CHAPTER 10
WELFARE REFORM—THE FIRST EIGHT YEARS

Eight years after the passage of the Personal Responsibility and Work Opportunity Reconciliation Act (PRWORA; PL 104-193), welfare reform remained a hotly debated topic. In April 2003 the U.S. Department of Health and Human Services (HHS) issued its fifth annual Temporary Assistance for Needy Families (TANF) report to Congress. The report showed that welfare reform has caused major changes in welfare caseloads and expenditures, but noted that some aspects of the reforms have had adverse effects on child well-being, family income, and marriages.

A new aspect of welfare reform, initiated in 2002, is the development of programs to promote marriage among unwed parents and to advocate "responsible fatherhood." This initiative is based on the findings in numerous studies that married-couple households do better economically, and that children of married-couple households seem to enjoy better health, education, and employment opportunities than children from single-parent households, especially those headed by an unwed female. In Are Married Parents Really Better Off for Children?: What Research Says about the Effects of Family Structure on Child Well-Being (Washington, DC: Center for Law and Social Policy, May 2003), Mary Parke reported that the relationship between marriage and child well-being is not as clear-cut as policies suggest. Recent research into the effects of various family structures on the well-being of children suggests that, while there is a strong relationship between living in a two-parent biological family and achieving the best educational, psycho-social, and economic outcomes for a child, there are many complexities that have not been considered by policymakers who have framed initiatives designed to promote marriage and strengthen families.

One of the interesting findings of recent research is that certain types of married and non-married families bear strong similarities to one another in child outcomes. For example, children in formal (married-couple) and long-term informal (cohabiting-couple) stepfamilies demonstrate similar rates of school achievement and behavioral problems. While children in low-conflict married families fare well, children in high-conflict married families are exposed to high levels of stress. It has been found that children in married-couple families affected by chronic conflict often fare better when their parents divorce than they do if the high-stress family situation continues. Parke concluded, "Research indicates that, on average, children who grow up in families with both their biological parents in a low-conflict marriage are better off in a number of ways than children who grow up in single-, step-or cohabitating-parent households," but she pointed out that, despite the higher risks they face, "most children not living with married, biological parents grow up without serious problems."

A concern among observers is that the "work-first" emphasis of welfare reforms may not be helping people escape poverty, since many who leave the welfare rolls because their jobs raise their incomes above eligibility levels work in minimum-wage jobs. A family with one parent working at minimum wage full-time, year round will gross $10,300, well below the federal poverty standard of $18,850 for a family of four and even below the standard for a family of two, $12,490. A family with three children and two parents working full-time, year round at minimum-wage jobs will gross $20,600, still below the poverty level for a family of five, $22,030. Aggressive work-first programs also place the disabled, those with severe health problems, and families with disabled or seriously ill members at a disadvantage. Members of such families are unable to meet work requirements either because of their own infirmity or disability or because they must care for a family member with serious health problems. Single mothers whose children suffer from asthma, for example, retain jobs for shorter periods of time and work fewer hours than mothers whose children are well. The time taken from work to care for a child with asthma can jeopardize employment as well as prevent a worker from fulfilling her TANF job-hours requirements.

Many welfare recipients appeared willing to give welfare reform a try. In What Welfare Recipients and the Fathers of Their Children Are Saying about Welfare Reform (Linda Burton et al., Baltimore, MD: Johns Hopkins University, 1998), a report about fifteen focus group discussions in Baltimore, Boston, and Chicago, the general tone of the focus group interviews was one of cautious optimism. In Boston an African-American male focus group participant called welfare reform a definite step forward. By giving recipients the necessary assistance to enter the workforce, it not only encourages them to get training and find work, but it also helps build character and self-esteem.

As proposals to reauthorize TANF were being debated, the National Governors' Association (NGA) recommended continuing the primary focus on work and allowing states more flexibility in defining work activities. States are finding that a combination of activities, including training, education, and treatment of substance abuse produces the greatest success, particularly for the harder-to-serve clients.

CHARACTERISTICS OF THOSE WHO LEAVE WELFARE AND THOSE WHO REMAIN ON THE ROLLS

Welfare caseloads (the average monthly number of recipients) declined by 56.3 percent between 1996 and 2001, from 12.6 million to 5.5 million. Figure 10.1 provides a look at AFDC/TANF recipient changes from August 1996 to March 2002. The total number of families also declined by half, from 4.5 million in 1996 to 2.3 million in 2000.

The percentage of African-Americans on the welfare rolls remained relatively stable between 1992 (37.2 percent) and 2001 (39 percent) and the percentage of whites declined (from 38.9 percent in 1992 to 30.1 percent in 2001). However, the percentage of Hispanic families increased significantly, from 17.8 percent in 1992 to 26 percent in 2001. (See Table 7.10 in Chapter 7.) The growing numbers of Hispanics on the welfare rolls can be partially explained by the fact that they represent an ever-increasing share of the total population in the United States. While the white population increased by 5.3 percent between 1990 and 2000 and African-Americans increased by 21 percent, the Hispanic population skyrocketed by 58 percent. However, minority population groups are also overrepresented among the more disadvantaged and are thus less likely to leave the welfare rolls.

The proportion of families with a teen mother has decreased. In 1994, 288,879 mothers who were nineteen years old and under received assistance; in 1997 the number had fallen to 201,182. In 2000, 138,000 teen mothers received benefits, 14 percent of all teen recipients. According to the National Center for Health Statistics, the birthrate for women fifteen to nineteen years old fell to a record low of 42.9 births per 1,000 women in 2002, down almost 30 percent from the high of 62.1 in 1991. However, the proportion of child-only cases has increased. The percentage of cases with no adult receiving assistance increased from 14.8 percent in 1992 to 37.2 percent in 2001. (See Table 7.10 in Chapter 7.) Child-only families are those in which the caretaker is not eligible for benefits, in most cases due to a lack of need or a lack of U.S. citizenship. Child-only cases are exempt from the work requirements and time limits imposed on other TANF families.

Although many recipients leave welfare for work, some have trouble keeping a job. Lack of understanding about workplace behavior, problems with child care or transportation, and the instability of the low-skilled labor market are all factors contributing to job loss. States must find ways to keep recipients employed, helping them build a work history so that they can move into higher-skilled, better-paying jobs. In its 1999 National Survey of American Families (NSAF), the Urban Institute found that 22 percent of those who left welfare between 1997 and 1999 were back on welfare when re-interviewed in 1999. The Department of Health and Human Services periodically reviews surveys conducted in various states of people who leave welfare. In 2000 HHS reported that these surveys revealed that a median of 27 percent of those who had exited the welfare rolls within the previous year had returned at the time they participated in their respective surveys. While those who return to the welfare rolls are limited to a lifetime receipt of sixty months of TANF benefits, those who lose their TANF benefits are in most cases still eligible for other forms of assistance, including food stamps and Medicaid.

WORK PARTICIPATION

Sixty percent of TANF recipients are required to participate in work activities. The other 40 percent are exempt:

• Some 7 percent are single custodial parents with a child under twelve months.
• About 11 percent have been sanctioned (usually due to nonparticipation in work or a research project or as part of an approved waiver).
• Approximately 10 percent are exempt for good cause, such as disability or poor health.
• Around 8 percent are teen parents participating in educational activities.
• The remaining 4 percent of exemptions include victims of domestic violence, pregnant women, and persons who lack transportation or live in remote areas.

In 2001 the monthly work participation rates of adults receiving assistance increased somewhat, up from 38.3 percent in 1999 to 43 percent. This still represents a dramatic increase over the rate of 7 percent in the early 1990s. Of those receiving government assistance of any kind and participating in work activities in 2001, 59.8 percent were participating in unsubsidized employment, 8.7 percent in work experience programs, 14.2 percent in job searches, 2.5 percent in job skills training, 8.9 percent in vocational education, and 4.1 percent in school attendance. (See Table 10.1.)

EMPLOYMENT AND EARNINGS

Because caseload reductions mean lower expenditures, states have additional resources to offer further services to help welfare recipients overcome the barriers to finding work and supporting their families and to help them avoid a return to welfare. Several state employment-focused strategies, combined with the use of education and training to help recipients become employable and to find better jobs, have been effective in moving substantial numbers of welfare recipients into jobs. These strategies, supported by a strong economy, resulted in initial welfare-reform successes. Employment rates for current and former welfare recipients tripled between 1996, when TANF was enacted, and 1999. In 1996 only 11 percent of recipients were working; by 2001, overall work participation rates reached 34.4 percent, as measured by family participation in employment and work-related activities.

Earnings have increased for many welfare families. The average earnings per welfare recipient family increased from $466 per month in 1996 to $686 per month in 2001, an overall increase of 47.2 percent.

Government reports also show sharp increases in employment for low-income (under 200 percent of poverty levels) single mothers. In 1996, 44.4 percent of these single mothers with children under six were employed, compared to 58.5 percent in 2000. (See Figure 10.2.) In addition, employment rates increased somewhat among low-income married mothers with children under six, from 35.3 percent in 1992 to 42.3 percent in 2000.

Earnings for female-headed households have increased, particularly for low-income women. For those in the lowest income quintile (the bottom 20 percent), earnings increased from $315 in 1996 to $1,646 in 2000.

Stronger Incentives to Work

States are finding ways to make work more attractive than welfare. In most states both policies and spending choices have focused on work and support for working families. Financial incentives include (see descriptions below) earnings disregards, Individual Development Accounts, the Earned Income Tax Credit, and increased asset levels.

EARNINGS DISREGARDS. In order to help families make the transition from welfare to work, all states disregard a certain portion of earnings in determining benefits. States disregard either a certain percentage of earnings or a specific dollar amount. For example, Idaho disregards 60 percent of earnings; Wyoming disregards $200 per month per adult. Ten states ignore from 20 to 67 percent of earnings.

INDIVIDUAL DEVELOPMENT ACCOUNTS. Thirty-one states permit those eligible for TANF to establish Individual Development Accounts (IDAs). Earnings deposited into these savings accounts are not counted toward program eligibility or benefit levels. These funds may be used for educational purposes, the purchase of a first home, or business capitalization.

EARNED INCOME TAX CREDIT. The Earned Income Tax Credit (EITC), which is discussed in Chapter 3, provides tax relief for low-income families. The U.S. Census Bureau has estimated that the additional income provided by the EITC in 2002 lifted 4.8 million people above the poverty level, more than any other government program.

INCREASED ASSET LEVELS. Eligibility for AFDC permitted individuals to have only $1,000 in assets. Most states have increased the amount of allowable assets, ranging from $1,000 to $8,000, and higher for disabled persons.

Hiring Welfare Recipients

In a national survey of 500 employers in 1998, the Urban Institute found that approximately 70 percent of employers who have hired a welfare recipient are pleased with that employee's performance. Ninety-four percent of companies who have hired a welfare recipient report that they would hire another recipient in the future. More than 80 percent who have not hired someone from welfare say they are likely to do so in the next year, if they have entry-level job openings. Sixty percent of employers sought "reliability" and "a positive attitude" more than specific skills.

Harry J. Holzer and Michael A. Stoll, in Meeting the Demand: Hiring Patterns of Welfare Recipients in Four Metropolitan Areas (Washington, DC: Brookings Institution, 2001), reported on a survey of 750 employers in four metropolitan areas (Los Angeles, Chicago, Cleveland, and Milwaukee) in 1998 and 1999. Between 30 to 40 percent of employers reported having hired welfare recipients in the prior two years. While most employers expressed a willingness to hire welfare recipients, in actual practice many of the available jobs were in locations that were not accessible to welfare recipients. Minorities and those with low educational attainment faced particular difficulties in finding employment.

The federal government committed to hiring at least 10,000 welfare recipients between 1997 and 2000. By mid-1999, federal agencies had already exceeded the goal, employing 14,000 former welfare recipients. By 2001 more than 50,000 ex-welfare recipients had been hired by the federal government under the welfare-to-work initiative, although many of these were temporary positions.

Programs for Job Retention and Advancement

If welfare recipients are to make their way out of poverty, they must develop better employment histories, as well as increase the quality of their jobs over time through higher wages, improved benefit packages, and greater job security. To promote career advancement and increased earnings for clients with significant barriers, the state of Virginia is developing innovative employment and training partnerships with business and industry.

Detroit's Focus: HOPE program provides workforce development for well-paying jobs, including training as machinists, engineers, and information technology specialists. Programs are open to high school graduates or those with GEDs, and help with tuition is available.

Pennsylvania provides specialized services to current and former TANF families with employment barriers to help them begin employment or continue to work. It uses TANF funds for job retention, advancement, and rapid re-employment services and a place-based employment collaboration with public housing authorities.

Employing the Hard-to-Serve

As caseloads decrease, a growing proportion of those who remain on the rolls have significant barriers to employment. Based on data from the National Survey of American Families, the Urban Institute identified six barriers to employment:

• Poor physical or mental health
• Less than a high school education
• A child less than one year of age
• A child on SSI
• Low proficiency in English
• Lack of work experience

States are beginning to focus more attention on "hard-to-serve" families. For instance, many states have chosen the Family Violence Option to ensure that victims of domestic violence get both protection and services. Most states exempt mothers of infants from work requirements.

Examples of initiatives developed by individual states to assist those with particular difficulties in obtaining employment include:

• Project Early Intervention in Texas provides intensive case management to low-income families as well as employment assistance, substance abuse treatment, assessment for learning disabilities, adult education classes/GED preparation, and related services.
• A pilot project sponsored by the state of Missouri identifies welfare recipients with substance abuse and mental health problems and links them to the appropriate treatment services.

The U.S. Department of Labor administers the Welfare-to-Work grant program created to improve opportunities for those with employment barriers. In Boston a program has been established to provide pre-employment skills training followed by internships and hiring. Philadelphia is using its grant to provide pre-employment services, paid work experience with close supervision, and ongoing counseling and support.

WELFARE SAVINGS

Dramatic reductions in welfare caseloads in recent years have substantially decreased the amount spent on cash welfare assistance. In addition, TANF block grant funding is based on the historically high caseload levels reached in the mid-1990s. As a result, most states now have money to fund supportive services, such as child care and transportation programs, to help needy families with children, and to strengthen their welfare reforms. Figure 10.3 shows how the allocation of TANF funds changed between 1997 and 2001.

Surplus funds can be used to increase job training and to provide child care and transportation, not just for recipients but also for some of those who have left the welfare rolls. States can also leave block grant money with the federal government to create a reserve fund for when the economy faces a recession. As of the end of fiscal year 2001, HHS reported $2.6 billion in unobligated TANF funds, 3 percent of the $85 billion allocated by the federal government between 1997 and 2000.

Flexibility with TANF

Because of the flexibility inherent to TANF, states are permitted to decide how to appropriate the money they receive as long as they address at least one of the four TANF objectives:

1. 1. Provide assistance to needy families so children may be cared for in their own homes or in the homes of relatives.
2. 2. End the dependence of needy parents on government benefits by promoting job preparation, work, and marriage.
3. 3. Reduce the incidence of out-of-wedlock pregnancies.
4. 4. Encourage two-parent families.

Federal officials are encouraging states to interpret these requirements broadly, allowing spending for any services that "reasonably" accomplish their intended purpose. A few restrictions limit the programs that states can develop. However, the basic principle is that states can use these resources to fund services that strengthen low-income families and help their children.

SUPPORT SERVICES

Because of the additional services offered, overall state spending on welfare efforts has actually increased. According to the National Governors' Association (NGA), states are spending significantly more on child care and other support services to help people find and keep jobs. Providing child care is a significant aid in getting low-income families into the workforce. The number of children receiving subsidized child care doubled between 1996 and 2000.

However, some families leaving welfare for work have turned to unlicensed, informal types of child care. This type of care is often lower quality than regulated care. In addition, many eligible families are not receiving child care, in some cases because of complex application processes.

In order to help those leaving welfare get to their jobs, asset levels for automobile ownership have been increased in most states. In addition, several states are using TANF funds to develop strategies to provide transportation assistance to low-income persons. Delaware provides information about public transportation, off-hour transportation services, transitional transportation in areas not served by public transit, van pools and vehicle ownership programs in rural areas, and reverse commuting routes to suburban industrial sites. The State of Kentucky has established the Human Service Transportation Delivery Network, a collaborative effort with transportation brokers, in order to ensure accessible, cost-effective transportation in all areas of the state for TANF and Medicaid recipients.

In Meeting the Demand: Hiring Patterns of Welfare Recipients in Four Metropolitan Areas (Washington, DC: Brookings Institution, 2001), Harry J. Holzer and Michael A. Stoll reported on a survey of low-income and low-skilled persons in Chicago, Cleveland, Milwaukee, and Los Angeles. The survey found a mismatch between the location of most of the jobs and the job seekers. Most of the opportunities for low-skilled workers were in the suburbs, while the job candidates resided primarily in the inner cities. Nonetheless, the survey found a greater readiness on the part of employers in the central city to employ welfare recipients than employers in the suburbs.

Child Support

In 2001 the Child Support Enforcement (CSE) program collected almost $19 billion for children, an increase of 42 percent from 1997.

Nearly 1.6 million paternities were established and acknowledged in 2001, an increase of 45 percent since 1996, when 1.1 million were established. The number of paternities established remained the same between 2000 and 2001. The enhanced efforts to establish paternities and enforce child support agreements are intended to serve as a disincentive for men to father children outside of marriage. In 2001, however, only three states experienced a decline in out-of-wedlock births, and the number of out-of-wedlock births rose by about seven percent between 1997 and 2001.

CHILD POVERTY

Preliminary data indicated that welfare reform had a positive effect in reducing child poverty, which declined significantly between 1993 and 2000, but rose slightly in 2001. (See Figure 10.4.) Using the official poverty measure, rates declined from a high of 22.7 percent in 1993 to 16.2 percent in 2000. However, the Census Bureau's Current Population Survey, published in 2003, indicated that between 2000 and 2002 the number of people in severe poverty (income below 50 percent of the poverty level) rose by 1.5 million people, to the level it was at in 1996–1997. Poverty rates for children increased by 600,000 between 2000 and 2002.

AT-RISK SUBGROUPS

While welfare reform has been successful at reducing caseloads, more time is required to determine whether it will be successful in assisting lower-income persons become more independent and improve their situation over the long term. Two groups, the first consisting of current welfare recipients and the second of former recipients, are of particular concern.

Many of those who are left on the welfare rolls face the end of the five-year limit to TANF benefits. These are persons with multiple barriers to employment who risk the threat of even more severe poverty as their welfare benefits end. Even if intensive efforts are made to provide them with assessment, counseling, training, and educational opportunities, suitable employment opportunities may not be available, particularly as the economy slows and unemployment rates rise.

Many of those who are making the transition from welfare to work have minimal earnings. Based on an examination of the safety net in twelve states, the Urban Institute reported that income for a family with one parent and two children could increase dramatically when the parent moved from welfare to work, if the family received all available benefits. However, income support programs operate independently and families need help in taking full advantage of the safety net available to them as they make the transition from welfare to independence. Numerous studies indicate that former welfare recipients are not accessing all the benefits for which they are eligible. For example, most families with incomes under 130 percent of the poverty line are eligible for food stamps. Thus, many of those who leave welfare are still eligible for benefits due to low earnings.

However, the study Former Welfare Families and the Food Stamp Program: The Exodus Continues (Sheila R. Zedlewski and Amelia Gruber, Washington, DC: Urban Institute, 2001) indicated that only 40 percent of former welfare families were receiving food stamps. Most reported leaving the program because of the complexities of the bureaucratic process. Medicaid coverage is also low among those who leave welfare (57 percent) compared to coverage of more than 90 percent for those receiving TANF benefits. Receipt of Supplemental Security Income is also down, and many former welfare recipients report being unaware of their eligibility for the Earned Income Tax Credit. Thus, improved service coordination is required to ensure that families receive the assistance they need while they make the transition from welfare to work.

In anticipation of the TANF reauthorization debate in Congress in 2003, Demetra Smith Nightingale examined the prospects of those moving into the workforce in "Work Opportunities for People Leaving Welfare" (Welfare Reform: The Next Act, Washington, DC: Urban Institute, 2002). Nightingale urged that states be given the latitude to continue to develop employment programs, and noted, "Some of the more promising employment-related programs for welfare families are just beginning to mature. In the upcoming reauthorization process and in future welfare policy debates, it will be important to avoid making policy changes that might disrupt or stifle innovative programming, and to encourage more innovation where it is still needed.…" She added, "Although caseloads have declined considerably since the enactment of welfare reform in 1996, recent economic weakness and the changing nature of welfare provide some justification for maintaining federal TANF funding at the current level."

On October 1, 2003, just in time to meet the deadline set by the old TANF law, President George W. Bush reauthorized TANF for five months. However, Congress was unable to agree to any of the proposed amendments to the program, including increased funding for child care, a proposed hike in the minimum wage from $5.15 to $7.00 per hour, and a higher number of required work hours for parents. When discussions collapsed into partisan wrangling, TANF reauthorization was merely extended through September 2004, with no meaningful changes.

In "Recent Welfare Reform Research Findings: Implications for TANF Reauthorization and State TANF Policies" (Washington, DC: Center on Budget and Policy Priorities, 2004), a review of the current literature on TANF, Shawn Fremstad noted that the major issues of welfare have changed since the 1990s. Recent TANF-leavers are less likely than previous TANF-leavers to be employed; poverty rates among TANF-leavers are high and remain so in the long term. Hardship is the lot of families who are cut from the welfare rolls due to time limits or sanctions. Many TANF families have members who are disabled or otherwise in poor health, and their presence creates barriers to getting and staying on jobs and earning enough to rise out of poverty. Legal immigrant families, who are blocked from such public benefits as Medicaid, suffer increased hardship as well.

There are also many who are eligible for TANF yet do not receive it. For instance, half of very poor families with children who are eligible for TANF do not receive aid, and the number of such families is increasing. So-called diversion policies prevent TANF applicants, often those with the least education, from entering the program, even though these applicants might be best-served by receiving TANF. Diversions may include formal policies that discourage potential recipients from completing the application process, but they more commonly appear as procedural elements—for example, two or more physical visits required to complete an application, or mandatory orientation or screening appointments—that tend to increase the chances that a prospective recipient will not complete the application process and become an aid recipient.

Fremstad wrote, "[The] results of welfare reform research conducted during the strong economic period of the 1990s may differ from results obtained during a weak economy. Thus, there is a role for continuing research even on questions that some think may have been answered by earlier research. For example, although several leaver studies provide information on income and hardship levels of families that have left welfare in the 1990s, the results of such studies might be very different if they had been conducted during an economic downturn. Finally, considerable gaps in knowledge on the impacts of certain welfare reform policies remain. In particular, more research is needed on TANF 'non-entrants,' the impact of diversion policies, the long-term economic well-being of TANF leavers, and the long-term impact of time limits." As a number of the important initial successes of TANF are reversing in the slowed economy of the early twenty-first century, the major challenge for legislators is to reform welfare to meet the changing needs posed by economic fluctuations. Eight years after the inauguration of TANF, researchers are coming to a clearer understanding of the impact of TANF policies on the poor and the unintended consequences of a variety of key TANF regulations. Their findings indicate that reform must be an ongoing process that examines the validity of the assumptions that underlie welfare legislation, addresses societal and economic change, and adjusts law to the evolving needs of welfare programs and their clients.