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NOTE ON THE CAP AND ITS IMPACT

The appropriation ceiling for fiscal 1980 is $6,188,600,000. This figure was derived by Congressman Mathis, who added ten percent (for inflation and/or unemployment) to the June 1977 Committee staff estimate of program costs for October, 1979September, 1980. That ten percent became only 8.5 percent as a consequence of cost items added to the program in conference in July, 1977 by the Senate.

The primary reason that program costs are expected to exceed the cap by approximately $688 million or 11 percent is that the Committee staff's estimates of food price inflation (derived from February, 1977 projections by CBO) were 18.7 percent too low, and will probably prove ultimately to be off by over 20 percent.

If the cap were to remain in effect, average benefits would have to be reduced 18.6 percent per recipient as of October of this year ($1.37 billion) or else, if changes were delayed until July, 1980, by 76 percent to $9.50 per person per month or 10 cents a meal. Without such reductions, no funds at all for food stamps would be available as of approximately August l, 1980.

I. FOOD STAMP PROGRAM

(Program Level) Data for December, 1978 (the most recent month for which data is available) indicate that the program has 16.066 million recipients receiving an average monthly bonus of $28.79 per person.

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(1) The difference between CBO and the Administration in estimating average monthly participation in fiscal 1980 (CBO's estimate is 800,000 persons less than the President's) stems from their differing assessments of the impact of the 1977 Food Stamp Act during the present fiscal year CBO projects a drop in participation of 500,000 this fiscal year (from 1978's actual 16.0 to 15.5), even while claiming that 1.2 million new recipients will come onto the program because of EPR and 700,000 former recipients will be drpped because of the new restrictions on eligibility. The reason for this unusual conclusion is that CBO is using September, 1978's 15.3 million recipients as the EPR base, which is probably far too low a jumping-off point, particularly since there were 16.1 million recipients as of December before the full implementation of EPR. Using CBO's own base figures, the Administration seems to be closer to reality in projecting 16.6 million participants on the average. However, it should be noted that CBO was right on target in estimating 1978 participation at the last budget cycle, while the Administration was 1.7 million too high.

(2) The difference in the bonus figure between CBO and the Administration does not flow from any significant difference in projecting allotments (both assume $200 for a household of four in July, 1979 and $209 in January, 1980, while CBO is $1 over the Administration for July, 1980 at $217 versus $216). The distinction lies in CBO's assumption that EPR will primarily bring in the lowest income households with the largest bonuses. The President's calculations indicate that EPR will function on across-tho-board basis, attracting more poor persons in the middle of the poverty bracket. Both CBO and the Administration were highly inaccurate in forecasting this year's allotments, with the Administration being by far the worse

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of the two. For January, 1979, CBO had the allotment at $185 for four, the Administration at 181. In fact, it is $191.
The July, 1979 figure now estimated at $200 was guessed in the 1978 budget figures to be $184 by the Administration (a
91 mistake) and $190 by CBO (only 5% off). Clearly, the Administration has a stake in low-balling food inflation.
Indeed, the Administration's average fiscal 1979 bonus is only $1 more than the December, 1978 bonus, which did not
encompass the major inflationary increases in food prices in 1978.
(3) This column reflects (1) multiplied by (2) by 12 months.

Administrative costs reflect increasing costs to take care of an increased number of participants as well
as inflation. Coupon printing and shipping costs will decline by a total of nearly $9 million, reflecting the impact of
EPR, but certifying SSI recipients at Social Security offices will cost an extra $9.6 million and research, evaluation,
and demonstration projects, including workfare, will require $7.4 million more.

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(1) The fiscal 1979 carry-over, unexpended appropriations from prior fiscal year (s), does not count against the fiscal 1979 cap because it was not "appropriated" in fiscal 1979. No carry-over is anticipated for fiscal 1980. (2) The lower CBO supplemental estimate appears to be unrealistic, but it is still too early to determine the full impact of EPR, which has been fully in effect nationwide for less than two months. The difference between CBO and the Administration reflects divergent participation projections (see note 1 to Table I), with the Administration assuming more rapid program growth.

(3) For fiscal 1980, both CBO and the Administration assume that the cap will be lifted. CBO's figures for outlays are $600 million over the Administration's, but $ 500 million of that results from less optimistic economic assumptions that the House Budget Committee is ignoring in its handling of the budget. CBO also believes (and properly so) that the Administration could not implement quality control legislation (if it passed) sufficiently quickly to save $100 million in fiscal 1980. CBO agrees that there could be such savings, but only beginning with fiscal 1981.

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