Many Iowa Democrats have embraced raising the minimum wage as a major theme in their 2018 election campaigns. However, there hasn’t been sufficient discussions about linking raising wages of low income Iowans with the child care “cliff.”
The child care cliff is the point where rising income triggers a cut-off of child care assistance (CCA). Raising wages alone for families with children can result in them suddenly getting pushed over the child care cliff. That can cost these families several thousand dollars in paying for their child care. These families can end up with a small raise in wages but a big loss in total resources.
A single Iowa parent with one child is pushed over the CCA cliff once their income exceeds 145% of the poverty rate, which is $11.15 per hour (in 2016). That family suffers an immediate loss of over $4,600 in CCA help once their income reaches the 145% threshold. This Iowa family would need an increase in excess of $2.00 per hour to make up for the loss of their CCA benefit.
One solution is to raise Iowa’s income threshold above the current 145%. Iowa has one of the lowest eligibility rates in the nation. In 2015 only 10 states had CCA eligibility set at 145% or below. Neighboring Minnesota has a threshold of 182%. A Minnesota family of three can earn up to $37,264 before they lose their CCA benefits. An Iowa family of three hits the cliff at $29,232. Seventeen states have a threshold above 200% (income of over $40,000). United Way of Central Iowa recommends moving the CCA threshold to 200%.
“There is a HUGE disparity between what parents can afford to pay for child care and what it costs to provide high-quality child care. To reduce the gap, Iowa needs to: Eliminate the child care cliff effect and increase the cutoff for benefits to 200% of the federal poverty line,” according to United Way.
The issue of the CCA cliff was a part of the Democratic Polk County Supervisors minimum wage task force last year. Concern was raised by both United Way and Impact Community Action Partnership. Anne Bacon, executive director for IMPACT, suggested the child care subsidy needs to be gradually reduced as opposed to the sudden cut.
“Until that happens, raising the minimum wage to a level that exceeds the start of the cliff effect would have a detrimental effect on a large number of already vulnerable families,” Bacon said.
“I think if you are someone who is familiar with your budget and familiar with the benefit, it would be a bad decision economically for your family to take a 10-cent raise or a 15-cent raise and lose the benefit,” said Elisabeth Buck, chief community impact officer at United Way of Central Iowa.
Iowa leads the nation in the number of families with both parents working outside the home. Over three-quarters of all Iowa working families with children under 6 years old have both wage earners working outside the home. It’s essential that these working families have quality and affordable child care available.
Thousands of low-income working Iowans depend on child care assistance CCA payments to lift their families out of poverty. Democrats are united in believing that increasing the incomes of working Iowans is essential and fixing the CCA cliff must be a part of the solution.
by Rick Smith