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THE POVERTY MEASURE AND AFDC 380 Clearly, each state will need to analyze the possible implications for program costs and caseloads of basing its need standard on poverty thresholds that are developed under the proposed updating procedure. Given the differences among states in methods for determining eligibility and benefits, the states may well come to different conclusions. Effects of Updating on Program Incentives Some states that have a maximum benefit below their need standard provide higher benefits to families with other income, such as earnings or child support, through a ''fill-the-gap" method of calculating benefits. The details of this method vary across states, but the essence is that families are allowed to retain other income without having their AFDC benefit reduced, so long as the total of their benefit and other income does not exceed the need standard (see Larin and Porter, 1992: App). To illustrate, consider a state with a need (and payment) standard and maximum payment of $400 per month (i.e., the state pays 100% of need). In this state, a newly eligible family that has $200 of earnings will receive only $200 in AFDC, as the family's earnings will be subtracted in full from the need standard. But in another state, one that has a maximum benefit of $400 per month but a need (and payment) standard of $600 per month and that allows families to fill the gap, the same family will receive an AFDC benefit of $400 because the family's $200 in earnings will be subtracted from the (higher) need standard. The fill-the-gap approach to benefit calculation is a way to provide incentives to working families. 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. We do not want our discussion of budgetary implications to be misinterpreted. We do not intend to argue against the adoption of need standards for the AFDC program that are updated in real terms; indeed, from the perspective of the low-income population, there is much to recommend such a step by the states. However, assistance programs must balance a number of objectives and contend with a number of constraints. We urge that program designers fully evaluate all of the ramifications before deciding to adopt for program purposes a measure that is proposed for statistical purposes. For the AFDC need standard, it is important to note that the states, under current law, have considerable latitude with which to attenuate the link of the
THE POVERTY MEASURE AND AFDC 381 need standard to eligibility and benefits, by such strategies as setting the payment standard at a fraction of the need standard. Hence, considerations of possible adverse consequences for program costs and caseloads should perhaps weigh less heavily than the advantages of using the proposed poverty measure to set AFDC standards of need. In conclusion, we believe that, on balance, the use of the proposed poverty concept for the purpose of determining AFDC need standards would be beneficial, even if individual states set their need (or benefit) standard at different fractions of the poverty threshold. 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.
THE POVERTY MEASURE AND AFDC 382