Foregone Benefits and the Economy
A brief look at Iowa's opt-out of the federal EBT summer nutrition program
I know this is old news. Iowa Governor Kim Reynolds decided to remove Iowa from the U.S.D.A.’s summer EBT school nutrition program during the Christmas 2023 holiday season.
While her decision is old news, the effects won’t be felt until the coming summer. At that point, roughly 200,000 Iowa students who are eligible for school nutrition assistance will not receive $40 per month in summer assistance. The implications of this for those students and their families – now and into the future – are substantial, but the impact of this decision goes well beyond the children who are directly involved.
We can estimate the overall effect of this on the Iowa economy with an economic impact modeling system available from IMPLAN (implan.com). IMPLAN provides an input-output model of the Iowa economy that is integrated with a household expenditure model. Using the EBT summer nutrition benefit that Governor Reynolds decided to forego as input, the IMPLAN model can be set up to show how this income loss affects the overall Iowa economy.
In the 2022-2023 school year, the Iowa Department of Education reported that 203,607 Iowa school children were eligible for free and reduced-price lunches. That is nearly 40% of Iowa school children. Taking a potential $40 per month food benefit for each of these children over a three-month summer amounts to more than $24.4 million in foregone benefits in the state of Iowa.
This is $24.4 million that will be foregone on the basis of executive fiat. The governor, alone, implemented this decision to deny benefits to Iowa school children.
Foregoing this benefit will not reduce Iowa’s federal tax burden. We will just forego the benefits of the taxes we have paid. Governor Reynolds is not stopping the transfer of money between and among different groups of Iowans. She is simply standing in the way of outside funding to benefit Iowa’s poor.
While the money comes in a form that can only be redeemed for groceries, it is proper to look at it as general household income. Recipients maintain overall household budgets and deal with a variety of priorities and needs. They will undoubtedly adjust their other family expenditures relative to the increase in funds available exclusively for grocery purchases.
The expenditure of this $24.4 million in foregone household income under the federally funded summer EBT program would have generated an estimated $26.6 million in business transactions within the Iowa economy. $15.2 million of these transactions would have involved new goods and services created within the state’s economy. Of this foregone $15.2 million in economic production, $7.8 million would have been paid out as labor income to 156 Iowa proprietors and employees. This is all in addition to the $24.4 million in original benefit provided to the families of Iowa’s school children.
All of this is being foregone because Governor Reynolds did not want to allocate $2.2 million in Iowa funds to administer the program. Ironically, the expenditures driven by this foregone $24.4 million would generate an estimated $1.58 million in state and local taxes – offsetting all but $0.62 million of the administrative expenditure Governor Reynolds is saving.
Governor Reynolds likes to say that government should run like a business. There is no business in the world, however, that would forego a $15.2 million increase in production to avoid a $0.62 million investment.
This is not the first time Governor Reynolds has done this. In 2021, again by executive fiat, she terminated federally funded pandemic unemployment benefits 12 weeks before the funding program expired. This cut household incomes of over 30,000 Iowans by over $150 million. Expenditures resulting from this income would have generated at least $80 million in Iowa economic production resulting in over $41 million worth of labor income supporting 837 Iowa jobs in addition to the original benefit expenditures. All of this would have been an important boost to Iowa’s economy as it struggled through the pandemic.
Iowans deserve better.
Those are my two cents. Spend them as you will.