ALICE report exaggerates extent of financial troubles among Michiganders

A recent ALICE report from the United Way makes unsupported claims about the condition of Michigan’s children. The report claims that 44% of all Michigan children live in a household with income below what ALICE calls its Threshold of Financial Survival — a statistic based on highly doubtful economic assumptions.

United for ALICE is a project of United Way branches in various states. The acronym stands for “Asset Limited, Income Constrained, Employed.” The Michigan Association of United Ways, with sponsorship from the Consumers Energy Foundation, published its most recent Alice In Focus research brief in April.

“The ALICE Threshold represents the minimum income level necessary for survival for a household,” according to the United for ALICE website. The reports depend on a budget that is updated as household needs and costs change over time. The budget is calculated separately for each county and for different household types.

James Hohman, director of fiscal policy at the Mackinac Center for Public Policy, said ALICE is a flawed metric.

“We don’t drive down the road and see people literally starving to death, which is what that statistic implies,” Hohman said. “If you’re going to claim that four out of every ten households cannot afford basic necessities, you should have a pretty good methodology to justify that claim.”

Even the acronym is misleading, Hohman said. The report does not measure assets, and income constraints are a theoretical issue, he said, as there is no good way to measure them.

Although employment figures are readily available, the report does not consider them. The ALICE households do not necessarily have limited assets, income constraints, or even employment. These characteristics are just assumed by the report.

Hohman said there were two major problems with the report’s methodology. First, the report does not measure the cost of necessities but uses spending averages instead. The households that the report claims cannot afford essential goods are simply those that spend less than average on a selected set of goods and services. That is different from not being able to afford basic necessities.

Second, the authors of the report grouped households of all sizes together when determining how many of them are below the theoretical budgetary thresholds. Although the report constructed different budgets based on household size, it ignores these differences when calculating the number of households below budgetary thresholds. Ultimately it gives the ALICE label to every household that earns less than a specified range, which is between $35,000 to $60,000, depending on the county.

Gov. Gretchen Whitmer and the Michigan Department of Labor and Economic Opportunity have made improving the ALICE rates a goal for Michigan.

“The LEO strategic plan is focused on the creation of good jobs. The ALICE metric is one tool that Michigan can use to understand the challenges facing working families in our state,” Austin Fox, a spokesman for the Department of Labor and Economic Opportunity, said in an email to Michigan Capitol Confidential. “This information is well researched, peer reviewed, updated regularly, and incorporates local data. That’s why many government agencies in 23 states use the ALICE metric as a tool to evaluate whether nor not working families are making ends meet.”

The Michigan Poverty Task Force, which Whitmer commissioned in 2019, uses data from the 2018 ALICE report for Michigan. The task force recently released 29 policy recommendations.

In an email, Brian Wheeler, a spokesman for Consumers Energy, said the Michigan Association of United Ways identifies and represents those who struggle with basic needs.

“The ALICE Report provides insights that regularly inform policymakers, employers and stakeholders, hopefully leading to decisions that improve the health, stability and well-being of some of our state’s more vulnerable residents,” Wheeler said in an email. “The Consumers Energy Foundation is proud to support the ALICE Report as a matter of good public policy.”

Hohman disagrees. “I think it’s a case of people liking the theory too much, and not caring whether the methods back it up,” he said.

Although the ALICE Household Survival Budget is, in the report’s words, “the bare minimum cost of household basics necessary to live and work in the modern economy,” the report uses the 40th percentile of housing costs, without giving reasons for this decision.

By definition, that means 40% of people pay less in rent. But this does not explain whether the typical ALICE household cannot find lower-cost housing, or if it’s simply unavailable.

The report’s hypothetical budget for a four-person home includes child care as a cost. By contrast, the average Michigan household has fewer than 2.5 people and does not pay for child care.

The report also uses a novel definition of poverty. According to United for ALICE: “Unlike the one-size-fits-all model of the Federal Poverty level, which assigns a uniform poverty measurement across the country, the ALICE data is a real-time examination of what it takes to survive at the local level.”

Hohman said that while the federal poverty rate is not perfect, it is more accurate than the ALICE metric.

“There are people who struggle and deserve government support. But if you really care about the people facing financial struggles, who earn more than poverty rates, you shouldn’t use ALICE,” Hohman said. “This report will tell you nothing about them or the financial struggles that they face. It’s just a fabricated number that estimates a huge percentage of households in Michigan can’t afford to live.”