Health & Human Services

Studies Discredit State Policies That Punish Poor People for Saving Money

Proponents like Maine Gov. Paul LePage argue so-called asset tests save states money and shrink welfare rolls. New research suggests otherwise.
by | September 13, 2016
Maine Gov. Paul LePage (AP/Michael Dwyer)

Last year, Maine Gov. Paul LePage took action to stop people who he believes were getting government assistance before they really needed it.

Under a new rule, childless adults in Maine can no longer get food stamps if they have at least $5,000 in their bank accounts or own certain assets, such as a second car.

"Most Mainers would agree that before someone receives taxpayer-funded welfare benefits, they should sell non-essential assets and use their savings," LePage said in a written statement. “Welfare is a last resort, not a way of life."

LePage isn't alone in this belief.

Last year, Maine and Louisiana joined a group of 14 states that already imposed a so-called asset test for food stamp users. Such limits are even more common in another federal program administered by states -- Temporary Assistance for Needy Families (TANF). All but eight states restrict TANF participation based on a person's assets.

Proponents of strict asset limits argue that they save states money by reducing not just the number of people on welfare but the length of time they're on it. But three recent studies call those arguments into question.

Research from the Urban Institute, the Pew Charitable Trusts and SAGE Open, an online peer-reviewed academic journal, suggests that eliminating or relaxing asset limits neither increases welfare rolls nor the time people spend on them. In fact, it could help states lower their administrative costs.

“There’s this fear that lowering the limits will cause larger caseloads,” said Kamolika Das, the state and local policy manager for the Corporation for Enterprise Development (CFED), a think tank that tracks state asset limit policies and advocates against them. “And it’s been shown not to be true.”

Opponents of asset limits, including CFED, insist that such policies actually incentivize people to stay dependent on government aid and "can discourage anyone considering or receiving public benefits from saving for the future," the group states on its website.

A July report by the Urban Institute supports that claim. It found that when states eliminated or relaxed asset limits for food stamps between 1997 and 2013, users were more likely to have a bank account and at least $500. Such a policy shift, however, had no effect on the length of time people received the benefits.

A number of state and local government programs are trying to connect low-income residents with mainstream banking services so they can save for college, a house, a car and other assets that increase people's wealth and job prospects. The Urban Institute report suggests that if public officials believe asset-building is an effective strategy for helping people exit poverty, then asset limits are an impediment to that strategy.

 

The Pew Charitable Trusts, a research organization in Washington, D.C., examined state asset limits in TANF. Between 2000 and 2014, the seven states that removed their TANF asset limits didn't see a statistically significant increase in the number of people in the program.

Researchers also found that TANF applications were driven by a state's economy -- not the generosity of asset limits.

Both the Pew and Urban studies found that the less restrictive asset-limit policies also reduced "churn," meaning that fewer people cycled on and off a welfare program. States that reduce churn save administrative costs from not having to vet the same applicants more than once. Last year, when Pennsylvania did away with its asset test for food stamps, the governor's office estimated that the state would save $3.5 million a year by not having to repeatedly count people's assets.

Another study, published in SAGE Open, looked at what happened when five states eliminated or relaxed TANF asset limits during the Great Recession. Consistent with the results in the Pew report, the authors found no evidence that loosening a state’s asset limit increased the TANF caseload.  

While asset limits are still pervasive in TANF programs, a few states have loosened them in the last year. Kansas, Minnesota and Wyoming increased how much money people on TANF can keep. Several other states changed their policies for calculating assets so that certain items, such as a household's first car or a retirement account, won't count against the limit.

Only one state, Indiana, made its TANF asset test more restrictive. It now penalizes families on government assistance for keeping money in a college savings account.

When it comes to food stamps, Pennsylvania is the only state to relax or eliminate its asset limit. This year, state lawmakers in California and Connecticut considered bills that would have eliminated asset limits for food stamps users, but both died in committee.

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