How to Turn Our Social Safety Net into a Path to Prosperity
A plan to fix the Benefits Cliff
Jessica Gomez is Founder/CEO of Rogue Valley Microdevices and serves on the OIT Board of Trustees, Oregon Healthcare & Oregon Business Development committees.
Several years ago, a close friend was faced with a difficult choice. As a single parent, she qualified for many benefits, including healthcare, rent assistance, and food stamps. With the help of financial aid, she completed her college degree and was fully trained and ready to join the workforce. She was genuinely excited. This was the moment she had worked toward. She would finally achieve financial independence.
Several months passed. Due to economic conditions, it was difficult to find a job in her field. Her dream of financial independence slowly faded away. We talked often and she told me about the challenges she faced applying for assistance and the paperwork she had to complete in just the right way to make sure she qualified.
During one of our phone calls, I asked her why she didn’t just go out and get a job, any job. She said to me “Jess, you don’t understand. The system is rigged.”
She said unless she got a job making $50,000 per year, she could not afford to work. At the time this argument made no sense to me. I thought to myself, “How can this be?” The answer came years later when I was appointed by Governor Kitzhaber to the Oregon State Workforce Investment Board.
It was early in my term on the board, when one of our policy advisors gave an in-depth presentation on the Department of Human Services, and how their social safety net programs were connected to our state workforce system through skill building programs. After the presentation there was a flurry of questions from my fellow board members:
Q: How do Oregonians qualify for these programs?
A: Qualification is based on income and number of dependents. The lower someone’s income is, the more programs a family qualifies for.
Q: Can someone qualify for food assistance, cash assistance, housing subsidy, and Medicaid all at the same time?
A: Yes.
Q: What are the current work requirements for a family receiving services?
A: None.
The final question to be asked was mine.
Q: How much does someone need to earn in order replace the value of all these services with earned income?
A: More than $45,000 per year.
I was shocked. In that moment, the conversation I had with my friend came flooding back: “You don’t understand. The system is rigged.”
This is how public assistance programs really work. If you are a single mom with two young children, as long as your income stays near the federal poverty line, you are eligible to receive public assistance in the form of food assistance, childcare, housing subsidies, healthcare, and cash assistance in times of crises. There are also programs managed by churches, local non- profits, utility companies, and local municipalities designed to provide needy families with additional support during times of economic hardship. We commonly refer to this system as the social safety net.
These are wonderful programs designed with good intentions—to keep families that are near or below the poverty line from falling through the cracks. However, if you look carefully, there is one major flaw: the moment the beneficiary begins to earn an income, those public assistance dollars drop off faster than they can be replaced through employment. It may take a family several years of full-time employment to reach a salary level equivalent to the amount in benefits that were lost.
For many, the only viable option is to either remain unemployed or find a job where they can earn an amount small enough so they do not lose their benefits. This conundrum is referred to as the Benefits Cliff, and it is a well-known, well-documented public policy deficiency.
When even the slightest increase in family income leads to the elimination of public benefits worth thousands of dollars, those families become trapped in the system that is designed to keep them out of poverty.
There is another long-term consequence of the Benefits Cliff. Once children in a family grow up and become adults, the parents lose much of the public assistance they relied on while raising their children. This is when they decide that it finally makes financial sense for them to return to the workforce and build a career. Statistics show that workers reach their peak earning potential around age 45. This means that if you have spent most of your adulthood not working or working at low wages, it becomes increasingly difficult to reach a living wage that will allow you to enjoy a secure retirement; you potentially missed decades of your prime working years.
My friend was eventually able to break the cycle through generous family support and a good paying job. But if she hadn’t been so fortunate, she would likely continue to rely on public assistance for another ten years until her child turned eighteen. At that point she would be just over fifty years old, less than fifteen years from retirement with no savings, no pension, no assets, no house, and little work experience. It is heartbreaking that a system designed to help people can leave people in such a dire situation. We must eliminate the Benefits Cliff if we want to increase upward mobility for Oregon families.
The path to prosperity
I believe that all people deserve the opportunity to build a better life for themselves and their families. I also believe that work is essential to health and well-being and should be financially a net positive.
So how do we align our social safety net to seamlessly integrate with employment and provide families with a true path to prosperity?
I would like to introduce what I call the Public Assistance Offset (PAO) Program, a program designed to encourage employment and offset the cost of expanding the various public assistance programs for people who are employed. Instead of benefits being eliminated as a family’s income rises, benefits would remain fully intact while their PAO contribution incrementally increases.
The beauty of this system is that the employee contribution will go back into the fund that provides the benefits. Each benefit will have an employee contribution. The amount contributed will be based on earned income. Medicaid (OHP) would have a contribution. Childcare would have a contribution. If the employer already provides healthcare or childcare and there is no government benefit provided, there will be no employee contribution for those benefits. PAO contribution dollars would be re-invested back into those safety net programs, ensuring the programs viability.
The advantages of having a system that provides individuals with a smooth transition to financial independence cannot be understated. Workforce participation would increase, careers would be built, and generational poverty would be interrupted. Many Oregonians would see a dramatic improvement in their overall health and wellbeing.
I believe that no matter how many benefits you receive by not working, there should always be a financial incentive to work. I know that many others feel exactly the same. That’s why I’m confident we can make this system a reality.
What will it take to implement such a system? It will take both Progressives and Conservatives to re-imagine the way we can and should improve the lives of those less fortunate. I am hopeful that one day soon this can be accomplished.
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