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Apr 14, 2016

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An expert in policy advocacy and coalition building, Chaer has dedicated her career to helping people meet their basic needs and expanding economic opportunity. She serves on the executive committee of the All Families Deserve a Chance (AFDC) coalition. Staff page ›

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Proposed tax credit provides wrong solution for the right problem

by | Apr 14, 2016

Family Economic Security

On paper, House Bill 1372 looks like a win-win proposition that gives businesses a financial incentive to hire low-income workers who face challenges in today’s job market.

The bill, which was approved with bipartisan support by the House Public Health Care and Human Services Committee, would create state Work Opportunity Income Tax Credits (or WOTC) modeled on the federal WOTC. These tax credits would be available to employers who hire members of targeted groups — including public-assistance recipients, disabled or unemployed veterans and ex-offenders. The legislation addresses one of CCLP’s core priority issues: Jobs for Coloradans with barriers to employment.

But in reality, WOTC does NOT have a strong record of effectiveness in affecting hiring decisions or wage or skill growth over time. A study commissioned by the U.S. Department of Labor found “the tax credits play little or no role in recruitment policies.” In fact, many third-party vendors make a lot of money gathering and processing paperwork from large companies to secure tax credits for the low-income workers their clients would have likely hired anyway.

The legislative declaration of HB 1372 is centered on reducing this population’s dependency on government programs. Yet, given the average wages of WOTC jobs on a national level, and the minimum number of required work hours to meet the threshold for the tax credit (about 8 hours per week), most beneficiaries would still be dependent on government programs. Nationally, 42 percent of WOTC jobs pay between $7.25 and $8.25 hour. Only one-quarter of those jobs pay more than $10 hour.

For example, a mother and child currently on Medicaid lose the benefit when their income exceeds 138 percent of the federal poverty level (FPL), or $22,107 a year. Doing the math, the mother would need to work more than 47 hours per week at $9 per hour to exceed the Medicaid qualification threshold. If the woman earned $10 per hour, she’d need to work 42 hours a week to be ineligible for Medicaid. And two of the three most-common WOTC jobs — retail and food-preparation — generally aren’t full-time jobs.

Because of these deficiencies, WOTC exemplifies “corporate welfare” at the expense of the state budget and taxpayers. As amended, HB 1372 is estimated to cost the state of Colorado $25.2 million in lost revenue beginning in 2018 when the tax credit would go into effect. Since the bill does not cap these tax credits (and the $25.2 million is just an estimate), the state could easily double down on these budgetary implications if businesses become savvy about the tax credits and third-party vendors get more organized in attracting business.

WOTC has proven to be a very costly approach to fighting poverty. The federal WOTC grew from $490 million to $1.1 billion between 2008 and 2010. As mentioned earlier, WOTC would not need an annual appropriation to grow, so the sky is the limit budget-wise.

Though CCLP opposes HB 1372, we encourage legislators to support other bills that could actually help low-income Coloradans obtain gainful employment and skills training. For example, HB 1290, would extend funding for ReHire Colorado, a successful transitional jobs program, from 2017 until the end of 2021. The legislation, which was approved by the House Business Affairs and Labor Committee, has bipartisan support and is part of a package of workforce bills backed by Gov. John Hickenlooper.

Rather than losing potentially $25.2 million a year in tax revenue from HB 1372, another more productive use of scarce resources would be to double state funding for Adult Education and Literacy. Less than $1 million for that program would go far. After all, the 10 percent of working-age Coloradans who lack a high school or equivalency diploma are effectively locked out of most jobs and training opportunities. In 2014, the state unemployment rate was 4.9 percent. The unemployment rate for those without a high school diploma was 12.6 percent.

Without evidence that the WOTC influences hiring decisions, and with the state facing significant budgetary constraints that limit spending in health care, education and other important priorities, why should Colorado give away millions of dollars to large employers affiliated with the WOTC Coalition, such as Walgreen’s, Wing Stop and Waffle House?

We urge the House Finance Committee to put an end to HB 1372. Simply put, it is the wrong solution to the right problem.

– Chaer Robert

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HEALTH:
HEALTH FIRST COLORADO (MEDICAID)

To maintain health and well-being, people of all ages need access to quality health care that improves outcomes and reduces costs for the community. Health First Colorado, the state's Medicaid program, is public health insurance for low-income Coloradans who qualify. The program is funded jointly by a federal-state partnership and is administered by the Colorado Department of Health Care Policy & Financing.

Benefits of the program include behavioral health, dental services, emergency care, family planning services, hospitalization, laboratory services, maternity care, newborn care, outpatient care, prescription drugs, preventive and wellness services, primary care and rehabilitative services.

In tandem with the Affordable Care Act, Colorado expanded Medicaid eligibility in 2013 - providing hundreds of thousands of adults with incomes less than 133% FPL with health insurance for the first time increasing the health and economic well-being of these Coloradans. Most of the money for newly eligible Medicaid clients has been covered by the federal government, which will gradually decrease its contribution to 90% by 2020.

Other populations eligible for Medicaid include children, who qualify with income up to 142% FPL, pregnant women with household income under 195% FPL, and adults with dependent children with household income under 68% FPL.

Some analyses indicate that Colorado's investment in Medicaid will pay off in the long run by reducing spending on programs for the uninsured.

FOOD SECURITY:
SUPPLEMENTAL NUTRITION ASSISTANCE PROGRAM (SNAP)

Hunger, though often invisible, affects everyone. It impacts people's physical, mental and emotional health and can be a culprit of obesity, depression, acute and chronic illnesses and other preventable medical conditions. Hunger also hinders education and productivity, not only stunting a child's overall well-being and academic achievement, but consuming an adult's ability to be a focused, industrious member of society. Even those who have never worried about having enough food experience the ripple effects of hunger, which seeps into our communities and erodes our state's economy.

Community resources like the Supplemental Nutrition Assistance Program (SNAP), formerly known as Food Stamps, exist to ensure that families and individuals can purchase groceries, with the average benefit being about $1.40 per meal, per person.

Funding for SNAP comes from the USDA, but the administrative costs are split between local, state, and federal governments. Yet, the lack of investment in a strong, effective SNAP program impedes Colorado's progress in becoming the healthiest state in the nation and providing a better, brighter future for all. Indeed, Colorado ranks 44th in the nation for access to SNAP and lost out on more than $261 million in grocery sales due to a large access gap in SNAP enrollment.

See the Food Assistance (SNAP) Benefit Calculator to get an estimate of your eligibility for food benefits.

FOOD SECURITY:
SPECIAL SUPPLEMENTAL NUTRITION PROGRAM FOR WOMEN, INFANTS AND CHILDREN (WIC)

Every child deserves the nutritional resources needed to get a healthy start on life both inside and outside the mother's womb. In particular, good nutrition and health care is critical for establishing a strong foundation that could affect a child's future physical and mental health, academic achievement and economic productivity. Likewise, the inability to access good nutrition and health care endangers the very integrity of that foundation.

The Special Supplemental Nutrition Program for Women, Infants and Children (WIC) provides federal grants to states for supplemental foods, health care referrals, and nutrition information for low-income pregnant, breastfeeding and non-breastfeeding postpartum women and to infants and children up to age five who are found to be at nutritional risk.

Research has shown that WIC has played an important role in improving birth outcomes and containing health care costs, resulting in longer pregnancies, fewer infant deaths, a greater likelihood of receiving prenatal care, improved infant-feeding practices, and immunization rates

Financial Security:
Colorado Works

In building a foundation for self-sufficiency, some Colorado families need some extra tools to ensure they can weather challenging financial circumstances and obtain basic resources to help them and their communities reach their potential.

Colorado Works is Colorado's Temporary Assistance for Needy Families (TANF) program and provides public assistance to families in need. The Colorado Works program is designed to assist participants in becoming self-sufficient by strengthening the economic and social stability of families. The program provides monthly cash assistance and support services to eligible Colorado families.

The program is primarily funded by a federal block grant to the state. Counties also contribute about 20% of the cost.

EARLY LEARNING:
COLORADO CHILD CARE ASSISTANCE PROGRAM (CCCAP)

Child care is a must for working families. Along with ensuring that parents can work or obtain job skills training to improve their families' economic security, studies show that quality child care improves children's academic performance, career development and health outcomes.

Yet despite these proven benefits, low-income families often struggle with the cost of child care. Colorado ranks among the top 10 most expensive states in the country for center-based child care. For families with an infant, full-time enrollment at a child care center cost an average of $15,140 a year-or about three-quarters of the total income of a family of three living at the Federal Poverty Level (FPL).

The Colorado Child Care Assistance Program (CCCAP) provides child care assistance to parents who are working, searching for employment or participating in training, and parents who are enrolled in the Colorado Works Program and need child care services to support their efforts toward self-sufficiency. Most of the money for CCCAP comes from the federal Child Care and Development Fund. Each county can set their own income eligibility limit as long as it is at or above 165% of the federal poverty level and does not exceed 85% of area median income.

Unfortunately, while the need is growing, only an estimated one-quarter of all eligible children in the state are served by CCCAP. Low reimbursement rates have also resulted in fewer providers willing to accept CCCAP subsidies.