The Food Stamp Program helps low-income individuals and families obtain a more nutritious diet by supplementing the funds they have to spend on food with food stamp benefits. In fiscal year 1995, the average monthly food stamp benefit was $172 per household. These benefits are generally provided through coupons or electronically on debit cards (similar to a bank card) that may be used to purchase food at authorized stores. The Food Stamp Program is a federal-state partnership, with the federal government paying the full cost of the food stamp benefits and approximately half of the states’ administrative costs. USDA’s Food and Consumer Service administers the program at the federal level. States’ responsibilities include certifying eligible households, calculating benefit amounts, and issuing benefits to participants who meet the income and asset standards set by the Congress. After a household is certified as being eligible for food stamps, the household’s monthly food stamp benefit is computed on the basis of several factors, including the household’s net monthly income. A household’s net monthly income is computed by subtracting six allowable deductions from the household’s gross monthly income: a standard deduction, an earned income deduction, a dependent care deduction, a medical deduction, a child support deduction, and an excess shelter expense deduction. A household’s monthly food stamp benefit is computed by subtracting 30 percent of the household’s net income from the maximum allowable food stamp benefit for the household’s size. This last step is based on two assumptions. First, the maximum food stamp benefit represents the amount a household with zero net income would need to purchase food for nutritious but inexpensive meals each month. Second, a household is expected to spend 30 percent of its net income to buy enough food for a month. See appendix I for an example of how the net monthly income and food stamp benefit were calculated for a single female-headed household with three children in fiscal year 1995. In fiscal year 1995, about two-thirds, or about 7.2 million, of the almost 10.9 million food stamp households took the deduction for excess shelter expenses. Of the households taking the deduction, about 2.3 million were not subject to the deduction cap because they contained an elderly or disabled person. Of the remaining households taking the excess shelter expense deduction and subject to the cap, about 1.1 million households would have received more in food stamp benefits in the absence of the cap. These 1.1 million affected households, which represent about 10 percent of all food stamp households, would have received more in food stamp benefits in the absence of the cap because they (1) had excess shelter expenses they could not deduct from their income and (2) were not receiving the maximum allowable food stamp benefit. In contrast, about 90 percent, or about 9.8 million households, were not affected by the cap on the excess shelter expense deduction in fiscal year 1995 because (1) they did not take the deduction, (2) they had household members who were elderly or disabled, (3) their excess shelter expenses were lower than the cap, or (4) they were already receiving the maximum allowable food stamp benefit even though they had excess shelter expenses that were greater than the $231 cap. Table 1 shows the number and percentage of households taking the excess shelter expense deduction, and table 2 shows the number and percentage of households affected and not affected by the cap on the excess shelter expense deduction in fiscal year 1995. In fiscal year 1995, the 1.1 million households affected by the cap on the deduction for excess shelter expenses differed in several aspects from households not affected by the cap. Appendix III provides more detailed information on the characteristics of affected households. Below is a description of the characteristics of households affected by the cap in terms of their composition, income, shelter expenses, geographic location, and level of food stamp benefits. In fiscal year 1995, households affected by the excess shelter cap were more likely than households not affected to (1) contain children, (2) be headed by a single female, (3) have more members, and (4) have more noncitizen members. Children were members of about 93 percent of the 1.1 million food stamp households affected by the excess shelter cap. In contrast, children were members of about 56 percent of the food stamp households not affected by the cap. See figure 1. 6.7% Households without children In total, affected households contained about 2.3 million children under the age of 18. These children represented about 17 percent of all children receiving food stamp benefits in fiscal year 1995. Moreover, slightly more than half of the affected households, 51.4 percent, contained preschool children, while about one-third, 32.2 percent, of households not affected by the cap on the excess shelter expense deduction contained preschool children. Single females headed almost two-thirds of the food stamp households affected by the excess shelter cap in fiscal year 1995. In contrast, slightly more than one-third of the households not affected by the cap were headed by single females. (See fig. 2.) The average size of affected households was larger than not affected households, 3.4 and 2.4 members, respectively (see fig. 3). The difference was primarily due to the fact that a greater percentage of affected households had children. A higher percent of affected households, 18.2 percent, contained a noncitizen compared with 9.8 percent of not affected households (see fig. 4). Under the 1996 welfare reform act, many noncitizens will no longer receive food stamp benefits. Households affected by the cap tended to have more income than households not affected by the cap. In fiscal year 1995, a smaller percentage of affected households had gross monthly incomes equal to or below 50 percent of the poverty level than did not affected households, 34.8 percent and 43.4 percent, respectively. Figure 5 shows these differences. Gross income is over 50% of poverty level Households affected by the cap had higher average gross monthly incomes than households not affected by the cap, $643 and $500, respectively. Gross income can include both earned and unearned income. The sources of unearned income came from public assistance programs, such as Aid to Families With Dependent Children (AFDC), General Assistance, Supplemental Security Income, and Social Security. A greater percentage of affected households—about one-third—had earned income than not affected households—about one-fifth. (See fig. 6.) The percent of households with children having earned income was comparable for affected and not affected households, 31.3 percent and 29.8 percent, respectively. Affected households had average shelter expenses more than twice as high as not affected households, $618 and $254, respectively. Affected households with children had average monthly shelter expenses of $621 compared with $262 for not affected households with children. Figure 7 shows the average monthly shelter expenses for affected and not affected households with and without children. Households affected by the cap tended to be located in different parts of the nation than those not affected by the cap. Affected households tended to be concentrated in the Northeast, 37.5 percent, and West, 27.9 percent, while not affected households tended to be located in the South, 41.5 percent. However, both affected and not affected households, 88.8 and 76.4 percent, respectively, tended to be located in urban areas. Table 3 shows the differences and similarities in the location of these households. Over half, 53.9 percent, of food stamp households affected by the cap, were located in four states—California, Michigan, New York, and Pennsylvania. In comparison 26 percent of households not affected by the cap were located in these four states. Affected households had larger monthly food stamp benefits than not affected households. The average monthly food stamp benefit for affected households was $261 compared with an average monthly food stamp benefit for not affected households of $162. This was also true for affected households with children compared with not affected households with children; $271 and $225 per month in food stamp benefits, respectively. Figure 8 shows the average monthly food stamp benefit for affected and not affected households with and without children. In fiscal year 1995, almost 70 percent of affected households were receiving more than 75 percent but less than 100 percent of the allowable maximum food stamp benefit. Food stamp benefits for the 1.1 million households affected by the cap would have increased by about 12 percent, on average, or about $31 per month, in absence of the cap in fiscal year 1995. Appendix III contains detailed information on the characteristics of food stamp households that would have received increases in benefits in the absence of a cap. As a result of the increased benefit, an affected household’s average monthly food stamp benefit would have increased from $261 to $292 in fiscal year 1995. Food stamp benefits for affected households with children would have increased from $271 to $303. By geographic location, affected households in the Northeast, where average shelter costs for households receiving food stamps were the highest at $688, would have received the largest average monthly increase, $41. Households in urban areas would have received larger average monthly increases, $32, than in rural areas, $25. Figure 9 shows the average monthly increase in food stamp benefits by state in absence of a cap on the excess shelter expense deduction in fiscal year 1995. In the absence of the cap, total federal food stamp expenditures would have increased by approximately 1.9 percent, or $34.7 million monthly, for a total of $417 million, in fiscal year 1995. More than 95 percent, or $400 million, of the total increase would have gone to households with children. Almost 80 percent of all additional benefits would have gone to households in 10 states. Of these 10 states, California and New York would have received almost half of these additional benefits. Table 4 shows the 10 states that would have received the largest percentage share of the increases in benefits in absence of the cap in fiscal year 1995 and the percentage of food stamp benefits provided to those states in that fiscal year. We provided copies of this report to USDA for its review and comment. We met with officials of the Department, including the Director of Family Programs Staff, Office of Analysis and Evaluation, Food and Consumer Service, who agreed with the data as presented in this report. We conducted our review from December 1996 through April 1997 under generally accepted government auditing standards. However, we not did verify the accuracy and reliability of the data from USDA’s database on households receiving food stamps in fiscal year 1995. As arranged with your office, unless you publicly announce its contents earlier, we plan no further distribution of this report until 7 days from the date of this letter. At that time, we will send copies of this report to the Senate Committee on Agriculture, Nutrition, and Forestry; the House Committee on Agriculture; other interested congressional committees; and the Secretary of Agriculture. We will also make copies available upon request. If you have any questions about this report, I can be reached at (202) 512-5138. Major contributors to this report are listed in appendix IV. The following illustrates how the food stamp benefit was calculated in fiscal year 1995 for a single female-headed household with three children with monthly shelter expenses of $668. This household had a (1) gross monthly income of $1,168 per month (of which $1,115 was earned income), (2) standard deduction of $134, (3) dependent care deduction of $131, (4) earned income deduction of $223, and (5) shelter deduction of $231. This household was subject to the cap on the excess shelter expense deduction because none of the household members was disabled or elderly. Step 1: Determine adjusted gross monthly income before excess shelter expense deduction Monthly income, including $1,115 in earned income Standard deduction, available to all households Dependent care deduction for expenses incurred in caring for children while household member worked Earned income deduction equal to 20% of household’s monthly earnings (.20 x $1,115 = $223) Adjusted gross monthly income before excess shelter expense deduction Step 2: Determine excess shelter expense deduction Household’s monthly shelter expenses, including rent and utilities Less 50% of adjusted gross monthly income from step 1 (.50 x $680 = $340) Shelter expenses in excess of 50% of adjusted gross monthly income that would qualify for deduction in absence of the cap Step 3: Determine household’s net monthly income Adjusted gross monthly income from step 1 Capped allowable excess shelter expense deduction. This deduction is less than the excess shelter expense calculated in step 2 because of the cap. Household’s net monthly income counted in determining food stamp benefit Step 4: Calculate monthly food stamp benefit on the basis of net income Maximum monthly food stamp benefit for household of 4 in 1995 Amount of household’s income available for food. Based on 30% of net monthly income ($449 x .30 = $135) This appendix presents information on the database we used to identify the characteristics of households receiving food stamps whose benefits were limited because of the cap on the deduction for excess shelter expenses. This appendix also provides information on the methodology we used to develop estimates. To analyze the characteristics of households whose food stamp benefits were limited by the cap on the deduction for excess shelter expenses, we used the U.S. Department of Agriculture’s (USDA) database on the characteristics of food stamp households for fiscal year 1995, the most current year for which data are available. The USDA database we used contains a representative sample of more than 50,000 food stamp households nationwide. Therefore, the estimates presented in this report, which are based on USDA’s data, are representative of the approximately 10.9 million participating food stamp households in an average month in fiscal year 1995. For our analyses, we compared the characteristics of households whose benefits were limited by the cap with those households whose benefits were not affected by the cap. All reported differences (except where noted) between households whose benefits were affected by the cap and households not affected by the cap are statistically significant. To determine the extent to which food stamp benefits would have been higher in the absence of the cap, we recalculated the benefits that affected food stamp households would have received with no cap in place. We conducted our review between December 1996 and April 1997 under generally accepted government auditing standards; however, we did not verify the accuracy of the USDA’s data. To track changes in the characteristics and level of food stamp participation, USDA’s Food and Consumer Service (FCS) relies on data from the Food Stamp Program’s Integrated Quality Control System (IQCS) database. The IQCS database contains a nationally representative sample of over 50,000 food stamp units and is used to assess the accuracy of eligibility determinations and benefit calculations for a state’s caseload for the Food Stamp Program. The database is a national sample of participating units and is stratified by month and by the 50 states and the District of Columbia, Guam, and the U.S. Virgin Islands. All results are based on weighted analyses, which take into account the fact that individual food stamp units are sampled with a known non-zero and unequal probability of selection. These weights allow us to make inferences to the entire universe of active food stamp units. Certain active cases are excluded from being sampled. These include cases in which participants died or moved outside the state, received benefits by a disaster certification authorized by the FCS, received benefits under a 60-day continuation of certification, were under investigation for Food Stamp Program fraud, were appealing a notice of adverse action and the review date falls within the period covered by the continued participation pending a hearing, or received restored benefits in accordance with the FCS-approved state manual but were otherwise ineligible. We used the following procedure to identify those sampled households whose benefits were affected by the cap and calculate what their monthly food stamp benefit would have been in the absence of the cap. First, we identified those households in the database that met two criteria: The household (1) had deductible monthly excess shelter expenses that exceeded the cap and (2) was not already receiving the maximum monthly food stamp benefit. Second, for each of these households, we recalculated the household’s monthly net income using the household’s actual excess shelter expense deduction instead of the $231 cap. Third, for each selected household, we recalculated the household’s monthly food stamp benefit using the adjusted net income. In performing the second and third steps, we used existing USDA formulas. Because we used a sample of 51,229 food stamp units to develop our estimates, each estimate has a measurable precision, or sampling error, that may be expressed as a plus or minus figure. A sampling error indicates how closely we can reproduce from a sample the results that we would obtain if we were to take a complete count of the universe using the same measurement methods. By adding the sampling error to and subtracting it from the estimate, we can develop upper and lower bounds for each estimate. This range is called a confidence interval. Sampling errors and confidence intervals are stated at a certain confidence level—in this case, 95 percent. For example, at the 95-percent confidence level, in 95 out of 100 instances, the sampling procedure we used would produce a confidence interval containing the universe values we are estimating. Standard formulas for the standard errors of estimates based on a simple random sample do not necessarily apply to estimates derived from more complex samples, such as the stratified sample of the IQCS. To adjust for the complex sampling design of the IQCS, we used an adjustment factor, also known as a design effect, that inflates the sampling error by a factor of two. The factor of two was based on the maximum design effect presented by FCS in its technical appendix. Tables II.1 to II.4 show the sampling errors for the numbers presented in this report. Percent of households with earned income with children <1% <1% <1% <1% <1% (continued) Not applicable. (continued) Total monthly increase if no cap (continued) Total monthly increase if no cap (continued) Gross income as percentage of poverty (continued) Gross income as percentage of poverty (continued) Average monthly food stamp benefit if no cap (continued) Average monthly food stamp benefit if no cap (continued) Thomas E. Slomba, Assistant Director Andrea Wamstad Brown, Project Leader Mitchell B. Karpman Carol Herrnstadt Shulman The first copy of each GAO report and testimony is free. Additional copies are $2 each. Orders should be sent to the following address, accompanied by a check or money order made out to the Superintendent of Documents, when necessary. VISA and MasterCard credit cards are accepted, also. 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Summary: Pursuant to a congressional request, GAO reviewed the legislative changes to the Food Stamp Program mandated by the 1996 welfare reform act; focusing on, for fiscal year (FY) 1995, the: (1) characteristics of households whose food stamp benefits were limited because of the cap on their deduction for excess shelter expenses; and (2) extent to which food stamp benefits would have been higher for these households if there had not been a cap. GAO noted that: (1) in FY 1995, households whose food stamp benefits were limited because of the cap on the deduction for excess shelter expenses differed in several key respects from households not affected by this cap; (2) nearly all households affected by the cap had children, while only slightly more than half of households not affected by the cap had children; (3) moreover, households affected by the cap were more likely to: (a) be headed by asingle female; (b) have noncitizen members; (c) have earned income; and (d) live in urban areas; (4) affected households also typically had more household members and received more in food stamp benefits than those not affected by the cap; (5) households affected by the cap tended to be located in the Northeast and West, while households not affected by the cap tended to be located in the South; (6) in the absence of the cap on the excess shelter expenses deduction in FY 1995, the average monthly food stamp benefit for affected households would have been about 12 percent, or $31, higher; (7) total federal food stamp expenditures would have increased by 1.9 percent, for a total of $417 million in FY 1995; (8) the largest increase would have been for households in the Northeast, where average shelter costs are the highest; (9) nationwide, households in urban areas would have received larger increases than those in rural areas; and (10) households in New York and California would have received almost half of these additional benefits.