Legislative Analyst's Office

Analysis of the 2001-02 Budget Bill

Food Stamps Program

The Food Stamps Program provides food stamps to low-income persons. With the exception of the state-only food assistance program (discussed below), the cost of the food stamp coupons is borne by the federal government ($1.4 billion). Administrative costs are shared between the federal government (50 percent), the state (35 percent), and the counties (15 percent).

California Food Assistance Program

Federal Restrictions on Benefits for Noncitizens. With respect to noncitizens, current federal law generally limits food stamp benefits to legal noncitizens who immigrated to the U.S. prior to August 1996, and are under the age of 18 or were at least 65 years old as of August 1996.

State Program for Noncitizens. Created in 1997, the California Food Assistance Program (CFAP) provides state-only funded food stamp benefits to (1) pre-August 1996 legal immigrants who are ineligible for federal benefits (generally individuals age 18 through 64), and (2) a very limited number of post-August 1996 legal immigrants whose sponsors are dead, disabled, or abusive. The CFAP purchases food stamp coupons from the federal government and distributes them to eligible recipients. Adult recipients are subject to a specified work requirement.

Chapter 147, Statutes of 1999 (AB 1111, Aroner), expanded eligibility, from October 1999 through September 2000, to legal immigrants who would be eligible for food stamps but for the fact they arrived after August 1996. Chapter 108, Statutes of 2000 (AB 2876, Aroner), extended the period of eligibility for these immigrants through September 30, 2001. The average monthly caseload for this expanded population is estimated to be 8,000 in the budget year.

Budget Proposal. For 2001-02, the average monthly caseload for CFAP is estimated to be 71,000 persons. The budget proposes an appropriation of $37 million from the General Fund for coupon purchases and an additional $15 million for administration in 2001-02. This is a decrease of $8 million from estimated expenditures in 2000-01, mostly attributable to nearly all of the post-1996 immigrants on CFAP losing their eligibility effective October 1, 2001, pursuant to current law.

We note that $35 million of the proposed expenditures for 2001-02 counts towards meeting the federal maintenance-of-effort (MOE) requirement for the California Work Opportunity and Responsibility to Kids (CalWORKs) program. We also note that the cost of extending eligibility for the approximately 8,000 post-August 1996 immigrants added temporarily by Chapter 147 would be approximately $5 million in 2001-02 (October 2001 through June 2002) and $6 million annually thereafter.

Recent Federal Changes Create Options

The 2001 Agriculture Appropriations Act and new federal regulations together mandate several changes to the Food Stamp Program, while also providing California significant options to expand food stamp benefits for working families. We recommend that the department report at budget hearings on cost estimates for these changes and potential expansions.

Background. The Federal Food Stamp Program is administered by the U.S. Department of Agriculture's (USDA) Food and Nutrition Service. Issued as coupons, food stamps are designed to assist low-income households in purchasing the food needed to maintain adequate nutritional levels. To receive benefits, households must meet income and resource eligibility standards. However, CalWORKs recipients are automatically eligible for food stamps.

Recent Federal Changes. The Agriculture, Rural Development, Food and Drug Administration, and Related Agencies Appropriations Act for federal fiscal year 2001 (PL 106-387), hereafter referred to as the 2001 Agriculture Appropriations Act, provides states with several options to implement new eligibility rules and administrative procedures. Additionally, on November 21, 2000, USDA issued new regulations which provide states further options. The new regulations also mandate several eligibility and procedural changes, with various implementation dates. Below we discuss some of the most significant changes and options for California. We note that because the federal changes took place after the Governor's budget was prepared, the budget does not include current- or budget-year costs for any of the changes.

The Vehicle Asset Test

Eligibility for the Food Stamps Program is based on a number of factors, including the value of a household's assets. Generally, assets include such things as checking and savings accounts, investments, and vehicles. When determining eligibility, a household's assets are added together and counted against a specified resource limit. For most households, the resource limit is $2,000.

The current rules for valuing vehicles as part of a household's assets are complex. Figure 1 illustrates the three different tests which are used to determine the value of a household's vehicles.

Figure 1

Vehicle Asset Tests—Food Stamps Program

 Specified Use Exemption

  • Vehicles used for certain purposes, such as transporting a physically disabled household member or producing income (such as through a delivery service), are exempt from the resource test.

 Fair Market Value Test
  • A vehicle's fair market value in excess of $4,650 is counted toward the resource limit.

 Equity Test

  • The amount that a household owes on a vehicle is subtracted from its fair market value to determine the vehicle's equity value, which then would be counted toward the resource limit.

Current Regulation. Currently, a household's nonexempt vehicles are subject to the following tests. Any vehicle used to go to work, training, or education, plus one vehicle per household, is subject only to the fair market value test. Any remaining vehicles are subject to a dual test: the fair market value test and the equity test. The higher result of this dual test is then counted toward the resource limit.

As a practical matter, households with vehicles subject to the dual test will only be eligible for food stamps if (1) the household has little equity in the vehicles and (2) their fair market value is well under $6,650 (the $4,650 exclusion plus the $2,000 resource limit).

New Regulations. The new regulations change the current rules in two important ways, with the result of exempting more vehicles completely and excluding more vehicles from the dual test. First, vehicles that could be sold for no more than $1,500 are exempted altogether from the resource test. This means, for example, that vehicles in need of significant repairs might be exempt. Second, one vehicle per adult, rather than one per household, is exempted from the equity test and subject only to the fair market value test. Any remaining vehicles are subject to the dual test.

By exempting more vehicles completely and excluding more vehicles from the dual test, the new regulations make it somewhat easier for multiple-vehicle households to receive food stamps. However, the fair market value for all nonexempt cars must still be well under $6,650 to avoid hitting the $2,000 cumulative resource limit.

According to federal regulations, these changes must be implemented by June 1, 2001 for new cases. Current cases will be affected by the changes when they are recertified for food stamp eligibility (usually once every 12 months). We note that recent action by the new federal administration may delay this requirement until August 1, 2001.

Fiscal Impact. By making more households eligible for food stamps, the new regulations will result in additional federal food stamp benefits to California families, as well as additional state administrative costs associated with higher food stamp caseloads. The regulations will also result in higher caseloads in both CFAP and the CalWORKs program, since state law conforms the asset rules in these programs to the federal food stamp rules. California will bear the entire CFAP cost increase, while costs to CalWORKs will be paid with available Temporary Assistance for Needy Families (TANF) and state MOE funds.

The changes will result in one month of costs in the current year (for June 2001), and full-year costs in the budget year and thereafter. Because there is limited data on the value of recipient households' vehicles, it is difficult to estimate how many households will be affected by the changes. At the time this analysis was prepared, the department had not prepared specific cost estimates for this change.

However, the department has developed an estimate that can serve as an upper bound limit for the purposes of projecting the cost of the new regulations. Based on that estimate, total current-year state and county costs associated with the regulatory changes are estimated to be less than $500,000. Budget-year costs are estimated to be up to $35 million ($34 million for CalWORKs grants and administration, and $1 million for food stamps administration).

The Alternative Vehicle Allowance

The 2001 Agriculture Appropriations Act gives states the option of conforming the food stamp vehicle rules to their TANF vehicle rules, even if by doing so this would make more families eligible for food stamps. Under this option, states could make their TANF vehicle rules more generous than current food stamp rules, and apply the more generous rules to all food stamp recipients, including those not receiving cash assistance. States may implement the alternative vehicle allowance any time after July 1, 2001. We note that over half the states have already adopted TANF rules that are more generous than the food stamp rules. California, by contrast, has linked the CalWORKs rules to the food stamp rules.

Options for California. There are three approaches the Legislature could adopt for vehicle allowances. The first approach is to simply retain current CalWORKs and food stamp vehicle rules. As noted below, one advantage of this approach is that it would result in no additional state or county costs. The second approach is to increase the CalWORKs fair market value exclusion for vehicles (currently $4,650). Finally, the third approach is to exempt one or more vehicles entirely from the resource test, regardless of how the vehicle is used. Both the second and third approaches would result in additional state and county costs, as discussed below.

There are two primary advantages to both the second and third approaches. First, both would decrease the administrative costs associated with complicated vehicle valuations. Second, both approaches would enable more working poor families with vehicles to receive food stamp benefits and still keep their vehicles to look for a job or get to work. In areas with poor public transportation systems, reliable vehicles often are a critical component in the transition from welfare to work, as they provide recipients greater access to jobs in outlying areas and may make it easier to retain employment. Allowing CalWORKs families to keep or invest in a reliable vehicle may therefore help more recipients become self-sufficient for the long term.

We note that when the Food Stamps Act of 1977 established the fair market value test for vehicles, $4,000 was considered to be the value of a modest, reliable vehicle; anything in excess of $4,000, therefore, was to be counted towards the household's asset limit. Since 1977, the limit has been adjusted just once, to $4,650. Had that figure kept pace with inflation, it would be $12,850 today.

The primary disadvantage of the second and third approaches is the increased public costs associated with potentially higher CalWORKs and food stamp caseloads.

Fiscal Impact. The most significant impact of the second or third approach would be the federal cost of providing additional food stamp benefits for California families. The second largest cost would be in the CalWORKs program, and would be paid for with available TANF and state MOE funds. Adopting the second or third approach would also result in additional food stamp administrative costs, as well as increased CFAP costs, since CFAP rules conform to the food stamp rules. To the extent modifying the vehicle rules simplifies the resource calculation for all three programs, there may be partially offsetting administrative savings associated with such a change.

Of the three courses of action discussed above, the third, eliminating one or more vehicles from the asset test, would result in the greatest costs (which would be partially offset by the greatest amount of administrative savings). The department has estimated that the costs of exempting one vehicle would be $35 million (including $34 million for CalWORKs, $1 million for food stamps, and unknown but modest costs for CFAP). The second option, raising the fair market value test limit, would result in lower, though unknown costs.

The Transitional Benefit Alternative

The November 21, 2000 regulations give California the option of continuing food stamp benefits to former CalWORKs recipients for up to three months after they leave cash assistance. Under this option, households would receive the same level of food stamps they received just prior to leaving CalWORKs (or, if the household would lose income as a result of leaving CalWORKs and would therefore qualify for a higher benefit level, the benefits would be frozen at the higher level). Families leaving CalWORKs because of program violations would not be eligible for the transitional benefits.

The purpose of the transitional benefit allowance is to provide automatic assistance to families during the transition period from welfare to work, thereby increasing income stability and decreasing the likelihood of returning to cash assistance. The transitional benefits would affect three types of households. The first type are households that would remain eligible for food stamps after leaving CalWORKs, but would not apply for them. The second type are households that would otherwise be income ineligible for food stamps when they leave CalWORKs. Finally, the third type are households that are already receiving food stamps after leaving CalWORKs. The only impact on these households would be a reduction in their reporting requirements for the transitional period.

Based on rough estimates of the percentage of CalWORKs leavers who are income ineligible for food stamps and the percentage of eligible households who do not receive benefits, we estimate that up to 75 percent of those transitioning off CalWORKs would benefit from this option.

Fiscal Impact. Adopting the transitional benefit option would result in additional federal food stamp benefits to California families, as well as some administrative costs for both the state and counties. Additionally, to the extent that the transitional benefits would also be offered to transitioning CalWORKs recipients who received CFAP, the state would incur benefit and administrative costs in CFAP. However, these costs are likely to be small, as the total CFAP-eligible CalWORKs caseload is approximately 2,000. At the time this analysis was prepared, the department had not estimated the state and county costs of providing this option.

Analyst's Recommendation

We recommend that the department report at budget hearings on current- and budget-year cost estimates for the mandated vehicle asset rule changes, and, to the extent possible, more precise cost estimates for the alternative vehicle allowance and the transitional benefit allowance options.

Electronic Benefits Transfer

Delays May Result in Federal Penalty

We recommend that the Department of Social Services report at budget hearings on the potential federal penalties if the state is unable to implement the food stamp Electronic Benefits Transfer system by October 2002.

The federal welfare reform legislation enacted in 1996 required all states to implement Electronic Benefits Transfer (EBT) systems for food stamps by October 1, 2002. An EBT system uses debit-card technology and retailer terminals to automate benefit authorizations, delivery, redemption, and financial settlement. Chapter 329, Statutes of 1998 (AB 2779, Aroner) required that the Health and Human Services Agency Data Center (HHSDC) provide the project management for the state's implementation of EBT technology for the Food Stamps and California Work Opportunity and Responsibility to Kids programs.

Procurement Has Taken Longer Than Expected. In October 1999, HHSDC began to procure contract services for the EBT system. The procurement was delayed, and the contract is now expected to be awarded in June 2001. Because the contract has not been finalized, HHSDC has not provided any information concerning project development and roll out. We note that based on prior schedules, current known delays suggest the system will not be completed until after the federal deadline.

Department of Social Services (DSS) Should Report on Penalty Provisions. Since full statewide implementation is now expected some time after the federal deadline, the state may incur a federal penalty. For this reason, we recommend that DSS report at budget hearings on (1) the potential amount of the penalty and how it is determined, and (2) the steps DSS is taking to mitigate a potential penalty.

Return to Health and Social Services Table of Contents, 2001-02 Budget Analysis