‘Cliff effect’ blamed for keeping Coloradans in poverty

Poor families lose benefits if they earn too much

Rachel Contizano, 32, a single mother in Aurora who lost her job in 2009, recently graduated magna cum laude from Colorado Women’s College at the University of Denver. She has calculated she needs to earn about $43,000 to make up for the loss of food stamps, day-car -assistance for her 4-year-old son, Medicaid and rental subsidies she receives. Enlarge photo

Joe Mahoney/I-News Network

Rachel Contizano, 32, a single mother in Aurora who lost her job in 2009, recently graduated magna cum laude from Colorado Women’s College at the University of Denver. She has calculated she needs to earn about $43,000 to make up for the loss of food stamps, day-car -assistance for her 4-year-old son, Medicaid and rental subsidies she receives.

The measures passed by Congress and signed by President Bill Clinton in 1996 “to end welfare as we know it” were heralded as a ticket to economic self-sufficiency. The poor would be encouraged to enter the workforce and eventually leave all welfare assistance behind.

But for most of the tens of thousands of working poor families in Colorado, the vision of self-sufficiency is illusive.

One of the most significant components of the work-support programs – child care assistance – doesn’t reach about three-fourths of the state’s working poor and generally fails the other fourth’s attempt to escape poverty, according to an I-News analysis of state data, census figures and Colorado-specific research reports, as well as interviews with benefit recipients, policy experts and government officials.

The I-News inquiry found:

Working families can fall prey to the “cliff effect,” in which even a modest rise in family income can lead to termination of a government benefit, including subsidized child care, worth thousands of dollars a year. The family, by earning more, can suffer a big net loss.

Colorado is unique among the states in allowing counties to set income levels for eligibility for child care assistance, or CCAP, the biggest work-support program. The state’s system has created broad inequities in what families can earn before losing child care.

Most experts say higher education is essential to rising out of poverty. Yet 11 counties don’t give child care help to parents attending college. A parent in Boulder County can get child care subsidies to attend the University of Colorado, but a Larimer County parent gets no help to attend Colorado State University.

Families facing the cliff effect report having employed strategies such as turning down raises, promotions or passing on better jobs to avoid losing an essential benefit.

Proposed reforms center on phasing out payments gradually as family incomes rise toward self-sufficiency. Yet when Colorado lawmakers twice tried to require counties to phase out child care benefits, the proposals were watered down after lobbying by Colorado counties to make them voluntary.

There are more than 63,000 working families in Colorado earning 130 percent of poverty or less, about $25,000 per year, according to the I-News analysis. In 2012, according to state figures, CCAP served about 31,000 of the almost 137,000 children in those families – “a pittance” in the words of one state senator.

“The reason the cliff effect matters, and the reason it matters to all of us in society, is that we want to provide the opportunity for these families to get into the workforce, to stay working, to reach self-sufficiency, to get ahead,” said Rich Jones, director of research at Bell Policy Center in Denver, a self-described progressive think tank. “That’s the whole design. By keeping the cliff effect, by keeping the barriers in place, we’re actually providing a disincentive to continue working.”

For many poor working families that receive work supports, the cliff effect isn’t an issue. They don’t earn enough to trip the loss of benefits. The real threat of the cliff effect is to those close to self-sufficiency.

“A fraction of these folks can actually make it work,” said Susan Roll, a California professor who did her doctoral thesis at the University of Denver about the cliff effect. “It is very difficult to be on these programs, and it is certainly next to impossible to escape the programs.”

The work-support benefits can include child care assistance, food stamps, housing assistance, assistance with energy bills and Medicaid, among others.

The steepest cliff in the state is posed by the child care assistance program, experts say. It’s a big benefit, but without it, many poor parents can’t work full-time, go to school or job training.

Even a raise of $1 per hour, which would translate into about $2,000 a year for a full-time employee, could trigger the termination of the benefit worth $6,000 to $8,000 per year or more to the family, and might even impact the parent’s ability to work.

“I would say the cliff effect is the No. 1 reason preventing women and their families from achieving self-sufficiency,” said Lorena Garcia, executive director of Denver-based COLOR, which works with young women trying to escape poverty.

Academic researchers and county social workers all said they have seen families forgo raises or promotions so they didn’t lose child care benefits.

“It’s frustrating to hear their stories,” said Tamara Schmidt, supervisor of the child care assistance program in Larimer County. “To have them calling in tears because they’re over income by 10 cents (an hour). I mean there’s really not a whole lot of wiggle room.”

Self-sufficiency is pegged by most studies at about 225 percent of the federal poverty guideline, or about $44,000 annually for a family of three.

That number comes particularly into play in Colorado’s county system for setting income limits for child care assistance. The limit for a family of three ranges from $25,000, or 130 percent of poverty, to $44,000, 225 percent of poverty. And these vast disparities exist next door to each other.

For example, in southeast Colorado, Prowers County cuts off child care at $25,000 for a three-person family, while adjacent Bent and Kiowa counties allow up to $44,000. A 2008 state audit found that more than 1,000 families denied child care assistance because their incomes were too high would have qualified in a neighboring county.

Higher education is another touchstone in the debate about Colorado’s county system.

“Post-secondary education, especially for single-parent households, is critical as far as financial security, social mobility, all of those things,” said state Sen. John Kefalas, D-Fort Collins.

That Larimer County doesn’t allow higher education as an eligible activity ultimately comes down to a matter of resources, officials said.

“We had to make the choice to serve the poorest of the poor,” said Laura Sartor of Larimer County Human Services. “It was very difficult. It was a very hard choice to make. We did a lot of research and a lot of statistics in determining who we could and couldn’t serve. And unfortunately, the student population was one of the populations that were an option, so we had to eliminate them and not be able to cover child care anymore.”

By the end of 2009, Boulder County’s child care assistance and other support programs were in shambles, said Frank Alexander, director of the county’s Human Services Department. Funding cuts forced the county to cut its child care rolls by almost 400 children and lay off 30 people in the department.

But the next year, voters passed a property-tax increase just to fund social-service programs, and now the county is among those allowing families to earn up to 225 percent of poverty to qualify and covers parents going to college for two years.

“All of the evidence in the state and country shows us that if we figure out how to finance that, it is an incredible worthwhile investment,” Alexander said. “We actually saw savings in other systems by having that eligibility level higher.”

Many counties change eligibility levels as budgets and caseloads rise and fall. El Paso County Commissioner Sallie Clark, a Republican, said that it’s critical that these decisions be made at the close-to-the-ground county level. El Paso recently raised its level to 150 percent of poverty, but allows recipients, once approved, to stay with the program up to 165 percent.

“Local control is always best when you’re looking at what the needs of your community are, and from a local perspective, it gives us the flexibility to be able to manage our own dollars appropriately, to see what worked best for our community,” Clark said.

Colorado Counties Inc., the lobbying organization for the state’s 64 counties, twice has lobbied against legislation requiring the counties to phase out child care assistance to counter the cliff effect. Each time, the counties lobbied successfully to make the proposals voluntary. The 2012 bill called for a 10-county pilot project to test phasing out the benefit. So far, no county has volunteered.

Clark said requiring counties to phase out the benefit would be too costly.

“We don’t have unlimited resources and funds to subsidize child care,” she said.

But Kefalas said there would be benefits in embracing reform.

“In my opinion, if we make these investments up front, we’re going to save an awful lot of money for the taxpayer in terms of public-assistance programs, in terms of dealing with the criminal justice system, and the research bears that out,” Kefalas said. “And I think we have a responsibility to solve the cliff effect problem and a variety of other things that face Colorado families and communities.”

I-News is the public service journalism arm of Rocky Mountain PBS.

Jeannett Escarcega encountered the “cliff effect” after taking a 4-an-hour job that triggered the loss of 00 in monthly food-stamp support and more in child-care assistance. “I cry on my way to work,” said Escarcega, who lives with her son, John, 4. Enlarge photo

Joe Mahoney/I-News Network

Jeannett Escarcega encountered the “cliff effect” after taking a 4-an-hour job that triggered the loss of 00 in monthly food-stamp support and more in child-care assistance. “I cry on my way to work,” said Escarcega, who lives with her son, John, 4.