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HEADLINE: A House-Poor Formula?; Poverty Calculations Ignore Regional Home Prices, Rising Medical Costs

BYLINE: Jonathan Weisman, Washington Post Staff Writer

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When a prostitute attempted suicide in the Ocean Side Inn's parking lot this summer, Barbara Malone decided it was time for her 7-year-old, Charlene, to stay with a relative. But in that moldy motel in Revere, Mass., Malone at least had a roof over her family's head, courtesy of the state of Massachusetts.

Then, in July, the arbitrary rules of federal poverty-rate calculations collided with the state's budget crunch to threaten even that. Massachusetts reduced the maximum income allowed for people to qualify for its emergency housing assistance program to equal the federal poverty line. Malone had a choice: Toss her longtime auto-detailer boyfriend, Charlie Brown, out of the household, or have him cut back his hours and pay at a local Infiniti dealer.

They decided to cut back, from a 40-hour workweek at $ 17 an hour to 35 hours at $ 12. Federal officials have debated for more than a decade whether to update the way the government calculates poverty to reflect widely differing regional costs of living and new costs such as out-of-pocket medical expenses. But the convergence of recession, skyrocketing housing costs and rising health care expenditures has turned an arcane policy debate into an impending crisis for tens of thousands of Americans.

In the states traditionally thought of as poor, Brown's original income -- $ 2,720 a month, or $ 32,640 a year -- should be enough to feed, clothe and shelter a family of five. It is, after all, comfortably above the federal poverty line of $ 21,135 for a family like Malone's. But in the Boston area, where the Chelsea house they had been evicted from now rents for $ 1,600 a month, Malone and Brown found it economically wiser to qualify for state housing assistance than to try to make ends meet on $ 17 an hour.

For now, the federal government and, by extension, most state governments don't much care that the median price of a single-family house in Massachusetts is $ 343,000, while the same house in Arkansas sells for $ 89,600. A spokesman for the White House Office of Management and Budget, which has the final decision in any change of statistical methodology, said the White House is not considering changing the government's poverty calculations, although federal statisticians have been working on more sophisticated measurements for nearly 20 years.

Instead, poverty levels continue to be calculated based on a 40-year-old formula that takes no heed of regional cost variations, out-of-pocket medical expenditures that vary dramatically between age groups, or income other than a standard paycheck.

"We could do a much better job measuring poverty, its depth, its duration and the consequences of geography," said Rep. Thomas C. Sawyer (D-Ohio), who held hearings on the issue when he chaired a House subcommittee on census and population. "But we refuse to do it."

Rebecca Blank, dean of the University of Michigan's Gerald Ford School of Public Policy, agreed. "The politics of this is what has stopped it, not the technical problems," said Blank, who served on a National Academy of Sciences panel that in 1995 recommended a broad overhaul in poverty calculation methods.

The impact of the government's stripped-down methodology is huge: Federal poverty-line calculations govern the allocations of government assistance programs, including Title I education aid, housing assistance, Medicaid and home-heating subsidies. "Rich" states like Massachusetts receive the minimum federal reimbursement for Medicaid spending -- 50 cents on the dollar -- while "poor" states like Arkansas might receive reimbursements of up to 70 percent. Community development block grants are allocated based on complex formulas that include the concentration of poverty.

"All these formulas significantly underestimate the problems we have here," said Robert C. Gehret, deputy director for policy development and research at Boston's Department of Neighborhood Development. "We've been battling this for 10 years."

But the politics are real, too: If the government were to update its calculation methods, the public's notion of where the poor live would be turned on its head. There could be a shift of public aid from the South to the Northeast and West, and by almost any alternative accounting, the country overall would look poorer.

"It's like the unemployment rate," said former Rep. Lee H. Hamilton (D-Ind.), who as chairman of Congress's Joint Economic Committee held hearings in the 1990s on poverty calculations. "The unemployment rate is an enormously important political figure. The poverty rate is, too."

The cost to the federal government could be enormous as well. Southerners tend to be reluctant to avail themselves of government aid, so shifting resources away from the South may offer little savings, said Patricia Ruggles, a Democratic aide on the Joint Economic Committee who wrote a book on poverty-rate calculations. But northeasterners and westerners may be less hesitant to take the assistance.

A recent analysis by Economy.com Inc., a private economic-forecasting company, found that simply tying poverty rates to one other factor, housing values, would have a dramatic impact.

Massachusetts, a state that is officially considered the 36th poorest in the nation, would leap to the fourth poorest. Hawaii, where the median price of a single-family home is $ 285,000, would jump from the nation's 23rd-poorest state to its third. New Hampshire, officially the nation's richest state, would become the 20th poorest.

Meanwhile, many states traditionally thought of as impoverished would suddenly seem quite average.

West Virginia is officially the fifth-poorest state in the union. Take into account the cost of housing -- the median house price is $ 97,300 -- and it's only the 28th poorest. Arkansas, the fourth-poorest state, would drop to 25th.

"My goal was really to say that the information out there is very imperfect and that there are solutions that most scholars agree would improve it," said David Givens, who wrote the study. "Policy decisions are made based on where poverty is supposed to be. The government has to know where to direct its resources."

Under the same calculations, Maryland, the 48th-poorest state, would become the 37th poorest. Virginia, the 43rd poorest, would move to 38th. And the District, No. 2 in poverty rankings, would become No. 1.

The official method of calculating poverty predates President Lyndon Johnson's War on Poverty. In 1963 and 1964, an economist at the Social Security Administration figured that an average household devotes about a third of its income to food costs, basing those costs on a 1955 Agriculture Department survey of household food consumption. The researcher then calculated a poverty threshold based on the cost of an adequate diet. That calculation, adjusted for inflation, has basically never changed.

In 1995, the National Academy of Sciences recommended a series of changes to the poverty-line calculation to account for regional cost-of-living differences, non-cash income such as food stamps, tax credits and housing subsidies, and expenditures on necessities that vary between age brackets, such as medical expenses.

Based on those recommendations, the Clinton administration asked the Census Bureau to develop what are still called "experimental" poverty measures, which began appearing in 1999. In its analysis of poverty in 2001, the bureau showed in September how much the nation's poverty rates are affected by counting methods. And the picture was not pretty. Any positive that should have come from counting non-cash benefits was swamped by the negatives of housing and health care costs.

Specifically, by adjusting for regional housing cost variations, non-cash benefits and medical costs, the nation's 11.7 percent official poverty level jumps to 12.9 percent. The child poverty rate declines slightly, from 16.3 percent to 15.4 percent, but poverty among the elderly leaps from 10.1 percent to 16.2 percent, almost completely because of rising health care costs, said John R. Gist, associate director of the public policy institute of AARP, the giant senior citizens' lobbying group.

The poverty rate in the Northeast jumps from 10.7 percent to 13.8 percent. In the West, the change is even more dramatic, from an official 12.1 percent to 16.1 percent. In contrast, poverty rates in the South and Midwest tick downward slightly.

To New Englanders like Barbara Malone, such adjustments would come as no surprise. The fair market value of a two-bedroom apartment in Boston is $ 1,343 a month, higher than the $ 1,165 monthly income of a full-time Massachusetts worker earning minimum wage.

But because eligibility for emergency housing assistance is linked to the federal poverty line, a single mother with one child earning the minimum wage would earn too much to qualify for shelter. The income cutoff would be $ 1,017 a month.

In 1998, the Women's Educational and Industrial Union in Boston calculated what it called a monthly "self-sufficiency wage" for the city equaling $ 3,547 a month, when the federal poverty line was $ 1,470.

CORRECTION-DATE: December 14, 2002, Saturday

CORRECTION:
A map published Dec. 13 incorrectly linked poverty rankings for Arkansas to Alabama.

LOAD-DATE: December 13, 2002