Welfare Reform's Unexpected Catch-22
By Stateline Staff
In 1996, some of the nation's most prominent Republican governors led the charge to transfer much of the power over the nation's main anti-poverty program to the states. In return, they agreed to a cap on federal funding in the form of an annual 'block grant.'
Deficit hawks in the Republican-controlled Congress seized on the offer as a chance to save money. Experts in Washington were predicting welfare costs would balloon, so a ceiling on the federal share would force state governments to come up with the rest.
"When Congress made this deal, they thought they were getting the better half," said Barry van Lare of the Welfare Information Network.
For governors like John Engler of Michigan, the freedom to run their welfare programs as they saw fit eclipsed the plan's downside -- that a block grant would be a juicy temptation for budget-cutters in the future. When Congress trolls among federal programs for extra money, block grants are often its preferred catch.
Little has worked out as predicted. Welfare costs have not gone up, they have fallen. State spending on the poor has not grown, it appears to have shrunk. And several states are using federal dollars to replace money that once came from their own general funds. A handful of states have used their savings for tax cuts.
The federal government is paying a higher percentage of the costs of welfare than it did before 1996, the exact opposite of what Congress intended.
Now, what had seemed a distant concern in 1996 has become the prevailing reality of welfare politics. The governors have repeatedly had to defend Temporary Assistance for Needy Families, as the program is called, against budget cutters in Washington.
Congress has tried three times to transfer unspent welfare funds to other federal programs, but failed each time. A key Congressional staffer says there's a 50/50 chance Congress will reshuffle the cards when it revisits welfare in 2002, with the likely outcome a cut in the states' grant.
As a result, many state lawmakers say, they are caught in a Catch-22. If they leave welfare money unspent, Congress will want to cut its contribution. But, if they spend all their federal money they may have their funds cut anyway.
Richard Nathan, who is observing the process of devolution at the Rockefeller Institute of Government in Albany, New York, says its still too early to predict how this will shake out in 2002.
Nathan says the states, buoyed by the support of liberal activists who also want funding to be preserved, will have a strong argument to continue their experimentation with the same amount of government support.
"Everyone in Congress told us we have to have a safety net," said John Truscott, press secretary to Michigan Gov. John Engler.
As of last October, Michigan had left $146 million of its welfare allotment unspent, money the governor views as insurance against a recession when welfare rolls are likely to climb again.
The whole experience has been "quite an eye-opener for the governors," Truscott said. "This was an iron-clad deal. It was hard-fought. Once you have an agreement, you can't go back and renege on that agreement."
Many advocates for the poor fail to see any dilemma. The states, they argue, should be spending all of their money because there are still needs to meet. Poverty has not gone away.
Besides arguing that a deal's a deal, the governors also believe any Congressional cuts in their welfare allotment would be tantamount to punishing them for their success.
Helped by the strongest economy in a generation, the states have moved much faster than anyone expected to deter families from signing up for welfare and to move others off the rolls. Seven million fewer Americans now rely on welfare than in 1993.
As a result, states have not spent all of the block grant funds they have been given. They have accumulated a $7.3 billion surplus. The Congressional Budget Office is predicting the surplus will grow to $14 billion by 2002.
Ironically, Gov. Engler, who once walked the halls of Congress extolling the virtues of a welfare block grant, may bear some of the responsibility if Congress does indeed cut funding two years from now.
Michigan is the latest state to announce a plan to use TANF funds to pay for a tax cut.
The state will divert $27 million of TANF funds into a previously enacted property tax relief program for low-income homeowners. Michigan has already used another $100 million to replace state spending on teen parents and child welfare.
In the past two years, New York, Minnesota, Texas and Wisconsin have also replaced state revenue with TANF funds and then offered residents tax cuts.
The use of federal money to replace state spending -- a process called supplantation -- is not going over well in Congress.
"There is no defense for spending the money on middle class tax cuts," a Congressional aide said. "They are putting the money at risk."
In a recent letter to the governors, Rep. Nancy Johnson, a Republican from Connecticut who chairs the House subcommittee overseeing welfare reform, specifically warned of the repercussions to states if they replace state welfare funds with federal dollars.
"If the savings from supplanted federal funds are used for purposes other than those specified in the TANF legislation, Congress will react by assuming that we have provided states with too much money," Johnson wrote. The 1996 welfare law authorizes the use of federal welfare funds to help needy families, reduce dependency by increasing reliance on work, promote marriage and reduce out-of-wedlock births.
Johnson has also asked the investigative arm of Congress, the General Accounting Office, to inspect the welfare spending of the states to find out how widespread supplantation has become. The GAO will look at the budgets of California, Colorado, Connecticut, Louisiana, Maryland, Michigan, New York, Oregon, Texas, and Wisconsin.
John Truscott, press secretary to Gov. Engler of Michigan, says the governors are only willing to accept a cut in funding if they receive even more flexibility in return. The less their hands are tied, Truscott says, the more money the states will save.
The states made a deal, said van Lare of the Welfare Information Network. "It turns out they got the better half."