United States Government Accountability Office

Washington, DC 20548 

November 10, 2009 

The Honorable Jeff Bingaman

Chairman 

Lisa Murkowski 

Ranking Member

Committee on Energy and Natural Resources 

United States Senate 

The Honorable Madeleine Z. Bordallo 

Chairwoman

Henry E. Brown, Jr.

Ranking Member

Subcommittee on Insular Affairs, Oceans and Wildlife 

Committee on Natural Resources 

House of Representatives 

Subject: Poverty Determination in U.S. Insular Areas

Owing to high levels of poverty, American Samoa, the Commonwealth of the 

Northern Mariana Islands (CNMI), Guam, the Commonwealth of Puerto Rico, and 

the U.S. Virgin Islands (USVI) rely heavily on need-based federal programs to 

provide basic services.1 Two federal agencies publish measures used by some 

federal programs to determine poverty status and allocate need-based assistance: 

the Census Bureau (Census) publishes poverty thresholds—dollar-value 

benchmarks for determining poverty status—and the Department of Health and 

Human Services (HHS) provides poverty guidelines, which are derived from the 

poverty thresholds. The approaches used to determine these poverty measures 

affect, respectively, poverty population statistics and income eligibility of 

individuals and families for certain need-based federal assistance. The poverty 

thresholds apply nationwide and in the insular areas, with no geographic variation, 

while separate poverty guidelines for Alaska and Hawaii, but not for the insular 

areas, have been provided since 1970. 

 

1

According to the U.S. Census Bureau (Census), in 1999, the percentage of individuals in poverty 

ranged from 23 in Guam—nearly twice as high as the continental U.S. poverty rate of 12 percent—to 

61 in American Samoa (see encl. II). For more information about reliance on federal programs in 

American Samoa, the CNMI, Guam, and the USVI, see GAO, U.S. Insular Areas: Economic, Fiscal, 

and Financial Accountability Challenges, GAO-07-119 (Washington, D.C.: Dec. 12, 2006). 

GAO-10-240R Poverty Determination in U.S. Insular Areas 
Page 2 GAO-10-240R Poverty Determination in U.S. Insular Areas

 

In response to your request, we (1) examined how the Census poverty thresholds and 

HHS poverty guidelines are determined for the insular areas. In addition, we (2) 

considered the possibility of providing poverty thresholds and guidelines specific to the 

insular areas and identified the implications of extending to the insular areas the 

approach originally used to determine the Alaska and Hawaii guidelines. (We also 

presented this information in a recent briefing to congressional committee staff; see encl. 

I for an updated version of the briefing slides.) 

To address these objectives, we reviewed relevant literature on poverty determination in 

the United States and the insular areas and interviewed current and former agency 

officials. We studied the methods that were used to develop the Census poverty 

thresholds for the 50 states and Washington, D.C., and the HHS poverty guidelines for the 

contiguous states and Washington, D.C. We also reviewed the reasoning applied in 1970 

in establishing separate poverty guidelines for Alaska and Hawaii. We considered this 

approach because these are the only poverty guidelines that have been established 

specific to any geographic areas. The Alaska and Hawaii poverty guidelines are based on 

the cost-of-living differential between these two locations and Washington, D.C., as 

applied by the Civil Service Commission (CSC)—a predecessor agency to the Office of 

Personnel Management (OPM)—in making cost-of-living pay adjustments (COLA) for 

federal white-collar employees in Alaska, Hawaii, the CNMI, Guam, Puerto Rico, and 

USVI.2

 These adjustments are known as nonforeign area COLAs and are in the process of 

being phased out and replaced by locality pay.3 We conducted our work from January to 

November 2009 in accordance with all sections of GAO’s Quality Assurance Framework 

that are relevant to our objectives. This framework requires that we plan and perform the 

engagement to obtain sufficient and appropriate evidence to meet our stated objectives 

and to discuss any limitations in our work. We believe that the information and data 

obtained, and the analysis conducted, provide a reasonable basis for any findings and 

conclusions in this report. 

2

This reasoning does not take into account any differences in consumption patterns between federal 

employees and insular area poor populations. In addition, the OPM nonforeign area cost-of-living 

allowances for federal employees are limited by statute to 25 percent of basic pay. 

 

3

The U.S. government’s nonforeign area COLAs are adjustments to basic pay for federal white-collar 

workers based on differences in living costs between Alaska, Hawaii, and the insular areas (Guam and the 

Northern Mariana Islands, Puerto Rico, and the U.S. Virgin Islands) and Washington, D.C.; OPM does not 

classify American Samoa as a nonforeign COLA area. To set the nonforeign area COLA rates, OPM surveys 

the prices of more than 300 items, including goods and services, housing, transportation, and 

miscellaneous expenses, in each of the areas and in the Washington, D.C., metropolitan area. Under Pub. 

Law No. 111-82, National Defense Authorization Act for Fiscal Year 2010, Oct. 29, 2009, the nonforeign 

COLA will be phased out and locality pay will be phased in over a 3-year period starting Jan. 1, 2010. The 

legislation also freezes the COLA rates that are in effect on the day of enactment of the act. The 

nonforeign area COLAs are a different adjustment than annual inflation adjustments (also commonly 

known as COLAs). The nonforeign area COLAs also differ from federal locality pay—that is, comparability 

payments in addition to basic pay, with the amount of locality pay based on differences between federal 

and private sector pay rates for particular sets of jobs within particular pay areas. In contrast to locality 

pay, nonforeign COLAs are not federally taxed and are not considered basic pay in determining an 

employee’s retirement benefits, life insurance, or premium pay. 
Background 

Census poverty thresholds. The poverty thresholds were established in the 1960s as 

dollar-value benchmarks for measuring poverty:4

 if a family’s income is less than the 

assigned threshold, the family and each of its members is considered to be in poverty.5

Since 1968, Census has annually published the thresholds for use in generating statistics 

such as national, regional, and state estimates of Americans in poverty; in 1969, the 

Bureau of the Budget (the predecessor office to the Office of Management and Budget) 

issued a directive designating the thresholds published by Census as the federal 

government’s official definition of poverty for statistical purposes.6

 Some federal 

programs use such statistics in fund-distribution formulas involving poverty to distribute 

program funds among states and other jurisdictions. The thresholds, which vary by 

family size and age group,7

 apply throughout the 50 states and Washington, D.C., with no 

geographic variation. The thresholds for the base year 1963 were based on the January 

1964 dollar costs of the U.S. Department of Agriculture’s (USDA) Economy Food Plan for 

families of different sizes, multiplied by a factor of three to reflect—based on the 1955 

Household Food Consumption Survey—the share of food in total expenditures. Census 

updates the thresholds for inflation annually, using the Bureau of Labor Statistics’ 

Consumer Price Index (CPI).8

 Although the methodology used to determine the 

thresholds has been subject to debate—for example, regarding whether the thresholds 

should be adjusted for geographic variations in cost of living—it has remained largely 

unchanged, except for minor technical adjustments in 1969 and 1981.9

 

HHS poverty guidelines. The poverty guidelines—a simplified version of the Census 

poverty thresholds—were also established in the 1960s and are used by certain federal 

programs, such as Job Corps and Head Start, in determining the income eligibility of 

 

4

The original thresholds were developed in 1963-1964 by Mollie Orshansky, an economist working for the 

Social Security Administration (SSA). Orshansky used somewhat different procedures to calculate 

thresholds for one- and two-person units, to allow for small families’ relatively larger fixed costs. 

5

In measuring poverty, Census considers all before-tax cash income, except capital gains, and excludes all 

noncash benefits, such as food stamps. 

6

Office of Management and Budget, Statistical Policy Directive No. 14: Definition of Poverty for 

Statistical Purposes (Washington, D.C., 1978). 

7

For a one-person family unit, Census publishes two separate thresholds for unrelated individuals younger 

than 65 years and 65 years or older. For a two-person family unit, Census publishes four thresholds based 

on age: (1) both individuals are younger than 65 years; (2) both individuals are 65 or older; (3) one 

individual is younger than 65 years and the other is a related child younger than 18 years; and (4) one 

individual is 65 years or older and the other is a related child younger than 18 years. For a family unit of 

three or more people, Census publishes 42 thresholds that vary by family size and the number of related 

children who are younger than 18 years. 

8

See http://www.census.gov/hhes/www/poverty/povdef.html. 

9

A federal interagency committee met in 1980-1981 to revise the poverty definition. These modifications 

affected the number of poor and poverty rate only slightly and were documented in P60-133, 

Characteristics of the Population Below the Poverty Level: 1980. See 

http://www.census.gov/hhes/www/povmeas/ombdir14.html. 

Page 3 GAO-10-240R Poverty Determination in U.S. Insular Areas
individuals and families for need-based assistance.10 Like the thresholds, the guidelines 

reflect variations in family size but, unlike the thresholds, do not reflect variations in the 

age group of the family members. Each year, HHS issues guidelines for the 48 contiguous 

states and Washington, D.C. 11 Since 1970, separate guidelines have been issued for 

Alaska and Hawaii that are higher than the national guidelines, based on the federal 

government’s nonforeign area COLAs in 1970 for federal employees’ salaries in those 

states.12

 

Census Uses the Same Poverty Thresholds for the Insular Areas as for the 

States, but HHS Does Not Issue Poverty Guidelines for the Insular Areas 

Census applies the same thresholds for the insular areas as it does for the 50 states, 

without adjustment for geographic variations in cost of living. The thresholds 

constructed in the early 1960s did not include data specific to the insular areas; the two 

data sources for the thresholds, the 1955 Household Food Consumption Survey and the 

January 1964 cost of the Economy Food Plan, did not cover these areas. In addition, the 

Bureau of Labor Statistics’ CPI, which Census uses in adjusting the national thresholds 

for inflation each year, does not cover the insular areas.13

 

Although HHS issues poverty guidelines for the contiguous states and Washington, D.C., 

as well as separate guidelines for Alaska and Hawaii, HHS has not issued any guidelines 

for the insular areas. According to HHS, in cases in which a federal program using the 

poverty guidelines serves any of the insular areas, the federal office that administers the 

program is generally responsible for deciding whether to use the contiguous-states-andD.C. guidelines for those jurisdictions or follow some other procedure.14

 

 

10According to HHS, a number of federal programs use the poverty guidelines, or percentage multiples of 

the guidelines, as an eligibility criterion, while others do not. Agencies that use the guidelines as a criterion 

compare them with varying types of income (e.g., before tax or after tax, gross or net) to determine 

eligibility. For more detailed information about federal programs that use the guidelines for this purpose, 

see Congressional Research Service, Cash and Noncash Benefits for Persons with Limited Income: 

Eligibility Rules, Recipient and Expenditure Data, FY2002-FY2004, Order Code RL33340 (Washington, 

D.C., Library of Congress, 2006). 

11HHS updates the poverty guidelines at least annually as required by 42 U.S.C. 9902(2) and publishes the 

guidelines in the Federal Register. 

12In 1970, the Office of Economic Opportunity instituted separate poverty guidelines for Alaska and Hawaii 

that are higher than the continental U.S. (48-state) guidelines—respectively, 25 percent and 15 percent 

higher than the national guidelines—in view of substantially higher costs of living in those states (see 

Federal Register, vol. 35, no. 70, April 10, 1970, p. 5948). The percentage adjustment of the poverty 

guidelines has remained constant since 1970. 

13The Bureau of Labor Statistics does not collect data to construct CPIs specific to the insular areas. In 

addition, the bureau does not collect data from the insular areas to include in the national CPI calculation. 

14See “Annual Update of the HHS Poverty Guidelines,” Federal Register, vol. 73, no. 15, January 23, 2008, 

p. 3972. 

Page 4 GAO-10-240R Poverty Determination in U.S. Insular Areas
Lack of Data Prevents Construction of Poverty Thresholds for the Insular 

Areas, but Poverty Guidelines Could Be Constructed for These Areas 

Census poverty thresholds specific to the insular areas cannot be constructed from 

available data. Because Census lacks certain insular area information—on the 1955 share 

of income spent on food, the cost of the January 1964 Economy Food Plan, and a record 

of CPIs for the insular areas—inflation-adjusted poverty thresholds for the insular areas 

cannot be constructed with the methodology used to construct the original thresholds.15

If these data were available, it is unclear whether the new insular area thresholds would 

be higher or lower than the national thresholds. However, an HHS official told us that 

applying the methodology used for the original thresholds to the insular areas would 

most likely produce thresholds lower than the national thresholds, owing to the higher 

share of food in insular areas’ total family expenditures (HHS also made this observation 

in its written comments regarding a draft of this report; see encl. III). Increases or 

decreases in the Census thresholds for the insular areas could, by raising or lowering 

estimates of the incidence of poverty, have implications for federal programs that use 

fund-distribution formulas involving poverty. 

HHS poverty guidelines specific to the insular areas, reflecting geographic differences in 

the cost of living, could be constructed by applying the rationale used for Alaska and 

Hawaii in 1970.16 Using this approach, based on OPM’s nonforeign area COLAs, would 

produce guidelines for the CNMI, Guam, and USVI that are 25 percent higher, and for 

Puerto Rico 14 percent higher, than the guidelines for the contiguous states and 

Washington, D.C. Because no nonforeign area COLA has been defined for American 

Samoa, this approach could not be used to compute guidelines for that area. (See encl. I, 

table 1, for indexes derived from the nonforeign area COLAs for Alaska, Hawaii, and the 

insular areas.) This approach would not take into account any differences in 

consumption patterns between federal employees and insular area poor populations.17

The implications of setting higher HHS poverty guidelines for the insular areas vary, 

depending on the design of the federal program and the program’s reliance on the 

guidelines. 

 

15CPIs have been computed periodically for the insular areas by other sources; however, these CPIs cannot 

be used to construct inflation-adjusted thresholds for the insular areas because no 1964 insular area 

thresholds are available for use as baselines. 

 

16The adjustment factors for Alaska and Hawaii guidelines were set by the Office of Economic Opportunity 

in 1970; while current COLAs could be used to update and adjust the level of those guidelines on an annual 

basis, the guidelines have not been updated with more recent cost-of-living data. We considered the 

approach used in constructing poverty guidelines for Alaska and Hawaii because these are the only 

poverty guidelines that have been established specific to any geographic areas; we did not examine the 

universe of possible alternative approaches to defining poverty guidelines for the insular areas. 

17Likewise, the method initially used to establish the guidelines in Alaska and Hawaii does not take into 

account any differences in consumption patterns between Alaska and Hawaii federal employees and the 

poor populations in these states. 

Page 5 GAO-10-240R Poverty Determination in U.S. Insular Areas
• Higher HHS guidelines could affect federal programs that distribute need-based 

assistance directly to families and individuals in the insular areas, such as the 

Department of Agriculture’s National School Lunch Program and Supplemental 

Nutrition Assistance Program (formerly known as the Food Stamp Program). 

However, we did not examine the potential impact on individual income eligibility 

or the cost effects that might result from extending the approach used for 

providing poverty guidelines for Alaska and Hawaii to the insular areas. 

• Higher HHS guidelines would not affect programs that use fund-distribution 

formulas for allocating funds to the insular areas as lump sums, such as HHS’s 

Maternal and Child Health Block Grant, Community Service Block Grant, Social 

Services Block Grant, and Childcare and Development Fund.18 However, higher 

guidelines could affect such programs’ distribution of any funds to beneficiaries, if 

those funds are distributed to families and individuals whose income eligibility is 

based on the guidelines. 

• Higher HHS guidelines also would not affect programs that cap federal spending 

in the insular areas, such as Medicaid, which is subject to annual funding limits.19

However, if an insular area bases the eligibility of families and individuals for such 

programs on HHS poverty guidelines, then higher guidelines could affect the 

area’s use of capped federal funds—for example, by increasing the number of 

people who are eligible for the programs. 

Agency Comments and Our Evaluation 

HHS and Census provided written comments regarding a draft of this report, which are 

presented with our responses in enclosures III and IV, respectively. HHS also provided 

technical comments, which we incorporated as appropriate. Following are summaries of 

HHS’s and Census’s written comments and our responses. 

HHS’s written comments address three main points related to our report. 

• HHS suggests that OPM’s nonforeign area COLAs are of insufficient statistical 

quality to use as the basis for adjusting the poverty guidelines for geographic costof-living differences. Citing as evidence three studies that consider alternative 

strategies for measuring poverty in the United States, HHS observes that none of 

 

18Some programs that use formulas to distribute funds to the insular areas base these allocations on total 

population size rather than on poverty statistics. 

19For details on how the annual limits are established, see GAO, Medicaid and CHIP: Opportunities Exist 

to Improve U.S. Insular Area Demographic Data That Could Be Used to Help Determine Federal 

Funding, GAO-09-558R (Washington, D.C.: June 30, 2009). 

Page 6 GAO-10-240R Poverty Determination in U.S. Insular Areas
these studies refer to the nonforeign area COLAs as a possible data source.20

However, as we note in our response to HHS’s comments in enclosure III, all three 

studies are focused on poverty measurement nationwide and hence could not 

have considered the nonforeign area COLAs as a data source, because these 

COLAs do not cover the 48 contiguous states. 

HHS also states that it does not believe that it would be appropriate to use the 

current OPM nonforeign area COLA data to adjust the poverty guidelines for the 

insular areas. We considered these data because they were used in 1970 to 

construct the Alaska and Hawaii poverty guidelines and because these are the 

only poverty guidelines that have been established specific to any geographic 

areas. However, we are not making a recommendation for the use of this 

approach. 

• HHS states that it adapts and updates, rather than determines, the Alaska and 

Hawaii poverty guidelines. HHS notes that it inherited the Alaska and Hawaii 

poverty guidelines series in 1982 from the Office of Economic Opportunity, which 

established these guidelines in 1970. HHS also notes that it has not consulted OPM 

documents to derive cost-of-living data to calculate the guidelines. We changed 

the wording in the draft to clarify this point. 

• HHS states that if poverty thresholds for the insular areas could be constructed 

with the methodology used to construct the original national thresholds, the 

insular area thresholds would likely be lower than the national thresholds. HHS 

reasons that because median incomes in the insular areas in 1959 were 

significantly lower than those in the states, the share of family food consumption 

as a fraction of insular area family expenditures—the basis of the original Census 

methodology—would be higher, leading to a lower poverty threshold.21 HHS also 

presents two alternative methods for estimating poverty thresholds for the insular 

areas: (1) as a percentage of median family income and (2) based on the 

responsiveness of poverty thresholds to changes in inflation-adjusted income over 

time. HHS states that using these two methods would produce poverty thresholds 

for different insular areas ranging between 14 and 86 percent of the continental 

U.S. poverty thresholds. HHS says that it does not advocate lower guidelines for 

 

20U.S. Department of Health, Education, and Welfare, The Measure of Poverty: A Report to Congress as 

Mandated by the Education Amendments of 1974 (Washington, D.C: 1976), available at 

http://www.census.gov/hhes/www/povmeas/pdf/measureofpoverty.pdf; Constance F. Citro and Robert T. 

Michael (ed.), Measuring Poverty: A New Approach (Washington, D.C.: National Academy Press, 1995), 

available at http://www.census.gov/hhes/www/povmeas/toc.html; and GAO, Poverty Measurement: 

Adjusting for Geographic Cost-of-Living Difference, GAO/GGD-95-64 (Washington, D.C.: March 9, 1995). 

21HHS bases the argument on the empirical relationship discovered by Engel that poorer families spend a 

larger fraction of their income on food than richer families. We note that although the 1955 food share in 

the insular areas might have been higher than in the contiguous states, it is likely that if there were 1964 

food plans for the areas, the cost of these food plans would also be higher because food is imported in 

those areas. Therefore, the higher cost of the food plans could diminish the effect of the higher food share 

in the insular areas, rendering uncertain the overall level of the insular areas’ specific poverty thresholds. 

Page 7 GAO-10-240R Poverty Determination in U.S. Insular Areas
the insular areas but finds it inequitable to have higher guidelines for those areas 

because of the lower median income in those areas than that of the 48 states. 

We note that applying these alternative methods would result in different levels of 

access to federal programs for people with the same income living in two areas 

with different median incomes. For example, a family with an income of $10,000 

in one of the insular areas would qualify for less federal assistance than a family 

with the same income in another U.S. jurisdiction. 

Census raises two main issues in its written comments: 

• Census urges us to further study the poverty guidelines in the insular areas before 

making any recommendations that would increase those guidelines by a 

significant amount. We note that we have not made any recommendations in this 

report. 

• Census suggests that we compare OPM’s foreign area COLAs with insular area 

housing-cost differentials based on Census data and other sources. We did not 

consider alternative approaches for geographic COLAs of the poverty guidelines, 

such as the use of housing data; instead we focused our analysis on the approach 

used in 1970 to construct the Alaska and Hawaii poverty guidelines, based on 

OPM’s process for computing nonforeign area COLAs. We note OPM’s process 

includes a housing cost component that it adjusts for differences in the quality of 

housing, using statistical analysis; OPM then aggregates housing and other types 

of expenditures in constructing its cost-of-living index. 

- - - - - 

We are sending copies of this report to interested congressional committees, as well as 

to HHS, Census, and the Office of Insular Affairs at the Department of the Interior. In 

addition, the report will be available at no charge on GAO’s Web site at 

http://www.gao.gov. If you or your staff have any questions about this report, please 

contact me at (202) 512-3149 or gootnickd@gao.gov. Contact points for our Offices of 

Congressional Relations and Public Affairs may be found on the last page of this report. 

GAO staff who made major contributions to this report are listed in enclosure V. 

David Gootnick 

Director, International Affairs and Trade 

Enclosures

Page 8 GAO-10-240R Poverty Determination in U.S. Insular Areas
Enclosure I

Page 9 GAO-10-240R Poverty Determination in U.S. Insular Areas

Briefing for Congressional Requesters

Poverty Determination in U.S. 

Insular Areas

Briefing to Congressional Staff

May 28, 2009
Enclosure I

2

Poverty Determination

• Two federal agencies publish versions of the measure used to 

determine poverty in the United States: 

• Census publishes poverty thresholds to determine the number 

of people in poverty. Besides being released to the media each 

year, these figures are used for certain need-based federal 

programs in formulas for allocating program funds among states and other jurisdictions. 

• The Department of Health and Human Services (HHS) provides poverty guidelines, which are used to determine households’ 

and individuals’ eligibility for certain need-based federal 

programs. 

Page 10 GAO-10-240R Poverty Determination in U.S. Insular Areas
Enclosure I

3

Census Bureau Poverty Thresholds 

• The poverty thresholds—dollar-value benchmarks for determining who is in poverty—vary by family 

size and by the ages of certain family members.

• The thresholds were developed by Mollie Orshansky of the Social Security Administration. 

They are based on the January 1964 cost of the Economy Food Plan for families of different 

sizes, multiplied by a factor of three to account for other living expenses; somewhat different 

procedures were followed for one- and two-person units. The factor of three was based on 

data from the 1955 Household Food Consumption Survey.

• If a family’s income—including all before-tax cash income, except capital gains, and excluding 

all noncash benefits, such as food stamps—is less than the threshold, Census considers the 

family and each of its members to be in poverty.

• The thresholds are applied as benchmarks throughout the United States with no geographic 

variation. 

• Although the Orshansky methodology for developing the thresholds has been subject to debate, it 

has remained unchanged except for minor technical adjustments in 1969 and 1981. 

• Census updates the thresholds for inflation yearly, using the Bureau of Labor Statistics’ Consumer 

Price Index. 

• The thresholds are used to generate poverty populations statistics, which are released to the media 

each year and are also used in formulas to allocate certain federal program funds among states and 

other jurisdictions. 

Page 11 GAO-10-240R Poverty Determination in U.S. Insular Areas
Enclosure I

4

HHS Poverty Guidelines

• The HHS poverty guidelines are derived from the Census Bureau poverty 

thresholds but, unlike the thresholds, do not consider the number of family 

members who are children under 18 years of age, or whether certain family 

units are over 65.

• HHS publishes a set of poverty guidelines each year for the 48 contiguous states and Washington, D.C. 

• Since 1970, HHS has also published separate guidelines for Alaska and 

Hawaii that were 25 and 15 percent higher, reflecting federal cost-of-living allowances (COLA) for salaries of federal employees in those states at that 

time.

• Certain federal programs use the poverty guidelines to determine

individuals’ and families’ income eligibility for need-based assistance: the 

higher the guideline amount, the greater the number of people who are 

potentially eligible for assistance.a

aSome of the need-based programs using the poverty guidelines actually use percentages of the guidelines higher than 100 

percent. Some other need-based programs use dollar figures for eligibility that are unrelated to the poverty guidelines.

Page 12 GAO-10-240R Poverty Determination in U.S. Insular Areas
Enclosure I

5

U.S. Insular Areas 

• American Samoa, the Commonwealth of the Northern Mariana 

Islands (CNMI), Guam, Puerto Rico, and the U.S. Virgin Islands 

(USVI) rely heavily on need-based federal programs to provide 

basic services.

• In 1999, the percentage of individuals below the continental-U.S. 

poverty thresholds ranged from 23 in Guam—nearly twice as high 

as in the continental United States—to 61 in American Samoa.

• The approach used to determine poverty affects poverty statistics 

and income eligibility of individuals and families for certain needbased federal assistance in the insular areas.

Page 13 GAO-10-240R Poverty Determination in U.S. Insular Areas
Enclosure I

6

Research Questions 

• How are Census Bureau poverty thresholds and HHS poverty 

guidelines determined for the insular areas? 

• Could poverty thresholds and guidelines specific to the 

insular areas be provided, and what would be the 

implications of extending to the insular areas the approach 

originally used to determine the Alaska and Hawaii 

guidelines?

Page 14 GAO-10-240R Poverty Determination in U.S. Insular Areas
Enclosure I

7

Census uses the same poverty thresholds for 

the insular areas that it uses for the 50 states. 

• Census issues the same thresholds for the insular areas as it does 

for the 50 states, without adjustment for geographic variations.

• Data on the food/income share were not collected by the 1955 

Household Food Consumption Survey for the insular areas.

• Data on the January 1964 cost of the Economy Food Plan – the 

other data element on which the thresholds were based – were not 

collected for the insular areas in 1964.

• Although Census uses the CPI to adjust the national thresholds for 

inflation each year, the Bureau of Labor Statistics does not collect 

price data to construct insular areas’ CPI.

Page 15 GAO-10-240R Poverty Determination in U.S. Insular Areas
Enclosure I

8

HHS does not issue poverty guidelines 

for the insular areas.

• HHS has never issued guidelines for the insular areas.

• According to HHS, in cases in which a federal program using the 

poverty guidelines serves any of those jurisdictions, the federal 

office that administers the program is generally responsible for

deciding whether to use the contiguous-states-and-D.C. guidelines 

for those jurisdictions or follow some other procedure. 

Page 16 GAO-10-240R Poverty Determination in U.S. Insular Areas
Enclosure I

9

Census Bureau poverty thresholds specific to the 

insular areas cannot be constructed from available 

data. 

• Lacking information for the insular areas on the 1955 share of income spent on 

food, the January 1964 cost of the Economy Food Plan, and the CPI, inflationadjusted poverty thresholds specific to the insular areas cannot be constructed 

using Orshansky methodology. 

• Without the 1964 cost of an economy food plan or the share of income spent 

on food in the insular areas, it is unclear whether thresholds for the insular 

areas, if constructed, would be higher or lower than the national thresholds. 

However, an official from HHS told us that the most likely result if the 

Orshansky methodology could be applied to the insular areas would be 

thresholds lower than the national thresholds due to the higher share of food in 

insular areas’ total family expenditures.

• Higher or lower thresholds for the insular areas would raise or lower estimates 

of poverty incidence, affecting allocations of need-based assistance from 

federal programs that use poverty statistics in distribution formulas.

Page 17 GAO-10-240R Poverty Determination in U.S. Insular Areas
Enclosure I

10

The approach used for providing HHS poverty guidelines 

for Alaska and Hawaii in 1970 could be extended to the 

insular areas.

• HHS poverty guidelines specific to the insular areas, reflecting

geographic differences in the cost–of–living, could be constructed 

by applying the rationale used for Alaska and Hawaii in 1970.

• Using this approach would produce higher guidelines—25 percent 

higher for CNMI, Guam, and USVI and 14 percent higher for Puerto

Rico—than the guidelines for the contiguous states and 

Washington, D.C. Because no COLA is defined for American 

Samoa, this approach could not be used to compute guidelines for

that area. 

• This approach would not take into account any differences in 

consumption patterns between federal employees and insular area 

poor populations.

• See table 1.

Page 18 GAO-10-240R Poverty Determination in U.S. Insular Areas
Enclosure I

11

Table 1: Index Derived from OPM Costof-Living Allowances

Locality Index derived from 

OPM nonforeign area COLA 

American Samoa N/A

CNMI 125

Guam 125

Puerto Rico 114 

USVI 125

Alaska 124 

Hawaii 123 

Washington D.C. 100

Source: OPM. Note: COLA rates shown were published in the Federal Register by OPM on February 20, 2009 

amending subpart B of 5CFR part 591. Rates shown for Alaska and Hawaii are simple unweighted averages of 

statewide COLAs. No COLA is listed for American Samoa; however, OPM defines a post differential rate for American 

Samoa of 25 percent. The post differential is based on extraordinarily difficult living conditions, excessive physical 

hardship, or notably unhealthful conditions. The base is Washington, D.C. Under 5 USC § 5941 nonforeign area 

COLAs are limited to 25 percent of basic pay. 

Page 19 GAO-10-240R Poverty Determination in U.S. Insular Areas
Enclosure I

12

Higher HHS poverty guidelines would 

affect some federal programs.

• Higher HHS guidelines could increase the number of individuals 

and families eligible for need-based assistance from federal 

programs that use the contiguous-states-and-D.C. guidelines as a 

criterion. (See app. I for examples of such programs.)

• Higher HHS guidelines would not affect 

• federal programs that distribute need-based assistance 

according to formulas involving poverty statistics based on 

Census Bureau poverty thresholds, or 

• federal programs that cap the distribution of need-based 

assistance to the insular areas according to statutorily defined

percentages, such as Medicaid. 

Page 20 GAO-10-240R Poverty Determination in U.S. Insular Areas
Enclosure I

13

Methodology

• We reviewed the relevant literature on poverty determination in the 

United States and the insular areas, interviewed agency officials, 

and analyzed OPM’s methods used for cost-of-living pay 

adjustments.

• We did not examine the potential impact of extending to the insular 

areas the approach originally used to determine the Alaska and 

Hawaii guidelines on individual income eligibility and did not 

evaluate the cost effects of this approach.

• We conducted our work in accordance with GAO's Quality 

Assurance Framework. 

Page 21 GAO-10-240R Poverty Determination in U.S. Insular Areas
Enclosure I

14

Appendix I: Select Federal Programs Using HHS 

Poverty Guidelines to Determine Eligibility for Needbased Assistance in Insular Areas

• National School Lunch Program (and Commodity School Program)

• School Breakfast Program 

• Special Milk Program for Children

• Child and Adult Care Food Program

• Summer Food Service Program 

• Special Supplemental Nutrition Program for Women, Infants, and 

Children 

• Supplemental Nutrition Assistance Program (Food Stamp 

Program)a

aUses poverty guidelines to determine income eligibility for need-based assistance in Guam and USVI only.

Page 22 GAO-10-240R Poverty Determination in U.S. Insular Areas
Enclosure II

Page 23 GAO-10-240R Poverty Determination in U.S. Insular Areas

Insular Areas’ Poverty Rates in 1999 

 Poverty rate (%)

Guam 23.0

American Samoa 61.0

USVI 32.5

CNMI 46.0

Puerto Rico 48.2

Source: 2000 Census of Population and Housing, U.S. Census Bureau. 
Enclosure III

Comments from the Department of Health and Human Services 

Note: GAO comments 

supplementing those 

in the report text 

appear at the end the 

this enclosure.

Page 24 GAO-10-240R Poverty Determination in U.S. Insular Areas
Enclosure III

See comment 1. 

Page 25 GAO-10-240R Poverty Determination in U.S. Insular Areas
Enclosure III

Page 26 GAO-10-240R Poverty Determination in U.S. Insular Areas
Enclosure III

See comment 1. 

See comment 2. 

Page 27 GAO-10-240R Poverty Determination in U.S. Insular Areas
Enclosure III

See comment 3. 

Page 28 GAO-10-240R Poverty Determination in U.S. Insular Areas
Enclosure III

See comment 3. 

See comment 3. 

Page 29 GAO-10-240R Poverty Determination in U.S. Insular Areas
Enclosure III

See comment 3. 

See comment 3. 

Page 30 GAO-10-240R Poverty Determination in U.S. Insular Areas
Enclosure III

GAO Comments 

The following are GAO’s responses to HHS’s letter, dated October 8, 2009. 

1. HHS states that the federal employee nonforeign area COLAs published by OPM 

are not of sufficient statistical quality for use in adjusting the federal poverty 

guidelines. HHS cites as evidence the fact that OPM’s database for the 

nonforeign area COLAs was not recommended in studies by the Poverty Studies 

Task Force in 1976, the Panel on Poverty and Family Assistance in 1995, and 

GAO in 1995 as a potential data source for adjusting the poverty measure for 

geographic cost-of-living differences. However, the three studies that HHS cites 

explored the feasibility of adjusting the federal poverty measure for geographic 

differences in the 50 states. The nonforeign area COLAs’ application has been 

restricted to the insular areas, Alaska, and Hawaii; these COLAs have not been 

developed as a database to be used throughout the United States. 

HHS also states that it does not believe that it would be appropriate to use the 

current OPM nonforeign area COLA data to adjust the poverty guidelines for the 

insular areas. We considered these data because they were used to construct 

the Alaska and Hawaii poverty guidelines in 1970 and because these are the only 

poverty guidelines that have been established specific to any geographic areas. 

However, we are not making a recommendation for the use of this approach. 

2. HHS comments that it adapts and updates, rather than “determines”—as the 

draft of our report stated—the Alaska and Hawaii poverty guidelines. HHS notes 

that it inherited the Alaska and Hawaii guideline series in 1982 from OEO, which 

originally instituted these guidelines in 1970. We changed the wording of our 

report to reflect this fact. HHS also states that it has not consulted OPM 

documents to get figures to calculate the guidelines for Alaska and Hawaii. Our 

report acknowledges this point in footnote 16. 

3. HHS moves beyond discussing whether there are differences in the cost of 

living between insular areas and the 48 contiguous states and focuses on 

alternative approaches for setting poverty thresholds. HHS observes that if 

historical data did exist for the insular areas and the methodology used to 

construct the original thresholds were applied, poverty thresholds for those 

areas would likely be lower, because median incomes in the insular areas 

historically have been significantly lower than those in the states and, as a 

result, the share of family food consumption as a fraction of insular area family 

expenditures would be higher.22 We note that although the 1955 food share in 

the insular areas might have been higher than in the contiguous states, it is also 

 

22HHS bases the argument on the empirical relationship discovered by Engel that poorer families 

spend a larger fraction of their income on food than richer families (see comments from HHS, 

footnote 7). 

Page 31 GAO-10-240R Poverty Determination in U.S. Insular Areas
Enclosure III

likely that if there were 1964 food plans for the areas, the cost of these food 

plans would also be higher because food is imported in those areas. Therefore, 

the higher cost of the food plans could diminish the effect of the higher food 

share in the insular areas, rendering uncertain the overall level of the insular 

areas’ specific poverty thresholds. 

HHS also provides rough estimates of poverty thresholds based on two 

alternative methods. First, it estimates poverty thresholds as a percentage of 

median family income. We note that using this approach would lead to lower 

poverty thresholds for any state or other jurisdiction with lower median 

household incomes. The consequence would be that families in poorer states or 

other jurisdictions would have less access to need-based federal assistance than 

would families with the same income in more affluent areas. 

Second, it estimates poverty thresholds based on the responsiveness of poverty 

thresholds to changes in inflation-adjusted income over time. We note that 

under this method, areas with lower median household income and higher cost 

of living would have even lower poverty thresholds than the thresholds 

established with the first alternative approach that HHS describes. The 

consequence would be that families in poorer areas with higher cost of living 

would have a further reduction in access to federal assistance. 

HHS states that using these two approaches would produce poverty thresholds 

for different insular areas ranging between 14 and 86 percent of the current U.S. 

poverty thresholds. HHS says that it does not advocate lower guidelines for the 

insular areas but finds it inequitable to have higher guidelines for those areas 

because of the lower median income in those areas than that of the 48 states. 

Page 32 GAO-10-240R Poverty Determination in U.S. Insular Areas
Enclosure IV

Page 33 GAO-10-240R Poverty Determination in U.S. Insular Areas

Comments from the Census Bureau 

Note: GAO comments 

supplementing those 

in the report text 

appear at the end the 

this enclosure.

See comment 1. 

See comment 2. 
Enclosure IV

GAO Comments 

The following are GAO’s comments on the Census letter, dated October 15, 2009. 

1. Census urges us to further study the poverty guidelines in the insular areas 

before making any recommendations that would increase those guidelines by a 

significant amount. Note that we have not made any recommendations in this 

report. 

2. Census suggests that we compare OPM’s foreign area COLAs with insular area 

housing-cost differentials based on data such as the 2008 American Community 

Survey (ACS), Census 2000, and the Housing and Urban Development Fair 

Market Rents. We note the following: 

• We did not consider alternative approaches for geographic cost-of-living 

adjustment of the poverty guidelines, such as the use of housing data, 

because we focused only on the approach used in 1970 to construct the 

Alaska and Hawaii poverty guidelines and because these are the only 

poverty guidelines that have been established specific to any geographic 

areas. 

• OPM analysis includes a housing cost component that is adjusted for 

differences in the quality of housing, using statistical analysis. OPM then 

aggregates housing and other types of expenditures in constructing its costof-living index. 

• GAO has identified challenges in the approach used to estimate the Housing 

and Urban Development Fair Market Rents and has recommended ways to 

improve the accuracy of Fair Market Rents estimates.23

 

 

23See GAO, Rental Housing: HUD Can Improve Its Process for Estimating Fair Market Rents, 

GAO-05-342 (Washington, D.C.: March 31, 2005). 

Page 34 GAO-10-240R Poverty Determination in U.S. Insular Areas
Enclosure V

Page 35 GAO-10-240R Poverty Determination in U.S. Insular Areas

GAO Contact and Staff Acknowledgments 

GAO Contact 

David Gootnick, (202) 512-3149 or gootnickd@gao.gov 

Staff Acknowledgments 

In addition to the contact named above, Emil Friberg (Assistant Director), Gergana 

Danailova-Trainor, Kathleen Scholl, Thomas McCool, Marissa Jones, Reid Lowe, and 

Kathryn Larin made key contributions to this report. 

(320692) 
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