Who's Poor? States Looking for More Accurate Ways to Measure Poverty

CAFCA | October 09, 2013 |

If you head a family of four and you earn more than $23,283, your family is not considered to be in poverty by federal government guidelines.

That’s regardless of whether you live in Harlington, Texas, the city with the lowest cost of living according to Kiplinger, or New York City, which has the highest cost of living in the U.S. It’s how the federal government measures poverty, and that measurement tool hasn’t changed in nearly 50 years. While it has been adjusted for inflation over time, the basic formula is the same as it was when Mollie Orshansky, an economist with the Social Security Administration, developed it in 1963.
But many people believe the federal poverty level, often referred to as FPL, doesn’t accurately reflect the reality of economic status across the U.S. It also doesn’t illustrate the effectiveness of many anti-poverty programs states have put in place, they say.
The measurement was based on survey data from the 1950s that found the average household used a third of its income on food.
“That ratio is no longer relevant,” said Steven Wallace, associate director of the UCLA Center for Health Policy Research. “Now, housing has become much more expensive.”
That’s why the National Academy of Sciences in 1995 suggested focusing more on housing as a core component in measuring poverty, Wallace said.
He’s part of a group working on the American economic security standard, specifically focused on elderly Americans. The national initiative, in which about 20 states are participating, aims to develop cost-of-living data at the county level for older adults and then get a more realistic poverty measure embedded into state law and nonprofit practices, Wallace said.
“The poverty line is one number for the entire country,” he said. “We know the cost of living varies dramatically from region to region, so that’s not accurate.”

Elder Index

In California, for instance, the actual cost of living for an elder adult ranges from 170 percent to 300 percent of the federal poverty level. That’s just for minimum basic needs, Wallace said.
He said some people were concerned that living in an urban area would be “dreadful expensive,” while rural areas were not. On average, he said, everywhere the cost of living was about double the poverty rate. 
“When you are looking at policies and saying, ‘how is this related to the poverty level?’ you’re looking at about half the need level you should be looking at,” he said.
But the costs that raised the cost of living came in various sectors depending on where the elderly person lived.
For instance, Wallace said seniors in large urban areas could easily access Medicare Advantage plans to help with prescription drug coverage, while seniors in more rural areas would have higher out-of-pocket costs for health care.
“In some rural areas where housing is relatively cheap, we find that a couple may end up spending more on medical care than they do on housing,” he said.
In addition, food prices, because of limited competition, are often higher in rural areas and people have further to travel, which increases transportation costs, according to Wallace.
“The problem with the federal poverty line is that it gives you an inaccurate picture of who doesn’t have enough resources and then, because of that, it really does mask the levels of need and the distribution of need in different regions and different groups,” said Wallace.

The Wisconsin Way

Wisconsin is one state trying to change that.
Tim Smeeding, director of the Institute for Research on Poverty at the University of Wisconsin-Madison, was a member of then-Gov. Jim Doyle’s poverty commission in 2008 and convinced him to not follow the lead of a number of governors setting a goal to cut poverty levels in half within 10 years.
“None of them have achieved it,” he said. 
Smeeding suggested the Great Recession would force poverty numbers higher or, at the very least, it would be hard to keep the numbers down. So he told the governor, “what you could do is more accurately measure poverty and you could do a better job measuring the effects of the programs we use to fight poverty, which aren’t included in the overall poverty rate.”
Smeeding was head of the economic status subcommittee and recognized the two big federal programs—the Supplemental Nutrition Assistance Program, or SNAP, and the earned income tax credits from the federal government and the state—were important to keeping the poverty rate low. The state worked hard to ensure everyone who was eligible for those programs was enrolled.
As a result, when the recession hit, Wisconsin’s participation in the SNAP program jumped more percentage-wise than other states. But, because of the state’s efforts to track those who needed the benefit, it also withdrew people who were no longer eligible quicker than other states, Smeeding said.
In doing that, Smeeding started to wonder what impact these programs had on poverty in Wisconsin, since they are not included in the official poverty measure.
“We needed to find a Wisconsin poverty measure that takes into account the things Wisconsinites care about,” he said.
So state officials talked to people around the state about what should be factored into such a measure. The things they suggested ranged from out-of-pocket child care costs, health care and transportation, as well as the benefits the state provides to help low-income people, Smeeding said.
“By the time we added in refundable tax credits, food share, public housing benefits and LiHEAP (a low income heating assistance program)—the in-kind benefits not counted in a public measure—it gives a more realistic poverty line,” said Smeeding.
He said the Wisconsin measure was more similar to the National Academy of Sciences measure that actually looks at what low-income people spent money on.
While the poverty rate using the state method is lower than the one used by the Census Bureau to measure poverty, Smeeding said it illustrates the effectiveness of anti-poverty programs.
“Wisconsinites should feel good that the programs they put in place and pushed really helped fight poverty,” he said.
The Wisconsin Way, as the state calls its measure, also can help communities more specifically target impoverished areas. For instance, Smeeding got a call from the state demographer seeking information about locations of people within 150 to 200 percent of the federal poverty line because the state was expanding the LiHEAP program.
“We told them exactly so they knew what to anticipate in terms of enrollment increases and where to anticipate them,” Smeeding said.

Measurements Across States

While the official federal poverty measure allows for comparison among states and for change over time, Smeeding and others believe it doesn’t accurately reflect the true status of individual states or communities. The official federal poverty measure doesn’t include the anti-poverty programs offered by the states.
“Because it doesn’t, you really don’t understand what is going on within our state in terms of poverty,” said Smeeding. “You don’t understand that the programs we put in place to help people work or the programs we put in place to help people eat or the progams we put in place to help supplement earnings worked.
“So you need something like a Wisconsin poverty measure to understand and explain exactly what is going on and the way the policy is affecting poverty.”
Other states are starting to take notice. Smeeding is working with California and Colorado, among other states, to develop their own state-specific measures.
In Colorado, Sen. John M. Kefalas has been working on expanded economic opportunity for some time. Addressing poverty is a part of that.
“The thing that is important to me, especially if we’re going to look at public policy, is how do we evaluate whether that public policy is making a difference in people’s lives,” he said.
While the federal poverty measure helps states determine eligibility for programs like Medicaid and the supplemental nutrition program, he said, “it’s not a very good measure of family well-being, child well-being.”
Kefalas has, for the past few legislative sessions, introduced legislation calling for a poverty impact statement of bills considered by legislators.
“If a piece of legislation met certain criteria, we could ask for qualitative and quantitative analysis of what the impact might be on addressing poverty,” he said. “We want to make sure that we’re using our limited resources as effectively as possible.”
Kefalas believes a better way to measure individual well-being is through a capability approach, not a specific poverty measure.
“The capability approach doesn’t focus on income as a measure of well-being,” he said. “It focuses on other indicators, … those that allow for a person or family to lead the kind of life they want to lead.”
Colorado includes education, mobility, employment, shelter and health as indicators for individual well-being. Kefalas would like that information to supplement the federal poverty measure.
“That’s my goal so we can see where the differences are and see where we’re actually helping with people’s lives,” he said.
An interim legislative committee will explore the issues surrounding an economic well-being index that will help the legislative council staff produce reports that can address those issues.
“Policymakers, the general public will have this information, in addition to other metrics, that can better inform decision-making,” he said.

Reframing Poverty Discussion

Using these alternative measures, proponents say, can help reframe the discussion surrounding poverty.
For instance, Wallace said the perception of programs to help the poor in California would change using the elder index. Instead of tying eligibility for programs to 135 percent of the federal poverty line, it would be called 65 percent of the elder index.
“Then, all of a sudden, instead of sounding generous, it sounds very meager, which it is, and the general public and advocates and recipients will advocate for more adequate eligibility levels and that, then, would drive increased demands on government resources,” he said.
But it would also show programs work, Smeeding said. Many anti-poverty programs in Wisconsin require people to work and help them with expenses their wages might not cover.
“Inheriting welfare from your mother is gone because there is no welfare to inherit,” he said.
“You don’t get (earned income credit) unless you work. The SNAP program is for people who can’t afford to eat. You put those programs together with a $9 to a $10 an hour job and you really help make people better off and keep them from absolute destitution,” he said. “That’s what we should be doing.”
Better understanding programs aimed at helping the poor will help states in the long run, Kefalas said.
“Fundamentally, it’s an issue that’s important to workforce, business issues,” he said. “If we can better address poverty, save taxpayer money, we can redirect those resources and ultimately, people can lead their lives with greater dignity because they’re not struggling from paycheck to paycheck.”
While the war on poverty is almost 50 years old and many states are looking for new ways to fight it, Kefalas believes it is a battle that can be won.
“We can do it and one way that helps us is if we develop a set of tools to evaluate how well we’re doing and what kind of difference we’re making,” he said.