High-Income Poverty

Hundreds of thousands of Americans don't meet the government's definition of 'poor,' and yet they're struggling to stay afloat without assistance, especially in areas where the economy is booming, such as Silicon Valley. Is the way we measure poverty outdated?

| Fri Dec. 17, 1999 4:00 AM EST

Just before the start of this school year, Karen Orrante walked into her daughter's school to apply for the subsidized lunch program.

A struggling, divorced mother of two who receives "sporadic" child support from her ex-husband, Orrante has learned to check her pride at the door when it comes to asking for help. Getting daughter Lindsey, 8, on the lunch program meant taking time off of work and losing an essential day's pay. But the two dollars a day she would save would be worth it.

She expected the normal level of embarassment that comes with accepting a handout. What she did not expect was the response she got from officials at the school.

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"When they took a look at how much money I made, they said, 'No, I'm sorry, you don't qualify, so you'll have to pay the extra two dollars a day,'" said Orrante, 36.

Orrante makes about $35,000 a year as an administrative assistant for the Lucile-Packard Children's Hospital at Stanford University. That may seem like a middle-class wage, but it's not in Saratoga -- the town just west of San Jose where Orrante lives. Amid the exorbitant living costs of Silicon Valley, $35,000 a year is barely enough for a three-person family in Saratoga to scrape by on.

Yet, like many struggling workers in this area, Orrante does not qualify for many of the government programs intended to help needy families like hers. Besides missing out on the lunch program, she has also been denied food stamps because her "luxury vehicle" -- a barely functional '92 Astrovan -- put her over the $2,000 asset limit.

The reason is that a number of state and federal aid programs, including food stamps, school lunches, Medicaid and home energy assistance, use the federal poverty measure to determine eligibility -- but that measure takes no account of regional variations in the cost of living. A family earning $20,000 a year in Choctaw County, Alabama is considered just as "poor" as one living in San Jose -- even though the fair market rent of a two-bedroom apartment in Choctaw is $347 a month, as opposed to $1,139 in San Jose. In fact, according to the National Low Income Housing Coalition, a person earning minimum wage would need to work 170 hours a week to afford a two-bedroom apartment in San Jose (and there are only 168 hours in a week).

As a result, tens of thousands of people who, thanks to jobs, families or other circumstances are obliged to live in expensive areas like Silicon Valley, New York City, or Boston are caught in financial limbo. They're barely making enough to get by, but they're making too much to get the help they need.

In Silicon Valley, at least, the issue is beginning to get attention. Last week, Rev. Jesse Jackson's Rainbow-PUSH Coalition announced it is opening an office in East Palo Alto to support low-income and minority workers in the area.

For its part, the Census Bureau released a study in July detailing alternatives to the poverty measure it is considering. The Department of Health and Human Services uses a simplified version of the Census Bureau's poverty measure for its income guidelines, which determine eligibility for certain federal programs. Currently, the nationwide poverty guideline for a family of four is set at a mere $16,700 a year. But thanks to politics and bureaucratic gridlock, few are optimistic that the measure will be changed any time soon.

The first poverty line -- set in 1969 under President Lyndon Johnson -- was calculated by taking a bare-bones food budget and multiplying it by three (food was determined to account for one-third of a family's total expenses). Since then, the poverty measure has remained essentially unchanged, except for annual inflation adjustments.

Critics say that the poverty measure is biased against working families because it considers only a family's before-tax money income. It ignores expenses that a working family incurs, such as child care, social security taxes and transportation.

According to a National Research Council report, about one in five families currently considered "in poverty" has a higher income than families that do not receive benefits like the earned-income tax credit and food stamps, or that must pay medical and child care expenses. That NRC's 1995 report prompted the Census Bureau's current study.

"For years and years now, people have known that the way we measure poverty is really bad -- just plain fundamentally horrid," said Susan Mayer, director of the Northwestern University/University of Chicago Joint Center for Poverty Research.

"[The poverty measure] has caused immense misperception among voters about who's poor in this country," Mayer said. "We've probably misclassified a number of families with working persons in them as not poor who should be counted as poor."

Recognizing the inadequacy of the poverty measure, many state and federal programs use a percentage of the income threshold to determine eligibility. For instance, a family can qualify for food stamps if its income is up to 130 percent of the poverty line.

But that does nothing to help the struggling "middle class" families in Silicon Valley, many of whom are making well over twice the poverty limit, but are burdened with exceptionally high costs for rent, gas, child care, and other necessities.

Just ask Rachel Ramirez, who works for the Mayfair Initiative in north San Jose, which helps immigrants find programs to help them. She is 57 but is as boisterous as a person half her age.

Like Ramirez, many of the people she helps are educated, hard-working Latinos. Their jobs range from nurses' assistants to janitors. Most of them, she says, earn between $30,000 and $40,000 a year, but still live on the brink of destitution. To save money, as many as four families will crowd into a single three-bedroom home. Even then, they might each pay as much as $1,200 a month in rent.

Despite the high rents, the poverty in Ramirez's community is hard to miss. LaVonne Avenue, just one block from her office, is lined with decaying one-story houses, all of them as badly in need of paint jobs as the rusted pickup trucks that dot their driveways.

But as for government help?

"They're not eligible for anything at all -- no food stamps, no tax credit, no subsidies, no medical help," Ramirez said. "People let their teeth fall out because they can't afford to have them fixed."

Ramirez, lives with her husband, José, 59, who works for a rubber company. Together, they earn close to $34,000 a year. They are luckier than many of their neighbors: They bought their house 27 years ago, and have partial medical insurance through José's job. Still, she says, they live "paycheck to paycheck". They have only recently begun a meager retirement savings.

Not everyone buys the idea that a person earning $30,000 a year can be poor. Michael Cox, vice president of the Federal Reserve Bank in Dallas, is the author of "Myths of Rich and Poor: Why We're Better Off Than We Think." He argues that the current poverty measure overstates the number of poor people because it does not consider their consumption, only their income.

"The 'poor' people in America are consistently getting more and more and more stuff -- VCRs, microwaves and all those things," Cox said. "People that the government says are poor are living better than the general population of Europe."

"People are not willing to live like their parents did yesterday, when they had one car and one television, and they had a smaller house and didn't go on vacations all the time," he added.

But if poor families are indeed living in large houses and going on frequent vacations, it's not happening in Silicon Valley. Orrante and her two kids live in a tight two-bedroom apartment, for which she pays $1,250 a month. Her kitchen table doubles as her office, with folders of unpaid bills and other financial documents stacked deep on one side. She jogged her brain to remember her last vacation, which turned out to be a camping trip funded by a local social service group. Her battered van has over 150,000 miles on it. In lieu of Pokémon movies and steak dinners, her daughter Lindsey has forged an appreciation for "I Love Lucy" reruns and store-brand macaroni and cheese.

"I don't know how many times my kids have heard, 'No, we can't do that, we don't have enough money,'" Orrante said.

Certainly, the Orrante and Ramirez families are not starving or sleeping on the sidewalk. But it hardly seems reasonable to describe them as "middle income," as federal guidelines do.

The new measures that the Census Bureau is considering would attempt to get a more accurate measure of a family's true disposable income. This means including such non-cash benefits as food stamps and subsidized housing as part of one's income; subtracting expenses such as Social Security taxes and childcare; and varying the income threshold by region to account for cost-of-living variations.

Presumably, this would help needy families in Silicon Valley and other expensive areas of the country. But don't expect it to happen any time soon. In October, The New York Times ran a story claiming the Census Bureau had "begun to revise" the poverty measure. The bureau promptly shot back a press release saying it did not have authority to change the poverty measure -- the Office of Management and Budget does -- and that its ongoing study will not be completed for "several more years" anyway.

If history is any indication, "several more years" might be optimistic. Since the poverty measure's inception, all significant attempts to change it have failed.

Ironically, the person who "invented" the poverty measure, Mollie Orshansky, has also been one of its most fervent critics. Working as an economist for the Social Security Administration, Orshansky involuntarily became the "mother" of the poverty line after officials in the Johnson administration took note of report she wrote in 1963, entitled "Children of the Poor." In that report, she created a crude set of guidelines for the bare minimum a family needed to spend to survive.

Orshansky was assigned to use her 1963 "poverty line" as a basis for developing an official poverty measure. In 1969, the federal poverty line was set at $3,743 for a family of four. Many historians say President Johnson intentionally wanted the poverty line to be set low, to boost the apparent success of his anti-poverty programs. A lower poverty threshold made it easier for his programs to lift people "out of poverty" and thus seem more effective.

"There were other things that had to be considered," said Orshansky, who is now retired and lives in Washington, DC. "I didn't do [the 'Children of the Poor' report] with the expectation that anyone would be using it. If we want to determine what everyone needs to be able to purchase the minimum -- food, health, clothing or what have you -- you'd have to do more than what I did."

If the "mother" of the poverty line herself has always been critical of the very formula she helped invent, why has it never been changed?

The typical answer is politics. Changing the poverty measure would presumably place millions more families below the poverty line, meaning billions of extra dollars spent on anti-poverty programs. And no politician wants to see the poverty rate skyrocket -- especially not after it's been declining every year.

"People in government don't get a lot of reward for making this kind of change," said Tom Corbit, assistant director of the University of Wisconsin's Institute for Research on Poverty.

Even in the unlikely chance that changes are implemented, some researchers say they will likely be insufficient.

"We should probably have two or three poverty measures," Mayer said. "No one poverty measure can ever tell you any one thing you need to know."

As for Karen Orrante, she is currently recovering from shoulder surgery, a result of an injury she sustained while moving into her apartment. Her operation forced her to lose nearly four months of work and rely on relatively meager disability payments. The bright side of the injury is that it also got her some money -- two dollars a day, to be exact. Thanks to her reduced income, she temporarily qualified for Lindsey's school lunch program.

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