Posted by: bmeverett | December 29, 2010

A LIHEAP of trouble

With the brutal snowstorms in the Northeast this past week comes a renewed interest in helping the poor cope with severe winters. For the last 30 years, the federal government has administered a program called The Low-Income Heating Energy Assistance Program or LIHEAP. One would think that the program would be intended to help people who are (a) poor and (b) in serious danger of freezing if they are unable to pay for fuel. You’d be wrong, and therein lies a good lesson in how federal policy is made.

The 2010 appropriate for LIHEAP is roughly $5 billion. Let’s see what we could do with that money. We can start by considering households below the federal poverty level, which is currently $22,050 for a family of four. According to the Census Bureau, there are currently 17 million households in the US below the poverty line. The term “poverty” is itself controversial in the US. According to the Heritage Foundation, 46% of the poor own their own homes. Seventy-six percent have air conditioning. Three-quarters own a car and 30% own two cars. Ninety-seven percent have color TVs, half have two or more color TVs. Seventy-eight percent have a VCR or DVD player and 62% have cable television. The US is in the historically unprecedented position of having large numbers of obese poor children, who consume too much of the wrong foods. This is not “poverty” as it’s understood in India or Sub-Saharan Africa, but let’s take the poverty numbers at face value.

The low-income families with the biggest problem are those using heating oil, propane and electricity. According to the Energy Information Administration, current prices are $3.26 per gallon for heating oil and (on an energy-equivalent basis) $3.97 for propane and $4.56 for electric heat. The equivalent price of natural gas, for those fortunate enough to have access to it, is only $1.99 per gallon. Let’s focus on households heating their homes with propane, heating oil and electricity.

In order to determine who is in real need of heating assistance, we need to introduce the concept of “heating degree days” or HDDs. An HDD is one day on which the average of the high and low temperatures is one degree below 65° Fahrenheit. So, for example, if the low temperature in Boston on December 3 is 20° F and the high is 40° F, the average temperature for the day is 30° F, equivalent to 35 HDDs. The more degree days a particular location experiences, the colder the weather and the greater the heating requirement for your home. If we focus on the core winter months of November through March, the total number of HDDs varies from 8,659 in Alaska to none in Hawaii. Massachusetts experiences 4,957 HDDs in an average winter, while Georgia experiences only 2,230. Another way of looking at this situation is that the average winter temperature is 8° F in Alaska, 32° F in Massachusetts, 50° F in Georgia and 65° F in Hawaii. It can still get cold in Georgia, but rarely frigid enough for long enough to threaten people’s lives. Cold is an inconvenience in Georgia, but it’s a matter of life or death in New England. So let’s limit our assistance to people in the 30 states where average November-March temperatures are below 40° F. Using the Energy Information Administration’s Residential Energy Consumption Survey and Census Bureau data, these 30 states contain approximately 1.6 million poor households using heating oil, 0.9 million using propane and another 0.2 million using electricity for heating. If we distributed our $5 billion in LIHEAP funds over this group, each family would get $1,800, equal to roughly 80% of the heating costs for these poor families.

That should certainly be enough to take care of those people whose lives are in danger because they lack sufficient funds to buy fuel. Mission Accomplished and on to the next task! Unfortunately, Congress doesn’t see it that way. First of all, such a program would be way too targeted. Helping a few million people who may or may not vote makes no political sense. So Congress expands the program to cover all fuels, including natural gas. That’s fairer, but it also triples the number of eligible people from 2.7 million to 7.4 million. Our $5 billion will therefore average about $675 per family or 41% of their winter heating costs. That’s still a pretty good helping hand and should bring in a lot more votes.

On the other hand, no self-respecting Congressman or Senator would support a program that provides no funds to his state or district. The New England congressional delegation could never get support for such a program from Florida, Louisiana or California. So LIHEAP won’t work unless every state gets money. Only inside the Beltway is it logical to send funds to Hawaii for home heating. Yes, it gets very hot in the South, but extreme heat kills many fewer people than does extreme cold. Heat is mostly uncomfortable rather than dangerous, and we should remember that our hot states were settled long before the advent of air conditioning, while living in the north has always been impossible without heat. In any case, we now have a politically viable program, but there are a total of 17 million households below the poverty line in the US. Our $5 billion is getting stretched a bit thin. On average, we can now give each household only $294.

Congress still can’t leave the program alone at helping 17 million households. The LIHEAP law states that anyone whose income is below 60% of the State Median Income should be eligible for LIHEAP funds. Although the SMI differs from state to state, the national average median income for all states is about $50,000. Sixty percent of the median income is thus about $30,000 – about a third higher than the poverty level. In total, about 36 million households are at or under $30,000 in income, and we have now extended the program from aid to the freezing poor to aid to the occasionally uncomfortable lower middle class. The average payment will now be just under $140 per household.

But Congress couldn’t even stop there. In each of the last two years, the LIHEAP appropriations bills raised the eligibility level to 75% of SMI, making a total of 45 million households or nearly 40% of the total population eligible for assistance. In Massachusetts, for example, where 75% of the State Median Income is around $45,000, many of the state employees processing LIHEAP applications are themselves eligible for assistance under the program. The average payment under the program is now down to $110 per household. By taking these steps, Congress has changed the program from targeted help to a small group of people in need to just another federal program that spreads money around without serving any particular purpose.

LIHEAP is symptomatic of our overall fiscal problem. The federal government starts out with an objective, in this case keeping poor people from freezing to death, and ends up through a series of political contortions with a mess that simply spreads money around. The biggest complaint from democrats about LIHEAP is not that it’s structured in such a ludicrous manner, but that it’s underfunded. In other words, we can compensate for poorly structured programs by throwing more and more money at them. As discussed, the $5 billion LIHEAP appropriation is enough to give $1,800 to everyone living in a cold state, below the poverty line and using expensive fuels. To give that amount to all 45 million eligible households, the total funding would need to be $81 billion a year.

Opposition to this nonsense is not a lack of compassion, but simply a demand to manage government functions in some sensible manner. Is that so much to ask?


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