The Lottery Effect: Basing Policy on Outliers Is a Bad Idea

December 10, 2012 |
Click here to read this full article.

Last year, two Michigan residents won the state lottery. Ordinarily, this would not be a newsworthy occurrence, but they were also Supplemental Nutrition Assistance Program (SNAP) recipients. Despite their windfall, they continued to receive SNAP benefits.

Michigan was one of around 40 states that don’t require SNAP recipients to document their savings to determine eligibility. Technically, neither winner was in violation of the rules. Still, it didn’t take long for charges of waste, fraud, and abuse to draw attention to this “loophole,” and Michigan reinstated its asset limit.

Allowing individuals who win the lottery to continue to receive SNAP is an irresponsible use of taxpayer dollars. But it’s also irresponsible to disregard the overwhelming success of this policy based on these two isolated cases – clear outliers – and fear of others emerging. Verifying assets requires valuable time and resources that could be better spent elsewhere. These limits also prevent families from achieving financial stability by stunting the growth of one critical anti-poverty tool—savings.

The reality is that asset limits make for bad policy for both states and SNAP participants. Earlier this year, we reached out to state human services administrators to get their perspectives on SNAP asset tests. In most cases, asset tests were a solution in search of a problem that rarely exists.

In Idaho, for example, only 2.2 percent of SNAP denials from June 2011 to March 2012 were due to assets exceeding the state’s $5000 limit. This is compared to 45.5 percent of denials due to excess income. To provide some context, just over 20 percent of applications were denied in FY 2011—meaning that the percentage of total applications denied for excess resources was probably just around half of one percent. These data confirm previous findings from the USDA that the average SNAP household has only $333 in savings, well below the $2,000 ceiling set by the federal government.

Freeing caseworkers from the obligation to verify something that usually doesn’t exist has become even more important in the current fiscal climate. State budgets have been slashed and staffing has been reduced significantly, even as the recession has caused caseloads to balloon. Eliminating the asset test allows program staff to use their time more efficiently, and some states have found that their program integrity has increased as a result.

Ohio is a great example. Prior to eliminating their asset test in 2008, Ohio’s SNAP payment accuracy rate had been below the national average for seven years. Consequently, the state was facing a federal sanction of over three million dollars. The state agency hired a consultant to examine policy options for improving payment accuracy and ultimately decided to eliminate the asset limit in conjunction with other measures to streamline administrative processes. Since then, Ohio has gone from facing federal sanctions to receiving performance bonuses for payment accuracy.

Asset limits also undermine the ability of families receiving public benefits to achieve the financial stability those programs are intended to support. Savings, even in small amounts, help families keep a buffer between dealing with a financial shock and meeting basic needs. Research by the Urban Institute shows that, when work is interrupted, low-income families with savings experience food insecurity or miss rent or utility payments at about half the rate as low-income families who don’t have savings.

Savings also provide families with a way to invest in a better future for themselves and their children. Although most low-income children aspire to go to college, costs often stand in the way. In 2008, Congress agreed that long-term goals like going to college shouldn’t be compromised to meet a short-term need during times of financial trouble. For that reason, Congress eliminated accounts dedicated to this purpose, like 529s, from counting against the SNAP asset limit.

The problem is that most low-income families haven’t heard of 529s much less use them; they’re saving for their child’s college in a basic checking and savings account, which are subject to asset tests. If more states follow Michigan’s lead, families could be faced with the choice of getting the help they need now or holding on to the savings that could help their child go to college and climb the economic ladder.

The bottom line is that bringing back asset limits would likely increase costs and error rates for state agencies, not curb waste, fraud, and abuse. It would also keep more families with modest savings off SNAP than lottery winners. In the end, it isn’t a gamble worth taking.

Related Programs