Revised March 13, 2007
ADMINISTRATION PROPOSAL WOULD CUT
OVER 300,000 PEOPLE OFF FOOD STAMPS
By Stacy Dean and Dorothy Rosenbaum
The President’s
budget includes a provision that would cut the Food Stamp Program by $740
million over the next five years (and by $1.65 billion over ten years) by taking
more than 300,000 low-income people off the program in an average month.
The Administration would achieve these savings by stripping states of
flexibility provided in the 1996 welfare law that allows states to coordinate
certain aspects of eligibility for the Food Stamp Program with eligibility rules
used for state TANF programs. More than 40 states take advantage of this
option; a dozen states make very broad use of the option.
The impact of
the proposed cut would be borne primarily by low-income working families with
children. These families would be made ineligible for food stamps because, even
though their net income (income after deducting certain expenses such as shelter
or child care costs) is below the poverty line, they have gross income modestly
above 130 percent of the poverty line (the Food Stamp Program’s gross income
limit) or assets modestly above the Food Stamp Program’s $2,000 asset limit.
The asset limit has not been changed — or even adjusted for inflation — in more
than 20 years.
This paper examines
the proposed cut. The President’s budget also includes an important
program improvement — excluding retirement accounts from the food stamp assets
test — which is discussed in the box below.
Background
Historically,
low-income families with children that receive cash welfare assistance (i.e.,
TANF cash benefits, state General Assistance (GA), or poor elderly people and
people with disabilities who receive Supplemental Security Income (SSI)
benefits) have been considered automatically (or “categorically) eligible for
food stamps. Categorically eligible households do not separately have to pass
the Food Stamp Program’s asset or gross income tests because another program has
qualified them as in need of assistance. However, states still must review
fully each household’s income and other circumstances to determine the amount of
food stamp benefits for which the household qualifies. These households must
complete food stamp applications, usually have a face-to-face interview with a
state official, and provide documentation of their financial circumstances.
In addition, virtually
all categorically eligible households have net income (gross income after
deducting expenses such as child care costs and high shelter expenses) at or
below the poverty line. This ensures that food stamp benefits are appropriately
targeted to those unable to afford an adequate diet. Families with net income
above the poverty line do not qualify for substantial food stamp benefits, even
if they are “categorically eligible” for food stamps because they receive
welfare or SSI.
Budget Also Includes a
Proposal to Exclude Retirement Accounts
The Food Stamp Program counts certain
retirement savings as assets, which penalizes families that have saved for
retirement. The program’s rules in this area are widely regarded as
inequitable and unwise, in that certain types of retirement accounts —
such as defined benefit plans — are exempt from the asset limits while
other types of retirement accounts such as IRAs (including IRAs set up
when an employee with a 401(k) leaves his or her current employer because
the worker loses his or her job during a recession) are counted against
the asset limit and can disqualify needy households from food stamps.
In his budget, President Bush has proposed
to address this problem by excluding all retirement accounts from the food
stamp asset test. The President’s budget notes that this would “[allow
workers who experience hard times] to maintain ownership of their
retirement assets, preserving their stake in America’s future.” This
proposal has drawn support from analysts from across the political
spectrum.
According to CBO and the Administration,
this change would help nearly 100,000 people, mostly in low-income working
families, who manage to save modest amounts in retirement accounts.
Currently, those households must liquidate their accounts to bring their
assets below $2,000 (or $3,000 if the household has a member who is
elderly or has a disability) in order to qualify for food stamps during
periods of unemployment. This means these households must choose between
hardship for their families when they lose their jobs (because they cannot
qualify for food stamps as a result of having modest retirement savings)
and a higher risk of poverty in their old age (because they have
liquidated their retirement savings in order to receive food stamps during
a time of need). |
The 1996 welfare law
gave states the option to broaden categorical eligibility. When Congress
converted the AFDC cash assistance program to the Temporary Assistance for Needy
Families (TANF) block grant in 1996, it replaced the provision linking AFDC and
food stamp eligibility with a provision allowing states to link food stamp
eligibility to programs funded under the TANF block grant. This option has
given states the flexibility to simplify food stamp eligibility rules for
households assisted under various TANF-funded programs, such as child care
assistance or employment-support services.
More than 40 states have used this flexibility to
create an eligibility link (subject to the household actually applying for food
stamps and qualifying for benefits through the regular food stamp application
process) between certain TANF-funded services and the Food Stamp Program. For
example, Pennsylvania has created a link between its TANF-funded child care
program, which provides child care subsidies to low-income working families, and
the Food Stamp Program. In Arkansas, the state has aligned eligibility between
food stamps and its TANF-funded two-month transportation assistance program for
families leaving cash welfare. Just last year, Minnesota adopted a policy to
expand categorical eligibility. In each of these states, families that meet the
eligibility standards for the TANF-funded service and have very low net income
may receive food stamp benefits.
How the Option Can Affect
Food Stamp Eligibility
When a state uses
this option to align food stamp eligibility with eligibility for a TANF-funded
benefit, it imports two eligibility rules from the TANF-funded benefit or
service — the gross income limit and the asset limit — into its Food Stamp
Program. Other food stamp eligibility and benefit rules continue to apply.
Asset Test: Under the option, states have been able
to coordinate the food stamp asset test with the rules they use in their
TANF-funded programs to determine the amount of financial resources — and/or
what kind of a vehicle — a household may own and remain eligible. For example,
Texas has used this flexibility to allow food stamp households to own one
vehicle worth up to $15,000 and have savings of up to $5,000. (By contrast, the
federal food stamp rules limit households to $2,000 in financial assets, with
the market value of a vehicle in excess of $4,650 counting against the $2,000
limit.
)
Several states have used this option to
coordinate fully their asset rules across TANF-funded programs, Medicaid for
families or children, and food stamps by eliminating the asset test. These
states have concluded that families that have incomes low enough to qualify for
food stamp benefits do not have large assets and that it is largely a waste of
time and administrative resources for states to track down and verify the value
of poor households’ limited assets. A number of states also have concluded that
allowing families that have worked their way off welfare but still have very low
net income to receive food stamps is important, because it can help to stabilize
these families in the world of work and lessen the chances that they will return
to welfare. The current rules allow states to ensure that food stamps remain
available to still-needy low-income working families that have modest savings or
purchase a reliable car to commute to work.
Gross income: Except
for households that include an elderly person or a person with a disability, the
Food Stamp Program requires households to have gross income below 130 percent of
the poverty line for their household size. Households with an elderly or
disabled person are not subject to a gross income test. (They must still meet
the net income test.)
Under the state option that was established by the 1996 welfare law but that the
Administration now proposes to withdraw, states can align the food stamp gross
income test to the gross income test used for a TANF-funded benefit. While this
option enables states to make more households eligible for food stamps, it
should be remembered that these households still have very low net income.
Moreover, since most food stamp deductions are capped, it is highly unlikely
that many families with incomes much higher than 130 percent of the poverty line
receive food stamps as a result of this option. The working families that
benefit under this option generally are families that have incomes just above
130 percent of the poverty line and do not receive subsidized housing or child
care. Because these families must pay a large portion of their low wages for
rent and/or child care costs, their net income is almost always below 100
percent of the poverty line.
In short, the option does not make non-needy families eligible for food stamps.
The option helps to eliminate what otherwise would be an inequity between the
Food Stamp Program’s treatment of two different groups of households that have
similar amounts of income available to purchase food: households that have
somewhat higher gross incomes but receive no child care or rental subsidies, and
households that have somewhat lower gross incomes but do receive such subsidies.
Impact of the Proposed
“Categorical Eligibility” Cut
Some low-income
households in each of the more than 40 states that have adopted the option would
have their food stamp assistance terminated as a result of this proposal.
States would be required to terminate food stamps for households that
participate in a TANF-funded program (other than welfare cash assistance) and
have very low net income but do not meet the food stamp gross income limit or do
not meet the restrictive food stamp asset limit. As noted above, those affected
generally would be working families with children that are receiving some kind
of TANF-funded work support.
The provision would affect households in a majority
of the states. More than 40 states have implemented the existing option to make
households receiving certain TANF-funded benefits or services eligible for food
stamps, with some states using the option more extensively than others. CBO has
estimated that by 2010, some 300,000 people would lose food stamps in an average
month. Unfortunately, it is not possible to produce reliable estimates of the
impact on a state-by-state basis.
Twelve states —
Delaware, Maine, Maryland, Massachusetts, Michigan, Minnesota, North Dakota,
Oregon, South Carolina, Texas, Washington, and Wisconsin — would bear a
disproportionate share of the cuts. These states have used the flexibility that
the 1996 categorical eligibility option allows to encompass a larger number of
low-income households.
Households that lose
eligibility for food stamps could not just reapply. Some proponents of the
categorical eligibility cut have suggested that households that lose categorical
eligibility for food stamps could still get food stamps if they apply under the
regular program rules. This, however, is not the case. If the households with
the estimated 300,000 people cut off food stamps because of the change reapplied
for food stamps (and their circumstances were unchanged), they would be found
ineligible. To qualify for food stamps these already low-income households
would have to lower their work effort to reduce their income or spend down their
assets.
The cut would place burdens on states and could
increase error rates. Both the National Governor’s Association and the
American Public Human Services Association, which represents the state agencies
that operate the Food Stamp Program, have opposed this proposal, as it revokes
an option that has allowed them to simplify rules across programs and to
streamline cross-program administration. Eliminating this option will require
more than 40 states to alter their food stamp eligibility rules, modify their
computer systems, reprint applications, outreach materials and program manuals,
and retrain staff. In addition, states that have used this option to simplify
asset rules or reduce asset verification requirements would have to devote new
administrative resources to carrying out the more burdensome new federal rules.
This would occur at a
time when many state agencies administering the Food Stamp Program already are
absorbing substantial reductions in their administrative resources. Many states
can ill afford to absorb additional administrative costs as a result of the
federal government withdrawing a simplification option that it offered to states
under the 1996 welfare law. Finally, since elimination of this option would
make food stamp rules more complicated, it could result in an increase in food
stamp error rates, as well.
Some Children Likely
Would Lose Eligibility for Free School Meals. Children in households that
receive food stamps are automatically eligible for free school meals without
having to complete an additional application. Households that lose food stamps
as a result of this proposed food stamp cut would also lose their automatic link
to free school meals. Some of these children are in households with income
below 130 percent of the poverty line and would remain eligible for free meals
if they applied through the regular school meals application system. Others
would qualify for reduced-price (rather than free) meals if they applied under
the standard application system. CBO’s estimates assume that about 47,000
school-age children would pay up to 40 cents per meal for reduced-price school
lunches and up to 30 cents per meal for reduced-price school breakfasts rather
than receiving these meals free, and that about 2,000 children would pay full
price for their meals because they would have income above 185 percent of the
poverty line (the limit for reduced-price meals). It is also possible that
additional children who qualify for free meals would instead have to pay for
meals because they would lose their automatic link and would not apply through
the standard application process. According to CBO, the school meal savings
that result from lower meal subsidies raise the federal savings estimate for the
food stamp cut by about $10 million a year, or about $100 million over ten
years.
Conclusion
The provision in the
President’s budget examined here would eliminate food stamp eligibility for more
than 300,000 people, mostly in working families. The budget documents describe
this change as “improving the integrity of the Food Stamp program by tightening
overly broad waivers from eligibility criteria.”
Yet the people who would lose eligibility under the provision are not committing
fraud and live in households that have monthly income available to purchase food
that is almost always below the poverty line. They fully qualify for food
stamps under a state option made available to states as part of the 1996 welfare
law.
End Notes:
The estimates of the effects of the cut are from the Congressional Budget
Office (CBO). According to the Administration’s estimates, 329,000 people
would lose food stamp eligibility. Savings from the provision would total
$540 million over five years and $1.2 billion over ten years.
It is possible for categorically eligible households to have net income above
the poverty line and qualify for a very small amount of food stamps.
Eligible households with one of two members may qualify for a minimum benefit of
$10, while larger households that have income at or just slightly above the
poverty line can qualify for benefits of $5 to $10 a person per month.
Households with an elderly person or a person with a disability may have
available assets of $3,000 or less. It also may be noted that the federal
food stamp vehicle rules exempt the full value of certain vehicles, such as
a car used to transport a disabled person.
The Food Stamp Act provides states with another option to conform their food
stamp vehicle policy to the vehicle policy that a state uses in its
TANF-funded assistance programs. The proposal in the Administration’s new
budget would not affect this other option. If the Administration’s proposal
is adopted, it is unclear how many of the states that use the categorical
eligibility option to adopt a less restrictive vehicle rule would be able to
take advantage of the option
that will remain.
In these states, the TANF-funded program that is available to low-income
households is information about employment-related services, domestic
violence counseling and prevention, or pregnancy prevention. Under food
stamp regulations such services can confer categorical eligibility for food
stamps for low-income families with gross incomes somewhat above the food
stamp program’s 130 percent-of-poverty gross income limit.
USDA’s estimates of the effect on school meals are somewhat larger. USDA
assumes that as a result of the food stamp cut about 45,000 children would
lose free meals and instead pay reduced-price. Another 23,000 children
would pay full price for their meals either because they would not apply
through the standard application system or they would have income above 185
percent of the poverty line (the limit for reduced price meals)
See Budget of the United States Government, Fiscal Year 2008, p. 33
available at
http://www.whitehouse.gov/omb/budget/fy2008/pdf/budget/agriculture.pdf.
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