Red tape is not so hot: Asset tests impact participation in the Low-Income Home Energy Assistance Program

Abstract

Many social welfare programs, including the Low-Income Home Energy Assistance Program (LIHEAP) consider both income and assets to determine assistance eligibility. LIHEAP is historically an underfunded block grant program that helps low-income households pay their utility bills. LIHEAP's eligibility requirements, including the presence of an asset test, are at the discretion of the state. Asset tests are included in welfare programs to limit abuse of the benefit; however, the literature suggests that building assets is important to overall well-being. Using a generalized difference-in-difference model, we evaluate the effect of eliminating an asset test on LIHEAP's participation rates and administration costs. We find that the inclusion of an asset test reduces program participation in a regressive manner, hurting the lowest-income households the most, and increases average administrative costs of program operations. On average, we estimate that the elimination of asset tests would allow each state that retained an asset test to heat an additional 9097 households in 2014. Therefore, LIHEAP's asset tests may divert resources that could be used to assist low-income households. In the absence of expanding LIHEAP funding, we recommend eliminating asset tests and lowering the income-eligibility thresholds so that existing funds can be targeted to the lowest-income households.