April 5, 2016
Peter S. Fisher is research director of the Iowa Policy Project, which he helped to form as a charter member of its board of directors in 2001. He 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, and he is widely quoted in the Iowa media on economic development and tax issues. His book Grading Places: What Do the Business Climate Rankings Really Tell Us? was published by the Economic Policy Institute in 2005, with an updated edition published by Good Jobs First in 2013. He also has developed a website, launched by the Iowa Policy Project, to follow up on that work, Grading the States, found at www.gradingstates.org. Fisher holds a Ph.D. in Economics from the University of Wisconsin-Madison, and he is professor emeritus in the School of Urban and Regional Planning at the University of Iowa.
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 2015 (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, social or recreational travel, or meals outside the home.
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 and ages 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 21 multi-county metropolitan areas and rural regions.
We focus here on what it costs to get by and on how much a household must earn to cover those costs. When there is a gap between actual earnings and the costs of living, a variety of work supports and public assistance programs are available to low income households to help fill that gap, and these should not be ignored. We include here all those work supports that operate through the income tax system: the state and federal earned income tax credits, the federal child tax credits, and the state and federal credits for child care costs. We assume, in other words, that households apply for and receive all such credits when they file their income taxes.
Health care is a bit more complicated. We consider health insurance a basic need, so the basic needs budget includes the cost of health insurance purchased on the individual market based on rates for 2016. We then determine the annual earnings each family would need in order to leave them, after taxes and after the credits cited above, with take-home pay equal to the basic needs budget, assuming the family purchased health insurance without benefit of any public assistance.
But we do not leave it at that. There are three major health care programs for low-income families: Medicaid, for adults up to 138 percent of poverty and for children up to 167 percent, hawk-i for children in families up to 302 percent of poverty, and Affordable Care Act (ACA) subsidies, which disappear between 250 and 400 percent of poverty. The ACA subsidies operate in part through the tax system as Premium Tax Credits on the family’s federal income tax return.
Like the EITC, the federal additional child tax credit, and Iowa’s Child and Dependent Care Credit, the Premium Tax Credits are refundable — the taxpayer receives the full amount even if the credit exceeds the tax due. The excess is refunded. But we do not include the Premium Tax Credit with those other credits in the first step of our analysis because the PTC operates in conjunction with Medicaid and hawk-i, taking over as income increases and benefits from those programs phase out. All three programs need to be considered together.
The next step in our analysis is to determine the before-tax earnings needed if the family were able to take advantage of the public health insurance programs for which they are eligible: Medicaid or the hawk-i program covering the children and Affordable Care Act subsidies for the adults (or for all family members if the children are not eligible for Medicaid or hawk-i). Naturally, with a share of health costs covered by one or more of these programs, a family can get by at a lower level of earnings and a lower hourly wage.
Some wage earners will have adequate health insurance provided on the job, insurance that satisfies the requirements of the ACA and thus makes them ineligible for the public insurance programs. So our third step is to show how much a family would save in monthly health care costs with typical employer-sponsored insurance, compared to purchasing insurance on the individual market, and how this translates into a lower hourly wage needed to meet basic needs.
What about other public assistance programs — Temporary Assistance to Needy Families (TANF), food assistance, energy assistance, and Iowa’s Child Care Assistance program? These programs are not included in this analysis because they have eligibility ceilings at too low an income level (150 percent of poverty or less) to play any role in most cases. As a family’s earnings rise, they lose eligibility for benefits before they reach the level where they can meet the basic needs budget. Families earning what we call the “family supporting hourly wage,” even at the lower wage rates that take public health insurance or employer sponsored health insurance into account, would not benefit from any of the four non-health public assistance programs.
There are about 165,000 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 exceeds $45,000 per year, which requires an hourly wage of $26 in the absence of any public supports (see Table 1). With one child, the parent still needs to earn over $21 per hour, when the majority of jobs in Iowa pay much less than that.
The availability of public health insurance programs, or a job with employer provided insurance, substantially lowers the needed wage, but it remains above $22 an hour for the single parent with two children, and around $19 to $20 an hour with one preschooler. This is well above the median wage in Iowa, which is just above $16 an hour. At these wage levels, the children are eligible for hawk-i and the parent receives health insurance premium tax credits through the Affordable Care Act (ACA).
Child care costs alone consume 18 percent of the single-parent’s family budget. With two children of preschool age, the share would be even higher. 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 77 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.
We estimate basic family budgets for five two-parent family types. First, we consider families with both parents working outside the home, and then families with one parent working and one parent at home caring for the children. In the majority of two-parent families in Iowa, both parents work full time, or close to it.
In Table 2 we illustrate the situation for families with two full-time workers: a young family with one preschooler, a family with a 4-year-old and a child age 6-11 needing care before and after school and full time in the summers, and a somewhat older family with two teenagers and a child age 6-11. For the first family, each working parent must earn $14.37 per hour to make ends meet, while for the family with two children, the figure rises to $16.89. For the family with three children each parent must earn $17.88; higher rent, food and health care costs more than offset lower child care costs.
With the availability of hawk-i insurance for the children and ACA subsidies for the adults, the required wage rate falls significantly. With typical health insurance from an employer, it would be a little lower than with public insurance.
Families with one stay-at-home parent and one child (Table 3) require about 20 percent 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 $22.33 per hour to support the family without any public supports. With two children in the family, the working parent must earn almost $25.
Here the situation changes substantially with the availability of health insurance from an employer or from a public program. The family supporting hourly wage falls to a little over $17 with employer-sponsored insurance. Unlike the other family types reported here, however, the break-even wage with public insurance programs is substantially below the wage with employer insurance because the family qualifies for Medicaid at this wage.
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 $13.16 would be needed to generate the necessary after-tax income of $22,247. With ACA health insurance subsidies, the required hourly wage falls to $12.38, and with insurance from an employer to $11.69.
We consider two married couple households with two full-time wage earners and no children living at home: a young couple (age 25), and an older “empty nester” couple in their mid-50s. Expenses are similar with one exception: health insurance costs nearly double for the older couple. This adds nearly $10,000 annually to the before-tax income needed to get by, with the family supporting hourly wage that each must earn rising from $10.33 to $12.52. The availability of ACA health insurance subsidies drops the family sustaining wage to $9.11 for the young couple, $9.88 for the older couple. With one or the other receiving family health insurance coverage on the job, the hourly wage falls a little further.
Complete family budgets for all 99 counties and for 21 multicounty regions for each of the family types in this report can be found on the Iowa Policy Project website, www.iowapolicyproject.org. For the 21 metropolitan and rural regions, and for eight large metro counties, the information includes the family-supporting pre-tax income and hourly wage, with and without public health insurance or employer-sponsored insurance. For both the counties and the regions, costs are compared with the statewide average and with the highest and lowest counties or regions.
The highest-cost region of the state overall is the southeast corner of the state: a four-county region consisting of Henry, Louisa, Des Moines and Lee counties. Four other areas have among the highest overall costs: Johnson County, Polk County, the Southwest region (Pottawattamie, Harrison, Mills, Shelby, Cass, Fremont, Page and Montgomery counties) and the West South Central region (Audubon, Guthrie, Adair, Adams, Union, Clarke, Lucas, Monroe, Taylor, Ringgold, Decatur, Wayne and Appanoose counties). The Southeast region has the highest private health insurance premiums in the state, and among the highest transportation costs. The West South Central region also has high transportation and health care costs. Johnson County and the Des Moines metro area have the highest child care costs in the state, and share the distinction of having the highest rents with Pottawattamie County.
The lowest overall costs of living are found in four eastern Iowa metro areas: Waterloo-Cedar Falls, Davenport, Dubuque and Cedar Rapids, in that order. These areas are characterized by lower than average health care and transportation costs, and moderate rents and child care costs.
Differences in cost from one county to another can be dramatic. Monthly child care expenses for a preschooler, for example, ranged from a low of $433 to a high of $643, a $200 difference. For a married couple with two children and without insurance from a job, health care costs ranged from $913 to $1,525 per month, while rent for a two-bedroom apartment varied from $619 to $863. The total annual basic needs budget for a couple with two children was $7,776 higher in the highest cost county compared to the lowest cost county.
Iowa’s metropolitan areas have the highest rents and the highest child care costs, the rural regions the lowest. On the other hand, the rural regions tend to have the highest transportation costs because of the need for longer commutes, and the highest health insurance premiums.
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 50 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 50 years ago.
Figure 1. Cost of Living is Much Higher than the Poverty Level
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 in the absence of public or employer provided health insurance ranges from 2.1 to 3.3 times the federal poverty guideline for the 10 family types discussed in this report. 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. Even with public health insurance, the family supporting income exceeds twice the poverty level in all cases except the two parent family with one worker.
For most of the families represented above, the hourly wage required to provide for basic needs, for families without public health insurance or health insurance through an employer, exceeds the wage of more than half of Iowa’s current jobs (Figure 2). Even single persons and childless couples need to earn well above the current minimum wage of $7.25.
While the availability of public health insurance or ACA subsidies helps, the majority of jobs available still would not pay enough for single parents (Figure 3). Any family with children would still need to earn well above the current minimum wage, in fact more than $12 per hour, as would a single person.
The cost of living in Iowa continues to rise. 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 supports. Even with assistance from public health insurance programs, single parents must earn well above the median wage in Iowa, and married couples with children must earn more than $12 per hour, well above the current minimum wage and above recent wage proposals at the state and local level.
How many Iowa families earn below the family supporting income levels reported here? Our past research has indicated this to be about 1 in 6 families in our state, but that was based on now-outdated data. The answer to this question requires a full examination of the latest data on family incomes from the American Community Survey, to be provided in a coming installment of the Cost of Living in Iowa.
 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.
 There are a few instances where a family could achieve break-even, where net resources after taxes and benefits just equals the basic budget, at a lower hourly wage than shown in the table. This can occur in the case of the two-parent, one-earner family with two children, and in the case of the single parent with two children. However, in these cases break-even is illusory in the sense that a little more earnings would cause the family to lose benefits and drop below break-even again. We define the break-even wage as the sustainable level of earnings that will cover budget needs, in the sense that from that level of earnings upward the family will remain above break even.
 There is one exception: in a few instances a family could receive a small amount of energy assistance at the family supporting hourly wage. Also, as we explain in footnote 6 below, there are some instances in which a two-parent family with low wages could receive sufficent SNAP and health care benefis to put them above the self-sufficiency level.
 Data from the American Community Survey for 2015, U.S. Census, American FactFinder. http://factfinder2.census.gov/faces/nav/jsf/pages/index.xhtml
 This is the ratio of the women’s to men’s median annual earnings for full time workers as of 2014. http://www.aauw.org/files/2015/02/Fig-2_fall-2015-update.jpg
 Unlike the other family types, the family with one worker and two children at a wage of $12.70 would not only qualify for Medicaid but also SNAP, though we do not include in the analysis any public assistance programs other than the three health programs. While other family types would also obviously qualify for Medicaid at low wage levels, there is no point at which that would be sufficient to bring them up to the basic needs budget. This is the only instance where Medicaid benefits combined with low earnings are sufficient to achieve break even. In some other instances, a family at break even is eligible for Medicaid for children only, however.
 Hilda L. Solis and Keith Hall, Women in the Labor Force: A Databook, Bureau of Labor Statistics (December 2011).
 Sylvia A. Allegretto, Basic family budgets: Working families’ incomes often fail to meet living expenses around the US, Economic Policy Institute (August 30, 2005).