Five-State Food Stamp Block Grant Proposal in House Welfare Bill Would Risk Serious Harm to Low-Income Families, Rev. 8/10/05

The House welfare reauthorization bill (H.R. 240) contains a proposal to allow five states to elect a food stamp block grant in lieu of the regular federal Food Stamp Program. A block grant, even if limited to five states, would likely cause damage to the Food Stamp Program and low-income families. The Food Stamp Program would lose its ability to respond to economic downturns in these five states and, as explained below, food benefits would necessarily be cut in these states. In addition, states taking the block grant would have significant incentives to shift funds out of food stamps to help close state budget deficits, further reducing food benefits to low-income families. The Food Stamp Program also could fall prey to increased fraud problems since the federal government would no longer be responsible for investigating retailer fraud in these states.

This proposal is essentially identical to the provision that the House leadership inserted into the welfare bills the House took up in 2002 and 2003. This proposal has never been the subject of a single Congressional hearing or “mark-up” in the House Agriculture Committee. It has been included in the House welfare bill once again this year without any hearings or action by the Agriculture Committee.

The block grant proposal was originally inserted into the House welfare bill at the same time that Congress was putting the finishing touches on the 2002 farm bill, which included a six-year food stamp reauthorization. That legislation, which President Bush signed in May 2002, was the subject of hearings and extensive debate in the Agriculture Committees. It included major reforms to the Food Stamp Program that were developed on a bi-partisan basis and praised by states, the Bush Administration, and non-profit organizations.

During the time that the Agriculture Committees worked on that food stamp reauthorization, no proposal to convert the Food Stamp Program to a block grant in some or all states was ever made. In reauthorizing the program, the Agriculture Committees focused on streamlining program administration, providing states with an array of options to simplify the program and coordinate it better with TANF and Medicaid, improving food stamp benefits and access, especially for the working poor, and reforming the food stamp quality control system and reducing erroneous payments. In the years following enactment of the 2002 food stamp legislation, the food stamp error rate has fallen to all-time lows. In 2004, only about four percent of food stamp benefits represented either overpayments to eligible households or payments to ineligible households.[1]

The House welfare bill terms its five-state block grant proposal a “demonstration project.” Examination of the provision indicates, however, that it is nothing of the sort. No evaluation is required. States electing the block grant would not even be required to collect or report even the most basic data about the uses of block grant funds. (Furthermore, under the superwaiver proposal also included in the House welfare bill, the U.S. Department of Agriculture could waive the five-state limitation and allow any state into the block grant.) Once budget directors in other states become aware of the ability that the proposed food stamp block grant would accord them to shift federal funds from food assistance to other programs and to fill state budget holes (this is explained below), they might well seek an expansion of the block grant so more states could take advantage of this opportunity to divert federal food stamp funds to other purposes.

The House Leadership’s proposal to provide for a five-state block grant raises a number of concerns. The key issues include:

This analysis first provides a description of the block grant proposal and then reviews the major problems that would result if the block grant proposal were enacted.

Under H.R. 240, five states could elect to take a food stamp block grant instead of participating in the regular Food Stamp Program. USDA is given no criteria by which to distinguish among states that seek the block grant. It appears that the first five states that provide the minimal state plan required would have to be approved, regardless of their block grant design.

The block grant funding level would be a fixed dollar amount equal to the amount that the state issued in food stamp benefits for fiscal year 2005 or the average amount of benefits issued in the state during fiscal years 2003 through 2005, whichever is greater. (Food stamp benefits are 100 percent federally financed.) The state also would receive an amount equal to its federal food stamp administrative and employment and training expenditures for fiscal year 2005 or the average for fiscal years 2003 through 2005, whichever is greater. These two amounts would be pooled into a single block grant, with no specific set-aside for food assistance.

The amount of block-grant funding a state received would then be frozen at this level for five-years. There would be no adjustment for increases in the cost of food during this period. Nor would there be any adjustment to respond to economic changes, population growth, increases in poverty or increases in the size of the U.S. population. A state could opt out of the block grant after electing it; if it did so, it would be barred from opting back into the block grant.

Block grant funds could be spent on three things: 1) food assistance, which could be in the form in which food stamp benefits are currently provided or in the form of agricultural commodities; 2) employment and training programs; and 3) administrative costs. There would be no limits on how much a state could spend within any one of these categories; states could shift funds from food assistance to administrative costs and job training programs to whatever extent they wanted. And there would be a substantial likelihood that funds would indeed be shifted in such a fashion, since states would not be required to maintain their current levels of state funding for food stamp administration and employment and training services for food stamp recipients. While food stamp benefits are entirely federally-funded, states currently pay 50 percent of most food stamp administrative costs and 50 percent of all employment and training costs that exceed their federal food stamp employment and training grant.

There also would be virtually no limits on how a state could alter the program under the block grant. States could cut or eliminate benefits for any group of individuals. No individuals or categories of current recipients would be protected, including the elderly and people with disabilities. States also could expand benefits beyond current eligibility rules, although not to legal immigrants. The cost of any such expansion would have to be offset by cuts elsewhere in the state’s Food Stamp Program.

No evaluation or basic data reporting would be required. Beyond submitting an initial state plan, states would merely have to provide for an annual independent “audit” to determine the error rate in the state’s program. Moreover, no standards would be set for these audits. USDA would simply be required to provide basic oversight to assure that states complied with the standards outlined in their own state plans and with due process and civil rights law.

The Food Stamp Program is the most responsive of all means-tested programs to changes in poverty and unemployment. If more households in a state qualify for food stamps because poverty increases, as can occur during a recession or as a result of strong state population growth, the program automatically expands and serves more people. When poverty declines, the program contracts.

Between June 1990 and June 1992, as the national unemployment rate climbed from 5.1 percent to 7.7 percent, the number of people receiving food stamps rose more than five million. In the late 1990s, in significant part because of the strong economy, the number of people receiving food stamps fell by 40 percent (or about 10 million people).

More recently, food stamp caseloads have been on the rise since the economy entered a recession in March 2001. Some of the states with the steepest increases in unemployment have seen the largest increases in the number of people who receive food stamps. For example, since March 2001, food stamp caseloads have increased by 64 percent in Michigan where unemployment climbed from 4.7 percent in March 2001 to a peak of 7.4 percent in December 2004, among the highest unemployment rates in the country. Similarly, food stamp caseloads have increased 53 percent in Oregon where the unemployment rate has increased significantly and been among the highest in the country over the last four years.

Under a block grant, the program’s ability to respond immediately to fluctuations in the economy and changes in need would be lost entirely. States would receive a fixed amount of funding at the beginning of the year; if unemployment increased, federal funding would not respond. Moreover, the annual funding level would be frozen for five years regardless of the performance of the economy during that period.

As a result, if unemployment and poverty increased, states would have to choose between bearing all of the added food assistance costs themselves (at a time when state revenues were declining), cutting food assistance benefits, eliminating eligibility altogether for some low-income households, and placing new applicants on waiting lists in the midst of a downturn when jobs are hard to find.

To illustrate the potential effects of a block grant on the amount of food stamps available to needy families and individuals, Table 1 shows how much less in federal food stamp funding would have been available in each state in 2004 if, instead of participating in the Food Stamp Program, the state had received a block grant equal to its food stamp expenditures in 2000. Nationally, if federal food stamp funding had been frozen at the 2000 expenditure level, the total amount of federal food stamp funds available to states would have been 34 percent lower in 2004 than the amounts of federal funds actually expended that year. Federal funding under the block grant would have been cut by more than 40 percent in sixteen states in 2004, by more than 50 percent in two states, and by 10 percent or more in every state in the nation except Hawaii.

Had such a block grant been in effect, states would have had to choose between turning applicants away, terminating large categories of needy households, instituting deep across-the-board benefit reductions, and cutting other state funded programs or raising taxes to put substantial new state funding into the Food Stamp Program (an unlikely course during a downturn when states face budget deficits). By contrast, under the regular Food Stamp Program, the federal government bore 100 percent of the added food assistance costs that resulted in the states when the economy sagged and unemployment rose.

TABLE 1: PROJECTED CUT IN FEDERAL FOOD STAMP FUNDS IN 2004 IF EACH STATE HAD A BLOCK GRANT AT 2000 LEVELS
	Block Grant Funding Level (in millions of dollars)*	2004 Federal Food Stamp Expenditures (in millions of dollars)	Difference 2000-2004 (in millions of dollars)	Percentage cut in 2004 if state received block grant funding set at the 2000 expenditure level

Alabama	$376	$545	$-169	-31%
Alaska	56	72	-16	-22%
Arizona	266	609	-343	-56%
Arkansas	226	373	-147	-39%
California	2,097	2,408	-310	-13%
Colorado	164	277	-113	-41%
Connecticut	170	217	-47	-22%
Delaware	39	64	-25	-39%
D.C.	89	109	-20	-19%
Florida	912	1,353	-441	-33%
Georgia	577	987	-410	-42%
Guam	38	51	-13	-25%
Hawaii	186	163	23	14%
Idaho	54	100	-46	-46%
Illinois	900	1,313	-413	-31%
Indiana	310	595	-285	-48%
Iowa	116	193	-76	-40%
Kansas	93	174	-81	-47%
Kentucky	367	572	-204	-36%
Louisiana	497	798	-301	-38%
Maine	97	149	-52	-35%
Maryland	276	322	-46	-14%
Massachusetts	238	338	-100	-30%
Michigan	605	986	-380	-39%
Minnesota	205	286	-81	-28%
Mississippi	265	387	-121	-31%
Missouri	398	699	-300	-43%
Montana	59	86	-27	-31%
Nebraska	76	124	-48	-39%
Nevada	65	131	-66	-50%
New Hampshire	34	49	-15	-30%
New Jersey	416	474	-58	-12%
New Mexico	158	239	-80	-34%
New York	1,680	2,189	-509	-23%
North Carolina	481	818	-337	-41%
North Dakota