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The Iowa Policy Project
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!
Authors and Acknowledgments
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The Iowa Policy Project
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The Iowa Policy Project
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March 2014
Reducing Cliff Effects in Iowa Child Care Assistance
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L'(*E+I!2E!./0'!2I!+G*!A/I+!/F!AG2@J!A'(*%!NG*!I+'+*02J*!'O*('C*!A/I+!/F!A'(*!2E!'!@2A*EI*J!A*E+*(!F/(!
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P:%##!L*(!G/M(!70*@@!'K/O*!+G*!H2E2HMH!0'C*;!2I!BMI+!P8S#T!69!L*(A*E+!/F!+G'+!L'3!0/M@J!C/!+/!
AG2@J!A'(*%!U2+G!'!H2E2HMH!0'C*!B/K4!/(!02+G!H/(*!+G'E!/E*!AG2@J!7/(!'E!2EF'E+;4!+G*!L*(A*E+'C*!2I!
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AG2@J!A'(*!F/(!0/()2EC!L'(*E+I%!NG*!K'J!E*0I!2I!+G'+!./0'!G'I!/E*!/F!+G*!@/0*I+!2EA/H*!*@2C2K2@2+3!
A*2@2ECI!2E!+G*!A/ME+(3W!965!L*(A*E+!/F!+G*!F*J*('@!L/O*(+3!CM2J*@2E*%!.E!"#984!/E@3!I*O*E!I+'+*I!G'J!
'!A*2@2EC!@/0*(!+G'E!./0'XIT!2E!8#!I+'+*I!7'EJ!2E!L'(+I!/F!+G(**!/+G*(I;!+G*!+G(*IG/@J!0'I!9S5!
L*(A*E+!/F!L/O*(+3!/(!G2CG*(4!2EA@MJ2EC!9S!I+'+*I!02+G!'!+G(*IG/@J!'+!/(!'K/O*!"##!L*(A*E+%9!UG*E!
L'(*E+I!+(32EC!+/!L(/O2J*!F/(!+G*2(!F'H2@2*I!C*+!'!K*++*(!B/K4!'!L'3!('2I*!/(!H/(*!G/M(I!+G'+!LMIG*I!
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1G2@J!1'(*!YII2I+'EA*!L(/C('H!A(*'+*I!K'((2*(I!F/(!@/0=2EA/H*!L'(*E+I!+(32EC!+/!FM(+G*(!+G*2(!
*JMA'+2/E%"!,*O*('@!L/@2A3!(*F/(HI!0*(*!2J*E+2F2*J!+G'+!0/M@J!H')*!2+!*'I2*(!F/(!@/0=0'C*!0/()*(I!
02+G!AG2@J(*E!E**J2EC!AG2@J!A'(*!+/!('2I*!+G*2(!*'(E2EC!'K2@2+3!'EJ!H/O*!A@/I*(!+/!I*@F=IMFF2A2*EA3%!
NG*!'M+G/(I!'@I/!IG/0*J4!2E!'!"##:!(*L/(+4!"#$%&'#(%&)&'!*()+,!*-$%!.//)/#-&0%!)&!123-4!
5(%!"#-#%6/!7%#8$&!2&!1&9%/#:%&#4!+G'+!*RL'EJ2EC!*@2C2K2@2+3!@2H2+I!2E!+G*!11Y!L(/C('H!0/M@J!('2I*!
*'(E2ECI!'EJ!FM+M(*!+'R!L'3H*E+I!/F!(*A2L2*E+I4!(*+M(E2EC!'!I2CE2F2A'E+!L/(+2/E!/F!+G*!A/I+!+/!+G*!
I+'+*!+G(/MCG!G2CG*(!@2F*+2H*!+'R!L'3H*E+I%8!NG2I!K(2*F!F/AMI*I!/E!*@2C2K2@2+3!A*2@2ECI4!A/=L'3I4!'EJ!
+G*!A@2FF!*FF*A+I!2E!./0'XI!11Y!L(/C('H!'EJ!G/0!+G*3!H2CG+!K*!(*F/(H*J%!!
!
Basic Needs Budgets for Iowa Families
!
N/!2@@MI+('+*!+G2I!FMEJ'H*E+'@!L(/K@*H!02+G!+G*!1G2@J!1'(*!YII2I+'EA*!?(/C('H!711Y;4!0*!A/EI2J*(!
+G*!K'I2A=E**JI!KMJC*+I!F/(!+0/!F'H2@2*IW!'!I2EC@*!H/+G*(!02+G!/E*!AG2@J!'C*!"!/(!84!'EJ!'!H'((2*J!
A/ML@*!7K/+G!0/()2EC;!02+G!+0/!AG2@J(*E4!/E*!L(*IAG//@!'C*!'EJ!/E*!'C*!S!+/!9#!7E**J2EC!A'(*!2E!
+G*!IMHH*(!'EJ!K*F/(*!'EJ!'F+*(!IAG//@;%!N'K@*!9!IG/0I!+G*!'O*('C*!*RL*EI*I!IMAG!'!F'H2@3!0/M@J!
F'A*!2E!./0'4!K'I*J!/E!+G*!A/I+!/F!K'I2A!E**JI!IMAG!'I!F//J4!(*E+4!M+2@2+2*I4!+('EIL/(+'+2/E4!AG2@J!A'(*4!
G*'@+G!A'(*4!'EJ!A@/+G2EC!2E!"#98=96%6!NG*!I2EC@*!L'(*E+!0/M@J!E**J!+/!*'(E!'@H/I+!P"9!'E!G/M(!+/!
H')*!*EJI!H**+!02+G/M+!+G*!G*@L!/F!'E3!0/()!IMLL/(+!L(/C('HI!/(!+'R!A(*J2+I%!V/(!+G*!+0/=
L'(*E+4!+0/=*'(E*(!F'H2@34!*'AG!L'(*E+!0/M@J!E**J!+/!H')*!'@H/I+!P9>!'E!G/M(%5!
!
!
!
Basic Needs Budget
!
IPP’s Cost of Living in Iowa builds
basic-needs budgets for various
family types. These budgets
represent a frugal living standard
for what is needed to “survive,”
not to “thrive.” This allows for rent,
utilities, food prepared at home,
child care, health care,
transportation, clothing and other
household necessities. It does not
include savings, loan payments,
education expenses, vacation or
any entertainment, or meals
outside the home. Budgets show
the before-tax income for a family
to meet basic needs without
public assistance or work
supports, and the hourly full-time
wage needed to produce that
level of annual income.
The Cliff Effects
!
!
NG*!AG'(+I!K*@/0!2@@MI+('+*!+G*!O'(2/MI!A@2FF!*FF*A+I!+G'+!2HL'A+!'!F'H2@3XI!E*+!(*I/M(A*I!Z!'F+*(=+'R!
0'C*I!L@MI!LMK@2A!IMLL/(+I!Z!'I!*'(E2ECI!2EA(*'I*%!NG*!AG'(+I!'IIMH*!+G'+!+G*!F'H2@3!L'(+2A2L'+*I!
2E!*O*(3!L/II2K@*!'II2I+'EA*!L(/C('HW!NY[V!7N*HL/('(3!YII2I+'EA*!+/![**J3!V'H2@2*I;4!,[Y?!
7,MLL@*H*E+'@![M+(2+2/E!YII2I+'EA*!?(/C('H4!F/(H*(@3!V//J!,+'HLI;4!\.]$Y?!7\/0!.EA/H*!]/H*!
$E*(C3!YII2I+'EA*!?(/C('H;4!1G2@J!1'(*!YII2I+'EA*!711Y;!'EJ!+G*!F*J*('@!'EJ!I+'+*!$.N1!7$'(E*J!
.EA/H*!N'R!1(*J2+;4!'I!0*@@!'I!/+G*(!A(*J2+I!'O'2@'K@*%S!7.E!F'A+4!+G2I!2I!G2CG@3!ME@2)*@3T!F/(!H/I+!/F!
+G*I*!L(/C('HI!/E@3!/E*=+G2(J!+/!+0/=+G2(JI!/F!+G/I*!*@2C2K@*!'A+M'@@3!L'(+2A2L'+*4!+G*!*RA*L+2/E!
K*2EC!+G*!$.N1%>;!
Figure 1. The Cliff Effect: How Net Resources Change as Earnings Increase, Statewide Average — Current Law
Single Parent with One Child
Married Couple (Both Working) with Two Children
!!!
Source: The Cost of Living in Iowa, 2014 Edition.
"! !
!
YI!*'(E2ECI!2EA(*'I*!'K/O*!+G*!H2E2HMH!0'C*4!+G*!F'H2@2*I!@/I*!,[Y?!K*E*F2+I!7'+!98#!L*(A*E+!/F!
L/O*(+34!0G2AG!2I!'E!G/M(@3!0'C*!/F!P:%>9!F/(!+G*!I2EC@*!L'(*E+;4!'EJ!+G*E!I02+AG!F(/H!./0'XI!
&*J2A'2J!*RL'EI2/E!+/!L(*H2MH!IMKI2J2*I!MEJ*(!+G*!YFF/(J'K@*!1'(*!YA+!7'+!98<!L*(A*E+!/F!
L/O*(+3;%<!NG*I*!K*E*F2+!@/II*I!A(*'+*!IH'@@!A@2FF!*FF*A+I!Z!P5##!+/!P<##%!^M+!0G*E!+G*!F'H2@3!@/I*I!
AG2@J!A'(*!'II2I+'EA*4!+G*!A@2FF!2I!GMC*4!K*A'MI*!AG2@J!A'(*!A/I+I!'(*!GMC*W!NG*!I2EC@*!L'(*E+!I**I!E*+!
(*I/M(A*I!F'@@!K3!P64<:#!'I!11Y!J2I'LL*'(IT!F/(!+G*!H'((2*J!A/ML@*!+G*!A@2FF!'H/ME+I!+/!P<4:#5%!!
!
NG*!I2EC@*!L'(*E+!02+G!/E*!AG2@J!02@@!L'3!'K/M+!"S!L*(A*E+!/F!+G*!A/I+!/F!AG2@J!A'(*!2F!IG*!*'(EI!966!
L*(A*E+!/F!L/O*(+3!7P9#%>5!'E!G/M(!FM@@!+2H*;4!K*A'MI*!+G*!L(/C('H!(*_M2(*I!'!A/=L'3H*E+!/EA*!
2EA/H*!(*'AG*I!+G*!L/O*(+3!@*O*@%!^M+!0G*E!G*(!2EA/H*!(2I*I!+/!965!L*(A*E+!/F!L/O*(+34!K*E*F2+I!
J2I'LL*'(!'@@!'+!/EA*4!@*'O2EC!G*(!02+G!+G*!FM@@!A/I+!2EI+*'J!/F!+G*!L(*O2/MI!"S!L*(A*E+!/F!AG2@J!A'(*!
A/I+I%:!NG*!+0/=L'(*E+!F'H2@3!02@@!K*!(*IL/EI2K@*!F/(!'K/M+!9>!L*(A*E+!/F!+G*!A/I+!/F!AG2@J!A'(*!F/(!
+G*2(!+0/!AG2@J(*E!7/E*!2E!'@@=J'3!A'(*4!+G*!/+G*(!2E!'!K*F/(*=!'EJ='F+*(=IAG//@!L(/C('H;!2F!+G*2(!
2EA/H*!2I!BMI+!K*@/0!+G*!*@2C2K2@2+3!A*2@2EC%!UG*E!'!IH'@@!2EA(*'I*!2E!0'C*I!/(!G/M(I!0/()*J!
LMIG*I!+G*H!+/!965!L*(A*E+!/F!L/O*(+34!+G*3!02@@!IMJJ*E@3!K*!(*IL/EI2K@*!F/(!'@@!P994###!2E!'EEM'@!
AG2@J!A'(*!A/I+I!/M+!/F!+G*2(!P864"##!'EEM'@!2EA/H*%9#!
!
NG*!A@2FF!*FF*A+!'EJ!+G*!@/0!A*2@2EC!/E!*@2C2K2@2+3!F/(!./0'XI!1G2@J!1'(*!YII2I+'EA*!?(/C('H!A(*'+*!'!
I*(2/MI!J2I2EA*E+2O*!F/(!0/()2EC!F'H2@2*I!+/!2EA(*'I*!+G*2(!0/()2EC!G/M(I4!'AA*L+!L'3!2EA(*'I*I!/(!
'JO'EA*!+/!'!K*++*(!L'32EC!B/K%!NG*3!'@I/!A(*'+*!'!I2CE2F2A'E+!G'(JIG2L!F/(!+G/I*!0G/!J/!*'(E!H/(*!
+G'E!+G*!@2H2+!J*IL2+*!+G/I*!J2I2EA*E+2O*I%!YE!2EA(*'I*!2E!+G*!2EA/H*!@2H2+4!'@/EC!02+G!'!LG'I*=2E!/F!
+G*!A/=L'3I4!A/M@J!(*JMA*!+G*!A@2FF!*FF*A+!IMKI+'E+2'@@3!'EJ!LMIG!2+!/FF!+/!'!G2CG*(!0'C*!@*O*@!0G*(*!
+G*!F'H2@3!2I!A@/I*(!+/!I*@F=IMFF2A2*EA3!'EJ!K*++*(!'K@*!+/!L'3!F/(!2EA(*'I*J!AG2@J!A'(*!A/I+I%!!!
!
Reducing Cliff Effects and Raising the Eligibility Ceiling
!
`'2I2EC!+G*!2EA/H*!*@2C2K2@2+3!A*2@2EC!A@/I*(!+/!+G*!'O*('C*!'A(/II!a%,%!I+'+*I!A/M@J!G*@L!H'E3!./0'!
F'H2@2*I!0G/!0/()!FM@@!+2H*!KM+!*'(E!A/EI2J*('K@3!@*II!+G'E!0G'+!2I!E**J*J!+/!'AG2*O*!'!K'I2A!
I+'EJ'(J!/F!@2O2EC%!^*@/0!0*!IG/0!+G*!*FF*A+I!F/(!/M(!+0/!(*L(*I*E+'+2O*!F'H2@2*I!2F!+G*!A*2@2EC!
0*(*!('2I*J!+/!9>5!L*(A*E+!/F!L/O*(+34!0G2@*!MI2EC!+G*!*R2I+2EC!A/=L'3!IAG*JM@*%!aEJ*(!./0'XI!
AM((*E+!11Y!L(/C('H4!/EA*!'!F'H2@3XI!2EA/H*!(*'AG*I!9##!L*(A*E+!/F!+G*!L/O*(+3!CM2J*@2E*4!'!A/=
L'3!IAG*JM@*!+')*I!*FF*A+4!02+G!'!bME2+!F**c!+G'+!(2I*I!02+G!2EA/H*%!NG*!*R2I+2EC!IAG*JM@*!A/E+2EM*I!
ML!+/!2EA/H*!*_M'@!+/!"##!L*(A*E+!/F!L/O*(+3!F/(!L'(*E+I!/F!AG2@J(*E!02+G!IL*A2'@!E**JI%!U*!!
!
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 Working) with Two Children
!
8!
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!
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!
Making the Cliff Effect Disappear
!
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!
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!
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
6! !
!
Married Couple (Both Working) with Two Children
!
Conclusions
!
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!
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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 Frenchand 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-playcreating-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 costshare 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.
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5!