States Dent Welfare Surplus in First Half of 1999


After warnings from Congress to 'use it or lose it,' many states have finally begun to tap into the massive welfare surpluses that have accumulated due to the unprecedented drop in caseloads. According to their latest reports to the Department of Health and Human Services, more than half the states are on track to spend more this year than last. Still, caseloads continue to fall and the welfare money keeps coming, so many states, even though they are spending more, are also continuing to stockpile hundreds of millions of dollars.

In the first six months of the federal fiscal year that began last October, state spending accelerated even as caseloads continued to fall, according to forms submitted by the states to the U.S. Department of Health and Human Services. The Center for Budget and Policy Priorities in Washington independently collected these reports, which HHS has not yet made public.

To be sure, most states still hoard their welfare funds; In the first half of 1999, the states fell short on spending their federal welfare allotment by $1.25 billion, and they received another $8.3 billion in the last six months of the fiscal year.

All told, they have $7.5 billion leftover from 1997, 1998 and the first half of 1999, about 20 percent of all the money awarded since the national welfare overhaul began.

Only three states -- Illinois, Delaware, and Maine --have consistently spent their entire share of federal dollars.

But in the first six months of this year, 23 others increased spending. And even though caseloads have continued to decline, the March data show the states on track to spend $900 million more this year than last.

Final spending totals for the year are likely to be even higher. Since March, a number of states have announced significant increases in welfare spending, particularly on child care.

In the 1996 federal welfare law, Congress made an unprecedented deal with the states. It changed the formula by which the federal government metes out welfare dollars. Instead of pegging each state's allotment to the size of its caseload, the federal government now gives each a fixed amount.

Although the federal contribution no longer increases when caseloads rise, Congress did give the states a break by setting the block grant at the amount the federal government spent in the mid-1990s when caseloads in many states reached historic highs.

In exchange, Congress granted the states wide latitude to spend the money as they see fit. Although it did add new restrictions on aid to immigrants, it freed the states to use welfare money for a much larger population than the single parents and children who have traditionally relied on the program.

States can use federal dollars to fund programs for absent fathers, to prevent teen pregnancy and to extend transportation and child care assistance to the working poor.

They can also carry funds over from one year to the next.

As the surplus of welfare funds attests, most states have been slow to adapt to the new flexibility. But they insist they have plans for their federal dollars.

They have committed almost half the surplus, they say, but federal rules prevent them from drawing down the money until it is actually spent. Many states have also set aside a portion of the funds as a reserve against harder economic times.

Finally, the state officials say, the decline in caseloads took them by surprise. They never predicted the new rules would lead so many to abandon welfare. Nor did they predict they would deter so many others from signing up.

Although the pace at which families are leaving the rolls has slowed in 1999, caseloads continue to fall at a good clip. The states are now supporting fewer welfare recipients than at any time since 1969.

In the most recent quarter for which national figures are available, January to March 1999, the number of adults and children receiving cash assistance fell by more than 275,000. That alone could save the states another $600 million.

Almost two-thirds of the states, a total of 31, have retained at least 15 percent of the welfare funds they received since the 1996 welfare law went into effect.

Twenty-one states have held in reserve more than half a year's worth of federal welfare money; Should welfare rolls suddenly return to their highs of 1994, these states could rely solely on their surplus for at least six months. Nine of those states have more than three-quarters of a year's grant in the treasury.

Three states, Idaho, Wisconsin and Wyoming, have at least the equivalent of their entire 1998 grant in reserve. Not surprisingly, these three states have seen the sharpest declines in their welfare rolls.

Wyoming's welfare surplus amounts to 221 percent of its annual federal allotment.

The states have known for more than a year that some Republicans in Congress, many of whom were staunch supporters of the 1996 welfare law, were starting to rue their initial generosity.

Last fall, Rep. John Kasich of Ohio, the Republican chairman of the House Budget committee, proposed cutting welfare, among a host of other federal programs, to balance the budget.

Kasich lost that bid, but this year, he and his colleagues upped the ante. In addition to a promise to live within strict budget guidelines established in 1997, the Republican leadership has also vowed not to raid the social security trust fund.

In March and again in late September, the governors, two-thirds of whom are also Republicans, beat back threats to divert welfare dollars to other programs.

Now, Kasich has resurrected a version of last year's plan and has suggested making across-the-board cuts of about 2 percent in the remaining federal budget bills, which include the welfare block grant appropriation.

While the budget cutters have brandished the ax, an unusual coalition has arisen to exhort the states to spend the money. The National Governors' Association and the National Conference of State Legislatures, both strong advocates of state control over welfare, have joined in a chorus of left-leaning advocates and the Clinton administration to urge the states to use this unprecedented opportunity to try new anti-poverty programs.

In April, the Department of Health and Human Services issued final regulations on how it plans to judge the states compliance with the 1996 law. The rules gave the states even more flexibility than they expected. But, they also placed a key deadline on the states' use of their surplus welfare funds.

As of October 1, states can no longer spend federal money leftover from previous years on ancillary services, such as child care, transportation and work subsidies.

The states can only use surplus funds from 1997-99 for cash assistance and other basic needs, such as housing subsidies. With this rule, Washington sent the states a clear message: make your spending plans immediately.


Clearly, in a number of states, particularly Wyoming, the threats and inducements have had little effect. In fact, Wyoming last winter essentially asked the federal government for permission to spend less on welfare.

In order to draw down federal welfare funds, each state is required to spend a certain amount of its own. Wyoming proposed to decrease its spending on welfare in exchange for not spending its federal block grant.

Wyoming receives about $21.5 million annually from Washington. To qualify for all of that money, it must spend about $9 million in state revenues.

But there are now fewer than 900 families on welfare in Wyoming, leaving the state with $36,000 in state and federal funds for each. And that does not include a $47 million reserve.

Bob Kuchera, Deputy Director of the Wyoming Department of Family Services, says his department has submitted a number of proposals to Gov. Jim Geringer to boost the state's spending of its federal block grant.

But new programs are always a hard sell in the state legislature. Wyoming was one of the last states to approve a program that would allow it to take advantage of millions of dollars in federal funding for a Children's Health Insurance Program.

"This is a very conservative state, very cautious to start any programs we may have to maintain," Kuchera said.

In addition, Wyoming is struggling economically and is facing a budget deficit this year.

The Clinton administration has told officials in Cheyenne they face stiff penalties if they cut spending. Kuchera expects the state will meet its spending requirement this year, but he does not know how long it can keep it up.

"At some point, we are not going to want to keep spending money," he said.


In contrast, Illinois has spent every cent of its welfare money every year. It has adopted more lenient rules than most states, which have kept its welfare rolls higher longer.

Advocates for the poor have praised Illinois' generous time limits. In fact, two other states this year, Delaware and Arkansas, adopted versions of the Illinois model.

In Illinois, adults who meet their work requirement have their clock stopped. The state also allows workers to wean themselves off welfare slowly.

Although the state's benefit for a family of three is relatively low, just $377 a month, Illinois cuts only $1 of the benefit for every $3 the parent earns. That policy allows families to continue to supplement their paychecks with welfare until they earn just below the federal poverty line.

Illinois has also expanded its child care program to such an extent the waiting list has been all but eliminated. Families earning up to 50 percent of the state's median income are entitled to child care subsidies, regardless of whether they ever received welfare.

These programs have cost Illinois all of the money it would have saved from the decline in its caseload.

William Holland of the Illinois Department of Human Services says the state plans to continue to reinvest all of its savings. "We hope to build sufficient bridges so that our clients will not return to [welfare]," he said.

Holland is confident the policy will pay off, even if the economy worsens. "We believe our caseload will continue to go down," he said.

"The basic decision to spent the money, we support that," said John Bouman of the National Center on Poverty Law in Chicago. "There's so much that still needs to be done."

Advocates for the poor in Illinois point out that the state is penalized for past stinginess. Congress based the amount each state receives in welfare on the amount it spent in the past. Because Illinois historically has spent less than many states, its grant is relatively low.

In 1996, when the welfare law was passed, Illinois had half as many welfare recipients as New York. But, because New York spent more, Congress awarded it four times as much money.

According to the latest state reports, at least eight states have begun to spend at such a rate this year that they are eating into the surplus accumulated since 1997: Hawaii, Indiana, Kentucky, Louisiana, Missouri, Nebraska, Oregon and Pennsylvania.

Nebraska's surplus, which was $38.5 million at the end of 1998, fell to $4.7 million by March 31.

Another 15 states picked up the pace of their spending in the first six months of the 1999 fiscal year: Alaska, Arkansas, California, Colorado, Florida, Idaho, Kansas, Nevada, New Mexico, New York, North Carolina, Ohio, Oklahoma, Tennessee and Texas.

Although New York and Ohio appear to have increased spending, they have still accumulated hundreds of millions in the first six months of 1999. They are burdened with two of the largest caseloads in the country.

New York's surplus grew another $251 million. As of March, it held $951 million in reserve. Ohio accumulated an additional $110 million.

Twenty-one states are on pace to double their surpluses this year. Michigan accumulated an additional $74 million in the first six months of the year, more than doubling last year's savings. Mississippi added another $52 million. Wisconsin saved $85 million.


Related Stories