July 25, 1996
Many people assume that the current House and Senate welfare bills are much more moderate than the welfare bill vetoed in January. There is no question that the welfare bill has been moderated in some areas, such as through the provision of more money for child care. But the new bills are more severe than the vetoed bill in other areas.
A study that the Administration reluctantly released last fall found that last year's bill would add over a million children to the ranks of the poor. That bill included $59 billion in cuts in low-income benefit programs, which were largely responsible for the increase in poverty.
The current bill contains overall reductions as deep or deeper than those in the vetoed welfare conference report. According to the Congressional Budget Office, the vetoed bill contained $59 billion in cuts. CBO has reported that the current House bill contains $62 billion in cuts $3 billion more than the vetoed bill while the Senate bill contains $59 billion, the same level as in the bill rejected in January.  Without significant moderation in the depth of the cuts, especially as they affect the food stamp program and benefits for legal immigrants, the legislation's impact in increasing the number of poor children will remain very substantial.
The structural changes in the AFDC program are the most radical in the bill, and particularly over the long term, could have a severe impact on the well-being of large numbers of poor children. But most of the cuts actually come from other programs, including the Supplemental Security Income program for the elderly and disabled poor, the food stamp program, and Medicaid. Low-income disabled children, working poor families, the elderly poor, and poor legal immigrants would be among those affected with some severity by the sweeping benefit cuts the legislation contains.
The legislation also fails to provide adequate funding to create the number of work slots the legislation ostensibly calls for. This large funding shortfall increases the likelihood that many families will be cut off public assistance without receiving sufficient aid in moving into employment or being provided a workfare slot.
The depth of the food stamp cuts is stunning. The House bill cuts food stamps nearly $31 billion over six years, including the food stamp legal immigrant cuts. This is nearly $3 billion more than the food stamp cuts in the welfare bill vetoed in January. (Excluding the immigrant cuts, the House bill's food stamp cuts are $2 billion deeper than those in the vetoed bill.) The Senate bill cuts food stamps as much as the bill vetoed in January and over $4 billion, or 18 percent, more than the Senate welfare bill of last fall.
By 2002, the Senate bill would cut the food stamp program nearly 20 percent the equivalent of reducing benefits from their current average of 80 cents per person per meal to 66 cents per person per meal. The House bill would cut the program by 22 percent in 2002.
A substantial portion of the food stamp benefit reductions in the bill would come in the form of across-the-board benefit reductions that would affect nearly all recipient households, including families with children, the working poor, the elderly, and the disabled. Only about two percent of the savings in the bill would come from provisions to reduce fraud and abuse, impose tougher penalties on recipients who violate program requirements, or reduce administrative costs.
Neither the House nor the Senate bill requires states to provide vouchers or other non-cash aid to help meet the needs of children made destitute when their families hit the federally imposed five-year time limit or a shorter limit set by a state and cannot find a job. The Administration has called for mandatory vouchers for children affected by a time limit. In addition, the two major bipartisan welfare bills the Chafee-Breaux proposal in the Senate and the Castle-Tanner bill in the House would require states to provide mandatory vouchers for children affected by time limits of less than five years. But neither the House nor Senate bills do so. Failure to include such a provision affects large numbers of poor children. For example, approximately 5.5 million children would be affected if all states imposed a two-year time limit.
In fact, both bills prohibit states from using federal block grant funds to provide non-cash aid to children affected by the federal five-year time limit. Congressional Budget Office estimates indicate that between 2.5 million and 3.5 million children could ultimately be affected by the five-year limit, even when a provision allowing states to grant a specified percentage of hardship exemptions is taken into account.
Furthermore, under both bills, states would no longer have any obligation to provide assistance to a poor child, even if the child's family was very poor and met all of the state's eligibility requirements and the parents were willing to perform workfare and meet any work requirement. States could deny aid to any category of poor families; they could set time limits on aid of as short a duration as they wished, with no obligation to provide exemptions in case of hardship. In addition, if a state was facing a fiscal shortfall such as during a recession families with poor children in need of assistance could be put on a waiting list or turned away.
Adding to these problems, the House bill would deny the federal government the right to enforce federal law in many areas. States could violate many federal rules and even their own state plans with impunity.
Inadequate Resources for Work Slots
While supporters of the bills often claim the legislation will convert the welfare system into a work-based program, the bills fail to provide the resources necessary to achieve this goal. CBO estimates show that the bills fall about $12 billion short of what would be needed to meet the bills' requirements that states place increasing percentages of recipients in work programs. This funding shortfall will make it difficult or impossible for many states both to meet the new work requirements and to provide modest income support for families in need. States could be faced with unpalatable choices, including rendering families ineligible for assistance to reduce costs and meet the work participation requirements more easily, reducing basic cash assistance to free up money for work programs, and failing to meet the work requirements and facing a federal fiscal penalty.
The shortage of federal funds for work programs is further compounded by provisions in the legislation that would permit states to withdraw large amounts of state money from work and income support programs. Both bills permit states to withdraw 20 percent of their state funding amounting to $27 billion over six years compared to current law without losing any federal block grant funds. The House bill makes this problem more serious by allowing states to transfer 10 percent of block grant funds to the Social Services Block Grant, where this money could be used to supplant other state fund now used to finance state-supported social services. States faced with fiscal crunches and with more powerful constituencies seeking funds for other purposes could use this new authority to withdraw or transfer funds, thereby further shrinking an already inadequate pool of resources for work programs and cash assistance.
Contingency Fund Inadequate in Recessions
The problems will become most acute during recessions. While federal AFDC expenditures rose $6 billion over three years during the recession of the early 1990s, the House and Senate bills provide just $2 billion in contingency funds over five years. The contingency fund is likely to run out part way through the next recession. While the bipartisan Castle-Tanner proposal would provide for an open-ended contingency fund during national or regional recessions, the Senate and House bills both fail to do that.
Some have claimed that Congress will simply provide more funds when the next recession hits. However, tax increases or cuts in other federal entitlement programs would be required to offset the cost of the increased contingency funds. This raises serious doubt as to whether additional funds would be approved; welfare families are not a powerful or popular constituency. And if a severe regional recession occurred, there almost certainly would not be enough votes to provide billions of dollars more for a welfare contingency fund at a time it was assisting only a minority of states.
In addition, the contingency fund is badly designed. States qualifying for the fund for part rather than all of a calendar year would have to put up $2, $3, or $4 in additional state funds for each $1 they receive in federal contingency funds. Requiring states to put up 70 percent or 80 percent of the cost of such assistance, especially during recessions, is unprecedented. The likely result is that many states will fail to access the contingency funds when their economies falter because they will not expend the funds needed to meet these unrealistic matching requirements. Serious hardship is likely to result.
The cuts in assistance to legal immigrants are deeper in both the House and Senate bills than in the vetoed welfare bill. The vetoed welfare bill contained $22 billion in benefit cuts in this area. The Senate bill has $23 billion, while the House bill now has $29 billion.
The House and Senate bills both ban the overwhelming majority of legal immigrants from receiving subsistence benefits. Among those banned are poor legal immigrants who have no place else to turn because they have no sponsor, their sponsors are impoverished, or their sponsors have died. While the original House welfare bill last year exempted legal immigrants who are over 75 or severely disabled from these bans and the original Senate bill made exceptions for victims of domestic violence and people who would face severe hunger or homelessness the current House and Senate bills contain no such exemptions.
Under the Castle-Tanner bipartisan welfare proposal, poor legal immigrant children would be exempt from all of these bans. Neither of the current bills does that either.
Particularly severe are the provisions that would deny Medicaid to large numbers of legal immigrants. Most poor elderly and disabled immigrants are likely to find purchase of individual health insurance prohibitively expensive. Imagine an 80-year old poor legal immigrant with a heart condition trying to buy a policy.
The House bill is the harshest in this area. The House altered its bill last week to make the Medicaid legal immigrant cuts more than twice as deep as they were previously. The House bill now bans virtually all legal immigrants including immigrants already in this country, the very old, and the severely disabled from receiving Medicaid until they work 40 quarters (i.e., at least 10 years) or become citizens. For those too old or infirm to naturalize, this is effectively a lifetime ban. As a consequence of this provision, many nursing homes across the country would likely begin discharging elderly and disabled legal immigrants onto the streets within a year, since Medicaid reimbursement for these individuals would be cut off. These immigrants would be protected only in areas where states agreed to pick up the hefty costs of paying for virtually all of the nursing home costs of these immigrants.
The Senate bill also would deny Medicaid to substantial numbers of legal immigrants already in this country, although not as many as would lose Medicaid under the House bill. Under the Senate bill, a considerable number of elderly and disabled immigrants would lose Medicaid as a result of losing their eligibility for the Supplemental Security Income program for the elderly and disabled poor. (People on SSI are automatically eligible for Medicaid, and loss of SSI often triggers the loss of Medicaid.)
One effect of the legislation would be a large increase in poverty, especially among children. Most children who would be pushed below the poverty line are in families that are already working; their families would be pushed into poverty by the food stamp cuts or by a loss of benefits because they are legal immigrants. Welfare families that are not working are already poor; most of them would be made poorer by the bill, especially by the food stamp cuts. Based on the findings on the effects that last year's welfare bills would have on poverty, it appears that if the pending legislation is enacted, it will increase the depth and the extent of poverty more than any other piece of legislation enacted in recent decades.
A recent international study found that while the average income of affluent U.S. children is higher than that of affluent children in all other western industrialized nations, the average income of poor children in the United States is already lower than that of poor children in 15 of the other 17 western nations studied. It is against this backdrop that the current welfare bill and its expected effects in increasing the extent and depth of child poverty must be considered. This is one international competition in which the United States can not take pride in its performance.
1. These figures do not include the savings from provisions in the current House and Senate welfare bills to reduce overpayments in the Earned Income Tax Credit.