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Report: State Should Use Extra Federal Funds to Improve Child Care Assistance

May 9, 2018

Commentary: Child advocates released an analysis of the child care assistance program that they hope will have an impact on how the Children, Youth and Families Department (CYFD) spends an additional $20 million in federal funding. The new funding will come through the Child Care and Development Block Grant (CCDBG), which was recently increased by Congress. As CYFD begins its public hearings this week on how best to utilize the funds, policy analysts have this recommendation: fix the cliff effect.

The new report from New Mexico Voices for Children, “The Cliff Effect: One Step Forward, Two Steps Back,” explains the cliff effect and how it hurts low-income families, particularly those with young children.

“The cliff effect is what happens when you receive an increase in your income that’s large enough to put you over the eligibility threshold for assistance but is not as large as the value of the benefits it will cause you to lose,” said James Jimenez, Executive Director of NM Voices.

“Work supports like child care assistance should help families improve their economic well-being. But when they act as a disincentive for accepting a raise in pay or promotion, they are working against the optimal outcome,” he added.

The report shows that a typical family of three—comprised in the report of an adult, a baby, and a four-year-old—can receive child care assistance when they’re earning up to just above $40,000. At this income level, the family still spends about 18 percent of their income on child care co-pays. But if the family income increases by just one dollar, the family loses all child care assistance and has to pay the full cost of child care—which amounts to 38 percent of their income, or almost double what they paid before.

“This family would have to receive a 20 percent raise in pay to cover what they would lose in child care assistance from a much smaller pay raise,” Jimenez added.

“Many families that are faced with the cliff effect have to make terrible choices,” said Armelle Casau, PhD, who co-authored the report. “Some turn down a pay increase, while others have to rely on a lower-cost—which usually means lower-quality—child care situation. Work supports should be designed so that they help parents succeed.”

The $20 million in new federal CCDBG funding could free up state funding to increase the eligibility level for child care assistance to minimize the sudden loss of benefits.

The full report is available here: https://www.nmvoices.org/archives/10219