LAO 2004-05 Budget Analysis: General Government

Analysis of the 2004-05 Budget Bill

Legislative Analyst's Office
February 2004

Food Stamps Program

The federal food stamps program is estimated to provide about $2 billion in food coupons to approximately 1.8 million low-income families in California in 2004-05. With the exception of the state-only food assistance program (discussed below) the cost of the federal food coupons is borne entirely by the federal government. The associated administrative costs are shared between the federal government (50 percent), the state (35 percent), and the counties (15 percent).

Generally, individuals and families eligible for food stamps must have a net income (after income deductions are applied) of less than 100 percent of the FPL (about $15,260 a year for a family of three). In addition, certain resource restrictions apply, such as a limit on the value of a vehicle. Other nonfinancial restrictions also apply.

California Food Assistance Program (CFAP)

The 1996 federal welfare reform legislation significantly restricted food stamp eligibility for noncitizens. In response, the state created the CFAP in 1997 to provide state-only funded food stamp benefits to qualified legal immigrants who are ineligible for federal food stamps. Since 1997, the federal government has incrementally reinstated benefits for some legal noncitizens. Under current federal law, generally all legal noncitizens are eligible for federal benefits except for those who have been residing in the United States less than five years, and are between 18 and 65 years old.

The budget estimates that in 2004-05 the average monthly CFAP caseload is expected to decrease to about 10,230 at a total state cost of $10 million for food coupons and $2 million for administrative costs. The budget proposes to cap the CFAP caseload at the April 1, 2004, level for savings of $146,000. In addition, effective October 2004 program funding would be reduced by 5 percent and the funds for CFAP would be given to counties in a block grant. (For more information about the proposed enrollment cap and the block grant proposal, please see our discussions in the "Crosscutting Issues" section of this chapter.)

Revenue Loss Exceeds Administrative Savings From Governor's Food Stamp Proposals

The Governor's budget proposes to repeal recent legislation which expanded eligibility for the food stamps program. Eliminating these eligibility expansions would result in (1) combined General Fund administrative and CFAP savings of about $3.5 million in the budget year, and (2) foregoing $203 million in federal food coupons for low-income Californians. In addition, the loss of General Fund revenue associated with these proposals would be about $4.5 million. Accordingly, we recommend (1) rejecting the Governor's proposal to delete the expansions and (2) recognizing the General Fund revenue associated with the expansions. (Increase Item 5180-001-0001 by $3.5 million in 2004-05 and increase General Fund revenue by $4.5 million.)

Recent Food Stamps Program Changes. Chapter 225, Statutes of 2003 (AB 1752, Oropeza), created the Transitional Food Stamps Program (TFS), which provides five months of additional food stamps to families leaving welfare without requiring the family to reapply for benefits. In addition, Chapter 743, Statutes of 2003 (AB 231, Steinberg), made TFS rules less restrictive, allowed for the exclusion of the value of a motor vehicle in determining eligibility in the food stamps program, and allowed for the elimination of a face-to-face interview as a requirement of the food stamps application process.

These changes to the food stamps program are estimated to increase the federal food stamp and CFAP caseloads by 81,000, increase the amount of federal food coupons the state receives by $203 million, increase administrative costs by about $1.9 million, and increase CFAP costs by $1.6 million in the budget year.

Budget Proposal. The Governor's budget proposes to eliminate the TFS and repeal the recently enacted program changes include Chapter 743. These changes would result in combined General Fund administrative and CFAP savings of about $3.5 million in the budget year. However, after accounting for one-time administrative costs, the ongoing savings would be $2.2 million. The Governor's proposals to eliminate these eligibility expansions would also result in foregoing about $203 million in federal food coupons.

The Budget Proposal Ignores General Fund Revenue Effect. Research shows that low-income individuals generally are not able to save money because their resources are spent on meeting their daily needs, such as shelter, food, and transportation. Therefore, for every dollar in food coupons that a low-income family receives, an additional dollar is available for the consumption of food or other items. Research done at the University of California and elsewhere indicates that individuals with income low enough to be eligible for food stamps would, on average, spend about 45 percent of their income on goods for which they would pay sales tax. The state General Fund receives about 5 cents for every dollar that is spent on a taxable good. Local governments and special funds receive the remainder of the sales tax revenue (generally about 2.25 percent). Because additional food coupons would result in low-income families spending more of their other resources on taxable goods, the receipt of federal food coupons helps to generate revenue for the state and for local governments.

The administration anticipates that eliminating TFS and the Chapter 743 expansions would result in foregone federal food coupons of about $203 million. However, that is not the only loss the state would experience. The state would also lose General Fund sales tax revenue. This is because, based on the research described above, we estimate that the forgone food coupons would have freed up an equal amount of income that families could spend on other items, including taxable goods. Assuming that 45 percent of the family's purchases are on taxable goods, about $91 million would be spent on taxable goods. Because the state General Fund receives 5 cents for every dollar that is spent on a taxable good, these purchases would generate about $4.5 million in General Fund revenue annually.

The revenue loss of $4.5 million annually ($3.7 million associated with TFS and $835,000 associated with Chapter 743) is greater than the estimated General Fund administrative savings of about $3.5 million in the budget year. Accordingly, the total impact of the Governor's proposals is a net loss of about $1 million in the budget year ($4.5 million revenue less $3.5 million costs). The ongoing loss would be about $2.3 million annually ($4.5 million in revenue less $2.2 million in ongoing costs).

Analyst's Recommendation. As described above, the General Fund revenues associated with retaining TFS and Chapter 743 eligibility expansions outweigh the administrative costs. Accordingly, we recommend rejecting the proposed elimination, restoring the necessary administrative and CFAP expenditures to the budget, and recognizing General Fund revenue of $4.5 million.

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