Why Closing the Broad-Based Categorical Eligibility Loophole Will Not Bust State Budgets

KEY FINDINGS

key finding
key finding

States use a Clinton-era loophole to expand food stamp eligibility

Federal law aims to preserve food stamps for the truly needy by limiting eligibility for individuals with significant financial resources. The food stamp statute sets income eligibility and requires that states check the financial assets of those applying for benefits.1 But states have used federal loopholes to virtually eliminate these requirements and expand food stamp eligibility to millions of individuals who do not otherwise qualify.2

Regulations adopted by the Clinton administration—and expanded even further by the Obama administration— have allowed states to expand eligibility beyond the program’s intended purpose.C These regulations allow states to deem anyone authorized to receive a welfare brochure as “categorically eligible” for food stamps, bypassing the federal asset test and the income eligibility limit.4

The widespread use of this loophole, known as broadbased categorical eligibility or BBCE, has allowed more than five million people—including millionaires—to enroll in food stamps without meeting federal eligibility criteria for assets, income, or both.5

Defenders of the loophole claim that it reduces administrative costs and that closing the loophole to realign current policy with statutory requirements would significantly increase costs.6 7 8 9 10 11However, there is no evidence that leaving this policy in place saves money. Instead, data suggests that use of this loophole has led to higher spending by states and that, by closing the loophole, the Trump administration could create real savings for taxpayers and free up limited resources for the truly needy.

States using the BBCE loophole have higher administrative costs, on average

Despite promises of lower administrative costs, states using the BBCE loophole have higher administrative costs on average than other states.12 13 14 15 In 2016, states using the loophole had average administrative costs of nearly $180 per enrollee, compared to less than $160 per enrollee in states using federal eligibility standards.16 States that have used the loophole to both eliminate the asset test and increase income eligibility have the highest administrative costs of all, with such costs reaching nearly $210 per enrollee.17

Even certification costs—the administrative costs associated with eligibility determinations—were higher in states using the loophole than in states not using the loophole at all.18 In states using the BBCE loophole to eliminate the asset test and increase income eligibility, federal certification costs were an average of nearly five percent more per enrollee when compared to states using federal eligibility standards.19

Administrative costs did not decline after states began exploiting the loophole

Promised administrative savings have not materialized in states that have adopted the BBCE loophole. Between 2006 and 2015, at least 35 states adopted or expanded the use of this loophole, with some states expanding the use of it multiple times.20 21 Overall administrative costs and certification costs declined in fewer than 19 percent of these cases.22 23 In more than four out of five cases, adopting or expanding BBCE was followed by increases in administrative costs, certification costs, or both.24

Nearly 70 percent of these loophole adoptions and expansions were followed by increases in administrative
costs, rather than significant administrative savings as promised.25-69 States witnessed their administrative costs rise by more than 10 percent, on average, with some states seeing their administrative costs rise by a whopping 30 percent in the year following the policy changes.70-72

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More than 67 percent of these loophole expansions were also followed by increases in certification costs.73-117 These costs are directly related to determining eligibility for food stamps, making them the most likely place states could conceivably generate savings if loophole supporters’ claims were true. But instead of finding substantial savings, states adopting or expanding BBCE loopholes saw their certification costs climb by more than nine percent, on average.118-119 In some states, the increase in certification costs ranged as high as 40 percent.120

Administrative costs did not spike when states closed loopholes

Loophole defenders further claim that requiring states to verify eligibility by checking assets and other factors in accordance with federal standards would be too administratively complex to handle and would increase
administrative costs. But evidence from state reforms easily deflates this myth. Three states have recently restored asset tests to their food stamp programs and none have experienced massive spikes in administrative costs. Michigan, for example, adopted a $5,000 asset limit in fiscal year 2012.121 In the five years before this policy change—when no asset test was in place—administrative costs were growing by an average of 4.2 percent per year, and certification costs were growing by an average of 6.1 percent.122-128

In the five years after the asset test was restored, administrative costs grew by an average of just 2.2 percent per year, while certification costs grew by just 3.3 percent—both slower than the national average.129-135

Michigan also experienced declining per-enrollee administrative costs after the policy change.136 In the three years before the state restored its asset test, total administrative costs averaged nearly $156 per enrollee.137 But in the three years after the state restored the asset test, total administrative costs had dropped to an average of $148 per enrollee — lower than the national average.138

Other states restoring asset tests have had similar experiences. In Idaho, administrative costs averaged more than $144 per enrollee in the three years before it created a $5,000 asset limit.139 In the three years that followed, administrative costs dropped to an average of less than $86 per enrollee.140 Likewise, in Pennsylvania, administrative costs averaged nearly $220 per enrollee in the three years before the state restored its asset test.141 In the three years after the asset test was restored, administrative costs dropped to $167 per enrollee.142-143

Higher enrollment leads to higher administrative costs

There is no evidence that weakening program integrity through the BBCE loophole produces any kind of savings for taxpayers. Even if the lax verification rules would somehow help lower costs for each case worked, those marginal savings would be dwarfed by the higher costs associated with adding millions of additional enrollees to the program.

Administrative costs are primarily driven by caseloads. Over the last decade, more than 78 percent of variation in states’ administrative costs could be explained by program enrollment.144 More enrollees led to higher overall administrative costs.

The BBCE loophole has expanded food stamps to more than five million individuals who do not meet federal eligibility rules.145 Five million more enrollees on the program mean millions of additional cases for states to process, certify, and contact.

Imaginary savings are not worth compromises to program integrity

There is no evidence that using the BBCE loophole generates savings for taxpayers. But even if those imaginary savings were real, they would be far outweighed by the nearly $7 billion in higher costs caused by adding more than five million individuals to the program who do not meet federal eligibility standards.146

Those imaginary savings are also outweighed by potential compromises to program integrity. According to federal auditors, individuals made eligible through the BBCE loophole may never have their eligibility verified at all.147 Obama-era guidance issued in 2011 specifically exempts these individuals from “additional verification requirements” and instructs states not to verify their cases in food stamp quality control system.148 As a result, the number of individuals who do not meet federal eligibility guidelines could be even higher than estimated.

The Trump administration can restore program integrity

The BBCE loophole was originally created and later expanded through regulation and sub-regulatory guidance.149 Current BBCE policies conflict with the plain meaning of the food stamp statute and even the initial guidance acknowledged that the loophole did not meet the intent of categorical eligibility.150 151 Because the loophole was first created by regulation, the Trump administration would be on firm footing to roll it back through rulemaking.

Rolling back this disastrous policy would restore categorical eligibility to its statutory purpose. Categorical eligibility could continue for individuals actually receiving benefits from other welfare programs, not those individuals “authorized to receive” copies of welfare brochures or toll-free numbers providing eligibility information.

This policy change would also remove individuals with significant financial resources—including millionaires and lottery winners—from food stamps and preserve limited resources for those who actually qualify for the program.

If the Clinton-era rule is reversed and realigned with the food stamp statute, more than five million individuals who do not meet federal eligibility guidelines would be removed from the program, saving taxpayers up to $7 billion per year.152 Moving more than five million enrollees off the program could generate further administrative savings, potentially reducing overall administrative costs by up to $660 million per year.153-155

Reining in this out-of-control abuse of the food stamp program can help restore much-needed program integrity and protect resources for the truly vulnerable.

Appendix 1

ELIMINATING THE BBCE LOOPHOLE WOULD SAVE UP TO $7 BILLION PER YEAR

STATE ENROLLMENT DECLINE ANNUAL SAVINGS
Alabama 98,400 $163,800,000
Alaska N/A N/A
Arizona 159,000 $192,600,000
Arkansas N/A N/A
California 631,700 $878,400,000
Colorado 59,000 $92,700,000
Connecticut 70,100 $108,000,000
Delaware 23,200 $32,500,000
District of Columbia 18,100 $29,500,000
Florida 542,300 $770,600,000
Georgia 200,300 $343,600,00
Hawaii 27,900 $73,100,000
Idaho 4,200 $6,000,000
Illinois 284,700 $418,600,000
Indiana 17,700 $30,500,000
Iowa 60,700 $69,800,000
Kansas N/A N/A
Kentucky 84,100 $122,900,000
Louisiana N/A N/A
Maine 13,700 $9,300,000
Maryland 123,000 $171,000,000
Massachusetts 122,200 $157,700,000
Michigan 69,300 $73,700,000
Minnesota 75,200 $82,300,000
Mississippi 70,200 $117,200,000
Missouri N/A N/A
Montana 14,900 $22,900,000
Nebraska 11,000 $16,000,000
Nevada 58,000 $77,400,000
New Hampshire 16,900 $17,900,000
New Jersey 134,800 $163,200,000
New Mexico 60,200 $84,800,000
New York 358,300 $610,100,000
North Carolina 239,500 $304,100,000
North Dakota 8,000 $10,700,000
Ohio 184,700 $299,900,000
Oklahoma 66,300 $97,700,000
Oregon 128,100 $167,000,000
Pennsylvania 264,200 $383,400,000
Rhode Island 26,900 $35,800,000
South Carolina 89,400 $143,000,000
South Dakota N/A N/A
Tennessee N/A N/A
Texas 257,800 $190,700,000
Utah N/A N/A
Vermont 16,600 $18,200,000
Virginia N/A N/A
Washington 168,000 $214,000,000
West Virginia 42,900 $59,400,000
Wisconsin 123,100 $129,400,000
Wyoming N/A N/A
Total 5,024,500 $6,989,500,000

 

Appendix 2

ELIMINATING THE BBCE LOOPHOLE COULD REDUCE ADMINISTRATIVE COSTS BY UP TO $660 MILLION

STATE POTENTIAL SAVINGS
Alabama $7,700,000
Alaska N/A
Arizona $16,900,000
Arkansas N/A
California $171,600,000
Colorado $10,000,000
Connecticut $13,600,000
Delaware $3,800,000
Florida $18,400,000
Georgia $13,400,000
Hawaii $5,000,000
Idaho $300,000
Illinois $21,600,000
Indiana $2,400,000
Iowa $5,000,000
Kansas N/A
Kentucky $10,600,000
Louisiana N/A
Maine $1,300,000
Maryland $16,800,000
Massachusetts $13,500,000
Michigan $8,800,000
Minnesota $14,900,000
Mississippi $4,900,000
Missouri N/A
Montana $2,300,000
Nebraska $1,500,000
Nevada $4,900,000
New Hampshire $2,600,000
New Jersey $35,200,000
New Mexico $5,800,000
New York $70,500,000
North Carolina $22,400,000
North Dakota $2,700,000
Ohio $16,500,000
Oklahoma $5,600,000
Oregon $20,900,000
Pennsylvania $32,100,000
Rhode Island $2,600,000
South Carolina $5,400,000
South Dakota N/A
Tennessee N/A
Texas $17,300,000
Utah N/A
Vermont $3,700,000
Virginia N/A
Washington $21,900,000
West Virginia $3,300,000
Wisconsin $17,900,000
Wyoming N/A
Total $660,200,000