Discovering 'Cliffs' in Iowa
Making Work Pay: Examining Work Supports in Iowa
Report: Iowa Needs to Assure Rules Don't Penalize Working Families

IOWA CITY, Iowa (Oct. 7, 2008) - Working harder and longer can put some low-income families further behind unless public benefits are designed to keep them moving ahead, a new report illustrates.

The report from the National Center for Children in Poverty (NCCP) focuses on Iowa's work supports - benefits such as the Earned Income Tax Credit, public health insurance, child-care assistance and Food Stamps.

"These benefits can help families close the gap between low earnings and basic expenses, and the timing of this report is important for our state," said Lily French, research associate for the nonpartisan Iowa Policy Project (IPP).

"Work supports are especially needed when wages aren't keeping pace with economic pressures, and in Iowa they're not."

The report illustrates what are known as "cliff effects," in which a family's resources rise with higher earnings, but drop off sharply when even a small increase prompts a loss of benefits, such as children's health insurance coverage, home energy assistance or eligibility for a low-income tax credit.

"This is not an unusual situation," French said. "As the report notes, almost one-third of Iowa children are in low-income families, and more than half of them have a parent working full time.

"When Iowa families face a gap between their resources and daily expenses, they are forced to make tough choices. We don't think families should have to choose between paying their rent and buying needed medicine. Work supports, if properly designed and funded, can reward those families for their hard work."

NCCP, part of the Mailman School of Public Health at Columbia University in New York, worked with the Iowa Fiscal Partnership (IFP) to localize the research. IFP is a joint policy analysis initiative of the Iowa Policy Project in Iowa City and the Child & Family Policy Center in Des Moines.

NCCP researchers found that small increases in family income can trigger sharp reductions in benefits, leaving families no better off - even worse off - than before.

"Iowa's work supports can make a tremendous difference in the lives of low-income families, but benefit losses should not outweigh earnings increases," said Dr. Nancy K. Cauthen, NCCP's deputy director and report co-author.

"The next policy challenge for Iowa should be to ensure that when parents earn more, their families are always better off."

In Iowa, it takes far more than a low-wage job to pay for even the most basic necessities, such as rent, food, child care, and transportation. A single parent with two children living in Des Moines needs to earn over $38,000 a year, or $19 an hour at a full-time job, just to make ends meet. That's more than double the state minimum wage ($7.25/hour) and far more than the state median wage ($13.77 an hour in 2006, $14.30 in 2007).

Eligibility for work support programs is typically based on income, so as earnings rise, families begin to lose eligibility for benefits. In some cases, even a small raise can lead to a substantial benefit loss. As a result, parents can work and earn more with no financial benefit for their families when they hit certain financial "cliffs." For example:

  • When a family of three has income exceeding $23,000 a year (130 percent of the official poverty level), the family loses its entire food stamp benefit.
  • When a family earns too much to keep its child-care assistance, it loses several thousand dollars worth of benefits at once.
  • When a parent's earnings increase from $9 to $16 an hour, the family actually loses ground.

Recent policy decisions in Iowa - including expanding the state earned income tax credit and increasing the state minimum wage - reveal that the state's policymakers are willing to invest in supports for low-income working families.

Lead author Sarah Fass said Iowa could build on those efforts with better access to child-care assistance.

"Child care is one of the greatest expenses that families face and quality, reliable care helps parents work and children succeed," she said.

Iowa could also explore options in federal programs, say the researchers. For instance, Iowa could take advantage of the federal food stamp option that allows states to use categorical eligibility to expand access to food stamps for working families with income somewhat above the federal gross income limit. This would eliminate the food stamp cliff without additional cost to the state.

IPP is a nonpartisan policy analysis organization headquartered in Mount Vernon, with its principal office in Iowa City.

NCCP is dedicated to promoting the economic security, health and well-being of America's low-income families and children. For more information, go to the NCCP website.