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MEMORANDUM October 16, 2012

To: Senate Budget Committee Attention: Paul Winfree

From: Karen Spar Specialist in Domestic Social Policy and Division Research Coordinator 7-7319

Subject: Spending for Federal Benefits and Services for People with Low Income, FY2008-FY2011: An Update of Table B-1 from CRS Report R41625, Modified to Remove Programs for Veterans

This memorandum provides information on federal spending for programs explicitly intended for people with low or limited income. The memorandum primarily includes a detailed table (Table 2) that shows federal spending for these programs in each of FY2008 through FY2011, with spending under the American Recovery and Reinvestment Act of 2009 (ARRA, P.L. 111-5) identified separately. The table is an update of Table B-1 in CRS Report R41625, Federal Benefits and Services for People with Low Income: Programs, Policy, and Spending. Readers are referred to that report for important context and descriptions of the included programs and their categories (e.g., health, cash aid, food assistance, etc.). That report also includes a methodology appendix, a version of which appears at the end of this memo.

As you specifically requested, programs for veterans have been removed from the table in this memo. Table B-1 in the CRS report referenced above included means-tested health care for veterans without service-connected disabilities (Priority Group 5) and the means-tested veterans pension program.

As the memorandum shows, federal spending for low-income programs – not including the two veterans programs mentioned above – grew by 23% from FY2008 ($563 billion) to FY2009 ($692 billion). FY2009 also was the first year of ARRA funding, which accounted for at least 65% of the increase in spending for these programs from FY2008 to FY2009.1 Some portion of the non-ARRA-related spending growth in FY2009 was attributable to increased caseloads for recession-sensitive programs such as Medicaid and the Supplemental Nutrition Assistance Program (SNAP, formerly known as food stamps).

The memorandum further shows that federal spending for low-income programs grew at much slower rates in FY2010 and FY2011. Without the two veterans programs, spending totaled $733 billion and $746 billion in those years, respectively, increasing by 6% between FY2009 and FY2010 and by 2% between FY2010 and FY2011. ARRA was a declining but still significant source of the increased spending in these

1 Readers should note that ARRA spending is actually understated in this memorandum. ARRA included provisions that expanded the Earned Income Tax Credit and the Additional Child Tax Credit, but the increased spending for these two programs attributable to the ARRA provisions is not shown separately.

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two years, representing at least 58% of the increase between FY2010 and FY2009 pre-ARRA levels, and at least 45% of the increase between FY2011 and FY2010 pre-ARRA levels.

This memorandum does not attempt to quantify nonfederal spending related to federal programs for limited-income populations. However, a significant amount of such spending occurs. Many low-income programs have provisions that require states or other grantees to match federal funds with a specified amount of nonfederal resources (“matching” requirements), or require grantees to maintain the same level of their own spending that occurred in a previous year (“maintenance-of-effort” provisions), or prohibit grantees from substituting federal funds for nonfederal funds that would have been available otherwise (“supplement, not supplant” provisions). Prominent examples of such programs include Medicaid (a federal-state matching program), the Temporary Assistance for Needy Families (TANF) block grant (which has a maintenance-of-effort requirement), and Title I-A of the Elementary and Secondary Education Act (which prohibits supplantation of nonfederal funds).

Table 1 provides a summary of federal low-income spending for each of the four years, broken down by category. The table shows the largest category of spending – health – was 37% higher in FY2011 than in FY2008, primarily due to increased spending for Medicaid. Cash aid is the second largest category and was 12% higher in FY2011 than in FY2008, while spending for the third largest category – food assistance – was 71% greater in FY2011 than in FY2008, largely due to growth in SNAP. Education was 57% higher in FY2011, almost exclusively due to growth in Pell grants. Housing and development (which was similar in size to education in FY2008) was only 2% greater in FY2011 than in FY2008, although this category saw significant growth in FY2009 before declining in the next two years. Social services spending in FY2011 was 3% higher than in FY2008; spending for employment and training was the same in each of the two years (although it rose in the intervening years); and the smallest category – energy assistance – was 67% higher in FY2011 than in FY2008. Energy assistance was also the most volatile over the period, more than tripling between FY2008 and FY2009, from $3 million to $10 million, and then declining to $6 million in FY2010 and $5 million in FY2011.

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As noted earlier, Table 2 is an update of Table B-1 in CRS Report R41625, modified to remove the two veterans programs. The original table shows spending for individual programs in FY2008 and FY2009; this memorandum updates that table through FY2010 and FY2011. In a few cases, the amounts shown for FY2008 and FY2009 have been revised based on newer data. In the future, CRS may complete a full update of Report R41625, in which case data and methodologies might change. An explanation of the methodology follows Table 2. It has been adapted from the methodology appendix of the original CRS report.

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Programs were selected for inclusion in CRS Report R41625 if – at the time the report was prepared in 2010-2011 – they (1) had provisions that base an individual’s eligibility or priority for service on a measure (or proxy) of low or limited income; or (2) target resources in some way (e.g., through allocation formulas, variable matching rates) using a measure (or proxy) of low or limited income.

A few programs without an explicit low-income provision were included because either their target population is disproportionately poor or their purpose clearly indicates a presumption that participants will be low-income. Such programs that serve disproportionately low-income people include the Indian Health Service, Homeless Assistance Grants, Indian Education, Title I Migrant Education Program, and Indian Human Services. Programs with purposes that presume a low-income target population include Adult Basic Education and Social Services Block Grants.

Federal student loan programs were considered for inclusion because they determine benefit levels through the same need analysis system that is used for Pell Grants and several smaller postsecondary education programs. However, this system can result in students from relatively well-off families receiving assistance, as there is no absolute income ceiling on eligibility. Pell Grants are structured in such a way that the majority of recipients are low-income and the lowest-income students receive the largest benefits. Student loan programs are not as strongly targeted and therefore, were not included in the report.

On the other hand, deliberations about whether to include the Additional Child Tax Credit (ACTC) reached a different conclusion. The regular Child Tax Credit (CTC) is a nonrefundable credit and phases out at relatively high income levels. The ACTC is a refundable credit that allows families with no or insufficient tax liability to get all or part of the benefit they would otherwise receive from the CTC. Because of the refundable nature and other design features of the ACTC, including certain recently enacted changes, it serves predominantly low-income families. For example, for tax year 2008, 87% of returns that claimed the ACTC were filed by families with adjusted gross incomes (AGI) below $40,000 and 83% of the credit went to such families; 94% of returns that claimed the ACTC were filed by families with AGI below $50,000 and 93% of the credit went to such families.2 Thus, ACTC is included in the report.

Finally, regarding the selection of programs for this memorandum, please note that – as you requested – we have deleted the two veterans programs that were included in the original Table B-1 from CRS Report R41625: means-tested health care for veterans without service-connected disabilities (Priority Group 5 veterans) and the means-tested veterans pension program.

52#"(%1-62#-%.*%/*01%(1234*

Most programs are easily assigned to broad categories, such as health, cash aid, food assistance, or education. A few, however, have multiple purposes or allowable activities. For some of those programs, spending can be disaggregated into the relevant categories. For example, using state reporting of actual

2 Internal Revenue Service, SOI Tax Stats – Individual Income Tax Returns Publication 1304, Table 3.3.

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expenditures, it is possible to estimate the amount of Temporary Assistance for Needy Families (TANF) obligations attributable to cash aid, social services, and employment and training. Other programs cannot be disaggregated, however, and must be assigned to a single category. For example, Transitional Cash and Medical Services for Refugees was categorized as health care, and Indian Human Services was categorized as social services although it also provides cash and housing assistance.

The social services category, in general, is not well-defined and some analysts might assign some programs differently. Head Start, for example, could be considered an education program, since its purpose is to promote school readiness; however, it supports a very broad range of activities—including activities for children age 0-3 through its Early Head Start component—that can best be characterized collectively as social services. Foster Care and Adoption Assistance both give cash to families or other care providers, but income support is not the programs’ purpose or sole use of funding. Foster Care subsidizes maintenance payments and administrative activities on behalf of children who cannot remain safely at home, and Adoption Assistance makes payments to facilitate the adoption of children who would otherwise lack permanent homes. Thus, these programs were categorized as social services and not cash assistance.

+"'",#-%.*%/*+7".&-.(*!"2481"*

New obligations incurred in the indicated fiscal year were chosen as the measure of spending for the report, although for many programs, readers may be more accustomed to seeing appropriations (budget authority) or outlays. These spending concepts are related. Congress and the President enact budget authority through appropriations measures or other authorizing laws. Budget authority in turn allows federal agencies to incur obligations, through actions such as entering into contracts, employing personnel, and submitting purchase orders. Outlays represent the actual payment of these obligations, usually in the form of electronic transfers or checks issued by the Treasury Department.3 Obligations are used here because they are the most consistent measure available at the necessary level of detail for the majority of programs. The source of obligations data was the U.S. Budget Appendix for FY2011 (for final FY2009 obligations) and FY2010 (for final FY2008 obligations). Likewise, for the updated version of Table B-1, the Budget Appendixes for FY2012 and FY2013 were used (for final FY2010 and FY2011 obligations).

Obligations were either not available or not appropriate for a small number of programs. Because obligations were not available at the necessary program level, appropriations were used for the following: Transitional Cash and Medical Services for Refugees, Breast/Cervical Cancer Early Detection, the Title I Migrant Education Program, Social Services and Targeted Assistance for Refugees, and Foster Grandparents.

The Budget Appendix does not show obligations solely for the low-income subsidy portion of the Medicare Part D prescription drug program. Therefore, the table uses aggregate reimbursements for the low-income subsidy for the calendar year (instead of fiscal year), available from the annual report of the Medicare trustees.4

3 See CRS Report 98-410, Basic Federal Budgeting Terminology, by Bill Heniff Jr. 4 2012 Annual Report of the Boards of Trustees of the Federal Hospital Insurance and Federal Supplementary Medical Insurance Trust Funds, Table IV.B.11.

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Loan subsidy outlays were used as the more appropriate measure of spending for the Section 502 single-family rural housing loan program. Direct and guaranteed loan subsidy outlays, available from the Budget Appendix, were adjusted for re-estimates provided in the Federal Credit Supplement to the U.S. Budget for the relevant years.

Finally, as noted above, TANF obligations provided in the Budget Appendix were disaggregated into the categories of cash aid, social services, and employment and training, based on states’ reporting to the Department of Health and Human Services of their actual expenditures.

+7".&-.(*9$1"4$%'&*

Programs were included in the report if they had obligations in either FY2008 or FY2009 of at least $100 million. To simplify the analysis without significantly changing the overall picture, smaller programs were excluded, even if they met the low-income criteria. No changes have been made to the list of programs included in the updated version of the table. Only one program included in the report (and the updated table) —Education for Homeless Children and Youth—had spending above the threshold in one year but below the threshold in the others. Therefore, spending totals for FY2009 include obligations for this program, but spending totals for FY2008, FY2010, and FY2011 do not. Thus, each year’s spending total is a snapshot of spending in that year for low-income programs which—in that year—had obligations totaling at least $100 million.