BILL ANALYSIS Ó Senate Appropriations Committee Fiscal Summary Senator Kevin de León, Chair SB 672 (Leno) - CalFresh: eligibility guidelines. Amended: April 11, 2013 Policy Vote: Human Services 6-0 Urgency: No Mandate: Yes Hearing Date: May 23, 2013 Consultant: Jolie Onodera SUSPENSE FILE. AS PROPOSED TO BE AMENDED. Bill Summary: SB 672 would require the Department of Social Services (DSS) to issue guidance specifying the process of verification of earned income and dependent care expenses to be used to determine eligibility and benefit level for CalFresh, as specified. This bill would also require counties utilizing an electronic database for verification purposes to follow specific procedures and notification requirements for applicants and recipients. Fiscal Impact: One-time, minor increased workload to the DSS to issue guidance to counties. Potential additional costs of about $150,000 (General Fund) to the extent the development and adoption of revised regulations are required to implement the provisions of this bill. Potential near-term state-reimbursable costs to county agencies for costs associated with implementation of the revised eligibility process of verification of dependent care expenses. Potential administrative cost savings in future years to the extent the provisions of this bill result in administrative efficiencies. Significant local costs to implement the process and notification requirements related to verification of income. Additional, unknown, potentially significant one-time costs for automation changes required to implement the new processes. Annual increase in CalFresh and CalWORKs payments due to new process requiring notification prior to negative actions being taken. Streamlining the application process could increase participation and benefit levels for low-income families, significantly increasing the amount of CalFresh (Federal) benefits received, potentially in the hundreds of thousands SB 672 (Leno) Page 1 to millions of dollars. For example, if 500 households claimed the dependent care deduction and experienced a benefit increase of $118 per month, benefits would increase by over $700,000 annually. Increased administration (Federal/General Fund) costs for newly eligible (not existing) cases would be offset in minor part by increased sales tax revenue on the sales of taxable goods. Background: Approximately 1.9 million households in the state receive CalFresh, California's name for the national Supplemental Nutrition Assistance Program (SNAP), which provides benefits to low-income households to alleviate hunger and to improve nutrition and health by helping individuals meet their nutritional needs. The state also provides benefits through the California Food Assistance Program (CFAP) to about 47,000 eligible legal immigrants who are not eligible for federal nutrition assistance. The CalFresh application process includes completing and filing an application, being interviewed, and providing information subject to verification, such as earned income and dependent care expenses in order to determine eligibility and benefit level. County human services departments are required to act promptly on all applications and provide CalFresh benefits retroactive to the month of application to those households that have completed the application process and have been determined eligible. Federal laws and regulations provide states the flexibility to define the scope of allowable expenses for the dependent care deduction. This bill proposes to simplify the process of verification of dependent care expenses and earned income to enable more applicants and recipients of CalFresh to receive the increased monthly benefits for which they are eligible. Proposed Law: This bill requires DSS to issue guidance to simplify the verification of earned income and dependent care for purposes of verifying deductions necessary to determine eligibility or benefit level of CalFresh, to the extent permitted by federal law. The guidance shall require all of the following: Provides that dependent care expenses shall be considered verified upon receipt of a statement of monthly expenses that includes the federal taxpayer identification number of SB 672 (Leno) Page 2 the dependent care provider or other form of verification allowed by federal law instead of verification with a receipt from the care provider. Provides that if a county uses an electronic database for earned income verification to determine eligibility, the county shall do both of the following: o Use the electronic data base to verify income instead of requiring paper verification at time of application or reapplication for benefits; o Inform applicants and recipients of their right, if any, to request a copy of their electronic employment and wage data maintained in the database and to correct errors in the database. o Requires the notice to be provided when the information in the database is used to determine eligibility or benefit level or to verify income at any time. Related Legislation: AB 1970 (Skinner) 2011 would have required county human services departments to maximize the use of electronic means to verify applicant and recipient information. This bill was held on the Suspense File of this committee. Staff Comments: It is estimated that DSS would incur a minor workload increase to issue the mandated guidance. To the extent the development and issuance of revised regulations related to the notification and verification processes for earned income and dependent care expenses is required, the DSS would incur additional workload. By mandating the DSS issue guidance that could potentially impose new duties on county human services agencies that administer CalFresh, this bill could result in one-time or near-term state-reimbursable costs for any training and associated costs to implement the revised procedures. However, once fully implemented, to the extent the provisions of this bill serve to simplify and streamline the application and verification process, county human services departments could experience long-term cost savings due to increased administrative efficiencies. While this bill could reduce workload and county administrative costs, the state would only achieve actual savings to the extent a county's single allocation is reduced. Given the numerous and substantial reductions sustained by county human services departments in SB 672 (Leno) Page 3 recent years, it is unknown at this time if this would occur. As currently drafted, this bill provides that "if a county uses an electronic database for earned income verification to determine eligibility, a county shall do both of the following:" In the absence of a reference to the specific type of "electronic database" intended to be regulated (in this case, The Work Number, a for-profit, third party resource that counties are authorized but not required to use), the bill could potentially create a state-reimbursable mandate on county human services departments, as counties utilize the Income and Eligibility Verification System (IEVS), also an electronic database, by reviewing and comparing this data to case record information and by verifying the applicability of the matched data. Similar to the revised procedures for verification of dependent care expenses, the counties could incur one-time costs to implement the revised verification procedures, and could incur additional ongoing costs of an unknown amount associated with the notification requirements outlined in this bill. At the time of this analysis, it was undetermined if automation changes would be required to implement the revised verification and notification processes. To the extent such changes are required, additional costs (General Fund) would be incurred. Under existing law, CalFresh households are eligible to deduct the full amount of eligible dependent care costs incurred, resulting in higher benefits for program recipients and newly eligibly cases. According to the Center on Budget and Policy Priorities report, The Food Stamp Dependent Care Deduction: Help for Families with Child Care Costs (2010), the percentage of single-adult working households with young children claiming the dependent care deduction in 2008 was only 37 percent nationally (the figure for California was 10 percent, but based on a sample of fewer than 40 households). To the extent the provisions of this bill increase the number of applicants and recipients who utilize the dependent care and earned income deductions, substantial increases in federal CalFresh (100 percent Federal) benefits (and a related, but much smaller increase in CFAP (100 percent General Fund) benefits) could be received. Additional administrative costs for newly eligible cases would be offset in part by an increase in sales tax revenue, as studies have shown that low-income families spend a significant portion of their money on food, and SB 672 (Leno) Page 4 increasing CalFresh access would allow them to spend that money on taxable items. Recommended Amendments: In order to clarify that "electronic database" refers to private third-party entities, and does not impact the counties' utilization of IEVS, staff recommends an amendment to specify private third-party vendors (such as The Work Number) that operate electronic employment and wage database systems, to remove the potential state-reimbursable mandate. Federal regulations provide that a state agency shall verify, prior to certification of the household, all other factors of eligibility which the state agency determines are questionable and affect the household's eligibility and benefit level. Although a state may establish its own standards for the use of verification, at a minimum, federal regulations require that all questionable factors are verified and that such standards do not allow for inadvertent discrimination. To ensure the provisions of this bill provide enough flexibility to meet this federal standard, the author may wish to consider an amendment clarifying that notwithstanding the verification procedures mandated within the bill's provisions, nothing precludes the verification of any questionable factors. Author amendments: Clarify the dependent care expense verification process to ensure compliance with federal law. Specifies client rights and county eligibility procedures when a county uses information from a privately maintained database and credit reports in the determination of eligibility for CalFresh, as well as CalWORKs.