ACA replacement: huge tax cuts for the wealthiest while raising costs and cutting care for struggling Minnesotans

The Republican plan to replace the Affordable Care Act (ACA) doesn’t just slash the federal government’s commitment to health care for those who struggle the most to afford it, it does so while providing huge tax cuts for the wealthiest Americans. The American Health Care Act (AHCA) includes tax benefits that do little to make health care more affordable or expand health insurance coverage. Instead, the AHCA places affordable, quality health insurance out of reach for lower-income people and their families, the elderly, people with disabilities, and residents of Greater Minnesota by making big cuts in Medicaid and reducing premium assistance.

The AHCA cuts taxes by:

  • Cutting the revenues that have been used to pay for expanding affordable health care through the ACA; and
  • Creating new opportunities for higher-income households to contribute to Health Savings Accounts.

The AHCA is speeding through the U.S. House of Representatives, and a new analysis from the Center on Budget and Policy Priorities describes the likely impact. Overall, 57 percent of the tax cuts from repealing major ACA revenue provisions would accrue to millionaires and much of the rest would go to other high-income households, insurance providers, and medical device and drug companies.

Meanwhile, according to the Kaiser Family Foundation, under the AHCA, consumers who purchase their coverage through marketplaces around the nation would lose an average of $1,700 in assistance that currently helps them afford their health insurance. But many would be hit harder — for example, a 60-year-old in Rochester, Minnesota, earning $40,000 would see a $8,590 cut to their premium assistance.

Below are some of the tax changes in the AHCA that make our nation’s tax system more unfair while doing little to meet Americans’ health care needs.

The AHCA repeals some federal taxes paid only by high-income households. Lower-income Americans pay Medicare taxes on all of their income; the Affordable Care Act made sure that the same was true for higher-income households. The AHCA would change that by exempting income over $200,000 from Medicare taxes (over $250,000 for married couples). That and a related tax repeal cuts taxes by $275 billion from 2018 to 2026. Millionaires would get more than a $50,000 tax cut on average, and the 400 highest-income American households each would see an average $7 million tax break annually.

The AHCA cuts taxes on health insurance companies with high-paid executives. The AHCA would eliminate a fee on insurers and allow them to deduct more of the salaries they pay to executives who earn more than $500,000. Combined, these two changes would cut taxes by $145 billion over 10 years and reduce the federal resources available for health care.

The AHCA gives drug and medical device companies a tax break. Over 10 years, the AHCA would cut taxes on medical devices and drug companies by $45 billion. The AHCA reverses taxes that were enacted under the ACA to reflect the fact that, with increased insurance coverage, these companies would likely see increased sales of their products. Much of the benefit of this tax reduction would accrue to wealthy shareholders even as millions of Americans would lose the insurance coverage that enables them to afford prescription drugs and medical devices.

The AHCA makes changes to Health Savings Accounts (HSAs) that would overwhelmingly benefit the wealthiest Americans. HSAs offer people with high-deductible insurance plans tax incentives in exchange for saving money to pay for health care. They are primarily used by families with higher incomes, since their very nature requires that a family has money left over after meeting their basic necessities. The AHCA doubles the maximum amount a family can contribute to an HSA from $6,550 to $13,100. The tax benefits of HSAs are already skewed towards higher-income families – because these families are in a better position to use HSAs and because the tax savings from doing so increases at higher incomes. The proposed changes only benefit those households who already “max out” their HSA contributions. This tax cut would cost $19 billion from 2017 to 2026. Nationwide, 70 percent of contributions to HSAs come from households with incomes over $100,000. Only about one in four Minnesota families falls into this income group, and again, only those who already are maxing out their contributions would benefit.

Federal policymakers should not accept the AHCA, which will make it harder for Minnesotans to afford quality health insurance – especially Minnesotans who live outside of the Twin Cities metro area, those who already struggle to pay for their families’ basic necessities, and seniors and people with disabilities who face higher medical bills. This plan slashes health care for those who need it most while providing tax cuts to those who need them the least. We encourage Minnesota nonprofit organizations and Minnesota residents to contact our Congressional delegation and ask them to reject this plan.

-Ben Horowitz

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Undocumented immigrants pay $83 million in state taxes, would pay more with immigration reform

Undocumented immigrants play a vital role in Minnesota’s economy and currently pay an estimated $83 million in state and local taxes, according to a new report from the Institute for Taxation and Economic Policy (ITEP). Under immigration reform that provides a path to legal status, ITEP estimates these contributions would substantially increase.

The estimated 85,000 undocumented immigrants currently living in communities throughout Minnesota pay taxes in a variety of ways. For example, they pay sales taxes when they buy school supplies, property taxes through their rents, and income taxes when it is deducted from their paychecks and when they file taxes in the spring. Even though undocumented immigrants are ineligible for many services that taxes pay for, they are doing their part to support the state’s schools, roads and bridges, and other public services.

immigrant-tax-contributions-2017-report-01

ITEP’s report highlights that one of the benefits of welcoming immigration reform is likely to be increased economic activity in our communities and increased tax revenues in Minnesota. When immigrants have legal status, they are often able to take jobs that match their full range of abilities, build on and develop additional skills, and ultimately increase their earnings. ITEP estimates that granting full legal status to all undocumented immigrants would mean $19 million in increased tax revenues in Minnesota.

On the other hand, if many immigrants are deported, then “state and local revenues could take a substantial hit,” according to ITEP. Immigrants are important to our communities for many reasons, including bringing greater cultural diversity and revitalizing struggling cities. Their worth as people is not limited to their economic contributions, but the fiscal impact of removing immigrants would be substantial. ITEP reports that states could lose $12 billion in revenue if all undocumented immigrants were deported.

Undocumented immigrants already play important roles in cities across Minnesota. Recognizing this value and opening paths to legal status for immigrants could further strengthen our communities while also increasing economic activity and tax revenues.

-Clark Biegler

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ACA replacement bill would raise costs for health insurance for many Minnesotans and slash federal funding for health care

Republicans in the U.S. House of Representatives introduced a plan this week that would slash the federal commitment to affordable health care. We will continue to write about this plan – dubbed the American Health Care Act (AHCA) – as more details about this fast-moving legislation become available. You can also find out how to add your voice to the debate around this legislation here. For now, these are our top takeaways about what the AHCA would do.

  • Federal funding for health care through Medicaid would be drastically reduced and shift costs to the states. The AHCA would cut federal funding for Medicaid by $370 billion over ten years. That happens in two ways. First, the bill fundamentally changes the federal role in Medicaid, turning it into a capped funding source that doesn’t reflect the cost to provide care. Second, the bill includes a slow but final repeal of the Medicaid expansion that has played a critical role in raising health insurance coverage rates to historic highs. With such huge funding cuts, Minnesota will be faced with cutting other areas of the state budget or choosing from a menu of terrible options that are essentially different ways to ration health care for seniors, people with disabilities, children and other Minnesotans.

  • Federal health care funding would no longer respond to changes in the health care needs of Minnesotans. Right now, when Minnesota funds health insurance for our most vulnerable neighbors through Medicaid, the federal government matches that spending, making health care a shared responsibility. The AHCA would instead provide a fixed amount of funding per person, and that amount would not keep up with any new challenges faced by the state. If we face a public health crisis like the opioid epidemic, federal funding will not respond. As our population continues to grow relatively older, federal funding will not reflect Minnesotans’ increased health care needs.
  • The current income and affordability based premium assistance would be replaced with a poorly targeted, insufficient approach. Under the Affordable Care Act, a person can qualify for a tax credit to bring down the cost of their health insurance based on their income and typical costs for health insurance in their geographic area. Under the AHCA, people could qualify for a tax credit based primarily on their age; the tax credit is only based on income in that it gets smaller for those with incomes over $75,000. That means less assistance to many of those who struggle most to afford health insurance, and more assistance to those with higher incomes.
  • People in Greater Minnesota would likely be hardest hit by the changes in premium assistance, especially seniors and those with lower incomes. For example, the Kaiser Family Foundation estimates that in 2020, a 60-year-old in Rochester earning $40,000 would receive $8,590 less in premium assistance under the AHCA than under the Affordable Care Act. If the same person lived in Minneapolis, they’d lose $2,900 in tax credits. Meanwhile, a 27-year-old non-smoker in either area earning $75,000 would receive $2,000 more in assistance under the AHCA, despite facing much lower health care premiums.

Rather than building on the successes of the Affordable Care Act, the AHCA would leave most Minnesotans worse off. The bill would do nothing to address the problems Minnesotans are facing in the health care marketplace, and would eliminate many of the supports in place to bring down costs and expand access to health care. Federal policymakers should reject any Affordable Care Act replacement proposal that does not improve people’s ability to afford health insurance, or that shifts the responsibility for funding essential health care services to the states.

-Ben Horowitz

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Governor Dayton’s FY 2018-19 Budget: Increased spending includes early ed, student formula and narrowing achievement gap

Note: This blog is part of a series on Governor Mark Dayton’s FY 2018-19 budget proposal, including his HHS budget, his economic development and transportation proposals, and his tax priorities.

An educated Minnesota is critical for the state’s economic success. Minnesota has long made education a priority, but significant achievement gaps between white students and students of color remain. Governor Mark Dayton’s FY 2018-19 budget proposal includes provisions that benefit students across the state, as well as more targeted funding intended to narrow the achievement gap. Overall, Dayton’s budget proposes $927 million in additional general fund resources for E-12 and higher education.

E-12 Education: Dayton proposes increasing funding for school districts through 2.0 percent increases in the basic student formula in both FY 2018 and FY 2019. That’s an increase of $121 and $124 per student in those years.

Early Education: Dayton proposes spending an additional $75 million in FY 2018-19 for voluntary pre-kindergarten, increasing the maximum number of participating students from 3,300 this year to 8,300 in 2018. He also proposes to continue current levels of spending on early learning scholarships, and expand eligibility to include children ages 0 to 5.

Higher Education: The governor proposes $62 million in improvements to financial aid through the State Grant Program by:

  • Allowing the grant to “fill in” for federal financial aid. Minnesota Dreamers, young people who came to the country as children and do not have legal status, are ineligible to receive federal Pell Grants. However, the State Grant formula currently calculates financial aid assuming students receive this federal grant, meaning that Dreamers receive much less aid than they need to afford college. The proposal would increase the grant award for these students.
  • Increasing the annual living allowance by $550 to better assist students in meeting their basic needs.
  • Reducing the family contribution by $500 to make college more affordable for lower-income families.

The governor also proposes $125 million to Minnesota State colleges and universities and $68 million to the University of Minnesota for operating costs, urging both university systems to use this to “fund activities that address the educational attainment gap.”

-Clark Biegler

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Governor Dayton’s FY 2018-19 Budget: HHS investments focus on Minnesota’s most vulnerable, preserves provider tax

Governor Mark Dayton’s budget makes important new investments in health and human services, largely centered on health care and families with children. Dayton also proposes preserving a crucial source of revenue – the provider tax – and reallocating resources from the Health Care Access Fund to the state’s general fund in order to pay for Medical Assistance. As a result, while increasing the state’s investment in critical services for some of our most vulnerable neighbors, the governor’s budget would actually decrease general fund spending on Health and Human Services by $400 million in FY 2018-19 and $689 million in FY 2020-21.

Dayton’s budget cancels the planned sunset of the provider tax. By preserving this important source of revenue, $999 million would be maintained in FY 2020-21 to invest in affordable health care in Minnesota. The provider tax is a 2 percent tax on most health care services. It has been around for more than two decades, but policymakers wrote a law in 2011 that would repeal the tax on December 31, 2019.

Cancelling the sunset makes sense, especially given the uncertainty in the health care market. The revenue supplied by the provider tax is as important as ever in order to ensure that Minnesotans are able to benefit from our world-class health care system.

Dayton’s plan also includes several other significant changes to health care policy:

  • MinnesotaCare would become an option for all Minnesotans who do not have health insurance coverage through their employer or other public health insurance. MinnesotaCare is health insurance that is currently available to Minnesotans earning 200 percent of the federal poverty guidelines or less ($48,600 for a family of four). It features sliding-scale monthly premiums and affordable co-payments and other out-of-pocket costs. Because the state’s costs for an expanded MinnesotaCare would mostly be covered by federal funding and premiums and co-payments paid by enrollees, the state’s only expenses would be $13 million in start-up costs.
  • $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 cover some of the cost of Medical Assistance. With the preservation of the provider tax, these transfers would leave the Health Care Access Fund with a $323 million surplus in FY 2021.
  • $10 million in FY 2018-19 and $13 million in FY 2020-21 would provide higher reimbursement rates for some mental health and preventative health care services.

Dayton proposes important improvements for the parents, children, and child care providers participating in the Child Care Assistance Program (CCAP), which includes Basic Sliding Fee Child Care Assistance. His budget includes a long-overdue increase in the maximum rates paid to child care providers through CCAP, which would give parents served by CCAP greater access to child care providers. The CCAP proposals would also simplify how CCAP is administered, resulting in a more streamlined program for both families and child care providers. Failing to implement some of these changes could result in decreased federal funding and fewer families served by Basic Sliding Fee.

In total, Dayton proposes $68 million in FY 2018-19 and $77 million in FY 2020-21 in new CCAP investments. Policymakers should build on these important steps by committing additional resources to Basic Sliding Fee so that more families are able to find stable, nurturing care for their children. Basic Sliding Fee currently has about 5,000 families on waiting lists after more than a decade of decreased state funding.

In addition to improving CCAP, Dayton proposes several other investments in children and their families, including:

  • Improvements to the state’s child welfare system and payment rates to adoptive families ($20 million in FY 2018-19 and $49 million in FY 2020-21).
  • An increased investment in home visiting services for pregnant and parenting teens ($31 million in FY 2018-19 and $51 million in FY 2020-21).

Unfortunately, Dayton’s budget for children and families fails to increase the resources provided to Minnesota’s most economically vulnerable families through the Minnesota Family Investment Program (MFIP). The cash assistance provided to families through MFIP has not increased in 31 years, and is just $532 for a family of three. The omission of any increase to this most basic assistance for families who have hit a rough patch is a great disappointment.

-Ben Horowitz

Note: This blog is part of a series on Governor Mark Dayton’s FY 2018-19 budget proposal, including his education budget, his economic development and transportation proposals, and his tax priorities.

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Legislative task force recommends improvements to Minnesota’s Child Care Assistance Program

A bipartisan task force of Minnesota legislators heard from parents, providers and employers about the challenges that a lack of affordable, accessible child care presents to their communities. Their findings were summarized in a recent report. The juxtaposition of two presentations mentioned in the report demonstrate the central problem in the child care market: too many parents can’t afford to pay more, and too many providers can’t afford to charge less.

In August, First Children’s Finance came before the task force to describe what they’ve learned from their child care provider clients. First Children’s Finance provides business-development and financial assistance to child care providers across the state and nation. They estimated that half of the family child care providers in Minnesota earn less than $8 per hour, and presented case studies that highlight the thin margins of many child care centers’ operations.

At the same hearing, Child Care Aware of Minnesota presented compelling evidence that the cost of child care is out of reach for many Minnesota families. They found that the average cost for an infant in a child care center — $14,826 per year — represented more than half of the median income for a single-parent family in Minnesota ($27,093). And even at the less-expensive family child care providers, the $8,033 price tag of a year’s worth of infant care would be a significant burden for parents who are paid low wages.

Compares the cost of care for an infant to wages for common low-wage work in Minnesota.

Source: Minnesota Budget Project analysis of U.S. Bureau of Labor Statistics and Child Care Aware data.

With such strong evidence in front of them, it is not surprising that the task force recommended increasing the rates that Minnesota’s Child Care Assistance Program (CCAP) pays to child care providers, and increasing the number of families able to access CCAP through Basic Sliding Fee.

The evidence of low pay and thin margins in the industry make a strong case for raising higher reimbursement rates. When a family participates in CCAP, their child care provider receives a reimbursement from their county based on their children’s ages, the type of care environment, and location. The state’s payments to providers are out of date, and are often set far below market rates. This means providers may lose money when they choose to serve families using Basic Sliding Fee. The task force’s recommendation to increase provider rates are thus likely to increase parental choice.

The large gap between the cost of providing child care and the earnings of families surviving on low wages point to the importance of the task force’s recommendation to increase access to Basic Sliding Fee Child Care Assistance. The state allocates a fixed amount of money to pay for Basic Sliding Fee each year; however, that amount is far too low to cover all eligible families. As a result, Basic Sliding Fee has a 5,000 family waiting list and is currently serving about 4,000 fewer families than it did in FY 2003.

The Minnesota Budget Project and our partners in the Kids Can’t Wait Coalition have been advancing these two recommendations at the Legislature in House File 723 and Senate File 823. These bills would increase provider rates to reflect the most recent market survey data and allocate additional money to serve families through Basic Sliding Fee. By enacting this legislation this year, policymakers would be responding directly to the statewide voices as reflected in the task force report.

-Ben Horowitz

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February Economic Forecast shows surpluses, but forecasters cite federal uncertainty and need for caution

The state’s Minnesota Management and Budget released the February Budget and Economic Forecast today. Here are our top takeaways:

  1. The state’s budget situation is better than in the last forecast. The positive balances in each of the three budget cycles described in the forecast are higher than projected in November.
  2. A $743 million positive balance is projected for FY 2016-17. This figure is for the budget cycle that ends on June 30.
  3. Positive balances are also projected for the future. Today’s report shows a $1.7 billion positive balance available for the upcoming FY 2018-19 biennium. This figure includes the balance for FY 2016-17. This forecast also projects a $2.1 billion structural positive balance for FY 2020-21.
  4. But the future balances do not take into account what it takes to maintain current levels of service. When the impact of inflation on spending is included, the surplus figures morph into a much smaller $540 million surplus in FY 2018-19 and a $959 million deficit in FY 2020-21. This means that to the extent the surplus is used for additional spending or tax cuts, this will come at the expense of keeping up with current commitments.
  5. The forecast expects higher economic growth than projected earlier. The national economy is now expected to grow at a higher 2.3 percent rate in 2017 and between 2.1 and 2.7 percent yearly growth from 2018 through 2021. feb-forecast-gdp
  6. For the most part, the forecast does not reflect the impact of likely federal policy changes. The economic forecast incorporates the projected effects on the national economy of likely reductions in individual and corporate taxes and increased spending on infrastructure. However, citing “considerable uncertainty,” the forecasters did not include any economic impact of federal decisions on trade, immigration or health care. And the projected state budget figures do not anticipate the impact of potential federal cuts to state funding, although major changes are being considered.
  7. The forecasters are moderately confident in these projections, but there’s more uncertainty than usual. IHS Markit, Minnesota’s economic consulting firm, assigns a 60 percent probability to their baseline economic forecast, and a 25 percent probability to their more pessimistic scenario in which there’s a short recession next year caused by “strained trade relations” and postponed investment by businesses. The forecasters assign a 15 percent probability to a more optimistic scenario.

The February forecast sets the stage for making budget and tax decisions for the upcoming FY 2018-19 budget cycle. Last month, Governor Mark Dayton kicked off the budget process with his budget proposal, which he will update the week of March 13. Now, legislators will use this forecast to construct their tax and budget proposals.

The positive forecast numbers create the opportunity to make targeted investments so that more Minnesotans can participate in the state’s economic growth, such as through expanding affordable health care, child care and targeted tax credits like the Working Family Credit for Minnesotans who are working hard but struggling to pay the bills.

But policymakers should also be cautious, because the landscape is likely to change significantly as federal policymakers are expected to enact large-scale changes over the next year. As required by law, the February forecast’s budgetary projections are based on current state and federal laws – they don’t anticipate likely federal changes.

Federal funding is a significant part of the state’s budget, and every area of the federal budget that touches the state is under consideration for sweeping changes or funding cuts. For example, President Donald Trump plans to cut non-defense discretionary spending – about a third of which goes to states and local governments to fund key priorities like education, affordable housing, and training and employment services – in order to increase defense spending by $54 billion in 2018.

One prominent theme to watch for is federal action to cut funding in areas of shared federal-state responsibility and shift more responsibility to the states, such as through substantial cuts to Medical Assistance that would grow over time as a result of turning Medicaid into a block grant or otherwise capping funding at inadequate levels.

This would come on top of the harm done through changes to the Affordable Care Act (ACA). While the details are still murky, analysis of past proposals to repeal the ACA predicts that the number of Minnesotans without health insurance would more than double, and Minnesota could lose more than $16 billion in federal funding over 10 years. Just cutting the enhanced federal matching rates for the ACA’s Medicaid expansion population, means the state would need to commit an additional $815 million in 2019 alone to continue this health coverage.

In addition, major restructuring of other federal safety net programs could increase pressure on the state to respond to the needs of Minnesota residents. At the same time, federal tax changes could erode the state’s ability to raise revenues.

With these large and as-yet undefined federal changes on the horizon, Minnesota policymakers should make their tax and budget decisions this year with an eye to maximizing the state’s ability to respond. They should particularly avoid making large tax cuts and especially tax cuts that grow over time, which would greatly compromise the state’s ability to provide health care and essential public services after significant reductions in federal funding. The state should also maintain a robust budget reserve to be sure we’re equipped to respond to future economic downturns, given that the kinds of support that the federal government has provided in past downturns may be less likely.

-Clark Biegler

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Local interference bill moving through Legislature would inhibit local governments from meeting needs of their communities

Local interference bills, which prevent local governments from setting higher wage and job quality standards for private-sector employees than state law, are currently moving through the Minnesota House (House File 600) and Senate (Senate File 580).

These bills would prohibit local governments, like cities or counties, from enacting:

  1. Higher minimum wages than the state’s. Currently the state minimum wage is $9.50 for large employers and $7.75 for small employers, which is higher than the federal minimum wage but still not enough for many workers to support their families.
  2. Paid or unpaid leave policies. This bill would reverse the recent policies passed by Minneapolis and St. Paul that would enable more workers to earn paid sick leave.
  3. Policies that regulate what hours workers can be scheduled.
  4. Any local policies that require employers to provide their workers a “particular benefit, term of employment, or working condition.”

Essentially, local interference policies undermine the ability of local governments to meet the needs of their constituents, and would take authority away from the leaders who are most familiar with their communities.

While the state plays an important role in setting baseline standards, cities have historically had the power to enact higher standards in the best interest of their residents. Just as states can go beyond federal minimum standards, cities and counties at times do the same for their communities.

Take the minimum wage for example. The federal minimum wage is $7.25 an hour, but in 2014, Minnesota policymakers agreed that the wage floor in our state should be higher. Some cities around the country have set higher minimum wages that better account for their higher cost of living, including Chicago and Seattle.

Local governments also make other policy choices to improve the well-being of their residents. This has included expanding access to earned sick leave, as Minneapolis, St. Paul, Pittsburgh and Spokane have done. These cities have taken steps to ensure that their residents are better able to come into work healthy, and not lose wages when they take time off work to care for themselves or a family member. This policy can also potentially benefit businesses through lower turnover and training costs.

Local governments should be able to continue to make policy choices that meet local needs. State policymakers should not implement local interference legislation that takes this away.

-Clark Biegler

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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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