This report was prepared by Shelley Curran. Shelley is an intern with CFPA and a graduate student of Policy Analysis, at the La Follette Institute of Public Affairs, University of Wisconsin. For more information please call (415) 777-4422.
Studies have long shown local economies to be sensitive to trends in consumer demand. Any increase in the purchasing power of individuals has a positive effect on consumer purchases. The increased demand for goods and services results in increased profits and in job creation. These effects will be felt both in firms producing consumer goods and those producing the raw materials, processed components, repair parts, etc., and the services used in production of these consumer goods.
This "ripple effect" is also apparent when purchasing power decreases. A decrease in money circulating in an economy will cause a decrease in demand for goods, and job layoffs will result. The Food Stamp Program is a major federal income supplement program and is specifically designed to increase the food purchasing power of low-income families.
Legislation
With the passage and signing of the "Personal Responsibility and Work Opportunity Reconciliation Act" in August of 1996, most legal immigrants lost eligibility for the Food Stamp Program. In California, an estimated 258,000 legal immigrants will lose benefits September 1, 1997. In June 1997, Congress passed legislation allowing states to purchase food stamps from the federal government using state funds. Whether or not California will allocate funds to purchase food stamps for legal immigrants has become a budgetary decision. The Legislative Budget Conference Committee recently appropriated $100 million for food stamps for legal immigrants, but the matter will be negotiated in the final state budget deal.
This paper analyzes the fiscal and economic impact of these food stamp reductions on California's local economies and on the farm sector. The purpose of this analysis is to highlight these "pocketbook" issues for California decision makers as they enter critical negotiations.
Immigration and California
California has the largest immigrant community in the United States, an estimated four million individuals. The diversity of this community adds to the richness of the state and is unique to California. Legal immigrants hold the same jobs as citizens, their children attend the same schools, and they shop in the same stores.
Because they make up such a large proportion of the population, immigrants play a vital role in California's economy. In addition to supporting local economies through consumption of goods, immigrants pay sales, excise and payroll taxes. In some communities in California, immigrants make up over 30% of the population. Those who are currently receiving government assistance comprise a small proportion of this community - dispelling myths that individuals come to the United States for public assistance. Yet, in communities with large numbers of legal immigrants on food stamps, the effects of this termination from the program will be substantial.
An Example
One such community is Glendale, California, an inner-ring suburb of Los Angeles located in the west San Gabriel Valley. A study by Jennifer Wolch and Heidi Sommer of the Southern California Studies Center, examined Glendale, and found that this community could lose up to 3.5% of its income base with SSI and food stamp cuts to legal immigrants. Unless they successfully naturalize, an estimated 2,848 individuals will lose food stamps in Glendale on September 1. This will result in $2.5 million less circulating in the community due to food stamp cuts alone. This would have a profound effect on the economy of the community reaching not only the food industry but many businesses located in that region.
The Food Stamp Program causes an increase in spending by participants. Money from a family's budget which traditionally is allocated to food is supplemented by food stamps, resulting in an increase in spending on food and on other goods. Typically, a dollar-for-dollar change in food stamps will not only be felt in the food industry but by all industries which produce goods purchased by participants.
In more technical terms, participation in the food stamp program shifts a recipient's budget constraint out, affecting food spending and spending on other goods. With an influx of purchasing power, demand for goods increases. A supplementation effect occurs with the implementation of a targeted food program, allowing participants to meet their food needs and/or supplement their food budget, which in turn frees up money spent on other goods. The income effect for the program is positive because it loosens the budget constraint, allowing almost all participating households the freedom to purchase goods other than food with cash.
The line from points "c" to "d" denotes the food stamp benefit. Families will make consumption choices along their budget constraints. Families who originally spent point "a" on food will increase their consumption of both food and non-food items to point "b" with the influx of food stamps into the budget.
Food consumption in low-income households is income elastic; that is, consumption of food is very sensitive to levels of income. The majority of low-income individuals spend more than half of their incomes on housing, leaving little for all other items including food. Since rent is a fixed item in a budget, families seeking to make up for a reduction in food stamps will have little flexibility in replacing this loss. Therefore, it is very likely that they will eat less.
Alternatively, a decrease in food stamps causes a slippage effect. Reduced benefits will not only reduce the spending on food, but spending on other goods as well. Therefore, in addition to spending less money on food, the demand for all goods in low-income neighborhoods will decline.
Since 1985, dozens of studies have documented the impact of income reductions or restrictions on household food security. Household and community food security, defined as "access by all people at all times to enough food for an active, healthy life...," is threatened by legal immigrant food stamp cuts. The ultimate result will be increased food insecurity, hunger and malnutrition among vulnerable groups such as infants, children and pregnant women.
The elimination of legal immigrants from the food stamp program will have a negative "ripple effect" in local economies. When food stamps are eliminated, individuals and families must either decrease food purchasing by the amount of grant reduction, or they must take money which would go toward other items and spend it on food. In either instance, there will be less money in a family's budget resulting in less money circulating in the community.
The California economy will experience a significant ripple effect with the termination of federal money for food stamps. With the dramatic food stamp cuts enacted in the bill, money which historically circulated in the economy will be removed. This substantial reduction is similar to a downward economic turn and will have a negative effect resulting in loss of business, revenue and ultimately jobs. The effects will be especially apparent in counties with large numbers of legal immigrants and in immigrant neighborhoods in any county.
James Ohls and Harold Beebout of Mathematica Policy Research, in a recent study, estimate that for every dollar cut in food stamp benefits food spending would fall 30 cents and spending on other goods would be reduced by 70 cents. An April survey conducted by the Los Angeles Department of Public Social Services found that 57% of legal immigrants currently receiving food stamps in Los Angeles County will stop receiving benefits effective September 1, 1997.
Given these estimates and applying them to select California counties, the following amounts of money will be taken out of these economies every year:
Economic Impact of Food Stamp Cuts -- Selected California Counties
| County | Estimate of legal immigrants who will be cut off September 1 | Approximate value of Food Stamp Coupons per year | Removal of money in the market for goods other than food per year | Removal of money in the market for food per year |
| Alameda | 7,054 | $6,010,008 | $4,207,006 | $1,803,002 |
| Fresno | 15,160 | $12,916,320 | $9,041,424 | $3,874,896 |
| Los Angeles | 105,553 | $89,931,156 | $62951,809 | $26,979,347 |
| Orange | 15,602 | $13,292,904 | $9,305,033 | $3,987,871 |
| San Bernardino | 12,461 | $10,616,772 | $7,431,740 | $3,185,031 |
| San Diego | 17,512 | $14,920,224 | $10,444,157 | $4,476,067 |
| San Francisco | 5,728 | $4,880,256 | $3,416,179 | $1,464,077 |
| San Joaquin | 10,487 | $8,934,924 | $6,254,447 | $2,680,447 |
| Santa Clara | 15,415 | $13,133,580 | $9,193,506 | $3,940,074 |
| Stanislaus | 3,648 | $3,108,096 | $2,175,667 | $932,429 |
| Statewide | 258,000 | $219,816,000 | $153,871,200 | $65,944,800 |
Using these estimations a projected 258,000 legal immigrants will be cut-off of the Food Stamp Program this year. At an average rate of $71 per month, $219,816,000 will be removed from the California economy every year with thirty percent, or $65,944,800 of that (according to the Mathematica Study) coming from the food industry.
Meats account for the largest share of the low-income household food budget, at 33.8%. Because they are not highly processed, meats have a high percentage of farm value for every dollar. Therefore, the farmers' share for every dollar of meat sold at retail level is 56 cents. Since meat is a large share of most food budgets and the farm value is high, the impact of a cut in food stamps will be felt more so for meats rather than other goods. Therefore, in addition to the reduced protein levels available to low-income families, meat farmers will lose 6.5 cents on every dollar of food stamp reductions. The chart below illustrates similar impacts on other farm sectors:
Loss to Farmers Resulting from California Food Stamp Cuts
| Product | Food Budget Share | Farm Value | Loss to Farmer per dollar in Food Stamp Cut | Yearly Loss to Farmers |
| Meats | 33.8% | 56 cents | 6.5 cents | $4,286,412 |
| Grain Products | 18.3% | 28 cents | 2 cents | $1,318,896 |
| Dairy | 14.1% | 34 cents | 1 cent | $659,448 |
| Vegetables and Potatoes | 11.7% | 18-29 cents | 1 cent | $659,448 |
It should be noted that California's agribusiness industry, which does significant exporting of goods outside the state, will feel the impacts of the reductions in the purchasing power of legal immigrant food stamp cuts across the nation. However, the analysis does not encompass these additional negative repercussions.
Less food and thus poorer health and productivity will not be the only result of the recent federal legislation terminating food stamp benefits for legal immigrants. Sensitive local economies, just beginning to recover from the worst recession in five decades, will also suffer. The negative impacts of this cut, which begin with hungry children, will be felt throughout the state, adversely affecting local grocers, trucking, agriculture and other businesses as well as the statewide economy in California.