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Posts tagged Peter Fisher

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.

Beware the “business climateers”

Posted August 18th, 2014 to Blog

Fisher-GradingPlacesIowa’s business lobby appears to be preparing a new assault on the ability of our state to provide public services.

It would be the latest in a long campaign, in which lobbyists target one tax at a time under a general — and inaccurate — message about taxes that we will not repeat here.

Suffice to say, Iowa taxes on business are low already. Many breaks provided to businesses are rarely reviewed in any meaningful way to make sure that taxpayers are getting value for those dollars spent, ostensibly, to encourage economic growth. Rarely can success be demonstrated.

The Iowa Taxpayers Association is holding a “policy summit” this week and promoting a new report by the Tax Foundation to recycle old arguments that are no better now than they have been for the last decade.

Fortunately in Iowa, we know where to turn to understand claims from the Tax Foundation, and that resource is Peter Fisher, our research director at the Iowa Policy Project. Fisher has written two books on the so-called “business climate” rankings by the Tax Foundation and others, and is a widely acknowledged authority on the faults in various measures of supposed “business climates” in the states.

Fisher, in this guest opinion in the Cedar Rapids Gazette, noted weaknesses in the Tax Foundation’s claims, not the least of which is that the anti-tax messages are not supported by the foundation’s own report. Fisher notes this about the Tax Foundation’s “State Business Tax Climate Index”:

It is a mish-mash of 118 tax features … weighted arbitrarily and combined into a single number for the index.

This number has no real meaning. It produces wacky results because it gives great weight to some minor tax features (such as the number of tax brackets) while leaving out completely two things that have a huge impact on corporate income taxes in Iowa: single sales factor, and federal deductibility.

This past spring, this Iowa Fiscal Partnership two-pager noted:

A variety of factors influence the decisions businesses make about whether they want to locate or expand within a given state. These factors include available infrastructure, the proximity to materials and customers, the skill of its workforce, and whether the state has good schools, roads, hospitals, and public safety. As we have shown elsewhere, state taxes play at best a minor role.

In Iowa, we constantly hear the same old argument … used to enact large tax cuts for commercial and industrial property this past year and continues to be an excuse used to justify giving away large tax credits to businesses throughout the state.

But this argument just isn’t true…

Whether we are looking at the entire range of taxes that fall on businesses or just the corporate income tax, the fact is that business taxes in Iowa are low.

Only if Iowa policy makers and the public ignore the reality on Iowa business taxes will these special interests get their way again.

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

*View Peter Fisher’s reports for Good Jobs First on business climate rankings:

 


Bargain, schmargain

Posted July 30th, 2014 to Blog

It’s back again: Iowa’s SALES TAX HOLIDAY.

What a charade. Retailers love it, because it’s a gimmick to lure people into their stores to buy things at full price, instead of waiting for a back-to-school sale.

The happy-talk label disguises its real impact: to throw away revenue while pretending to, as one report put it, “help boost the economy and give consumers a break.” It does neither.

Iowa’s policymakers are selling you a pig in a poke. You’re told you’re saving money, but you’re buying dirty water, underfunded schools and fees for amenities such as parks. The cost is estimated at over $4 million.

For two days, Iowans will spend money on the same things they would have spent money on anyway, in those two days or others, so it doesn’t boost the economy. Sales taxes do hit low-income folks hardest, but those families would be better served by a break that went all year. They still have only so much to spend in these upcoming two days.

Let’s also recognize that consumers won’t save all that much, if at all — and may in fact pay more. How many times have you rushed off to a “6 Percent Off” or “7 Percent Off” sale? Who’s to say a retailer, with this officially sanctioned “holiday” marketing, won’t bump prices by 10 percent or call off a 20 Percent Off sale that might have been in place?

But it is a deal for politicians who like to brag about cutting taxes, while pointing fingers at others when they cut teachers and police officers because budgets are tight.

If we were honest with ourselves, we would welcome Tax Day and loathe the first weekend of August.

2010-PF-sqPosted by Peter Fisher, IPP Research Director

 

 


Bad research never gets good

Posted May 13th, 2014 to Blog

It might be a stretch to say that good research never gets old — at some point you might need an update — but one thing is certain: Bad research never gets good.

Fisher-GradingPlacesIPP’s Peter Fisher is one of the nation’s experts on rankings of state business climates. In two reports published in the last two years by our colleagues at Good Jobs First, Fisher lays out irretrievable problems with the Rich States, Poor States analysis periodically offered by the American Legislative Exchange Council, or ALEC.

Fisher tested ALEC’s claims against the actual economic performance of states, finding that states following ALEC-favored policy did more poorly than other states.* He also found serious flaws of methodology, including comparisons of arbitrary states instead of all 50.

As Good Jobs First’s executive director, Greg LeRoy, wrote in the preface to the 2013 Grading Places report:

Indeed, the underlying frame of these studies — that there is such a thing as a state “business climate” that can be measured and rated — is nonsensical. The needs of different businesses and facilities vary far too widely. … Given these realities, “business climate” studies must be viewed for what they are: attempts by corporate sponsors to justify their demands for lower taxes and to gain public-sector help suppressing wages. …

To borrow Oscar Wilde’s witticism about cynics, these “business climate” studies know the cost of everything and the value of nothing.

In the case of ALEC, others are noticing. Michael Hiltzik of the Los Angeles Times has written twice in recent days about the ALEC problem, citing the work of both Fisher and Professor Menzie Chinn of the University of Wisconsin.

See these pieces by Hiltzik:

In the latter, Hiltzik notes a recent “response to the critics” by ALEC:

It’s a curious document that ends up proving the critics’ point. Take the point made by Chinn and by Peter S. Fisher of the Iowa Policy Project that the correlation between ALEC’s policies and economic growth is largely negative.

When the ALEC “analysis” is dissected, it becomes clear that its conclusions are faulty, and its policy prescriptions are no more valid. And it is good for Iowa to have Peter Fisher on the case.

Owen-2013-57  Posted by Mike Owen, IPP Executive Director

 

 

*View Peter Fisher’s reports for Good Jobs First on business climate rankings including the ALEC claims:


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.

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.

With ALEC, it’s not just ‘Who?’ but ‘What?’ and ‘Why?’

Posted January 10th, 2014 to Blog

Some Iowa legislative leaders are taking issue with claims that all Iowa legislators are members of the American Legislative Exchange Council (ALEC).

See these links:

All of this calls to mind the words of the great comedian Groucho Marx, who is widely quoted:

“I don’t want to belong to any club that will accept people like me as a member.”

Groucho presumably was never a member of ALEC — like many Iowa lawmakers now protesting claims of their inclusion. But regardless of who belongs to ALEC, the bigger issue is whether ALEC belongs at the public policy table.

Iowa Policy Project analysis has refuted the value of legislative initiatives promoted by ALEC, which is essentially a bill mill backed by corporate interests. IPP’s Peter Fisher and the national group Good Jobs First, in their 2012 report “Selling Snake Oil to the States,” showed that states following ALEC proposals were likely to show worse economic results than other states.

As Fisher noted at the time:

“We tested ALEC’s claims against actual economic results. We conclude that eliminating progressive taxes, suppressing wages, and cutting public services are actually a recipe for economic inequality, declining incomes, and undermining public infrastructure and education that really matter for long-term economic growth.”

This recalls another quotation:

“Politics is the art of looking for trouble, finding it everywhere, diagnosing it incorrectly and applying the wrong remedies.”

No, that is not the ALEC mission statement. Again, they are words widely attributed to Groucho Marx.

But if the shoe fits ….

Mike OwenPosted by Mike Owen, Executive Director


Like Falling Off a Cliff

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

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

2-page PDF of this policy brief

By Peter S. Fisher

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

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

Basic RGB

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

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

131201-Fig2-ccacliff

The Cliff Effect:
How Net Resources Change as Earnings Increase

Figure 1. Single Parent with Two Children, Polk County

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

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

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

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

Figure 2. Single Parent with Two Children, SE Iowa

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

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


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

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

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

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

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.

 

IFP News: Child Care Can Boost Parents’ Education, Prospects

Posted November 26th, 2013 to News Releases

High Cost of Child Care in Iowa Now a Barrier to the Middle Class

Full report (13 page PDF)
Executive summary (or 2 page PDF)

IOWA CITY, Iowa (Nov. 26, 2013) — Iowa’s child care assistance programs should encourage parents to further their education and make it more possible to achieve self-sufficiency, researchers say.

“The surest pathway to the middle class is post-secondary education,” said Lily French, co-author of a new report for the Iowa Fiscal Partnership. “But the high cost of child care is one of the significant barriers standing between a low-wage worker and better education or a degree.”

The report — “Child’s Play: Creating a Path to the Middle Class” — is at www.iowafiscal.org. French, senior policy consultant for the Iowa Policy Project (IPP), and IPP Research Director Peter Fisher found:

  •        Iowa’s child care and family assistance programs are designed to promote work at any wage, missing a longer-term focus on education that will help families.
  •        A long-term approach that encourages education will produce a return to the state, with higher taxes paid by parents making greater incomes, and less reliance on public assistance.
  •        Iowa’s maximum reimbursement rates for child care are lower than the federally recommended 75th percentile of market costs; this discourages some providers from accepting the state reimbursement and makes it more difficult for parents in the Iowa program to find a provider.

The authors recommended steps to assure wider access to child care assistance (CCA) while being education-friendly to the parents, including removal of a 24-month cap on education while on CCA, raising reimbursement rates to the 75th percentile of market costs, expanding hours allowed for care to provide the parent more study and/or travel time, and permitting classroom hours to be allowed to count toward work-hours requirements.

“It should not be enough to promote work in what amounts to a dead-end job, and the state should provide enough child care assistance to assure access for all parents who need it,” Fisher said. “Child Care Assistance needs to be all about opportunity — for the child, for the parent, and for the taxpayer. If we view CCA as an investment, all of these things can be true.”

The report noted that the cost of child care in Iowa can easily be higher than the cost of tuition at the University of Iowa, Iowa State or Northern Iowa.

“Child-care fees are hard enough for low- and even middle-income families to pay, but it’s even more of a challenge when one parent is in school and not bringing in income,” Fisher said, noting 13 percent of all undergraduates nationwide are low-income parents — the majority being single parents.

Better outreach to parents also could help, French said.

“Parents who are not on welfare but are pursuing higher education need to know that child care funds are available. When child care is so expensive, these funds can provide a real opportunity,” French said.

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.