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Sep 17, 2018

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20th Anniversary Milestones: The Long and Winding Road for Colorado’s EITC

by | Sep 17, 2018

Family Economic Security

Workers supporting their families now benefit from a state Earned Income Tax Credit (EITC) thanks in large part to Colorado Center on Law and Policy’s decades-long efforts to put extra dollars into the pockets of Coloradans in low-income jobs. The tax credit benefits workers with children as well as individuals with extremely low wages.

Widely considered one of the most effective tools for fighting poverty, the federal EITC was established in 1975 and expanded on a number of occasions since then. Because the EITC grows with each additional dollar of earnings until reaching the maximum value, studies show that the EITC encourages large numbers of single parents to return to work while giving workers in poorly paying jobs an incentive to increase their work hours. Specifically, a 2015 study showed that a $1,000 increase in the EITC leads to a 7.3 percentage point increase in employment — demonstrating that the tax credit is even better at fighting poverty than what earlier Census data suggested.

The Colorado EITC was first enacted in 1999 when legislators faced a budget surplus of $900 million amid a booming economy. Because the Taxpayer’s Bill of Rights (or TABOR), approved by Colorado voters in 1992, limited the amount of revenue the state could collect, legislators lowered the income tax rate from 5 percent to 4.75 percent and considered tax breaks for everything from investing in new farm equipment to adding new phone lines.

“Basically, it seemed like every lobbyist was working on a tax break for their own client. It was as if every corporation had an idea for a tax credit for themselves,” said Chaer Robert, who was involved with efforts to approve, increase and implement the state EITC over 16 years through her role as president of the Women’s Lobby of Colorado. Robert also served as chair of the EITC Coalition and more recently as Manager of the Family Economic Security program at CCLP.

A pioneering advocate of a state EITC, Maureen Farrell-Stevenson, then Executive Director of CCLP, believed that as long as employers were benefitting from new tax breaks, ordinary workers ought to benefit too. Gov. Bill Owens himself called for broad-based tax cuts to include an EITC in addition to cuts in the sales tax and income tax rates.

In 1999, Farrell-Stevenson and CCLP Policy Analyst Adela Flores partnered with the Women’s Lobby of Colorado. They worked with the late Rep. Gary McPherson to establish a state EITC. The successful bill was among four introduced that created the State EITC as a “top-priority” TABOR refund mechanism to be paid to qualifying Coloradans at 8.5 percent of the federal EITC during years when there was a surplus of taxpayer revenue. McPherson sponsored another proposal which raised the state EITC from 8.5 percent of the federal level to 10 percent the following year. At the same time, legislators voted to permanently reduce state income taxes from 4.75 percent to 4.63 percent. Qualifying Coloradans also received the tax credit in 2001 before the state’s economy took a turn for the worse.

Since the tax credit was predicated on a TABOR surplus, the EITC wasn’t paid from 2002 through 2005 because of insufficient tax revenue. The credit wasn’t paid in the 2006 or 2007 tax years because the voter-approved Referendum C suspended the TABOR limit for five years to support K-12 education, higher education, health care and transportation. In the years following the Great Recession of 2008, there were no TABOR surpluses and therefore no EITC, though workers needed financial relief more than ever.

But despite bipartisan support, efforts to make the EITC permanent — whether or not there was a TABOR surplus — failed year after year amid concerns about the state’s economy and lack of tax revenues.

In 2008, after several years without an EITC, Farrell-Stevenson and Kathy White of the Colorado Fiscal Policy Institute (then a project of CCLP) crafted a bill to fund the tax credit at 10 percent of the federal level using Unemployment Insurance (UI) surcharge dollars and unused federal dollars — or reserves — from the Temporary Assistance for Needy Families program (or TANF) which provides cash assistance for the lowest-income Coloradans. The measured was sponsored by Rep. John Kefalas and Sen. Betty Boyd. A very active EITC Coalition, which included Colorado Progressive Coalition (now COPA), 9to5 Colorado, All Families Deserve a Chance Coalition, Women’s Lobby of Colorado and dozens of other organizations brought hundreds of community members to the capitol in support.

White, who later continued her work on the EITC through the Colorado Fiscal Institute, said the proposal was supposed to be a “temporary fix” but the business community was “up in arms” about the legislation because they feared it could trigger an increase in required employer UI contribution. Meanwhile, county administrators disliked the notion of tapping into the TANF reserves, despite having reserves that exceeded their annual operating budgets. As a result of the opposition, the bill died swiftly in the House Finance Committee.

“Too many constituencies didn’t like it,” White recalled. “The outcome was really disappointing.”

The following year, Sen. David Schultheis sponsored a bill that would abolish the state EITC and all other TABOR refund mechanisms except for the state Sales Tax Refund. With the economy still in the doldrums at that time, Schultheis reasoned that the state might have different priorities when the recovery came. The EITC Coalition successfully lobbied to defeat the legislation and continued to rally behind the EITC for years to come.

In 2010, House Bill 1002 restored the state EITC as the primary TABOR refund mechanism. In 2013, with Colorado Fiscal Institute leading the EITC Coalition, Sen. John Kefalas, Sen. John Morse and Rep. Daniel Kagan sponsored a successful bill that made the state EITC permanent once it is triggered by a TABOR surplus. The legislation also created a state Child Tax Credit for children under 6, which was made contingent upon Congress passing a tax on internet sales.

With the economy gaining steam, a surplus finally triggered payment of the EITC in 2015, and Colorado residents who qualify have used the now permanent tax credit to defray state income taxes ever since. Though proponents would like to increase the state tax credit to a higher level or expand it so that more Coloradans would qualify, the current EITC still gives working Coloradans a nice boost in income.

“If people have kids, even adding $300-$400 a year can make a big difference,” Robert said.

White said she appreciates the multiplier effect of the EITC. She cited an anecdote where a single mother used the savings from the tax credit to buy diapers in bulk and pay her car insurance along with school fees and swim lessons for her child.

“The EITC is great because people take that money and exercise their own financial acumen and do what’s best for them,” White said. “And that’s what helps get them ahead.”

-By Bob Mook

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HEALTH:
HEALTH FIRST COLORADO (MEDICAID)

Health First Colorado is the name given to Colorado’s Medicaid program. Medicaid provides public, low-cost health insurance to qualifying adults and children. It is an entitlement program funded by the federal, state, and county governments and is administered by counties in Colorado. Those who are required to pay must pay a small co-pay when receiving certain health care services.

State Department: Department of Health Care Policy and Financing

Eligibility: Most adults 18 to 64 are eligible for Medicaid in Colorado if their household income is at or below 133% of the federal poverty limit (FPL). Pregnant women are eligible with incomes of up to 195% FPL, while children under 18 may be eligible if the live in a household with income at or below 142% FPL. Some adults over 65 may also be eligible for Medicaid.

Program Benefits: Through Medicaid, low-income Coloradans are eligible for a range of health care services at little to not cost. Services provided include doctors visits, prescription drugs, mental health services, and dental care. Co-pays for certain individuals may be needed for certain services.

Program Funding and Access: Colorado funds our Medicaid program through state and federal dollars. Medicaid is an entitlement program, which means that all who are eligible for Medicaid can access the program, regardless of the funding level in a given year. This does not mean that it is always easy to access Medicaid, even when eligible. And since the program is administered by counties, funding levels for county staff and other administrative roles can make it easier or harder for Coloradans to access the program. On top of this, not all medical providers accept Medicaid which limits the ability of Coloradans to seek health services even if enrolled, such as if the nearest provider is a 2+ hour drive away.

Note: This data is from before the pandemic and does not reflect changes in enrollment rules during the COVID-19 pandemic and public health emergency.

Statewide Program Access 2015-19: Over the study period of this report, an average of 89.0% of the population at or below 133% of FPL (i.e., the population who is likely to be eligible for Medicaid) were enrolled in Medicaid in Colorado.

FOOD SECURITY:
SUPPLEMENTAL NUTRITION ASSISTANCE PROGRAM (SNAP)

The Supplemental Nutrition Assistance Program or SNAP helps low-income Coloradans purchase food by providing individuals and families with a monthly cash benefit that can be used to buy certain foods. SNAP is an entitlement program that is funded by the federal and state governments and administered by counties in Colorado.

State Department: Department of Human Services

Eligibility: Currently, Coloradans qualify for SNAP if they have incomes below 200% FPL, are unemployed or work part-time or receive other forms of assistance such as TANF, among other eligibility criteria. Income eligibility for SNAP was different during the study period of this report than today—it was 130% FPL back in 2019 for example. The US Department of Agriculture uses the population at or below 125% FPL when calculating the Program Access Index (or PAI) for SNAP. We follow this practice in our analysis despite Colorado currently having a higher income eligibility threshold.

Program Benefits: SNAP participants receive a monthly SNAP benefit that is determined by the number of people in their household and their income. Benefit amounts decrease as income increases, helping households avoid a sudden loss of SNAP when their incomes increase, even by a minor amount. Benefits are provided to an Electronic Benefit Transfer (EBT) card that can be used to purchase eligible food items, such as fruits and vegetables; meat, poultry, and fish; dairy products; and breads and cereals. Other items, such as foods that are hot at their point of sale, are not allowable purchases under current SNAP rules.

Program Funding and Access: SNAP, like Medicaid, is a federal entitlement program. This means that Colorado must serve any Coloradan who is eligible for the program. As such, funding should not be a limit to how many Coloradans can be served by the program. However, funding for administration of SNAP at the state and county level can limit the ability of county human service departments to enroll those who are eligible. Other program rules and administrative barriers can make it difficult for Coloradans to receive the benefits they are legally entitled to receive.

Statewide Program Access 2015-19: Over the study period of this report, an average of 61.1% of the population at or below 125% of FPL (i.e., the population who is likely to be eligible for SNAP) were enrolled.

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

The Special Supplemental Nutrition Program for Women, Infants, and Children, also know as WIC, provides healthcare and nutritional support to low-income Coloradans who are pregnant, recently pregnant, breastfeeding, and to children under 5 who are nutritionally at risk based on a nutrition assessment.

State Department: Department of Public Health and Environment

Eligibility: To participate in WIC you must be pregnant, pregnant in the last six months, breastfeeding a baby under 1 year of age, or a child under the age of 5. Coloradans do not need to be U.S. citizens to be eligible for WIC. In terms of income, households cannot have incomes that exceed 185% FPL. Families who are enrolled in SNAP, TANF, Food Distribution Program on Indian Reservations (FDPIR), or Medicaid are automatically eligible for WIC. Regardless of gender, any parents, foster parents, or caregivers are able to apply for and use WIC services for eligible children.

Program Benefits: WIC provides a range of services to young children and their parents. These include funds to purchase healthy, fresh foods; breastfeeding support; personalized nutrition education and shopping tips; and referrals to health care and other services participants may be eligible for.

Program Funding and Access: WIC is funded by the US Department of Agriculture. The state uses these federal funds to contract with local providers, known as WIC Clinics. In most cases, these are county public health agencies, but that is not the case in all Colorado counties. Some WIC Clinics cover multiple counties, while others are served by multiple clinics. Private non-profit providers are also eligible to be selected as a WIC Clinic.

Statewide Program Access 2015-17: Between 2015 and 2017, an average of 52.2% of the population eligible for WIC were enrolled in the program in Colorado.

Financial Security:
Colorado Works

Colorado Works is the name given to Colorado’s program for Temporary Assistance to Needy Families or TANF. It is an employment program that supports families with dependent children on their path to self-sufficiency. Participants can receive cash assistance, schooling, workforce development and skills training depending on the services available in their county.

State Department: Department of Human Services

Eligibility: In general, Coloradans are eligible to enroll in TANF if they are a resident of Colorado, have one or more children under the age of 18 or pregnant, and have very low or no income. For example, to be eligible to receive a basic cash assistance grant through TANF, a single-parent of one child could not earn more than $331 per month, with some exclusions—and would only receive $440 per month (as of 2022). That said, there are other services provided by counties through TANF that those with incomes as high as $75,000 may be eligible for. In addition to these, participants in TANF are required to work or be pursuing an eligible “work activity” or work-related activity. Any eligible individual can only receive assistance if they have not previously been enrolled in TANF for a cumulative amount of time of more than 60 months—this is a lifetime limit that does not reset. Counties may have additional requirements and offer benefits that are not available in other counties in Colorado.

Program Benefits:  While the exact benefits that one is eligible for under TANF can vary, all qualified participants are eligible to receive a monthly cash payment, call basic cash assistance. Other than cash assistance, counties are have a lot of choice in how to use their TANF funding; generally a use of TANF funds is appropriate so long as it advances one or more of the four purposes of the program: (1) provide assistance to needy families so that children can be cared for in their own homes or in the homes of their relatives; (2) end the dependence of needy families on government benefits by promoting job preparation, work, and marriage; (3) prevent and reduce the incidence of out-of-wedlock pregnancies; and (4) encourage the formation and maintenance of two-parent families.

It is important to note that those eligible for TANF are also eligible for many of the other programs we’ve included in this report, such as SNAP, Medicaid, and CCCAP.

Program Funding and Access: Colorado funds its TANF program through funds received from the federal government through the Temporary Assistance for Needy Families block grant. Most of the federal funds are allocated by the state to counties, which are required to provide a 20% match of state funding. Federal and state rules allow the state and counties to retain a portion of unspent funds in a TANF reserve.

Statewide Program Access 2015-19: Over the study period of this report, an average of 50.7% of the population at or below 100% of FPL (i.e., the population who is likely to be eligible for TANF) were enrolled in TANF in Colorado.

EARLY LEARNING:
COLORADO CHILD CARE ASSISTANCE PROGRAM (CCCAP)

The Colorado Child Care Assistance Program provides child care assistance to low-income families and caregivers living in Colorado in the form of reduced payments for child care. It is a program funded by the federal, state, and county governments and is administered by counties in Colorado. The share owed by parents/caregivers is determined on a sliding scale based on the family’s income.

State Department: Department of Early Childhood Education

Eligibility: Counties set eligibility for families separately, but must serve families with incomes at or below 185% of the Federal Poverty Limit. Families accepted to the program are no longer eligible once their income exceeds 85% of the state median income. Parents or caregivers must be employed, searching for work, or engaged in another approved activity to be eligible for CCCAP. Parents and caregivers enrolled in Colorado Works (Temporary Assistance to Needy Families or TANF) or in the child welfare system are also eligible to participate in CCCAP. Generally, CCCAP serves families with children under 13, although children as old as 19 may be eligible under certain circumstances.

Program Benefits: If a family is eligible for CCCAP and has income, they may likely have to pay a portion of their child’s or children’s child care costs each month. The amount that families owe is based on their gross income, number of household members, and the number of children in child care in the household. As such, households tend not to experience a benefit cliff with CCCAP when they see their incomes increase

Program Funding and Access: Colorado funds the CCCAP program using federal dollars it receives from the Child Care and Development Block Grant program. The state allocates federal and state funds to counties using a formula that takes into account factors like current caseloads and the number of eligible residents. Assistance is available until the county’s funds are spent, so the number of families that can be served is often a function of how much funding is available and the income and composition of the household that applies. It is not uncommon for counties to overspend or underspend their allocations of funds. The state reallocates unspent funds from counties who underspent to those who overspent. While underspending could indicate a problem with the way a county administers its CCCAP program, it could just as likely be a sign that there are few providers in the county who participate in CCCAP—or a lack of providers generally.

Statewide Program Access 2015-19: Over the study period of this report, an average of 10.8% of the population at or below 165% of FPL and younger than age 13 (i.e., the population who is likely to be eligible for CCCAP) were enrolled in CCCAP.

Housing:
HUD rental assistance programs

The US Department of Housing and Urban Development (HUD) has three housing assistance programs that we look at together: Housing Choice Vouchers (Section 8), Project-based Section 8, and Public Housing. In Colorado, these programs provided assistance to over 90% of the households who received federal housing assistance from all HUD programs. Through federally funded, local or regional public housing agencies (PHAs) are the agencies that administer these programs, through not all are available in all counties. These are not the only programs available in Colorado that assist households afford the cost of housing, such as units funded through federal and state tax credit programs.

State Department: Department of Local Affairs

Eligibility: Generally, households with incomes under 50% of the area median income (AMI) of the county they live in are eligible for these rental assistance programs, although PHAs have discretion to select households with incomes at higher percentages of AMI. That said, HUD requires that 75% of new vouchers issued through the Housing Choice Voucher/Section 8 program in a given year are targeted to households with incomes at or below 30% of AMI. PHAs are also able to create criteria that give priority to certain types of households who are on waiting lists for these programs.

Program Benefits: These rental assistance programs help households afford the cost of housing by reducing their housing costs to around 30% of their household income. In the case of the Housing Choice Voucher program, the PHA pays the voucher holder’s landlord the remaining portion of the rent.

Program Funding and Access: Funding and access are both challenges for these rental assistance programs. In addition to limitations on the number of public housing units or housing vouchers a PHA can manage or issue, lack of funding compared to the need constrains the ability of PHAs to assist low-income households. In 2020, Coloradans were on waitlists for Housing Choice Vouchers for an average of 17 months. Waitlists also exist for the other rental assistance programs.

Statewide Program Access 2015-19: Over the study period of this report, an average of 21.1% of renter households with incomes at or below 50% AMI (i.e., the population who is likely to be eligible for HUD rental assistance programs) were living in subsidized housing.