Income and poverty estimates were historically among the most important data derived from the decennial censuses of population and housing. Prior to the creation of the Small Area Income and Poverty Estimates (SAIPE) program, the decennial census long-form was the only source of income distribution and poverty statistics for households, families, and individuals if one needed data for "small" geographic areas, e.g., counties, cities, and other substate areas.

The ten-year span between the release of these census data left a large gap in information concerning the economic situation of local areas. Because the economy for a small geographic area changes over a decade, the decennial data did not always reflect its current economic situation. For example, Census 2000 data did not reflect the recession that began in March 2001, nor the expansion that began in November 2001.

In early 1993, efforts began to build a coalition of federal agencies to fund U.S. Census Bureau research on making postcensal estimates of income and poverty. By August 1993, five federal agencies had agreed to provide enough funding to initiate the project. In addition, the Statistics of Income Division of the Internal Revenue Service agreed to become a partner in the project. Their data were essential for several anticipated estimation methodologies. Members of the original consortium providing funds were:

News of efforts to develop postcensal estimates of income and poverty reached Congressman Thomas C. Sawyer, who chaired the Subcommittee on Census, Statistics, and Postal Personnel at that time. In July 1993, he organized a joint hearing before his subcommittee and the Subcommittee on Elementary, Secondary, and Vocational Education to discuss the need for more current measures of poverty for small areas and how those measures might be developed. The U.S. Census Bureau provided testimony concerning SAIPE at that hearing.

Following this hearing, Congressman Sawyer introduced authorization legislation requiring the Secretary of Commerce to develop the methodology to produce "postcensal data relating to the incidence of poverty for each state, county, and local jurisdiction." The legislation further called for estimates of the number of poor children age 5 to 17 for local education agencies (school districts) and of the number of poor people age 65 and over for states and counties. The House of Representatives passed the legislation in November 1993, but the Senate failed to act on it.

One year later, in September 1994, the Congress passed the Improving America's Schools Act and signed it into law (PL 103-382). It reauthorized and amended the Elementary and Secondary Education Act. Title I of this law specifies the distribution of Federal funds to school districts based largely on "the number of children aged 5 to 17, inclusive, from families below the poverty level on the basis of the most recent satisfactory data, ..., available from the Department of Commerce."

This law further requires that in FY 1997, the Secretary of Education use updated data on poor children for counties and, beginning in FY 1999, updated data for school districts, published by the Department of Commerce, unless the Secretaries of Education and Commerce determine that the use of updated population data would be "inappropriate or unreliable." It also directs the Secretary of Education to fund a National Academy of Sciences panel to provide advice on the suitability of the Census Bureau estimates for use in allocating funds. The Academy's Panel on Estimates of Poverty for Small Geographic Areas issued its first report, Small-Area Estimates of School-Age Children in Poverty, Interim Report 1: Evaluation of 1993 County Estimates for Title I Allocations, in May, 1997. Its second report, Small-Area Estimates of School-Age Children in Poverty, Interim Report 2: Evaluation of Revised 1993 County Estimates for Title I Allocations, was issued in January, 1998. Both are concerned with the estimates of the number of related children age 5 to 17 in families in poverty for income year 1993. The Academy's Panel issued its third report, Small-Area Estimates of School-Age Children in Poverty, Interim Report 3: Evaluation of 1995 County and School District Estimates for Title I Allocations, in February, 1999. This report focuses on the estimates of the number of related children age 5 to 17 in families in poverty for income year 1995.

In September 2000, the Academy's Panel issued "Small Area Income and Poverty Estimates, Priorities for 2000 and Beyond". The goals of this report were to examine the issues for the users of SAIPE's estimates and to identify and examine areas where more research and development can be done to improve the models SAIPE uses to produce its estimates.