AB 6

Page 1

ASSEMBLY THIRD READING

ATR Bill Id:AB 6 (Author:Fuentes)

As Amended Ver:April 12, 2011

Majority vote

HUMAN SERVICES4-2APPROPRIATIONS 11-6

Ayes: / Beall, Ammiano, Butler, Swanson / Ayes: / Fuentes, Blumenfield, Bradford, Charles Calderon, Campos, Davis, Hall, Hill, Lara, Mitchell, Solorio
Nays: / Jones, Grove / Nays: / Harkey, Donnelly, Gatto, Nielsen, Norby, Wagner

SUMMARY: Streamlines a number of issues related to the administration of CalFresh (formerly known as the Food Stamp Program) and California Work Opportunity and Responsibility to Kids program (CalWORKs) and improves nutritional outcomes. Specifically, this bill:

1)Requires counties to convert from a quarterly to a semi-annual reporting system for CalWORKs and CalFresh no later than January 1, 2013, as specified.

2)Eliminates the Statewide Finger Imaging System (SFIS).

3)Requires the Department of Social Services (DSS) and the Department of Community Services and Development to design, implement and maintain a "Heat and Eat" program by January 1, 2013, as specified.

FISCAL EFFECT: According to the Assembly Appropriations Committee:

1)First year costs for the three program changes required by this bill would be approximately $11 million ($8 million TANF/GF). By the second year, the remaining up front automation and training costs for Semi Annual Reporting (SAR) would be fully offset by one half year of administrative savings for a net savings of $17 million ($16.5 million TANF/GF). On-going savings and workload relief for counties in the CalFresh and CalWORKs programs would likely be approximately $77 million ($51 million TANF/GF).

In addition, these changes would likely bring in an additional $850 million in federal Supplemental Nutritional Assistance Program (SNAP) funding and $23 million in additional sales tax revenue for the General Fund.

a)Semi Annual Reporting (SAR):

i)One-time costs of $20 million ($15 million TANF/GF) for systems changes and providing notices to participants about the implementation of the new reporting requirements;

ii)DSS estimates on-going annual administrative savings of approximately $75 million ($36 million TANF/GF) as a result of the implementation of SAR;

iii)On-going annual CalWORKs grant costs of approximately $19 million (TANF/GF) as a net result of some CalWORKs recipients receiving slightly higher grants than they would under the current quarterly reporting system where the grant is adjusted more often due to earnings and other individuals receiving slightly less than they would under the current system;

iv)Assuming a 5% increase in CalFresh recipients due to the implementation of SAR, Californians could receive approximately $400 million in federal SNAP (CalFresh) benefits; and,

v)Absent the adoption of SAR through this legislation, the federal government will require the state to convert to straight quarterly reporting for its CalFresh caseload by September 30, 2011. DSS estimates the cost of the conversion would be approximately $7.2 million in up front automation changes with an ongoing annual administrative cost of $24 million ($12 million GF). Therefore, adoption of SAR allows the state to avoid these costs.

b)SFIS Elimination:

i)There is no additional CalWORKs cost associated with the elimination of finger imaging. In previous years, DSS has asserted that the elimination of finger imaging for CalWORKs recipients would result in a $60 million increase in costs due to duplicate aid fraud. This estimate is based on a pre-welfare reform study of the General Relief caseload in the county of Los Angeles. California's State Auditor, the federal government, an audit of the states of New York and Texas and a feasibility study in Maryland refute that assertion. For a more detailed discussion of the DSS SFIS elimination estimate, please see the comments section below;

ii)The Office of Systems Integration (OSI) estimates one-time decommissioning costs of $11 million ($7.4 million TANF/GF) to shut down the finger imaging system throughout the state. Those costs include paying $7 million in an outstanding loan for the equipment and paying Hewlett Packard (the vendor) $1.8 million to travel throughout the state to pack up the 275 finger imaging machines. These costs would occur only if the governor fails to adopt the 2011-12 budget passed by the Legislature, which eliminates the finger imaging of In Home Supportive Services recipients. If that requirement remains in state law, the machines would not be decommissioned;

iii)Assuming an increase in the CalFresh caseload of 4.3%, based on a recent Urban Institute study, administrative costs for the program could increase by $27 million ($9 million GF). Those costs, however, would be partially offset by the on-going savings due to the elimination of SFIS of $13 million ($9 million TANF/GF); and,

iv)Assuming a 4.3% increase in CalFresh recipients due to the elimination of finger imaging, Californians could receive approximately $352 million in federal SNAP (CalFresh) benefits.

c)"Heat and Eat" Program:

i)On-going administrative savings of approximately $12 million ($8 million GF) associated with eligibility workers no longer having to calculate the utility allowance for CalFresh recipients. The administrative savings would be modestly offset by the on-going administrative costs to add the federal Low-Income Home Energy Assistance Program (LIHEAP) benefit to the electronic benefit transfer (EBT) card of approximately $800,000 ($500,000 GF);

ii)In order to allow all CalFresh recipients to benefit from the Standardized Utility Allowance (SUA), a modest LIHEAP benefit must be offered to each recipient. Up to $500,000 in federal LIHEAP funding could be set aside for 90 days each year for recipients. Based on the experience of other states, it is assumed that only a small number of recipients will actually redeem the benefit. Therefore, of the $500,000, $355,000 would be returned to the LIHEAP program to be reallocated to other LIHEAP recipients and $145,000 would likely be redeemed by CalFresh and CalWORKs participants; and,

iii)Approximately 150,000 CalFresh recipients should see an increase in their monthly federal benefits. On average, those benefits will increase by 13% ($46 per month). That increase will result in Californians receiving an additional $83 million in federal SNAP (CalFresh) benefits.

d)Additional Federal CalFresh Benefits:

Assuming a 9.3% increase in food stamps cases and increases in the CalFresh benefits for 150,000 current CalFresh families, Californians would receive approximately $850 million in additional federal food stamp benefits. Further, this bill would allow the children in these families to be eligible for free school meals, which are primarily federally funded. Approximately $45 million dollars in additional federal funding could flow to the state to provide these children with free school lunches and breakfasts. Finally, several million dollars in increased federal child welfare services funds could be received by the state.

e)Increased Sales Tax:

To the extent this bill increases food stamp participation, the state could expect to receive additional state GF revenues due to increased sales tax. Studies show that low income families spend approximately 45% of their income on taxable goods. By providing these families with food stamps, 45% of the money previously used by the family to purchase food would now be used for taxable goods. Based on this assumption, $850 million in additional CalFresh benefits would result in $23 million in additional sales tax revenue for the General Fund.

COMMENTS:

1)Rationale. The current complexity of CalFresh is hurting participation. The United States Department of Agriculture (USDA) studies show that only 50% of eligible Californians receive CalFresh. This bill is designed to improve CalFresh participation and create efficiencies in the program by continuing the practice of aligning eligibility requirements for both the CalWORKs and CalFresh programs.

2)Semi-annual reporting:

a)USDA Opinion. In a letter provided to former Assembly Member John Laird on a similar bill dealing with semi-annual reporting (AB 2844 (Laird) of 2008), the USDA strongly encouraged the state to move to a semi-annual reporting process. According to USDA findings from other states, semi-annual reporting should have numerous positive impacts for California, such as:

i)Improving the state's CalFresh error rate by limiting the number of changes that would need to be reported by CalFresh participants;

ii)Significantly reducing county administrative workload due to less frequent certifications and interviews, fewer reapplications following closures, and fewer periodic report forms to process;

iii)Providing greater access to CalFresh for eligible families because there would be fewer terminations due to incomplete recertifications, less frequent recertification reviews, and more time to provide case managements and other services designed to assist clients; and,

iv)Increasing the number of families that receive CalFresh benefits based on the study of four states that saw an increase in participation once they adopted semi-annual reporting. The USDA also notes that there is no known correlation between simplified reporting and an increase in fraud.

b)Quarterly Reporting Grant Impacts. With the change from a monthly reporting system to quarterly reporting for CalWORKs and CalFresh, the prior administration estimated that there would be a significant cost associated with families continuing to receive grants for two months for which they are no longer entitled. However, once the system was implemented, the actual data on grant payments showed that this concern was unfounded. Given the state's experience with the move from monthly to quarterly reporting, there is no evidence to suggest that a move from quarterly to semi-annual reporting would have a significant cost impact on CalWORKs grants. In fact, DSS estimates that this change would actually result in a CalWORKs grant savings.

c)CalFresh and Hunger. According to research by the University of California at Los Angeles, over 2.2 million Californians cannot always afford enough food, and almost one-third, or 658,000 of these adults experience episodes of hunger. According to the USDA, only about half of eligible food stamp recipients participate in the program due to programmatic and administrative barriers. California’s participation rate ranks last in the nation for number of people eligible but are not receiving benefits. A 2004 study by Mathematica indicated that CalFresh participation is 12% lower among working low-income families because of the burdensome eligibility process.

d)School Meals Program. School meal programs are also underutilized. Only half of income eligible students receive lunch at school, and 18% receive school breakfasts. Some low-income children with incomes between 133% and 185% of the federal poverty level, currently ineligible for CalFresh, may not receive school meals because their families cannot afford the 40 cents required for a reduced price lunch and 30 cents for breakfast. The children in new CalFresh households would be eligible for free school meals.

e)Additional Federal Child Welfare Services Funds. The federal government awards funding to states through the Promoting Safe and Stable Families (PSSF) program that can be used in the Child Welfare Services program for efforts to reduce the incidences of child abuse and neglect, and to promote stability and permanency for at-risk children within families. The federal government sets a capped amount for funding and then awards those funds to states and territories based upon the number of children in each state who are receiving CalFresh benefits. Despite serving over 25% of the national child welfare caseload, California receives less than 15% of the federal PSSF funds because of the low CalFresh participation rate. To the extent this legislation increases CalFresh participation among families with children, California's share of the PSSF funding should increase.

3)Elimination of the Finger Imaging Requirement:

a)California is one of only three states and one city across the country that has maintained the practice of finger imaging CalFresh households as a component of the application process. This practice, intended to prevent duplicate aid fraud, has been shown in a California state audit to be an inefficient and redundant use of funds. The California State Budget estimates that SFIS will cost $17 million to maintain in 2012 alone. Other more effective and economical approaches to preventing duplicate aid fraud, as well as other types of fraud, are already in place (e.g. Income Eligibility Verification System). During tough budget times the state cannot continue to fund a redundant and obsolete administrative practice.

b)In addition, finger imaging acts as a barrier to participation, preventing eligible Californian’s from receiving nutrition benefits. According to USDA, states that use finger print imaging have an average 7% lower participation rate compared to the most similar states (in terms of caseload) that do not require a finger image. Concern over the negative impact on participation has lead the federal government, who pays for 100% of CalFresh benefits, to urge California to drop the practice and place a moratorium on any additional states implementing finger imaging.

c)Given the results of the state audit, the recent research indicating a negative impact on participation, and California’s need to reduce state costs by eliminating ineffective administrative practices, the finger print image requirement should be eliminated.

4)"Heat and Eat":

a)A "Heat and Eat" initiative would promote access to CalFresh, by simplifying the verification process, and will maximize critical federal nutrition benefits for eligible and participating households.

b)For many California families a barrier to accessing and maintaining CalFresh benefits is the complicated and often excessive verification process that is a component of the CalFresh application process. The verification process has been successfully streamlined in a number of other states to promote ease of application, without compromising the integrity of the program. One such strategy is to implement a heat and eat initiative. Such an initiative provides all CalFresh households with a nominal Low Income Home Energy Assistance Program (LIHEAP) benefit that qualifies them to use the standard utility allowance (SUA) for the purpose of calculating CalFresh benefit levels. Knowing that a majority of California households incur utility expenses in one way or another, the initiative will remove the verification requirement associated with utility costs (i.e. utility bill) for all households thus simplifying the application process.

c)An ongoing issue faced by many CalFresh eligible and participating households is the high cost of living in California, as well as the often high cost of healthier food options. In addition, redemption trends show that CalFresh recipients use their benefits quickly and have little, if any benefits left at the end of the month. These facts indicate that current CalFresh benefit allocations may be inadequate for many California households. The change in benefit calculations resulting from the application of a universal SUA through a heat and eat initiative would result in an increase in monthly CalFresh benefits for a significant number of households. Therefore, maximizing critical federal nutrition assistance and further supporting California families.

d)A heat and eat initiative will increase federally funded CalFresh benefits, simplify the verification process for all households, reduce the opportunity for utility related errors, and will draw down federal funding to stimulate local economies.

5)Positive fiscal effect of food stamp benefits:
According to Moody’s Investor Services, an independent provider of credit ratings and financial services research, CalFresh benefits have the highest economic multiplier effect out of all government programs or fiscal policy tools that stimulate the economy. Moody’s finds that for every CalFresh dollar spent, $1.74 is generated in economic activity. (The USDA finds this amount to be $1.84). Additionally, these benefits generate sales tax revenue for county and the state coffers. To the extent that this bill increases CalFresh participation, the state could expect to receive additional state General Fund revenues due to increased taxable purchases by recipients. This is possible because studies show that low-income families such as CalFresh recipients spend approximately 45% of their income on taxable goods. By providing these families with CalFresh benefits, 45% of the money previously used by the family to purchase food would now be used for purchasing taxable goods.

Analysis Prepared by: Frances Chacon / HUM. S. / (916) 319-2089

FN: 0000988