1967 amendments included a provision to require states to update their need standards to reflect cost-of-living increases since the standards were adopted; however, states were not required to pay benefits consistent with these increases. No such requirement to adjust need standards for inflation has been legislated since 1967.

Although the states have very wide latitude in setting their need and payment standards, federal regulations have always been more specific about the resource side of the equation for determining AFDC eligibility and benefits (see U.S. House of Representatives, 1994:327-329; Solomon and Neisner, 1993). Currently, to receive AFDC payments, a family must pass two income tests. First, a family's gross monthly income cannot be higher than a certain percentage of the state's need standard. This provision was first adopted in 1981, with the limit initially set at 150 percent and raised to 185 percent in 1984. Second, a family's net or countable monthly income must not exceed 100 percent of the need standard or 100 percent of the payment standard in the many states in which the payment standard is below the need standard.

Families must also meet an asset test. Federal regulations currently limit assets or "countable resources" to $1,000 per family, excluding a home and car (provided the equity value of the car does not exceed $1,500). States must also exclude burial plots from countable resources and may exclude such essential items for daily living as clothing and furniture (U.S. House of Representatives, 1994:331). Finally, families must meet various other state and federal requirements (e.g., provisions for work, education, or training).

The definition of countable income for AFDC is gross income minus various exclusions. Currently, states must deduct from gross income the following unearned income components: the first $50 of monthly child support receipts; certain Department of Education grants and loans to college students; the value of Department of Agriculture donated foods; benefits from child nutrition programs; and payments to participants in Volunteers in Service to America (VISTA), some payments to certain Indian tribes, and Agent Orange settlement payments. In addition, states must deduct from gross income the following earned income components: a standard work expense deduction of $90 per month and actual child care expenses up to a ceiling of $175 per month per child ($200 for a child under age 2 and less for part-time work). For AFDC recipients who obtain employment subsequent to enrollment, the states must deduct an additional $30 of earnings per month for the first 12 months and an additional one-third of remaining earnings for the first 4 months. The states must also ignore any benefits from the EITC. Finally, although states have the authority to count food stamp benefits as income for purposes of determining AFDC benefits, no state currently does so. Rather, the process works the other way: AFDC benefits are counted as income for purposes of determining food stamp benefits.

In January 1994 the AFDC need standards for the 50 states and Washing

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