Statement of Douglas W. Nelson, President/Chief Executive Officer, Annie E. Casey Foundation, Baltimore, Maryland

Testimony Before the Subcommittee on Income Security and Family Support
of the House Committee on Ways and Means

July 17, 2008

Thank you for the opportunity to testify today in support of efforts to revise the methods used to measure poverty in this country.   My name is Douglas W. Nelson and I am President and CEO of the Baltimore-based Annie E. Casey Foundation, a national philanthropy devoted to fostering public policies, human services and community supports that meet the needs of disadvantaged children and families.

The Annie E. Casey Foundation’s passionate commitment to helping those children and families who are most vulnerable is matched only by our determination to be guided by quality data and useful indicators.  This is illustrated by our KIDS COUNT project and our numerous investments aimed at measuring the impact of our grants on the status, conditions and well-being of the families our grantees are seeking to help.  In our judgment, good measures of kid and family conditions are indispensible to good policy decisions and public accountability.

Every year since 1990, we have released an annual KIDS COUNT Data Book, which uses the best available data to measure the educational, social, economic and physical well-being of children, state by state.  The Foundation also funds a national network of state-level KIDS COUNT projects that provide a more detailed, county-by-county picture of the condition of children.  We care about this data because it helps leaders and citizens make better decisions about how to improve the lives of children and their families. 

Let me give you an example of what I mean. Several years ago, our KIDS COUNT grantee in Rhode Island developed an improved measurement of childhood lead poisoning that was much easier for the public to track and understand. Rhode Island KIDS COUNT’s baseline data showed that one in four children in Rhode Island had a history of lead poisoning upon entering kindergarten, and that one in three children in the state’s five core cities entered kindergarten with a history of lead poisoning. 

The publication of this data sounded an alarm in Rhode Island that this was a serious issue in need of immediate attention. Community leaders responded in many effective ways, including better enforcement of lead laws and enhanced parent education.  Their efforts resulted in the development of city and state lead poisoning prevention plans and the passage of a comprehensive lead poisoning prevention law by the General Assembly. The incidence of childhood lead poisoning has decreased significantly during the decade since the indicator was first published – down to 6 percent statewide and 10 percent in the core cities.

Since its inception nearly 20 years ago, KIDS COUNT has tracked a core set of indices for measuring child need and the effectiveness of programs designed to meet those needs. But, clearly, of all the measures we rely on, none is more fundamental or consequential than how we assess a family’s economic standing. That’s why Casey has been so distressed at the nation’s continued reliance on an outdated, incomplete, and misleading measure of poverty.

All of this is to explain why I am here today and why I believe it is essential that we act now to change our deeply flawed poverty measure.  It is essential for a simple reason:  the lack of an accurate, credible, and relevant poverty measure has itself become a major impediment to combating poverty effectively.  If we want to solve the poverty challenge, step one is to get our heads around the true scope, dimension, and dynamics of the problem.

Today, almost no one would argue that the current poverty definition -- which sets the poverty threshold at $21,200 for a family of two adults and two children – yields anything remotely close to a well thought out, accurate measure of who is genuinely poor.  Indeed, scholar Nicholas Eberstadt of the American Enterprise Institute has dubbed the poverty measure “America’s worst statistical indicator.”

Most Americans have a pretty solid sense of what it means for a family to be poor.  As Rebecca Blank of the Brookings Institution has said, poor families are folks who do not have enough resources to afford decent housing, to find and hold a job, to be well fed and reasonably healthy and to pay for the things that their children need to be safe and succeed in school.  Unfortunately, our current poverty measure – crafted in the 1960s – simply does not reflect this common sense understanding of what it means to be poor in 2008. 

The current measure is flawed in two fundamental ways.  First of all, it underestimates the actual cost of paying for the core of basic and routine needs that American families are expected to meet.  Developed when food represented one-third of a typical family’s budget, the poverty line was drawn by the federal government by calculating the cost of a basic grocery budget and multiplying by three.  The dollar figure developed in 1963 has only been adjusted for inflation, even though food is now one-seventh of a typical family’s budget, and even though the formula does not take into account the actual cost of other core expenses, such as housing and work-related costs, that take up a much greater portion of family budgets today than they did 40 years ago.  In the opinion of some analysts, the current formula produces a “poverty line” income that may amount to less than 60 percent of what it actually costs a family to meet its basic needs.

The second basic flaw of the current measure is that it significantly underestimates the total income, resources or benefits that many of today’s families actually receive and use to meet those basic needs.  The current poverty formula fails to include valuable non-cash benefits such as housing assistance, the Earned Income Tax Credit, the Child Tax Credit and food stamps. Consequently, the official federal poverty data not only understates the cash and benefits many low-income families enjoy, but also gives us no indication of how well some of our key public investments in the economic well-being of low-income families are paying off.

Across the country, children's advocates are rallying around a proposed campaign to cut the nation's child poverty rate in half over the next decade. Yet many of our most promising approaches to improving the economic fortunes of children — expanding the earned-income and child tax credits for working families, extending child care subsidies, increasing the utilization rates for food stamps and other means-tested programs — would never be recognized by today's poverty measure.  These are, however, among the very resources and benefits that have the potential to pull families out of the deep and persistent poverty that hurts kids most.

The evidence is overwhelming that when families are entrapped in persistent poverty, childhood problems multiply. Ninety percent of the families who end up losing their kids to foster care are poor.  Poor kids are five times more likely to miss learning proficiency benchmarks than kids from families with greater economic security.  Kids growing up in poor families are far more likely to drop out of school, get pregnant, or get in trouble with the law. There is every reason to worry that the persistent, sustained poverty that triggers these problems could grow, particularly as more entry level jobs in the American economy are lost to the global labor market.  As a result, more families are settling for wages that cannot produce enough to sustain a family at an “American” standard of living.

Persistent structural poverty is a serious drag on American competitiveness, optimism, cohesion and influence in the world.  Economists now estimate that child poverty costs the nation about $500 billion a year.  That burden will worsen in time.  This nation – a dramatically aging one – cannot afford to have as much as a fifth of its children grow up without the skills, supports, connections and opportunities needed to participate in the nation’s new economy. 

Unfortunately, the poverty measure as it exists today does not tell us enough about what is actually helping these children.  There is ample evidence that the poverty threshold would be higher, and would convey a far more accurate sense of real need, if the poverty measurement objectively reflected how much a family needs to “get by” or “make ends meet” in America today.

Under a number of approaches used in recent years to calculate this “getting by” threshold, a basic family budget would include food, housing, out-of-pocket medical costs, child care, transportation and taxes.  Although there were significant regional differences, most of the methods used resulted in a “poverty” standard that was approximately twice the current poverty level.  The Economic Policy Institute, for example, which calculated this basic family budget for more than 400 communities, came up with a median budget of $39,984 for a family of four. By contrast, the poverty threshold at the time of the study was just $19,157.

A large part of our work at the Annie E. Casey Foundation focuses on what we call Family Economic Success – the ability of families to secure adequate incomes, stabilize their finances, accumulate savings and live in safe, economically viable communities. In order to determine whether federal policies, and the work of our grantees, are effective, we need a more accurate and relevant measure of how families are progressing financially.  At the very least, the measure should be designed to assess whether struggling families have the minimum resources they need to lead safe and healthy lives.

An accurate poverty measure might lead to changes in some of the strategies we use to help families in need.  By including food stamps, the EITC, the child tax credit and housing assistance in the poverty measurement, we would be able to better determine who was taking advantage of these programs and who wasn’t – and how these families were doing as a result.  We might find, for instance, that those who were receiving certain types of government assistance showed greater success at moving out of poverty, while those who weren’t remained stuck in place year after year.

Having an accurate poverty measure would also provide us with better information for considering long term, as well as short term strategies – what we call a “two-generation approach” to fighting poverty. Such an approach supports, stabilizes, and empowers low-income working parents through work support programs, while at the same time aggressively equipping their kids with the skills, experiences and values to increase their odds of avoiding hardship, forming intact families and contributing to national prosperity.

Universal preschool and quality child care and after school programs, for example, are considered key tools for ensuring that the next generation of kids is better equipped  to move out of poverty. A new approach to calculating poverty could provide a measure of the short and long term success of such strategies and create public and political will to expand those programs that have proven successful in reducing poverty.  It could also help re-target programs that are not working as well.

Clearly, there are many excellent reasons for changing the poverty measure. Why then hasn’t it happened?   Why do we tolerate such an egregiously flawed indicator of such a critically important measure of the social and economic status of our nation’s citizens – especially when we know how to do better? 

There are doubtless lots of reasons.  Inertia, convenience, and the advantages of keeping a measure that allows 40 years of longitudinal comparisons all reinforce acceptance of the status quo.

Perhaps even more important, there are real philosophical and political differences about who should be counted as poor.  Some critics have consistently preferred changes in the measure that would reduce the numbers of Americans counted as poor.  They point to the failure of the current measure to take into account the value of public benefits, and they argue that many who are now counted as poor have far greater access to comforts and conveniences (e.g., cars, televisions, air conditioning) than those counted as poor 40 years ago.

Other critics have favored changes that would increase the number of Americans described as poor.  They contend that the amount of money required to minimally support a family – at today’s housing, transportation, child care, utility, and medical costs – significantly exceeds the current poverty threshold, and that millions of families with pre-tax incomes well above the official poverty line experience great difficulty in paying for what are now considered the basic requirements of a stable family life.

These two competing perspectives – each harboring some solid, if partial, correctness – have been allowed to paralyze the nation’s poverty measurement reform efforts for decades.  It’s time that we recast the debate beyond an either/or choice to a new common sense consensus that draws thoughtfully from the analyses of both perspectives.

Changing the poverty measurement would also likely result in shifts in the allocation of certain federal funding for some groups.  In her 2008 paper, “How to Improve Poverty Measurement in the United States,” Rebecca Blank notes that the alternative poverty measurement guidelines developed by the National Academy of Sciences (NAS) resulted in fewer people with large in-kind benefits being classified as poor, an increase in working poor after work expenses were calculated, and changes in the number of elderly poor due to such factors as the subtraction of out-of-pocket medical expenses.

Some dissatisfaction is inevitable among competing groups likely to feel that their interests will be adversely affected by the new numbers. The process, however, will be far less painful if from the beginning the poverty measurement is taken out of the political realm. 

For the NAS guidelines or similar approaches to succeed, the Executive Office of the President should no longer have direct control of the poverty measurement. Unlike the vast majority of economic statistics, which are the responsibility of federal statistical agencies, updating the poverty measure is overseen by the Office of Management and Budget.  That means any changes in the measure must pass through the White House.  Ms. Blank got to the heart of the matter in her recent paper: “If we need an example of why economic statistics should be in the hands of statistical agencies, the long-term stalemate over poverty measurement provides an excellent one!”

At Annie E. Casey, we endorse Ms. Blank’s suggestion for assigning to a federal statistical agency the authority to develop an alternative measure of poverty that embraces the key elements of the National Academy of Sciences’ approach.  That means including non-cash benefits and refundable credits, accounting for child care costs and out-of-pocket medical expenses and, if feasible, adjusting for some regional differences in the cost of living.

Like any good poverty measure, this new approach would follow data over time in order to understand trends and ensure that policy aimed at fighting poverty is really working. I believe that changing the poverty measure should be viewed as part of overall efforts in this country to hold ourselves and our policy makers accountable for honestly confronting the problems faced by those in need – and coming up with clear and measurable responses.

We should add that other existing efforts to measure child well-being in this country are, like the poverty measurement, inadequate and out-dated.  That is why the Annie E. Casey Foundation strongly supports efforts being considered by both chambers of Congress that would create a state-level survey on child well being.  Like a more accurate poverty measure, this survey would provide each state with reliable, accurate data about how their children are doing, across a wide range of indicators—education, social and emotional development, health and safety, attitudes and family well-being. This information would help states better target their scarce resources and more usefully assess whether child well-being improves when new programs and policies are instituted.

This is clearly an opportune time to rethink the way we collect data about the lowest-income Americans. During the current election cycle, we have seen the presidential candidates talk more about poverty and economic insecurity than during any time in recent memory.  A survey conduced earlier this year by Spotlight on Poverty and Opportunity and Freedman Consulting found a 145 percent increase in the number of times the media mentioned poverty in the context of stories about the primary campaigns.

The media is clearly responding to frequent mentions of the issue by the presidential candidates, an increase in interest by religious and other groups and a growing desire by voters to see the problem of poverty in America addressed.  In fact, a new poll released in early July suggests that Americans today feel the problem of poverty deserves even more attention.  The survey was conducted by Republican pollster Jim McLaughlin for Spotlight on Poverty, an initiative launched last October by the Annie E. Casey Foundation, the Eos Foundation and other major foundations to draw greater attention to poverty during the election. Likely voters for the 2008 presidential campaign were asked whether they agreed or disagreed with the following statement: “The media has spent an adequate amount of time during the presidential campaign covering the issue of how to fight poverty in the U.S.”  56 percent disagreed; 41 percent strongly disagreed.

More Americans want to hear about what their political leaders will do to fight poverty.

It is time for both sides in this debate to table their disagreements and come together around a more credible and policy relevant approach to poverty measurement. In the words of former Sen. Daniel Patrick Moynihan: "You can't solve a problem until you first learn to measure it."  We have learned a lot about how we can more accurately measure poverty.  It’s time to apply that learning.

Thank you.