An Urban Institute New Federalism Program to Assess National Survey of America’s Families Changing Social Policies THE URBAN INSTITUTE Series B, No. B-45, April 2002 Extreme Poverty Rising, Existing Government Programs Could Do More Sheila R. Zedlewski, Linda Giannarelli, Joyce Morton, and Laura Wheaton By raising Many have heralded welfare reform as an getting the assistance they need and may unqualified success. More single parents be facing greater hardship. participation in are working, and welfare caseloads have This brief sets out to understand how plummeted. The official poverty rate decreased program participation has affect- programs already in decreased from 13.7 percent in 1996 to 11.8 ed poverty since welfare reform. It reviews percent in 1999. While many commentators changes in poverty from 1996 to 1998 and place, policymakers debate the causes of these improvements— compares families’ current economic status citing the strong economy, federal and with a scenario that assumes full participa- can take an important state policies designed to “make work tion in government support programs. pay,” and welfare reform—few dispute the The findings show that the govern- step toward improving strong positive outcomes.1 ment offers a stronger safety net than is Less well known, however, is the delivered. In 1998, if all families with chil- the economic well- unfortunate story buried within these posi- dren participated in the post-reform gov- tive outcomes. When all types of income ernment safety net programs for which being of children. are taken into account, extreme poverty they qualified, poverty would have (income below 50 percent of the federal declined by more than 20 percent and poverty level) has increased. Despite phe- extreme poverty by 70 percent. This nomenal growth in the U.S. economy in decline provides a strong rationale for the late 1990s, more children lived in changing existing programs to provide single-parent, extremely poor families in “family-friendly” delivery systems and 1998 than in 1996. This surprisingly nega- more standardized eligibility requirements. tive outcome largely reflects an increase in By increasing participation in programs the number of low-income families that already in place, policymakers can take an have either left, or chosen not to enroll in, important step toward improving the eco- government support programs (including nomic well-being of children. cash welfare and food stamps). The reasons for the decline in program Data and Methods participation are difficult to pinpoint. The analysis uses the 1997 and 1999 Changing attitudes about seeking help National Surveys of America’s Families from the government, the increasing com- (NSAF) and the Urban Institute’s Transfer plexity of program rules, and states’ new Income Model, version 3 (TRIM3). The welfare programs have no doubt all played NSAF is a large, nationally representative a role in reducing participation. The survey of the civilian, noninstitutionalized decline suggests that many families are not population under age 65 that overrepre- ASSESSING THE NEW FEDERALISM An Urban Institute Program to Assess Changing Social Policies sents low-income families. Like simi- gibility because of immigrant status. also apply for in-kind assistance lar government surveys, each round Thus, the estimates of poverty reduc- through the Food Stamp program of the NSAF asked families about tion achieved by full program partici- and for child care and housing subsi- income received during the prior pation are somewhat overstated.6 dies. Each of these programs, howev- year (1996 and 1998). The TRIM3 er, has very different minimum model corrects the NSAF’s underre- Changes in the Government income requirements, rules about porting of government benefits (a Safety Net work, and asset tests (see Zedlewski condition that plagues all surveys in Federal and state welfare reforms 2002). In addition, unlike many bene- this area),2 adds the value of food enacted since 1996 have affected fam- fits, child care and housing assistance stamps and the earned income tax ilies’ benefit eligibility and participa- are not guaranteed and are awarded credit (EITC), imputes federal payroll tion in a number of ways. Some of on a first-come, first-served basis. and income taxes, and estimates the changes positively affected partic- Medical assistance may be available annual out-of-pocket child care ipation. For example, states that to low-income families, but most expenses. raised the amount that individuals states limit coverage for parents to The TRIM3 model corrects for can earn and still receive TANF bene- those that have cash assistance or the underreporting of Supplemental fits increased the number of eligible have recently left TANF. Coverage Security Income (SSI), Temporary families and encouraged participa- for their children, however, is more Assistance for Needy Families tion. In contrast, state diversion broadly available. Working families (TANF), and food stamp benefits by strategies, such as requiring substan- receive assistance through the applying individual state rules to tial proof of job search prior to enroll- refundable EITC.7 Legal immigrant determine eligibility for each individ- ment, may have discouraged pro- families may or may not be eligible ual and family in the survey file.3 The gram participation. for some of these safety net benefits model then compares benefit eligibil- The 1996 federal reforms to other depending on the program, their ity with income sources reported by parts of the safety net also affected state of residence, and (sometimes) NSAF families and adds benefits for benefit eligibility and participation. their work history. As the next sec- families that failed to report them by In addition to restricting SSI eligibili- tion shows, the drop in participation matching detailed control totals ty for children, the legislation elimi- following the reforms led to higher developed from state and federal nated SSI and food stamp benefit eli- extreme poverty among families with administrative data. gibility for legal, noncitizen immi- children. The augmented NSAF data pro- grants. (Subsequent legislation enact- vide estimates of families’ total dis- ed in 1997 and 1998 restored eligibili- The Poverty Story: 1996–1998 posable income—defined as all ty for some noncitizen groups.) The Our examination of participation’s sources of cash income plus the value reforms also cut food stamp benefits effect on family well-being looks at of food stamps and the EITC, minus by lowering the payment standard, two types of poverty measures. The federal taxes and out-of-pocket child freezing the standard deduction, first is the official U.S. measure of care expenses.4 We report poverty increasing the amount of income poverty, which compares families’ estimates using cash income alone counted against benefits, and limiting cash income to the poverty threshold (following the official Census Bureau food stamp eligibility to three but excludes two of the most impor- estimate) and using an alternative months for able-bodied adults with- tant government benefits—food measure based on disposable out dependents working less than 20 stamps and the EITC. Because of the income.5 hours per week. Finally, the legisla- importance of food stamps (a “near The TRIM3 program eligibility tion gave states more funding and cash” benefit) in reducing poverty, estimates allow us to calculate the consolidated programs for child care we also extend the cash-income mea- change in income that would occur if assistance. sure to include these benefits. all families took the benefits available The changes made the already The second, more comprehensive to them. The “full-participation sce- complex safety net system even more measure includes all government nario” holds earnings and nonwel- difficult to navigate. Low-income citi- assistance, but deducts federal pay- fare sources of income constant, but zen families can apply for cash assis- roll and income taxes as well as out- recalculates eligible families’ SSI, tance through SSI (if there is a severe- of-pocket child care expenses from TANF, and food stamp benefits. ly disabled family member) or TANF income to adjust for the different Owing to data limitations, the esti- (if they have not reached a benefit needs of working and nonworking mates do not take into account ineli- time limit). Low-income families can families.8 The official U.S. “cash- 2 An Urban Institute Program to Assess Changing Social Policies ASSESSING THE NEW FEDERALISM income poverty” measure yields high- 20 million persons were poor in 1996 stamps reveals a decline of 1.7 million er poverty levels than the more according to the disposable-income persons. A reduction in the use of comprehensive “disposable-income measure, compared with 23.7 million food stamps mitigated the improve- poverty” measure because it omits persons by the official poverty mea- ment in cash-income poverty for per- significant sources of income. The dis- sure. Food stamps accounted for a sons in single-parent families. posable income poverty measure bet- large share of this difference (2.3 mil- ter reflects families’ economic status lion fewer poor persons). The net Extreme Poverty because it takes into account their effect of the refundable EITC decreas- Factoring in government assistance buying power. ed poverty by another 1.4 million per- has a dramatic effect on extreme Changes in both the cash and dis- sons, despite deductions for other tax poverty levels (figure 2). The number posable income measures of poverty, payments and out-of-pocket child care of persons in families with children reported below, show a disturbing expenses. counted as extremely poor is more trend. While overall family poverty Both cash-income and disposable- than halved when food stamps are declined significantly, extreme pover- income poverty declined between considered income (3.2 million com- ty for persons in all families with chil- 1996 and 1998 for individuals in fami- pared with 7.5 million), and even dren and those in single-parent fami- lies with children, including those liv- fewer persons are classified as lies shrunk much less, and by the ing in single-parent families.