Food Stamp Program SUA Requirements and Methodologies

I. Purpose

This notice reminds state agencies of the requirements of the Food Stamp Program regulations and suggests guidelines for development of standard utility and/or telephone allowances by presenting examples of some of the methodologies used by states to develop these allowances. While the regulations are quite specific on the elements that must be included in the standard utility allowance, state agencies are allowed considerable latitude in establishing the methodology for determining the standard. In this context, there is no "right way" or "wrong way" to establish a standard. The standard utility allowance is designed to make the program more accessible to households, ease the burden on the eligibility worker in computing the shelter costs deduction, and reduce the quality control (QC) error rate for the utility cost component. In setting the amount of the standard, the state agency should try to strike a balance between administrative simplicity and allowing households to claim a standard that is significantly higher than the utility costs they actually incur. Our intent here is to present methods which are simple to apply and are reasonably accurate. Regardless of the method chosen, state agencies must still demonstrate to FNS that any standard utility allowance accurately reflects the actual costs to food stamp households and is set at a level that will actually lead to a reduction in the QC error rate.

II. Policy

State agencies are required to develop and implement an FNS approved standard utility allowance by Oct. 1, 1979. All standards currently in use which were approved under former section 271.3(c)(1)(iii)(h) are subject to review for compliance with the new regulations. The policy restate in the following paragraphs is found in section 273.9(d)(4)(iii) and (5) of the regulations. We have identified below those elements that state agencies must include in developing the standard utility allowance and those which they may implement at their discretion.

1. Mandatory elements
   State agencies are required to consider the following elements in developing the standard utility allowance:
   1. Types of Utilities. The state agency may develop either individual standards for each expense or one standard covering all expenses. If a single standard is used, the telephone allowance must be broken out as a separate item for use by households incurring telephone costs, but which are not entitled to claim the single standard. All utility standards shall include the following types of expenses:
      1. Heating and cooking fuel, e.g., natural or bottled gas, coal, fuel oil, or electricity;
      2. Cooling and electricity;
      3. Water and sewage;
      4. Garbage and trash collection; and
      5. Basic service fee for one telephone, including tax on the basic fee.
   2. Annual Update. The state agency shall review the standard utility allowance and the telephone allowance, if any, at least annually and adjust these allowances as necessary to reflect changes in the cost of the utilities. The amount of each update, as well as the review schedule and the method used to update the standard, is subject to FNS approval. State agencies may wish to time the annual update of the utility standard to coincide with the annual Federal adjustment of the maximum limit on the dependent care/shelter deduction.
   3. Seasonal Variation. The standard utility allowance shall vary seasonally, unless the state agency can demonstrate to FNS that such variations are not warranted. If the state agency can show that the temperature range and other climatic factors do not cause the cost of utilities to vary significantly from season to season, then a year-round standard may be used. The seasonal variation should be established for the heating and non-heating seasons, at a minimum. Additional variations are at the discretion of the state agency. The telephone standard is not subject to this provision.
       
2. Optional Elements. State agencies may wish to consider, but are not required to use, the following elements in developing the standard utility allowance:
   1. Optional Variations. In addition to the required seasonal variation, the state agency may wish to vary the standard utility allowance or the telephone standard, or both to take into consideration such factors as:
      1. Geographical differences, e.g., separate standards for northern or southern parts of a state or for inland or coastal areas;
      2. Types of utilities predominantly used in different areas within a state, e.g., natural gas for heat in one area, but fuel oil or electricity in others;
      3. Type of dwelling used by the household, e.g., one standard for apartments, another for single family dwellings;
      4. Household size, e.g., a different standard for each household size or range of household sizes; or
      5. The month of application and number of months the household is certified for.
   2. Interim Updates. Even though state agencies are required to update the standard utility allowance only once a year, state agencies may wish to provide a mechanism for an interim update of the standard if an unexpected increase in utility rates or some other factor causes increasing numbers of households to abandon use of the standard and begin to claim actual, higher costs. In addition, the State agency may elect to change the methodology used to compute the standard utility allowance. This change can be done at any time during the year, although the State agency may wish to time any change in methodology to occur at the required annual update.
   3. Optional Telephone Standard. The state agency may develop a method, subject to FNS approval, for calculating a mandatory telephone standard allowance for the telephone if the State has separate standards by utility. In states with a single utility allowance, the telephone allowance would apply to households which are not entitled to claim the single standard, but which, nonetheless, incur separate telephone expenses. The State agency may mandate use of the standard telephone allowance even if actual costs are higher.
      The state agency may develop the standard telephone allowance through the use of quality control data or by simply determining a state-wide (project area-wide) average of basic service fees for one telephone, plus any tax on the basic fee. The state agency may wish to weight the average in favor of the largest number of households paying a particular rate, if this information is available from telephone companies or public utility commissions.
   4. Monitoring Use of the Standard. Use of the standard allowance is designed to reduce the QC error rate and to reduce administrative complexity. State agencies (especially those which have never used a standard utility allowance) should monitor the use of the standard versus use of actual higher costs claimed by households. If a large number of households are claiming actual expenses and the QC error rate persists, the standard is not adequate and its value is lost. Use of the actual costs will be picked up through QC reviews and should be reported to the unit within the state agency responsible for developing and updating the standard utility allowance.

III. Examples of Methodologies

Attachments 1 through 3 to this notice are examples of methodologies developed and used in Colorado, New Hampshire, and Texas. FNS reviewed the methodologies used by all states with approved standard utility allowances and found these to be fairly representative of the approaches followed by the majority of states. The attachments give information on data gathering techniques and data sources, and illustrate how various options as well as mandatory seasonal variations are incorporated.

The Colorado method (attachment 1) uses averages from utility providers and incorporates regional usage and taxation variations, as well as inflation rate factors. In some instances, averages are weighted according to utility providers, regions, and population served. No method for updating the standard is specified; however, it is clear that the data base developed by the state could be recomputed to factor in either inflation or rate increases.

The New Hampshire method (attachment 2) uses a model constructed using degree days and average heating costs, adjust for inflation. For non-heating electric costs, the average usage per household and the cost per kilowatt hour was determined and adjusted for inflation. The remaining expenses were determined from QC data. the method includes a statement that standard amounts will be updated annually using the Heat and Utilities Index. The household's standard is based on the month of application and number of months in its certification period.

The Texas method (attachment 3) uses QC data adjusted for inflation. The state has set out to establish by analysis of data the optimum percentage of households that should be able to use the standard allowance. The method includes a formula for updating the standard using the Utilities Price Index. States are warned that the Texas method requires some fairly complex calculations and probably should not be attempted unless sophisticated automatic data processing equipment is available.

It is possible that state agencies may wish to adopt other methods to address unique conditions found in their states; however, we thought the examples cited were particularly well-stated and easy for other states to adopt. In addition to the guidance in the Attachments, state agencies should consider the following:

1. Deciding on Methodology. The three examples cited in the are present a cross section of the techniques used by a majority of state agencies. Without attempting to favor one method over another, we want to make some observations concerning the use of the methods.
   
   The somewhat limited data we have available suggest that patterns of utility use among the food stamp population do not differ significantly from that of the general population; therefore, average residential user costs supplied by utility companies (and models constructed from rate temperature data) may be used to develop standard utility allowances. However, states are cautioned that the use of raw unadjusted averages and reduction in error rates if too few households claim the standard. We suggest that state agencies use weighted (by region and population) averages or explore the use of modal, rather than mean, figures, if such information is available from utility companies and will result in a standard that can be used by more households.
   
   If, on the other hand, the state agency uses QC data, it may be possible to estimate with greater precision the number of households which will be able to use the standard. In setting the amount of the standard, the state agency should attempt to strike a balance between administrative simplicity and allowing households to claim a standard that is significantly higher than the utility costs they actually incur.
    
2. Update Methodology. Ideally, the state agency will submit the methodology to be used to make the required annual update at the same time it submits the standard utility allowance for approval. To update the standard, the state agency may re-compute the standard by factoring in the latest rate increases or state-level utility price indices based on the rate of inflation, or by simply adjusting the single standard amount by the latest possible composite utility price indices.
    
3. Individual Standards. Before deciding to develop individual standards for each utility, the state agency should determine if a significant number of households incur some, but not all, of the utility expenses that would entitle them to claim a single standard. If the state agency finds that a majority of households do incur most of the expenses that would be included in a single standard utility allowance, then it may prefer, for simplicity's sake, to adopt a single standard.
   
   If the state agency does not adopt separate standards for each utility, the households may claim the standard for some utilities, but claim higher verified costs on others that exceed the standard.
    
4. Rounding. We recommend that state agencies establish standard utility allowances in whole dollar amounts to decrease the possibility of errors in calculations, especially if individual standards for each utility are used. To get whole dollar amounts, the state agency may round by dropping cents or by rounding up or down to the nearest whole dollar.

IV. Implementation Schedule

The following actions need to be taken to implement the standard utility allowance regulation on schedule:

1. State Agency Action. State agencies shall either update utility standards approved under the former regulatory requirements or develop entirely new standard utility allowances by Oct. 1, 1979. To meet this deadline, state agencies should submit for approval proposed standard utility allowances, including appropriate supporting data and justification for use of a year-round standard (if necessary) to FNS regional offices by mid-August 1979. This will allow sufficient lead time for FNS approval, any necessary computer programming changes, and distribution of instructional material to local offices. State agencies that fail to implement the provision as required by Oct. 1, 1979, may be subject to warnings and sanctions under section 277 of the regulations.
    
2. FNS Regional Office Action. FNS regional offices shall provide state agencies with the new technical assistance mentioned in Section V, below, any requests for assistance from Washington, D.C. staff shall be directed to the appropriate regional branch in the Performance Reporting Division. No later than Aug. 31, 1979, each regional office shall provide an implementation status report to the Director, Performance Reporting Division. The report shall include a list of the states with standard utility allowances approved under the current regulations, the status of states that do not have an approved utility standard, and recommendations for further technical assistance or other appropriate action regarding such states.

V. Requests for Technical Assistance

FNS is prepared to offer state agencies technical assistance in developing standard utility allowances or in updating existing standards. Technical assistance includes help with developing statistical techniques and a sampling plan prior to data gathering; review of statistical methods and resulting figures for accuracy and validity; and informal review of standards prior to formal submission for approval. FNS regional offices will evaluate the requests for assistance and assign staff as appropriate to work with the requesting state. State agencies should make their needs known to the regional offices as soon as possible.

Alberta C. Frost
Acting Deputy Administrator for Family Nutrition Programs

Attachment

• Colorado Methodology
• New Hampshire Methodology
• Texas Methodology