Welfare: What Now?
State Legislatures January 1997
States had already begun to reform welfare before the feds acted. Now they've got the hard work ahead of them.
By Jack Tweedie
States face tremendous challenges creating the "new welfare," mandated by the federal Temporary Assistance for Needy Families (TANF) law. But it's a task most states already have started. Thirty-five states passed major reforms before the federal legislation was enacted and it echoes their emphasis on work and family responsibility.
Ambitious state reforms were the first stage in the transformation of welfare. States now turn to the second generation of welfare reform issues--creating jobs, preparing recipients for work, finding child care slots, constructing safety nets for children and families who lose benefits, and devising funding schemes for economic cycles. Although they have made some progress, current efforts will be expanded and new ideas developed. States must transform the culture and vision of welfare, particularly the attitudes and actions of caseworkers and the people on welfare.
NEW FLEXIBILITY, NEW FINANCING, NEW MANDATES
Federal TANF legislation establishes a new structure for welfare programs that gives the states considerable flexibility. Gone is AFDC and most of the federal rules that structured family assistance programs. Gone is the cumbersome waiver process.
Federal financing for family assistance has been restructured. The new block grant system shifts the financial risk to the states. Increases in family assistance will be funded almost completely from state funds. This raises the stakes as states plan reforms. They have to anticipate economic cycles that increase or decrease assistance caseloads and spending. They have to search for programs that put recipients in jobs and enable them to support their families. It is state money that will be spent or saved, not a mix of state and federal money.
The federal legislation imposes ambitious new mandates. First, states must put more adult recipients to work, starting with 25 percent in FY 1997 and increasing to 50 percent in FY 2002. If a state fails, its block grant will be reduced. Second, states can use federal money to pay benefits to families for more than two years only if the adult is working or is excused from working for good cause. Third, states can use federal money to pay benefits to families for more than five years only if that family receives an exemption. And states can only give exemptions to 20 percent of their caseloads.
States have already begun to transform welfare into a work-based program where most recipients participate in some form of work activity. The scope of a state's reforms is limited only by the need to spend block grant money and associated state funds to support needy families. The next several years promise to be ones of widespread experimentation as states develop refinements and alternatives to the existing cash assistance system.
FINDING JOBS
One of the most difficult problems facing states is the limited number of jobs suitable for welfare recipients. They will have to expand programs to find and create jobs. States already know that job creation requires investment. In the JOBS program, administrative costs for each subsidized job or community service assignment averaged $2,000 to $4,000 per year.
The initial work participation rate requirement (for FY 1997) involves more than 1 million jobs, substantially more than the number of AFDC recipients who currently are in activities that would qualify under TANF provisions. In five years, more than 2 million placements will be needed.
It may not be too difficult in the beginning. Recent reductions in caseloads and the ability to count educational activities temporarily as work make it easier to meet the federal requirements. But over time, states will not be able to count education for many recipients. If economic conditions also decline, it may be hard for some states to meet the goals. They could be hit with financial penalties at the time when they are most in need of money to pay benefits and create jobs.
The two-year work requirement will increase states' need to develop placements. Based on nationwide estimates made by LaDonna Pavetti of the Urban Institute, states will have to find or create work activities for around half of their current caseloads during years three and four of the new system. And these are recipients who, absent changes in our welfare programs, would not have found jobs on their own.
The five-year time limit raises somewhat different concerns. It ends assistance, so recipients need jobs in order to support their families. If past patterns of welfare use continue, Pavetti has estimated that more than 1 million families will hit this time limit in each of the first five years after the initial five-year period ends. That translates to more than 20 percent of each state's current caseloads each year. Most families will not be exempt from the federal time limit. Successful work programs can substantially reduce the number of families needing five years of help. But no state has come close to the success necessary to prevent substantial numbers of families from losing federal assistance. And most of the people who hit the limit will have few resources to cope and care for their children without help. Pavetti's research indicates that almost two-thirds of adult recipients who have been on welfare for more than five years do not have a high school diploma, and half of them have never held a job.
PROVIDING CHILD CARE
Work mandates are going to substantially increase child care needs. Based on the 2 million-plus adults who will have to work under the federal reforms, rough estimates indicate that states will have to double the number of child care slots. Although federal funding has increased, there will be no open-ended federal cost sharing for these additions. Indeed, the Congressional Budget Office estimates that the onset of the two-year work requirements will increase states' child care expenses above the federal increase. States also need to be concerned about quality. The pressure to create new spaces could result in a decline in quality, and parents' worries about inadequate care could undermine the goal of putting more recipients to work.
SAFETY NETS FOR CHILDREN
Estimates of the number of families who would hit the five-year barrier underscore the importance of determining what assistance and services, if any, will be available for them. States can provide cash assistance, but a large number of families will be affected and the program would be completely state-funded. (This spending would count toward the states' maintenance of effort requirement under TANF.) States can also develop alternative assistance programs such as vouchers for children's expenses.
When the five-year limits hit, states could be deluged with demands for child welfare services and foster care. An unprecedented number of children could be thrown into the system when their families' aid ends. Federal matching funds still will be available for these services, but child welfare and foster care are expensive, and most states are already overburdened. As states plan for implementing welfare reforms, they have to take these expenses into account.
PAYING FOR NEW WELFARE
Block grants mean that state budgets will bear the changes in welfare spending. That makes decisions about work programs and preparations for economic cycles a high priority in state legislatures this session. Some states are looking at flexible programs so that they can change services and assistance in an economic downturn. Most states will receive additional federal money under TANF in FY 1997; that will create a fiscal buffer. Some will use the additional funds to invest in expanded job creation or education and training programs designed to reduce long-term dependency. Some will also establish a reserve fund to be tapped during bad economic times.
STATE INITIATIVES PROVIDE A START
If states are going to meet the mandates in the federal reforms, they have to get people into jobs. States have already been experimenting with programs to create jobs and to prepare and motivate recipients to work. These efforts are an important start. But the scale of change required is far greater than any state has been able to achieve so far.
Several states have recognized that they must change the culture of welfare offices so that caseworkers work with recipients on employment and training rather than eligibility. In Michigan, welfare clients must attend an orientation run by the welfare agency and the Michigan Works! Agency within a week of their applications. Work training or job searches start immediately, and clients can't stop until they find a job. The law exempts only minor parents attending school, severely disabled recipients and those taking care of a severely disabled child or babies younger than 3 months. In Wisconsin, caseworkers are being retrained as employment and financial planners. Planners meet with recipients and place them in work suited to their capabilities. The program offers a series of options, and everyone is expected to work in return for cash grants that are keyed to job assignment rather than family size. Indiana established a Work First program that makes getting a job the first priority for recipients and welfare staff. County offices are given job placement goals, and office directors are evaluated on the county's success in meeting those goals. The state also developed a script for caseworkers to follow in the initial meeting with clients that focuses the interview on job placement and assistance rather than eligibility.
States have adopted two primary strategies for creating jobs in the private sector--subsidized wages and collaboration with business. States subsidize wages by diverting money that would have been used for benefits and by giving tax credits. Twenty-two states provide a direct wage subsidy. Massachusetts established a program in 1995 aimed at creating 2,000 such positions. Employers in the program receive subsidies of up to $3.50 an hour for nine months and up to $2.50 an hour for the next three months.
Several states also have established tax credits for those who employ people on welfare. Connecticut has an "opportunity certificate" that's worth a tax credit of $1,500. Recipients can use the certificate to negotiate a job with an employer or for themselves if they become self-employed. Georgia created a sliding scale tax credit that encourages higher wage jobs for AFDC clients. The tax credit amounts to $2,800 for jobs paying more than $4 over the federal minimum wage and $1,400 for jobs near the minimum wage.
South Carolina has gone one step further. In addition to wage subsides and tax credits, it requires each state agency and county welfare department to target 10 percent of all jobs requiring a high school diploma or less to people getting welfare and food stamps.
Another strategy for increasing the number of jobs is to establish collaborative projects with area employers. By working with business, state agencies can match the skills of welfare clients with the needs of business. For instance, the Local Investment Commission in Missouri has gathered a consortium of community and business leaders to link job development, training and placement. The result was the creation of the 21st Century Project that provides subsidized positions to welfare recipients. By April 1996, the project had placed 599 people in jobs that paid an average of more than $6 per hour.
These job creation programs show promise. In the first year, Massachusetts had 890 employers willing to provide positions. In 20 months, Oregon's JOBS-Plus demonstration found jobs for 504 people in the seven-county demonstration project. The programs also stimulate recipients to find their own jobs. In Oregon, 1,645 people eligible for a subsidized position took a different, unsubsidized job, instead. Similar experiences have been reported in Missouri and Massachusetts. But all these programs are small, enrolling less than 1 percent of the adults on welfare. States have to work on expanding them. Policymakers also must figure out how to remedy problems that have cropped up. In Massachusetts, most people chose the 20-hour-a-week obligation of community service rather than the greater commitment involved in a job that could enable them to become self-supporting. And many job opportunities were lost because of delays in processing information. States also are concerned about dropouts. In Kansas City, only 40 percent of those placed in subsidized jobs stayed. More than 20 percent left in the first 30 days.
THE CHALLENGES AHEAD
States face imposing policymaking challenges as they seek to transform welfare. They have to find ways to change the operations of welfare offices and the attitudes and behavior of welfare recipients. They are going to be developing new programs, borrowing good ideas from each other and expanding demonstration projects into full-scale programs. Every one of these tasks is daunting. And states do not have much time. The federal legislation envisions a new welfare system in just six years. In the upcoming legislative sessions, states will have new flexibility and opportunity to continue their efforts to create a welfare system that helps poor families become self-supporting.
NCSL Contacts for More Information on State Welfare Reform
Call the Denver office at (303) 830-2200 to talk with our state specialists, or click on name to e-mail:
Call the Washington, D.C. office at (202) 624-5400 to talk with our federal specialists:
- Sheri Steisel--federal welfare reform, federal human services, child care, child support, child welfare, immigration
- Ann Morse--federal, state and local immigration
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