LAO 2003-04 Budget Analysis: Health and Social Services

Legislative Analyst's Office

Analysis of the 2003-04 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 ($1.8 billion). Under current law, administrative costs are shared between the federal government (50 percent), the state (35 percent), and the counties (15 percent). However, under the Governor's realignment proposal, the county share of administrative costs would increase to 50 percent, or 100 percent of the nonfederal costs. (Please see The 2003-04 Budget: Perspectives and Issues for a discussion of the realignment proposal.)

Federal Eligibility Restorations Reduce California Food Assistance Program (CFAP) Costs

Pursuant to the Farm Security and Rural Investment Act of 2002 (Public Law, 107-171), federal food stamp eligibility will be restored for most legal noncitizens by October 2003. As a result, CFAP expenditures will decrease in 2003-04 to $15 million, which is $73 million less than estimated current-year expenditures.

Prior Federal Restrictions on Benefits for Noncitizens. Until October 2002, federal law generally limited noncitizen food stamp eligibility to legal noncitizens who immigrated to the U.S. prior to August 1996, and were under the age of 18 or were at least 65 years old as of August 1996.

State Program for Noncitizens. In response to these federal restrictions, CFAP was created in 1997 to provide state-only funded food stamp benefits to (1) pre-August 1996 legal immigrants who are ineligible for federal benefits (essentially individuals 18 to 64 years old), and (2) a very limited number of post-August 1996 legal immigrants whose sponsors are dead, disabled, or abusive. In 1999 and again in 2000, CFAP eligibility was temporarily expanded to include all post-August 1996 legal immigrants who were otherwise eligible but for the fact they arrived after August 1996. Chapter 111, Statutes of 2001 (AB 429, Aroner), made this expansion permanent.

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.

Federal Restorations Reduce CFAP Costs. Pursuant to the Farm Security and Rural Investment Act of 2002 (Public Law, 107-171), hereafter the Farm Bill, federal food stamp eligibility will be restored for most CFAP recipients by October 2003. Specifically, the Farm Bill restored eligibility for (1) all disabled legal noncitizens, effective October 1, 2002; (2) all legal noncitizens who have lived in the United States for at least five years, effective April 1, 2003; and (3) all legal noncitizen children regardless of date of entry, effective October 1, 2003. Together, these groups represent over 90 percent of the current CFAP caseload. The remaining federally ineligible recipients are adult legal noncitizens who have lived in the United States for less than five years. As a result of these federal eligibility restorations, CFAP costs in 2003-04 are estimated to be approximately $15 million, which is about $73 million, or 83 percent, below estimated current-year costs.

Governor's Realignment Proposal Would Shift CFAP Costs to Counties. As part of the budget's realignment proposal, the Governor proposes to shift the entire CFAP costs to the counties effective July 1, 2003. This would result in state savings of $15 million in 2003-04. (Avoided state costs would be somewhat lower in 2004-05 due to the full-year impact of the federal eligibility restorations discussed above.) Please see The 2003-04 Budget: Perspectives and Issues for a full discussion of the Governor's realignment proposal.

Withhold Recommendation on Reprogramming Costs

We withhold recommendation on the estimated reprogramming costs associated with implementing recent federal eligibility and other changes, pending review of the Governor's May Revision of the budget.

In addition to the food stamp eligibility restorations discussed above, the 2002 Farm Bill made certain changes to the methodology used to calculate food stamp benefits. Implementing these eligibility and benefit calculation changes will require reprogramming counties' automated eligibility systems. The Governor's budget estimates reprogramming costs will total $7 million ($3.5 million General Fund and $3.5 million federal funds) in 2003-04. The department indicates that this is a "placeholder" estimate and may not accurately reflect the actual costs the state will incur. We therefore withhold recommendation on the estimated reprogramming costs pending review of the Governor's May estimates.

Prospective Budgeting: Delay in Federal Approval Creates Budget Uncertainty

We recommend that the department report at budget hearings on (1) the status of its negotiations with the federal government on its proposed prospective budgeting system for the Food Stamps and California Work Opportunity and Responsibility to Kids (CalWORKs) programs and (2) the cost implications associated with alternative approaches to prospective budgeting.

Background. Currently, CalWORKs and food stamps recipients are required to submit income and eligibility reports every month. County welfare departments must review each monthly report for changes and adjust grants accordingly. In making such adjustments, counties may make payment errors which result in recipients being either overpaid or underpaid. Compared to quarterly or semi-annual reporting, monthly reporting increases the number of opportunities for the county welfare departments to make payment errors, thereby increasing the state's risk of high payment error rates. Because California's food stamp error rate exceeded the national average rate for federal fiscal years (FFYs) 2000 and 2001, the U.S. Department of Agriculture's Food and Nutrition Service (FNS), which administers the federal Food Stamp Program, imposed penalties totaling roughly $126 million ($12 million for FFY 2000 and $114 million for FFY 2001). The department is currently negotiating a settlement of the FFY 2001 penalty with FNS.

Legislature Requires Prospective Budgeting System. In response to concern about (1) California's high food stamp payment error rates and associated penalties and (2) the administrative workload—for both recipients and county welfare departments—associated with monthly reporting, Chapter 1022, Statutes of 2002 (AB 444, Aroner), required the department to implement a quarterly reporting system for both the CalWORKs and Food Stamps programs. The 2002-03 Budget Act assumed that such a system, otherwise known as "prospective budgeting," would be implemented by April 1, 2003. (Under prospective budgeting, a recipient's grant payments are based on a prospective estimate of monthly income over a three-month period.)

Governor's Budget. The Governor's budget proposes approximately $14 million ($4.5 million General Fund, $8 million Temporary Assistance for Needy Families block grant funds, and $1.5 million county funds) in 2002-03 for the reprogramming costs associated with implementing the quarterly reporting system. The budget assumes statewide implementation by September 1, 2003. Net state costs (grant costs less administrative savings) in 2003-04 are estimated to be approximately $48 million for ten months of implementation. The department estimates that once prospective budgeting is fully phased in by the end of 2003-04, annual administrative savings will exceed grant costs, resulting in ongoing net annual savings of about $20 million beyond the budget year.

Delay in Federal Approval of California's Proposal Creates Fiscal Uncertainty. In December 2002, FNS notified the department that it would not approve the department's original prospective budgeting proposal. The department is currently working with FNS to develop an acceptable alternative approach. The department indicates that adopting an alternative approach may mean (1) higher ongoing net state costs than those assumed under the original proposal or (2) implementing prospective budgeting as a five-year demonstration project, which could be cancelled by FNS at any time. In the event FNS cancels the demonstration project, the department would have to either implement the current monthly reporting system or a federally acceptable alternative, which would result in new reprogramming costs. Thus, proceeding with a demonstration project would represent a risk to the General Fund of about $12.5 million for such costs.

Analyst's Recommendation. We believe the Legislature should be informed of the costs and benefits of the alternative approaches to implementing prospective budgeting. Specifically, as part of the budget process, we believe the Legislature should weigh (1) the potential of higher ongoing General Fund costs associated with an alternative prospective budgeting approach against (2) a potential future risk to the General Fund associated with reprogramming costs in the event a demonstration project is cancelled. We recommend that the department report at budget hearings on (1) the status of its negotiations with FNS and (2) the costs associated with the various approaches it is considering.

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