The Food Stamp Program in an Era of Welfare Reform: Electronic Benefits and Changing Sources of Cash Income

Abstract

Linked survey data and Electronic Benefit Transfer (EBT) records are used to investigate the distinct roles played by food stamp benefits and cash income in the household budget at different times of the month. Using data from Maryland in 1993, household budgets and food spending patterns are found to differ qualitatively, depending on whether the main source of cash income is welfare benefits, Social Security or Supplemental Security Income, or labor market earnings. These differences have implications for understanding the Food Stamp Program during the welfare reform period as many households move from welfare to work. Research in the 1990s has demonstrated several practical advantages to EBT, which uses plastic debit cards in place of traditional food stamp coupons and welfare checks. In the first evaluation of a statewide EBT program in Maryland, this technology was favored by most program administrators, and it was popular with most program participants, in part because it reduces the stigma of making purchases with food stamp benefits (Abt Associates 1994). EBT was shown to reduce errors in benefit payment, and it holds promise for reducing some types of fraud and misuse of benefits. For the Food Stamp Program (FSP) in particular, the new technology lowered operating costs below those required to print, distribute, and redeem traditional food stamp coupons. Beyond these concrete benefits, EBT technology offers applied researchers new insight into the food spending patterns of low-income program participants. This article responds to a recent report from the Research Council (NRC) (1999), which recommended increased use of administrative and survey data to evaluate food assistance programs under the recent welfare reforms: National survey data and administrative data complement each well, often providing the information that is lacking in the other (44). This recommendation makes particular sense in the case of EBT data, which provide a level of detail about interesting household behavior beyond even that provided by program administrative records discussed in the NRC report. This article uses linked survey data and records of EBT transactions from the Maryland evaluation of the program to investigate the distinct roles played by food stamp and cash resources in the household budget at different times of the month. The study focuses on the three largest categories of FSP participants, classified according to their main source of cash income: Aid to Families with Dependent Children (AFDC), Social Security or Supplemental Security Income (SS/SSI), or labor market earnings (Earnings). The study investigates whether the three groups have different spending patterns. Such differences could be relevant for understanding the more recent period of welfare reform, as many households shift from welfare benefits toward labor market earnings as a primary source of cash income. THE FOOD STAMP PROGRAM AND EBT The Food Stamp Program (FSP) is the largest federal food assistance program and is generally considered one of the largest components of the federal social safety net. FSP served 19.8 million people on average each month in 1998 or about 7.3 percent of all Americans. Over $16.9 billion was paid out in food stamp benefits in 1998 with an average monthly benefit of $71 per person. Food stamp benefits may legally be used to purchase only food and nonalcoholic beverages. To qualify for the program, a household must have a gross income less than 130 percent of the official poverty guideline. The household also must have net income less than the poverty line, where net income equals gross income minus certain deductions, including a standard deduction, a deduction for certain housing expenses, a deduction for part of any income earned in the labor market, and deductions. Finally, the household must meet restrictions on its ownership of certain assets. …