What Is The Cliff Effect And How Does It Impact Women And Families?
BY SARAH WENGERT
Imagine you’re a hard-working single mother. Your income is low, but your goals are lofty. After years on the job, increasing your skills and proving your professional worth, while also miraculously balancing your responsibilities at home as a parent/chef/nurse/handywoman/counselor, and countless other duties as assigned, you’re finally offered the promotion you desire and deserve.
What happens next is a surprise to everyone, and not the happy ending you were promised would come as a result of your exhausting efforts: You don’t take the promotion.
Why would any woman undermine her own advancement by turning down a promotion and accompanying raise? Two words: Cliff effect.
“The cliff effect refers to a challenge with the current structure of our public benefit programs where families experience a small increase in income—such as a small raise or income from working extra hours—that pushes them over the income eligibility limit for assistance before their income is adequate enough to make up for the loss of benefits,” says Aubrey Mancuso, policy coordinator at Voices for Children in Nebraska. “This can serve as a disincentive to do the very thing that we would hope for families in this situation to do—increase their income.”
Carolyn D. Rooker, executive director of Voices for Children, says that what happens to these families is that essentially, they find their income is not yet sufficient to make up the difference in costs. “Programs like adult Medicaid, child care assistance and the Supplemental Nutrition Assistance Program create significant cliffs for families in every region of Nebraska, including Omaha,” she says.
In some cases, being as little as one dollar over an income eligibility limit can trigger the loss of hundreds or thousands of dollars in benefits. Thus the term “cliff effect,” which describes the abruptness of the issue that has women and children being senselessly flung off of a financial cliff.
“The impact is that a number of single mothers cannot take promotions when they’re offered because the math just doesn’t work out,” says Julie Kalkowski, director of Creighton University’s Financial Hope Collaborative, where she works mostly with single mothers.
Low-income women are used to being advised to “pull yourself up by your bootstraps” and “climb every mountain” to improve their lives, but it often takes a lot more than sheer determination to overcome built-in obstacles such as the cliff effect in order to find their personal financial peak.
Kalkowski has frequently seen mothers forced to choose between a promotion that benefits their career and being able to afford health care for their children.
“It’s a really tough choice, but often they’ll turn down a promotion, which keeps them from getting on the career track that they want,” says Kalkowski, adding that while it can be a decision based in short-term self-preservation, “It really stalls their career growth well into the future.”
Rooker echoes this loss of professional autonomy many low-income women must choose in order to support their families.
“It serves as a disincentive for lower-income families to increase their financial stability, leaving women trapped in low-wage work because they can’t afford the loss of benefits that would result from increased wages,” she says. “Because of the cliff effect, low-income women are forced to sacrifice financial stability in order to receive the benefits they need to care for their children.”
“The cliff effect is particularly problematic in child care assistance,” says Mancuso. “Our child-care-subsidy program helps keep kids safe so parents can work. We hear stories from families about having to choose between meeting the current needs of their families and moving toward better financial security in the long term.”
Mancuso says that some of those stories will be included in a report Voices for Children will release in February 2015. It’s one thing to learn of the cliff effect conceptually, but the gravity of its impact is best understood by hearing individual stories of how it has negatively affected local women and children.
Jennifer Rieb shared her story of facing off with the cliff effect. The 34-year-old is a single mother of two boys, ages 13 and 3. She currently works as an account receivable associate in the Omaha area.
“I was working a job that was lower paying, and I received Medicaid for my sons and day-care assistance for my youngest son,” says Rieb, who had a “share of cost” for the day care, paying $190 a month for full-time care. She says she was always tremendously grateful for the help she received.
When she decided to look for a different, higher-paying job in order to advance professionally, as well as provide a better life for her family, she researched the guidelines within Access Nebraska (the Nebraska Department of Health & Human Services website) to view the range in which she would need to fall in order to maintain her essential child-care and Medicaid assistance.
“When I was offered a new job with a higher salary, I looked on Access Nebraska and even called the customer service department, because I knew that taking the job and losing the day care would only put me in the red,” Rieb says. “When I spoke with the customer service representative I was informed that my Medicaid would not be affected—which it was not, my boys still have Medicaid—and told that the day care share of cost would go up, but that I would still be eligible.”
At that point, Rieb took the new job. Her recertification period came within two weeks and she filled out the paperwork with her new, higher earnings, only to receive a phone call from the state informing her that she was no longer eligible for day care. She says panic immediately set in.
“[I knew that] going from paying $190 a month to $520 would drastically alter everything—from feeding my family, to paying rent and putting gas in the car,” she says.
According to Rieb, the representative she subsequently spoke with at the state office told her that once they receive the gross income amount exceeding the guidelines, they look no further into anything regarding expenses such as utilities, rent or day care.
“I told her I was informed previously that it would not change and all I got was, ‘You were told incorrectly.’ She even asked me if I could ask for less money or reduce my hours,” Rieb says.
So, in classic cliff effect form, after receiving a higher paying job, Rieb found herself and her family very abruptly worse off financially.
“It has caused a tremendous amount of stress, and every payday it is a draw from the hat for which bills are going to be paid this month,” she says. “I have had to use pantries and even began selling plasma to try to get by in between. If it wasn’t for my mom I would not be able to survive.”
Many rejoiced in November 2014, when Nebraska voters overwhelmingly approved Initiative 425, which raises the state’s minimum wage above the federally mandated $7.25 per hour. With its passage, Nebraska’s minimum wage will rise incrementally, to $8 per hour in 2015 and to $9 per hour in 2016—giving a pay raise to many low-income workers and families. While such an initiative is meant to help those earning minimum wage, it’s possible that with higher earnings some families may be impacted by the cliff effect and forced to face a loss in benefits that could leave them worse off than before.
“This is nothing new,” says Kalkowski, of the cliff effect. “Unfortunately, it is something we’ve been looking at for close to 20 years, and it’s just cycled back up to the top recently.”
So what can be done to address the cliff effect and its resoundingly negative impact on women and families? Many local experts agree that policy changes are absolutely imperative.
“While Voices for Children encourages families to continue to seek out the resources available to them, we remain committed to addressing the cliff effect at the policy level and making the necessary changes that will open up opportunities for mothers and families to achieve financial stability while taking care of their children’s immediate needs and setting them on the pathway to a bright future,” Rooker says.
Kalkowski agrees. “Policy needs to be changed, and it would help to implement a sliding scale for reduction or loss of benefits so that the changes are more gradual.”
She suggests a commonsense sliding scale would prevent women from having to navigate the abrupt discord caused by the cliff effect, allowing them time to adjust on behalf of themselves and their families while continuing to pursue professional success.
“Policies that use a sliding scale help women and low-income workers begin to climb up that career ladder—and that’s what we want, we want people to get ahead, to be rewarded for their hard work,” she says.
Mancuso agrees that changing policy is instrumental to avoiding the cliff effect. “We need to restructure our public safety net programs so that they function in a way that allows families to better their financial circumstances while still meeting the basic needs of their families,” she says. “We can do this by allowing families to earn more and still receive assistance, gradually increasing their copays and transition them off closer to a point where their income is sufficient to cover the full cost.”
As it stands now, a family would transition off the child-care-subsidy program at a maximum of 140 percent of the federal poverty level, Mancuso says, “and we know that what families really need to get by is closer to 200 percent of the poverty level.”
Kalkowski adds that the poverty level itself is also part of the problem and contributing to flawed policy. “We really need to look at changing the federal poverty level. It is so low and has not kept pace with inflation,” she says. “Doing so would make a greater number of families eligible for benefits they truly need to survive.”
As the independent voice for kids, Voices for Children in Nebraska is committed to building pathways to opportunity for all children and families through research, policy, and community engagement, Rooker says.
“We address issues like the cliff effect by advocating to our Nebraska elected officials to make appropriate and necessary policy changes,” she says. “Often the enormity of the problem or the political landscape necessitates that these problems be fixed in incremental steps. For instance, we advocated for successful passage of LB359 last session. This legislation was aimed at addressing the cliff effect in the child-care-subsidy program. Because of our efforts, families will now be allowed a 10-percent-earned-income disregard for ongoing assistance at their annual review. The bill was also amended to include a bill that helps ensure that families on public benefits aren’t penalized for pursuing higher education.
LB359 was sponsored by Omaha Senator Tanya Cook, passed unanimously in March 2014, and took effect immediately. According to the Unicameral Update, the addition to the bill regarding higher education “removes 529 savings plans, student scholarships and work-study income from asset limit tests for the state’s child-care-subsidy program and the Supplemental Nutritional Assistance Program.”
Rooker says that supporting such legislation is merely a component of her organization’s ongoing work to address the cliff effect. “Because of the cliff effect’s enormous impact on children and families, we will remain committed to addressing this issue as part of our mission,” she says.
As someone who has faced the cliff effect firsthand, Rieb also agrees that effectively addressing it will take changes in public policy.
“I believe [policy] needs to be reviewed,” she says. “There are many people who are trying so hard and not just living off of the assistance they receive. I go to work every day, I pay my taxes, and I am a contributing, law-abiding member of society. To be determined to be ineligible immediately with no time to adjust or make other arrangements would be a hardship to any family.”
Kalkowski says that individual businesses can also help address the issue. She shared the story of Heather, a single mother of three who was offered a promotion/pay raise that would have ended up costing her more in lost health-care benefits, which was a deal breaker as one child needed regular visits to a specialist. She explained this to her progressive employer, who gave her a title promotion sans pay increase, but then later made salary changes allowing to her to take the promotion and receive enough pay to avoid the cliff effect.
When possible, individual businesses working with single moms who are facing the tough choices caused by the cliff effect can make all the difference, Kalkowski says. Although Heather’s story is not common, it is refreshing.
“I would never want to tell someone to not take a job based on the fact that your assistance may end or be greatly reduced, but there is no positive in doing so when it puts you further behind,” Rieb says. “It has always been a goal [for me] to better myself and make things better for my boys, but when I did it was one step forward, two steps back. It would have to be a personal decision for everyone, but for me, when looking back in hindsight…my decision would have been different. Believing someone that works for the state and should know the policies and guidelines wouldn’t happen. I would just stick in the same job, never moving ahead, never being able to show my kids that there is more out there.”
Kalkowski says the most damaging impact of the cliff effect is that it limits social mobility, “so people are not able to move up, be rewarded for hard work and get promotions, because what they gain is less than what they’ll lose. Especially in this time of growing inequality in the United States, anything that limits social mobility is bad policy and needs to be addressed.”