PPA786: Urban Policy Class 17: The New World of Welfare Policy

PPA786, Class 17: New Welfare Policy Class Outline ▫Brief history of welfare laws ▫Provisions of the Personal Responsibility and Work Opportunity Reconciliation Act of 1996 ▫Early Impacts of PRWORA ▫PRWORA and the Great Recession

PPA786, Class 17: New Welfare Policy AFDC ▫Aid to Families with Dependent Children, part of the 1935 Social Security Act, was the main federal welfare program until ▫Low-income families with children were entitled to AFDC if one parent was absent or disabled or (in some states) both parents were unemployed. ▫The AFDC “tax” rate was 100% from , 67% from , and 100% from

PPA786, Class 17: New Welfare Policy FSA ▫The Family Support Act of 1988 was an unusual bipartisan compromise. ▫It placed some work requirements on AFDC recipients through the JOBS Program, but the requirements were flexible and could be satisfied through education and training as well as through employment. ▫Moreover, FSA mandated that states provide child care to JOBS participants.

PPA786, Class 17: New Welfare Policy The Waiver Era ▫After FSA was passed, many states wanted to experiment with new provisions, especially ones to encourage work. ▫In the 1990s, HHS started to give states waivers to allow them to implement various reforms of this type, with an obligation to study the impacts. ▫By 1996, 27 states had major waivers and several others had minor ones.

PPA786, Class 17: New Welfare Policy PRWORA and TANF ▫AFDC was repealed by the Personal Responsibility and Work Opportunity Reconciliation Act of 1996 (PRWORA). ▫PRWPRA followed up on President Clinton’s campaign promise to “end welfare as we know it.” ▫This act replaced AFDC with the Temporary Assistance for Needy Families program (TANF).

PPA786, Class 17: New Welfare Policy TANF: Funding ▫TANF replaced AFDC’s matching grant system (which had higher matching rates for poorer states) with ▫Block grants based on 1996 state welfare spending. ▫This approach:  Eliminated the counter-cyclical impact of federal welfare funding.  Freed up a great deal of money for state experiments when caseloads dropped.  Does not adjust funding when the number of eligible families changes.

PPA786, Class 17: New Welfare Policy TANF: Benefit Schedules ▫TANF benefits exhibit the same wide variation across states that was seen in AFDC. ▫Since 1996, most state have lowered the implicit welfare tax rate, usually from 100% to 50%, although several states are in the 50-75% range and a few still use 100%. ▫A few states have a zero tax rate combined with a cut-off when income reaches a certain point—a type of notch!

PPA786, Class 17: New Welfare Policy TANF Benefits and Poverty (CBPP)

PPA786, Class 17: New Welfare Policy The Real Value of TANF Benefits (CBPP)

PPA786, Class 17: New Welfare Policy TANF: End of Entitlement ▫Under AFDC, every family that met the eligibility criteria was entitled to receive benefits. ▫TANF is a funding stream (with strings), not a program.  If federal funds cannot pay for every family eligible for TANF, a state is not required to raise the funds needed to fill this gap.  This has become a big issue in the current economic downturn.

PPA786, Class 17: New Welfare Policy TANF: Time Limits ▫TANF benefits cannot be given to anyone who has received (or who lives in a family that has received) any federal assistance (not just TANF) for more than 60 months. ▫Up to 20 percent of a state’s caseload can be exempted from this requirement based on hardship or abuse. ▫A state can give benefits beyond 60 months using its own funds, set shorter time limits, and/or add “intermittent” limits.

PPA786, Class 17: New Welfare Policy

TANF: Work Requirements ▫TANF requires that at least 50% of recipients (90% for 2- parent families) must be working. ▫States face severe financial penalties if this requirement is not met. ▫A state can define “Work” as subsidized or public-sector employment or community service, as well as job search or job readiness assistance for up to 6 weeks. ▫Education and training generally do not count as “work” unless they are in addition to 20 hours in a job or the recipient is a single parent under 20. ▫Recipients who do not comply must be penalized (although Medicaid cannot be taken away from children).

PPA786, Class 17: New Welfare Policy PRWORA: Work First Programs ▫The shift to a block grant combined with the decline in case loads freed up a lot of money for welfare-to-work programs. ▫Many of these programs build on the experimental evidence from the waiver era. ▫This evidence suggests that  Training alone doesn’t help much.  Work First programs do boost employment and earnings.  Work First programs with selective training do even better.  So do Work First programs with lower tax rates.

PPA786, Class 17: New Welfare Policy PRWORA: Child Care ▫The shift to a block grant combined with the decline in case loads freed up a lot of money for child care. ▫PRWORA also set up the Child Care Development Fund. ▫However, a state is not required to provide child care for families who receive benefits. ▫Moreover, parents are not exempt from work requirements because they can’t find child care unless they have a child younger than 6.

PPA786, Class 17: New Welfare Policy PRWORA: Child Support Enforcement ▫PRWORA increased emphasis on child support enforcement ▫Recipients of TANF funds must cooperate with child support enforcement efforts (i.e. they must identify the father).

PPA786, Class 17: New Welfare Policy PRWORA: Coverage of Immigrants ▫TANF excludes immigrants arriving in the U.S. after 8/22/96 from eligibility for cash assistance, SNAP, and other means-tested programs, including SSI, for a period of 5 years. ▫Between 5 and 10 years (or until they became a citizen), they could receive benefits under the original law, but only if their sponsor’s income was counted in determining their benefits. ▫In 1997, many children, elderly, and disabled immigrants had their eligibility for SNAP and SSI restored, and the provision counting sponsor’s income was dropped.

PPA786, Class 17: New Welfare Policy PRWORA: SNAP Provisions ▫PRWORA also altered the Supplemental Nutrition Assistance Program (the program formerly known as Food Stamps) ▫SNAP has a 30% implicit tax rate (after disregards), but no work requirement for people with dependents.  “Able-bodied adults without dependents” have to work 20 hours per week or else be limited to 3 months of Food Stamps in any 36 month period.  But able-bodied adults with dependents must only “register for work, accept suitable employment, and take part in an employment and training program to which they are referred.”

PPA786, Class 17: New Welfare Policy PRWORA: Medicaid Provisions ▫Medicaid remains an entitlement program, and, in principle if not practice, eligibility is determined according to the AFDC rules that applied as of July 16, ▫There is no five-year limit on Medicaid eligibility. ▫However, adults (but not their children) can lose Medicaid eligibility for failure to meet work requirements.

PPA786, Class 17: New Welfare Policy Changes in TANF Spending (Urban Institute) States spend TANF funds for basic assistance (cash benefits), work activities, child care, transportation, emergency assistance, and other needs. Thanks to the declines in caseloads, the share of total expenditures for cash assistance dropped from 73% of expenditures in 1997 to 39% in States must spend some of their own dollars on programs for needy families or face severe fiscal penalties. This is what is known as the “maintenance of effort” (MOE) requirement.

PPA786, Class 17: New Welfare Policy Uses of TANF Funding (CBPP)

PPA786, Class 17: New Welfare Policy Changes in PRWORA’s Early Years (Urban Institute) ▫Following the passage of the 1996 reform law, welfare caseloads sharply declined as fewer eligible families entered the program and more families left. ▫Participation in work and work-related activities by welfare recipients increased considerably. ▫Earned income among welfare recipients increased substantially before the great recession. ▫The economic picture for families who left welfare was mixed (due to limited job security, poor health insurance coverage, etc).

PPA786, Class 17: New Welfare Policy Four Lessons from Danziger about the Early Years of TANF: Lesson 1 ▫“[W]hen unemployment rates are low, as they were in the late 1990s, about three-quarters of recipients can be expected to work in a given month; and, when unemployment rates are moderate, as they are today [pre-recession], about two-thirds of recipients are likely to be working. ▫In 1996, most researchers and analysts thought that only about half of all welfare mothers would be likely to work at any time. The ‘Work First’ initiatives adopted by most states led greater numbers of single mothers to move from welfare into employment than I thought they could.”

PPA786, Class 17: New Welfare Policy Four Lessons from Danziger: Lesson 2 ▫“[A] minority of welfare recipients–probably about 10% of the 1996 caseload–have multiple barriers to employment, making it very difficult for them to hold jobs even when the national unemployment rate is below 4%. ▫Until PRWORA, researchers, policy analysts and agency staff did not realize the extent of problems such as learning disabilities, maternal and child health problems, mental health problems and domestic violence that make it so difficult for these women to get and keep jobs. ▫Work First programs that primarily provide job search assistance and that do not provide assessments and referrals to services, such as to health and mental health programs, are not likely to help these women overcome their employment barriers and work steadily.”

PPA786, Class 17: New Welfare Policy Four Lessons from Danziger: Lesson 3 ▫“The third lesson is the confirmation of the well- known adage, ‘last hired, and first fired.’ Tight labor markets have a dramatic effect on the employment and earnings prospects of all low-wage workers. More welfare mothers worked in the aftermath of PRWORA both because welfare agencies were requiring more job search from them and because employers were willing to hire workers who they would not employ when labor markets were slack… ▫More single mothers work today [pre-recession] than they did prior to PRWORA… However, fewer single mothers work today than they did in 1999 or 2000 when labor markets were tighter.”

PPA786, Class 17: New Welfare Policy Four Lessons from Danziger: Lesson 4 ▫“My fourth lesson is the confirmation of the well-documented finding that the more work pays, the more single mothers will work… ▫In addition to welfare reform, several public policy changes in the late 1990s raised the net wage that welfare mothers could expect just as the reform was being implemented.  The minimum wage was increased in 1997;  the 1993 tax act greatly increased the maximum amount of the EITC…  the 1997 State Child Health Insurance Program and changes in Medicaid meant that a welfare recipient’s children would not lose their coverage…  PRWORA greatly increased the amount of funds …[for] child care  and most states increased earned income disregards… ▫All of these changes made it more likely that it would pay more to move from welfare to work in the late 1990s than had been the case in the early 1990s.”

PPA786, Class 17: New Welfare Policy Overview of the U.S. Safety Net ( Ben-Shalom, Moffitt, Scholz) The U.S. has social insurance programs, such as social security, and means-tested safety-net programs, such as TANF, SNAP, and the EITC. Both types of programs have effects on poverty. Funding for the means-tested programs is in the following graph:

PPA786, Class 17: New Welfare Policy Safety Net Spending (Ben-Shalom, Moffitt, Scholz)

PPA786, Class 17: New Welfare Policy Conclusions about the U.S. Safety Net ( Ben- Shalom, Moffitt, Scholz) “The combination of the means-tested and social insurance transfers in the system have a major impact on poverty, reducing deep poverty, poverty, and near-poverty rates by about 14 percentage points… in 2004.” The work incentives and dis-incentives created by these programs are roughly offsetting, so that the impact of these programs on poverty would be about the same without these effects.

PPA786, Class 17: New Welfare Policy Conclusions about the U.S. Safety Net ( Ben-Shalom, Moffitt, Scholz), Continued The largest impact on poverty comes from social insurance. “SSI, TANF, Food Stamp, EITC, and housing assistance programs all have significant, though smaller, impacts as well. Their effects are often targeted on specific groups; for example, poverty rates among single-parent families are significantly reduced by the system.” Overall, the system gives lots of help to the elderly, to people with disabilities, and to some single parents, not much help to other groups.

PPA786, Class 17: New Welfare Policy TANF and the Great Recession Although many, if not most families who would have received AFDC did not experience large declines in income due to TANF before the Great Recession, the changes in the program have caused severe hardship over the last few years. Because of the switch to block grants, payments to states did not increase during the recession. Because of time limits and work requirements, the funds given to poor families usually did not increase, even when the primary earner was laid off.

PPA786, Class 17: New Welfare Policy Unemployment and TANF (Urban Institute)

PPA786, Class 17: New Welfare Policy Caseloads and Poverty (Urban Institute)

PPA786, Class 17: New Welfare Policy SNAP and the Great Recession ▫Because SNAP does not have work requirements or time limits, it has been more responsive to the needs created by the Great Recession.  SNAP’s budget ($78 billion) now exceeds that of the EITC ($56 billion) or TANF ($33 billion, including state contributions).  The maximum benefit is $668 per month, but this will decline when SNAP’s stimulus money expires.  According to the Center on Budget and Policy Priorities, "Roughly 93 percent of SNAP benefits go to households with incomes below the poverty line, and 55 percent go to households with incomes below half of the poverty line."

PPA786, Class 17: New Welfare Policy

Food Stamps Usage

PPA786, Class 17: New Welfare Policy TANF, SNAP, and ARRA The 2009 stimulus package (ARRA) provided additional money for TANF and SNAP. ▫But these funds are scheduled to run out. The current high levels of economic deprivation in the U.S., particularly among children, are likely to persist.