The Cost of Living in Iowa — 2014 Edition
Work Supports Leave Gaps in Path to Middle Class

FOR IMMEDIATE RELEASE WEDNESDAY, OCTOBER 29, 2014

Full report (25-page PDF)
Executive summary
(3-page PDF)
This release (2-page PDF)


IOWA CITY, Iowa — Iowa families could find a clearer path to the middle class if work-support policies were better designed to “make work pay,” Iowa researchers said today.

“When we know earnings fall short for 1 in 6 families, it is important to understand that our public policies sometimes fall short and could do more to help families to prosper,” said Peter Fisher, research director for the nonpartisan Iowa Policy Project (IPP) and co-author of a new report.

In “Strengthening Pathways to the Middle Class: The Role of Work Supports,” Fisher and IPP Senior Policy Consultant Lily French said some policies create “cliff effects” that can mean even a higher-paying job can result in fewer resources in the household budgets of low- and moderate-income families. The report is available at www.iowapolicyproject.org.

“It's like falling off a cliff,” French said. “You can look for a better job, or a few more hours, or even a second job — and then find out you have less to make ends meet.

cliffs graph“This is readily apparent with Child Care Assistance, which addresses a big cost item in a household budget. Eligibility vanishes when you make just 145 percent of the federal poverty level — which is very low. If you get a job paying $13.65 an hour, suddenly your child care assistance is gone and you're $9,000 in the hole.

“If our goal is to encourage people to seek better jobs, and education to get better jobs, support programs need to be set up for them to succeed.”

The report is the final part in a three-part series of IPP’s Cost of Living in Iowa series for 2014. The research illustrates:

• A basic-needs cost of living is between two and three times higher than the federal poverty guidelines on which public work supports are based.
• Work supports are critical to helping low-income families put together a household budget that brings them closer to a basic-needs level — but poorly targeted supports can miss families who then find it harder to seek education and better jobs to reach the middle class.
• “Cliff effects” emerge when households gain income but lose a greater amount in work supports, creating an abrupt net loss of resources.
• Work supports can be structured to ease those cliff effects and to make work pay.

Fisher and French cited examples of current supports that ease or erase cliff effects: Iowa’s Earned Income Tax Credit has done so for many years by phasing out benefits as incomes rise, along with the more recent example Iowa’s recent Medicaid expansion and Affordable Care Act subsidies.

They recommend reforms to build on those examples:

• Improving access to Iowa’s Child Care Assistance program with eligibility at 200 percent of the poverty level, plus a copay schedule that eases people off the program as income rises.
• Expanding the Earned Income Tax Credit from 15 percent to 29 percent of the federal credit; making it comparable to the ratio of state to federal tax liability.
• Increasing the Child and Dependent Care Credit to cushion the loss of Child Care Assistance and better reflect the cost to families of raising children.

Fisher and French said the reforms should be combined with education policies that ensure future generations of Iowans receive a quality and affordable education, from preschool through post-secondary institutions.

“This means we need to expand the universal preschool program, support K-12 education through adequate funding of state foundation aid, and continue efforts to make post-secondary education more affordable by restraining tuition growth,” Fisher said.

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The Iowa Policy Project is a nonpartisan public policy analysis and research organization based in Iowa City. Reports are at www.iowapolicyproject.org. Contributions to support IPP work may be tax-deductible.

Authors and Acknowledgments

Peter FisherPeter S. Fisher is a national expert on public finance and has served as a consultant to the Iowa Department of Economic Development, the State of Ohio, and the Iowa Business Council. His reports are regularly published in State Tax Notes and refereed journals. His book Grading Places: What Do the Business Climate Rankings Really Tell Us? was published by Good Jobs First in 2013. Fisher holds a Ph.D. in Economics from the University of Wisconsin-Madison, and he is professor emeritus of Urban and Regional Planning at the University of Iowa.

Lily FrenchLily 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. A former policy analyst for the U.S. Department of Health and Human Services and the Wisconsin Department of Workforce Development, she has served as an adviser to state and local government officials on issues of child care, workforce development and microenterprise development. She holds a Master of Social Work degree from the University of Michigan and a bachelor's degree in Sociology from 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.