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May 14, 2018

Reviving SNAP asset limits could backfire on families’ finances

May 14, 2018

The House Agriculture Committee recently passed legislation along party lines to reauthorize the Farm Bill. The legislation includes changes to the Supplemental Nutrition Assistance Program (SNAP), one of America’s most critical and effective programs for helping families in poverty.

The legislation includes several proposals that would make it harder for low-income families to receive SNAP benefits. Among these is a proposal to significantly narrow the flexibility of states to remove or relax SNAP asset limits beyond those set at the federal level, which determine the maximum savings and value of other assets like vehicles that a family can have and still be eligible for SNAP. At least 40 states have removed or raised SNAP asset limits through broad-based categorical eligibility (BBCE) policies, which allow states to modify income and assets tests. 

Although the House proposal raises SNAP asset limits, the evidence suggests that asset limits are detrimental to the financial security of low-income Americans. They also come with additional administrative costs for enforcement. Previous Urban Institute research found that in states that removed or relaxed asset limits, families’ financial security improved through increased savings and connections to banks, and families were less likely to cycle on and off SNAP.

What the evidence shows about asset limits and families’ financial security

When faced with asset limits, low-income families might choose to not accumulate assets or to spend down their assets to become or remain eligible for SNAP benefits that help families afford an adequate diet. Our research found that SNAP asset limits likely affect behavior at low asset levels below the federal limit but not at higher levels.  

We examined how household assets differ over time in states that do and do not relax asset limits via BBCE. In most cases, relaxing meant eliminating the asset limit, but in a handful of states, it meant applying a higher asset limit.

We find that relaxed asset limits led to the following outcomes:

  1. More savings among low-income households. Families were 8 percent more likely to have at least $500 in savings. This level of saving (between $250 and $750) has been found to reduce economic hardship in the face of volatile income.
  2. More participation in the mainstream financial market. Families were 5 percent more likely to have a bank account.  
  3. Lower SNAP “churn.” The likelihood that households cycled on and off SNAP fell 26 percent. A less burdensome recertification process possibly contributed to this trend.

Our result that SNAP asset limits affect behavior at low asset levels below the federal limit but not at higher levels is consistent with research that finds that people do not understand program eligibility rules, so they might unnecessarily keep their assets low to ensure eligibility.

How would the new House proposal affect SNAP?

Beyond limiting the flexibility afforded to states by BBCE, the bill would raise asset limits from $2,250 to $7,000 for households without an elderly or disabled person and from $3,500 to $12,000 for households with an elderly or disabled person. Although these increases are substantial in current dollars, the new asset limits reflect the real value of asset limits used in the late 1970s (i.e., adjusted for inflation).

The proposal also removes the option for states to exempt a vehicle from asset limits. In recent years, 30 states (including DC) exempt the value of all vehicles, and the remaining 21 states exempt the value of at least one vehicle (but not all) per household.

Why do assets matter to family financial stability and mobility?

Assets like a savings account can help buffer a family against fluctuating income and unexpected expenses that can erode a family’s ability to afford basic needs. A bank account connects consumers to mainstream financial services and can improve financial security (e.g., direct deposit gives workers immediate access to their earnings).

Assets like vehicles can be essential to getting and keeping employment or participating in employment training programs, especially in areas with limited public transportation. Among the roughly 60 percent of SNAP households who own a vehicle, having a reliable car to get to work can be key to self-sufficiency and upward mobility.

Asset limits also raise administrative costs, borne by both states and the federal government, because of the work required to document assets and the greater likelihood that households with assets move on and off SNAP benefits in a short period, requiring new application and verification investments. 

Given that more than 90 percent of SNAP participants have assets below the current limits, the change might unnecessarily increase administrative burden, particularly because most states will have to change their systems and procedures. Prior research suggests that states save administrative resources when removing asset limits.

What we know about SNAP’s ability to reduce poverty

SNAP removed 8.4 million people from poverty in 2015. SNAP also helps families purchase food and reduces food insecurity, although the program needs a boost to meet rising costs. Changes that move many low-income families off SNAP absent significant improvements in household income run the risk of generating significant hardship for families and children.

As policymakers consider changes to SNAP and other elements of the safety net, they should consider how policies could harm the economic well-being and mobility of low-income Americans whom these programs are intended to assist.

Jourie Ortiz is hugged by his wife, Rebecka. He works an overnight shift but then comes home to be with his family and only gets 2 and 1/2 hours of sleep on many days. The Ortiz family still relies on SNAP to make ends meet. Photo by Michael S. Williamson/The Washington Post via Getty Images.

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