Poverty

Supplemental Poverty Measure Federal Register Notice

Federal Register Notice and Solicitation of Comments [PDF - 50k]

Comments Received in Response to Federal Register Notice [10.1 MB]

Response to May 2010 Federal Register Notice Comments

In 2009 the Office of Management and Budget's Chief Statistician formed an Interagency Technical Working Group (ITWG) on Developing a Supplemental Poverty Measure. That group included representatives from the U.S. Census Bureau, Bureau of Labor Statistics, Economics and Statistics Administration, Council of Economic Advisers, U.S. Department of Health and Human Services, and Office of Management and Budget. In March 2010 the Interagency Working Group issued a series of suggestions to the Census Bureau and BLS on how to develop a new Supplemental Poverty Measure. (Observations from the Interagency Technical Working Group on Developing a Supplemental Poverty Measure) Their suggestions drew on the recommendations of the 1995 report of National Academy of Sciences (NAS) Panel on Poverty and Family Assistance¹ and the extensive research on poverty measurement conducted over the past 15 years, at the Census Bureau and elsewhere.² 

In an effort to ensure this new poverty measure will adequately meet the needs of policymakers and the public, the Census Bureau solicited comments through the Federal Register. More than 75 responses were received by the Census Bureau.  We have posted all the comments on our website.

Most of the comments were supportive of the effort to develop a supplemental poverty measure.  Many comments applauded the addition of shelter, clothing and utilities in addition to food in calculating the new thresholds and supported the concept of varying the thresholds by geographic location and housing status. The following document attempts to summarize and respond to the major areas of concern expressed in the comments.

THRESHOLDS

Consumption Bundle/Basket

Many of the comments suggested that the consumption bundle used to develop the thresholds be expanded to include more items, including basic savings for emergencies, insurance, education-related expenses, retirement savings, childhood development needs, sales tax, transportation, health insurance, repayment of school loans, income taxes, and disability-related costs such as personal assistance.

The proposed Supplemental Poverty Measure (SPM) follows the National Academy of Sciences (NAS) recommendations to calculate poverty thresholds from spending on goods commonly considered basic commodities – food, clothing, shelter, and utilities (FCSU). The NAS panel justified this choice because they felt (1) there was a consensus that food, clothing and shelter are necessary goods and (2) spending on these goods historically behaved like necessities, with an elasticity with respect to total expenditures less than 1.0. (Citro and Michael, pp. 143-44) The panel rejected the notion of expanding the number of items in the bundle of necessities:

"We also believe that the bundle of necessities should include more than just food.  However, to try to develop a detailed list seems an exercise in futility and likely to raise needless controversy.  A good compromise, we concluded, is to specify a bundle of food, clothing and shelter (including utilities) and apply a small, fixed multiple for other needed spending, such as personal care, household supplies, and non-work-related transportation." (Citro and Michael, p. 143)

Other Needs

One comment expressed concern with the use of a multiplier to account for spending on additional miscellaneous items and suggested that the median level of expenditures on these items be used in the threshold rather than the multiplier.

The SPM will follow the NAS panel's recommendation to account for spending on additional miscellaneous needs by using a small, fixed multiplier of 1.2. (Citro and Michael, pp. 105, 147-153) Specifically, the NAS panel listed personal care, household supplies, and non-work-related transportation as examples of necessary spending to be accounted for using the multiplier. (Citro and Michael, p. 143)  When assessing the reasonableness of their multiplier recommendation, the NAS panel examined spending on personal care items, education expenses, reading materials and transportation and found that multipliers in the range of 1.15 to 1.25 adequately captured necessary spending on these additional non-basic goods.  Non-work-related transportation was assumed to be one-half of total transportation costs.  

Using Expenditure Data to Establish Thresholds

Many comments expressed concern with the use of expenditure data to establish thresholds.

The NAS panel considered a range of approaches to define the threshold (including expert budgets) but instead chose a methodology based not on expert standards but on actual expenditure data.  The panel provided the following explanation for their decision:

"We believe it is preferable to turn directly to actual expenditure data as the basis for setting the levels.  This approach makes explicit both the judgment and relativity that are inherent in all of the methods for deriving poverty thresholds that we have reviewed (including expert budgets).  Also, with this approach it is more feasible to implement changes on an annual basis than would be an approach of having experts review the budget levels each year." (Citro and Michael, p. 144)

Reference Family

One comment expressed concern that the change in the definition of the reference family would unduly reduce the level of the poverty threshold.

The Interagency Working Group suggested the use of a reference sample for calculating poverty thresholds that includes all consumer units with exactly two children. (Observations, p. 3) This diverges from the NAS recommendations, which used a two-adult, two-child reference unit.³ (Citro and Michael, pp. 101,105)   The Interagency Working Group noted: 

"In the 15 years since the NAS report, however, the composition of families in the U.S. has continued to change and a growing number of children live in families with only one adult, particularly in lower-income households. There are a variety of advantages to calculating the threshold from somewhat similar families, so the continuing use of two-child family units is recommended while allowing these two children to live in a wider variety of family settings. Expenditure data for family units with two children that do not contain two adults should be adjusted using the equivalence scale (discussed below) so that their expenditures are equivalent to those of a family unit with two adults and two children." (Observations, p. 3)

Equivalence Scale

Comments on the equivalence scales expressed concern that an equivalence scale that adjusts only for the size of the family and the number of children does not capture the higher costs faced by the elderly and the disabled.

Although the reference family for the SPM threshold is based on families with exactly two children, the Interagency Working Group suggested that the SPM utilize a three parameter equivalence scale to adjust thresholds for families of different sizes and types. (Observations, p. 5)  The three parameter equivalence scale differs from the equivalence scale recommended by the NAS panel (a two parameter scale) by assuming that the first child in a single parent family generates more additional spending on necessities than the first child of a two-parent family. (Betson 1996; Johnson et al. 1997) Neither equivalence scale adjusts for the age of the child(ren) nor the age of the adults, but  age-related differences in medical out-of-pocket (MOOP) spending and child care will be reflected in the SPM as those amounts are subtracted from income based on actual expenditures reported in response to new questions in the Current Population Survey Annual Social and Economic Supplement (CPS ASEC). 

Housing Tenure/Mortgage Status

One comment questioned the distinction between renters and owners with a mortgage and suggested that the SPM use only two thresholds, one for owners without a mortgage and one for renters/owners with a mortgage.  Another comment expressed concern that the threshold for owners without a mortgage adequately consider the utility and maintenance costs faced by these households.

Many approaches have been examined to define thresholds based on housing cost differences by housing tenure and mortgage status.⁴ The Interagency Working Group noted that:

 "Since the release of the NAS report, it has become clear that a significant number of low-income families own a home without a mortgage and therefore have quite low shelter expense requirements. This suggests the need to adjust the thresholds for housing status by distinguishing renters, owners with a mortgage, and owners without a mortgage." (Observations, p. 4)

In order to better calculate poverty rates for populations based on housing status, the Bureau of Labor Statistics (BLS) is designing adjustment factors to the shelter component of the food, clothing, shelter, and utilities (FCSU) threshold to reflect relative expenditures for each of the three housing groups.

The expenses accounted for in the housing tenure group thresholds include rent, owner mortgage payments (principal repayments and interest), owner property taxes, owner property insurance, owner and renter maintenance and repairs and utilities.  Calculating thresholds by housing tenure status will create three FCSU thresholds: one for renters, one for owners with a mortgage, and a third for owners without a mortgage. (See Garner and Betson 2010)

Geographic Adjustments

While most comments expressed support for the geographic adjustment of the thresholds, many urged the SPM to take into account geographic differences in the cost of all items included in the thresholds (and subtracted from income), particularly the cost of transportation. One comment suggested that the geographic adjustments be done at the county level rather than at the metropolitan statistical area.  Several comments favored the continued use of U.S. Department of Housing and Urban Development Fair Market Rents to develop the housing cost index. Numerous comments expressed concern that after geographic adjustment thresholds for some rural areas would be lower than the current official threshold.

The proposed SPM will use American Community Survey data to adjust the thresholds for housing price differences across geographical areas.  The geographic adjustments to the thresholds will be based on five-year ACS estimates of median gross rents for two-bedroom apartments with complete kitchen and plumbing facilities. Separate medians will be estimated for each of the 309 metropolitan statistical areas (MSAs) large enough to be identified on the public use version of the CPS ASEC file.  For each state, a median is estimated for all non-metro areas (48), for each MSA with a population above the CPS ASEC limit (309), and for a combination of all other metro areas within a state (44).⁵  This index is normalized and applied to the share of the threshold which represents shelter and utility costs.⁶

At this time, reliable data on regional price differences for the entire bundle of basic consumption items are not available.  However, as per the Interagency Working Group suggestion, the Census Bureau and the Bureau of Labor Statistics will continue to explore additional methods to improve geographic adjustments, including urban and rural distinctions (Observations, p. 5).⁷

RESOURCE MEASURE

Nondiscretionary expenditure items subtracted from income

Some comments suggested savings, education-related expenditures and insurance payments should be added to the list of items subtracted from income. Others were concerned with the use of actual expenditures rather than expected or necessary expenditures for these nondiscretionary items.

The proposed SPM follows NAS recommendations to subtract taxes, child support payments, medical out-of-pocket expenditures, and work-related expenses (including transportation and child care) from household income resources. (Citro and Michael, pp. 209-210)  To the extent possible, this calculation uses actual expenditures rather than expected expenditures in calculating this measure.  This resource measure reflects the current level of disposable income available for a given family unit for the consumption of basic goods included in the threshold. 

Transportation Costs

Several comments focused on the need to consider geographic variation in transportation costs.  One comment urged the SPM to consider the differences in transportation costs for households with access to public transportation as compared to those relying on private automobiles.

Both the NAS panel and the Interagency Working Group suggested accounting for work-related transportation by subtracting the cost of transportation from household income. (Observations, p. 6 and Citro and Michael, pp. 242-243)

The NAS panel recommended subtracting a fixed amount for work-related expenses other than child care because of the tradeoff that people often make between housing and commuting costs. The NAS panel argued that since many families make other sacrifices to minimize work expenses (e.g., move near work, work opposing shifts) and these other costs would not be reflected in reported work-related expenses, it would be preferable to use a fixed dollar amount. (Citro and Michael, pp. 210, 242-243) Non-work-related transportation costs incurred by families will not be subtracted from household income but accounted for in the threshold, along with other miscellaneous expenses, by the multiplier of 1.2. (Citro and Michael, pp. 151-152)⁸

Since the 1995 NAS panel report, there have been several studies looking at the tradeoffs between housing and transportation costs.⁹  Following the suggestion of the Interagency Working Group, the Census Bureau will be investigating the comparative advantages and disadvantages of trying to measure actual work expenses versus assigning an average amount to all working adults. (Observations, p. 6)   

Medical Out-Of-Pocket Expenditures

Several comments expressed concern that the SPM take into account the higher out-of-pocket medical expenditures of the elderly and the disabled. Several comments were concerned about the need to include an adjustment for the uninsured.  One comment expressed opposition to capping medical out-of-pocket expenditures. 

The proposed SPM follows NAS recommendations to subtract medical out-of-pocket expenditures (MOOP) including health insurance premiums from income. (Citro and Michael, p. 209) The NAS panel did not include these in the threshold because they concluded that the variability of these needs across the population would require the development of a large number of thresholds and therefore complicate the poverty measure. The NAS panel also feared that if average medical expenditures for different family types were included in the thresholds, year-to-year variability in medical care needs within family types would result in erroneous poverty classifications. (Citro and Michael, p. 224)

Several approaches incorporating MOOP in the thresholds and valuing MOOP for the resource calculation have been examined.¹⁰ While acknowledging that there are pluses and minuses to both approaches, the Interagency Working Group chose to follow the NAS recommendations.  They concluded that given the data currently available, it is operationally easier to subtract MOOP from family resources if there is reasonably good self-reported data on medical expenses. (Observations, p. 7) The Census Bureau is evaluating the data from the new Annual Social and Economic Supplement to the Current Population Survey (CPS ASEC) on medical out-of-pocket expenditures and hopes to use that data for SPM estimates.

The Interagency Working Group noted that some analysts argue that an adjustment to MOOP should be made for the uninsured who may be spending less than is customary because they lack health insurance and cannot pay for health services.¹¹ At the Interagency Working Group's request, the Census Bureau will be investigating the pros and cons of such an adjustment and its computation. (Observations, p. 7)

Child Care Expenses

Many comments suggested that child care costs be included in the thresholds rather than subtracted from income. Many comments also urged the use of state-level estimates of the fair market rate for child care rather than actual expenditures. One comment suggested that the cost of elder care be treated in a manner similar to child care.

The Census Bureau reports on experimental poverty measures use model-based estimates of child care expenses as did the NAS panel. (Citro and Michael, pp. 240-242)  The SPM will replace the model-based estimates with actual child care expenditures reported in response to the new question on the CPS ASEC.¹² The Interagency Working Group suggested that the measure subtract "actual" child care expenses  because many families find ways to meet their child care needs outside the market resulting in a great deal of variance in actual child care expenses. (Observations, p. 6)  Subtracting actual child care expenditures from income estimates the disposable income available to afford the set of basic commodities in the threshold by those families who pay for child care.

Unit of Analysis

Two comments expressed concern regarding the assumption that all cohabiting partners should be combined into the same unit for the purposes of measuring poverty. One suggested that only individuals who co-mingle funds should be considered a single unit; another suggested that only some proportion of resources be counted as shared for cohabiting couples.

The NAS panel recommended that the definition of "family" should be broadened for the purposes of poverty measurement to include cohabiting couples and their children, and that research should be conducted on the extent of resource sharing among roommates and other household and family members to determine if the unit of analysis should be modified further.  The NAS panel noted that while cohabiting couples, roommates, and other household members benefit from economies of scale, the current measure overstates the poverty rate for such people.  The panel also noted that cohabiting couples typically pool resources, and many exhibit considerable stability in their living arrangements, so that it makes sense to treat them like married-couple families for purposes of poverty measurement. (Citro and Michael, pp. 305-306) The 1999 Census report pursued the panel's recommendations regarding the family definition used to measure poverty by examining four different units of analysis. (see Short et al., 1999) 

The Interagency Working Group suggested:

"Include in the definition of "family unit" all related individuals who live at the same address, any co-resident unrelated children who are cared for by the family (such as foster children), and any cohabitors and their children." (Observations, p. 4)

This definition examined corresponds broadly with the unit of data collection (the consumer unit) that is employed for the CE data that are used to calculate poverty thresholds. The BLS defines a consumer unit to consists of any of the following: (1) all members of a particular household who are related by blood, marriage, adoption, or other legal arrangements; (2) a person living alone or sharing a household with others or living as a roomer in a private home or lodging house or in permanent living quarters in a hotel or motel, but who is financially independent; or (3) two or more persons living together who use their incomes to make joint expenditure decisions. Financial independence is determined by spending behavior with regard to the three major expense categories: housing, food, and other living expenses. To be considered financially independent, the respondent must provide at least two of the three major expenditure categories, either entirely or in part.¹³

Treatment of Assets

Many comments urged that the measure incorporate savings and education-related expenses either directly in the thresholds or as a nondiscretionary expense to be subtracted from resources.

The NAS panel concluded that it would not be appropriate to include asset values as part of family resources for the purposes of the official poverty measure and the Interagency Working Group did not change this approach. The NAS panel did note their support for research and development to improve the reporting and valuation of assets for such purposes as estimating the distribution of wealth in relation to the distribution of income and reiterated the importance of developing other indicators of economic deprivation and well-being. (Citro and Michael, pp. 214-218)

Other resource issues

One comment suggested that educational assistance not be included as income.  Another comment suggested that State as well as Federal in-kind benefits be included in the resource measure.  Another comment expressed concern that the value of in-kind benefits would be assigned to all who are eligible rather than just those who receive benefits.

The Interagency Working Group encouraged the Census Bureau to continue to improve its estimates of in-kind benefits.  (Observations, p. 6)  The Current Population Survey Annual Social and Economic Supplement includes questions on the receipt of major federal in-kind benefits.  Responses to these questions are used to add the "value" of these benefits only to those households/families reporting receipt.  Absent survey data on the receipt of state-level in-kind benefits, it would be difficult to account for these benefits in the resource measure.

OTHER MEASURES OF ECONOMIC DEPRIVATION

Many comments discussed the need to develop additional measures of well-being, including a Decent Living Standard, Low Income Measure, Low Income Plus Hardship Measure, Minimally Adequate Standard of Living, Self-Sufficiency Standard, Index of Economic Hardship, Asset Poverty Measure, Human Development Index, Make Ends Meet Measure and a Medical Care Risk Measure.

The SPM is designed to provide one measure of economic deprivation.  Like the NAS panel, the Census Bureau recognizes that additional measures could further illustrate alternate ranges of deprivation.  Various proposals to Congress have suggested or requested funding for the design of a separate decent living standard threshold. These proposals have emphasized measures that report annual income levels required to avoid material hardship and provide modest economic security. At this time, the Census Bureau has not been directed to design a measure of economic adequacy based on these definitions.

The Census Bureau will maintain the ability of researchers to use the Table Creator II online calculator to estimate poverty rates using a number of alternative user-defined thresholds and will continue to make available public use micro data files that will facilitate the exploration of alternative measures.

SPM POVERTY ESTIMATES FOR LOCAL AREAS

Many comments urged the Census Bureau to commit itself to the task of providing ACS-based annual state and sub-state SPM poverty rate estimates. One comment urged the Census Bureau to use administrative data to enhance ACS-based estimates, particularly for sparsely populated areas.

Like the official poverty estimates, the SPM will use the CPS ASEC.  However, experience releasing income and poverty statistics suggests that there is interest in reporting this information at the sub-state level. Unfortunately, developing these measures requires significant resources that few states or local governments have the capacity to fund.  The ACS is the only means by which local SPM-based poverty rates could be estimated. 

There are efforts currently being undertaken by the New York City Center for Economic Opportunity, the Urban Institute, and the University of Wisconsin's Institute for Research on Poverty to calculate local poverty rates.¹⁴  The Census Bureau provided both technical assistance and funding to these groups in the past to help them develop these local measures, and consulted with and shared statistical methods and measures used in previous research.  The Census Bureau will continue to investigate using the ACS to provide similar annual state-level and sub-state poverty rates.

UPDATING MECHANISM

Several comments suggested that the SPM thresholds be updated based on changes in the median level of expenditures rather than changes at the 33^rd percentile. One comment suggested that the SPM thresholds be compared to each area's median income and that the method be revisited if SPM thresholds fell below 50 percent of area median income.

The Interagency Working Group suggested that the threshold be set at the 33rd percentile of the distribution of equivalized food, clothing, shelter and utilities (FCSU) expenditures within the reference sample (Observations, p. 4), which is at the center of the range recommended by the NASA panel. The Interagency Working Group also recommended that the threshold be recalculated each year by adding in the latest year of available data and dropping the oldest year of data, so that the thresholds are always based on the latest five years of expenditure data. (Observations, p. 8) This differs from the updating mechanism that has been employed by the Bureau of Labor Statistics and the Census Bureau in the Experimental Poverty measures based on the NAS-recommendations.  In this series, poverty estimates have been produced using two alternative updating mechanisms.  One set of estimates uses thresholds updated using the Consumer Price Index while a second set uses thresholds based on the latest three years of available CE data, reproducing the threshold each year. Garner and Betson (2010) examined the impact of updating NAS type thresholds from one year to the next by the change in median FCSU spending and by the change in FCSU spending at the 33^rd percentile.¹⁵

The Interagency Working Group also suggested that the geographic adjustment factors and techniques to impute the value of family resources should be updated as often as possible. The Interagency Working Group suggested that the SPM use a five-year average for housing costs in developing the geographic index in order to smooth year-to-year volatility.  This decision was based on the preference of the Interagency Working Group to mitigate year-to-year changes in poverty rates due to short-term volatility in rental markets. (Observations, p. 5)   

The Interagency Working Group also emphasized that the SPM should be considered a "work in progress, with the expectation that there will be improvements to it over time." (Observations, p. 1)

PRESENTATION OF ESTIMATES

Several comments focused on the way in which estimates using the SPM should be published and presented to the public, including the presentation of poverty estimates for the elderly and disabled, and the ability to disaggregate the impact of specific federal programs on poverty rates.

If the President's budget initiative is approved, the Census Bureau plans to publish the first set of estimates using the SPM in September 2011 at the same time as the publication of the official poverty statistics for 2010.  The report will include poverty estimates for numerous subgroups of the population.  The Census Bureau will also produce a public use file which analysts can use to develop their own tabulations and estimates.

¹ Constance F. Citro and Robert T. Michael (eds), Measuring Poverty:  A New Approach, National Academy Press, 1995. See Summary and Recommendations.

² In addition, a series of papers (available at http://www.census.gov/hhes/www/povmeas/publications/working.html) have discussed improved methods for computing the various dimensions of the poverty measure, including changing the unit of analysis, determining the value of housing subsidies that are added to income as a non-cash transfer, modeling of medical out-of-pocket and child care spending, and developing adjustments for geographic cost-of-living differences in the threshold.

³ For further discussion of the choice of reference family see Garner and Betson 2010,; Short and Garner 2002.

⁴ See for example; Short and O'Hara 2008; Short, O'Hara, and Susin 2007; Garner and Short 2001; Garner and Rozaklis 2001;and  Betson 1995.

⁵ The SPM will use the ACS  rather than the U.S. Department of Housing and Urban Development's (HUD) annual Fair Market Rent (FMR) guidelines) to create a housing price index based on geographic cost differences. HUD estimates FMRs for use in the Section 8 low-income housing program and does not support their use for comparing housing costs across localities (See Renwick 2009; Nelson and Short 2003; Short 2001).

⁶ For a discussion of alternative geographic cost adjustment mechanisms, see Renwick 2009; Jolliffe 2006; Nelson and Short 2003; Short 2001; and Malpezzi 1998.

⁷ See for example; Aten 2008; Renwick 2009 ; Malpezzi 1998; Betson 1995; Nord and Cook 1995.

⁸See also; Short 2001 and Short 2005.

⁹ See for example, Center for Transit Oriented Development and Center for Neighborhood Technology, "The Affordability Index: A New Tool for Measuring the True Affordability of a Housing Choice" (2006).

¹⁰See for example Short 2001, Short and Garner 2002; Betson 2001, Betson 2000; Banthin et al 2000; Bavier 2000, and Bavier 1998.

¹¹ See for example; Short and Garner 2002, Banthin et al. 2000.

¹² Beginning in 2010, the CPS ASEC asks a series of questions regarding the amount paid for child care by working parents during the previous year.

¹³ Consumer Expenditure Survey. Frequently Asked Questions (FAQs).

¹⁴ See for example; The CEO Poverty Measure, 2005-2008: A Working Paper by the NYC Center for EconomicOpportunity (NYC Center for Economic Opportunity, March 2010); Sheila Zedlewski, et al., Measuring Poverty at the State Level (Urban Institute, March 2010); Joanna Marks, Julia Isaacs and Timothy Smeeding, Wisconsin Poverty Report: New Measure, Broader View (Institute for Research on Poverty, University of Wisconsin-Madison, September 2010).

¹⁵ For more detailed discussion of alternative updating mechanisms, see Garner and Betson 2010; Short and Garner 2002; and Johnson et al. 1997.