes sense, when school budgets are tight and enforcement of environmental and workplace laws are weak, to be subsidizing these businesses to do research that they already would have to do, and can afford to do on their own,” Owen said.

Owen noted a special tax credit review panel appointed in 2009 came back in 2010 with many recommendations to curtail spending on business tax credits — including elimination of the so-called “refunds” of the research credit.

Rockwell Collins was the biggest corporate beneficiary in 2014, with $11.7 million in claims, followed by Deere at $9.4 million and Dupont at almost $6.9 million.

“Careful analysis of the report shows that at least two of the top three companies received at least some of their benefits without paying any income tax,” Owen said.

“Unfortunately, the good information in this report doesn’t go far enough to provide detail for Iowa taxpayers on how their money is being spent on this credit. If it did, we would know exactly how much was paid to these big companies as checks, and how much was used to erase taxes they owe.”

The report is available on the Iowa Department of Revenue website at https://tax.iowa.gov/report/Reports?combine=Research%20Activities.

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

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Editor’s Note: This release was revised on Thursday, Feb. 12, to clarify that the top 16 claimants received 83 percent of the total benefits and at least 75 percent of the benefits that were paid as checks. The original Feb. 11 release stated that those firms had 75 percent of the benefits.

Beyond Battelle: Let’s broaden the dialogue of Iowa economic health

As Iowa legislators this week start work on a course to a more robust and diversified economy, discussion already has focused on a new privately funded report, Iowa’s Re-Envisioned Economic Development Roadmap.[1]

Produced by Battelle Technology Partnership Practice and commissioned by the Iowa Partnership for Economic Progress,[2] the $400,000 report makes some important points and deserves a careful look.

It focuses heavily on the importance of business to promote economic activity, but its core message acknowledges the significant role of public investments in providing the foundations for Iowa’s economy. This includes the education system needed to develop the skills, talents and capacity of the current and future workforce, including those who will become the future entrepreneurs and leaders for the 21st century.

While the report acknowledges the centrality of an educated and skilled workforce and a high quality of life to making Iowa an environment for business to flourish, it places very little focus upon how government can deliver on that role. It falls to government to educate that future workforce — at the early childhood, primary and secondary, and higher education levels.

The report does not adequately address the challenges Iowa faces in creating that higher skill level among its emerging workforce — in particular, the need to address lagging and stagnant educational achievement. To do so takes resources, and the report’s emphasis is to leave in place a business subsidy structure that has increasingly reduced the state’s ability to meet those needs.

The report itself was overseen largely by business leaders and economic development agency staff. However, these are not the only stakeholders in Iowa’s economic future; many others need to engage in the dialogue about Iowa government’s role in economic development.

The Battelle Report raises one perspective on economic development. Lawmakers, the media and the public need to insist that other perspectives and expertise also are fully considered and vetted.

More Iowans need an invitation to the table.

08-Bruner-5464Charles Bruner is executive director of the Child & Family Policy Center, www.cfpciowa.org, part of the Iowa Fiscal Partnership, www.iowafiscal.org.

Note: This piece also ran as an “Iowa View” in The Des Moines Register, Jan. 14, 2015.

[1] Technology Partnership Practice, Battelle Memorial Institute, December 2014, “Iowa’s Re-Envisioned Economic Development Roadmap.” http://www.iowaeconomicdevelopment.com/battelle
[2] Iowa Economic Development Authority, News release, Dec. 18, 2014, “Governor, IPEP Release Findings of 2014 Battelle Report, a New Economic Development Roadmap for Iowa,” http://www.iowaeconomicdevelopment.com/newsdetails/6051

A brief, shining moment

Posted January 8th, 2015 to Blog

It was a brief, shining moment for Iowa, and it came five years ago today.

A special Tax Credit Review Panel appointed by then-Governor Chet Culver, after an in-depth examination of all Iowa tax-credit programs, offered a 10-page review with some tough recommendations.

As the Iowa Fiscal Partnership* stated the day of the report’s release, Jan. 8, 2010, the panel “took an important step to make Iowa business subsidies more accountable and transparent.”

Major recommendations of the Tax Credit Review Panel were to:

•   Provide a five-year sunset on all tax credits;
•   Eliminate the refundability of the Research Activities Credit for large companies;
•   Eliminate the film tax credit;
•   Eliminate of the transferability of other credits;
•   Place all business credits under a $185 million cap;
•   Reduce the rate for the School Tuition Organization (STO) Tax Credit and lower the cap; and
•   Impose an income test for the Tuition and Textbook Tax Credit.

Action in the Legislature, unfortunately, fell well short of those bold proposals, as we noted in a report that spring. In their biggest moves, lawmakers set up a periodic review of tax credits but required no action to affirm the value of any credits, and they put light restrictions on some credits. Some of those limits already have been raised; the proposal to restrict the STO subsidy for private school tuition not only was ignored but the credit has been expanded.

In short, five years later, Iowa is as lax as ever in its treatment of these subsidies. Under the sunset clause recommended back then, we would in 2015 be preparing for a round of debate and action to keep, expand, limit or eliminate certain tax credits. Instead, we have no expectation of any debate, let alone any action. If the credits are working, we don’t know because beneficiaries are not forced to show it.

It is not too late for Iowa lawmakers to address these issues and include some water in the tax credit reform glass. We said that in 2010, and we can say it again in 2015.

The seven members of the Tax Credit Review Panel, by the way, were Richard Oshlo, then interim director of the Department of Management; Fred Hubbell, interim director of the Department of Economic Development; Rob Berntsen, chair of the Iowa Utilities Board; Bret Mills, executive director of the Iowa Finance Authority; Cyndi Pederson, director of the Iowa Department of Cultural Affairs; Mark Schuling, director of the Iowa Department of Revenue; and Jeff Ward, executive director of the Iowa Agricultural Development Authority.

Their work was good and important, and with hundreds of millions of dollars at stake, we should not forget it.

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

*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.


Iowa Uninsured at 8 Percent in 2013

One of nation’s best rates leading up to ACA and Medicaid expansion

A greater percentage of Iowans had health insurance than in most other states leading up to the implementation of the new health care law, Census data showed Tuesday.

Data from the Census’ American Community Survey showed 248,000 Iowans, or 8.1 percent, were uninsured in 2013, down from 254,000, or 8.4 percent, in 2012. The change was not statistically significant, as it was within the margin of error.

Only three other states and the District of Columbia had lower percentages of people who identified themselves as uninsured.

“As good as the Iowa numbers look in comparison to other states, we still had a quarter of a million people without insurance heading up to implementation of the Affordable Care Act,” noted Peter Fisher, research director of the nonpartisan Iowa Policy Project, which is part of the Iowa Fiscal Partnership.

“The Census report demonstrates a need for policies that provide access to health insurance such as ACA, or Obamacare, and Iowa’s Medicaid expansion. Both can be expected to have reduced the number of uninsured. It will be interesting next year to see how these numbers have changed after more people have enrolled.”

Fisher noted one reason for optimism of better numbers in the future is that the state with the lowest uninsurance rate is Massachusetts, which has had a state plan for a number of years. The uninsurance rate in Massachusetts was 3.7 percent in 2013.

“As the ACA is implemented and we have a public policy response to the problem of uninsurance, you have to wonder if we’ll approach the Massachusetts number,” Fisher said.

Besides Massachusetts, only Hawaii and Washington, D.C., at 6.7 percent and Vermont at 7.2 percent had lower rates than Iowa. Minnesota at 8.2 percent was about the same as Iowa’s 8.1 percent, as both had a 0.3 percentage-point margin of error.

In the region, Iowa and Minnesota were well ahead of neighboring states, with uninsurance in Wisconsin at 9.1 percent and all others in double digits: Nebraska and South Dakota both at 11.3 percent, Kansas at 12.3 percent, Illinois at 12.7 percent, and Missouri 13 percent.

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

Food insecurity: 1 in 9 Iowa households

Better in Iowa than U.S. average — but worse for Iowans over the decade

140904-IFP-foodinsec-boxIowa households fared better than the national average on food insecurity in 2011-13, but worse than Iowans did a decade earlier, according to the U.S. Department of Agriculture.

In its annual report on food insecurity, USDA reported the prevalence of food insecurity in Iowa at 11.9 percent in those years, compared to a national average of 14.6 percent.

In addition, 4.4 percent of Iowans experienced “very low food security” — households that cited several food-insecure characteristics and disruption in eating patterns because of a lack of money or other resources.

The nonpartisan Iowa Fiscal Partnership (IFP) noted that in both cases, Iowans were doing much better on the food security scales in 2001-03 than in the latest period examined.

“While Iowans’ very low food security was lower than the national average of 5.7 percent, it was almost 50 percent higher than it had been only a decade before,” said Mike Owen, executive director of the Iowa Policy Project, part of IFP. Owen noted that level had risen from a 3.0 percent average for 2001-03 to 4.4 percent in 2011-13.

Charles Bruner, executive director of the Child & Family Policy Center, also part of IFP, pointed to the overall food insecurity change, from 9.5 percent in 2001-03, to 12.1 percent in 2008-10, to 11.9 percent in the latest period examined.

“Statistically, food insecurity in Iowa has been fairly level for recent years, but these are Iowans — including kids and seniors, not statistics — and the comparison over the decade is disturbing,” Bruner said. “This makes it more important to assure that the Supplemental Nutrition Assistance Program (SNAP) is maintained, that eligibility standards are not weakened, and that access is assured to all who need the help.”

For both food insecurity and very low food security, USDA reported the small Iowa improvements from 2008-10 to 2011-13 to be statistically insignificant. According to the USDA, taking into account margins of error for the state and U.S. estimates, eight states had statistically significant higher levels of food insecurity than the national average of 14.6 percent in 2011-13.

Iowa was among 14 states with a statistically significant lower level of food insecurity than the national average. In addition, the Iowa level of very low food security was statistically lower than the national average, as was the case in 12 other states.

 The Iowa Fiscal Partnership is a joint public policy analysis initiative of two Iowa-based, nonpartisan, nonprofit organizations — the Iowa Policy Project (IPP) in Iowa City and the Child & Family Policy Center (CFPC) in Des Moines. For IFP reports, go to http://www.iowafiscal.org. For information about how to make tax-deductible contributions to IPP or CFPC, visit their websites: http://www.iowapolicyproject.org and http://www.cfpciowa.org, respectively.

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* Alisha Coleman-Jensen, Christian Gregory and Anita Singh, “Household Food Security in the United States in 2013,” U.S. Department of Agriculture.

 

Ten years of balanced analysis

For 10 years, two organizations have stood together to help Iowans see the stakes for their families in good public policy.

110929-ifp-newlogo10Back then, these two nonpartisan, nonprofit organizations — the Iowa Policy Project (IPP) in Iowa City and the Child & Family Policy Center (CFPC) in Des Moines — merged their common state policy work under one banner, the Iowa Fiscal Partnership (IFP).

We focus on better informed and well-targeted state policies to provide adequate public services and better economic opportunity to more Iowans, particularly those at low incomes who have been pushed back, held down or shut out. IFP draws upon the expertise in various areas of policy work by IPP and CFPC. In short, it takes money — appropriately and equitably generated — to provide services necessary for the common good.

Success has many parents, but we can safely say that because of IFP:

  • Iowa’s Earned Income Tax Credit is twice as large as it was just a few short years ago, benefiting more families and boosting the economy.
  • There is new scrutiny on spending on tax subsidies for large corporations that pay little or no income tax in Iowa.
  • Iowa policymakers and advocates know more about who pays taxes in our state, and can identify exaggerated or false claims when they are made.
  • Work supports — such as child care assistance — are shown to make work pay for Iowa families, and to help the economy and family prosperity.

In our 10 years, a variety of circumstances shaped the political climate in which we work — governors of both parties, legislatures under divided leadership or full control of one political party. Serious attention to issues means not being distracted by who has or who does not have the reins of power. Our business is the arena of issues, not of party politics. In this, we are not alone.

Inside the state, good advocacy groups work tirelessly for Iowans’ best interests — on family budgets, on education, on health and nutrition, on child care, on clean air and water, and on safe neighborhoods. They want the independent analysis that sets our work apart, so they can make their case to their elected officials. Likewise, media quote our work for information and perspective — and the policymakers themselves use our reports in debate and decisionmaking.

sppartnershipIFP has been for these past 10 years a proud member of what has been known as the State Fiscal Analysis Initiative, which has grown to 41 states and this summer took on a new name: the State Priorities Partnership.

Our Iowa Fiscal Partnership is proud to be a part of this new national partnership of organizations focused on “the fight for a just and equitable America.” There is no better place to be.

Big Money — Whose Benefit?

 Designed to support start-up companies to do research, this costly program primarily benefits very large companies, with little scrutiny.

2-page PDF

IFP Backgrounder

Big Money, Big Companies — But Whose Benefit?

Official Report Exposes Continuing Issues with Iowa Research Activities Credit   

140306-RAC-boxIowa’s most lucrative business tax credit program is the Research Activities Credit (RAC). Through the RAC, some big companies receive big dollars from the state of Iowa, some as credits — effectively, discounts — on their taxes. But some as well (140 in 2013) either owe no income tax or reduce it to zero with the RAC, and have tax credits left over. In those cases they can receive state checks as a “refund” — $36.3 million in state spending last year.

As the Iowa Fiscal Partnership has noted, Iowa’s RAC is in practice a far different benefit from the one envisioned when it originally passed, in 1985. Designed to support start-up companies to do research, this increasingly costly program primarily benefits very large companies, with little scrutiny. Since 2009 more information has been available about the RAC, because a new law requires a state report by each February 15 on both individual and corporate claims against income tax.[1]

Little of this tax credit goes to reduce taxes. Rather, the credit is used mostly to provide subsidies, sometimes millions of dollars, to corporations that pay little or no income tax.

Table 1. Most of Corporate RAC is Paid in Checks — Not to Reduce Taxes 

Table 1. Most of Corporate RAC is Paid in Checks — Not to Reduce Taxes

Table 2. Claimants Over $500,000 Receive Largest Share of Benefit 

Table 2. Claimants Over $500K Receive Largest Share of Benefit

The 2013 report showed 185 corporations claimed a total of $53.3 million from the RAC — covering both the regular RAC and the supplemental credit.  Of those credits, $36.3 million was paid to 140 claimants as “refunds”; in those cases recipients paid no state income tax as they claimed more credits than tax liability.

Table 3. Top Claimants Gain Year After Year, 2010-13

Table 3. Top RAC Recipients 2010-13

The law also requires reporting the identities of claimants of more than $500,000. Table 3 provides information from the 2010, 2011, 2012 and 2013[2] annual reports disclosing big claimants and amounts claimed. A stronger law would disclose how much of each of those large claims was paid as a “refund,” illustrating which companies not paying Iowa income tax also received state assistance. It also would require corporations to report on changes in economic activities and investments in the state (the primary purpose for any business subsidy).

These large claimants are highly profitable companies. The biggest recipient of the Iowa credit in 2013, Deere & Co., had $13.8 million in research costs offset — yet reported over $3.5 billion in 2013 profits.[3] Rockwell Collins reported $632 million in profits in 2013, while Dupont posted $4.8 billion.[4] As Table 3 indicates, Rockwell Collins and Deere have both benefited from more than $50 million in RAC claims over the last four years, and Dupont from more than $30 million. These figures raise serious questions about the need for state help to cover what may be considered normal expenses. After all, what keeps these companies competitive in their fields is their research and development work. Where there might be a benefit to company stockholders, there is no demonstration to Iowa taxpayers about a return on their investment in these companies’ operations.

The impact on resources available for public services is significant. The Department of Revenue projects the cost of this program to rise from about $51.5 million for individual and corporate claims in 2012 to more than $80 million by FY2018.[5] The increase in corporate claims of $7.3 million from 2012 to 2013 may be indicative of future drains in revenue, as Iowa continues to work its way back from the recession.


[1] All annual reports filed as a result of the 2009 law are on the Department of Revenue’s Tax Credits Tracking and Analysis System page, at http://www.iowa.gov/tax/taxlaw/creditstudy.html. Reports for calendar year 2010 and after offer full-year information. Our tables summarize the corporate claims in those full-year reports.

[2] Iowa Department of Revenue, Tax Credits Tracking and Analysis System page: http://www.iowa.gov/tax/taxlaw/creditstudy.html

[4] Profits posted for 2013 by companies: Rockwell Collins (fiscal year ending Sept. 30, 2013)  http://investor.rockwellcollins.com/files/doc_financials/annual/RWC_2013AR_FINAL_r1.pdf, and Dupont (12 months ending Dec. 31, 2013) http://investors.dupont.com/phoenix.zhtml?c=73320&p=irol-newsArticle&ID=1894082&highlight=.

[5] Iowa Department of Revenue,Tax Credits Contingent Liabilities Report, December 2013, http://www.iowa.gov/tax/taxlaw/1213RECReport.pdf; Table 9. Note: These figures are fiscal-year costs and projections in reports provided by the Department for use by the Revenue Estimating Conference, as opposed to the calendar year reports provided by the Department as required by the Research Activities Credit disclosure law passed in 2009. They also include individual claims as well as corporate claims, while the tables only show corporate claims. (Corporate claims have represented more than 90 percent of the amount of all claims in each of the four years covered by the full-year RAC reports under the 2009 disclosure law. Individual claims represented 6.7 percent of the amount of the claimed credits in 2010, 7.8 percent in 2011, 8.9 percent in 2012 and 8.4 percent in 2013.).

State Policy and Economic Growth

Public investments require public funding. And therein lies the rub. A continual diet of tax cuts deprives state and local governments of the ability to adequately fund public services.

IFP Backgrounder

State Policy and Economic Growth

Innovation, Education, Infrastructure: The Things that Matter

PDF (2 pages)

We’re all for building a strong state economy with good jobs. But we get a lot of different answers when we pose the question: “What kinds of state policies are going to get us there?” Increasingly over the past 20 years, the easy answer, and the one that prevails most often, has been “tax cuts.” But what really determines how a state economy grows or declines? Can we really expect state policy to change the course of economic growth?

In the short run, a state is largely at the mercy of national and global economic trends: Its economic structure and resource base will largely determine its economic fortunes. Over the past five years, for example, states with a strong base in oil and natural gas did well in spite of the recession. States heavily invested in industries severely impacted by the global recession suffered greatly. State policy was a minor actor compared to global economic trends.

But that doesn’t mean state policy doesn’t matter. In the longer term, substantial evidence shows that two factors are most important in explaining why some states experience greater growth in per capita income than others: the level of education of the workforce and the rate of innovation and new business formation (with the latter in large measure dependent upon the former).[i] Tax policies, and particularly tax incentives that are specifically geared to promoting business growth, play very small roles and can also distort the free market system by benefiting and subsidizing one activity over another. The quality of a state’s infrastructure also matters — businesses need good roads, reliable water and sewer systems, and public safety. To attract workers we need the kinds of things that make Iowa a place where people want to raise families, including good public services, schools, and recreation opportunities.

Public investments require public funding. And therein lies the rub. A continual diet of tax cuts deprives state and local governments of the ability to adequately fund public services. About three-fifths of the state budget goes to education alone, and education, health, infrastructure and public safety account for a majority of the budgets of local governments.

So what about taxes on business? How much do they matter? When deciding where to locate or expand, a firm will consider a wide range of factors that affect its costs, productivity or sales: access to markets and to suppliers; transportation costs; energy costs; access to a pool of labor with appropriate education and skills; wage rates; health care costs; the quality of schools, recreation opportunities, climate and other amenities important in attracting skilled labor; the quality of state and local government services, such as public safety and infrastructure; and state and local taxes.

State and local business taxes, it turns out, are just a small share of costs. In fact, for the average firm, all state and local taxes paid by businesses together amount to just 1.8 percent of total costs.[ii] The simple fact is this: Changes in tax policy provide very little leverage over the economic decisions of firms. Other cost factors predominate.

It should be no surprise then that scholarly research on the effect of taxes on location decisions of firms provides no consensus. Many find no effect, and those that do often come to contradictory conclusions about which taxes matter and which ones don’t. Among the studies finding some effect, the influence of taxes is generally very small.[iii]

The upshot is that tax cuts and incentives are expensive. They actually change business decisions for only a small share of the firms taking advantage of them; tax cuts and incentives mostly go to subsidize firms for doing what they would have done anyway. In some instances, tax incentives actually create unfair advantages to the recipient firms that compete with existing enterprises within the state  In general, tax cuts and incentives  are simply too expensive to ever pay for themselves. Furthermore, even the limited effectiveness found by some researchers is called into question when you consider that states must balance their budgets. The cuts in services required to finance tax breaks will reduce or even eliminate any gain from the small amount of new economic activity generated. Businesses won’t invest in Iowa if they can’t be sure that the school system will produce the workforce they need in the future, and if they can’t count on a quality infrastructure being maintained.

We should remember how Iowa became the place it is, the place so many love and where they want to raise a family. Generations before us made the right decisions to build schools and roads, to support a public university system that is an engine of research and innovation, and to create safe communities that support families. We cannot afford to weaken these commitments; no one wants to see the state slide toward mediocrity.

A smart approach to state economic policy must begin by recognizing the futility of pursuing a single-minded tax-cutting approach, and by recognizing the importance of a healthy public sector in supporting economic growth. State policy should focus on the fundamental responsibilities of state and local government to provide a quality education from early childhood through graduate school, to build and maintain the roads and other services that our citizens and businesses alike depend upon. We need to stop pretending that we can tax-cut our way to prosperity. To finance ever-expanding tax breaks to businesses by cutting support for education, forcing ever higher tuition and increasing class sizes, is a formula for long-term economic decline.


[i]   See Bauer, Paul W., Mark E. Schweitzer and Scott Shane, “State Growth Empirics: The Long-Run Determinants of State Income Growth,” Federal Reserve Bank of Cleveland Working Paper, May 2006; and Noah Berger and Peter Fisher, A Well-Educated Workforce is Key to State Prosperity, Economic Analysis and Research Network Report, August 22, 2013, at http://www.epi.org/publication/states-education-productivity-growth-foundations/.

[ii]   This is based on data averaged over three years 2005-2007 from two sources: U.S. Internal Revenue Service, Statistics of Income, Integrated Business Data for all U.S. Corporations, partnerships, and non-farm proprietorships, showing total deductions for business costs on tax returns, at http://www.irs.gov/taxstats/bustaxstats/article/0,,id=152029,00.html ; and a 2009 report by the Council on State Taxation, which estimates total state and local taxes paid by businesses, available at http://www.cost.org/Page.aspx?id=69654.

[iii]   See Peter Fisher, Corporate Taxes and State Economic Growth, the Iowa Policy Project, December 2010, revised April 2013, at: www.iowapolicyproject.org/2011docs/110209-IFP-corptaxes.pdf;‎ and Michael Mazerov, Academic Research Lacks Consensus on the Impact of State Tax Cuts on Economic Growth: A Reply to the Tax Foundation. Center on Budget and Policy Priorities, April 2013, at www.cbpp.org/files/6-17-13sfp.pdf.

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/

Child’s Play: Creating a Path to the Middle Class

Posted November 27th, 2013 to Child Care Assistance, Education, Work Supports

The surest pathway into the middle class is post-secondary education. The high cost of child care is a barrier in that path for many.

 

Child’s Play: Creating a Path to the Middle Class

Improving Child Care Assistance Can Facilitate Parent Education

PDF of this policy brief (13 pages)
Executive summary (or PDF — 2 pages)
News release (or PDF — 2 pages)

By Lily French and Peter Fisher

The surest pathway into the middle class is post-secondary education. Both the individual and state government reap substantial benefits whenever a low-wage worker is able to complete further education and move into a higher-paying, self-supporting job. Yet there are significant barriers in the way of a low-wage worker seeking to attend school to earn credentials or a degree. Chief among these is the high cost of child care. This report examines Iowa’s Child Care Assistance program and how it could be reformed to better facilitate educational attainment among parents.

In 2012, the average annual tuition in Iowa for a 2-year-old in a child care center reached $7,061, higher than the annual tuition at one of Iowa’s Regents institutions.[1] While difficult for most low-income families to pay, it is considerably more challenging when one parent is in school and is not bringing in any income. On a national level, 13 percent of all undergraduates are low-income parents, and the majority of these are single parents.[2]

For some of the reforms identified in this report that will subsidize child care for Iowa parents receiving public cash assistance while pursuing higher education, we can estimate the state’s return on investment. To the extent that the reform results in more young people acquiring post-secondary education, that increased education will lead to higher future earnings, and the state will gain by paying less in public assistance and by collecting more in taxes. Children of more educated parents are less likely to grow up in poverty, to rely on public assistance or to be incarcerated as adults, and tend to earn more.

Other states have developed successful programs using federal funds for Temporary Assistance to Needy Families (TANF) to pay for child care assistance to help parents attend college. Iowa could see substantial fiscal returns and improvements in children’s well-being with a similar program.

In this report, we describe the relationship between child care and parental higher education, review research on programs from other states that use TANF to pay for child care while the parents complete their education, look at Iowa’s child care assistance policies, and calculate the state financial returns to an investment in child care for low-income student parents. We conclude with policy recommendations that encompass Iowa’s TANF program.

Child Care and Education

Iowa wages have been virtually stagnant since 2000; the median wage (adjusted for inflation) was $15.86 per hour at the start of 2000, but by January 2012 had actually fallen slightly to $15.62.[3] Making ends meet has been getting more and more difficult for those with no post-secondary credentials. The state has been losing well-paying manufacturing, information and wholesale jobs; these jobs have been replaced with low-wage jobs that depress the earning power of low-education workers even more.[4] 

Post-secondary education is the surest way out of poverty for many adults, and in particular single mothers.[5] Iowans with just a high school degree can expect to earn $23,000 to $27,000 in the early stages of their career, and even in their prime earning years — age 40 to 54 — to earn no more than about $35,000.[6] This is not sufficient to support a family with more than one child at a basic standard of living, according to the most recent study of the cost of living in Iowa.[7] Today, some form of post-secondary training is the surest way out of low-wage jobs for those who are financially struggling. According to a recent report from Georgetown University, “Postsecondary education has become the threshold requirement for a middle-class family income.”[8]

Studies have found that concerns around child care are a major obstacle to low-income parents’ ability to complete their post-secondary studies.[9] In one study on community college enrollment and attendance, participants repeatedly cited child care issues as a hindrance to college enrollment and as a cause of dropping out of college once enrolled. The researchers conducted multiple focus groups, and in every one of them child care topped the list of factors affecting the decision to attend college.[10]

TANF and Higher Education

* TANF, or “Temporary Assistance to Needy Families,” is a federal block grant, which in Iowa includes Family Investment Program (FIP) cash assistance and other programs.

Though TANF* regulations can make it difficult to pursue higher education, it is definitely possible, as evidenced by states that utilize TANF dollars to help low-income parents attend college.[11]

Federal program rules require states to achieve a work participation rate of 50 percent for all families and 90 percent for two-parent families.[12] Additionally, through the early years of welfare reform, states with work participation rates much higher than the minimums received financial bonuses from the federal government. The combination of fiscal rewards and penalties produced an administrative culture of “work first” within many states, Iowa included, emphasizing rapid job placement over training as a pathway to self-sufficiency.

To meet work participation requirements and receive cash assistance for their families, TANF participants must engage in an approved work activity at least 20 hours per week if they are single or 30 hours per week for two-parent families. Work activities may include job search, employment (subsidized or unsubsidized), unpaid work experience or community service, on-the-job training, GED completion (only for individuals under 20 years of age), vocational education, and other job readiness activities. However, to qualify, an activity must meet specific guidelines and be approved by the federal TANF agency — in Iowa, the Department of Human Services.[13]

** PROMISE JOBS, or “Promoting Independence and Self Sufficiency through Employment, Job Opportunities and Basic Skills,” is an Iowa program for TANF recipients. Participants develop individualized agreements that outline steps to leave public assistance. http://www.iowaworkforce.com/region2/promisejobs.htm

Though TANF funds are available to all eligible parents who choose to enroll in a higher education program at least up to 24 months, utilization of this option has been low in many states. In fiscal year 2011, Iowa TANF support (federal and state) of education and training totaled $168,181, less than 1 percent of the total going to all work-related expenditures in the Iowa TANF program.[14] Still, of the average 12,838 active participants in Promise Jobs** (PJ) during Fiscal Year 2012, there were 2,162, or 16.9 percent, in some kind of post-secondary education program.[15] Community college students in one study described to researchers negative experiences in attending college while participating in TANF. While given information about pursuing higher education through TANF, they were required to complete a job search process before being allowed to use funds to attend college while continuing to seek employment. In some states, as soon as they found work, they lost their eligibility for education assistance.[16]

While some states have not made it easy for TANF parents to enroll in college, others have been more successful. One such program, Maine’s Parents as Scholars, encourages TANF recipients and TANF-eligible parents to attend school while they qualify for the TANF support services, including child care.[17] Another good example is California’s CalWORKS. The program covers only community college attendance, and will provide benefits for up to 24 months, requiring a minimum of 32-35 education hours per week depending on family type. The program sponsors child care even after the participant finds work and leaves TANF. After participation, CalWORKS students were twice as likely to work year-round, and earned considerably more.[18]

Barriers to Education within Iowa’s TANF Program

Iowa’s TANF program, called FIP (Family Investment Program), is designed as a temporary cash assistance program for very low-income Iowa families with children. The program has a lifetime limit of five years, as prescribed by federal law. Eligibility is limited to households with gross monthly incomes below $1,330.15 for a single-parent family with one child and $1,824.10 for a family of four. The eligibility limit rises at a rate of about $320/month for each additional child.[19] The program may also replace unemployment insurance for non-working Iowans whose unemployment benefits have run out.

As a condition of receiving FIP cash assistance, parents must participate in the Promise Jobs work placement and occupational training program noted above. Upon entering the program, participants develop an official agreement with the state, delineating the steps they will follow in order to leave FIP; failure to meet these steps results in the loss of cash assistance. This is where PJ caseworkers will approve the “countable work activities” for each individual participant, ranging from unpaid community service to job search to training. Herein arises the first significant challenge — caseworker discretion.

Discretion of Each Individual Promise Jobs Caseworker

The system relies heavily on caseworker discretion about who should pursue further education; caseworkers have been found to differ greatly and to use subjective criteria in decisions.[20] PJ caseworkers have individual discretion in determining the range of allowable work activities, screening processes for education preparedness, and the nature of an approved educational program. Interviews with PJ staff uncovered tremendous variation in a caseworker’s willingness to even consider including post-secondary education in a family’s agreement, citing that “education is on a case-by-case basis and that refers to the client as well as their PJ worker.” Most notably, newer PJ staff, having been trained differently than long-term caseworkers, tend to be more restrictive in their use of educational allowance for families — that is, less inclined to allow school to count as a work activity. As one worker sums it up, “Promise Jobs has a certain set of parameters, but we have a lot of discretion within those guidelines to decide what clients are ready for or able to complete.” Caseworker discretion is intertwined with the second and more significant challenge — an administrative system that rewards employment over training.

Welfare System Rewards Work Over Pathways to Self-Sufficiency

With the passage of federal welfare reform legislation in 1996, the newly named TANF cash assistance program heavily emphasized workforce participation and included a series of fiscal incentives and penalties for states administering the program. Each state is evaluated on its ability to meet federally established work participation goals. In turn, PJ staff are evaluated on the work success of their caseloads and are less likely to risk not meeting work participation goals by approving education, particularly in a depressed economy when securing employment is difficult for clients. One caseworker commented, “Our program wants us to get them off FIP as fast as possible; that is the unspoken mandate.” Another PJ staffer elaborated: “The purpose of Promise Jobs is to get them off FIP as quickly as possible. We don’t get many requests for college and the feds don’t help as much with education because they are pushing work requirements, so we don’t offer much anymore. We are judged on our participation rates so [most] PJ workers around here don’t allow them to go beyond a year [with education], but I’ll take the participation hit.”

The third significant challenge is a series of program requirements that limit time and opportunities for completing higher education.

Time Restrictions, Competing Work Requirements, and Program Limitations Block Education

When higher education is approved by a caseworker, fulfilling the weekly time requirement is achievable for full-time students who can count class hours and supervised homework hours (office hours, study groups, etc.) without engaging in additional activities for one year. TANF regulations limit vocational education, which includes higher education, to one 12-month period. Within the federal reporting scheme, students who have not completed their associate degree after 12 months can still receive TANF and be counted toward Iowa’s work participation rate if their caseworker categorizes their higher education program as “job skills training” instead of “vocational education.” However, participating in job skills training requires participants to work 20 hours/week in addition to their educational training.

This additional work component can be problematic, not only because of the increased time commitment for a student trying to balance work, school and family responsibilities, but also because consistent part-time employment is difficult to maintain. Part-time jobs tend to be more unpredictable in hours and challenging to fit around an inflexible classroom schedule. Work-study jobs, designed to be more accommodating to a student’s class schedule, are quite limited in Iowa and do not provide opportunities to work during student breaks.[21] If students are able to find work that is flexible enough to blend with their course requirements, any deficit in hours worked below the required 20 hours — including time over student breaks, as is the case with work study positions — results in the loss of benefits.

In essence, Iowa’s FIP participants pursuing higher education receive one year of cash assistance and support services by being full-time students without having to work, and then for a second year by working at least half-time while pursuing education, if education is approved by their caseworker.[22] The state’s 24-month lifetime limit on education-based eligibility may not be enough time to complete an AA degree and is obviously not adequate time to complete a BA. Only one PJ caseworker interviewed indicated that, when clients have an interest in completing a bachelor’s degree, he encourages them to start the program on their own and then use the 24 months of educational support during the last two years because their coursework will be harder then. The remaining PJ staff interviewed indicated that a bachelor’s degree is not an option for anyone who has not already started college.

There are other restrictions for students pursuing higher education specifically through the Promise Jobs program. PJ will pay tuition costs only for non-credit certifications, not for credit-bearing education, which makes affording college coursework a significant barrier. Additionally, education can only be written into the family’s agreement once. Hence, if a student starts out in one area of education and either is not successful or does not like the career path, it is considered a “false start” that forfeits the one and only opportunity. Because of this limit, several PJ caseworkers were hesitant to offer training as an option for anyone who did not have a clearly demonstrated understanding of a desired career and commitment to degree completion.

Even though PJ will not cover tuition for any credit courses, FIP cash assistance and financial supports for transportation and child care are crucial for low-income parents who are interested in completing their education. For those who can access it,[23] financial aid in the form of Pell and Federal Supplemental Educational Opportunity grants will cover more than half of their tuition.[24] The maximum amount of a Pell Grant award in 2013 is $5,550 per year, with an average award of $3,685 — which is dependent upon the price of attendance, the family’s size and financial situation, and whether a student is attending full or part-time.[25] Students who qualify for the Pell Grant generally also qualify for Federal Supplemental Educational Opportunity grants in addition to other qualifiers; the average award is $736 with a maximum of $4,000.[26]

Even with the help of grants, significant financial barriers remain for low-income parents who do not have the funds to cover the remainder of tuition and other education related expenses, such as student fees and child care. For example, attending Kirkwood Community College full time starting in the fall of 2013 cost over $4,000 a year for tuition and, on average, $400 per semester on books. An entire program, which is two years of study, will cost approximately $8,680 in addition to the cost of books.[27] However, student loan debt could be more than the tuition assumed here; median debt for the 48 percent of associate degree recipients who borrowed was $8,500 in 2010.[28]

Using Child Care Assistance to Pursue Higher Education

Iowa’s Child Care Assistance (CCA) program supports low-income families with working parents, parents gaining work skills, or parents going to school. More specifically, CCA provides financial assistance for children under age 13 in either (1) families where parents work at least 28 hours per week or are in school full time and have incomes below 145 percent of the federal poverty level (or with incomes up to 200 percent of the federal poverty for children with special needs), or (2) families receiving FIP and participating in Promise Jobs.

Parents who are full-time college students receive child care assistance as long as the household’s monthly income does not exceed the income guidelines set by the DHS, which as of 2012 was $27,864 annual gross wages for a family of three.[29] In 2012, an average of 544 households received CCA for educational programs during the school year, only 5 percent of the monthly average of 11,101 households in Iowa receiving CCA. When school wasn’t in session a monthly average of only 180 households received CCA for education programs. Still, this represents an improvement; since 2001, the rate of those receiving CCA for education in Iowa has more than doubled.[30] However, DHS projects a fairly significant decline (6 percent to 12 percent) in Promise Jobs child care cases (children) in FY13. Also, the FIP caseload continues to decline at a very slow but steady pace, most likely contributing to the decline in Promise Jobs child care. DHS projects a very slight decline of 1 percent in Promise Jobs child care cases in SFY14.[31]

One reason why such a small fraction of families use child care assistance to pursue full-time education is the strain of being unable to provide financially for basic family living expenses while the parent attends school. A single parent in Iowa with two children would need to make $48,111 before taxes and cash assistance just to be able to afford a no-frills basic family budget. This figure jumps to $56,586 for two-parent families who are both working and have two children.[32] If an individual is not a full-time student, he or she is required to work a minimum of 28 hours per week to be eligible for CCA, and must participate in classes beyond their work commitments. Community college navigators, positioned to support low-income students in their educational pursuits, recommend adapting the eligibility rules for CCA to allow for a more realistic combination of part-time work and part-time school.[33]

Promise Job participants using CCA also experience limitations within the program that weigh against academic success and degree completion. First, clients face a lifetime limit of 24 months.[34] This is not nearly enough to complete a BA and makes AA completion difficult if any academic remediation is needed before beginning college coursework, as if often the case for PJ clients.

Second, the program pays for child care only from 30 minutes before the first class until 30 minutes after the last class each day, allowing for a half-hour of travel time between school and the child care provider. Interviews with PJ caseworkers and community college navigators alike indicate this is not an adequate amount of transportation time for students, particularly those relying on public transportation. CCA is also not allowed for off-campus study; however, a few PJ caseworkers have been creative in addressing this need by encouraging students to create blocks of time for study on-campus. This is problematic, though, as different caseworkers advise clients differently about class scheduling — while some advise students to space their courses as much as possible and thus maximize their CCA hours, others advise students to do the opposite, in order to minimize the strain on the child care system.

Lastly, in the region where Promise Jobs staff were interviewed, not enough child care providers would accept CCA payments because the state’s reimbursement rates for child care are substantially below the federally recommended level of the 75th percentile of market rates, designed to give families access to 75 percent of providers in their community.[35] Even after a 4 percent increase starting July 1, 2013, the CCA reimbursement rates are still a little short of the 75th percentile of rates based on a 2006 market survey, and well short of the market rates in 2013. As a result, providers are increasingly unlikely to accept state payments and parents encounter waiting lists. Between waiting lists and the lack of child care providers offering care for evening classes, students are turn to friends and family — a less reliable option over the extended time necessary for college completion.

The State’s Return on Child Care Assistance for Education

Whenever the state’s child care assistance program makes it possible for individuals to further their education, the state receives a long-term payoff in a variety of forms. As a result of attaining post-secondary degree, an individual will have greater lifetime earnings, pay more state taxes, and rely less on state income supports. The children of that individual in turn will be less likely to be raised in poverty, and as a result will have improved earnings potential and will be less reliant on public assistance as an adult. Some of these payoffs are estimated below.

Education raises earnings

Basic RGBThose with more education start their working lives at a higher income level. Table 1 shows what Iowans earned per year on average at the start of their working lives, when education presumably has been completed.

Those with more education also experience greater income gains through the peak earning years. Figure 1 shows how earnings rise and fall over one’s working years depending on education. In this chart, all earnings are relative to those with less than a high school education at age 26-28. Someone with an associate degree starts out at nearly twice the earnings of one without a high school diploma, and rises to 2.4 times during the peak earning years of 40-55. For those with a bachelor’s the rise in earnings is much steeper; the gap between their earnings and those with less education widens over time. The fall in earnings after age 55 reflects reduced hours or retirement rather than lower hourly pay, since these figures are calculated for all adults, not just those currently employed.

Figure 1. How Earnings Change Over One’s Working Lifetime

CCA Figure 1Source: Author’s calculations based on data on earnings and education by age cohort in the Current Population Surveys of 1992 through 2011.

The pattern of lifetime earnings represented in Figure 1 can be applied to the average earnings of Iowans as they start their careers as shown in Table 1. In this way, we can project average annual earnings for each three-year period of a person’s working life, assuming education is completed by age 25. The results are shown in Table 2.

Table 2. Projected Annual Earnings of Iowans Age 25-29 in Working Life, by Education Level (2011 dollars)CCA Table 2Source: Table 1 and Authors’ analysis of national data on age, education and earnings from the Current Population Survey, 1991-2011.

An examination of our earnings estimates shows we are assuming that, on average over all ages, those with an associate degree earn about 39 percent more than those with a high school diploma. Those with a bachelor’s degree earn about 85 percent more than a high school grad earns, and about 33 percent more than those with an associate degree.

Greater earnings increase state and local tax payments

Higher earnings translate into higher taxes, mostly because there is simply more income and spending to tax. In Table 3 we see how the annual earnings at each age and education level shown in Table 2 translate into state tax payments.[36] For example, between the ages of 38 and 40, a high school grad on average earns $28,279 dollars per year, and pays 6.5 percent of that in sales and income taxes to the state of Iowa, which comes to $1,838 per year.

Table 3. Annual Direct State Taxes Paid in Iowa, by Education and Age (2011 dollars)

CCA Table 3 Source: Table 2 and Institute on Taxation and Economic Policy, Who Pays: A Distributional Analysis of the Tax Systems in All Fifty States, 2013.

CCA Table 4More education means more state taxes. Table 4 shows how much more revenue the state would receive from an individual with an associate or bachelor’s degree, compared to the revenue received from one with a high school diploma. From the total additional taxes paid from age 26 onward (we assume education is completed by that time) we deduct earnings lost during the two or four years required to obtain the degree. For example, we assume the individual earning an associate degree gives up about two years’ worth of earnings (at the rate for one with a high school diploma) while earning the degree. This deduction yields the net tax gain to the state.

Over the course of a person’s working life, additional education results in about $23,000 to $50,000 in additional state taxes. A program of enhanced child care assistance will thus return substantial revenues to the state in the long run, to the extent that the program results in more adults with post-secondary education who then remain in Iowa for a substantial portion of their working lives. 

Reduced reliance on safety net programs

Education raises earnings, and thereby reduces reliance on federal and state economic assistance programs, including those with a significant state cost: Medicaid and TANF. Research covering the period 1980 to 1992 found that between 4.1 and 5.6 percent of those with just a high school education received public assistance, while just 0.2 to 0.5 percent of those with four or more years of college did so.[37] Another study found that every additional high school graduate in Iowa saves the state $11,187 in Medicaid costs, compared to costs for the average adult with less than a high school education, and saves an additional $1,038 in health care costs for the uninsured.[38] 

Reduced poverty rate among children of the direct beneficiaries of the program

131126-CCA-Table5The higher lifetime earnings of those enabled to attain post-secondary education because of child care assistance translate into reduced poverty rates, compared to those who never advance beyond a high school diploma. This in turn means that fewer children in Iowa will grow up in a poor household. Table 5 shows, for the U.S., how poverty rates fall with increased education.

If Iowa graduates of post-secondary education follow the national pattern, then we can estimate how many children escape poverty through the parent’s educational advancement. For every 1,000 high school graduates who go on to get an associate degree, there will be 63 fewer who are poor as adults (66 will be poor instead of 129). If we assume that 75 percent of those grads will remain in Iowa, and that there are on average 1.0 children per adult, this means that there will be 47 fewer children growing up poor in Iowa.[39] Similarly, for every 1,000 high school graduates who go on to get a four-year degree (or more), there will be 86 fewer who are poor. If we assume that half of them remain in Iowa, and again an average number of children per adult of 1.0, this implies 43 fewer children growing up poor.

Research has shown that eliminating poverty for a child under the age of 6 will increase earnings as an adult by about 29 percent per year.[40] Other studies have found that female children who were raised in poor families when they were under age six on average received $1,200 per year more in TANF benefits as an adult than their non-poor counterparts.[41] Thus reducing child poverty will in the long run generate additional state income and sales tax revenue as a result of higher lifetime earnings for those children who remain in Iowa. Additionally, Iowa will see reduced spending on Food Stamps and TANF benefits for those children as adults.

Research shows that children of more educated parents exhibit a higher level of academic school readiness and a lower level of academic problems. [42] They will also earn more as adults, be less likely to be incarcerated, and will be more likely to earn college degrees themselves.[43] This will reduce the state public assistance payments even further, and will save money for the state in special education expenses and correctional costs.

Policy Options for Iowa

What can the state do to increase the share of TANF recipients and other low-income Iowans who pursue further education and attain a two- or four-year post-secondary degree? Here we present three policy options aimed at increasing the number who enter a post-secondary education program and at increasing the share of those in such a program who complete it with a degree.

Option I: Cancel the 24-month limit

We suggest canceling the 24-month limit. A student with one child using CCA in 2013 costs the state $2,400 to $2,700.[44] Adding two years to the 24-month limit, so students could realistically complete a BA, would double the cost —  $4,800 to $5,400. But if just 1 in 9 recipients of the extended subsidy completed the BA program and remained in Iowa through age 65, the state would recoup all the costs, because that one individual could be expected to pay $50,787 in additional state taxes over the course of a working life, sufficient to cover the extra two years of subsidized child care for that family as well as for eight others who dropped out or left the state. In fact, census migration data suggest that over half of college graduates are still residing in Iowa in their 30s and 40s.[45]

Option II: Increase payment rate

One of the problems facing potential users of CCA can be the difficulty in finding a child care provider in the vicinity who is willing to accept the low reimbursement rate allowed by the state. The state maximum reimbursement rates effective July 1, 2013, though higher than in previous years, are not only below the 75th percentile of costs but still below the statewide average cost.[46] We suggest increasing the state’s CCA maximum payment rate to the federally recommended 75th percentile of current costs, which should make most of the local child care providers willing to accept the child (space permitting). In 2012-13, 23 percent of the child care programs across the state did not accept DHS Child Care Assistance funded children.[47] How much this would cost the state depends on how many additional persons take advantage of CCA to attend school because they can now find a provider when previously they could not, and how many current users of CCA use a more expensive provider than they would have otherwise. It is not possible to estimate either effect, though clearly state costs would increase because the higher payment rates affect all users of CCA, not just those attending school.

Option III: Expand hours allowed

Attainment of post-secondary education would be facilitated by allowing students additional child care blocks of time to account for transportation from home to the child care provider to school and back, and to allow for off-campus study time. This could approach allowing full-time CCA to full-time students. Full-time care (10 hours/day, five days/week) would be about twice the average cost of the level of child care assistance currently provided. This would increase the cost of CCA to the state, but would also allow more individuals to pursue education and would increase the likelihood of success and graduation for those who are working toward a degree. As with Option I, every additional person able to complete a four-year degree because of the improvement in child care assistance will return future tax revenue to the state that will offset at least part of the state’s investment in that person’s education.

Option IV: Combine School and Work Hours

Someone who has skills appropriate only for low-wage jobs but who wants to pursue post-secondary education will typically need to work part time and attend school part time. But such a person, if not in the FIP program, would be required to work 28 hours per week in addition to class and out-of-class schooling hours. We recommend that the classroom hours be allowed to count toward the 28-hour requirement; the more classes attended the lower the work requirement. This would place more realistic demands on a person’s time and allow more individuals to pursue education by not forcing a choice between work and school.

 

Conclusions

Our analysis of Iowa’s child care assistance policies reveals several potential obstacles to a successful and effective program, and the potential gains to the state from measures that increase the number of low-wage, low-education Iowans who attain post-secondary education.

  • For most TANF participants and low-wage workers generally in Iowa, education is the surest way to attain self-sufficiency and a job that can support a family at or above a level that just meets basic needs.
  • The TANF and CCA programs are geared toward maximizing work, at any wage, rather than encouraging participants to further their education and make it possible to achieve self-sufficiency and an adequate standard of living.
  • The figures clearly show a problem of underuse of Iowa’s child care assistance program for non-welfare parents who are pursuing higher education. To encourage greater rates of post-secondary enrollment among Iowa parents, the state should engage in active outreach to non-FIP parents and inform them that child care funds are available. Without public awareness, the funds go unspent, at the same time struggling parents forgo higher education.
  • Iowa’s reimbursement rate should not be lower than the federally recommended level of the 75th percentile of current market rates. For a child care assistance program to be effective, the state should ensure that every parent in every locale can use the reimbursement money at a local and convenient child care location. Not meeting at least the 75th percentile of market rate reduces the odds of parents finding a close-by provider that will agree to charge no more than the government payment and that will have a part-time opening. To encourage parents to pursue further education, the reimbursement should be high enough for them to use it with ease.
  • It should be Iowa Department of Human Services policy and practice to encourage Promise Jobs caseworkers to explore education and child care options with their clients, and the training and evaluation of caseworkers should reflect a policy of rewarding the approval of education plans instead of encouraging only a work-first approach.
  • Any change in the state child care assistance program that results in more people attaining an associate or bachelor’s degree will produce a substantial long-term return to the state in the form of higher income and sales taxes as a result of the higher lifetime incomes of those with post-secondary education. The increased taxes paid over 40 years of working life by someone with an associate degree is about $23,000 over the amount paid by the average person with a high school diploma but no post-secondary degree. For someone attaining a bachelor’s degree, the additional lifetime tax payments amount to nearly $51,000.



[1] Child care costs from: Iowa Child Care Resource and Referral, Statewide Report, July 2012.  http://www.iowaccrr.org/resources/files/State%20Data%20Sheet/FY12%20Iowa%20Summary%20Report.pdf . Resident tuition for academic year 2012-13 at the University of Iowa was $6,678, at ISU and UNI, $6,648; this does not include mandatory fees.
[2] Kevin Miller, Barbara Gault and Abby Thorman. Improving Child Care Access to Promote Postsecondary Success Among Low-Income Parents. Institute for Women’s Policy Research, 2011.
[3] The State of Working Iowa 2012. http://stateofworkingiowa.org/the-bigger-picture/
[4] The State of Working Iowa 2011.
[5] Adair, V. C. (2001). Poverty and the (broken) promise of higher education. Harvard Educational Review, 71(2), 217-239 http://www.history.ucsb.edu/projects/labor/documents/AdairHarvardEducationalReviewArticle.pdf
[6] Authors’ calculations based on the American Community Survey, 2006-2010, and the Current Population Survey, various years.
[7] Lily French, Peter Fisher and Noga O’Connor, The Cost of Living in Iowa, 2011 Edition. Iowa Policy Project, May 2012.
[8] Anthony P. Carnevale, Nicole Smith and Jeff Strohl. Help Wanted: Projections of Jobs and Education Requirements Through 2018. Georgetown University Center on Education and the Workforce, June, 2010.
[9] See, for example, Adair, V. C. (2001). “Poverty and the (broken) promise of higher education.” Harvard Educational Review, 71(2), 217-239 http://www.history.ucsb.edu/projects/labor/documents/AdairHarvardEducationalReviewArticle.pdf
Thompson, J. (1993). “Women, welfare and college: The impact of higher education on economic well-being.” Affilia, 8(4), 425-441.
[10] http://www.mdrc.org/publications/260/full.pdf
[11] See, for example, http://www.wsipp.wa.gov/rptfiles/FTHEUnderTANF.pdf
[12] To qualify as meeting the work requirement, a minimum number of hours per week must be devoted to “core activities” such as employment or on-the-job training (20 hours for a single parent, 30 hours combined for two-parent households), plus additional hours that can be core activities, or “non-core activities” such as basic education or GED classes, or vocational education, under certain circumstances (bringing total hours to 30 for a single parent with no child under 6, or 35 combined for a two-parent household). Only the first 12 months of post-secondary education count as a core activity; after that it is non-core.
[13] http://www.dhs.state.ia.us/Partners/Reports/PeriodicReports/Supplemental_TANF/Supplemental_TANF__2011/Countable%20Activities.html
[14] Table “E.4.d.: Expenditures on Non-Assistance Sub Categories using TANF in Separate State Programs in FY 2011”, from spreadsheet 2011_TANF-data_with_states.xls from U.S. Department of Health and Human Services website.
[15] State of Iowa, Promise Jobs program, Component Activity Reports for the months of July 2011 through May 2012, at http://www.dhs.state.ia.us/Partners/Reports/PeriodicReports/PromiseJobs/PJ2012.html
[16] http://www.mdrc.org/publications/260/full.pdf
[17] http://www.mejp.org/PaSeduworks.htm
[18] http://www.faccc.org/research/Careers.pdf
[19] http://www.dhs.state.ia.us/docs/DRAFT%20State%20Plan.pdf
[20] Based on IPP interviews with Iowa Workforce Development Promise Job caseworkers, August 2011.
[21] Iowa College Student Aid Commission, Federal and State Work-Study and Status. Iowa College Student Aid Commission, January 2008. https://www.legis.iowa.gov/DOCS/LSA/SC_MaterialsDist/2008/SDMDF031.PDF 
[22] http://www.clasp.org/admin/site/publications/files/0406.pdf
[23] You are ineligible if you have previously defaulted student loans, unpaid government fees or taxes, felony drug charges, past criminal events, etc. .
[24] Lily French and Peter S. Fisher, Education Pays in Iowa: The State’s Return on Investment in Workforce Education. Iowa Policy Project, May 2009.
[25] http://studentaid.ed.gov/types/grants-scholarships/pell
[26] http://www.fseog.com/
[27] http://www.kirkwood.edu/site/index.php?p=27878
[28]Sandy Baum, Jennifer Ma and Kathleen Payea, Education Pays 2010: The Benefits of Higher Education for Individuals and Society. College Board Advocacy and Policy Center, 2010.
 http://trends.collegeboard.org/sites/default/files/education-pays-2010-full-report.pdf
[29] See Iowa Department of Human Services, Child Care Assistance, http://www.dhs.state.ia.us/uploads/Improve_Iowans_Employment_and_Economic_Security.pdf
[30] Personal correspondence with Jennifer Davis Harbison, Iowa DHS. 9.2.2011.
[31] Tammi Christ, DHS, ACFS/Child Care Bureau.
[32] Lily French, Peter S. Fisher, and Noga O’Connor, The Cost of Living in Iowa: 2011 Edition. Iowa Policy Project, May 2012. http://www.iowapolicyproject.org/2012docs/120531-COL.pdf 
[33] Interviews with Melissa Carstens and Mialisa Wright, Kirkwood Community College KPACE Navigators, October 2012.
[34] http://www.dhs.state.ia.us/dhs/dhs_homepage/docs/DRAFT%20State%20Plan.pdf
[35] http://www.nwlc.org/resource/state-child-care-assistance-policies-2010-iowa
[36]Computation based on effective tax rates from Institute on Taxation and Economic Policy, Who Pays: A Distributional Analysis of the Tax Systems in All Fifty States, Fourth edition, 2013.
[37] U.S. Department of Education, National Center for Education Statistics, Indicator of the Month: “Welfare Recipiency, by Educational Attainment.” July, 1995.
[38] Alliance for Education, Healthier and Wealthier: Decreasing Health Care Costs by Increasing Educational Attainment. Issue Brief, November 2006. Washington, D.C.
[39] On average, U.S. families have about 1 child per adult, according to data from the Current Population Survey. This is an average across single-parent and two-parent families.
[40] Greg Duncan, Ariel Kalil, and Kathleen Ziol-Guest, Economic Costs of Early Childhood Poverty. Washington, D.C.: Partnership for America’s Economic Success, February, 2008.
[41] Ibid.
[42] Magnuson, K.A. and McGroder, S.M. (2002). The effect of increasing welfare mothers’ education on their young children’s academic problems and school readiness. Joint Center for Poverty Research.
http://www.northwestern.edu/ipr/jcpr/workingpapers/wpfiles/magnuson_mcgroder.pdf
[43] Paul Attewell and David E. Lavin, Passing the Torch: Does Higher Education for the Disadvantaged Pay Off Across the Generations? New York: Russel Sage Foundation, 2007.
[44] This calculation assumes 40 weeks of half-time child care (two 16-week semesters and an 8-week summer session) for a child age 3 to 5 at a registered child development home or a licensed child care center. Costs are based on the statewide average rates in 2012-13 as reported by Iowa Child Care Resource and Referral or the July 1, 2013 maximum state reimbursement rate, whichever is less. In all cases, the state maximum is less than the actual average cost. If the child were an infant or toddler, costs are higher but the state cost would still fall in this range if the child were cared for in a registered home rather than a child care center.
[45] See pages 15-16 in Lily French and Peter S. Fisher, Education Pays in Iowa: The State’s Return on Investment In Workforce Education, The Iowa Policy Project, May 2009.
[46] Maximum rates ranged from 86 percent to 97 percent of the state average cost of care, depending on the age of the child and the type of child care provider. The state average figures are based on data from the Iowa Child Care Resource and Referral web site.
[47] Iowa Child Care Resource & Referral, State of Iowa data sheet, July, 2013, at http://www.iowaccrr.org/data_publications/.

 

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. 

 

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.