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This draft was prepared by the staff of the Human Resources and Community Development Division of the Congressional Budget Office. Permission to circulate the paper to others or to cite it should be obtained from Nancy M. Gordon, Assistant Director, Human Resources and Community Development Division, CBO . Questions regarding the analysis may be addressed to Patricia Ruggles or Reuben Snipper.
 
 

This memorandum outlines the cumulative effects of the changes enacted in 1981 in the AFDC, food stamp, and housing assistance programs for certain single-parent low-income households.¹ The example households chosen illustrate the effects of the changes in these programs for example families who are or were eligible to receive AFDC. The study does not include a number of other cuts in social programs--for example, in social services and discretionary health programs--that would in some instances affect the same low-income families. The major findings of this study are:

• Households with earnings generally lose a much larger proportion of their total benefits than households without earnings. On average, for the cases considered here, those with earnings lose 25 to 35 percent of their total benefits and 10 to 20 percent of their net incomes (after 4 months of employment). For those without earnings, losses in benefits and net incomes would average about 7 percent.
  
  
• For those households who lose eligibility for AFDC, reductions in total benefits, including Medicaid, can be very large--up to 60 percent on average in some states, and as high as 50 percent for some recipients in most states. Benefit reductions of this size occur because loss of AFDC benefits generally results in either loss of eligibility for Medicaid or large reductions in Medicaid benefits arising from "spend down" provisions in state programs for the medically needy
  
  
• When earnings disregards are ended after four months of employment, many households with low earnings would have net incomes as low or lower than those of households with no earnings, which could constitute a substantial work disincentive.
  
  
• If any state chooses to implement the option to include either food stamps or housing subsidies in income for the purpose of calculating AFDC benefits, benefit reductions could be very large. Total benefits for the households affected could fall by 30 to 40 percent on average if the households have earnings. Benefits for households without earnings would fall by about 20 percent on average.

The cumulative effects of the benefit reductions vary depending upon the set of programs considered. Small increases in food stamps occur when AFDC benefits are reduced, since the reductions enacted in food stamp benefits are to some extent offset by increases in food stamps due to lower AFDC benefits. Rent payments in subsidized housing may also fall for AFDC recipients if they experience substantial income reductions, since tenant rent payments are calculated as a percentage of Income, and the rent increases taking place this year as a result of the 1981 changes in housing programs are fairly small. The decreases in AFDC benefits may result in smaller than anticipated savings in both the food stamp and housing assistance programs.

For individual families, household incomes and state maximum payment levels in AFDC are important determinants of the impact of the benefit reductions. Within any given state, households with earnings above the average for AFDC recipients generally lose a larger proportion of their benefits than do households with lower earnings. Across states, however, households in states with low maximum payment standards in most cases lose a larger proportion of benefits than do comparable households in states with higher maximum payment standards.

This study has two major limitations which should be considered in assessing its findings. First, the analysis has been done only on an example basis, so that generalizations concerning the relative proportions of AFDC households affected by a given proposal may be difficult to make. An effort has been made, however, to choose examples which are typical of a variety of. AFDC households. Second, these estimates understate the full effect of the budget cuts on AFDC families, especially in the case of individuals with disabilities, certain other health problems, or needs for social services. This understatement results from the omission from this analysis of a number of cuts in programs that are targeted at low-income families and serve some AFDC households, but that are not always tied directly to household income. Examples include rehabilitation services for the disabled, Title XX social services, and youth employment programs. Since participation in these programs depends on a number of factors other than household income--including, for example, physical disability, the proximity of services, and access to transportation--the effects of reducing their funding cannot be modeled using the present approach. In addition, cuts in AFDC and food stamp benefits which are limited to certain specific types of households, such as households containing strikers or stepparents, have not been included in this study.

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1. Low income, for the purposes of this study, has been defined as income at or below 125 percent of the poverty level. The changes In the AFDC, food stamp and housing subsidy programs modeled for this study are outlined in the Appendix.