(3) In the past we have tended to create new welfare programs for specific needs whether food aid, housing assistance, aid for dependent children, or assistance to the handicapped. In all, we have created about 20 separate programs of public aid and relief of various types and purposes.

The overlaps that have resulted from this proliferation of programs have become a major part of our present welfare problem. Under the current system, one family may be receiving aid from the Federal Government under as many as eight or ten different programs. In the case of food stamp participants, over 90 percent received benefits from two or more programs in November 1973. Incompatible eligibility requirements among these programs make it nearly impossible to achieve an equitable distribution of welfare benefits among households with equal needs and, furthermore, may lead to unintended income distributional impacts. According to a Treasury study of the tax and transfer payment system in fiscal year 1974, nearly 15 percent of all families participating in programs with income eligibility criteria, such as Food Stamps, Aid for Dependent Children, or Medicaid, had total cash and in-kind incomes over $9,000 and some four percent of these families had incomes in excess of $18,000. While the study found that income is in fact redistributed from those with incomes above $9,000 to those with less than $9,000, which is a basic objective of the transfer system, it also showed that eight million families with incomes over $12,000 received $24 billion in benefits, providing ample evidence that reform is needed just to make our system fair (Exhibits 5 and 6).7

In the face of the rapid, uncontrolled growth of our Federal transfer payment programs and the real problems of inefficiency caused by program overlaps, serious thought must be given to the need for overall reform. President Ford is firmly committed to the rationalization of our welfare program structure and has specifically asked the Executive agencies to develop options for such reform. The Administration will be working on these options in the near future. In the short term, the Food Stamp Program can be reformed to reduce abuses and unnecessary costs. The Dole-McGovern bill, S. 2451, the Buckley-Michel bill, S. 1993, and the Administration bill announced yesterday, are all demonstrations of a very widely shared belief that the program needs reform. In the longer term, however, I personally believe we should fold the Food Stamp Program and other categorical programs into a comprehensively reformed welfare program.

ORIGINS AND OBJECTIVES OF THE FOOD STAMP PROGRAM

Having placed it in this general context, I would now like to discuss the origins and objectives of the Food Stamp Program.

The present Food Stamp Program was initiated in 1961 under a 1959 Congressional authorization to set up a pilot program to study the use of food coupons as an alternative to direct distribution of surplus food commodities. In 1961, almost 6.5 million people were receiving direct food aid under the Food Distribution Program, but there was increasing concern that what was essentially a program to

In fiscal year 1974 these represented about 27 percent of Federal outlays for all transfer payment programs; See pp. 40 ar

'1.

dispose of surplus food did not provide nutritionally balanced and adequate diets. Food stamps were seen as a preferable alternative to direct food aid, and consequently, eight pilot projects, costing $13.2 million in fiscal year 1962, were begun. By 1964 the pilot program had expanded to cover forty counties and three large cities in twenty-two states. As one of the weapons of the "War on Poverty" it was converted from a pilot to an operational program under the Food Stamp Act of

1964.

The Food Stamp Program appealed to many because it promised to tackle hunger and malnutrition, and at the same time to reduce the massive farm surpluses that were a burden to farm prices and U.S. taxpayer. Section 2 of the 1964 Act described the program's purposes and revealed Congressional priorities for it:

to strengthen the agricultural economy; to help achieve a fuller and more effective use of food abundances; to provide for improved levels of nutrition among economically needy households through a cooperative Federal-State program of food assistance to be operated through normal channels of trade...

The latter purpose of the program was stressed by the Chairman of the House of Agriculture Committee who stated in debate in the House in 1963:

It is difficult for me to understand how anybody could vote against giving food to hungry Americans when we know our warehouses are bulging with vital food throughout this land.

Given the large sums being expended at that time for farm production subsidies and price supports, the cost of food stamps of less than $20 million seemed like an incidental expense. A relatively small program, it also had the considerable popular appeal of increasing the food purchasing power of the poor. But the purposes of the program have been extended and broadened by subsequent legislation, court decisions, and administrative program changes, so that those original purposes have been significantly altered.

A major redirection of program objectives, and a large increase in program costs resulted from the 1969 White House Conference on Food, Nutrition, and Health. One result of the Conference was that a strong emphasis was placed on the nutritional aspects of the program. Another was its recommendation that the "individual and family commodity program be phased out as rapidly as it can be replaced by a universal reformed Food Stamp Program.'

The Conference led to important administrative changes in the program, which were implemented pending the passage of legislation by Congress in 1971. Increases in the food stamp allotment to allow a uniform nutritionally adequate diet, and uniform national eligibility standards including national standards for permitting deductions from gross income, led to a dramatic spurt in participation and costs. The number of people using food stamps, which had grown slowly in the 1960's, suddenly jumped under the stimulus of these measures from 3.8 million in January 1970 to 6.5 million in June 1970 and 10.5 million in June 1971 (Exhibit 8).8

Major amendments to the Act in 1971 underlined the shift in program emphasis as Congress stressed the need to upgrade the nutritional quality of the diets of the poor. As a practical matter,

8 See p. 42.

reducing agricultural surpluses is no longer a significant program purpose.

Despite the initial goal of the program to assure a nutritionally adequate diet for participants, it is becoming increasingly evident that food stamps do not always achieve that objective. Improving nutrition is a difficult problem related to consumer information and established eating habits to which I know this Committee has given considerable attention. But there seems to be a growing consensus that the program does not have the nutritional impact is was intended to have.

Several studies summarized by Kenneth Clarkson in his study "Food Stamps and Nutrition" for the American Enterprise Institute indicate that nutrition did not increase significantly for participants, compared with nonparticipants in the same income bracket. Nutrition seems to be more highly correlated with education, especially nutrition education, than with buying power.

Just providing the opportunity to purchase a nutritionally adequate diet is not likely to result in much upgrading of nutrition. Therefore, I think it is accurate to conclude that the Food Stamp Program is now a "food expenditure support"-rather than a nutritional-program for many of its users, while for many others it is a form of income maintenance. The program provides a constant source of food support for many chronically poor or disadvantaged people, including many of the aged. But it is also used by many people who have lost their jobs, and by people who voluntarily choose not to work. The large increase in participation as a result of unemployment in the past year indicates that the program is one of the first sources of relief to which unemployed-but not necessarily poor-Americans turn when faced with an economic set-back.

GROWTH IN PROGRAM COST AND PARTICIPATION

In terms of both participation and cost to the Federal Government, the growth of this program has been startling. The number of persons participating increased from 143,000 persons in fiscal year 1962 to 17.1 million in fiscal year 1975 (Exhibits 8 and 10). In fiscal year 1975 alone it grew by more than four million. The cost to the Federal Government of the stamps (the bonus value) has grown at even greater rates, rising from $13.2 million in fiscal year 1962 to $4.4 billion last year (Exhibits 9 and 10).10 A significant part of this increase has been the result of the replacement of the Direct Food Distribution Program by the Food Stamp Program and by the extension of this program to every county and to U.S. territories. Nonetheless, the total number of persons participating in the two programs combined, and their cost have risen by very large amounts. While the use of these programs was rising rapidly, the number of persons with incomes below the poverty line declined 27 percent from

1965 to 1974.

These increases were the result of the increased number of communities offering the program, which rose from 1,489 in 1969 to 2,027 in 1971, reduced purchase requirements, the increased number of eligible households, and the increased participation rate of those.

See pp. 42 and 43.

10 See p. 43.

11

eligible. These changes caused much of the rise in the number of participants per project area, from just under 2,000 in 1969 to 4,600 in 1971 (Exhibit 11). Similarly, the bonus value more than doubled from fiscal year 1969 to 1971, from $6.62 to $13.55 per person per month (Exhibit 12).12

After the large expansion in the program during 1970-71, its growth slowed. During fiscal year 1972 and fiscal year 1973, only about 100 new project areas were added each year.

In fiscal year 1974 and 1975 the program again began to expand at a rapid rate as new project areas came into the program in the last half of fiscal year 1974. Participation also increased in response to the virtual elimination of the Food Distribution Program and implementation of the Food Stamp Program in all counties in the United States.

However, the dramatic program growth in this period was due to four main factors:

(1) The continuing inflation in food prices which automatically raises the value of the stamps. The sharp rise in food prices in 1973 and 1974 was, of course, an important element of the general inflation that swept through the economy during those years. Because of the escalator provision that is included in the law, the value of stamps available to recipients is increased every six months. For example, the food stamp allotment for a four-person family rose from $112 in December 1972 to $162 on July 1, 1975, simply because of the increase in food prices.

(2) The increase in unemployment as a result of the recession, which increased the number of eligible participants. These unemployed may show greater participation rates because they may be more alert to the assistance programs available to them; many have access to employee organizations which inform them of the availability of relief programs like food stamps.

(3) The increased costs of housing, medical services, and other deductible items, which can be deducted from gross income to determine eligible income, expanded eligibility and, for some, increased the incentive to participate. As the cost of housing, medical services, child care, and education have increased, the value of allowable deductions from gross income to determine eligible income-have increased sharply. This means that the eligible income of a person with a fixed gross income drops as the value of his deductions increases. As a result, he pays less for his allotment of stamps, while the bonus value he receives goes up, thus increasing the cost of the program.

(4) The implementation of the program in Puerto Rico. In fiscal year 1975, the Food Stamp Program was first extended to Puerto Rico, under a requirement of the 1971 amendments to the Food Stamp Act, a change the Administration resisted. By the end of the fiscal year, 1.4 million Puerto Ricans were participating in the program out of a 3.2 million total population. Another 21 percent of the population is estimated to be eligible which could raise even further the cost of the program there from its expected level for fiscal year 1976 of about $550 million. As a result, the Food Stamp Program has become a major, and controversial factor in the economy of the island.

11 See p. 44.

12 See p. 44.

Food stamps may actually have become a disincentive to work. I draw the Committee's attention to an editorial in the San Juan Journal of August 22, 1975, which quoted the Director of the Puerto Rico Manufacturers Association and the President of the Association of General Contractors, who say some industries are in danger of shutting down operations because they cannot find workers. This is occurring in spite of the fact that unemployment on the islands is 20 percent. The editorial concluded that the Food Stamp Program "is cultivating, encouraging, and abetting a generation of loafers in Puerto Rico." A coffee plantation owner in Puerto Rico has said that for the first time he cannot get labor to pick coffee beans, which are rotting on the trees.

A major proportion of the increased participation in the program during fiscal year 1975 came from households which were not receiving some other form of Federal assistance (such as AFDC or SSI)— the so-called "non-public assistance households." Participation by these households increased from a monthly average of 5.3 million in fiscal year 1974 to a monthly average of about 8 million in the second quarter of fiscal year 1975. For the first time in the history of the program, the number of households not receiving some other form of Federal welfare were participating more heavily in the program than were public assistance households. This new trend in participation is a demonstration of the very substantial use of the program as a form of unemployment relief.

These rapid cost increases caused by the expansion of the program make it essential that we now reevaluate it. These kinds of cost increases are not inevitable or acceptable without question, just as the large anticipated increases we project for our total national transferpayment programs should not remain unquestioned.

We must refocus this program on the goal of providing the truly poor an opportunity to purchase an adequate diet.

FUTURE PROGRAM EXPANSION

There has been some discussion about future participation and costs of the program. The Chairman of this Committee mentioned several unofficial USDA projections in his letter to me on August 15, which indicated that by 1980 the cost might be only slightly higher, or even lower than in 1975, while other preliminary estimates by USDA showed that the cost could double, depending on assumptions about the recovery of the economy and our ability to reduce inflation.

Because of the significant impact of inflation and unemployment on this program, projections of future costs and participation will obviously span a wide range-depending on the course of the economy over the next few years and whether or not this law is changed. If the recovery continues as now projected and if we are able to avoid reigniting the rapid inflation of the past several years, there is a good chance that the growth in the Food Stamp Program will slow markedly. On the other hand, if the recovery is aborted and inflation again surges to the double digit level, the program under the current law will continue its fast growth.

Even if the first scenario of continuing improvement in economic activity and reduced inflation is achieved, there is still an opportunity for substantial expansion in this program under current law.