Child care assistance — a smart investment for Iowa’s economy and a boost for working families.
In the economic crisis Iowa’s families are facing, child care assistance can help. However, Iowa’s current program does not help families enough. We have one of the highest rates of working parents in the country — and also one of the most restrictive assistance policies. We are ranked 47th in country because our income eligibility limits are so low. As a result, too few low-income families are receiving support that will help them keep working.
• Resources used to provide child care assistance returns money to the state budget.
• With program improvements where Iowa has some current weaknesses, it could be self-supporting or actually generate revenue in the future.
Two major weaknesses that could be addressed:
• We currently reach too few working families who are struggling with child care costs (they are facing costs for child care with is higher than a year’s tuition at a regent university).
• The current quality of subsidized care is lower than care for children without subsidies. We would generate more money back to the state budget and potentially make money for the state by improving the quality of care that subsidized children receive.
Regarding the state’s fiscal situation:
• We did not make these program investments three years ago when the economy was better — we can’t count on it happening once things are better again, maybe three years from now.
• Our current fiscal situation demands that we keep Iowans working and make smart investments with state dollars. Child care assistance does both.
• Right now we have federal stimulus targeted for child care improvements and expansions. This is an opportunity for Iowa.
If Iowa policy makers seriously address the facts noted and challenges suggested by our report, they could change the landscape of child care in Iowa. This would be a big boost to working families who are struggling to get by.
Today’s startling report from the Iowa Revenue Estimating Conference removes any doubt about the impact of the recession on top of routine tax-cutting: Iowa has a big revenue problem.
Now, more than ever, Iowa needs to put reality into the rhetoric that everything is on the table in this fiscal crisis, and that points to three immediate responses:
• Use stimulus money to restore funds already cut from the budget;
• Restore funding and avoid further cuts where possible to help the economic recovery and to keep services going at a critical time;
• Recognize that stimulus funds and tax reforms are necessary to bridge the revenue gap created by the recession.
Iowa needs to fight off the temptation to cut budgets further. Budget cuts can damage the Iowa economy, creating more layoffs, at the same time they deny needed public services when more Iowans are hurting.
REC projections today painted a more dire picture than the one that led the governor to slash spending across the board by 1.5 percent for this year and propose 6.5 percent cuts in many services for next budget year, beginning July 1.
The projections mean Iowa has a $130 million larger gap for this year, and a $270 million larger gap for fiscal year 2010. Besides addressing the current budget-year gap, the governor and legislators will have to put a fiscal 2010 budget in place assuming those REC projections.
Many Iowa Fiscal Partnership reports have detailed the revenue roots of Iowa’s current fiscal challenges. Of particular concern are the explosion in corporate tax expenditures, including many giveaways that provide no accountability to Iowa taxpayers that they money is being spent as intended, or that experience has validated that intent.
In the current situation, there can be no more excuses for ignoring the revenue side of Iowa’s budget problems. See IFP’s news release today.
It’s easy to forget amid all the political talk about “stimulus” that it’s an economic concept, not a political one.
So, from the view of one of the country’s leading economists, Mark Zandi of Moody’sEconomy.com, here is an estimate of what $1 of public investment returns to the economy. The graph below shows the change in Gross Domestic Product (GDP) for each dollar invested by various federal actions.
As you can see, a dollar can return well over its value if invested well, and can return far less with other choices.
Relative Economic Impact of Different Federal Actions
Mr. Zandi made that analysis in written testimony to the U.S. House Committee on Small Business in July 2008.
Interestingly from this graph, Mr. Zandi’s analysis is that the four categories of spending in this list of 13 items provide the biggest bang for the taxpayer’s buck. At the top of the chart, a temporary increase in Food Stamps returns $1.73 for each dollar invested; extending unemployment benefits returns $1.64; raising infrastructure spending returns $1.59, and general aid to state governments returns $1.36.
By contrast, tax-cutting returns far less, in some cases far less than the $1 cost to start out.
Economists generally agree that effective economic stimulus initiatives follow the “three T” principle: policies must be TIMELY, TARGETED and TEMPORARY. These are important principles to remember as Iowa’s leaders decide how to use the federal stimulus dollars provided through the American Recovery and Reinvestment Act (ARRA) signed recently by President Obama.
Construction of big hog-producing facilities known as CAFOs is regulated by the Iowa Department of Natural Resources, but not very well. A few Iowa legislators have recognized that and are calling for a small change in the process to approve a CAFO and provide for disposing of the manure.
A study by the Iowa Policy Project last November demonstrated the legislatively imposed shortcomings of the present approval process. The proposed legislation, HSB168, would make a small improvement by shining more light on the process and allowing neighbors the ability to comment to their local county supervisors about shortcomings in plans for the proposed CAFO and its tons of manure.
The proposed bill would not allow the supervisors to stop a project but it would give more information to the Iowa DNR and its citizen bosses on the Environmental Protection Commission. That information might be used to modify plans for locating the facility and providing for manure disposal.
This small step would give neighbors another way to influence a change in their neighborhood.
Sorting out items in the American Recovery and Reinvestment Act — the economic recovery package signed by President Obama — one promises help to over 1.1 million Iowans.
The Making Work Pay Credit is a tax credit of up to $400 per worker. It is available to all workers earning up to $95,000 and married couples earning up to $190,000. There are other elements to it; the credit:
• phases in at the same rate as Social Security taxes
• is reduced by the amount (if any) of the family’s Economic Recovery Payment, a one-time payment of $250 for recipients of Social Security, SSI, and certain other benefits.
• doesn’t apply to workers claimed as dependents by other taxpayers.
According to the Brookings/Urban Tax Policy Center, 110.7 million taxpayers nationwide are eligible for the credit. In Iowa, this is estimated to cover 1,113,000 taxpayers.
The Making Work Pay Credit is not the only credit targeting help to working families at lower incomes. Some families — those with children and low or moderate incomes — also will receive help through expansions in the Earned Income Tax Credit and Child Tax Credit.
The Iowa Department of Revenue has released its 2006 Tax Credit Claims Report.
According to the report, during tax year 2006, Research Activity Credit (RAC) claims were $30.5 million — with 70 percent of that in so-called “refunds.” Important to note: These “refunds” don’t “refund” anything. Rather, they are what the state pays companies that can’t use all of their tax credits because they don’t owe enough tax.
And, by the way, these payments are state secrets — secret checks to companies that don’t pay corporate income tax in Iowa. We only get to know the overall amount of them, but not who gets what. It would be different if these checks came from direct appropriations, through the regular budget process.
This is an example of spending through the tax code that is costing the state of Iowa many millions of dollars each year. By 2012, the RAC is expected to cost the state over $100 million – part of the growing problem of ballooning tax expenditures that have weakened Iowa’s revenue structure.
The new report from Revenue also notes that the supplemental RAC – separate awards provided by the Department of Economic Development – cost the state $13.4 million in 2006, with most of that ($13.1 million) in “refunds.” Governor Culver has proposed doing away with that spending to save the state $13 million in the FY2010 budget.
It might surprise Iowans to learn that state general fund spending has declined as a share of the economy. That is the reality — even if it’s not the common rhetoric heard from the State Capitol.
But one area of state spending is spinning out of control: spending through the tax code on business development projects. Business tax credits have grown from $144 million in fiscal 2006 to $243 million last year. The Department of Revenue projects this figure to spike to $406 million next fiscal year.
These credits might not be reviewed by the Legislature as it builds its budget. This kind of spending is done through the tax code, not the regular appropriations process. Once enacted, these credits are not subject to annual reauthorization and can grow well beyond what anyone expected, and for activities not intended when they were passed.
Business tax credits in Iowa are on autopilot. We cannot afford this, and the current budget crisis offers a good time to address it.
See the new paper, “Iowa Budget Belt-Tightening: Fosusing on the Largest Waists,” from the Iowa Fiscal Partnership at http://tinyurl.com/d8rkm2.