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Trends in the Welfare System Rebecca M. Blank The system of public assistance in the United States is constantly evolving. In part, this is due to changing demographic and economic conditions, but even more importantly, public assistance programs have been the target of ongoing reform efforts. The most recent major legislative change occurred with the enact- ment of the Personal Responsibility and Work Opportunity Act of August 1996. This chapter summarizes trends in public assistance programs over time. The first section looks at historical changes in the expenditure levels and usage of public assistance programs. The second section investigates how public assis- tance programs fit into state and federal budgets. The third section summarizes the recent legislative changes, and the last section discusses trends in program design and operation. EVOLUTION OF EXPENDITURES AND PARTICIPATION IN PUBLIC ASSISTANCE PROGRAMS For much of U.S. history, public assistance was the responsibility of local townships and counties, with states becoming more and more involved over the last half of the nineteenth and the early twentieth century. As in many other areas of social policy, the federal government's involvement did not begin until the New Deal programs of the 1930s established a precedent for federal responsibil- ity in this area. Even so, such programs remained relatively small in the immedi- ate decades after the 1930s, with only small numbers of recipients and small costs. Things changed dramatically in the 1960s and 1970s. The primary cash 33

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34 TRENDS IN THE WELFARE SYSTEM assistance program, Aid to Families with Dependent Children (AFDC), increased dramatically due to a variety of changes that brought many more eligible single mothers and their children onto the assistance rolls.1 The establishment of the Food Stamp program in the early 1960s resulted in major spending increases during the 1970s, when Food Stamps were expanded to every county and pay- ment rules were simplified. The Medicaid program was established in 1965, providing health insurance to low-income families who met certain eligibility criteria. Medicaid spending levels increased steadily through the 1970s and 1980s, reflecting both increases in the eligible population and increases in medi- cal costs. Highly variable state programs for the elderly and the disabled were moved to the federal level in the early 1970s when the Supplemental Security Income (SSI) program was created to provide uniform cash assistance to elderly, blind, and disabled individuals throughout the nation. Finally, as a supplement to low-wage workers, the Earned Income Tax Credit (EITC) program began on a small scale in 1975.2 Figure 3-1 shows how inflation-adjusted expenditures on public assistance programs have changed since 1965. (Medicaid is not shown in Figure 3-1, but is discussed below.) After peaking in the mid-1970s, AFDC expenditures have been largely constant. Food Stamp expenditures expanded with program expan- sions in the 1970s, fell during most of the 1980s, but have grown again over the past 7 years as caseloads have grown. The SSI program remained a relatively constant-expenditure program for the first 10 years of its existence, but its expen- ditures have recently shot upward with expanded eligibility categories. Simi- larly, the EITC was a small program for its first 10 years, but over the past 10 years, major benefit expansions have made the EITC program as large as AFDC, Food Stamps, or SSI.3 Figure 3-2 shows changes in the number of participants in income support programs. Participation in AFDC was reasonably flat throughout the 1970s and 1980s. Food Stamp participation trends mirror spending trends. In both AFDC and Food Stamps, sharp caseload increases occurred in the early l990s. As Figure 3-2 indicates, these increases leveled off by the mid-199Os, and more recently available data indicate that caseloads have fallen substantially since 1995 in both programs. EITC participation has risen along with benefit levels. SSI participation has risen only slowly over the past decade, although costs are rising more steeply. 1As discussed later, AFDC was abolished in the 1996 legislation. 2These are the programs discussed in this chapter. A host of other programs can also be consid- ered part of the public assistance system, but these are much smaller in terms of both expenditures and participation. 3Due to recent legislative changes in Food Stamps, AFDC, and SSI, by 1997 the EITC is expected to be the largest of these four programs.

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REBECCA M. BLANK 30 25 20 o - - 8 10 5- i 35 AFDC / Food Shmps '' . " ~\~ / ... I,,." ,.. \~ SSI ~ ~it, - _~_._ _ _,~.... '., ,,# ~` EPIC - . ~ ; O- ,. , 1 1 1 ' ' 1965 1970 1975 1980 1985 1990 1995 Year FIGURE 3-1 Dollars spent on income support (1995 dollars). NOTES: AFDC and SSI show benefit payments. Food Stamps shows coupon value. EITC shows total costs including refunds and tax expenditures. SOURCES: AFDC 1965-1993, Food Stamps 1965-1994, and SSI 1994 from Social Security Administration (1995~; AFDC 1994 from U.S. Department of Health and Human Services (199Sb); SSI 1974-1993 from U.S. House of Representatives (1994~; EITC 1975-1982 from Internal Revenue Service (various years a); EITC 1983-1994 from Internal Revenue Service (various years b). Figure 3-3 provides a direct comparison of inflation-adjusted benefit cost per participant in each of these programs. Per-person AFDC spending declined over time, and per-person Food Stamp spending has been largely flat. The SSI and EITC programs show increases in benefits paid per participant over time. It is also noticeable that SSI recipients receive far more assistance than participants in other programs. In stepping away from the specific numerical trends, what are the implica- tions of these changes over the past few decades? Cash support for nonelderly and nondisabled individuals has always been relatively limited in the United States, compared to most European nations. As a share of public assistance support, cash support has steadily declined over the past two decades. Increas- ingly, resources are available through in-kind programs (such as Food Stamps or Medicaid) or through behaviorally tied support programs, in which cash assis- tance is linked with work behavior. This is most obvious in the growth of the EITC, which is available only to families with working low-income adults. But even the AFDC program became increasingly behaviorally linked, as legislative changes over the past 15 years mandated that more AFDC recipients participate in job search and employment programs.

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36 30000 25000 - as 20000 ~ 15000 as . ~10000 5000 0 - , . . . . 1965 1970 1975 1980 1985 1990 l99S Year FIGURE 3-2 Participants in income support programs. NOTES: AFDC, Food Stamps, and SSI show numbers of recipients. EITC shows number of tax returns. SOURCES: AFDC 1965-1993, Food Stamps 1965-1994, and SSI 1994 from Social Security Adminis tration (1995~; AFDC 1994 from U.S. Department of Health and Human Services (199Sb); SSI 1974-1993 from U.S. House of Representatives (1994~; EITC 1975-1982 from Inter nal Revenue Service (various years a); EITC 1983-1994 from Internal Revenue Service (various years b). TRENDS IN THE WELFARE SYSTEM ,. .. _ . .. .. Food Stamps i I_ ' " ~ANDY ....... --' /,~ ,,..~ Errc / AFDC i' Errs #' ~ : ~ ,, ~ ~ ~ --, _,- ~-_______________ SSI The United States continues to distinguish sharply between different groups of low-income families. Elderly individuals receive far more support than fami- lies with working-age adults. Nonelderly low-income families have always been a source of frustration for the public assistance system. On the one hand, the adults in these families are viewed with some suspicion: why are they not suc- cessfully working their way out of poverty? While always applied to male- headed households, this viewpoint has also come to dominate our image of fe- male-headed households as well, as employment among mothers has become more accepted. On the other hand, the adults in these families come attached to children, whom we view with less suspicion and want to assist. The result is a constant tension in public assistance programs between the type of requirements and limits put on assistance to families and the needs of the children in those families. Advocates of greater behavioral requirements and more limited assis- tance inevitably point to the adults and claim that they need to take more respon- sibility for their own economic well-being. Opponents of these changes inevita- bly point to the children and claim that they should not be hurt because of the misfortunes of their parents. Recent legislative changes have supported stronger

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REBECCA M. BLANK 400 350 in o - o ~ 150 300 250 200 100 50 37 SSI - ' , _~^ ~. '.__ AFDC \ - - Food Stamps ' ~ __.,.~...~ i . _,, _ ,, ~ ~ ~.. ~ . ~ O 1965 1970 1975 1980 1985 Year ~~~~~-~-~~-- Errc . . 1990 1995 FIGURE 3-3 Average monthly benefits (1995 dollars). NOTES: AFDC, Food Stamps, and SSI show benefits per person. EITC shows benefits per tax return. SOURCES: AFDC 1965-1993, Food Stamps 1965-1994, and SSI 1994 from Social Security Adminis tration (1995~; AFDC 1994 from U.S. Department of Health and Human Services (199Sb); SSI 1974-1993 from U.S. House of Representatives (1994~; EITC 1975-1982 from Inter nal Revenue Service (various years a); EITC 1983-1994 from Internal Revenue Service (various years b). work mandates, but this debate is far from resolved. Credible research that shows how children are affected by full-time work requirements imposed on their single- parent mothers may have a major effect on future changes in the structure of public assistance programs. Finally, it is worth noting that the expenditure trends in these four public assistance programs are dwarfed by the growing expenditures in the Medicaid program. Figure 3-4 plots inflation-adjusted spending on Medicaid, separately showing spending on the elderly and disabled (largely those eligible for the SSI program) and spending on families with children (largely those eligible for the AFDC program.) While health expenditures rose throughout the economy, they rose faster for Medicaid, in part because Medicaid generally serves a population with greater health problems.4 In recent years, Medicaid spending on the non- elderly, nondisabled population has leveled off, but it has continued to increase 4Figure 3-4 adjusts Medicaid dollars by the gross domestic product price deflator. Even if they are adjusted by the consumer price index for medical care, Medicaid spending still doubles between 1980 and 1995.

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38 80- . 70 60 _ 50- C: 40 30 20 TRENDS IN THE WELFARE SYSTEM / 65+, Blind and Disabled - - Dependent Children, Related Adults and Others - ~ _~. 10- .~ 1972 1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 Year FIGURE 3-4 Dollars spent on Medicaid by eligibility category (1995 dollars). SOURCES: 1972 and 1994 from Social Security Administration (1995~; 1973 from U.S. Department of Health, Education, and Welfare (1975~; 1974 from U.S. Department of Health, Educa- tion, and Welfare (1976~; 1975-1993 from U.S. Department of Health and Human Services (199Sa). for the elderly and disabled. Some of the biggest expenditure increases have been for the Medicaid population in long-term care facilities. Trends in the number of Medicaid recipients look quite different from spend- ing trends, as Figure 3-5 indicates. Until the late 1980s, the population of recipi- ents was quite flat, despite steady increases in expenditures. Recent eligibility expansions for children in low-income families have greatly increased the num- ber of young Medicaid recipients.5 Slight increases in recipiency among the elderly and disabled have also occurred. Figure 3-6 shows the implications for Medicaid spending per recipient. Most strikingly, per-person Medicaid expenses for low-income children and related adults have been essentially flat and are very low compared to per-person expenses for the elderly or disabled. All of the growth in Medicaid dollars for families and children is due to increases in the eligible population. In sharp contrast, per-person Medicaid spending for the elderly and disabled has increased steadily for over 2 decades. Medicaid spend- ing on the elderly and disabled has been largely driven by increases in the per- person cost of services provided to this population, and not by population growth. fin particular, Medicaid eligibility for children was de-linked from family AFDC eligibility. cur- rently, all children in families below 135 percent of the poverty line are eligible for Medicaid.

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REBECCA M. BLANK 30000 - ~25000 ~7 a 20000 ._ at_ c, lS000 o ~ 10000 a z 39 T I Dependent Children, Related Adults and Others .. \ . ,. ,r' .. 65+, Blind and Disabled ,.~ 5000- 1 1972 1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 Year FIGURE 3-5 Number of Medicaid recipients by eligibility category. SOURCES: 1972 and 1994 from Social Security Administration (1995~; 1973 from U.S. Department of Health, Education, and Welfare (1975~; 1974 from U.S. Department of Health, Educa- tion, and Welfare (1976~; 1975-1993 from U.S. Department of Health and Human Ser- vices (199Sa). PUBLIC ASSISTANCE PROGRAMS AND GOVERNMENT SPENDING Ongoing federal budget deficits have resulted in increased pressure to cut all forms of federal spending. Many states operate under balanced budget require- ments and are also constantly seeking areas where costs can be reduced in order to meet other public demands. Public assistance programs have often been a primary target in efforts to cut state and federal budgets. At least some of this is due to a misperception on the part of many Americans about the role played by public assistance in the budget. For instance, a 1995 CBS News/New York Times poll indicated that over 50 percent of the population thinks the federal government spends more than 20 percent of its budget on welfare programs (Roper Center for Public Opinion Research, 1995~. Figure 3-7 shows the composition of federal expenditures in 1995. Public assistance accounted for 14 percent of federal expenditures, of which 6 percent was due to Medicaid spending. While not an insignificant share, more was spent on Social Security, on defense, and on net interest on the debt. Much of the growth in federal expenditures on public assistance is relatively recent, and it is heavily due to increases in Medicaid expenditures. Figure 3-8 shows the trends over time on government spending on social programs as a

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40 TRENDS IN THE WELFARE SYSTEM 9000 8000 7000 6000 5000 4000 3000 2000 1000 - 65+, Blind and Disablet - / - Dependent Children, Related Adults and Others ~-~ _ O I I I I I I I ~ 1 1 1972 1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 Year FIGURE 3-6 Medicaid spending per person by eligibility category (1995 dollars). SOURCES: 1972 and 1994 from Social Security Administration (1995~; 1973 from U.S. Department of Health, Education, and Welfare (1975~; 1974 from U.S. Department of Health, Education, and Welfare (1976~; 1975-1993 from U.S. Department of Health and Human Services (199Sa). fraction of all outlays. Family support programs Unmanly AFDC) have been flat at about 1-2 percent of the U.S. budget for decades. If Food Stamps are added to family support, this accounts for a flat 2-3 percent of the U.S. budget. In these core public assistance programs the programs that U.S. citizens are most likely to identify as "welfare" there is no evidence of high or growing budget shares. Other Public Assistance, Composed of I_ (14.0%) Medicaid (s.7~) and Other Public Assistance ( 8 . 2 % S;n~ial 5;;e~llrit~ ~ vat ~ Net Interest ~ ~ on Debt (17.6~ (10.2%) Medicare Defense FIGURE 3-7 Federal expenditures for fiscal year 1995. SOURCE: U.S. Office of Management and Budget (1995~.

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REBECCA M. BLANK 0.14 0.12 to ._ tJ 0.08 :- ._ as 5 a at 0.1 0.06 Art 41 .- T;~ ! .~' . 6s c7 69 71 73 75 77 79 81 83 as 87 89 91 93 9s (1) Family Support Year (2) Family Support + Food Stamps (3) Family Support + Food Shmps + All other antipoverty (4) Family Support ~ Food Stamps + All other antipoverty + Medicaid (4) (3) (~) (1) FIGURE 3-8 Government spending on social programs as a fraction of outlays. NOTES: The category "Family Support" includes payments to states for AFDC benefits, admin- istration, and child support enforcement. The category "All other antipoverty" includes child nutrition and special milk, supplemental feeding, commodity donation, legal ser- vices, day care assistance, Supplemental Security Income, and the Earned Income Tax Credit. SOURCE: U.S. Office of Management and Budget (1995~. The federal budget share for all antipoverty programs (except Medicaid) has risen from 6 to 8 percent over the past 5 years, primarily because of the growth in the EITC and SSI programs, discussed earlier. But the big budget-buster is Medicaid, which has increased from 5 to 8 percent of the federal budget in only a few years. The effect of Medicaid on public budgets is even more visible at the state level. Figure 3-9 shows the breakdown of state expenditures for 1992, the most recent year for which these data are available. Medicaid accounts for 11 percent of the average state budget in that year; other public assistance accounts for only 3 percent. As at the federal level, the Medicaid share of state budgets has been growing dramatically over time. The result is that virtually all states are facing a crisis in their public assistance spending: All states are currently spending more for public assistance in total than they were 10 years ago, but almost all states are spending less on non-Medicaid assistance. In short, programs for low-income nonelderly and nondisabled families have been cut in order to accommodate the growth in spending on medical assistance. While many have decried the growing cost of public assistance faced by the states, few state governors have publicly discussed the primary cause of this problem increasing costs in medical ser- vices (especially long-term care services) for elderly and disabled persons. In

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42 TRENDS IN THE WELFARE SYSTEM Public Assistance, Composed of Other . r(14.4%) M`~`l;~;d (1L2%1 and (15.6 Interest on Debt Police and t;orrectlons ~ ~ Highways and Transpoi-tat)~~ ~ ,._ all Health and Hospitals ~. ,, ,,,%.~.%,.~.~. __, ~ a _ Other Public Assistance ( 3 . 2 i' education (41.2~o) FIGURE 3-9 State expenditures for fiscal year 1992. SOURCE: U.S. Bureau of the Census (1993~. stead, they have often mistakenly assumed that the problem is spending in other programs and have cut general assistance, lowered AFDC benefits, or taken other steps that limit public assistance spending in areas where costs have not been . . nslng. THE 1996 LEGISLATIVE CHANGES6 The 1996 welfare reform legislation has been described as a revolutionary change in the structure and emphasis of U.S. welfare programs. In reality, the changes are at once both less radical and more radical than is often claimed. They are less radical in the sense that the criticisms of existing antipoverty programs that they embody are not new and reflect concerns that have long been part of the U.S. debate over helping the poor. Encouraging work, strengthening families, and reducing government costs are not new ideas. On the other hand, this legis- lation has produced a more fundamental change in the federal government's role in antipoverty efforts than any legislation since the Social Security Act of 1935, giving the states much more control over programs and the federal government much less. This section summarizes some of the most important aspects of the new legislation. The legislation creates a new block grant to the states, the Temporary Assis- tance for Needy Families (TANF) block grant. The AFDC program is abolished and states are given almost complete control over the design of their public assistance programs. States can use TANF money for any programs that accom- plish the purposes of the block grant, which include providing assistance to needy families, ending the dependency of needy parents on government benefits, pre- venting and reducing out-of-wedlock pregnancies, and encouraging the forma- tion of two-parent families. 6The description in this section closely follows that in Blank (1997b).

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REBECCA M. BLANK 43 In giving states this expanded program authority, the legislation eliminates family entitlements to cash assistance. Under AFDC, any family that met the eligibility requirements had to be provided with assistance according to established rules and regulations. Under the new law, states have much more discretion in determining who should get funds and how much they should get. They can eliminate some groups from assistance, redirect money away from cash support toward services designed to prevent teen pregnancy and promote marriage, or impose behavioral requirements on the recipients of public assistance funds. If money runs short at the end of a budget year, families can be turned away. State entitlements to open-ended federal payments are also at an end. AFDC was a matching grant program rather than a block grant program. If states spent more, federal dollars automatically increased. Under TANF, states will receive a fixed amount of money from the federal government in future years, equal to the federal payments they received in the early l990s for AFDC and related welfare- to-work programs. This leaves states bearing the financial risk should there be an increase in poverty or unemployment; the federal government will not automati- cally increase payments if a state has to provide assistance to more people. The federal dollars are also fixed at the same nominal level, so they become less over time with inflation. Although states have greater discretion to determine who is helped, the fed- eral legislation imposes new mandates with regard to work requirements and payment limits for those who receive TANF funds. Any parent who has received 24 months of assistance in programs funded through TANF must be working or in a work program in order to receive further funding. By 1997, 25 percent of all families in the state receiving TANF support must be working at least 20 hours per week. By 2002, 50 percent of all families must be working at least 30 hours per week. (States have substantial discretion to define what counts as "work.") This vastly increases the share of the caseload who must be working, although these requirements are lowered if caseloads fall within the state. (Because of the recent decline in caseloads, in the short run a number of states will face much lower requirements.) The 1996 legislation provided no new federal funds to assist states in expanding their work programs, although some additional funds were added in the 1997 budget legislation. TANF dollars are time-limited to any individual. No family can receive funding from TANF if an adult in that family has already received 60 months of assistance over his or her lifetime. (At their option, states can impose even shorter time limits.) States are allowed to exempt 20 percent of their caseload from this 5-year limit. States can also continue to support families with state- only funds, which will probably lead to some creative accounting with regard to which families are being supported on federal versus state dollars. The enactment of time limits is the most dramatically new part of the legis- lation. At this point, however, it is unclear exactly what the impact of these time limits will be. If there is high unemployment or if many adults hit these time

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44 TRENDS IN THE WELFARE SYSTEM limits at a point when they are clearly unable to hold a full-time job, states may well try to negotiate for more extensive exemptions. In addition, enforcing this lifetime limit effectively will require state and national tracking systems that identify the cumulative months of support received by any individual in any state. But the legislation included no funds for establishing such systems, which may allow some recipients to avoid the time limits in the near term. In terms of both dollars and numbers of people affected, the biggest impact of the 1996 legislation will be on those who were once AFDC participants and who now are subject to the state-designed programs funded by the TANF block grant. But a number of other provisions in this bill will affect other programs and other groups of people. The legislation sharply limited the availability of public assistance to immigrants (although some of these cuts were restored in later legislation in 1997~; limited Food Stamp benefits to nonelderly, nondisabled adults without children; and narrowed eligibility categories for SSI. LARGER PATTERNS IN PROGRAM CHANGES7 As noted above, the 1996 legislation pushed further and faster in some direc- tions where changes in public assistance had already been occurring. This sec- tion discusses three of the major trends in the structure of public assistance programs over the past decade. Increasing Emphasis on Behavioral Requirements as Part of Program Eligibility, with Particular Emphasis on Work Behavior More than twenty-five years ago, President Nixon proposed to roll all cash and non-cash income assistance programs into one single cash assistance pro- gram, available to all families who met the income eligibility requirements. Com- monly referred to as a negative income tax, such a system would provide cash support through the tax system. The pendulum has swung far in the other direc- tion, so that Nixon's not-so-ancient proposal seems almost unbelievable in today's political climate.8 The current emphasis is very much in the opposite direction: time-limited programs available for narrowly defined target groups, ensuring that large numbers of people are not eligible for substantial amounts of public assis- tance. Those who do receive assistance must establish their "deservingness" by enrolling in job training and placement programs or working and (in some states) limiting their future fertility, ensuring their children are appropriately cared for, or meeting other state requirements. 7This section closely follows parts of the discussion in Chapter 3 of Blank (1997a). 8Nixon's negative income tax proposal was the high-water mark of efforts to provide large-scale cash assistance to the poor, rather than behaviorally tied assistance. The earlier history of public aid shows an ongoing focus on behavioral regulations as a precondition for assistance.

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REBECCA M. BLANK 45 These more targeted and behaviorally linked public assistance programs will face several major problems that have not yet been fully understood. First, such a proliferation of mandates and behavioral requirements is typically more expen- sive to run (per person) than are cash assistance programs, because the former require much more monitoring. The cheapest and most administratively efficient program is one that simply writes and mails a check each month. The more information that case workers have to regularly collect, process, and evaluate, the higher are administrative costs, and the greater is the potential for errors, misun- derstandings, and management problems. Second, this trend flies directly in the face of another desire that is often articulated at the same time: To reduce governmental interference in people's lives. By mandating behavioral conformance as well as income eligibility for public assistance programs, government's role in the lives of low-income people becomes much more intrusive. The effectiveness of these behavioral mandates will depend upon exactly what they require and how easily they can be monitored and enforced. There is strong support for behavioral mandates that encourage parents who receive pub- lic assistance to enter job training and job search programs; that evict people from public housing who engage in criminal behavior; and that link job recommenda- tions and placement with high school performance among youth. Other behav- ioral mandates are more controversial, such as cutting a family's public assis- tance benefits if the mother cannot keep a teenager in school or refusing public assistance to infants born to unmarried mothers. Deciding which behavioral mandates make sense requires good judgment about what can be effectively implemented without vast increases in administra- tive complexity and cost, what mandates are likely to motivate changes in behav- ior (rather than being simply punitive), and what actions might produce unaccept- able levels of need among mothers and children who could not meet the mandate. Programs with extensive but unmanageable requirements that end up having little effect may only make life harder for the poor and increase public cynicism about the ineffectiveness of government programs. A Return to More Local and State Discretion in the Design of Programs Public assistance in this country was entirely based at the county or township level 150 years ago. Over time, states took over more and more of the financing and operation of programs, and then, starting in the 1930s, the federal government entered the scene. The role of counties and states has always been important, however. The federal government has never directly administered public assis- tance programs. The people who actually run programs are all county, local, or state-level employees. The checks received by poor families or by those who run public services for the poor have always been drawn on state or municipal banks, and states have always provided substantial funding for many public assistance

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46 TRENDS IN THE WELFARE SYSTEM programs. Over time, however, the federal government has come to fund more programs and has imposed more regulations on how programs could be run. Over the 1980s, states were given the opportunity to apply for waivers to run programs that did not conform to federal rules, but these waivers tended to be limited in scope and often took a great deal of time and effort to negotiate. The enactment of TANF dramatically increases state discretion over public assistance programs. The interest in returning more control to the state or local level grows out of four quite different perspectives. First, some argue that giving more discretion and control back to states will reduce the rigidities and bureaucratic nature of many current public assistance programs. Second, some who believe that we simply don't know enough to design effective nationally run antipoverty pro- grams, advocate allowing states to experiment with a variety of programs like job training, education reform, or housing assistance. From this multiple experimen- tation will come better evidence on what works effectively and what does not. Third, those who are concerned about the growing scope of federal authority want to devolve centralized decision making away from the federal government and back to the states. Fourth, those who worry about the federal deficit and want to reduce federal spending see these changes as a way to cut federal spending on antipoverty programs and induce states to take greater fiscal responsibility for the maintenance of these programs. Some of these arguments have much to recommend them. Certainly for programs like job training, where there are substantial differences across local areas in the nature of jobs available and the characteristics of the low-income population, running locally designed programs is necessary in order for programs to be effective. Indeed, the federal government has always largely left the spe- cific design of job search and job training programs to state and local discretion. Similarly, in areas where existing programs have been largely ineffective, such as efforts to engage teenage high school dropouts in employment and training pro- grams, allowing different states to experiment with different programs might result in useful new information. On the other hand, there are also serious problems with limiting the federal role in public assistance programs to fixed levels of block grant funding. First, states have less ability to finance antipoverty programs than the federal govern- ment. The need for public assistance is at its largest when the economy is the rockiest. Thus, public assistance programs are necessarily countercyclical, ex- panding when the economy is in recession and contracting when the economy booms. Because most states operate under year-to-year balanced budget require- ments, it is almost impossible for them to run major countercyclical programs. In economic recessions, tax revenue shrinks and this often means they must cut back on spending at exactly the time when need is increasing. These financial prob- lems, faced by states in the Great Depression of the 1930s, were one of the main reasons the federal government became more involved in financing public assis- tance programs.

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REBECCA M. BLANK 47 Second, while the federal government has been sometimes inept and some- times foolish in the way that it has managed and run antipoverty programs, states hardly have a better track record. In fact, much of the impetus toward more centralized regulations and rules in the 1960s occurred because of concern over how these programs were being run by many states, where racist exclusions and arbitrary rule making were all too common. While there are always states that take the lead in implementing new management procedures, the federal govern- ment has been a key agent pushing states to reduce waste and fraud by decreasing errors in determining eligibility for assistance, by requiring regular program re- ports, and by encouraging states to upgrade computer systems. Third, there continue to be concerns about the equity of state-run public assistance programs. For instance, if some states choose to dramatically cut all forms of cash assistance and other states maintain their current programs, benefit differences across states could become much larger than they already are. This may not only raise equity concerns, but could also cause substantial migration by low-income families, forcing those states that want to maintain more generous programs to cut them back because of growing low-income populations. This type of competition between states has been referred to as the "race to the bot- tom," meaning that when states are given complete control over public assistance benefits, there are incentives for all states to provide less than they might other- wise choose to, out of a fear of being a "magnet" for poor people.9 Cutbacks in Dollar Expenditures and Entitlements The urge to cut the growth of government programs all programs, not just public assistance has been strong in recent years, driven by at least two forces. First, the rapid expansion of the federal deficit that occurred in the 1980s has led some observers to worry about long-term debt commitments. Cutting the deficit can be done by either increasing taxes or decreasing expenditures. While the second is not popular, the first has been political poison. Second, the long-term stagnation in wages among many workers (including actual declines for less skilled workers) has created economic fears about the cost of more extensive redistributive programs. Ongoing demands for lower taxes mean that there is unlikely to be any more revenue available for public assistance in the near future. In this debate over government budgets, public assistance programs have often been targeted for disproportionately large cuts. In part, this is because low- income assistance programs often have few politically powerful supporters. Low- income adults typically vote at a lower rate and are less politically active. In part, these disproportionate cuts simply reflect the ongoing American discomfort with the whole idea of public assistance, especially for nonelderly adults. 9See Peterson (1995) for a discussion of this issue.

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48 TRENDS IN THE WELFARE SYSTEM The urge to cut program dollars is in direct conflict with some other aspects of reform. Increases in behavioral mandates on program recipients may increase program expenses, as discussed above. Job training and placement programs for public assistance recipients can add to the cost of public assistance in the short run. A year into the enactment of welfare reform, many states have avoided these financial questions because of a very strong economy. Unemployment is low, labor markets are tight, and many state budgets are in surplus. Caseloads in many states fell dramatically after 1995, in part because of the strong economy and in part because of the enactment of "get-tough" welfare reforms by the states.~ Given these circumstances, few states have had difficult funding more extensive job placement programs. At some point, however, the economy will slow down, unemployment will rise, and state revenues will become much tighter. Of course, it is exactly at this point that the demand for job placement assistance and for public assistance support will rise. It is not clear how states will deal with these multiple demands. Looking at the decade ahead, we are almost certainly in a world where few government programs, especially public assistance programs, can expect increases in funding. The question is more likely to be, How big will the cuts be? rather than, What can we afford to do that is new and different (and perhaps more expensive)? This will be a major constraint on all efforts at welfare reform in the near future. It will almost surely continue to force hard choices on those who want to maintain public assistance programs at current levels of funding, and may particularly con- strain states that want to use their expanded control over these policies to experi- ment with new and redesigned programs. States that want to cut their welfare budget and provide expanded job search and training programs for their public assistance recipients to move them into the labor market are going to face these contradictions most directly. Given the problems facing less skilled workers in the labor market, there will be no easy, quick, or cheap way for states to move public assistance recipients into economic self-sufficiency through employment. For programs to maintain their funding and political support, it will be in- creasingly important to have evidence demonstrating their effectiveness. This means that reliable research, evaluating programs and their effects, may become increasingly important in the public discussion. It will also be important to build political coalitions that support and protect effective programs in the midst of budget-cutting fervor. Overall, we are moving further away from a system that provides direct cash assistance payments to low-income families, toward a system that increasingly conditions its assistance much more closely on particular groups that meet behav- ioral as well as income qualifications. Dollars are shifting toward work-con- nected programs through increases in the Earned Income Tax Credit, more vigor- ous child support collection efforts, and subsidized job placement and training iSee Blank (1997c) for a discussion of the causes behind recent caseload changes.

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REBECCA M. BLANK 49 efforts. It is not clear that these reconfigured public assistance programs will provide a cheaper or a more effective safety net than the one we have at present. It will be different, with a different set of management and incentive problems than are embedded in the current antipoverty system. ACKNOWLEDGMENT Leslie Moscow provided excellent research assistance. REFERENCES Blank, R. 1997a It Takes a Nation: A New Agenda for Fighting Poverty. Princeton, N.J.: Princeton Un versity Press. 1997b Policy watch: The 1996 welfare reform. Journal of Economic Perspectives 11(1):169-177. 1997c What Causes Public Assistance Caseloads to Grow? National Bureau of Economic Re- search Working Paper 6343. Cambridge, MA: NBER. Internal Revenue Service Various Statistics of Income-l 9xx Individual Income Tax Returns. Washington, D.C. years (a) Various Statistics of Income Bulletin; Season l9xx. Washington, D.C. years (b) Peterson, P. 1995 The Price of Federalism. Washington, D.C.: The Brookings Institute. Roper Center for Public Opinion Research 1995 CBS News/New York Times poll conducted April 1-4, 1995. Accessed via Dialogue, file 468, Public Opinion on Line. Social Security Administration 1995. Social Security Bulletin, Annual Statistical Supplement: 1995. Washington, D.C.: U.S. Government Printing Office. U.S. Bureau of the Census 1993 State Government Finance, 1992. GF/92-3. Washington, D.C.: U.S. Government Printing Office. U.S. Department of Health and Human Services 1995a Health Care Financing Review: Statistical Supplement. Baltimore, Md.: Health Care Financing Administration, Office of Research and Demonstrations. 1995b Overview of the AFDC Program: Fiscal Year 1994. Washington, D.C.: U.S. Government Printing Office. U.S. Department of Health, Education, and Welfare 1975 Numbers of Recipients and Amounts of Payments Under Medicaid, Fiscal Year 1973. Washington, D.C. 1976 Numbers of Recipients and Amounts of Payments Under Medicaid, Fiscal Year 1974. Washington, D.C. U.S. House of Representatives 1994 1994 Green Book: Overview of Entitlement Programs. Washington, D.C.: U.S. Govern- ment Printing Office. U.S. Office of Management and Budget 1995 Budget of the United States Government, Historical Tables, 1996. Washington, D.C.: U.S. Government Printing Office.