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USE OF THE POVERTY MEASURE IN GOVERNMENT ASSISTANCE PROGRAMS 327 only. Hence, the cutoff is the USDA Thrifty Food Plan (instead of the poverty guidelines), and the amount of food stamps that eligible applicants receive is the difference between 30 percent of their countable income and the Thrifty Food Plan value for their size family. As an example, if the Thrifty Food Plan value for a family is $400 a month and the family has $900 of countable income, the family will receive $100 in food stampsâ$400 minus $300 (30% of $900). In effect, the Food Stamp Program expects that households will spend 30 percent of their net countable income on food, or roughly the amount that food represents of the official poverty thresholds (as originally developed); the program supplements families' food-consumption resources up to the level of the Thrifty Food Plan. USING THE PROPOSED POVERTY MEASURE In assessing whether and how to use the proposed poverty measure for determining income eligibility for benefits or services, program agencies must consider a number of issues. These issues relate to the thresholds, the family resource definition, and other aspects of the measure. The Thresholds We have recommended a method for deriving the poverty thresholds each year but not a specific threshold for the reference family of four with which to initate a new series of poverty statistics. If the proposed measure is adopted for statistical purposes and a specific initial threshold is designated by the U.S. Office of Management and Budget, agencies will need to assess the consequences for program costs and caseloads of any difference between a new threshold and the current poverty guideline for a four-person family. If the new threshold is higher, its use as an eligibility standard for programs will likely produce a larger pool of potential applicants. For nonentitlement programs (i.e., programs that do not guarantee services or benefits to all eligible applicants), there are no budgetary consequences from an increase in the applicant pool. However, should the newly eligible people apply for benefits or services, such programs would have to lengthen their waiting lists unless budget ceilings are raised. For entitlement programs that use the guidelines, there would be a direct effect on caseloads and costs if the applicant pool increases and the newly eligible people apply for assistance. Even if the new threshold is the same as the current threshold, changes in the family resource definition could still increase the pool of potential applicants. This could happen for programs that automatically accord eligibility to families receiving welfare benefits (e.g., AFDC, SSI, or food stamps) and also allow other families to qualify on the basis of comparing their income with the poverty guidelines. Because of such changes to the family resource definition
USE OF THE POVERTY MEASURE IN GOVERNMENT ASSISTANCE PROGRAMS 328 as deducting taxes and work-related expenses from income, the applicant pool for these programs could include a higher number of families not now receiving public assistance (plus the same number of families who are receiving public assistance). Given a particular initial threshold, there could be an effect on the distribution of the applicant pool by family size due to the differences between the proposed equivalence scale and the scale implicit in the current guidelines. We have argued that the proposed scale is an improvement over the current scale, so this effect would be appropriate in terms of targeting services to those types of families most in need.9 There might also be an effect on the size of the applicant pool in different areas of the country because of the recommended adjustment to the thresholds for geographic differences in housing costs. Depending on its magnitude, this effect could be temporarily disruptive to programs in various areas that were accustomed to higher or lower caseloads, but it should represent an improved overall targeting of services. The use of poverty thresholds that are adjusted for geographic differences in the cost of housing raises some special issues for the Food Stamp Program. The use of such thresholds for eligibility determination should, as just noted, represent an improved targeting of program benefits.10 For benefit determination, however, the assumption that households spend 30 percent of their income on food would need to be reexaminedâotherwise, newly eligible households in more expensive areas would not, in fact, benefit from the program. For example, if the maximum benefit for a particular size household were $300 per month and the eligibility level for that size household were raised from $1,000 to $1,200 because of higher housing costs in the area, then a household with $1,100 of net countable income would be newly eligible but would receive no food stamp benefits (30% of its countable income would be $330âabove the maximum benefit). For such a household to benefit, the assumed percentage of countable income available for food expenditures would need to be lowered. Alternatively, the maximum benefit could be raised (as is currently done for Alaska and Hawaii), if it is assumed that food as well as housing costs are higher in the area. A major issue with the use of the proposed method for determining 9 The proposed scale is an improvement over the scale implicit in the current poverty thresholds, which has many irregularities. It is also an improvement over the scale implicit in the poverty guidelines: that scale is smooth, but it assumes that children need as much as adults, and it also assumes that each family member beyond the first costs the same (i.e., that economies of scale do not increase for larger families; see Chapter 3). 10 It would have to be decided whether to adopt state-specific thresholdsâto reflect the state involvement in administering the programâor the recommended breakdown by geographic division and size of metropolitan area; see Chapter 8.
USE OF THE POVERTY MEASURE IN GOVERNMENT ASSISTANCE PROGRAMS 329 poverty thresholds is that the method will generate new thresholds each year that reflect real changes in expenditures on food, clothing, and shelter. (We propose the use of 3-year moving averages to derive each year's thresholds, which will guard against big changes from one year to the nextâsee Chapter 2.) In years in which there is an economic downturn, the thresholds may decrease in real terms. In most years, however, given economic growth, they are likely to increase in real termsâthat is, to increase more than the rate of inflation. Thresholds that rise in real terms will not necessarily result in a larger number or proportion of poor people compared with thresholds that are simply adjusted for price changes (like the official thresholds). (Similarly, thresholds that fall in real terms will not necessarily result in a smaller number or proportion of poor people compared with price-adjusted thresholds.) The outcome depends on a combination of factors, such as changes in government tax policies, that affect the distribution of income in the vicinity of the thresholds. However, it is likely that the use of thresholds developed by the proposed procedure will produce a larger pool of potential program applicants, which, could, in turn, produce higher program costs and caseloads (or longer waiting lists) compared with continued use of the poverty guidelines derived from the official thresholds. Program agencies must consider their response to this likely consequence. One option would be to periodically reconsider the multiple of the thresholds that a program uses as the cutoff for eligibility (or the cutoff for partial payment by the applicant in the case of programs that charge on a sliding scale). For example, the School Lunch Program might, at some future date, decide, on cost grounds, that it would lower eligibility for free lunches from 130 percent to 100 percent of the poverty level. Another option would be to use the proposed equivalence scale and geographic adjustments for housing costs but continue to update the initial threshold simply for price changes. This option is less attractive because it implies the continuance of two different poverty measures. It seems preferable to have one official measure and require decision makers to consider in a forthright manner the issues involved in determining the multipleâor fractionâ of the official thresholds to use for program eligibility. In debating what multiple to choose, decision makers will necessarily have to acknowledge possibly competing goals, such as the desire to help people whose resources fall below a reasonable standard of need and the desire to contain program spending within specified limits.11 11 Chapter 8 discusses a range of factors that affect decisions about program eligibility standards and benefit levels, with specific reference to AFDC.