The nonpartisan Urban Institute publishes studies, reports, and books on timely topics worthy of public consideration. The views expressed are those of the authors and should not be attributed to the Urban Institute, its trustees, or its funders.

INTRODUCTION

No one likes the current welfare system. Governors complain that federal law is overly prescriptive and are willing to take less federal money in return for more flexibility. The public believes that welfare is anti-work and anti-family although polls show that the public wants welfare reformed in ways that do not penalize children. Welfare recipients find dealing with the system degrading and demoralizing; most would prefer to work¹. Experts note that welfare has done little to stem the growth of poverty among children. In all but two states, welfare benefits (including food stamps) are insufficient to move a family above the poverty line².

In short, the current indictment against the welfare system has four particulars:

• It does not provide sufficient state flexibility.
• It does not encourage work.
• It is responsible for the breakdown of the family, especially for a rising tide of out-of-wedlock births.
• It has done little to reduce poverty, especially among children.

The chapters in this volume address how much truth there is in these propositions and assess the ability of current proposals to deal with the complaints. To summarize the findings at the outset:

PROVIDING STATE FLEXIBILITY: States already have substantial flexibility; they could be provided more without eliminating the current federal role in securing a safety net for the poor. Block grants will lead to new inequities and to insufficient public accountability.

ENCOURAGING WORK: Encouraging work among welfare recipients necessitates that funds be provided for this purpose. But, according to several authors, what is required is not so much major new investments in education and training as resources devoted to helping people find jobs in the private sector.

One way to encourage work is to cut off cash assistance. A set of proposals similar to the House-passed Personal Responsibility Act (PRA) ultimately would deny benefits to about 42 percent of the current caseload and reduce benefits for an additional 30 percent. But because of their poor education and other characteristics, most of those denied assistance would have difficulty finding and holding jobs. Based on the experience of those terminated from General Assistance in Michigan, as many as two-thirds could remain unemployed.

REDUCING OUT-OF-WEDLOCK BIRTHS: The majority of women on welfare had their first child as a teenager. Most of these births now occur outside of marriage and are unintended. However, there is little support in the research literature for the proposition that denying benefits to this group will prevent such pregnancies from occurring. Modest impacts on marriage and abortion are more likely.

REDUCING CHILD POVERTY: Moving more children out of poverty requires that income from a low-wage job be combined with child care, health insurance, the Earned Income Tax Credit, and support from both parents. Child support reform in particular could reduce poverty and welfare costs as much as anything else that recently has been proposed.

At the same time, for budgetary reasons the broader safety net is predicted to shrink. The PRA alone provides 13 percent of the total five-year savings in the House budget resolution. Thus, even if no other low-income program such as Medicaid were affected by attempts to balance the budget, the poorest fifth of the population (which receives 4 percent of total U.S. income) would bear a disproportionate share of the burden.

In sum, measured against the objectives of providing adequate flexibility to the states, encouraging work, strengthening the family, and reducing poverty, most current proposals are found wanting.

LEGISLATIVE HISTORY

While there is considerable consensus that welfare needs to be reformed, there is less agreement about exactly what needs to be done and a long history of past attempts that have proved less than satisfactory or had little staying power.

The most recent round of reform occurred in 1988, when Congress enacted the Family Support Act. It combined an emphasis on moving people into jobs with increased funding for the education and training believed necessary to make this possible. The education and training were to be provided by a new program called Job Opportunities and Basic Skills (JOBS) in which most welfare recipients would be required to participate. Many states are only now beginning to implement fully the philosophy and work-oriented programs contained in the Family Support Act. Nationwide, about 23 percent of able-bodied welfare recipients without a child under age 3 are now participating in JOBS.

As a governor, President Clinton was a strong proponent of the Family Support Act, but he campaigned for the presidency on a pledge to "end welfare as we know it." Legislation embodying the details of his plan was introduced in 1994 as the Work and Responsibility Act. It built on the Family Support Act philosophy by investing still more in education and training but set a two-year time limit, after which welfare recipients would either have to work or lose their benefits. With appropriate assistance and the push of a time limit, it was hoped that most recipients would find jobs before their two years were up, but for those who did not, subsidized work opportunities were to be made available. The two-year limit was to be phased in slowly, starting with those born after 1971. This phase-in had three advantages: it sent a message of personal responsibility to the younger generation; it gave states time to expand their ability to provide the necessary training and work opportunities; and it made the budgetary costs of the plan more manageable.

The Clinton plan was eclipsed, first by the focus on health care reform, and later by the 1994 election which led Republicans in the House to propose a new plan, the Personal Responsibility Act, which differed sharply not only from Clinton's plan but also from their own earlier reform proposals. The PRA, enacted by the House on March 24, 1995, goes far beyond simply reforming welfare. It creates a number of new block grants focused on cash assistance, child nutrition, child protection, and child care. It also contains fundamental reforms of the Food Stamp program, Supplemental Security Income (SSI) for the low-income disabled, and the major means-tested programs serving legal immigrants. Overall, it saves almost $70 billion over the next five years (see figure). Its more narrowly defined "welfare" component not only turns the current Aid to Families with Dependent Children (AFDC) and JOBS programs into a block grant with flat funding for the next five years, but also contains a number of prohibitions. Notably, no federal funds are to be used to pay benefits to unwed minor mothers, to children born to mothers on welfare, or to those receiving welfare for more than five years.

Most governors strongly support the increased flexibility inherent in block grants but are unhappy with the prospect of new federal prohibitions and privately nervous about the implicit cost shifting to lower levels of government ³. As this goes to press, the Senate Finance Committee has endorsed the block grant approach adopted by the House but has omitted some of the prohibitions most disliked by governors.

Whatever the outcome of the legislative process, the chapters in this volume make one thing abundantly clear: the issues are much more complex and reform much more difficult than is generally recognized. Predicting the consequences of reform is equally difficult, a problem with which all of the authors of this volume have had to grapple.

ISSUE ONE: THE FEDERAL ROLE IN MAINTAINING A SAFETY NET

ISSUE TWO: ENCOURAGING WORK
ISSUE THREE: THE EFFECTS OF TIME LIMITS
ISSUE FOUR: PREVENTING DEPENDENCY
ISSUE FIVE: THE BROADER SAFETY NET

FINAL ASSESSMENT

Congress is now deliberating legislative and budgetary changes that would dramatically redefine the nation's responsibilities for the least advantaged. Debate about these responsibilities should be welcomed and new ideas given careful consideration. It is not written in stone or in the Constitution that the federal government needs to take care of the poor. Current programs are widely viewed as deficient, in large part because they are perceived as encouraging dependency and the dissolution of the family. In some areas, the federal role has become too intrusive. And without new taxes, money is in short supply. Returning responsibility to the states with a tie-off grant from the federal government to ease the transition is seen by many as the solution.

In my own view, arguments that current proposals are the best means of dealing with these problems are somewhat disingenuous. As many have argued, these proposals could more accurately be described as a Trojan horse designed to dismantle the welfare state that has existed for the past 60 years. If the objective is to encourage work and marriage, these reforms send the right signals but may disappoint in practice. If the objective is to provide states with greater flexibility, the solution is a streamlined waiver process and other modest reforms. States already have a great deal of flexibility and could readily be given more within a framework that establishes minimum protections for the poor and accountability for the public's money.

If the objective is to reduce the deficit, this could be achieved without cutting so deeply into programs that help the most vulnerable. The poorest 20 percent of the population now receives roughly 4 percent of all income in the United States. Any deficit reduction package that asks them to pay more than 4 percent of the total burden is arguably unfair. Yet chances are that they will end up paying far more than this. Deficit reduction is a worthy goal, but numerous tax subsidies and entitlement programs could be tapped before low-income programs were cut. As it is, safety-net programs are being restructured in ways that not only yield federal savings but also promise less state effort as well.

Finally, if the objective is to reduce poverty without encouraging dependency, the most important thing that government can do is to assist low-income working families with such measures as the EITC, child care, subsidized health insurance, and adjustments in the minimum wage. If personal commitments to work and family are the surest way out of poverty, as they have been in the past, then these work-oriented measures are the best way to keep those who play by the rules from falling further behind.

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Contents

Chapter 1: A Block Grant Approach to Welfare Reform by George Peterson
Chapter 2: State Response to Welfare Reform: A Race to the Bottom? by Paul Peterson
Chapter 3:Rainy Day Funds: Contingency Funding for Welfare Block Grants by Wayne Vroman
Chapter 4: Increasing the Employment and Earnings of Welfare Recipients by Robert Lerman
Chapter 5: An Administrative Approach to Welfare Reform by Lawrence M. Mead
Chapter 6: Child Care Block Grants and Welfare Reform by Sandra Clark and Sharon Long
Chapter 7: Who is Affected by Time Limits? by LaDonna Pavetti
Chapter 8: Assessing the Personal Responsibility Act by Sheila Zedlewski and Isabel V. Sawhill
Chapter 9: Will Welfare Recipients Find Work When Welfare Ends? by Sandra K. Danziger and Sheldon Danziger
Chapter 10: Teenage Childbearing: The Trends and Their Implications by Freya L. Sonestein and Gregory Acs
Chapter 11: Do Welfare Benefits Promote Out-of-Wedlock Childbearing? by Gregory Acs
Chapter 12: The Benefits on Increased Child Support Enforcement by Elaine Sorensen
Chapter 13: The Food Stamp Program and the Safety Net by James C. Ohls
Chapter 14: Reforming the Supplemental Security Income Program for Children by Pamela Loprest
Chapter 15: When Should Immigrants Receive Public Benefits by Michael Fix and Wendy Zimmerman

1. See Joe Davidson, "Welfare Mothers Stress Importance of Building Self-Esteem If Aid System Is to Be Restructured," Wall Street Journal, May 12, 1995, p. A14.

2. Committee on Ways and Means, U.S. House of Representatives, Overview of Entitlement Programs: 1994 Green Book, Washington, D.C.: U.S. Government Printing Office, 1994, p. 366.

3. See, for example, John J. Fialka, "Local Governments, Like Franklin County, Ohio, Watch for Ripple Effects of Federal Budget Ax," Wall Street Journal, May 16, 1995,p. A20.

Figure 1

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Welfare Reform: An Analysis of the Issues

ISSUE ONE: The Federal Role in Maintaining a Safety Net

Currently, welfare (AFDC) is an entitlement under which funds flow to all eligible individuals on the basis of need. The federal government pays anywhere from 50 to 80 percent of the costs, depending on the state. Under current proposals, individuals would no longer be entitled to such assistance and states would be given a fixed amount of money that would no longer vary with the number of families needing assistance. These proposals to "block grant" federal funds and return more responsibility to the states are analyzed in the first three chapters of this volume. The authors note that the main effect would be to shift not just responsibilities but also costs to the states, which may unleash a competitive scramble among them to reduce funding for the poor.

Although such proposals are commonly referred to as "block grants," it should be noted that the term normally means a consolidation of small categorical programs with a similar mission not a capping of funds for an entitlement program. In this sense, the proposals currently being considered are unprecedented. As George Peterson notes in Chapter 1, the PRA would increase the proportion of federal aid to states given in the form of block grants from 7 to 24 percent.

These block grant proposals are intended to provide states with greater freedom from federal rules and to produce more effective programs and lower administrative costs in the process. But states already have a great deal of flexibility. Under current law, they can set benefit and eligibility levels, which results in widely different benefit levels ranging from as little as $1,440 a year for a three-person family in Mississippi to $7,284 a year in California (partially offset by federally set food stamp benefits, which are higher for those receiving smaller AFDC checks) ⁴. In the past, welfare reform often has focused on the need to provide more uniform benefits across the country. Current proposals, perhaps unintentionally, move in the opposite direction and would almost certainly exacerbate interstate inequities⁵.

Flexibility is further enhanced under current law by the fact that states can apply for waivers from federal rules. The application process is cumbersome and ought to be streamlined, but the majority of states are now operating under such waivers. One unintended consequence of reform may be to eliminate the opportunity to learn what works from the evaluations required as part of the waiver process.

The extent to which additional flexibility will reduce administrative costs is unclear, but George Peterson suggests the effects are likely to be small. (In Chapter 5, Lawrence Mead argues that if the objective is to move welfare recipients into the work force, states will need to spend more, not less, on administration of the program.)

A major concern is how states will cope should an economic downturn, a rising poverty rate, or other factors lead to greater need for assistance. The PRA contains a "rainy day" fund that is intended to address this issue. Wayne Vroman in Chapter 3 concludes that the fund as proposed is insufficient to meet the likely need. During the 1989-92 recession, for example, AFDC caseloads rose by about 11 percent. Handling a recession of this magnitude would require a rainy day fund of a little less than $3 billion, compared to the $1 billion contained in the PRA. Coping with population growth alone would require another $700 million over the next five years, in contrast to the $100 million in the PRA.

If the goal were to keep up with the growth of poor, female-headed families, the $700 million figure would need to be still larger, possibly as much as $1.7 billion. In the end, however, the most basic issue may be what Paul Peterson in Chapter 2 calls "the race to the bottom" and George Peterson calls "spiraling parsimony" the likelihood that states will reduce benefits to the poor out of a fear that they could become a haven for the most disadvantaged and drive away businesses and middle-class taxpayers in the process.

The fundamental question here is whether we should abandon the broad national purpose of reducing poverty. Those who argue for a continuing federal role do not necessarily assume that the states are uncharitable in their attitudes toward the poor. They only assume that any one state, acting generously, risks the possibility that its neighbors will not follow suit and that it will be left with disproportionate responsibility for the poor. In the absence of such "free rider" problems, there would be no role for the federal government. We could rely on states not only to help the needy but to fund all kinds of public goods. The argument is most clear-cut in the case of defense. No one doubts that if defense spending were left entirely to lower levels of government the military would be seriously underfunded. Whether a similar argument applies in the case of antipoverty spending is now the issue.

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Welfare Reform: An Analysis of the Issues

ISSUE TWO: Encouraging Work

Virtually all recent reform proposals assume that the best alternative to welfare is work. In Chapter 4, Robert Lerman observes that policymakers have relied on a combination of three tools to increase employment and earnings: financial incentives, job search and work requirements, and education and training.

Financial incentives encourage recipients to work by allowing them to keep more of their welfare check after they go to work. (Many states are now experimenting with such incentives under federal waivers.) It would be surprising if those currently on welfare did not respond favorably to such incentives. But because such initiatives raise the income eligibility cutoff point for welfare, and thus allow more people to qualify, their net impact may be to increase rather than reduce welfare caseloads and costs. For this reason, past attempts to reduce welfare dependency by increasing the incentive to work have proved disappointing.

The other alternatives are to insist that welfare recipients work or to provide them with education and training. The evidence suggests that programs focusing on education and training produce positive results but are not as cost-effective as those that emphasize work and require people to find a job as soon as possible (with an option to pursue further education once they are headed toward self-sufficiency).

In Chapter 5, Lawrence Mead elaborates on this theme by reviewing the characteristics of successful JOBS programs in places like Riverside, California, and Kenosha, Wisconsin. He agrees with Lerman that work requirements are important and asserts that too little attention has been paid to the quality of administration at the local level, which is critical to enforcing such requirements. His research suggests that states like Wisconsin, with effective JOBS programs, have successfully reduced welfare caseloads without resorting to arbitrary time limits or other sanctions. The federal role, in his view, should be to set strong work participation requirements and to provide financial incentives for states to achieve these standards.

If a key goal of welfare reform is to move recipients into jobs, they will need day care for their children, an issue addressed by Sandra Clark and Sharon Long in Chapter 6. Their overview of current federal initiatives notes that it is the working poor who receive the least child care assistance.

The largest federal child care program is the Dependent Care Tax Credit which, because it is not refundable, provides assistance primarily to middle- and higher-income families. Several other programs focus their resources on AFDC recipients who are in training or making the transition into jobs. This leaves the Child Care and Development Block Grant as the main source of assistance for low-income working families, whose need for assistance, according to these authors, far exceeds the supply of subsidized care. Assuming that welfare reform successfully moves recipients into jobs, this need can only increase. Yet Congress is contemplating block granting the child care programs serving low-income families and cutting the funds by 9 percent.

Child care assistance for low-income working families is only one way of ensuring that work pays more than welfare. Also needed, Lerman notes, are health insurance, child support, and the EITC. Without these, welfare reform may satisfy the public demand that people work in return for assistance, but will move very few families out of poverty.

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Welfare Reform: An Analysis of the Issues

ISSUE THREE: The Effect of Time Limits

Current proposals would permit states to establish their own time limits for AFDC but deny federal funds to those on welfare longer than five years. The question addressed in Chapters 7, 8, and 9 is the likely consequences of cutting off all cash assistance.

In Chapter 7, LaDonna Pavetti finds that welfare recipients often leave the rolls within a year or two but many return almost as quickly. Looked at over a lifetime (that can include multiple spells), 42 percent end up receiving benefits for less than two years. Only 35 percent stay on for more than five years. Because these long-stayers accumulate on the rolls, however, 76 percent of current recipients are in the midst of a five-year or longer stay. Moreover, these long-stayers are a particularly disadvantaged group. Half enter AFDC with no work experience and 63 percent have less than a high school education.

In Chapter 8, Sheila Zedlewski and I estimate the effects of the PRA on welfare caseloads and costs and assess how states and individuals are likely to respond. We find that if the PRA were fully in effect, about 42 percent of the current caseload would lose their eligibility (primarily because of the time limit) and another 30 percent would receive lower benefits. (Because the new rules would be phased in gradually, not all these effects would occur immediately.) As eligibility and benefits were cut, federal and state welfare costs would shrink commensurately. But it would take time for these savings to materialize. In the shorter run, states would have to use their own resources to finance any growth in the caseload induced by a recession or demographic trends, as well as any expenses associated with moving people into jobs. These estimates of the effects of the PRA assume no changes in individual or state behavior, both of which are likely in response to the federal policy and budget changes now under consideration. Individuals are likely to work more under the threat of a benefit cutoff, while states are likely to spend less under a fixed block grant, with ultimate effects that are difficult to predict.

A more critical issue is what happens to recipients who lose all eligibility for welfare as the result of a federal or state time limit. Sandra and Sheldon Danziger argue in Chapter 9 that many recipients reaching a time limit will seek but not find steady employment. They base this conclusion on a number of studies of the low-wage labor market, but particularly on the experiences of former recipients of General Assistance in Michigan, a program the state terminated in 1991. Looking at the principal source of cash support received by this group two years later, they find that only 20 percent were employed in a formal job while another 17 percent held casual jobs. More than a third had found their way onto other benefit programs (most frequently disability benefits), and the remainder were relying on family or friends or had no known source of income. Looking just at a subsample of this group with characteristics similar to those on AFDC, the Danzigers find that 46 percent of them were employed if they had at least a high school degree and 28 percent if they did not. Combined with Pavetti's evidence on the characteristics of long-stayers, this suggests that only about one-third of welfare recipients who lose assistance after five years are likely to be employed two years later.

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Welfare Reform: An Analysis of the Issues

ISSUE FOUR: Preventing Dependency

Precisely because it is so difficult to make welfare recipients self-sufficient, there is a growing consensus that more effort should be devoted to preventing dependency in the first place. This means paying attention to a wide range of issues, including declining job prospects for the unskilled (especially men) and widespread deficiencies in the education system. However, two problems believed to be closely linked to welfare dependency have received special attention: rising rates of out-of-wedlock childbearing, especially among teenagers, and low levels of child support from the fathers of children on AFDC.

In Chapter 10, Freya Sonenstein and Gregory Acs note that the teenage birth rate declined steadily during the 1960s and 1970s, leveled off in the first half of the 1980s, and increased again starting in 1986. Rising rates of sexual activity throughout this period exposed a larger and larger proportion of adolescents to the risk of pregnancy. At the same time, greater use of contraception and abortion kept the birth rate trending downward until the mid-1980s. Since then abortion rates have fallen, and this together with a shift in the composition of the teenage population toward demographic groups with higher fertility rates, such as Hispanics, appears to explain the post-1986 rise.

Contrary to conventional wisdom, teenagers are not a large part of the AFDC caseload. Moreover, among those on welfare, few establish separate households; most live with their parents. In 1992, only 8 percent of the AFDC caseload consisted of women under the age of 20, and for women under 18, only 18 percent lived alone with their children. But the majority of mothers on AFDC (52 percent) had their first child as a teenager, and research has implicated early childbearing as one factor predicting subsequent poverty and welfare dependency.

While the teenage birth rate is now lower than it was in the 1960s, the proportion of such births that occur outside of marriage has increased dramatically. In Chapter 11, Acs takes up the question of whether welfare induces women to have children outside of marriage. (Out-of-wedlock childbearing, it should be noted, is not confined just to teenagers. In fact, in 1992, only 30 percent of all nonmarital births were to women under the age of 20.)

Acs notes that, in inflation-adjusted terms, welfare benefits have been declining at the same time that out-of-wedlock childbearing has been increasing. Moreover, there is little correlation between the generosity of the welfare system in a state and its nonmarital birth rate, even after adjusting for factors that might otherwise obscure welfare's true effect. Some studies find an association between welfare benefit levels and nonmarital births among whites. But the overall impression from all the studies so far, using a range of data and methodologies, is that welfare has, at most, a small influence on out-of-wedlock childbearing ⁶.

In the end, as Acs notes, one cannot confidently extrapolate from this body of research which has examined the effects of relatively small variations in welfare benefits on behavior to predict the consequences of the major changes now under consideration. Further, both he and Sonenstein suggest that welfare is much less likely to affect sexual behavior than it is to affect the decision to have an abortion or to marry, once pregnant. Thus, welfare reform proposals that deny benefits to young unwed mothers, or cap benefits for those who have additional children on welfare, are more likely to affect abortion or marriage than pregnancy itself.

Marriage is only one way to bring fathers back into the picture. Requiring that they pay child support is another. In Chapter 12, Elaine Sorensen reviews the potential of this strategy to reduce poverty and welfare dependency. Under an ideal child support system defined here as one that uses the Wisconsin child support guidelines and collects all child support in full an additional $34 billion could have been collected in 1990. Almost three-fifths of this uncollected child support results from not having a child support award in place (often because paternity is not established). The remainder is due to inadequate or uncollected awards.

Not all of this $34 billion in potential child support would go to the children of those on welfare (or to the governments that support them). Many of the fathers of these AFDC children are themselves poor and would not be expected to pay much, if any, child support. Sorensen estimates that perhaps 13 to 26 percent of all noncustodial fathers are in this unable-to-pay category. In addition, a lot of uncollected child support is owed to children who are not poor and not on AFDC. For these reasons, the potential of a better child support system to reduce poverty and welfare dependency is not as great as the $34 billion figure might imply.

Nonetheless, Sorensen estimates that, had an ideal child support system been in place in 1989, the number of poor individuals would have dropped by 1.4 million (5 percent), the number of families on welfare by 400,000 (9 percent), and welfare costs by $5 billion (9 percent) ⁷.

Although $5 billion in savings is small in comparison to the $34 billion in uncollected support, it is large relative to the annual savings associated with recently proposed reforms such as the PRA, which entails savings of no more than $2.6 billion in the fifth year after enactment. Moreover, the savings due to increased child support are achieved not by placing new burdens on poor mothers, but by requiring those who can afford it to support their children.

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Welfare Reform: An Analysis of the Issues

ISSUE FIVE: The Broader Safety Net

When people talk about welfare reform they usually focus primarily on the AFDC program. But the current safety net is much broader than this and includes food stamps, SSI, Medicaid, and a number of smaller programs. The final three chapters analyze the proposed changes in some of these other low-income programs ⁸.

In Chapter 13, James Ohls notes that the Food Stamp program, which now provides benefits to one out of every 11 Americans, is the ultimate safety net. Unlike any other program, it involves a federal commitment to place a floor under every income, regardless of where a person lives or in what type of household. Although its support is restricted to food assistance, its impact may be less on nutrition than on providing low-income families with a source of purchasing power. (Studies indicate that households given stamps spend somewhat more on food than those given an equivalent amount of cash, but stamps free up for other purposes resources that otherwise would have been spent on food.)

AFDC benefit levels vary widely by state. The Food Stamp program cuts this variation in half because food stamp benefits increase by 30 cents for each dollar reduction in AFDC benefits. Food stamps also help communities adjust to economic changes since they are available to more families when unemployment increases and are indexed to keep pace with inflation.

The PRA proposes to cut food stamp costs, increase state flexibility, and require more work. Cost-of-living adjustments would be reduced to 2 percent a year and the allowable shelter deduction frozen, progressively weakening the inflation protection of food stamps. States would be given flexibility to change the food stamp eligibility and benefit rules for their AFDC caseload and their total caseload, if they opted for electronic benefit transfer (EBT) instead of paper coupons. Finally, a work requirement would make able-bodied prime-age adults without dependents ineligible after three months, unless they were employed at least half time or were in a work or training program. (Only minimal funding $75 million is provided to help them find jobs.)

The proposed changes would produce five-year savings estimated at $23 billion ⁹. They would cut benefits (compared to the current program) by 21 percent over five years and by up to 30 percent over ten years.

As Ohls points out, in this era of budget constraints, it may be reasonable to include the Food Stamp program in the search for cost savings, more work effort, and greater flexibility for the states. But it is not necessary to remove the entitlement status of the Food Stamp program or federal responsibility for eligibility and benefit standards in order to achieve these objectives.

In Chapter 14, Pamela Loprest examines proposed changes in the SSI program for children with disabilities. The number of children receiving SSI has more than doubled over the past five years. The reasons are not fully understood but include court cases and administrative changes that have liberalized eligibility along with aggressive outreach. Press accounts have suggested that some of the growth also may be due to fraud and abuse for example, parents coaching children to "act crazy" in order to make them eligible. The Social Security Administration has found no clear evidence of such abuses. All in all, though, many experts and policymakers believe that some tightening of the eligibility rules is needed, and Congress established a Childhood Disability Commission in 1994 to review the current situation and recommend reforms. In the meantime, the PRA has called for a dramatic restructuring of SSI without the benefit of such a review. If enacted, the PRA would deny cash assistance to most of the disabled children in low-income families who now receive it. Instead, the bulk of them would be eligible for Medicaid and for services to be funded by block grants to the states. Of all new applicants who would be eligible for cash benefits under current rules, 21 percent would continue to receive these benefits (on the grounds that they are institutionalized or at risk of becoming so), 61 percent would receive block grant services, and 18 percent would be ineligible for either cash or services (because they do not have a specific, medically listed disability).

Many other approaches to reforming SSI for children are possible. The choice depends on a fuller understanding, and agreement among professionals in the field, of what constitutes a disability and on the overall objectives and philosophy of the program. Some believe SSI should continue to provide cash benefits to low-income families who have the additional burden of caring for a disabled child; others believe it should focus on providing just the specific medical care or other special services needed by the children themselves as a result of their disabling condition.

Chapter 15 by Michael Fix and Wendy Zimmermann turns to the question of what benefits should be made available to immigrants. As they note, illegal immigrants are currently ineligible for all benefits with the exception of emergency medical care, child nutrition, and education. Legal immigrants, in contrast, have traditionally been eligible for most benefits on the grounds that they pay taxes, can be drafted in time of war, and should be as fully integrated into American society as possible. It is also argued that making citizenship the gateway to receipt of benefits would induce many people to seek it simply to qualify for benefits and place a substantial administrative burden on an already hard-pressed Immigration and Naturalization Service.

The PRA would change dramatically the rules for legal immigrants by denying most of them access to AFDC, SSI, food stamps, Medicaid, and other social services. They would continue to be eligible for other means-tested programs if their sponsor's income were low enough. The effects would be concentrated in the small number of states where immigrants are concentrated New York and California in particular. These and other affected states would have to decide whether to pick up the responsibilities shed by the federal government or to pass them along to local governments and nonprofit institutions.

Fix and Zimmermann note that legal immigrants' current use of cash assistance programs is only slightly higher than that of natives and is heavily concentrated among two groups: refugees on AFDC and the elderly on SSI. They suggest that any concern about excessive use of public benefits by immigrants should focus on these two groups. They also lay out four principles (and some specific ideas) that might guide reform more generally: the need to prevent an influx of immigrants seeking to benefit from U.S. generosity; the need to promote family not government responsibility for new arrivals; the need to provide at least a temporary safety net for those who later fall on hard times; and the need to make a distinction between programs that provide income assistance and those that provide education, training, or other services that promote the integration and upward mobility of new arrivals.

4. Committee on Ways and Means, op. cit., p. 368.

5. This is a consequence of the elimination of a federal match and is likely to occur for two reasons. First, states will have uneven increases in their needy populations but will continue to get the same level of assistance from the federal government, creating drastically uneven fiscal pressures from state to state. Second, current law creates an incentive for greater welfare spending in the poorest states because the federal share of welfare spending is highest in states with low per-capita incomes. Elimination of this "progressive" matching rule is likely to widen further benefit disparities.

6. An ongoing evaluation of New Jersey's recently implemented family cap will add to our knowledge here.

7. Even these figures are an exaggeration of what a better child support system might yield since it will never be possible to establish an award and collect funds in full from every absent father.

8. Because congressional deliberations on Medicaid were only just beginning at the time these chapters were written, it was omitted from the volume. However, a new Urban Institute study finds that congressionally proposed changes in Medicaid could eliminate health coverage for between 6 and 20 percent of current beneficiaries. See John Holahan and David Liska, "The Impact of the Senate and House Budget Committees' Proposals on Medicaid Expenditures," Washington, D.C.: Urban Institute, May 18, 1995.

9. These savings are offset by new food stamp costs associated with reduced welfare benefits for some categories of recipients. The net savings (shown in figure on page 12) are $17 billion.

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Chapter 1

A Block Grant Approach to Welfare Reform

by George Peterson

Current welfare reform proposals have revived debate over devolving welfare policy to the states and financing the transfer by block grants. The welfare legislation recently passed by the House would consolidate a broad array of programs into a few block grants (see Figure 1).

This block granting would:

• End automatic, universal eligibility for those who meet federal program criteria, and
• Allow the states to design fundamentally different programs to achieve very broadly defined national objectives.

WHAT ARE BLOCK GRANTS?

The term "block grant" carries different meanings for different protagonists. A standard block grant might:

• Consolidate a number of federal categorical programs and give state (or local) officials more discretion about how to use federal funds across categories,
• Fix federal allocations in advance. Future funding is not tied to changes in the number of eligible beneficiaries or payment levels, and
• Reduce federal regulation and oversight. Within broad federal goals, states can spend more effort designing programs that serve their ends and less effort reporting to the federal government.

A BRIEF HISTORY

The concept of block granting is rooted in perceived defects of the categorical grant system. Proposals to combine categorical grants into broad blocks of programs began shortly after World War II, almost as soon as categorical assistance became a significant item in the federal budget. Most of the early criticism of categorical grants focused on the administrative complexity of overseeing local programs from Washington and the handcuffing of local initiative.

The Nixon New Federalism attack went further. It viewed categorical grants as the ideal instruments of Congress - "the porkiest of the pork," in one Nixon official's description - because they delivered identifiable program benefits to narrowly drawn constituencies for which members of Congress could take credit. When Nixon proposed to combine categorical grants into "special revenue sharing" that transferred program authority to the states, the administration's political science analysis was at least partly vindicated. The special revenue sharing concept was rejected by Congress in an intensely partisan debate. Only some small block grant consolidations survived.

Block grants made their greatest inroads during the Reagan presidency, with nine block grants approved by Congress, mostly in community and social programs and health services. Before Reagan, essentially all block grant proposals had contemplated increased federal funding. Reagan introduced the strategy of using block grants to cut federal spending, arguing that, once freed from federal red tape, the states could accomplish the same programmatic ends with less outlays.

Throughout the history of block grants—as shifting political alliances combined with concern over whether federal dollars were reaching the targeted populations—Congress tended to follow initial consolidation with reimposition of some programmatic restrictions.

Despite the long history of debate, block grants today constitute a small proportion of the intergovernmental budget. All block grants together accounted for less than 7 percent of federal assistance to state and local governments in 1994, down from 11.3 percent in 1980. Current proposals would increase this share to 24 percent. Several programs now proposed for block granting are much larger than anything transferred to states in the past (see Figure 2, and Figure 3).

BLOCK GRANTS VS. ENTITLEMENTS

The entitlement nature of AFDC and food stamps has long defined the United States safety net against poverty. The current consensus, however, seems to be that cash payments to welfare families should not be a lifetime entitlement. Most recent welfare reform proposals place a time limit of some kind on family eligibility. There is no consensus about food stamps. Currently, food stamps afford the final, universal safety net for poor families, with a single national eligibility standard and a single national payment standard. Indeed, the Food Stamps benefit formula reduces overall benefit disparities among states, providing higher benefits in states with lower AFDC benefit levels.

Block grants in the form proposed will make it difficult for states to maintain existing benefits in the face of recession or demographically driven poverty growth. Federal funding for cash assistance would be frozen at $15.4 billion a year for the next five years. There are provisions for a Rainy Day Fund that would allow states to borrow to supplement funding in recessionary periods (to be detailed in Welfare Reform Briefs Number 4). But federal funds are unlikely to stretch enough to absorb the number of families that ordinarily would become eligible over the period. Financially hard-pressed states will be forced to choose among using their own funds to sustain welfare programs, restricting entry, or cutting back benefits.

STATE EXPERIMENTS

House Speaker Newt Gingrich has remarked that block granting should unleash "51 state experiments" in welfare reform. How the nation will accommodate to, or learn from, these experiments, however, is not clear. Currently, if a state desires a waiver from federal regulations to introduce its own approach to welfare, it must submit to the federal government a plan for monitoring and evaluating the outcomes of this experiment. Results are then available for other states to use in designing their programs. Most governors and many federal administrators believe the current waiver process is too time-consuming. Oregon, for example, had to wait a year for its welfare and work program to be approved. Others feel that the monitoring and evaluation procedures imposed by the federal government are too costly and too rigid.

The proposed block grants run to the other extreme. There are no evaluation requirements. In fact, the AFDC replacement block grant is drawn in such a way that meaningful state comparisons may be impossible. The laboratory of federalism would be generating many welfare experiments, but no systematic evaluation of the results.

Perhaps most fundamentally, devolution of welfare to the states is likely to set off a competitive scramble to cut benefits and limit eligibility. States are already fearful of becoming "welfare magnets." As states become freer to construct their own programs, this fear is likely to escalate. The specter of migration of the poor (or, more plausibly, of the affluent in response to the costs of providing for the poor) has plagued local welfare programs from the days of the English Poor Laws. The almost inevitable outcome of such a system is spiraling parsimony, as every state scrambles to avoid becoming a welfare haven that treats the poor more generously than its neighbors.

FEDERAL RESTRICTIONS

An ideologically pure block grant would turn over essentially all program design authority to the states. The National Governors' Association has endorsed a block grant approach that would place no restrictions on the welfare replacement programs that states devise.

Federal legislation is not moving in this direction. The House bill incorporates a number of prohibitions and mandates that would limit state discretion and increase state costs. For example, requirements would mandate that states place 10 percent of the adults on welfare rolls in jobs in fiscal year 1996 and 40 percent in FY 2003. Governors have complained that meeting these requirements would be costly (in terms of state—financed job training, child care, employer wage subsidies, or other measures); some states would find it difficult to meet the targets at any cost.

Other prohibitions built into federal legislation would prohibit states from using federal funds to pay for welfare benefits to legal immigrants who are not citizens, or support unwed mothers who have children before the age of 18. These restrictions impose broad policy limits on the kinds of welfare programs states can design, though states could use their own funds to finance such programs.

BUDGET-CUTTING ROLE

Today's block grants are an instrument of budget cutting. Many of the block grants now proposed would have their federal funding levels frozen for five years without adjustment for inflation or growth in the poverty population. Others would grow much more slowly than their categorical predecessors have done. In effect, block grants shift the fiscal risks of dealing with recession and any future poverty growth to the states and, ultimately, to families.

Block grants also eliminate state matching requirements and thereby fundamentally change the financial incentives now built into the system. Under the current, open-ended matching grant structure of AFDC and Medicaid, states have theoretically had an incentive to expand benefits and coverage, because the federal government picks up a large share (between 50 percent and 80 percent, depending upon state income) of additional costs. Savings from program cutbacks are shared with the federal government in the same proportion. Under block grants, federal payments are fixed. States would enjoy 100 percent of any program savings they generate. The change in incentives should have substantial impact. When the open-ended matching program for social services was capped and converted to a block grant, rapid state spending growth was halted almost overnight.

ADMINISTRATIVE SAVINGS

In theory, block grant expenditure reductions are compensated by administrative savings, so that the impact on beneficiaries is muted. But state "administrative" savings from previous block grants have proved difficult to isolate. States have cut back on reporting to the federal government and, often, on program monitoring. This has yielded monetary savings. Program debate often suggests that administrative savings on the order of 15 to 20 percent will be possible, but follow-up studies have found highly variable savings that administrators claim rarely exceed 5 percent. Larger savings require using the new administrative flexibility to eliminate program features or cut back coverage—i.e., real program reductions. Still, savings of even 5 percent in the welfare area can generate substantial sums of money—around $1 billion nationwide, based on the $28 billion a year currently spent by federal and state governments on AFDC.

CONSISTENCY OF REFORM

It is tempting to compromise between different approaches to welfare reform by simply block granting some programs, like AFDC, while leaving others, like Food Stamps, as open-ended federally defined entitlements. There is a danger to this approach, however. It encourages states to cut back still further on welfare programs, confident that federal Food Stamps will absorb part of the reductions. This process increases federal budget costs, and makes federal spending a captive of state calculations as to how to most effectively shift spending burdens to the one remaining entitlement program.

THE REAL CHOICE

The welfare debate has developed in a manner that identifies block grants and state choice as the only alternatives to the status quo. This oversimplifies the real choice. Congress and the President must decide, first, what national principles will guide the nation's anti-poverty policy and which programs, if any, should remain national entitlements. The current set of block grant proposals incorporates a particular view of the national interest in welfare programs—one that emphasizes limiting federal budgetary exposure.

George E. Peterson is a senior fellow at the Urban Institute.

Figure 1

Figure 2

Figure 3

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Chapter 2

State Response to Welfare Reform: A Race to the Bottom?

by Paul Peterson

The House of Representatives approved legislation in the spring of 1995 that would eliminate Aid to Families with Dependent Children (AFDC) as an entitlement. In its place, the House bill gives each state a block grant equal to the AFDC funds the state received in the 1994 fiscal year. The terms of the block grant allow each state to set—within very limited guidelines—its own eligibility standards and benefit levels.

Such a dramatic shift in policy, if approved by the Senate and signed by the President, is likely to prove unworkable and short-lived, simply because such alterations run at odds with the underlying structure of the federal system. If welfare policy is permanently turned over to the lower tiers of government, states will find themselves in a "race to the bottom"—a race to cut welfare benefits faster than their neighbors, thereby endangering the well-being of the most marginal members of society, including large numbers of children living in poverty.

THE UPS AND DOWNS OF STATE WELFARE POLICY

Welfare policy was first formulated at the state level. AFDC itself owes its origins to state-run "mother's pensions" programs first set up in 1911 in Illinois and Missouri, long before the federal government incorporated family assistance into the Social Security Act of 1935. Because AFDC evolved out of state-operated programs, it always has been jointly financed by federal and state governments. States still retain full authority to set the AFDC benefit level and still determine many eligibility requirements.

Initially, state control did not preclude a steady rise in welfare benefits. The mean benefit paid to a family in the average state climbed (in 1993 dollars) from $306 in 1940 to $429 in 1950, $520 in 1960, and $605 in 1970. State AFDC policies began to change around 1970, a retreat that has accelerated with time. Even by 1975 the mean cash benefit in the average state had slipped to $512; by 1993 it had reached its postwar nadir of $349. All in all, the cuts between 1970 and 1993 amounted to no less than 42 percent.

In 1988, the Family Support Act explicitly gave states additional opportunities to experiment with AFDC. In keeping with a growing conservative mood at the state level, the first three major proposals submitted to the U.S. Department of Health and Human Services all proposed new restrictions on welfare. California proposed an immediate 25 percent reduction in benefits, a further reduction for all families remaining on welfare after six months, and a limit on benefit levels for new arrivals to the state to the level they were receiving in their previous state of residence. Wisconsin and New Jersey petitioned, among other things, to withhold the increase in benefits that typically came with the birth of an additional child. What began in a few states soon spread nationwide, and by now a majority of states have used the flexibility available under the 1988 legislation to restrict further AFDC eligibility and benefits.

These reductions in welfare benefits hardly can be attributed simply to newly conservative state political climates. Statistical studies indicate that it made little difference to benefit levels whether control of state legislatures was in the hands of Republicans or Democrats. For much of the period, Democrats controlled at least part of state government in most states, and in a substantial number they controlled both houses of the state legislature as well as the gubernatorial chair.

More important than politics was the increasing integration of the national economy. Capital, entrepreneurial activity, and labor have become more mobile, making states increasingly sensitive to the economic consequences of their policies¹. Today, 17 percent of the population changes residence each year, and 3 percent moves across state lines. States and localities can no longer make policy choices as if they are acting in isolation. The decisions they make are noticed by people elsewhere, and the impact on their economic and fiscal situation will be felt sooner rather than later. The result is that state officials are growing ever more reluctant to provide for the needy within their jurisdictions.

THE WELFARE MAGNET

States whose welfare benefits remain relatively high have become welfare magnets - places that attract poor people because they offer higher cash benefits than do many other states. The higher the benefit, the more magnetic the state—both by keeping poor people from moving elsewhere and by attracting additional poor people into the state. The lower the benefit, the more repellent the state is to poor people—both by encouraging poor residents to leave and by deterring other poor people from moving to the state. Low-income, welfare-dependent families move at least as frequently as other demographic groups².

The welfare magnet is a function of the great variation in welfare benefit levels among states. In 1991 the maximum annual combined cash and food stamp benefit for a family of four varied between $5,952 in Mississippi and $11,898 in California. The variation in cash benefits was even greater in 1990 than it had been in 1940. Although the food stamp benefit reduces interstate variation considerably, interstate variation in combined cash and food stamp benefits remains much greater than interstate variation in the cost of living.

Before 1970, welfare policies had little magnetic effect. Numerous state laws and administrative practices designed to impede access to the welfare system made it inadvisable to change residences merely to improve one's welfare opportunities. Among the many restrictive practices was a rule, applied by many states, denying welfare benefits to poor families for a full year if they moved into the state from beyond state borders. Thus, before 1969, the states could increase their welfare benefits without becoming a more attractive place to live for poor people in other parts of the country.

In 1969 the Supreme Court ruled that the denial to newcomers of welfare benefits granted to longer-term residents in the state of New York violated the Fourteenth Amendment's requirement that states provide citizens equal protection before the law. This decision, together with the liberalization of numerous other state administrative practices, facilitated access to the welfare rolls, especially for those moving from one state to another.

But even as court decisions were forcing states to liberalize their newcomers' access to AFDC benefits, state officials became increasingly concerned about their states becoming welfare magnets. Their concerns seem to have been well placed.

Between 1971 and 1985 the size of the low-income population increased somewhat more rapidly in states with higher benefit levels. Though modest, the magnet effect remains noticeable even when differences in economic conditions among the states are taken into account³.

Fearful of becoming welfare magnets, many states have cut their welfare benefits. The governor of Wisconsin openly worries about the influx of poor people from Illinois, which has lower welfare benefits. Policymakers in New Hampshire are currently rushing to pass a welfare "reform" for fear that recent benefit cuts in Massachusetts will induce a northward move among potential welfare recipients. In general, one finds that states with higher benefits are more likely to make deeper cuts. States also cut their welfare benefits when poverty rates are both relatively high and climbing ⁴.

INTENSIFYING THE RACE TO THE BOTTOM

If the House bill becomes law, the race to the bottom is almost certain to intensify. Some states will undoubtedly tighten eligibility standards and reduce benefit levels, and by so doing, reduce their share of welfare costs. If this happens, high-benefit states will become more powerful welfare magnets than ever before. Poor people in low-benefit states will consider the costs and benefits of moving to a magnet state. Some will undoubtedly decide to move, or to remain in a magnet state when they might otherwise have made a move.

Under the terms of the proposed legislation, the cost of becoming a welfare magnet will be much greater than at present. Unlike current federal welfare grants, the block grant is a fixed sum of money that does not change with the number of individuals in the state eligible for assistance. If poor people move to states with more generous benefits, those states will experience an increase in their welfare burden without any commensurate increase in federal funding. To safeguard against rapidly rising state welfare costs, the generous states will come under increasing fiscal and political pressure to reduce their benefits. Eventually, all states will be racing to shift the cost of welfare to their neighbors.

In the past, the pressure on states to cut benefits has been mitigated by the fact that increases in the cost of welfare have been shared more or less equally between states and the national government. Under the proposed legislation, new welfare costs will be borne entirely by the states. Thus, the states can be expected to react quickly to any sign they are becoming welfare magnets.

Influential members of Congress also have proposed decentralizing control over food stamps. Should such a proposal become law, variation in state policy will increase and the race to the bottom can be expected to accelerate. Until now, interstate variation in the combined cash and food stamp benefit has been moderated by the design of the Food Stamp Program, which increases by one dollar whenever cash benefits are cut by three. This provision reduces by about one-half the extent of interstate differences in combined cash and food stamp benefits. Turning the Food Stamp Program into a block grant will eliminate this important equalizing aspect of current national policy.

Should Medicaid also be incorporated into a block grant program, the problem would become even more serious. Most medical services paid for by Medicaid are mandated by federal regulations. State variation in Medicaid policy is limited largely to coverage of some optional services and the amount paid to providers for services.

Poor people in need of costly medical services have especially large incentives to locate in places where medical benefits are more generous. As the more generous states experience a rise in their low-income, medically needy populations, they will come under increasing pressure to match cuts that have occurred elsewhere. The race to the bottom could become quite deadly.

THE NEED FOR NATIONAL STANDARDS

Congress can mitigate the race to the bottom in any block grant it enacts by tying federal grants to the size of the eligible population and by setting minimum-eligibility and benefit-level standards for health care, nutrition, and cash benefits. In a society in which both people and businesses are highly mobile, it makes little sense to leave the marginal cost of welfare provision to lower tiers of government.

Paul E. Peterson is Henry Lee Shattuck Professor of Government at Harvard University and is the director of Harvard's Center for American Political Studies.

This paper revises an excerpt from a just-completed study sponsored by the Twentieth Century Fund, "The Price of Federalism," by Paul E. Peterson (Washington, D.C.: Brookings Institution, 1995).

1. Timothy J. Bartik, Who Benefits from State and Local Economic Development Policies? (Kalamazoo, Mich.: W.E. Upjohn Institute for Employment Research, 1991), and Paul Brace, State Government and Economic Performance (Johns Hopkins Press, 1993).

2. Paul E. Peterson and Mark Rom, Welfare Magnets: A New Case for a National Standard (Washington, D.C.: Brookings Institution, 1990).

3. After five years, a state with welfare benefits one standard deviation above the mean will have, all else being equal, a poverty rate 0.9 percent higher than a state with welfare benefits one standard deviation below the mean, according to The Price of Federalism, by Paul E. Peterson (Washington, D.C.: Brookings Institution, 1995) and Peterson and Rom, 1990. Similar effects are reported in "The Impact of State Economic Differentials on Household Welfare and Labor Force Behavior," by Rebecca M. Blank, Journal of Public Economics, vol. 18, October 1995, pp. 25-58; "Migration and Income Redistribution Responsibilities," by Edward M. Gramlich and Deborah S. Laren, Journal of Human Resources, vol. 19, fall 1984, pp. 489-511; and "Public Welfare Programs and Recipient Migration," by Lawrence Southwick, Jr., Southern Economic Journal, vol. 40, October 1991, pp. 22-32.

4. In Peterson and Rom, 1990, and Peterson, 1995.

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Chapter 3

Rainy Day Funds: Contingency Funding for Welfare Block Grants

by Wayne Vroman

The House-passed welfare reform bill (H.R.4) proposes to convert the present funding of Aid to Families with Dependent Children (AFDC) and other welfare programs to block grants. Each state would receive a federal allocation fixed in advance. The block grant approach to welfare has been criticized as being unresponsive to changes in economic circumstances. During an economic downturn, for example, welfare caseloads grow. A fixed federal allocation would present states experiencing such downturns with three unpleasant alternatives: reducing support levels, restricting eligibility, or adding supplemental funding out of state funds. But the House bill would also establish special "rainy day" funds to help meet such unanticipated or emergency funding needs.

WHAT ARE RAINY DAY FUNDS?

The Federal Rainy Day Fund would be established with a $1 billion appropriation in FY 1996. States could borrow from the fund for up to three years at the market interest rate for federal debt of the same maturity. The maximum permissible amount would be either $100 million or half the state's block grant for that fiscal year, whichever is smaller. To be eligible to borrow, a state must have a high and rising unemployment rate. Specifically, its unemployment rate must average at least 6.5 percent for three consecutive months and be at least 10 percent higher than the rate during the same three-month period in at least one of the previous two years.

A second, state-level rainy day fund is also authorized in the bill. States may use unexpended block grant monies in an unrestricted manner if they accumulate balances of sufficient size. Since the basic block grants will be smaller than present federal funding of AFDC, it seems unlikely states will be able to accumulate balances large enough to allow such unrestricted use. Nevertheless, this provision provides states with a financial incentive to cut AFDC payments.

HOW BIG A FUND IS NEEDED?

The appropriate size of a federal emergency or rainy day fund depends on its purpose. If the fund is intended primarily to alleviate the costs of caseload growth arising from increases in the unemployment rate, the fund does not have to be as large as if it were to serve a broader purpose.

To Compensate for Increases in Unemployment. Single-parent AFDC caseloads are not very sensitive to economic cycles. The AFDC-Unemployed Parent (AFDC-UP) caseloads are, naturally, much more sensitive to unemployment, but the AFDC-UP program accounts for only 6 to 8 percent of the total AFDC caseload. A one percentage point increase in the employment gap (the percent by which actual employment falls below full employment) raises basic AFDC caseloads by about 60,000 and AFDC-UP caseloads by 19,000. The implied peak-to-trough increases in caseloads during the 1989-1992 period were about 300,000 for basic AFDC and 95,000 for AFDC-UP. These increases represent about 8 percent and 50 percent, respectively, of the 1989 caseload levels. The combined increase of 395,000 caseloads for basic AFDC and AFDC-UP represents 10.5 percent of the total 1989 AFDC program ¹.

Even if the cyclical caseload growth were double these estimates, such growth is still small relative to the experiences of the regular Unemployment Insurance (UI) program, which provides compensation for up to 26 weeks of unemployment. Between 1973 and 1975, the total number of weeks of compensation paid in the regular UI program increased by 144 percent - from 71 million to 173 million weeks. During the most recent downturn, which was less severe than that of 1973-1975, the total number of UI weeks of compensation rose by 53 percent - from 98 million weeks in 1989 to 150 million in 1992.

Combined state and federal payments for AFDC currently total about $25 billion annually. Thus, a rainy day fund that equaled 20 percent of current annual outlays would amount to $5 billion, about five times the size of the fund proposed in H.R.4.

To Compensate for Demographic or Other Change. The largest single factor affecting AFDC caseload growth is demographic change: changes in population, in the number of families headed by women, and especially in the number of families headed by never-married women. If the goal of the rainy day fund is to protect against contingencies that are broader than one year of recession-induced unemployment—such as demographic change, tightened eligibility for related safety net programs, or a recession with effects that extend beyond the one-year borrowing window - an even larger fund would be needed ².

H.R.4 includes a provision for population growth to effect an increase in a state's basic block grant during fiscal years 1997-2000. However, the total amount specified for population growth is only $100 million. If AFDC spending were to grow in line with the kind of population growth the U.S. has experienced during recent years, it would need to increase by about 5 percent over the next five years. Instead, the $100 million included in H.R.4 equals about 0.7 percent of federal AFDC outlays.

States with large population increases would also be disproportionately affected. For example, if California accounted for one-quarter of national population growth, its basic block grant would increase by $25 million, which is only 0.5 percent of its current (federal plus state) AFDC outlays. Also, there is no explicit provision in H.R.4 for growth in the number of female-headed families, a segment which grew by 2.3 percent annually between 1987 and 1991.

Another disproportionate constraint on fund use by large states is the absolute loan cap, also set at $100 million. At present, annual AFDC spending totals about $5 billion in California, $2.5 billion in New York, and between $0.8 billion and $1.3 billion in the six next largest states. Thus the $100 million loan cap represents 2 percent, 4 percent, and 8 to 12 percent, respectively, of current annual outlays for these states. Put another way, the cap amounts to less than 20 percent of the annual AFDC spending for all the 10 states with the largest AFDC outlays. But since these 10 states account for 60 percent of total AFDC spending, the loan cap disproportionately works to the disadvantage of the large states.

ISSUES IN FUND MANAGEMENT

At least three questions are pertinent to fund management.

1. What should be the withdrawal criteria? If increased unemployment were the only withdrawal criterion it would be easy to review, approve, and determine loan amounts. The current eligibility criteria for H.R.4 are simple; the only problem is the possibility of false signals from unemployment rates in very small states. States would undoubtedly like to add additional criteria to recognize special circumstances, but these would complicate the approval of financial assistance.
2. Should withdrawals be treated as loans or grants? If funds were disbursed as grants there would be no need for the states to repay them. Grants are the more expensive route for the federal budget. But a strong case can be made for grants, since states should not be held responsible for caseload growth caused by fluctuations in the economy.
   
   One effect of treating disbursements as loans would be that states might restrict eligibility for benefits to prevent and/or reduce their future borrowing. This was the experience of debtor state UI programs in the mid-1980s. As debtor states faced the prospect of large debt repayment costs, they enacted solvency legislation that restricted benefit availability (and raised employer UI payroll taxes).
3. Should the risks be pooled? A federal rainy day fund has one clear advantage over the current set of state UI trust funds—the pooling of risk. The UI programs have individual state trust funds. Since UI borrowing patterns in each recession are highly concentrated by geographic area, a system of separate funds requires the aggregate of state UI trust fund balances to be larger than what would be needed by a single national fund. With just a single nationwide AFDC fund, state-level unemployment-related risks would be pooled, and the aggregate fund would need to be only large enough for use by states with unemployment levels higher than the threshold.

HOW WOULD THE FUND INITIALLY ACQUIRE ASSETS?

The $1 billion trust fund proposed in H.R.4 would not be difficult to fund fully. But funding a new federal trust fund on a scale commensurate with the potential need - $5 billion for one-year countercyclical goals, considerably more for broader contingencies - will not be easy, particularly if it is to be accomplished within a single year. This suggests the wisdom of considering a phase-in period. The risk of a phase-in, of course, is that the next recession will start before the fund is fully built up.

The initial experiences of the UI trust funds are instructive in this respect. The UI payroll taxes were first levied in 1937. Benefits were paid beginning in 1938. From 1938 to 1945, UI taxes exceeded benefit payouts by wide margins in every year, both because the program proved less expensive than originally anticipated and because of the strong labor markets created by World War II. At the end of 1945, for example, the aggregate trust fund balance of $6.9 billion represented about seven years of benefit payouts at prevailing payout rates. The current fiscal environment would be extremely hostile, however, to such a steady and substantial initial accumulation in an AFDC rainy day fund.

DOES THERE NEED TO BE AN EXPLICIT TRUST FUND?

An alternative strategy for providing back-up to the states would be to create a federal loan authority from which eligible states could borrow during emergency periods. One advantage of this approach is that monies would not have to be set aside during the initial years of the new AFDC financing arrangement to stock the rainy day fund.

Recent experiences with the Emergency Unemployment Compensation (EUC) program suggest, however, that Congress is reluctant to use emergency financing (allowed under existing budget rules) even for a program as popular as jobless benefits. Four of the five phases of EUC were "financed" or fully offset, despite the program's title and its recession-related origin. Even if AFDC emergency loans had to be financed, of course, the short-run advantage would be not having to prefund the rainy day fund as proposed in H.R.4.

A CAVEAT FROM THE UI EXPERIENCE

The UI experience makes it absolutely clear that states are extremely responsive to the financing provisions of contingency funds. Before 1982, states were not charged interest for withdrawals from the federal UI loan fund. They repaid much more promptly when interest payments were assessed starting in that year. In 1983, states with UI debts were extended easier repayment terms if they restricted UI eligibility. Eligibility restrictions quickly followed. If states become responsible for cyclical AFDC costs, they are almost certain to enact benefit restrictions during economic downturns. This timing is inappropriate in both macroeconomic and human terms, but state-level fiscal considerations could easily override other priorities.

Wayne Vroman is an economist at the Urban Institute.

Related Reading:

Unemployment Insurance Trust Fund Adequacy in the 1990s, by Wayne Vroman, Upjohn Institute, 1990.

"Forecasting AFDC Caseloads with an Emphasis on Economic Factors," by Janice Peskin, "CBO Staff Memorandum," Congressional Budget Office, July 1993.

1. Janice Peskin, "Forecasting AFDC Caseloads with an Emphasis on Economic Factors," CBO Staff Memorandum (Washington, D.C.: Congressional Budget Office, July 1993). The estimates for both AFDC program components are based on the sum of all lagged coefficients and presume that the employment ratio fell by 5 percentage points between 1989 and 1992. The decline during 1973-75 was more severe than during 1989-1992 (roughly 7 percentage points in the employment ratio). This size change would increase the two AFDC components respectively by 420,000 and 131,000, for a total AFDC caseload increase of 551,000, or 14.5 percent of the 1989 caseload.

2. Legislative changes in AFDC eligibility criteria and benefit levels can also affect AFDC costs in the short run, but this source of cost changes can be controlled by the states. Cost changes from this source should not be reimbursed by a rainy day fund.

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Chapter 4

Increasing the Employment and Earnings of Welfare Recipients

by Robert Lerman

Over the last three decades, political leaders and policymakers have relied on a combination of three tools to increase the employment and earnings of welfare recipients: financial incentives; job search and work requirements; and training and education. The evidence indicates that all three strategies can increase work effort. But programs that emphasize job search and work are more cost-effective than programs that rely primarily on financial incentives or training and education. By themselves, such measures are unlikely to have a major impact on poverty and welfare dependency. But as part of a more comprehensive package that includes child support, earned income tax credits, and health insurance, they could substantially improve the lives of those now on welfare.

WORK INCENTIVES

The current welfare system contains major disincentives to work. If a mother and child on Aid to Families with Dependent Children (AFDC) have no income of their own, they may qualify for an average of $500 a month in cash benefits. If that mother takes a part-time job, say at $300 a month, her family becomes "less needy" and her welfare check is reduced (to offset the increase in her income). The higher the benefit reduction rate (equivalent to a tax on earnings), the weaker the incentive to work. This incentive is further weakened because other earnings benefits (notably food stamps, housing assistance, and Medicaid) are also reduced as earnings increase ¹. The policy problem is that lowering the benefit reduction rate necessarily raises the income cutoff for eligibility, increases the proportion of benefits going to the less needy, and increases the number of recipients and thus welfare expenditures.

For example, a state providing an income floor of $500 that reduced its benefit reduction rate from 100 percent (no net increase in income from earnings) to 50 percent would suddenly find its eligibility cutoff point increasing from $500 to $1,000.

The federal government began mandating states to provide some financial incentive for mothers to work in the late 1960s. During the 1970s, AFDC benefit reduction rates declined and some earnings that went to pay work expenses did not count against benefits. In 1981, however, Congress again increased the work disincentives built into AFDC and limited any earnings exclusions to the first four months on welfare.

The Clinton Administration philosophy is to "make work pay" by expanding nonwelfare benefits for recipients willing to work. In 1994, Congress passed an extremely large expansion of the Earned Income Tax Credit (EITC) to improve the work incentives of all families with children, including families on welfare. By 1996, for families with two or more children, the EITC will pay 40 percent of earnings up to $8,900 per year, or a maximum of $3,560. The EITC will begin to phase out as families earn more than $11,620 per year, with each $100 of added earnings lowering the EITC payment by $21. Outlays on EITC will reach $25 billion in 1996.

Expanding health insurance, child care, and child support are three other components of the strategy of making work pay outside the welfare system. At the same time, some states are experimenting with provisions that disregard increasing amounts of an AFDC recipient's earnings and thus lower the rate of benefit reduction within the AFDC program.

The Child Assistance Program (CAP) experiment in three New York counties provides new evidence that AFDC recipients respond to work incentives ². CAP experimented with a benefit formula that combined a basic benefit lower than AFDC with a significantly more generous treatment of earnings (up to the poverty line, $1 of added earnings reduced the CAP grant by only 10 cents, a 10 percent benefit reduction rate). AFDC recipients were randomly assigned to a treatment group with access to CAP or to a control group. To qualify for the CAP rate, mothers had to have a support order for each child. During the second year of the experiment, the CAP treatment group earned 30 percent more per month than the control group. Among those initially not working, the earnings advantage of the treatment group over the control group reached 40 percent, for an average earnings gain of about $50 per month ³. Although the CAP results are encouraging, it should be noted that the program combines a lower benefit reduction rate with a lower basic benefit. It would be a mistake to conclude that lowering the benefit reduction rate by itself will necessarily lead to more employment. While those already on welfare will almost certainly work more, those made newly eligible by a higher eligibility cutoff point are likely to work less. On balance, the net effect is uncertain and may not be positive ⁴. Thus, the introduction of work incentives in the late 1960s and their virtual elimination in the early 1980s had less impact on employment than many people expected.

One factor that discourages many welfare recipients from working is their fear of losing health insurance coverage. According to one study, making generous health insurance benefits available to all female workers would raise the employment rate of all heads of families 16 percentage points and reduce AFDC caseloads by 20 to 25 percent ⁵.

In sum, although welfare recipients face high penalties on added earnings that discourage work, eliminating such disincentives extends eligibility for welfare to a larger population, reduces the work effort of people who join the rolls because of the increased income eligibility cutoff, and may not be cost effective for these reasons.

WORK REGISTRATION, JOB SEARCH, AND WORKFARE

A second strategy to increase employment is to require AFDC recipients to work or register for work and training. In 1981, amendments to the Omnibus Budget Reconciliation Act allowed states to use workfare. Workfare requires recipients to work in unpaid jobs in return for their welfare benefits. States responded by expanding job-search and workfare activities and making the activities mandatory. A common program began by assisting recipients with a job search in the private sector, but required unpaid work in the public sector for those unable to find private jobs.

Research using treatment-control experimental designs yielded a robust array of findings about the impacts of workfare. For a modest investment of government funds, nearly all the state and local programs evaluated have increased the earnings of recipients and reduced welfare payments ⁶. In many cases, the decline in welfare payments over a three- to five-year period more than offset spending by the government. For example, total AFDC payments over five years declined by 10 percent in San Diego, California, and by 14 percent in Arkansas. Most of the gain in earnings occurred because recipients subject to the mandates found jobs more quickly than their control group counterparts. However, the effects on earnings generally continued for four to five years, as a somewhat higher share of treatment group recipients decided to remain in low-wage jobs rather than leave employment completely.

The largest impacts took place in Riverside, California, where local program officials successfully imbued staff with an ethic that emphasized immediate entry into private-sector jobs ⁷. Case managers were subject to job placement standards and the program made great effort to persuade local employers to hire recipients. Over three years, Riverside recipients subject to the experimental treatment earned an astounding 40 to 50 percent more than recipients in the control group. Earnings gains averaged about $1,000 per year and showed no tendency to decline over time. This accomplishment is particularly impressive given the modest added costs of the Riverside intervention (about $1,600 per recipient subject to treatment) nearly all of which went for orientation, job search, and basic education. San Diego, which used a similar strategy, obtained similar results ⁸.

It is unclear whether other cities will be able to replicate the substantial earnings gains among welfare recipients that were achieved in these two California cities. However, the best evidence suggests that where cities or counties are willing to implement rigorous programs emphasizing job search and enforcing work requirements, about 5 to 8 percent more recipients will be working and the average earnings of welfare recipients will rise by $500 to $1,000 a year, often enough to pay for the added administrative and service costs.

TRAINING AND EDUCATION PROGRAMS

Programs allocating substantial funds to education, training, and support services generally do no better and sometimes do worse than those that focus primarily on immediate job placement. For example, despite much higher outlays for education, training, and services in Alameda County, California, than in the San Diego and Riverside programs mentioned earlier, earnings gains for recipients were lower. Emphasizing training has achieved rising earnings over time in some places, but not enough to offset higher costs and lower effects in the early years. Moreover, linking training to welfare benefits carries the potential long-run drawback of creating an incentive to go on welfare just to gain access to training.

CAN WORK-ORIENTED INTERVENTIONS REDUCE POVERTY?

The evidence clearly shows that welfare system changes can raise the earnings of recipients. Both incentives and work requirements matter, but neither is a panacea for moving families off welfare and out of poverty. In Riverside, the most successful program evaluated to date, the proportion of families escaping from poverty rose by about 4 percentage points, from 15.7 percent to 19.4 percent. Earnings averaged about $3,600 a year for all members of the treatment group (including nonworkers) and about $8,000 a year for the 44.5 percent who worked in the third year.

Viewed in the context of a more comprehensive approach to reducing welfare dependency and poverty, however, work programs can play an important role. Welfare dependency and poverty would decline substantially, for example, if families now on welfare could combine annual earnings of about $8,000 per year with $2,500 to $3,000 in child support, $3,000 in EITC, and nonwelfare-related access to health insurance. These gains would not be enough to offset the increased economic hardship associated with the rising incidence of one-parent families, but they would substantially improve the lives of large numbers of American children.

Related Reading:

Five Years After: The Long-Term Effects of Welfare-to-Work Programs, by Daniel Friedlander and Gary Burtless, Russell Sage Foundation, 1995.

The New York State Child Assistance Program: Program Impacts, Costs and Benefits, by William Hamilton, Nancy Burstein, Margaret Hargreaves, David Moss, and Michael Walker, Abt Associates, July 1983.

GAIN: Benefits, Costs, and Three-Year Impacts of a Welfare-to-Work Program, by James Riccio, Daniel Friedlander, and Stephen Freeman, Manpower Demonstration Research Corporation, September 1994.

"The Twice Poverty Trap: Tax Rates Faced by AFDC Recipients," by Linda Giannarelli and C. Eugene Steuerle, Urban Institute, 1995.

Robert Lerman is director of the Human Resources Policy Center at the Urban Institute.

1. Linda Giannarelli and C. Eugene Steuerle, "The Twice Poverty Trap: Tax Rates Faced by AFDC Recipients," Urban Institute, 1995.

2. William Hamilton, Nancy Burstein, Margaret Hargreaves, David Moss, and Michael Walker, The New York State Child Assistance Program: Program Impacts, Costs and Benefits, Abt Associates, July 1983.

3. The CAP program included some other features that may have influenced earnings, but not nearly enough to account for the earnings gains made by the CAP group.

4. Robert Moffitt, "Incentive Effects of the U.S. Welfare System: A Review," Journal of Economic Literature, March 1992.

5. Robert Moffitt and Bobbie Wolfe, "The Effect of the Medicaid Program on Welfare Participation and Labor Supply," Review of Economics and Statistics, November-December 1992.

6. Daniel Friedlander and Gary Burtless, Five Years After: The Long-Term Effects of Welfare-to-Work Programs, Russell Sage Foundation, 1995.

7. For the latest, highly comprehensive report on California's Greater Avenues for Independence (GAIN) program, see James Riccio, Daniel Friedlander, and Stephen Freeman, GAIN: Benefits, Costs, and Three-Year Impacts of a Welfare-to-Work Program, Manpower Demonstration Research Corporation, September 1994.

8. A future issue of Welfare Reform Briefs by Lawrence M. Mead will cite more evidence on, and give a discussion of, this approach.

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Chapter 5

An Administrative Approach to Welfare Reform

by Lawrence M. Mead

Is the best way to reform welfare to restructure it from the top, or to improve administration at the bottom? The two major proposals now on the table—the Clinton Administration's Work and Responsibility Act and the Personal Responsibility Act passed by House Republicans—emphasize restructuring.

Both proposals seek to limit government's commitments to the needy, in the view that this is the best way to discourage unwed pregnancy and nonemployment by poor adults - the chief conditions that precipitate dependency. But both proposals conflict with public desires about reform, which are to require work of employable welfare-receiving adults while continuing support for the needy.

The Clinton plan maintains support levels but exempts much of the caseload from work requirements in order to limit costs. The Republican bill includes tough work standards but provides no specific funding for work programs, and would allow families to be denied aid whether or not they could work.

REFORM AS ADMINISTRATION

A more promising approach may be to intensify the administrative style of reform that dominated welfare policy from the late 1960s through the Family Support Act (FSA) of 1988. This approach to welfare reform sought to rectify abuses and enforce work requirements while receiving welfare, without curbing eligibility or challenging the principle of aid. As a condition of federal welfare funding, states have had to:

• Increase quality control, i.e., minimize errors in benefit payments in AFDC and other programs;
• Improve collection of child support; and
• Require employable recipients to enter work programs designed to place them in jobs or training.

All of these measures involve enforcement - demands that recipients comply with certain rules as a condition of aid.

Quality control sharply reduced the incidence of errors in AFDC, from 17 percent in 1973 to 6 percent in 1990. The potential for further savings there appears small. Child support is far less fully enforced. Only 11 percent of AFDC costs are now defrayed out of support collections. But even optimal child support enforcement would probably reduce the AFDC rolls only 9 percent, simply because the fathers of welfare families typically have very low earnings ¹.

THE POTENTIAL OF WORK REQUIREMENTS

Work requirements within welfare show more potential. Only 6 percent of AFDC mothers report working at a given time. Probably a third actually work, with much of the earnings unreported to welfare offices ², but this level is still well below that found among nonpoor single mothers, over half of whom work full-year and full-time. The best estimates are that two-thirds to four-fifths of welfare mothers potentially could work ³. If they did so "on the books," between one-third and four-fifths of them would leave AFDC and food stamps, the extent depending mainly on whether they worked full-time or part-time and also on their child support income and child care costs ⁴.

The Job Opportunities and Basic Skills (JOBS) program, the employment program now linked to AFDC, is a long way from enforcing work on that level. In 1995, JOBS rules require that states have 20 percent of employable recipients active in the program on a monthly basis ⁵. By 1993, the average state had obtained an activity level of 23 percent. In California, the program raised the earnings of clients an average of 22 percent over three years, leading to a 6 percent drop in welfare payments. In Riverside County, which had the strongest results, the comparable figures were 49 and 15 percent ⁶. Such limited effects on the rolls cause many analysts to conclude that the potential of work requirements, too, is limited.

However, these results may understate the potential of a determined work program to increase activity while recipients are receiving welfare assistance and to reduce such assistance over time. In the 1980s, work programs that preceded JOBS at least doubled the share of recipients engaged either in work, looking for work, or training, compared to controls ⁷. And though the nation suffered a sizable rise in welfare program participation in recent years, states that implemented JOBS forcefully recorded a smaller increase, even controlling for other influences ⁸.

THE WISCONSIN EXAMPLE

The potential of an administrative approach to reform is best shown in Wisconsin. The state has cut its caseload 23 percent since 1987. While some of the fall was due to a 6 percent benefit cut in 1987 and a favorable economy compared to the rest of the country, the state cut its caseload by 3 percent even during 1989-1993, a period when the country as a whole saw a 29 percent increase. Wisconsin achieved this despite paying the twelfth-highest welfare benefits in the nation. Only two other states recorded any reduction: Louisiana and Mississippi.

A major factor appears to be an effective JOBS program. Wisconsin ranks well above average in JOBS participation, and has recently promoted an emphasis on immediate employment (as opposed to education and training), one of the reasons for Riverside County's success. The most effective Wisconsin county programs insist that clients participate and take available jobs, and they invoke these requirements as soon as recipients enter the welfare system.

In Kenosha, the most notable case, 88 percent of the caseload is enrolled in JOBS in a typical month, and 40 percent of clients are already working while still on welfare. The employment figure is so high, in part, because the program emphasizes part-time work along with remediation. Kenosha stresses work but encourages clients to pursue training for better positions once they are employed. As a result, it achieves both high numbers of job entries and high job quality (e.g., high wages and job retention).

The effective work programs combine assistance with clear expectations of reciprocal responsibility on the part of the clients. These programs induct all employable recipients into the program, then quickly assign them to job search or, if necessary, remediation. Above all, case managers follow up on clients to make sure they fulfill their assignments. Staff also pursue dropouts to return them to the program. A work message is conveyed strongly but usually informally. Kenosha makes heavy use of "reconciliation" proceedings, for example, minimizing sanctioning of clients (financial penalties) for non-cooperation.

WHAT IT TAKES TO REFORM WELFARE

Wisconsin achieves the sort of welfare reform the public wants - more work and less dependency while maintaining aid to the needy. But this administrative style of reform makes severe demands on government. It requires strong political leadership, skilled administrative direction, hard-working staffs, and efficient reporting systems. Successful managers must set high expectations for their staffs, as well as clients, and must hold accountable for performance the agencies to which they subcontract for services. Exceptional work programs require years of development.

Wisconsin can meet those demands because the state has all of the following:

• An innovative governor willing to make welfare reform his major issue. The Tommy G. Thompson administration has launched several reform initiatives of its own.
• Initiative for reform at multiple levels aside from the governor's office, including a number of counties and business groups.
• High-quality, well-funded bureaucracy at the state and county levels.
• A bipartisan, progovernment political culture in which, more than in most states, liberals support enforcing work in welfare and conservatives support an ambitious social policy.

THE FEDERAL ROLE

Whereas the restructuring approach to reform gives priority to policy changes made in Washington, the administrative approach makes the local level primary, for it is only there that effective programs combining aid with behavioral requirements can be realized. The role for federal policymakers then changes. They must see themselves less as leading change and more as creating incentives for effective program development lower down in the intergovernmental system. They must also think in terms not only of resource distribution but also of building the type of institutions that have helped make Wisconsin's welfare reform effort so successful. Thinking in these structural terms is alien to the thoughtways of Washington.

The difficulty is that few state and local governments have institutions as strong as those of Wisconsin (or Kenosha). Most deliver public services adequately, but they lack the greater political consensus and administrative capacity required to reform the welfare system from within. Fortunately, federal policies can promote change. Federal requirements drove the sharp lowering of error rates in grant payment, just as they now, at a slower pace, are toughening child support enforcement. The participation mandates set for JOBS in the Family Support Act already have forced big-city welfare departments, such as New York's, to get serious about work for the first time.

Rather than cut or time-limit welfare, Congress should update the mandates that have prompted work enforcement to date. At a minimum, it should extend the 20 percent JOBS participation standard in effect for 1995, which is due to expire at the end of the current fiscal year. Congress might also:

• Raise the JOBS participation floor to 50 percent, to be implemented over several years. Both the Clinton and Republican plans would do this, although the latter measures participation more stringently.
• Set some standard for the share of JOBS participants who must be working or looking for work, the level to vary directly with the share of state population on welfare. The higher the latter proportion, the higher the share of recipients likely to be employable.
• Set more specific performance measures for JOBS, for example for the number and quality of job entries achieved. Such measures were called for by the FSA in 1988, but the Clinton Administration has yet to make specific recommendations.

All of these measures would be connected in some way to federal funding, so that states would face strong financial incentives to improve the reach and quality of their programs. Exactly how they would do this would be left to them. The standards would force local authorities to give ongoing attention to the work mission, and over time the administrative capacity of welfare would rise.

Lawrence M. Mead is Professor of Politics at New York University and Weinberg Visiting Professor at the Woodrow Wilson School of Public and International Affairs at Princeton University.

1. Elaine Sorensen, "The Benefits of Increased Child Support Enforcement," Welfare Reform Briefs Number 2, Urban Institute, April 1995.

2. Kathleen Mullan Harris, "Work and Welfare among Single Mothers in Poverty," University of North Carolina, Department of Sociology, November 1992.

3. Rebecca A. Maynard, "Subsidized Employment and Non-Labor Market Alternatives for Welfare Recipients," in The Work Alternative: Welfare Reform and the Realities of the Job Market, Demetra Smith Nightingale and Robert H. Haveman, eds. (Washington, D.C.: Urban Institute Press, 1995), pp. 114-115, 114 n. 2.

4. Charles Michalopoulos and Irwin Garfinkel, "Reducing the Welfare Dependence and Poverty of Single Mothers by Means of Earnings," Institute for Research on Poverty, August 1989.

5. "Employable" here includes, roughly, welfare mothers who are not disabled, whose youngest child is at least three years old, and who do not have other family members requiring care in the home.

6. James Riccio, Daniel Friedlander, and Stephen Freedman, GAIN: Benefits, Costs, and Three-Year Impacts of a Welfare-to-Work Program (New York: Manpower Demonstration Research Corporation, September 1994).

7. Lawrence M. Mead, The New Politics of Poverty: The Nonworking Poor in America (New York: Basic Books, 1992), p. 168.

8. Lawrence M. Mead, "The New Paternalism in Action: Welfare Reform in Wisconsin," Wisconsin Policy Research Institute, January 1995, pp. 7-11.

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Chapter 6

Child Care Block Grants and Welfare Reform

By Sandra Clark and Sharon Long

Recently introd