Child Poverty

Economic Security Now and in the Future: How Ohio can smooth benefits cliffs and eliminate the confidence cliff

May 24, 2021 | Ohio

Economic Security Now and in the Future: How Ohio can smooth benefits cliffs and eliminate the confidence cliff

May 24, 2021

By Tracy Nájera, PhD & Alex F. Coccia, D.Phil.

Last month, I had the pleasure of meeting with a group of philanthropic leaders to discuss a critical issue – the Benefits Cliff. In my preparation for this meeting, I worked with my colleague, Alex Coccia, to better understand how this longstanding issue has taken on a different flavor in this pandemic and this new economic environment we find ourselves. He shared the following thoughts, insights, and recommendations, which we are sharing here below.

First, we must tackle not only the rational side of this phenomena, but the emotional aspect of it as well. Simply put, economic security is the ability for families not only to meet their immediate needs, but also to have confidence in being able to meet their future needs. In the immediate, public benefits provide low-income families and children with much needed resources.

Efforts must also be made to ensure that parents have the confidence that they’ll be able to meet future needs. The Urban Institute found that among low-income families with children, “access to savings or credit, homeownership, and health insurance coverage were associated with reduced hardship, with confidence in the ability to cover a $400 emergency expense having the strongest negative association with hardship.”

This confidence can be diminished for two reasons. First, given existing eligibility thresholds and phase out rates for benefits, parents may lose confidence that they can ensure financial security for their families by taking small increases in income from a job. As the Center for the Study of Social Policy noted, “If a particular policy lifts families’ income and resources above the poverty line, we have a tendency to deem it successful. We know that today, too few of our basic supports even do that. But for those that do, we know that families who benefit from them still often struggle to afford housing and child care and other basic needs, and remain under constant stress that limits their ability to plan for their future.”

Second, that stress is compounded when particular benefits are only temporary. For example, the expansion and refundability of the child tax credit through The American Rescue Plan Act of 2021 (ARP) will provide enormous relief for families struggling to pay for basic needs such as child care; however, as of now, it only lasts for one year. Given that some programs and services are expanded in times of crisis like the pandemic, parents may not have the confidence that these extensions will be continued after the stimulus funding has passed. This concern is easily justified: states like Ohio have devoted no new state funding to programs like publicly funded childcare, nutrition assistance, or housing assistance. Instead, states are relying solely on the necessary extension of an increase in benefits at the federal level. In fact, Ohio legislators have introduced SB 17 which would reduce eligibility for nutrition assistance and other benefits by creating additional barriers and unnecessary requirements for individuals applying for much needed help.

Last month, I described the low-wage/low-benefit combination at the heart of the benefits cliff. This post discusses effective ways to smooth the benefits cliffs Ohioans face, as well as the need for state spending to provide confidence in sustained support for working parents and their children.

Smoothing the benefits cliff

There are a number of important steps Ohio legislators can take to help parents at every stage of benefit recipiency:

  • Align the eligibility rules across our public benefits programs in part by increasing income eligibility thresholds. For example, WIC and PFCC have different initial eligibility thresholds despite both providing parents necessary resources for their children. One relevant legislation is HB 145, a bipartisan bill which would increase initial income eligibility for publicly funded child care from 130 to 200% of the federal poverty level (FPL). (Governor DeWine’s budget proposal increases eligibility from 130 to 138% for all children and up to 150% for children with disabilities).

Another strategy to ensure children receive benefits immediately is to allow child care providers to give presumptive eligibility to new applicants, so that children can start to receive needed resources as the county department verifies eligibility.

  • Reduce administrative burdens that increase the likelihood of parents losing benefits once they are approved. A primary burden is the monthly redetermination for benefits, requiring recipients to prove their income eligibility each month, despite the fact that amongst low-income earners, income fluctuations and unpredictable schedules are quite common. This may lead individuals to lose benefits in a month in which their income is above eligibility despite their yearly income being well-below.

By lessening the frequency of redeterminations and accepting child eligibility for programs for 12 months at a time regardless of changes in family income or employment, policymakers would reduce both disruptions to children’s development and the administrative costs associated with redetermination.

First, Ohio can disregard an increased amount of earned income or a certain number of months of new earnings when determining the amount of benefit awarded.

Second, Ohio can provide additional support for individuals as they advance in their careers. An employment incentives program in Allen County added monthly incentives to an account that the participant would access after completion of the 18 month program – valued at a maximum of $2,500. Participants could also receive vouchers for immediate needs.

Third, Ohio can extend the percentage of FPL over which benefits are phased out. For example, Ohio’s child care eligibility phase-out threshold is 300% FPL (approximately $31.90 hourly for a family of three). As individuals’ incomes increase, their co-payment alongside the state’s payment increases, allowing for a gradual phase-out of benefits.[1] As a way to extend support for families who are working and receiving benefits, policymakers should benchmark the FPL eligibility phase-out thresholds to Self-sufficiency Standards, which better account for county level cost of living.

Smoothing out benefit cliffs not only provides immediate relief to working families, but also gives confidence to families that they can take jobs or promotions without being penalized on their path to self-sufficiency. The above changes promote and incentivize work and ensure that families will not have the economic security rug ripped from under them. Most importantly, they ensure that children get the continuous, stable care and nutrition support that they need to grow and thrive.

State spending will help eliminate the confidence cliff

The ARP has brought a lot of hope to families trying to meet their immediate needs and has addressed some immediate benefits cliffs. For those unemployed, ARP extended federal unemployment benefits until September. This is a welcome development since job loss during the pandemic was concentrated among low-wage jobs. ARP also provided $15 billion to the Child Care and Development Block Grant (CCDBG) to subsidize child care during the next year, $24 billion for child care stabilization funds to save and sustain child care programs, and $1 billion for Head Start to ensure that programs can continue to provide vital services to children and families.

However, in Governor DeWine’s proposed FY 2022/2023 budget, all new money for child care access and affordability is federal through CCDBG.

The above recommendations should be supported with funds from Ohio’s General Revenue Fund, rather than sole reliance on federal stimulus money. This means reprioritizing how appropriations at the state level include measures to help children and their parents become self-sufficient.

As Representative West (R-Kettering) made clear in her recent testimony in favor of increasing the initial eligibility threshold for publicly funded child care, “Let’s find the money in our budget and reprioritize children now, for our families, for our workforce, and for our futures.” The fact is, we have the money and resources to bolster economic stability for all Ohio families. Ohio’s tax revenues have consistently over performed the projections made by the Governor’s Office of Budget and Management, and we are still sitting on a $2.7 billion rainy day fund – none of which has been touched to support struggling Ohioans who need it, despite Gov. DeWine’s assurances that we would use it for this purpose.

By complementing ARP funds by investing its own resources, Ohio can help turbocharge the recovery, make commitments for the future, and bolster the confidence in Ohio’s families’ own abilities to meet their future needs.

[1]Although, there are still challenges for parents who drop out of the job market and try to re-enter above the initial eligibility threshold but below the phase-out threshold – something lessening the frequency of redeterminations can address.