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Guest Blog: How Federal Income Eligibility Limits Harm our Poorest Communities and Why a National Income Eligibility Floor is Needed

The COVID-19 pandemic underscored the critical need for federal investment in housing and economic development to stabilize vulnerable populations and promote equity. However, the system that policymakers currently use to distribute that investment is built around flawed area median income (AMI) calculations, which often disadvantage low-income Americans in rural areas that suffer from high concentrations of poverty—including Appalachia, the Mississippi Delta, the Colonias, and tribal lands. Ironically, under the current system, the overall poverty of a community has become an obstacle for many needy families accessing federal anti-poverty programs. 

Here’s how the system works: Access to most federal anti-poverty programs, including those to support affordable housing and community development, is based on whether a household qualifies as “low income,” “very low income,” or “extremely low income.” Whether a household falls into one of these categories is determined by reference to the incomes of that household’s immediate neighbors—their AMI. A low-income household, for example, is one with an income of 80% or lower than the area median—adjusted for household size. Two households with exactly the same income could be treated differently for program eligibility purposes depending on where they live and the incomes of their neighbors. 


The Skewing Effect of AMI Calculations 

This skewing effect is displayed when comparing the treatment of urban and rural households. In urban areas, 30.4% of the population qualifies as “low income,” whereas only 16.3% of the population qualifies in rural areas. A major cause of this disparity is that cities typically have relatively affluent residents who make their lower-income neighbors appear worse off by comparison. However, rural parts of the country tend to have higher overall levels of poverty, thereby skewing the AMI calculation. 

Of course, a family residing in a rural community who may not qualify as “low income” is no less worthy of federal assistance than a family with the same income who does qualify by virtue of living in a city with comparably higher-income residents. Determining eligibility for anti-poverty relief solely on the basis of income comparisons among neighbors fails to accurately assess economic well-being and need.   

Congress recognized this problem when it created the Homeowner Assistance Fund, which aims to help pandemic-impacted households catch up on mortgage and utility bills. Instead of determining eligibility for relief under the program solely using the typical AMI calculations, Congress directed that the majority of Homeowner Assistance Fund monies be targeted to households making less than 100% of the national median income of $78,500. However, while maintaining this targeting requirement in the program’s initial regulations, the Treasury Department limited access to the program to homeowners making less than or equal to 150% of the local AMI. For nearly 600 counties across 17 states, that 150% threshold was actually below the national media income of $78,500. In effect, Treasury’s reliance on AMI over national median income made families that Congress intended to be a priority, ineligible for the program. 

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In early August, the Treasury Department walked back this decision, and changed the maximum eligibility level for the Homeowners Assistance Fund to be either 150% of AMI or 100% of the national median income, whichever was greater. While this brought the regulations in line with congressional direction, it continues to perpetuate disparate access. In the impacted counties, a family must meet the priority population metrics to qualify for assistance. In every other community in the nation however, families either may meet the priority population metrics or, if they have incomes too high for that, may qualify under the maximum income ceiling. For a family of four, where they live is the only determination for whether or not they can receive help to save their home.  

Note: The same family, earning area averages for their professions, are eligible for HAF assistance in a thriving urban area (Montgomery Co., MD), but ineligible in an impacted rural county (Perry Co., KY) because of income eligibility standards based on AMI. Wage data for Perry Co., and Montgomery Co., from May 2020 Bureau of Labor Statistics data.  

While there is hope that this disparity in the Homeowners Assistance fund regulations may be redressed by the Treasury Department, the sad fact is that program eligibility based on AMI is not a new issue. The recent pandemic response programs  merely suffer from long-standing issues that have been ignored or worked around for many years by both federal agencies and Congress.  

In fact, rural Americans have been shut out of other federal housing resources that calculate eligibility based on AMI for decades, including HUD’s Public Housing, Housing Choice Voucher, Section 202 housing for the elderly, and Section 811 housing for people with disabilities programs. AMI definitions are also used to calculate eligibility for Low Income Housing Tax CreditsCommunity Development Block Grants and other community development programs that are essential for post-COVID economic recovery. Even the U.S. Department of Agriculture, with its large rural constituency, uses the AMI system for calculating incomes in its own housing and rural development programs.  

There is supposed to be a method to the AMI madness: the localized calculations of AMI are designed to account for geographic differences in the cost of living. But while urban households annually make on average $15,779 more than households in rural areas, they only spend $7,808 more than rural households. In fact, variations between costs of consumer goods in rural and urban places are not great: food staples, car repair bills, and college tuition prices are broadly similar across the country.   

In some of the worst-impacted counties, AMIs and the income limits for programs targeted to low-income, very-low income (50% of AMI), and extremely-low income (30% of AMI) households are so depressed as to be completely unreasonable. In Perry County, Kentucky, very-low and extremely-low income limits were both pegged at $25,600 for fiscal year 2019, the result of Congress creating a floor for the calculations that ensured extremely-low income limits would not fall below poverty level guidelines, which are calculated separately from AMI based on household costs for necessities like food.  

The skewing effect of the AMI calculations manifests itself in other ways. For example, in Perry County, the difference between an “average family” making 100% of AMI and a “low-income” family at 80% of AMI is merely $4,450 a year. In a thriving urban area like Washington, D.C. (albeit one with poverty and inequality issues of its own), that same difference is $43,700 a year. The smaller the gap between a low-income and an average-income family, the greater the indication that a community is struggling with broad-based poverty and economic stagnation. 


Efforts to Create a State Floor Do Not Go Far Enough  

When legislating average incomes and limits, Congress recognized place-based disparities and included a “state floor” into the calculation of non-metropolitan county AMIs. This state floor was designed to prevent a particularly poor county from suffering from a depressed AMI relative to its neighbors. The floor mechanism, written into the Housing and Community Development Act of 1987, directed that if a rural county’s AMI was lower than the median income of the entire non-metropolitan area of the state, the higher statewide number should be used.  

This state floor mechanism works well in states like California, New York, and North Dakota with relatively affluent non-metropolitan areas and only a few isolated poor counties. Congress’ intended safety mechanism breaks down, however, in places where non-metropolitan poverty is concentrated in the state, lowering AMI calculations and thus the state floor. The people in those communities are doubly disadvantaged by living in a poor county and a poor state. As a consequence, federal assistance does not reach the disadvantaged populations for whom it is most needed. 

The disparate outcomes of this policy carry deep racial justice implications, particularly for the Mississippi Delta, the Colonias, and tribal lands where poverty is concentrated in communities of color. These outcomes merit close scrutiny as the federal government examines the equity impacts of its laws and policies under one of President Biden’s early executive orders. 

To address AMI-based shortcomings, Congress should consider whether a new “national non-metropolitan median income” would create a better safety mechanism for people living in places where the state nonmetropolitan median income is depressed by concentrated rural poverty. A national income floor would increase AMIs for nearly 1,000 impoverished counties across the country, reducing unfair disparities and raising the amount of money a family can earn and still qualify as “low income” by as much as $8,928. More importantly, it would constitute an important first step in correcting those public policies that disadvantage American families in need solely on the basis of where they live.


Jim King is the CEO and President of Fahe, a network of 50+ nonprofits working to advance opportunity for the people and communities of Appalachia. He is a member of BPC’s Housing Advisory Council 

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