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USE OF THE POVERTY MEASURE IN GOVERNMENT ASSISTANCE PROGRAMS 318 provide assistance to individual families.2 In particular, we consider the implications of the changes we propose in the current poverty measure for program eligibility and benefit determination. To put the issue in perspective, we review in general the types of programs that are designed to help low- income people and consider a few specific examples. Different categories of programs pose somewhat different questions for the potential role of one or another poverty measure. Appendix D provides details on all such federal programs as they existed through 1994. In Chapter 8, we focus on the possible relationship of the proposed poverty measure to benefit levels in the AFDC program, and we also address the relationship of that measure to state AFDC standards of need, which, in many states, exceed actual benefit levels. RECOMMENDATION We argue throughout this report that the proposed poverty measure is a marked improvement over the current measure for use as a statistical indicator, and we recommend its adoption for this purpose. We believe that the proposed measure also deserves serious consideration for use as an income eligibility standard in government assistance programs that currently determine eligibility or benefit amounts by comparing family resources to the poverty guidelines derived from the official thresholds. However, we do not flatly recommend that the proposed measure be adopted in place of the current measure for program use. Rather, we urge program agencies to carefully review the proposed measure to determine whether it is appropriate and whether it may need to be modified in one or more respects to better serve program objectives. In their review, program agencies should consider the implications of the proposed measure in relation to the current measure. They should also keep in mind some important criteria for evaluating any measure of need. In particular, it is critical that the measure provide for consistency between the definition of family resources and the definition of the poverty threshold (or other need standard). This criterion is important for a statistical measure of poverty so that population groups are appropriately classified by poverty status; it is also important for program use so that program benefits are given to needy families. As we have noted above, the current poverty measure fails this consistency criterion in several important respects, for example, by not excluding 2 There are other questions about the role of a poverty measure and about the changes we propose to the current measure for fund allocation purposes that we do not address. Thus, our recommendation to adjust the official poverty thresholds for geographic area differences in the cost of housing has obvious implications for the distribution of program funds among jurisdictions. However, broadly speaking, the availability of reliable data for estimating poverty rates for small geographic units may be a more important concern for fund allocation than the properties of a specific poverty measure.
USE OF THE POVERTY MEASURE IN GOVERNMENT ASSISTANCE PROGRAMS 319 taxes from family resources even though the poverty thresholds were computed on an after-tax basis. Hence, some working families that pay taxes may be erroneously classified above the poverty line because their resources are defined as gross rather than net income. The proposed poverty measure embodies a definition of family resources as money and near-money disposable income that is consistent with the derivation of the poverty thresholds from expenditure data for such basic needs as food, clothing, and shelter. However, the proposed definition is considerably more demanding of data than the current definition: full implementation would require asking about in-kind benefits and several types of expenses as well as money income. For such assistance programs as food stamps and AFDC, which make a very detailed determination of financial eligibility and benefit amounts, implementing the proposed definition of family resources would not complicate program administration. Indeed, that definition, in concept if not in detail, is quite similar to the definitions already in use in these programs. However, other assistance programs currently have fairly simple application procedures that obtain a crude measure of gross money income and compare it with the relevant poverty guideline to determine program eligibility. For these programs, to implement the proposed resource definition could pose a burden on both applicants and program administrators. We believe there are ways to simplify that definition for programs for which a simple application process is valued and there is a willingness to give up some precision in classifying applicants' eligibility status (see below). With regard to the need standard component of the proposed poverty measure, program agencies should consider whether the cutoff for eligibility should be 100 percent of the guidelines or a multiple, as is now the case in many programs. Obviously, there are budget implications of this choice, particularly for those entitlement programs that use the guidelines and that must provide benefits for all applicants who meet the eligibility criteria. In this regard, it is important for program agencies to be aware of the implication of the proposal to update the poverty thresholds each year for real changes in basic consumption rather than to update them only for price inflation. The thresholds developed under the procedure will probably increase more rapidly than thresholds that are updated for price inflation only, even though they are not likely to increase as fast as a purely relative set of poverty thresholds. There are ways to address the budgetary consequences of using poverty thresholds that are updated in real terms for program purposes. For example, eligibility could be limited to families with resources below a fraction of the thresholds. This strategy is not a contradiction in terms. We have argued strongly that updating the poverty thresholds for real growth in spending on basic necessities makes a great deal of sense for a statistical measure. There is considerable evidence that poverty thresholds are relative to time and place,