Low-income families might be able to escape the poverty trap under a new state law that lifted the asset limit for welfare.

Gov. Neil Abercrombie signed a law in April that removed the $5,000 asset limit that used to disqualify families from receiving cash assistance. The asset limit was meant to help reserve welfare for the neediest families, but it also acted as an incentive for some to spend down their assets to qualify.

The consequence, social-service advocates say, was that many on welfare could not build the kind of savings necessary to become self-sufficient without losing the short-term cash assistance they relied on for basic needs, trapping them in poverty.

"I think we’ve seen time and time again where people are earnestly trying to get off of public assistance, but because the asset limit is so low, it’s very difficult for families and individuals to really get on their feet and permanently stay off of assistance," said state Sen. Suzanne Chun Oakland (D, Downtown-Nuuanu-Liliha), chairwoman of the Senate Human Services Committee.

Hawaii is the seventh state to remove asset limits for Temporary Assistance for Needy Families, the nation’s primary welfare program, which provides low-income adults who have children with monthly cash payments for food, clothing, shelter and other expenses for up to five years. The federal government underwrites the welfare program with annual block grants to the states, which also contribute financially through what are known as "maintenance of effort" requirements.

In fiscal year 2012, more than 28,600 recipients in Hawaii were on welfare — or 9,811 cases — and received $64 million worth of cash assistance, according to the state Department of Human Services.

The welfare caseload has risen in Hawaii over the past several years, a symptom of the recession, but is down substantially over the past decade because of the time limits, work requirements and other restrictions imposed by the 1996 federal welfare reform law.

Families must fall under an income threshold to qualify for welfare. For a family of three, a typical welfare household in Hawaii, the gross income threshold is $2,941 a month, or $35,292 a year.

The state’s self-sufficiency standard — the amount of money needed annually to meet basic needs without government assistance or other subsidies — was $61,893 for a single adult with one child in preschool and one child in grade school in 2011, according to the state Department of Business, Economic Development and Tourism. Single-parent families, the state’s research has shown, are nearly three times as likely than two-parent families to fall below the self-sufficiency level.

The $5,000 asset limit for welfare excluded family homes and vehicles, but was seen by social-service advocates as a disincentive for saving, in essence punishing the poor for having assets.

"So what ends up happening is it really eliminates the initiative and the desire for families to want to save," said Brent Kakesako, chief operating officer for the Hawaii Alliance for Community-Based Economic Development, an interest group that has sought to lift the asset limit for welfare for the past several years. "Structurally, you’re actually penalized for saving because once you hit a certain level, you lose your benefits. In popular belief, it’s like they’re living off of the system, but actually the system itself is kind of keeping them within that box."

An asset-building and financial education task force in 2010 had urged the Legislature, as a long-term goal, to remove asset limits on all public-assistance programs so families would have a "savings net so they are able to move out of and remain out of poverty." The Legislature asked the Department of Human Services last year to evaluate asset limits for public-assistance programs, and the department recommended in a January report that the asset limit for the Temporary Assistance for Needy Families program be eliminated.

Asset limits — in some form — remain in Hawaii for food stamps, general assistance, aid to the aged, blind and disabled, and the state’s version of Medicaid, although the asset limit for Medicaid is scheduled to end in January under the federal health care reform law.

Other states that have removed asset limits for welfare, the department’s report found, have not experienced significant increases in welfare caseloads, since income thresholds remain in place to screen applicants.

In Hawaii, according to the department, only a few welfare cases had been rejected each month because of excess assets, a reflection of the lack of financial resources among low-income families. Officials say it will likely take several years for the law to have a meaningful impact on asset building.

The department also said the law likely will reduce the administrative burden on the state and streamline and simplify the welfare eligibility process.

House Bill 868 moved through the Legislature without a single amendment and with only one vote in opposition. Abercrombie, who had included the bill in his legislative package, signed it into law in April.

State Senate Minority Leader Sam Slom (R, Diamond Head-Kahala-Hawaii Kai), who voted against the bill, said the state spends more money on human services than public education.

Slom said that, despite the predictions from social-service advocates, the law will likely increase the welfare caseload and the cost to the state.

"One of the problems I see is that a lot of people are getting these benefits that either they don’t deserve or to the extent that other people are more deserving," he said. "So to remove an asset limit, I think, is a mistake."