The Cost of Living in Iowa — 2014 Edition
Part 1: Basic Family Budgets
By Peter Fisher and Lily French

key assumptionsFebruary 26, 2014
Download full report 22-page PDF
Read the news release
County data (map, printable tables)
County and regional data (spreadsheet)


What does it take to get by these days? This latest edition of The Cost of Living in Iowa answers this question. The report details how much working families must earn in order to meet their basic needs and underscores the importance of public work support programs for many Iowans, who despite their work efforts, are not able to pay for the most basic living expenses.

The basic-needs budgets constructed for this report represent a very frugal living standard; using costs as of 2013 (with the exception of health insurance), the budgets are based on what is needed to “survive” rather than “thrive.” This includes allowances for rent, utilities, food prepared at home, child care, health care, transportation, clothing and other household necessities. The basic budget does not include savings, loan payments, education expenses, any entertainment or vacation, or meals outside the home. The budgets also show the before-tax income an Iowa family would require to meet basic needs without the benefit of public assistance or work supports, and the hourly wage a full-time worker would need to produce that level of annual income.

Each basic family budget applies to a particular family type — given the number of family members, the ages of the children, and the employment status of the adults. This report focuses on non-senior Iowa households with a working adult.

Iowans pay differing amounts for the basic living essentials depending on where they live. A Linn County family and a Clay County family will face different housing costs, commuting times and health insurance premiums; child care costs will differ as well. Basic needs budgets are created for all 99 counties, and for 25 multi-county metropolitan areas and rural regions.

In this edition we present first the basic needs budget for a family that does not have health insurance through an employer. We consider health insurance a basic need, so the budget includes the cost of health insurance on the private market based on rates for 2014. We then show how much the family would save in monthly health care costs with employer-sponsored insurance, and how this translates into a lower hourly wage needed to meet basic needs.

Table 1-Single Parent FamIowa Basic Needs Budgets: Single-Parent Families

There are about 171,000 single-parent families in Iowa. For a single parent, the challenge of supporting a family with even one child is daunting, to say the least. Table 1 displays the various costs single-parent households incur in order to meet their families’ basic needs. With two children, the basic annual budget for a family without health insurance from an employer exceeds $47,000 per year, which requires an hourly wage in excess of $28 in the absence of any public supports (see Table 1). With one child, the parent still needs to earn over $20 per hour, when the majority of jobs in Iowa pay less than that.

Child care costs alone consume 19 percent of a single-parent’s family budget with one child and 23 percent with two children. In fact, monthly child care costs for a single parent with two children are almost as large as housing costs. Data suggest that finding jobs with adequate wages for single parents is extremely challenging. This is particularly true for women, who head the vast majority of single-parent households in Iowa and earn about 80 percent of what their male counterparts earn. These findings underscore the critical importance of expanding work-support programs that can fill in the gaps between wages and basic living expenses.

These single-parent families would save a substantial amount if they could find a job that provided typical family health insurance coverage. The parent of two children could take a job that paid about 8 percent less if it included insurance.

Table 2--Two-parent familiesBasic Family Budgets: Two-Parent Families

We estimate basic family budgets for four two-parent family types. First, we examine two families with both parents working outside the home, and then two families with one parent working and one parent at home caring for the children. The families are assumed to have either one child or two children.

In the majority of two-parent families in Iowa, both parents work full time, or close to it. If they have only one child, each working parent must earn $13.32 per hour to make ends meet (Table 2). For families with two children, each parent must earn $16.89 per hour, or 27 percent more. With three or four family members needing health insurance coverage, the savings to the family from having insurance through an employer is substantial. In fact, the hourly wage needed is 12 or 13 percent less.

For a family with two children that must purchase insurance on the private market, health care is the largest monthly cost, followed closely by rent and
child care. Child care alone consumes 15 percent of the household budget for a one-child Table 2--Two-parent familiesfamily with both parents working and 19 percent if there are two children. With employer-sponsored insurance, health care costs drop from 20 percent to 10 percent of the household budget.

Families with one stay-at-home parent (Table 3) require about one-third less household income than families with two working parents. This is largely because families with one stay-at-home parent do not have to pay child care costs; they also save money on transportation. However, the working parent must earn significantly higher wages than if both parents were working. Working adults in families with one child and one stay-at-home parent must earn $20.06 per hour to support the family. With two children in the family, the working parent must earn $25.00.

Even with employer-sponsored insurance, which saves the family $360 or $548 per month in health costs, the parent must earn an hourly wage in excess of the Iowa median wage of $15.57.

Table 2--Two-parent familiesSingle-Adult Households

Single, childless adults require far less income to provide for their basic needs. With fewer expenses, a sustaining wage for a single adult is lower than the wage needed for supporting a family.

Rent and transportation are the largest budget items for the single person (Table 4). Without health insurance benefits from a job, an hourly wage of $13.04 would be needed to generate the necessary after-tax income of $21,341. If the single person has a job with health insurance, the monthly budget falls to $19,230 and the hourly wage to $11.61.








Basic Needs Budgets in Iowa’s Metropolitan & Non-Metropolitan Areas

Appendix 2 presents information on the cost of living for different family types in each of Iowa’s 99 counties and in 19 urban and rural regions. The tables present budget data only for those items where county specific data is available: health care, child care, rent, and transportation. (Food and household expenses are the same throughout the state for a given family type.) Complete family budgets for all counties and regions for the seven basic family types can be found here.

The highest-cost regions of the state overall are the Iowa City MSA (Johnson and Washington counties), and the southwest corner of the state: an eight-county region that includes the Council Bluffs portion of the Omaha-Council Bluffs MSA. Johnson County has the second-highest child care costs in the state (the highest are in Dallas County) as well as the highest rents. Johnson County also has among the lowest costs for health care and transportation, but that is not enough to offset the other high costs. The Southwest region has the highest private health insurance premiums in the state, followed closely by the West South Central region (13 counties located mostly in the southern two tiers of counties bordering Missouri) and the eight rural counties in Northwest Iowa.

The lowest overall costs of living are found in the northern regions of the state (the five largely rural regions we denote as Northwest, West Central, North Central, Central North, and Northeast), despite high health care costs in some of those counties. These areas are characterized by low rents, low child care costs (except in the Central North region), and low transportation costs (except in the Northeast).

Central Iowa — Polk and surrounding counties — lands in the middle overall, with among the highest child care costs and rents, but the lowest health care costs. Polk, Madison, Dallas, Marion, Warren, and Jasper counties are tied for the lowest private health insurance premiums among the 99 counties.

Differences in cost from one county to another can be dramatic. Monthly child care expenses for two children, for example, ranged from a low of $562 to a high of $998, a $435 difference. For a single parent with two children and without insurance from a job, health care costs ranged from $575 to $739 per month, while rent varied from $721 to $1,254, a $533 difference. The total annual basic needs budget for families with two children was over $9,000 higher in the highest cost county compared to the lowest cost county.

Cost of Living Threshold Is More Accurate than Federal Poverty Guideline

Federal poverty guidelines are the basis for determining eligibility for public programs designed to support struggling workers. However, the federal guidelines do not take into account regional differences in basic living expenses and were developed using outdated spending patterns more than 45 years ago. The calculations that compose the federal poverty guidelines assume food is the largest expense, as it was in the 1960s, and that it consumes one-third of a family’s income. Today, however, the average family spends less than one-sixth of its budget on food. Omitted entirely from the guideline, child care is a far greater expense for families today with 23.5 million women with children under 18 in the labor force. Transportation and housing also consume a much larger portion of a family’s income than they did 45 years ago.

Fig 1 pov guideline comp
Considering the vast changes in consumer spending since the poverty guidelines were developed, it is no wonder that this yardstick underestimates what Iowans must earn to cover their basic needs. Figure 1 above shows that a family supporting income — the before-tax earnings needed to provide after-tax income equal to the basic-needs budget — is much higher than the official poverty guidelines. In fact, family supporting income for the seven family types discussed in this report ranges from 1.6 to 2.9 times the federal poverty guideline for those families. Most families, in other words, actually require more than twice the income identified as the poverty level in order to meet what most would consider basic household needs. As the largest areas of families’ budgets (housing, transportation and child care) continue to grow, there will be an increasing disconnection between actual basic needs and the federal poverty guidelines used to describe and assist struggling Iowans.

Trends in Basic Expenses for Iowans

Since our last Cost of Living in Iowa report, the various components of the family budgets have increased in cost substantially. The cost of the USDA low-cost food plan for married couples with children rose 8 to 11 percent from 2011 to 2013, and for single parent families rose 14 to 15 percent. Child care costs for a 2- or 3-year-old rose 13 percent statewide from 2011 to 2013, while the costs for a 6-year-old rose 16 percent. Average housing costs in Iowa, as measured by HUD Fair Market Rents, increased 8 percent between 2011 and 2013 for a two-bedroom apartment, 13 percent for a three-bedroom. The IRS mileage rate, which reflects the overall cost of owning and operating a vehicle, rose 6 percent. Only clothing and other household expenses showed moderate price inflation, increasing just under 1 percent.

For health care, the picture is complicated by several factors. First, we employ 2014 rates, reflecting three rather than two years of inflation. Second, insurance policies available for 2014 reflect new minimum standards specified in the Affordable Care Act, so we are not comparing the prices of identical products. Finally, we changed the methodology for estimating out-of-pocket health costs for the 2014 edition. Keeping those complications in mind, the monthly cost of health care for a single parent with one child rose 9 percent over the three years 2011-2014, for a single parent with two children, 16 percent. For married couples, the corresponding increases were 8 percent and 12 percent. For single adults, costs actually declined 10 percent.

The Adequacy of Wages in Iowa

For most of the families represented above, the hourly wage required to provide for basic needs, for families without health insurance through an employer, exceeds the wage of more than half of Iowa’s current jobs (Figure 2). While having health insurance on the job helps, the majority of jobs available still would not pay enough for single parents, or for a married couple with one worker.

Fig 2 Basic Needs vs Median Wage
Conclusions

The cost of living in Iowa has increased significantly in the past two years. Working families and individuals in Iowa must earn substantially above the official poverty threshold — in some cases nearly three times the poverty level — to achieve a very basic standard of living in Iowa without the help of public work supports. Those work supports are critically important: child care assistance, food assistance, the Earned Income Tax Credit, and health care in particular. A subsequent report drawing on the Cost of Living in Iowa will focus on what these work supports can mean for particular families in various regions of Iowa, and the implications of eligibility ceilings that drop people from support precipitously.

Over half the jobs in Iowa pay less than what is needed by many families to achieve basic self-sufficiency. How many Iowa families earn below the family supporting income levels reported here? How many families, in other words, must rely on work supports to get them closer to the basic needs budget level? The answers to these questions will be provided in another installment of the Cost of Living in Iowa relying on the latest data on family incomes from the American Community Survey.

View Appendix 1 — Methodology for Constructing Basic Needs Budgets.
View Appendix 2 — Basic Needs Budget Items by County and Region.
View Appendix 3 — Family Supporting Hourly Wage by Region.
View County-by-County and Regional tables separately — Interactive, from Excel spreadsheet.


[1] A cost of living index for Iowa seniors, called the Elder Economic Security Standard, has been created by Wider Opportunities for Women and is available at http://www.wowonline.org/documents/IAElderIndex.pdf.
[2] Data from the American Community Survey for 2012, U.S. Census, American FactFinder.
http://factfinder2.census.gov/faces/nav/jsf/pages/index.xhtml
[3] This is the ratio of the median wage for women to the median wage for men as of 2012. See the State of Working Iowa, 2013, section on Wages: http://stateofworkingiowa.org/wages/
[4] Hilda L. Solis and Keith Hall, Women in the Labor Force: A Databook, Bureau of Labor Statistics (December 2011).
[5] Sylvia A. Allegretto, Basic family budgets: Working families’ incomes often fail to meet living expenses around the US, Economic Policy Institute (August 30, 2005).
[6] See, for example, Wilde, P. E. and Llobrera, J. (2009), “Using the thrifty food plan to assess the cost of a nutritious diet.” Journal of Consumer Affairs, 43(2), 274-304. http://onlinelibrary.wiley.com/doi/10.1111/j.1745-6606.2009.01140.x/full; davis, g. c. and you, w. (2010). “the thrifty food plan is not thrifty when labor cost is considered.” the journal of nutrition, 140(4), 854-857. http://jn.nutrition.org/content/140/4/854.full.pdf
[7] http://www.cnpp.usda.gov/USDAFoodCost-Home.htm
[8] http://www.huduser.org/portal/datasets/fmr/fmr2010f/index.html
[9] U.S. Dept. of Health and Human Services, Agency for Healthcare Research and Quality: Medical Expenditure Panel Survey, Insurance/Employer Component, available at. http://meps.ahrq.gov/mepsweb/index.jsp
[10] If Benefits equal .7 times total health costs (THC), and benefits also equal .8 times premiums, then .7 times THC = .8 times premiums, and THC = (.8/.7) times premiums, or 1.143 times premiums.
[11] Population density was calculated from http://www.naco.org/Counties/Pages/FindACounty.aspx. Mean speed of commute by population density was taken from table 2, “Transportation variables by density class”, in Levinson, D. M. and Kumar, A. (1997), “Density and the journey to work,” Growth and Change, 28 (2), 147-172. http://nexus.umn.edu/papers/density.pdf
[12] Here we relied on the U.S. Department of Transportation's 2001 Nationwide Highway Transportation Survey (NHTS). This survey provides reports on various dimensions of automobile travel based on actual vehicle miles traveled and trip duration for all personal travel within a day. By selecting survey data on travel only for basic needs, we were able to estimate that total miles per year averaged between 1.8 and 2.6 times the average commute miles in single-worker families. We used a somewhat conservative figure of 2.0; that is, we doubled commute miles to arrive at total vehicle miles traveled.
[13] http://www.iowaccrr.org/County%20Data/Statewide%20Data%20Sheet%20FY%2020101.pdf

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 author and the Iowa Policy Project.

This is the fourth edition of The Cost of Living in Iowa and it reflects a number of changes and enhancements since the previous edition was released in May 2012. In order to report the most current information in a timely fashion, we are releasing the 2014 edition in installments. This is the first, and presents complete information on the basic family budgets for all family types and all geographic areas. These budgets are based on living costs for calendar 2013, and state and federal income taxes for tax year 2013, with one exception: Health care costs reflect insurance rates in effect for calendar 2014. Because of the dramatic changes in health care for 2014 brought about by the Affordable Care Act, we have chosen to model health insurance costs and public health care programs in effect for 2014. The start of 2014 saw the end of the Iowa Care Program and the start of Iowa’s version of Medicaid expansion. It also saw the beginning of health insurance plans offered on the federal exchange and the availability of premium subsidies and cost sharing for low and moderate income families through the Affordable Care Act, as well as changing private insurance premiums to reflect new minimum standards required under the Act.

The changes in health care have also prompted us to present basic budgets under two scenarios: families with health insurance through a job (employer sponsored insurance, or ESI), and families without ESI. In the past, we have presented just one budget for each family type based on a weighted average of the costs of health insurance for those with ESI and those who must purchase insurance on the private market. As a result, the budgets overstated costs for those with ESI and understated costs for those having to purchase a private plan. Since the cost differences are substantial, and since the share of lower and moderate income families without ESI is large and increasing, we present here separate budgets for each situation.

Subsequent installments of the report will focus on work supports and how they affect basic family budgets. Since the last edition, we have greatly expanded the capabilities of the cost of living model by incorporating all of the major public supports available to low income families in Iowa: Child Care Assistance, Food Assistance (SNAP), public health insurance for adults and children (Medicaid and Hawk-I), premium assistance and cost-sharing for health insurance plans under the Affordable Care Act, the Low-Income Home Energy Assistance Program (LIHEAP), and the federal and state Earned Income Tax Credits (EITC). We will show how these programs help to close the gap between basic needs and the income received from work for many Iowa families, and the “cliff effects” that hinder the effectiveness of some programs. (A preliminary policy brief illustrating cliff effects in the Child Care Assistance program was released in December 2013: http://www.iowafiscal.org/like-falling-off-a-cliff/.) We will also illustrate the impact of selected policy changes on families and their ability to meet basic needs.

Another installment will provide new estimates of the proportion of Iowa families whose income falls below the basic needs level. This will be released soon after the 2010-12 three-year American Community Survey data for Iowa is made available in February. This delay is necessary in order to base the analysis on the latest ACS data, using the three-year averages in order to have a large enough sample to make reliable estimates.