Updated analysis on growing need for investment in child care assistance

The latest data on child care show that about 4,000 fewer families will have access to Basic Sliding Fee Child Care Assistance in FY 2017 compared to FY 2003. A big reason why: state funding for Basic Sliding Fee decreased drastically over the same time period. If policymakers don’t act to change this trend, another 1,500 fewer families will have access to Basic Sliding Fee in FY 2021.

The details are laid out in the latest update to our issue brief, Time to Invest in Affordable Child Care through Basic Sliding FeeBasic Sliding Fee provides crucial support for both parents and children. By assisting families with the cost of child care, it makes it easier for parents to succeed at work, secure in the knowledge that their kids are thriving in a safe, nurturing environment. It’s also important to the state’s employers, who in many parts of the state are struggling to attract and maintain the workforce they need.

Chart showing Minnesota's declining investment in Child Care Assistance over time, as described in the blog.

Source: Minnesota Budget Project analysis of data from the Minnesota Department of Human Services.

But Minnesota’s investment in Basic Sliding Fee has decreased by 25 percent since FY 2003 after adjusting for inflation. Without an increased investment, fewer families will be able to access Basic Sliding Fee each year. Our analysis of the decrease in the number of families served that has already occurred was split fairly evenly between Greater Minnesota and the seven-county metro area.

Stagnant funding has also harmed families’ ability to find child care providers willing to serve children through Basic Sliding Fee and the broader Child Care Assistance Program (CCAP). The reimbursement rates set through CCAP are based on data that are now six years old. The rates only cover less than a third of providers’ prices in the market, limiting parental choice.

Child care is too important for families and for our state to let this deterioration continue. Investing in Basic Sliding Fee supports our current workforce while investing in our future workforce. Policymakers should work to make sure that, when we update our issue brief next year, it shows a sharp reversal of the trend of under-investment.

-Ben Horowitz

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National report: The past 16 years have not been kind to Minnesotans struggling to afford child care

Child care helps entire families thrive by providing safe, nurturing environments for kids while allowing parents the opportunity to succeed at work. Far too often, affordable child care is nearly impossible for Minnesota families to find. The state’s Basic Sliding Fee Child Care Assistance is intended to bridge the gap between working families’ earnings and the cost of child care. However, as demonstrated in “Red Light Green Light,” a report from the National Women’s Law Center, massive, never-restored cuts to Basic Sliding Fee in 2001 are still holding families back, 16 years later.

With Basic Sliding Fee, parents pay sliding-scale co-payments every month in exchange for assistance with their child care bills. Basic Sliding Fee has several strengths — it serves families with children up to age 13, and allows each family to find the care that fits their unique needs. However, because the state does not invest enough in this critical resource, Basic Sliding Fee has a waiting list of about 5,600 families struggling to make ends meet, and many more eligible families aren’t included on the list.

The lack of investment by Minnesota in child care assistance affects families in other important ways. Some key takeaways from the “Red Light Green Light” report:

  • Families participating in Basic Sliding Fee are paying more. For example, between 2001 and 2016, the co-payment for a family of three with one child at the federal poverty level rose from $5 to $48 per month.
  • In Basic Sliding Fee in 2001, families’ co-payments combined with the state-funded payment to child care providers covered the market price for child care. Now, the reimbursement rate covers the cost of care at less than a third of the providers in the market.
  • While the cost of child care has risen, the state has actually decreased eligibility for Basic Sliding Fee. In 2001, a family of three qualified for assistance if they earned $42,300 or less; in 2016, families can only begin accessing Basic Sliding Fee if they earn less than $36,400. That’s a difference of nearly $6,000 even without taking inflation into account.
  • The waiting list for Basic Sliding Fee was 2,500 families longer in early 2016 than it was in December 2001.

The cuts to Basic Sliding Fee have burdened families for too long in both metro and Greater Minnesota communities. Minnesota’s House of Representatives have convened a Subcommittee on Childcare Access and Affordability this legislative session; “Red Light Green Light” presents strong evidence that re-investing in families through Basic Sliding Fee should be a big part of their conversation.

-Ben Horowitz

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Immigrants and refugees vital to the economy and our communities

President Donald Trump announced three executive orders last week that dramatically change federal policy related to immigrants and refugees in the United States. More are expected in the near future. In light of these changes, we offer a compilation of some of the research on the important economic contributions made by immigrants and refugees.

  • Refugees are also important to our country’s labor force and economy. A report looking at Somali, Burmese, Hmong and Bosnian refugees showed that, once in the United States, refugee men and women join the labor force at the same – and in sometimes higher – rates than U.S.-born men and women, and a significant number become business owners. Refugees also integrate themselves into their communities by learning English, buying homes and becoming U.S. citizens.

Immigrants and refugees come to the United States seeking a better life and opportunity for themselves and their children, and we benefit from the contributions of immigrants and refugees in many ways. Here in Minnesota, with a tightening labor market and a projected labor shortage on the horizon, Minnesota’s future economic growth depends on adding more people to our workforce. We will increasingly rely on immigrants and refugees to fill those vital roles as employees, business owners and entrepreneurs. Our federal and state policies should reflect and support the positive contributions made by immigrants now and for a strong economic future.

-Clark Biegler

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Governor Dayton’s FY 2018-19 budget prioritizes investments in broader prosperity

In his release of his FY 2018-19 budget proposal Tuesday, Governor Mark Dayton outlined his priorities as an “Opportunity Agenda” that would build an economy that works for everyone across the state.

We’ll be looking more closely at the budget proposal in coming days, but today touch on some of the pieces that most caught our attention, including initiatives that we think build a broad, more durable prosperity.

Tax cuts focused on everyday Minnesotans

Two centerpieces of Dayton’s tax proposal are the Working Family Tax Credit and the Child and Dependent Care Tax Credit. These two tax credits are targeted to Minnesotans who, despite working hard, struggle to pay for child care, education and training, reliable transportation and other things they need to succeed in the workplace.

Specifically, the governor’s budget would:

  • Expand the Working Family Credit so working people can better support themselves and their families. The proposal would boost the size of the credit and make more Minnesotans eligible, including younger workers who currently are excluded. Over 367,000 families and workers across the state would receive an additional $94 million in tax credits over the two-year budget cycle.
  • Update the Child and Dependent Care Tax Credit to keep up with the rising cost of child care and allow more working parents to qualify. Under this proposal, 75,000 Minnesota families would receive an average $379 tax benefit.

Expanded access to health care

Under Dayton’s plan, access to affordable health insurance through MinnesotaCare would be expanded. MinnesotaCare is currently available to families earning up to 200 percent of the federal poverty guidelines. Dayton’s proposal would make MinnesotaCare an option for all Minnesotans who do not have health insurance coverage through their employer or other public health insurance. The cost for Minnesota to expand this health coverage would be covered by premiums paid by the new MinnesotaCare participants. The state’s only expenses would be $13 million in start-up costs.

The proposal makes two important changes to the way Minnesota finances affordable health insurance:

  • An additional $999 million would be available for affordable health care in FY 2020-21 due to the preservation of an important funding source. The proposal cancels the planned sunset of the provider tax on December 31, 2019. In the face of great uncertainty about future federal health care policy, cancelling the sunset makes sense. The revenue supplied by the provider tax will be as important as ever in order to ensure that more Minnesotans are able to benefit from our world-class health care system.
  • $716 million in FY 2018-19 and $1.1 billion in FY 2020-21 would be transferred from the Health Care Access Fund to the state’s general fund, where it would help fund affordable health care through Medical Assistance. These transfers would leave the Health Care Access Fund with a $323 million surplus in FY 2021.

Improved child care assistance

Dayton proposes important improvements to the Child Care Assistance Program (CCAP), which includes Basic Sliding Fee Child Care Assistance. His budget includes a long-overdue increase in the reimbursement rates paid to child care providers through CCAP, and would also make CCAP work better for parents, children and child care providers. In total, Dayton proposes $68 million in FY 2018-19 and $77 million in FY 2020-21 in new CCAP investments. This is an important investment that policymakers should build on by also committing additional resources so more families can participate in Basic Sliding Fee, which currently has about 5,000 families on a waiting list.

Further investments in racial and geographic equity

The governor’s budget proposal also includes investments in education and economic development that address racial and geographic equity issues, including: $62 million to make college more affordable for students by improving financial aid through the State Grant Program, and $10 million for various initiatives to eliminate housing disparities.

The big takeaways

The positive balances projected in the state’s recent forecast reflects the state’s ongoing economic recovery and means there are resources available for strategic investments to bring about broader prosperity. At the same time, there is a great deal of uncertainty about potential large scale federal changes and their impact on the state and our residents.

Given the uncertainty of these times, we’ve argued for the importance of maintaining the state’s rainy day fund. Dayton uses $312 million from the budget reserve to subsidize health insurance premiums, which we’ll talk more about in another blog.

Stay tuned for our upcoming in-depth dives into some of the governor’s proposals. In the meantime, you can download the governor’s budget materials at Minnesota Management and Budget’s website.

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House Real ID bill includes unnecessary, harmful language

A bill to bring our state’s driver’s licenses up to required federal Real ID standards (House File 3) is currently making its way through the committee process in the Minnesota House of Representatives. Real ID compliant licenses are already required to gain access to certain federal facilities and nuclear power plants, and early next year they will be needed to board airplanes, which has the bill on a speedy path to the House floor.

The bill would create a two-track system under which two kinds of Minnesota driver’s licenses would be available: one type would be Real ID-compliant, the other would not. But the House bill includes harmful and unnecessary language that prohibits unauthorized immigrants from receiving driver’s licenses. House File 3 requires applicants to demonstrate lawful status to obtain a non-Real ID license. This language is unnecessary to implement Real ID, and is duplicative: unauthorized immigrants are already unable to receive driver’s licenses in Minnesota due to an administrative rule change made in 2003.

Policymakers should leave immigration policies out of the Real ID bill. In fact, given the state’s tightening labor market and upcoming labor shortage, policymakers should instead take steps to expand access to driver’s licenses regardless of immigration status. Minnesota’s current policy excludes immigrants from fully contributing to the economy in a time where Minnesota is increasingly relying on all members of our communities to fill critical jobs.

The administrative rule restricting driver’s license access means that about 82,000 Minnesotans are unable to reach their full economic potential. Driver’s licenses are often necessary for Minnesotans to have reliable transportation to a wider range of jobs and to work more hours. With wider access to jobs, people can more easily find employment that matches their qualifications and pays competitive wages.

Last year the Senate passed a bipartisan Real ID bill that met requirements for federal compliance with Real ID and did not include language addressing access to driver’s licenses for unauthorized immigrants. Legislators should pass a Real ID bill that does not include duplicative restrictions against unauthorized immigrants receiving driver’s licenses that prevent them from fully contributing to the state’s economy.

-Clark Biegler

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January Economic Update shows lower revenues, higher economic projections

Last week’s January Revenue and Economic Update gave us some mixed news about the state’s economic and budget landscape. The quarterly report from Minnesota Management and Budget (MMB) showed that while state revenues for the end of 2016 came in below projections, national economic growth is now expected to be stronger for the next few years.

1. End of year 2016 revenues are below projections. November and December 2016 revenues came in $29 million below projections; that’s 0.8 percent less than projected in the November 2016 Economic Forecast. This is due primarily to lower than expected income tax receipts.

2.  Higher national economic growth projected for 2016 and onward. U.S. economic growth for 2016 was higher than expected, due to growth in consumer and business spending. The new economic growth projections through 2019 consistently surpass the projections from the November forecast. However, the update notes that considerable policy uncertainty remains a risk to the economy and the accuracy of these projections.

gdp-growth-jan-17

3. The national economy is improving. The latest jobs numbers show that the U.S. labor market is getting close to full employment and recent wage gains are strong. Nationally, unemployment is expected to drop in 2018 and 2019.

4. Despite policy uncertainty, forecasters remain confident in projected economic growth. The forecasters assign a 65 percent chance to their baseline forecast. They also give a 20 percent chance for a more pessimistic scenario where the U.S. sees a recession in early 2018, in which various trade relations are compromised and global economies worsen. They assign a 15 percent probability to a more optimistic scenario where productivity growth improves due to business investment encouraged by policy changes and new technologies.

5. We’ll receive updated forecast numbers next monthThe November forecast projected surpluses of $678 million for the remainder of the FY 2016-17 budget cycle and $1.4 billion for FY 2018-19. This week’s update suggests that we are likely to see surpluses again in the February forecast. Some data in the update point to the potential for a larger surplus, and some point to a smaller one. We’ll have to wait to see next month which trends have a larger influence on the overall numbers, as well as how expenditures come into play.

-Clark Biegler

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Share your insights on analysis you’ve come to expect

How’d we do? That’s what we’re hoping you share with us by completing a short online survey about the Minnesota Budget Project.

You rely on the Minnesota Budget Project to provide you with timely, relevant research and analysis, especially on state budget, tax and economic policy issues. We’re seeking your feedback today on what’s most important to you, and how our work helps you do your work more effectively.

Take a few minutes and fill out our surveyand you can enter a drawing for a $50 Target gift card.

With much appreciation, the Minnesota Budget Project team: Nan Madden, Clark Biegler, Ben Horowitz and Laura Mortenson

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Racial wealth gap is wide and growing larger: 228 year gap for black families, 84 year gap for Latino families

If black family wealth continues to grow at the same pace as the past three decades, it will take more than 200 years for black families in the U.S. to have the same amount of wealth that white families have today. It will take 84 years for Latino families to reach this milestone. That’s the upsetting news from a report by the Corporation for Enterprise Development (CFED) and the Institute for Policy Studies.

racial wealth gap fall 2016-01

We’ve written before about the state of the racial wealth gap and how it’s bad for both families of color and our economy. With growing populations of color, the future economic success of Minnesota and the nation depends on everyone reaching their full economic potential. The report shows that over the past 30 years, the average wealth for white families in the U.S. has grown by 84 percent. By contrast, wealth for Latino families has grown by 69 percent and for black families only 27 percent. In other words, our country’s racial wealth gap has gotten even larger.

The report also demonstrates the enormity of the racial wealth gap and compares the wealth of black and Latino families against the richest people of the Forbes 400. The 100 wealthiest individuals in the U.S. have as much wealth as the entire black population in the United States. Similarly, the wealthiest 186 people have more wealth than the nation’s Latino population.

The report names several factors that impact the ability of black and Latino families to build wealth, including:

  • Higher rates of unemployment. Without jobs, it’s difficult for many black and Latino families to build wealth and attain financial security.
  • Income inequality and sluggish returns on earned income. Latino and black households earn 60 to 75 percent of what white households earn, and Latino and black households are less able to use their earnings to build wealth. This is due in part to the fact that black and Latino workers are less likely to have quality jobs that provide benefits (like health coverage, paid time off, or a retirement plan) that allow workers to save and invest. Instead they must use more of their current income to deal with daily needs and emergencies that come up.
  • Fewer savings to get through an emergency. Over two-thirds of black and Latino households are “asset poor,” meaning they don’t have enough savings to live at the poverty level for three months if they suddenly lost their job. Meanwhile, just over a third of white households are asset poor. It becomes very difficult to build wealth when families must use any resources they have to get through an emergency.
  • Increased reliance on alternative banking avenues. Black and Latino households are more likely to use alternative financial services, like check cashing services or prepaid cards, which often have much higher fees than traditional banks and can eat up a significant portion of a household’s income, leaving less for savings or wealth creation.
  • Lack of retirement savings. Black and Latino households have much less saved for retirement. They are less likely to have access to employee-sponsored retirement plans and also carry high student loan debt, which makes it harder to save for the future.

But there are actions that can serve to accelerate progress on closing the wealth gap. The report recommends:

  • Replacing the mortgage interest deduction with tax policies that support homeownership among low-wealth families. The mortgage interest deduction gives larger tax deductions to homeowners with higher incomes and more expensive houses. Instead, the tax code could have targeted provisions that better serve low-income and low-wealth families, which are much more likely to be families of color, and for whom the tax incentive would be more likely to make the difference in becoming homeowners.
  • Strengthening the Earned Income Tax Credit (EITC). The EITC has a proven track record of giving working families a significant boost. By expanding eligibility for workers without dependent children, the EITC could allow more low-income workers to start building up savings. Here in Minnesota, an important part of the 2016 tax bill was to improve our state version of the EITC, the Working Family Credit, for families and workers. Given that a drafting error in the tax bill prevented it from becoming law this year, enacting the Working Family Credit expansion should be a top priority for 2017.
  • Improving access to retirement savings for low-wealth families. Households of color are much less likely to have employer-sponsored retirement plans. The report suggests improving the federal myRA, which can help more families save for retirement.
  • Creating savings accounts for children. Children’s Savings Accounts can be started for very young children and include matching funds so that when the child turns 18, they can use the money for higher education or other asset-building purposes.

Our country’s black and Latino families families can’t wait another century to reach financial security. Policymakers should act now to begin to create an environment in which all families can build wealth and stronger futures.

-Clark Biegler

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Everyday Minnesotans are the focus of Dayton 2017 tax plan

Expanding economic opportunity in Minnesota should be a top priority of the 2017 Legislative Session, and two effective strategies to do so are the Working Family Tax Credit and Child and Dependent Care Tax Credit. These two tax credits are targeted to Minnesotans who, despite working hard, struggle to pay for child care, education and training, reliable transportation and other things they need to succeed in the workplace.

These two credits are centerpieces of the 2017 tax plan that Governor Mark Dayton released today. We’ll see more details when the governor’s comprehensive budget proposal comes out later this month, but it’s clear the plan outlined today focuses on supporting the work efforts of everyday Minnesotans.

Percent of Households Receiving the Working Family Credit

The Working Family Credit expansion seeks to make Minnesota a place where working people can better support themselves and their families. The Working Family Credit reaches all across the state; its impact is especially strong in parts of Greater Minnesota where wages tend to be lower and good jobs are harder to find. Similarly, the Working Family Credit can help boost the wages of people of color, who are more likely to be earning lower wages, and begin to narrow racial income disparities.

Dayton’s Working Family Credit plan boosts the size of the credit that eligible families and workers can receive, makes more Minnesotans eligible for the credit, and allows independent workers ages 21 to 24 to qualify for the credit.

In addition, Dayton continues to prioritize expanding the state’s Child and Dependent Care Credit, which offsets a portion of the considerable costs that Minnesota families pay for child care. The proposal would update the credit, which hasn’t kept up with the rising costs of child care, and allow more working parents to qualify.

The Working Family Credit and Child and Dependent Care Credit were both priorities in the 2016 tax bill. In addition, Dayton’s plan includes other components of the 2016 tax bill, including increased funding to Minnesota cities and counties, and a new tax credit on agricultural land and buildings that proponents say will help rural school districts that currently have difficulty passing local referenda to build or improve school facilities. The plan also includes provisions that Dayton has previously proposed, such as a package of corporate tax changes meant to create a more level playing field among businesses.

Making everyday Minnesotans the priority in our tax and budget decisions addresses the economic insecurity that so many Minnesotans are facing, and the governor has done that today by including strong expansions of the Working Family Credit and Child and Dependent Care Credit in his tax plan.

-Nan Madden

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Minnesota’s stake in the Affordable Care Act debate: $16.4 billion loss in federal funding and 380,000 more Minnesotans without insurance

Without health insurance, broken legs or difficult diagnoses can lead to shattered finances and force families to choose between their health and their other basic necessities. Minnesota is a national leader when it comes to access to affordable health insurance. We recently learned that fewer than one in five Minnesotans lack health insurance. But all of our progress faces a grave risk as federal policymakers make plans to roll back the gains made possible by the Affordable Care Act (ACA).

Since the full implementation of the ACA began in 2014, the number of uninsured Minnesotans has dropped by 44 percent. Insurers can no longer deny coverage based on someone’s pre-existing conditions. Important protections were put in place to ensure that health care plans don’t discriminate based on gender and offer essential health benefits.

The health care market remains far from perfect, but repealing the ACA would be a step in the wrong direction. If the new Congress passes something like the ACA repeals they’ve considered in the past, there will be drastic consequences for Minnesotans’ ability to find coverage. National analyses conclude that most of the health insurance coverage losses would occur among working families and people without college degrees, and those with chronic conditions or past illnesses are likely to have the hardest time finding affordable health insurance. According to analysis by the Urban Institute, repealing the ACA would:

  • Increase the number of uninsured Minnesotans to 690,000 in 2019 — leaving the state with more than double the number of currently uninsured people, and roughly 250,000 more uninsured people than before the ACA rolled out in full.
cbpp_mn_repeal

Source: Center on Budget and Policy Priorities.

  • Eliminate $16.4 billion in federal dollars to Minnesota between 2019 and 2028 that would have supported efforts to provide affordable health insurance options in the state.
  • Destabilize the individual insurance market, leaving Minnesotans who don’t have employer-provided insurance without good options for coverage. The Minnesotans who need insurance the most would likely be hit the hardest.

No family should have to choose between paying their health insurance premium or their rent. The ACA moved us closer to that goal; policymakers should be focusing on ways to build on that past success. By threatening to remove the protections and undo the gains of the ACA without providing any concrete alternatives, federal policymakers are not simply turning back the clock. They are writing Minnesota a prescription for an even worse health insurance landscape than the one that we left behind years ago.

-Ben Horowitz

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