Who’s Poor? Poverty Levels and the Self Sufficiency Standard

In reality, the Federal Poverty level is not related to the current cost of living at all!

Selected Programs that use Federal Poverty Guidelines

• Head Start
• Low-Income Home Energy Assistance Program (LIHEAP)
• PARTS of Medicaid
• Children’s Health Insurance Program
• Medicare – Prescription Drug Coverage (subsidized portion)
• Community Health Centers
• Supplemental Nutrition Assistance Program (SNAP) (formerly Food Stamp Program)
• Special Supplemental Nutrition Program for Women, Infants, and Children (WIC)
• National School Lunch Program
• Weatherization Assistance for Low-Income Persons
• Job Corps
• Workforce Investment Act Youth Activities
• Foster Grandparent Program
• Senior Companion Program
• Legal Services for the Poor

Background: The poverty thresholds were originally developed in 1963 by Mollie Orshansky of the Social Security Administration. Orshansky based her poverty thresholds on the ‘economy food plan’, the cheapest of four food plans developed by the U.S. Department of Agriculture. The Agriculture Department described the economy food plan as being "designed for temporary or emergency use when funds are low." Orshansky knew from the Department of Agriculture's 1955 (!) Household Food Consumption Survey that families of three or more persons spent about one third of their after-tax money income on food in 1955. Accordingly, she calculated poverty thresholds by taking the cost of the economy food plan for various size families, and multiplying the food costs by three.

Since then, the Guidelines have been updated each year based on changes in the cost of living as measured by the Consumer Price Index. Of course, the prices of many of the essentials that low-income households purchase, like health care and education, have risen at rates far in excess of the Consumer Price Index. And family composition has changed quite a bit since then. And the ways low income households spend their money has also undergone major change.

The result of this shaky methodology, over a long period of time, is that the Federal Poverty Guidelines bear no discernable relationship to the actual cost of living. A household can earn far more than the Guidelines and still far less money than they need to cover the bare essentials. Unfortunately, a number of means-tested programs use the poverty guidelines (or a percentage multiple of them) as an eligibility criterion. (An even larger number of means-tested programs, however, do not use the poverty guidelines as an eligibility criterion, instead using non-poverty-guidelines-related income tests or other criteria.)

Self Sufficiency Standard: So, if the Federal Poverty Guidelines are not a good measure of income adequacy, what is?

I have been very impressed with the work of the Social Impact Research Center on the Self Sufficiency Standard. The Self-Sufficiency Standard is geographically specific, calculating real costs at each local level. In Illinois, the Self-Sufficiency Standard is calculated for each county in the state as well as for East St. Louis, three regions in Chicago (North, West, and South Sides) and three regions in suburban Cook County (North, West, and South Suburban Cook).

The income needed for families to achieve self-sufficiency varies considerably throughout the state. Not surprisingly, the cost of meeting basic needs is higher in major metropolitan areas. A single parent with a preschooler and a school-age child living in DuPage County has an hourly Self-Sufficiency Wage of $29.31 ($61,910 annually), the highest in the state. In contrast, Edgar County (in east central Illinois) has the lowest Self-Sufficiency Wage in the state; the same family would need an hourly wage of $12.78 or $26,986 annually—to get by in that area.

This standard was developed by economists who calculated the actual costs of the various components of a household budget. There is no room in this budget for savings for emergencies or retirement, or even clothing, but it covers the essentials for this month.

In 2010, we published a report entitled “Too Much to Get Help, Not Enough to Get by”, which provided detailed information on the estimated 344,234 persons in DuPage County who earn less than the self sufficiency wage. This report can be accessed online at www.dupagefederation.org/publications.