Oh SNAP! An Organizational Failure

As Congress attempts to work out a new farm bill, at the center of the debate between the House and Senate is the Supplemental Nutrition Assistance Program (SNAP), more commonly known as food stamps. SNAP has grown significantly over the past few years, rising from $37.6 billion in 2008 to $78.4 billion in 2012 according the USDA. Of the roughly $1 trillion expected to be spent over the next decade under the anticipated farm bill, about $800 billion is for nutritional assistance programs.

(One may wonder why food stamps and school lunch programs are part of the farm bill. They have been pretty much since World War II, when farming states found a national security reason (under-nourished draftees) to boost demand for excess agricultural production by channeling more food through elementary and secondary schools.  It also makes a nice urban-rural quid pro quo; legislators from urban areas with many more SNAP-eligible voters have incentive to support sending money to rural areas to support farmers, and vice-versa.)

Not surprisingly, the Democratic-controlled Senate wants to “rein in” SNAP spending by $4 billion over the next decade—or about 0.5%–while the Republican-controlled House is looking at a “catastrophic” cut of $20 billion—or less than 3%–over the same time. That’s 3% off a program that has more than doubled in the past five years. (You might sense the sarcasm here).

One of the reasons SNAP has grown so tremendously to begin with—in addition to the economic situation (it has still grown 10%+ the last two years)—is an organizational failure in the way SNAP is administered. Federal guidelines set the income threshold for eligibility at 130% of the poverty level. That’s approximately $30,000 per year for a family of four. However, some States have increased that threshold to 200%. This is where the organizational failure comes in: the States have the authority to increase that threshold, but they have no responsibility for the costs associated with it.

There are three aspects of organizational structure that help determine the effectiveness of an organization—or organizational system: decision rights (authority), incentive systems (responsibility), and performance measures. (Brickley, Smith and Zimmerman introduced this framework in their managerial and organizational economics text; a good choice if you want something more than the usual, sterile managerial course.) Simply put, you need the right people with the authority to make decisions, facing an incentive system that is properly aligned to the organization’s objectives, and evaluated by performance measures that accurately capture the value-contribution of their decision-making activity. If any one of these elements is out of line, the organization will suffer from one (or more) of a number of incentive or functional failures.

It might not surprise you that a government program, like SNAP, would suffer from poor organizational design. (Actually, it might surprise you if one didn’t!). The House version of the farm bill would remove the authority of States to be more generous than the federal guidelines by forcing them to stick with the federal metric. That would be a step in the right direction—that, or simply making States responsible for any spending above the federal guidelines. If a State wants to be more generous, the Fed’s shouldn’t stop it–as long as the State pays for its own generosity.

When authority and responsibility are aligned, organizational systems work much better. It’s true within a business or non-profit. It’s also true within a value-chain, network or interconnected organizational system of any kind. Getting the organizational architecture right is a challenge for diligent decision-makers who understand their organizations. So it’s understandable why Congress is disadvantaged in this regard. There are plenty of other things to critique in the farm bill. But this one should be a no-brainer.