August 13, 1996

I. Overview

The welfare conference agreement features deep cuts in basic programs for low-income children, families, and elderly and disabled people as well as fundamental structural changes in the AFDC program, the basic income support program for poor families with children. According to the Congressional Budget Office, the bill includes nearly $55 billion in cuts in low-income programs over the next six years.

Nearly all of the $55 billion in savings come from reductions in programs other than AFDC, with especially large reductions being made in the food stamp program, the Supplemental Security Income program for the elderly and disabled poor, and assistance to legal immigrants. Low-income disabled children, working poor families, and the elderly poor are among those whom the legislation will adversely affect. While the cuts come primarily from areas other than AFDC, many AFDC families also will be sharply affected in the years ahead as a result of the bill's sweeping changes in the structure of the AFDC program. [1]

The bill converts AFDC to a block grant — called the Temporary Assistance to Needy Families (TANF) block grant — with essentially fixed funding. States will receive a fixed level of resources for income support and work programs based on what they spent on these programs in 1994, without regard to subsequent changes in the level of need in a state.[2]

The bill provides some additional "contingency funds" if need increases in states, but the contingency funds are likely to prove inadequate if a recession occurs. Between 1990 and 1992 when unemployment climbed, federal AFDC expenditures rose $6 billion above the amount expended in 1989. The bill's "contingency fund," however, includes only $2 billion — or one-third as much. The contingency funds are likely to run out part way into the next recession.

Adding to the fiscal pressures likely to result from frozen federal funding are provisions in the bill that make it possible for states to withdraw substantial amounts of state resources from basic income support and work programs for poor families with children and to divert federal TANF block grant funds to other uses. The bill allows states to withdraw or divert approximately $40 billion between 1997 and 2002 without such action affecting the level of federal block grant funds they receive. If state funding is reduced and federal funds are diverted to other purposes to the extent the bill permits, basic benefits for needy families and resources for work programs will fall far short of need.

The new welfare legislation allows states to deny aid to any poor family or category of poor families. In addition, with some exceptions, the legislation prohibits states from using block grant funding to provide aid to families that have received assistance for at least five years. CBO estimates indicate that between 2.5 million and 3.5 million children could be affected by the bill's five-year time limit when it is fully implemented, even after the 20 percent hardship exemption is taken into account. Moreover, states can set time limits shorter than five years; the time limits — which apply to cash aid and work slots both — can be of as short a duration as a state wishes. If states adopt shorter time limits, as some are likely to do, the number of affected children will be substantially greater.

The bill also includes $28 billion in food stamp reductions. When fully implemented, these reductions will cut food stamp benefits almost 20 percent, the equivalent of reducing the average food stamp benefit from its current level of 80 cents per person per meal to 66 cents per person per meal. These reductions will affect all food stamp recipients, including the working poor, the elderly and the disabled.

Included in the legislation is a particularly harsh food stamp provision that affects poor unemployed individuals between the ages of 18 and 50 who are not raising children. Under the bill, these individuals will generally be limited to just three months of food stamp receipt while unemployed in any three-year period. (Some of these individuals will be able to receive food stamps for six months while unemployed in a three-year period.) CBO estimates this provision will deny food stamp benefits to an average of one million people a month who are willing to work but cannot find a job and are not offered a workfare or training slot.

This report does not discuss the changes made in the child support enforcement area. The Center for Law and Social Policy (CLASP) has prepared an analysis of the changes in this area. To receive a copy of this report, contact CLASP at (202) 328-5140.

Many of these individuals qualify for no other government benefit except food stamps. Denying them food stamps will leave them with no safety net at all.

The bill also eliminates most or all of the safety net for one other group — legal immigrants. The legislation makes most poor legal immigrants ineligible for most forms of assistance. In fact, 40 percent of the net savings in the bill are achieved by denying a wide range of benefits to immigrants, including poor immigrant children and poor immigrants who are very old or who have become disabled after entering the United States and can no longer work. All of the savings in the immigrant area come from denying benefits to legal — not illegal — immigrants. Illegal immigrants already are ineligible for most major means-tested entitlement benefits.

The overall size of the food stamp cuts, the structural changes in AFDC, and the reductions in benefits to legal immigrants remain largely unchanged from the provisions of the welfare bill that President Clinton vetoed in January. In several areas, the new bill represents a step backward from the vetoed welfare bill — for example, the reduction in food stamp benefits for unemployed adults not raising minor children is far more severe in the final bill than in the vetoed bill. The legal immigrant cuts also are slightly deeper in the final bill than in the vetoed version. Furthermore, the vetoed bill would have allowed states to use TANF block grant funds to provide noncash assistance such as vouchers to impoverished families with children that hit the federally imposed five-year time limit but are unable to find employment in the private sector. The new bill, by contrast, prohibits states from using block grant funds to provide vouchers or other non-cash assistance to these families.

The bill does include some notable improvements over the vetoed version. It includes substantially increased resources for child care compared to the vetoed bill and a larger contingency fund. In addition, the reductions in SSI benefits for low-income disabled children, while still substantial, are considerably less sweeping than in the vetoed bill. In the food stamp area, the bill no longer gives states the option of "opting out" of the food stamp program and receiving a block grant in its place. The vetoed bill also would have placed a cap on food stamp expenditures, which would have forced additional, across-the-board food stamp benefit cuts if the expenditure cap otherwise would be breached. That cap has been dropped. Finally, the bill assures that children and parents who currently qualify for Medicaid based on their eligibility for AFDC will continue to be eligible for Medicaid, regardless of the changes states make in their welfare programs.

Overall, the bill is expected to have a similar effect on child poverty as the vetoed bill would have had. In July 1996, the Urban Institute released a study, based on conservative assumptions, showing that the welfare bill the House of Representatives approved that month would push 1.1 million children — and 2.6 million people overall — into poverty. Because the final bill is largely similar to the House bill, these estimates would change little if recalculated on the final legislation.

The Urban Institute study also found that the bill would make large numbers of families that already are poor still poorer. They would fall deeper into poverty. Specifically, the report found that the House bill would increase the overall depth and severity of child poverty by 20 percent. (Technically, the bill would increase the "poverty gap" for families with children by more than $4 billion, or 20 percent. The poverty gap is the measure of the total amount of income needed to lift all poor families just to the poverty line.) Finally, the Urban Institute researchers found that one in every five U.S. families with children — or 8.2 million families — would see their incomes fall an average of $1,300 a year as a result of the bill.

Most of the children who would be pushed below the poverty line live in families with a working parent. Families in which the parents are unemployed throughout the year and receive only AFDC and food stamps typically have incomes that already are well below the poverty line. Most of those families would be made still poorer by the bill.

The assumptions the Urban Institute employed are conservative. As a result, the study is more likely to underestimate than overestimate the extent to which the bill increases the number of children living in poverty and makes already-poor children still poorer. The analysis is based on current economic conditions; if the country or a region were to suffer a recession, the impact of the bill on poverty would be larger. In addition, the Urban Institute assumed all states would adopt a five-year time limit on assistance, the maximum duration the bill allows. A number of states are planning to institute shorter time limits. The Urban Institute researchers also assumed that no state would withdraw state resources from welfare programs in response to the provisions allowing them to do so. This also is likely to prove too sanguine a forecast. The researchers noted, in releasing their study, that their assumptions were optimistic.

These and other aspects of the new legislation are discussed in more detail below.

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