Measuring Poverty A New Approach (1995) / Chapter Skim
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From page 335... ...
program. Currently, there are large differences in AFDC benefit standards across states, and no state provides benefits as generous as the official poverty thresholds.
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From page 336... ...
It might seem a logical next step to suggest a direct relationship of the proposed poverty measure to program benefits. Certainly, the existence of a poverty threshold that makes reasonable adjustments for differences in family circumstances, including differences in the cost of living across regions of the country, creates an impetus for program benefits to be related to that threshold.
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From page 337... ...
THE POVERTY MEASURE AA7\:D AFDC TABLE 8-1 AFDC Need Standards, Maximum AFDC Benefits, and Maximum Combined AFDC and Food Stamp Benefits for a Family of Three, January 1994 337 Maximum AFDC Benefit Maximum Combined AFDC/Food Stamp Benefit AFDC Need Dollar PercentDollar Percent StateStandard Value of NeedValue of Need Alabama673 164 24459 68 Alaska975 923 951,208 124 Arizona964 347 36639 66 Arkansas705 204 29499 71 California715 607 85821 115 Colorado421 356 85645 153 Connecticut680 680 100872 128 Delaware338 338 100633 187 District of Columbia712 420 59690 97 Florida991 303 31598 60 Georgia424 280 66575 136 Hawaii1,140 712 621,134 99 Idaho991 317 32612 62 Illinois890 367 41658 74 Indiana320 288 90583 182 Iowa849 426 50694 82 Kansas429 429 100713 166 Kentucky526 228 43523 99 Louisiana658 190 29485 74 Maine553 418 76689 125 Maryland507 366 72661 130 Massachusetts579 579 100801 138 Michigana551 459 83717 130 Minnesota532 532 100768 144 Mississippi368 120 33415 113 Missouri846 292 35587 69 Montana511 401 78677 132 Nebraska364 364 100651 179 Nevada699 348 50640 92 New Hampshire1,648 550 33781 47 New Jersey985 424 43700 71 New Mexico357 357 100646 181 New Yorkb577 577 100816 141 North Carolina544 272 50567 104 North Dakota409 409 100682 167 Ohio879 341 39636 72 Oklahoma471 324 69619 131 Oregon460 460 100753 164 Pennsylvania614 421 69691 113 continued on next page
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From page 338... ...
Proposals for AFDC Minimum Benefits: A Brief History The original Aid to Dependent Children program, the predecessor to AFDC, divas enacted in 1935 as part of the legislation that instituted a national Social Security system.3 It was designed to put on a sounder footing the states' programs to provide "mothers' pensions," but there was no intent to mandate a prominent role for the federal governmental The legislation provided that the federal government would pay 33 percent of the program's costs, with a 3 Peterson and Tom (1990:Chap.
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From page 339... ...
A Supplementary Program with a National Benefit Standard Food Stamps Food assistance programs in the United States were initially very
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From page 340... ...
In 1977 Congress eliminated all purchase requirements for food stamps, making them a simple supplement to cash assistance in inverse proportion to family income (as well as a benefit to working families not receiving cash assistance)
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From page 341... ...
The FSA instead mandated a study of minimum benefit standards. Issues in Program Benefit Design Today, the de facto national minimum level of available benefits for AFDC recipients is the maximum food stamp allowance combined with the maximum AFDC benefit in the lowest benefit state.
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From page 342... ...
We pointed out some of the reasons that program agencies might want to make the link less direct, for example, by setting eligibility cutoffs at a fraction of the poverty thresholds. Here we explore more fully the reasons that a program benefit standard could differ from a poverty standard and, more generally, why the design of an assistance program could deviate from the goal of helping everyone who is classified as poor.
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From page 343... ...
House of Representatives (1990:553-555) and data on state poverty rates and per capita incomes from the 1990 census (Bureau of the Census, 1993d:Tables 733, 741)
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The deductions in the Food Stamp Program make it difficult to calculate by how much the state should reduce its AFDC benefit standard, but it can be demonstrated that not to reduce the AFDC standard at all may overcompensate recipients by as much as 10 percent relative to the poverty threshold, while to reduce the AFDC standard by the full amount of the Thrifty Food Plan may undercompensate recipients by as much as 17 percent.6 Program interactions virtually dictate that designers of assistance programs use corr.plicated models to evaluate likely program effects. Some models are designed to point out odd interactions of such program features as maximum benefit levels and tax rates on other income by estimating the benefit package 6 The first bound is obtained as follows: assume the AFDC benefit standard is $991 per month, or 100 percent of the poverty guideline for a family of three in 1993 (no state actually paid this amount)
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From page 345... ...
Such cash and near-cash assistance programs as AFDC and food stamps must contend with the fact that economic support has negative incentive effects to the extent that recipients are encouraged to rely on the program and not take steps to become self-supporting. Research on AFDC has examined incentive effects in the areas of work effort, family structure, and migration.
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From page 346... ...
, and others find no effects for the same groups (see Duncan and Hoffman, 1990; Ellwood and Bane, 1985; An, Haveman, and Wolfe, 1991; Lundburg and Plotnick, 1990; Plotnick, 1990~. Migration Effects The extent to which the wide variation in AFDC benefit levels across states influences patterns of interstate migration is of ~ See Fraker and Moffitt (1988)
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Substantial cross-state differentials in AFDC benefits have existed since the inception of the AFDC program, but they have created greater policy concern since residency requirements were ruled unconstitutional in 1969. In particular, policy makers (particularly in high-benefit states)
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From page 348... ...
The need to have control variables available on non-AFDC economic opportunities is particularly important, since state AFDC benefit levels are positively correlated with state income and wage levels. (This is not surprising, given that only high income states can afford to pay high AFDC benefits and that only states with high wage levels can pay high AFDC benefits without creating large work disincentives.)
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From page 349... ...
That is, if people who are provided benefits that are intended to move them out of poverty respond in such ways as working less, the net effect will be to leave them in poverty and to require even more funds to move them out of poverty. Because of such behavioral effects, it is m~sleading to describe the aggregate "poverty gap" (i.e., the difference between the poverty line and a family's resources, aggregated over all families)
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From page 350... ...
. The act provided for a national minimum AFDC benefit standard that, when combined with food stamps, would ultimately reach 90 percent of the federal poverty line for families with no other income.
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From page 351... ...
Summary This brief review of some key factors that enter into the design of assistance programs-funding constraints, considerations of the target population, program interactions, incentive effects, and federal-state cost-sharing provisionsmakes it clear why it is difficult to link poverty thresholds directly to benefits. To those who are involved in evaluating and designing government assistance programs, our observations will come as no surprise and indeed may seem obvious.
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From page 352... ...
Recommendation One might surmise that the need standard, as distinct from the payment standard or maximum benefit, is supposed to represent a type of poverty concept. In this case, one might want to consider the use of the proposed poverty measure as the standard.
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From page 353... ...
We begin by describing the basic regulatory framework within which AFDC has operated. We then describe methods of setting need standards that were used in the 1970s and 1980s, current differences in standards and equivalence scales among the states and their relationship to the current poverty line, and trends in need standards and maximum benefits over time.
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From page 354... ...
First, the family's gross income cannot be higher than 185 percent of the state's need standard and the family's net or countable income must not exceed 100 percent of the need standard or payment standard, whichever is lower.~4 Standard Setting in the 1970s In 1980, Urban Systems Research & Engineering, Inc.
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North Carolina Ohio Tennessee Texas Virginia BLS lower level budget Maine Maine (as is or modified) Maryland New York New York North Carolina Pennsylvania Tennessee Utah Wisconsin Wisconsin Multiplier or Illinois expenditure ratio Montana Wyoming Combination Georgia Iowa continued on next page
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From page 356... ...
356 TABLE 8-2 Continued MEASURING POVERTY Standard Setting Method Used in 1970s Used in 1980s Combination-continued Kansas Michigan Vermont West Virginia Legislative determination Maryland Michigan North Dakota Average payment Poverty guidelines (as is or modified) Arbitrary or Alaska Alaska not available Arizona Arkansas District of Columbia Louisiana Mississippi Missouri Nevada New Hampshire North Dakota Rhode Island Wyoming New Hampshire New Jersey Rhode Island Alabama Arizona Arkansas Delaware Florida Georgia Hawaii Indiana Kentucky Mississippi Nevada New Mexico Ohio South Carolina California (N.A.)
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From page 357... ...
USR&E properly criticized this approach as tautological, in that the population for determining the "standard" was based on current program participants. Lower Level Budget Five states reported adapting the lower level family budget of the Bureau of Labor Statistics (BLS)
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From page 358... ...
conclude, as did USAGE in its earlier study, that "the majority of states cannot demonstrate that their need standards represent an amount of money necessary to purchase basic necessities." Larin and Porter document and evaluate six types of methods for setting AFDC need standards by the states in effect as of 1990 (see Table 8-2~: Federal Poverty Guidelines Fourteen states reported relating their need standard in some way to the HHS poverty guidelines.~5 Of these, four states reported using the HHS poverty guidelines as is. Ten states modified the guidelines in such ways as subtracting the cost of the Thrifty Food Plan, ,htr~rtin~ Ye food stun and Medicaid benefits subtracting the cost of "nonessential commodities," setting their need standard as a percentage of the guidelines, or allowing their need standard to decline as a percentage of the guidelines because of not adjusting for inflation.
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From page 359... ...
, one finds that many states reported using a different method in 1990 than in 1980; see Table 8-2. Only 10 states appear to have used the same method in both decades: Maine, New York, and Wisconsin consistently reported using a variation of the BLS lower level budget, and Colorado, Idaho, Massachusetts, Nebraska, Oklahoma, Oregon, and Washington consistently reported using the market basket pricing method.
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From page 360... ...
Not surprisingly, the index of state-adjusted poverty thresholds shows less variation than does the index of median family income; see Table 8-4. The state-adjusted poverty threshold index values range from 24 percent above to 15 percent below the national average, with a coefficient of variation of 10 percent.~7 The median family income index values range from 17 The coefficient of variation of 10 percent for the state-adjusted poverty threshold index is similar to that of 8 percent for a state cost-of-living index developed by Peterson and Mom
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From page 361... ...
THE PO VERTY MEASURE AND AFDC I'ABLE 8-3 AFDC Need Standards, Maximum AFDC Benefits, and Maximum Combined AFDC and Food Stamp Benefits for a Family of Three, as a Percentage of the 1993 Weighted Average Monthly Poverty Threshold, January 1994 361 Percent of Poverty Threshold AFDC Need Maximum Maximum Combined State Standard AFDC Benefit AFDC/Food Stamp Benefit Alabama 70 17 48 Alaska 81 77 101 Arizona 100 36 67 Arkansas 73 21 52 California 74 63 86 Colorado 44 37 67 Connecticut 71 71 91 Delaware 35 35 66 District of Columbia 74 44 72 Florida 103 32 62 Georgia 44 29 60 Hawaii 103 64 103 Idaho 103 33 64 Illinois 93 38 69 Indiana 33 30 61 Iowa 88 44 72 Kansas 45 45 74 Kentucky 55 24 54 Louisiana 69 20 51 Maine 58 44 72 Maryland 53 38 69 Massachusetts 60 60 83 Michigana 57 48 75 Minnesota 55 55 80 Mississippi 38 13 43 Missouri 88 30 61 Montana 53 42 71 Nebraska 38 38 68 Nevada 73 36 67 New Hampshire 172 57 81 New Jersey 103 44 73 New Mexico 37 37 67 New Yorkb 60 60 85 North Carolina 57 28 59 North Dakota 43 43 71 Ohio 92 36 66 Oklahoma 49 34 64 Oregon 48 48 78 Pennsylvania 64 44 72 Rhode Island 58 58 86 continued on next page
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From page 362... ...
43 percent above to 29 percent below the national average with a coefficient of variation of 17 percent. We then divided each state's AFDC need standard, maximum benefit, and combined maximum AFDC and food stamp benefit as of January 1994 by the appropriate state-adjusted poverty threshold index value and the appropnate median family income index valued If differences in the cost of living .
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From page 363... ...
THE PO VERTY MEASURE AND AFDC TABLE 8-4 State Median Family Income and State-Adjusted Poverty Thresholds under the Panel's Proposed Measure 363 Index for State Index for State-Adjusted Median Family Poverty Thresholds with State Income the Proposed Measure Alabama 0.835 0.881 Alaska 1.355 1.102 Arizona 0.936 1.017 Arkansas 0.739 0.873 California 1.180 1.178 Colorado 1.046 0.973 Connecticut 1.431 1.188 Delaware 1.172 1.066 District of Columbia 1.055 1.112 Florida 0.937 1.049 Georgia 0.976 0.993 Hawaii 1.256 1.243 Idaho 0.858 0.862 Illinois 1.126 1.020 Indiana 0.992 0.949 Iowa 0.921 0.903 Kansas 0.959 0.926 Kentucky 0.787 0.874 Louisiana 0.766 0.902 Maine 0.943 1.029 Maryland 1.310 1.106 Massachusetts 1.291 1.191 Michigan 1.066 0.998 Minnesota 1.074 1.023 Mississippi 0.712 0.853 Missouri 0.927 0.929 Montana 0.816 0.865 Nebraska 0.920 0.908 Nevada 1.043 1.078 New Hampshire 1.211 1.122 New Jersey 1.385 1.202 New Mexico 0.804 0.922 New York 1.156 1.078 North Carolina 0.918 0.940 North Dakota 0.836 0.872 Ohio 1.000 0.955 Oklahoma 0.831 0.883 Oregon 0.941 0.964 Pennsylvania 1.014 0.987 Rhode Island 1.140 1.099 South Carolina 0.897 0.936 South Dakota 0.804 0.872 Tennessee 0.860 0.920 continued on next page
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From page 364... ...
across states (as proxied by cost-of-housing differences in the poverty threshold) are the only reason for the differences in need standards and benefit levels, then the calculation with state-adjusted poverty threshold index values should result in the same (or close to the same)
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From page 365... ...
Differences in Equivalence Scales Equivalence scales the proportion by which benefits to the AFDC unit are increased for each added child also vary across states; see Table 8-6.~9 Data are available on the maximum AFDC benefit by family size as of~anuary 1994 for the 50 states and the District of Columbia, ranging from the basic twoperson unit (parent or other caretaker and child) through the six-person unit l9 As noted above, some states do not currently pay benefits for additional children beyond the first or second, as an intended deterrent to continued childbearing on the part of AFDC recipients.
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From page 366... ...
366 MEASURING POVERTY TABLE 8-6 Equivalence Scale Implicit in Maximum AFDC Benefits for Two-Person Through Six-Person Families, January 1994 Amount Added to Two-Person (One-Adult/One-Child) Benefit (1.00)
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From page 367... ...
for each state; calculated from Bureau of the Census (1993c:Table A) for the current poverty measure.
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From page 368... ...
poverty threshold, the third child adds 31 percent, the fourth child adds 23 percent, and the fifth child adds 20 percent. The type of equivalence scale that we recommend for the poverty measure would increase the benefit for a one-adult/one-child family the most for the second child, with declining percentages for each additional child to reflect household economies of scale.
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From page 369... ...
From 1980 to 1991 the number of states paying full need dropped from 29 to 16, and the number paying 70 percent or more of need dropped from 44 to 27 states. In looking at the whole time span, the need standard declined in real terms in the median state by 33 percent from 1970 to 1991, and the maximum benefit declined in real terms by 38 percent.22 One consequence of declining AFDC benefits over the period was that food stamps (which are indexed yearly for inflation)
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From page 370... ...
370 MEASURING POVERTY TABLE 8-7 AFDC Need Standards for a Family of Three, July 1970, July 1980, and January 1991, in Constant January 1991) Dollars AFDC Need Standard (in January 1991 dollars)
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From page 371... ...
A fundamental question is whether the concept of a separate need standard makes sense: most assistance programs do not distinguish between a need standard and the maximum benefit the program will pay to participants with no other source of support. Limits on gross as well as countable income in these programs (e.g., SSI)
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From page 372... ...
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From page 373... ...
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From page 374... ...
We note that HHS could request the states to complete an assessment that considers the possible use of the proposed poverty measure for inclusion in their next regular reports. An important element of such a review is an assessment of the implications of the proposed measure both the thresholds and the definition of family resources in relation to a state's current need standard (whether the poverty guidelines or its own standard)
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From page 375... ...
Comparative Advantage of the Proposed Poverty Measure The use of the proposed threshold concept to set state need standards of AFDC would represent an improvement over the current measure in several respects. One improvement relates to the equivalence scale by which the reference family poverty threshold is adjusted to take account of different needs for different types of families: the proposed scale is more reasonable than that embedded in the official thresholds.
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From page 376... ...
Hence, to subtract Medicaid from the poverty guidelinesor from thresholds developed under the proposed measure is to assume that such benefits are fungible and can be used for other needed goods, when this is not generally the case. There is a clearer case for subtracting food stamps from the poverty thresholds to form AFDC need standards, particularly since food stamps are not counted as income for computing AFDC benefits.
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From page 377... ...
It may make most sense for the states to think of the AFDC need standard as a global standard, and then address program interaction questions in determining AFDC benefit levels. Implications of Updating for Costs and Caseloads Another important issue with the possible use of the proposed poverty measure to determine AFDC need standards concerns the proposed procedure for updating the thresholds.
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From page 378... ...
is the same as the payment standard (which determines net or countable income eligibility) , and both are the same as the maximum benefit paid to families with no other income.
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From page 379... ...
In this case, the need standard exceeds both the payment standard and the maximum benefit. Here, the link of the need standard to both eligibility and benefits is attenuated.
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From page 380... ...
Hence, states that want to provide such incentives may find it attractive to base their need standard on poverty thresholds that are developed under the proposed updating procedure. Summary We have offered a number of reasons that the use of the proposed poverty measure by the states for their AFDC need standard could be advantageous and some areas of concern, principally involving possible effects on program costs and caseloads.
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From page 381... ...
Use of the poverty thresholds that are developed under the proposed procedure would be generally consistent with the AFDC definition of income and would recognize important interstate differences in living costs within a common framework that would provide a benchmark for evaluating the adequacy of eligibility levels across states.
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