‘Cliff effect’ on child care imperils working parents
Providers express concern that families could lose assistance as wages increase
A couple of years ago, a mother came to Ray Jaramillo, director of a child care center in Las Cruces. She had been working for minimum wage at a Burger King restaurant but was offered a supervisory position with better hours and a wage bump to over $9 an hour. She worried the extra money could cause her to lose child care assistance for her two little girls.
The woman’s higher income, combined with her spouse’s salary, would push the family’s earning power over the limit for government-subsidized child care. She had to figure out whether to take the promotion and risk paying thousands of dollars more each year for child care or forgo the raise. She turned down the promotion. “I remember thinking [her potential salary] was the exact same as the minimum wage was going to be,” Jaramillo said, referring to an increase in Las Cruces’ base wage, a rate no worker would be able to turn down.
As the city’s minimum wage has risen over the past few years — from the statewide minimum of $7.50 in 2014 to $9.20 now and headed to $10.10 in 2019 — child care providers have begun to express concern that low-income families could lose valuable assistance that would more than wipe out the gains they made in wages.
“My fear is that the good things we are trying to do with minimum wage are gonna hurt the exact people that we are trying to help,” Jaramillo said.
That mother’s dilemma is real. The loss in benefits following a wage increase is called the “cliff effect,” and children’s advocates say child care assistance often is the biggest loss for New Mexico parents whose incomes exceed 200 percent of the federal poverty level.
Two state-based nonprofits, New Mexico Voices for Children and the New Mexico Center on Law and Poverty, are advocating for the state to expand the eligibility rules for child care subsidies and ease the sudden drop-off of benefits as parents work their way up the income ladder.
The steepest cliff
Armelle Casau, a policy analyst and researcher at New Mexico Voices for Children who is working on a report ahead of the 2018 legislative session, said the steepest drop in benefits as incomes rise in New Mexico is,
by far, child care assistance, a program that helps low-income parents work or remain in school. Last year, New Mexico spent about $100 million on the program, with a combination of federal and state dollars.
To qualify for the subsidies, a family’s income must be under 150 percent of the federal poverty level, which is $36,903 for a family of four. For a single parent with two children, it’s $30,630.
If a family’s income rises to more than 200 percent of the federal poverty level, they no longer qualify for the aid. The threshold is $49,200 in annual income for a family of four, or $40,480 for a single parent with two children.
Casau’s study looked at single parents with two kids, because most people with the subsidies in the state are single parents, and most have more than one child in day care. She found that a typical mother could go from paying about $3,000 per year in copays to almost $15,000, the full cost if she has an infant and a 4-year-old.
Even with just one child, a single parent would see a jump of up to $7,000 in child care costs for going over 200 percent of the federal poverty level.
“It’s almost like getting that one dollar increase over 200 percent FPL is a huge, dramatic loss that makes a lot of parents actually refuse pay raises and refuse promotions because they don’t want to lose that child care assistance,” Casau said.
That kind of calculus hurts New Mexico’s workforce and a family’s future earning potential, Casau says. Other programs, such as food stamps, Medicaid and TANF — federal temporary assistance for needy families — reduce benefits more gradually as income increases, something New Mexico Voices for Children is advocating for with child care assistance.
Balancing minimum wage and cliff effect
A family of four with two parents working at Santa Fe’s minimum wage of $11.08 per hour would not qualify for child care assistance because their combined income is over 150 percent of the federal poverty level. On Jan. 1, similar families in Albuquerque will be affected when the minimum wage increases to $8.95 per hour.
Both the Center on Law and Poverty and Voices for Children said the child care subsidies are the best way to bolster working parents — and New Mexico’s future workforce — because studies have shown children with high-quality early childhood care and education have better outcomes.
As cities like Albuquerque, Santa Fe and Las Cruces work to improve wages, more families will lose the chance to enroll in such programs. That could impact efforts to raise the minimum wage statewide.
“We have to raise the minimum wage, but we also have to make sure the legislation doesn’t hurt families,” said Doreen Gallegos, D-Las Cruces, the state House majority whip.
Legislation to increase the minimum wage statewide is likely to come back up in the session that starts in January, Gallegos said. “We need to keep the conversation going and to keep it happening,” she said, “… but I hope we do it mindfully.”
Seeking a solution
Voices for Children and the Center on Law and Poverty believe there is a way to raise the minimum wage statewide, while still making sure more people can take advantage of child care assistance and slowly ramp down benefits.
The advocates said the best way to mitigate the cliff effect would be to take the child care assistance eligibility level to 200 percent of federal poverty level and to increase families’ copays on a sliding scale until they earn their way off the benefit at 300 percent of federal poverty level, which would allow for a much more gradual reduction in benefits.
Casau said Colorado is a highwage state that sets its eligibility level at 300 percent of the federal poverty level, and that many states go above 200 percent. “And they’re paying their child care workers a lot more than we are. So they’re finding a way to make it work,” she said.
Even New Mexico had set its eligibility level at 200 percent of the federal poverty level in 2009, before budget constraints led the state to lower it to 100 percent in 2013. A year later, officials raised the threshold to its current rate of 150 percent in 2014.
The state Children, Youth and Families Department, which administers the aid program, also will temporarily raise the eligibility level when funding is available to add children on the waiting list whose families earn just over salary limit.
For the upcoming budget year, the agency is seeking about $26 million more from the Legislature to pay for longer child enrollment periods and to offer higher reimbursements to child care centers that are taking advantage of incentives to increase the quality of their programs.
With the state projecting only about $199 million in new revenues for the budget year that begins in July, however, it’s not likely the agency will receive a significant funding boost to pay for a child care subsidy expansion for higher-earning families.
“All these legislators sit up at these panels … and say ‘early childhood, early childhood, early childhood,’ ” Jaramillo said. “Let’s see if they get the $26 million.”