Reform Food Stamps to Promote Work

Overview

For over 30 years, the Food Stamp Program has served as the foundation of America’s national nutrition safety net, the first line of the Nation’s defense against hunger, and a powerful tool to improve nutrition among low-income families and individuals. Unlike most other assistance programs, the Food Stamp Program is available to nearly anyone with little income and few resources. As a result, it serves a broad cross-section of the Nation’s poor: single parents and their children, the elderly and disabled, the recently unemployed, and the working poor.

Since the 1996 reforms, the percentage of food stamp households on welfare has fallen sharply, and the percentage of food stamp households with earnings has grown. In 2000, for the first time ever, more food stamp households relied on their own earnings than depended on welfare’s cash assistance. Now, more than ever, the Food Stamp Program serves as an important support to ease the transition from welfare to work.

To succeed in this role, national program policies must work in tandem. The food stamp program’s basic structure provides a strong work incentive by slowly reducing the value of benefits as earnings rise. However, the details of program operation at the local level should facilitate participation by families that work. Further improvement in food stamp policies can support this goal.

It has become increasingly clear that the program is failing to live up to this challenge. Historically, participation rates among people in households that work have been relatively low, and there is evidence suggesting that these rates have fallen in recent years. Several careful studies show that only about half of the families leaving welfare receive the food stamps for which their low income qualifies them. Some of this decline in food stamp use once families leave welfare is probably intentional because some families do not want the stigma of welfare benefits. But many single mothers struggling to earn $10,000 per year would certainly welcome the additional $2,000 in benefits that food stamps would provide.

Working families often have circumstances that make complying with the program’s procedural requirements difficult. It can be hard, for example, for working people to take time off to appear at certification interviews during working hours. But another part of the problem is that the quality control system may result in states inadvertently discouraging food stamp use by working families. Because food stamp benefits are 100 percent Federally funded and yet are administered by states, a quality control system is an absolute necessity to ensure that states are not wasting Federal resources by awarding benefits to unqualified individuals and families. However, states have found over the years that food stamp cases with earnings cause high error rates because changes in earnings are so difficult to trace. While states now have new administrative options that can reduce the potential for risk of error in these cases, more can be done to help working families. In general, the reforms proposed by the Administration will make it easier for states to fashion a food stamp program that is friendlier to working families.

Summary of Proposals

The Administration is proposing a comprehensive and balanced approach to reform the Food Stamp Program that not only improves the nutritional safety-net for the working poor, but also simplifies the program and allows States to align all of their work-support programs while ensuring a high degree of program integrity and program access.

Simplify Program Administration. Complex program rules are burdensome for both agencies and recipients. The Administration’s proposal would standardize the medical and dependent care deductions, eliminate exceptions to the standard utility allowance, and simplify vehicle rules.

Modify Sanction Policy. Instead of imposing Federal sanctions on states with error rates above the national average, the Federal Government will impose sanctions only on states with error rates above the 75th percentile of the distribution of state error rates. In addition, to receive a sanction the state must be above the 75th percentile for two years. This procedure will reduce the number of states being sanctioned and will somewhat reduce the size of sanctions. The effect of these outcomes will be to reduce the disincentive for states to provide food stamps to working families.

Adjust Sanctions for States with Many Cases with Earnings. States that have a high proportion of cases with earnings will have their sanctions adjusted so that, in effect, they will receive sanctions only if their error rates are well above the 75th percentile.

Replace Enhanced Funding with State Performance Bonuses. States that perform well in maintaining payment accuracy and providing better customer services, especially to working families, will receive bonuses that total $70 million annually.

Improve the Electronic Benefit Transfer (EBT) Program. The EBT program has

Enable Working Families to Own Reliable Transportation. The Administration will exempt one vehicle per adult from program asset limits, allowing low-income individuals to own a reliable car for getting to work without losing food stamp benefits. This proposal eliminates situations in which ownership of a reliable vehicle prevents an otherwise eligible household from receiving food stamps. States would also continue to have the option to apply their TANF vehicle rules to the Food Stamp program.

Phase-in a Higher Standard Deduction for Large Households. The Administration will phase-in a standard deduction at the higher of the current standard or 10 percent of the poverty threshold, varied by household size. Virtually all of the households benefiting from this proposal are families with children. This proposal improves the Food Stamp Program’s ability to operate as a work support for low-income working families. The current standard deduction is the same amount for all households and has been frozen since 1995.

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