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INTRODUCTION AND OVERVIEW 89 measures in which family resources are defined net of government taxes and transfers, such as a measure that defines income in before-tax terms, a measure that excludes means-tested government benefits from income, and a measure that excludes all government benefits from income. Such measures can help assess the effects of government taxes and transfers on poverty. Finally, we note the importance of having indicators of deprivation other than economicâphysical, psychological, and social deprivation. A measure of economic poverty is undoubtedly a key social indicator. It is important in its own right as a barometer of the extent to which there is a segment of U.S. society that lacks the means to obtain basic economic necessities; it is also important because it correlates highly with other aspects of deprivation, such as poor health and low educational levels. But an economic poverty measure cannot feasibly encompass other types of deprivation. Instead, other measures need to be developed to directly assess the well-being of the population on a number of dimensions and to help focus publicand private-sector policies to ameliorate deprivation. We encourage research and development on a range of deprivation indicators. USE OF THE POVERTY MEASURE IN GOVERNMENT PROGRAMS The current official poverty measure plays a role in determining eligibility for a number of government assistance programs, and it is important to consider how or if the proposed measure is appropriate for program use.30 We first examine the implications of linking the proposed measure to program eligibility. We then look at the relationship of the proposed measure to benefit standards for the AFDC program, for which we were asked to consider issues involved in establishing a national minimum benefit standard.31 The Poverty Measure and Program Eligibility Need Standards for Programs That Use the Official Measure Of 70 federal and federal-state programs that provide cash or in-kind benefits to people on the basis of an explicit test of low-income, 27 programs link their need standard for eligibility to the U.S. Department of Health and Human 30 The descriptions of programs and program eligibility standards are as of the time when this report was prepared; they do not reflect any changes after 1994. 31 Another program use of the poverty measure is for allocation of federal funds to states and localities through formulas: for example, the allocation of funds for educationally deprived children to school districts on the basis of their share of children age 5 to 17 who live in poor families. This use of the poverty measure raises important issues, including that of data availability, but is beyond the scope of this report.
INTRODUCTION AND OVERVIEW 90 Services (HHS) poverty guidelines, which are derived from the official poverty thresholds. Examples include food stamps, Head Start, Legal Services, Maternal and Child Health Services, Medicaid, and the School Lunch and Breakfast Programs (Burke, 1993). Some programs (e.g., food stamps, Medicaid) have several criteria for eligibility: applicants who are already participating in another program, such as AFDC, may be automatically eligible, while other applicants can qualify on the basis of comparing their income to the poverty guidelines (or a multiple of them). The use of the proposed poverty measure in these programs would be an improvement in several respects over the current measure for the purpose of targeting benefits to needy families. The proposed measure has an internally consistent equivalence scale by which to adjust the poverty thresholds for different types of families, it reflects geographic differences in the cost of housing in the thresholds, and its definition of family resources as disposable money and near-money income is consistent with the basic needs concept underlying the thresholds. This consistency means that two families with the same gross income would not be mistakenly treated as having the same income for consumption when one of them had nondiscretionary expenses (such as taxes or child support payments) and the other did not. However, program agencies should carefully consider whether the proposed measure may need to be modified to better serve program objectives. For example, the proposed family resource definition is considerably more data intensive 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 programs as food stamps that require a very detailed determination of both gross and net or "countable" income in order to determine financial eligibility and benefit amounts, implementing the proposed definition of family resources would not complicate program administrationâindeed, that definition, in concept, if not in precise details, is quite similar to the definition already in use. In contrast, other programs have a simple application procedure that obtains a crude measure of gross money income for purposes of eligibility determination. Many of these programs provide an all-or-nothing serviceâan example is Head Start, which offers an enrichment program to preschool children in families with income below the poverty threshold. Other programs with relatively simple application procedures charge recipients for services on a sliding scale, depending on the broad income-to-poverty ratio category into which the family falls. In these cases, to fully implement the proposed family resource definition could pose a burden on applicants and program administrators. However, we believe there are ways to simplify the proposed definition for programs for which a simple application process is valued and where there is a willingness to trade off the loss of some precision in classifying an applicant's eligibility status.
INTRODUCTION AND OVERVIEW 91 With respect to the threshold or need standard component of the proposed measure, program agencies must consider whether to use 100 percent of the thresholds as the cutoff for eligibility or a multiple of them, as is now specified in many programs. Obviously, there are budgetary implications of this choice, particularly for entitlement programs that must provide benefits for all applicants who meet the eligibility criteria (in contrast to programs with a legislatively set budget that requires program administrators to put eligible applicants on a waiting list once the budget is exhausted). In this regard, it is critical to consider the implications for programs of the recommendation to update the thresholds each year for real changes in consumption of basic goods and services. The thresholds developed under this procedure will not likely increase as fast as would a purely relative set of thresholds (because the procedure considers only the categories of food, clothing, and shelter, not all goods and services). However, the thresholds developed under the proposed procedure will likely increase faster than thresholds that are simply adjusted by the CPI, like the official ones, if real growth occurs. There are ways to address the budgetary consequences of poverty thresholds that are updated in real terms. For example, program eligibility could be limited to families with resources below a fraction of the thresholds. This type of strategy is not a contradiction in terms. Although updating the poverty thresholds for real growth in basic consumption makes a great deal of sense for a statistical measure, the design of government assistance programs must take into account many factors, only one of which is a statistical standard of need. Other considerations, such as funding constraints and competing uses for scarce tax dollars, may dictate assistance program eligibility levels that are lower than the statistical poverty thresholds. Finally, there are some other features of the proposed poverty measure that may not be suitable for program use. For example, we propose that need be measured on an annual basis and that asset values not be included in family resources. However, many programs (e.g., food stamps) use a subannual accounting period together with an asset test because they are intended to provide immediate assistance to people who are in a crisis situation. Also, we propose that the unit of analysis be the family, as defined by the Census Bureau, but programs differ in their target populations and hence often in their definition of an eligible unit. Such differences from the proposed statistical poverty measure are quite appropriate in light of program objectives. RECOMMENDATION 7.1. Agencies responsible for federal assistance programs that use the poverty guidelines derived from the official poverty thresholds (or a multiple) to determine eligibility for benefits and services should consider the use of the panel's proposed measure. In their assessment, agencies should determine whether it may be necessary to modify the measureâfor example, through a
