Analysis of the 2006-07 Budget Bill Legislative Analyst's Office February 2006

Supplemental Security Income/State Supplementary Program

The Supplemental Security Income/State Supplementary Program (SSI/SSP) provides cash assistance to eligible aged, blind, and disabled persons. The budget proposes an appropriation of $3.6 billion from the General Fund for the state’s share of SSI/SSP in 2006-07. This is an increase of $58 million, or 1.7 percent, above estimated current-year expenditures. This net increase is primarily due to costs from (1) caseload growth of 2.4 percent and (2) restoring the one-time savings from delaying the “pass-through” of the January 2006 federal cost-of-living adjustment (COLA) until April 2006; partially offset by savings from further delaying the pass-through of the 2007 federal COLA from April 2007 until July 2008.

In December 2005, there were 356,825 aged, 21,545 blind, and 825,584 disabled SSI/SSP recipients. In addition to these federally eligible recipients, the state-only Cash Assistance Program for Immigrants (CAPI) was estimated to provide benefits to about 8,050 legal immigrants in December 2005.

Budget Proposes to Further Delay Federal 2007 COLA Until July 2008

By further delaying the 2007 federal cost-of-living adjustment from April 2007 until July 2008, the budget achieves General Fund savings of $48 million in 2006-07 and $185 million in 2007-08.

Background. Typically, both the federal and state grant payments for SSI/SSP recipients are adjusted for inflation each January, pursuant to state and federal law. The COLAs are funded by both the federal and state governments. The state COLA is based on the California Necessities Index and is applied to the combined SSI/SSP grant. The federal COLA (based on the Consumer Price Index for Urban Wage Earners and Clerical Workers) is applied annually to the SSI portion of the grant. The remaining amount needed to cover the state COLA on the entire grant is funded with state monies.

Previously Enacted Budget Legislation Suspends and Delays COLAs for 2005-06 and 2006-07. Chapter 78, Statutes of 2005 (SB 68, Committee on Budget and Fiscal Review), suspended the January 2006 and January 2007 state COLAs. In addition, the legislation delayed the effective pass-through of the federal January 2006 and January 2007 COLA until April 2006 and April 2007 respectively. (State savings from delaying the federal COLAs are achieved by reducing the state funded SSP portion of the grant by an amount equal to the federal COLA increase in the SSI portion of the grant.) Compared to the requirements of prior law, these COLA suspensions and delays result in savings of about $200 million in 2005-06 and $450 million in 2006-07. These COLA changes represent one of the most significant long-term budget reductions adopted by the Legislature and administration during 2005-06 to address the structural deficit.

Governor’s Proposal for 2006-07. As discussed above, current law delays the effective pass-through of the federal January 2007 COLA until April 2007, resulting in a savings of $48 million compared to prior law. The Governor proposes to further delay the pass-through of the federal COLA until July 2008. This would increase the savings from $48 million to $96 million in 2006-07 and save about $185 million on a full-year basis in 2007-08.

Impact on Recipients. Figure 1 shows the SSI/SSP grants for April 2007 for individuals and couples under both current law and the Governor’s proposal. Under current law, the total grant for an individual would increase from $836 to $850 per month starting April 2007. Under the Governor’s proposal, the total grant would remain at $836 per month, with the SSP portion dropping by $14, or 6 percent. Figure 1 also compares the grants under current law and the Governor’s proposal to the 2005 federal poverty guidelines. Specifically, the maximum monthly grant for individuals would be 107 percent of poverty under current law, but would fall to 105 percent under the Governor’s proposal. Grants for couples would be 140 percent of poverty under current law, but would fall to 138 percent under the Governor’s proposal. (We note that poverty guidelines are adjusted annually for inflation.)

Options for Providing Benefits for Sponsored Immigrants

Beginning in September 2006, sponsored immigrants who have resided in the United States for at least ten years will become eligible for income maintenance payments from the Cash Assistance Program for Immigrants (CAPI). Under current law, costs for providing CAPI benefits to these sponsored immigrants will be about $12 million in 2006-07, rising to over $40 million in 2007-08. We review the history of CAPI, comment on the Governor’s proposal for avoiding these costs, and provide the Legislature with other options.

Federal Restrictions

Federal Eligibility Restrictions for Noncitizens. Pursuant to federal legislation enacted in 1996 and 1997, most immigrants entering the United States after August 1996 are ineligible for federal SSI/SSP benefits. Immigrants who entered the U.S. prior to August 1996 were also made ineligible for benefits unless they were already on aid or became disabled. Refugees are limited to seven years at SSI/SSP benefits.

Legislative History

Original CAPI. In response to the federal restrictions described above, the Legislature created CAPI in 1998 through the enactment of Chapter 329, Statutes of 1998 (AB 2779, Aroner). As originally enacted, CAPI was limited to pre-August 1996 immigrants and to post-August 1996 sponsored immigrants whose sponsors were dead, disabled, or abusive. (Sponsored immigrants have sponsors-usually family members-who have signed affidavits indicating they will financially support the immigrant so that the immigrant does not become a “public charge.”)

Subsequent CAPI Expansions. Chapter 147, Statutes of 1999 (AB 1111, Aroner) made non-sponsored post- August 1996 immigrants eligible for CAPI for one year (from September 1999 through September 2000). With respect to sponsored immigrants (other than those with dead, disabled or abusive sponsors), Chapter 147 deemed (counted) the income of the sponsor to the post 1996 immigrant for a period of five years. Because of this deemed income, sponsored immigrants were generally not financially eligible for CAPI. Chapter 108, Statutes of 2000 (AB 2876, Aroner) extended the eligibility period for non-sponsored post 1996 immigrants for an additional year, through September 2001.

Further Legislative Changes. Chapter 111, Statutes of 2001 (AB 429 Aroner) permanently eliminated the sunset of benefits for post-August 1996 non-sponsored immigrants. In addition, Chapter 111 extended the period for deeming a sponsor’s income to the post-1996 immigrant from five years to ten years. Effectively, this ten-year deeming provision makes most sponsored immigrants ineligible for cash assistance through August 2006.

Caseload and Cost Trends

CAPI Caseload Trends. Following the implementation of the program in October 1998, the caseload climbed from about 3,200 cases in 1998-99 to just over 10,000 cases in 1999-00. The caseload peaked at just over 11,200 in 2000-01 and has slowly declined since then. For 2005-06, the caseload is estimated to be just over 8,000. In addition to natural attrition, the recent caseload decline can be attributed to some individuals transferring to SSI/SSP because they have either become disabled or attained U.S. citizenship. The CAPI caseload would have declined even more except for the impact of refugees leaving SSI/SSP and entering CAPI following their first seven years of residence.

CAPI Costs. The CAPI program’s expenditures are supported exclusively by the state General Fund. The state pays the grants and reimburses the counties for their administrative costs. For 2005-06, total costs (including administration) are estimated to be about $78 million. By statute, CAPI maximum monthly grants are set at $10 less than the corresponding SSI/SSP grant for a citizen. In 2005-06, the average monthly CAPI grant was $753 and the average monthly cost for administration was $118.

Estimated Fiscal Impact of Expiration of Deeming Period

What Happens When the Ten-Year Deeming Period Ends? As discussed above, beginning in September 2006, immigrants who arrived ten years earlier will no longer have their sponsors income deemed to them. If they meet the financial eligibility rules for the SSI/SSP, and assuming they have not attained citizenship, they would be eligible for CAPI. For purposes of estimating the budget for CAPI, the key question is how many sponsored immigrants would be eligible each month and how many will apply for CAPI. Answering these questions is difficult because detailed data concerning immigrants, their sponsors, and their current citizenship status is not available.

Denial Rate Data. One bit of useful information is program data about the number of monthly denials of CAPI applications. Each month somewhere between 500 and 700 CAPI applications are denied. According to county sources, about two-thirds of these denials are due to income from the immigrant’s sponsor. Once these immigrants have been in the United States for ten years, their sponsor’s income would no longer affect eligibility. Accordingly, there are a substantial number of immigrants who have applied for CAPI in the past, and once they have been in the United States for ten years and meet eligibility rules, they could apply for and receive CAPI benefits.

Estimated Costs. According to the Department of Social Services (DSS), under current law approximately 2,500 sponsored noncitizens would become eligible for CAPI during 2006-07, resulting in General Fund costs of $12.5 million. The DSS further estimates that these costs will grow to over $43 million in 2007-08. The DSS bases its cost estimate on denial rate data, other assumptions about attrition, and the potential for sponsored noncitizens who have not previously applied for assistance to apply once their deeming period ends. We have reviewed the DSS methodology and believe the estimate is reasonable.

Policy Options

Given the substantial cost implications of this program, and the Legislature’s previous decision to extend the deeming period by five years (back in 2001), we discuss the Governor’s proposal and present alternatives for legislative consideration.

Option 1: Governor’s Proposal-Extend the Deeming Period. The Governor proposes to extend the deeming period for sponsor’s income from the current ten years to fifteen years. From a fiscal standpoint, this avoids all CAPI costs from sponsored immigrants for another five years. Moreover, it would reduce future costs (beginning in September 2011) because under a 15-year deeming period, there would be greater attrition, making less recipients eligible, than under the current ten-year deeming period. This approach is similar to the Legislature’s action in 2001, when it extended the deeming period from five years to ten years.

Option 2: Retain Current Law. Under this approach, sponsored immigrants would begin receiving state-funded CAPI benefits if they are eligible after the ten-year deeming period. As noted earlier, this results in costs of about $12.5 million in 2006-07 (compared to the Governor’s budget) rising to about $43 million in 2007-08.

Option 3: Eliminate Benefits for Post-1996 Sponsored Immigrants. Similar to Option 1, the Legislature could decide to eliminate this benefit for sponsored immigrants who arrived after August 1996. This would achieve budgetary savings (compared to current law). To date, no post-1996 immigrant with a financially supportive sponsor has received this state-funded benefit because of current deeming provisions. Moreover, it is likely that some sponsored immigrants could continue to rely on the support of their sponsors.

Option 4: More Narrowly Target Benefits for Sponsored Immigrants. Another approach would be to limit eligibility to sponsored immigrants who can demonstrate a barrier to becoming citizens. Under current federal law, sponsored immigrants may receive federal benefits once they become naturalized citizens. Under this option, state benefits would be provided to sponsored immigrants ten years after entering the United States if (1) they are actively pursuing naturalization or (2) can demonstrate that it is not possible for them to naturalize. Naturalization requires passing tests which demonstrate sufficient proficiency with the English language and sufficient knowledge of U.S. government and history. Immigrants could demonstrate progress towards citizenship by applying for citizenship and enrolling in appropriate courses of study in the English language and U.S. government. Immigrants could demonstrate that obtaining citizenship is not possible by showing good cause (such as advanced age, or inability to complete necessary coursework) for why they cannot complete the naturalization process. This approach would avoid providing state funded benefit programs to citizens who voluntarily choose not to become citizens. This approach would provide an incentive for sponsored immigrants to begin the naturalization process as soon as possible. This approach would also result in administrative costs for verifying progress with respect to naturalization.

Conclusion

All of the options discussed above have some merit. Given the significant costs associated providing benefits to sponsored immigrants, we would favor options 3 and 4 because they result in savings compared to current law and provide relative certainty for both sponsored immigrants and the state budget.