June 9, 1998
Federal Welfare-to-Work Grants:
New Opportunities to Create Jobs and
Assist Non-Custodial Parents
The new welfare-to-work grants contained in the recently-enacted federal balanced budget legislation give states and communities important opportunities to strengthen and expand their welfare reform efforts. In every state, these grants will increase the overall resources available to support welfare-to-work initiatives. The focus on local control and decision-making in this new program also will enable communities to make investments that respond specifically to unique local needs, supplementing welfare-to-work activities already implemented at the state or county level under the Temporary Assistance to Needy Families (TANF) program. Finally, the federal welfare-to-work grants will allow states and communities to design and test new strategies for helping hard-to-employ individuals, thereby laying the groundwork for future reforms of the welfare system.
Local governments and private industry councils (PICs) will play pivotal roles in the implementation of the new federal welfare-to-work grants. Formula grants will channel the bulk of new federal funds through states to cities and other areas with high concentrations of poverty. Local officials and community leaders must work with state policymakers to ensure that their full allotment of formula grant funds is secured by identifying the state, local, or private matching funds required under the federal law. In addition, more than $700 million in competitive grants to local communities, PICs, and nonprofit agencies will be awarded over the next two years, a total far larger than typically distributed under federally-administered grant programs. These competitive grants give cities important new opportunities to promote innovation and test new strategies for moving hard-to-employ individuals from welfare to work.
The Center on Budget and Policy Priorities is working intensively to encourage the use of formula grants and to stimulate innovative proposals for competitive grants in two areas: the direct creation of wage-paying "community jobs" for TANF recipients through private nonprofit or public agencies; and the development of programs serving non-custodial parents (typically fathers) of children in TANF households that increase their employment and child support payments provided to their families. Both of these areas have received little attention in recent years but represent, in our view, key elements of any long-range vision for more effective income security policies. Of course, policymakers and community leaders also should consider how new federal welfare-to-work grants could strengthen other aspects of current welfare reform efforts such as job retention, placement, and support services.
Using Welfare-to-Work Funds to Create Wage-Paying Community Jobs
With unemployment rates relatively low in many parts of the country, states typically have focused on private-sector job placement in their early efforts to meet the TANF work requirements. This strategy is appealing because it is likely to produce substantial declines in welfare caseloads when implemented effectively in communities with tight labor markets. Particularly in states that have not previously mounted aggressive welfare-to-work initiatives, an emphasis on job placement can yield quick results for the most job-ready welfare recipients.
An exclusive reliance on private-sector job placement, however, is unlikely to prove adequate in meeting the longer-term welfare-to-work challenges that states face under TANF. Every state will be forced to confront, at least to some extent, three problems that cannot be overcome through the use of job placement strategies alone:
- Low levels of work readiness among hard-to-employ recipients. As states move deeper into their welfare caseloads, their welfare-to-work programs by necessity will reach recipients who have little or no prior work experience. Some of these individuals may be successful in moving directly into private-sector jobs. Many others will need a chance to develop work habits and skills before making this transition into unsubsidized employment.
- Depressed communities and remote areas with high rates of joblessness. Labor market conditions vary enormously across communities or regions within states. Even in states with booming economies, pockets of high unemployment are quite common in depressed inner cities and remote rural areas. Transportation and relocation strategies may help some residents find work, but they cannot address the more fundamental difficulties posed by an inadequate supply of jobs in such communities.
- The possibility of future economic downturns at state, regional, or national levels. Tight job markets do not last forever. The current period of national economic growth already is relatively long by historical standards, and the onset of a recession in one or more regions of the country during the next several years would hardly be surprising in this context. Prudent states will design their welfare-to-work programs in a way that anticipates the possibility of rising joblessness and a shrinking pool of employment opportunities.
Publicly-funded jobs which engage participants in community improvement and human service projects sponsored by private nonprofit or public agencies can play important roles in responding to each of these challenges. These wage-paying community jobs can be structured to complement rather than undermine state or local job placement efforts while also reinforcing the "work-first" philosophy which now guides many state welfare-to-work programs. They also can be designed to address pressing needs in low-income communities and advance broader community goals.
A number of past and current job creation programs suggest that community jobs can boost the employability of individuals with limited skills or work experience. Carefully evaluated projects such as the AFDC Homemaker-Home Health Aide Demonstration and the National Supported Work Demonstration have shown that subsidized jobs, when combined with work readiness or vocational training activities, can produce large earnings gains for women receiving welfare assistance. More recent initiatives including Milwaukee's New Hope Project, St. Paul's TRANSITIONS program, and YouthBuild and youth corps programs operating in dozens of communities nationwide provide further evidence that it is feasible to implement community jobs programs and to use them to overcome barriers to employment.
Community job creation also is an important option to consider when, in specific geographic areas or at a given point in time, serious job shortages stymie further progress in welfare-to-work initiatives. As a mechanism for expanding work opportunities and meeting TANF work participation rates under such circumstances, wage-paying jobs offer an attractive alternative to unpaid work experience or community service programs. Community jobs are more likely to replicate the demands and expectations of unsubsidized employment, and by offering the dignity of a paycheck rather than a welfare check they engender far greater support from participants and community groups. In addition, even when earnings from community jobs are no greater than welfare benefits, participants and the communities in which they live end up better off financially because they are eligible to claim a federal Earned Income Tax Credit of up to $3,656 per family.
Wage-paying community jobs often are assumed to be far more costly than unpaid work experience. In many states, however, part-time jobs offering 20 or 25 hours per week of paid work for welfare recipients could be created at a cost only modestly greater than that associated with cash assistance and unpaid work assignments. Vermont already is operating such a program for welfare recipients who reach state-imposed time limits and are unable to find work. Washington state has established five pilot projects as the first phase of a community jobs option under its WorkFirst program. Cities and counties in many other states (e.g., California, Maryland, Michigan, New York, and Pennsylvania) are exploring similar approaches in their welfare-to-work efforts.
Effective community jobs programs cannot be established overnight. If such initiatives are to improve participants' employability and address pressing community needs, they must be carefully designed and implemented initially at modest scale. For these reasons, states and communities should begin to test this new approach now, while unemployment and TANF work participation rates remain relatively low.
Developing Innovative Child Support Demonstrations for Non-Custodial Parents
Many poor children in single-parent families will be unable to escape poverty or to avoid being pushed still deeper into poverty unless they are supported not only by their mothers' earnings, but also by earnings from their father (paid in the form of child support) and by government assistance through earned income tax credits, child care subsidies, food assistance, and health insurance. In current welfare reform efforts, much attention has been devoted to strategies for boosting the employment rates and earnings of mothers. Far less attention has been focused on comprehensive strategies that would increase the earnings of non-custodial fathers and child support payments to their children.
Only a modest fraction of poor children in single-parent families receive child support from their non-custodial parent. The proportion of never-married mothers who receive child support payments is particularly low. Research indicates that more than $34 billion in potential child support income goes unpaid each year and that almost two-thirds of single mothers fail to receive any child support. The new welfare law makes important strides in child support enforcement, strengthening the tools for collecting child support from non-custodial parents who have income. However, because it does little to help jobless non-custodial parents enter the labor force, it is unlikely to increase child support collections from non-custodial parents who lack earnings from which to make these payments.
For the past several years, a major demonstration project known as Parents' Fair Share (PFS) has been carried out in seven sites. The PFS demonstration requires non-custodial parents of children on welfare to participate in employment-related and other services when they are unemployed and unable to meet their child support obligations. PFS has offered a variety of services to non-custodial parents, including four core components: a menu of employment and training services, with a special emphasis on on-the-job-training (OJT) as a means to combine training with income-producing work; peer support groups built around a curriculum stressing responsible fatherhood; access to mediation services that provide opportunities for non-custodial parents to resolve conflicts with custodial parents; and assistance with problems related to child support obligations.
Although final results from the PFS demonstration will not be available for some time, preliminary results suggest that these interventions are increasing child support payments. The challenge now is to build upon this progress by adding two key components to the current PFS model: (1) publicly-funded community jobs for those unable to secure unsubsidized employment, and (2) mechanisms to assure that a larger portion of a non-custodial parent's earnings actually reach the parent's children.
For those fathers who cannot locate unsubsidized employment, publicly-funded jobs will be needed both to increase the overall number of low-skilled jobs in areas of high unemployment and to give hard-to-employ individuals an opportunity to gain work experience and job-related skills. Access to such jobs can help non-custodial parents move into unsubsidized employment and contribute income to their children over an extended period of time. In the absence of community jobs, it is likely that many of these non-custodial parents will be unable to enter the labor market and meet their child support obligations.
The second area where new initiatives should reach beyond the Parents' Fair Share model involves testing several ways to ensure that, when a non-custodial parent finds employment and pays child support, a larger share of the child support payments reach the child on whose behalf they are made. For AFDC or TANF cases, the father's incentive to make payments may be greatly diminished because the state can retain, as reimbursement for welfare costs, all child support payments. The lack of a "pass through" of child support payments to children also may weaken incentives for non-custodial parents to go to work so they can provide more adequately for their children. If, on the other hand, non-custodial parents understand their child support payments will increase the well-being of their children, they may be encouraged to work more and to make child support payments. For these reasons, various approaches to ensuring that a substantial portion of child support payments made on behalf of children receiving TANF assistance actually benefit those children should be an important element of new initiatives for non-custodial fathers.
To provide further incentives to fathers to pay child support, new approaches also could examine innovations in the forgiveness of arrearages (i.e., child support debts) accumulated by the non-custodial parent. The existence of arrearages which often involve substantial amounts can be daunting to non-custodial parents in low-wage jobs. Because the non-custodial parent may feel he will never be able to pay off these child support debts fully, he may be discouraged from seeking stable employment or making child support payments and perhaps will sever all ties to the family. It may be useful to develop policies that do not allow arrearages to accrue during periods of unemployment or when the non-custodial is participating in employment-enhancing services, that allow child support awards to be adjusted quickly as employment circumstances change, and that allow payments to be made in the form of in-kind services (such as providing child care to the family). In addition, states have the ability to forgive arrearages that are owed to the state, which provides another opportunity to develop more flexible arrearage policies.
These elements represent critical ingredients of a new round of child support demonstrations designed to improve the well-being of poor families. The Center hopes to encourage rigorous evaluations of these demonstrations so that results can inform future welfare reform efforts and policy decisions.
Technical Assistance from the Center on Budget and Policy Priorities
The Center is eager to assist state and local policymakers and advocates in their efforts to develop new initiatives that lead to the creation of wage-paying community jobs or innovative child support demonstrations for non-custodial parents. Resource materials on program design in both of these areas will be provided upon request, and Center staff also are available for consultations by phone or on-site technical assistance when appropriate. Individuals interested in receiving assistance from the Center should contact Cliff Johnson [email protected] (public job creation) or Karin Martinson [email protected] (non-custodial parent programs) at 202-408-1080.
Additional Information from the U.S. Department of Labor
The U.S. Department of Labor (DOL) has made a variety of materials related to the federal welfare-to-work grants available through DOL's welfare-to-work website (http://wtw.doleta.gov). These materials include interim final regulations for the program and a solicitation for applications for competitive grants. Planning guidance for states, facts sheets describing the program, regional DOL contacts, and final state-by-state allocations of formula grant funds also can be found on the DOL website.
Appendix: Major Provisions of the Welfare-to-Work Legislation
- The $3 billion in new federal welfare-to-work funds will be distributed to states and communities over the next two years. Half of the total $1.5 billion will be available in federal fiscal year 1998 and the remaining $1.5 billion will be distributed in fiscal year 1999. States and communities will be given up to three years after they receive grants to spend these funds. All funds must be spent by September 30, 2001.
- Funds provided under this legislation will be distributed through two kinds of grants: 75 percent of the funds are allocated to states on a formula basis, while the remaining 25 percent are awarded by the U.S. Department of Labor (DOL) through competitive grants.
- Most of the funds allocated to states through formula grants must be passed through to local Private Industry Councils (PICs), the entities that currently administer job training programs funded under the federal Job Training Partnership Act (JTPA). Only 15 percent of all formula funds can be retained by the state for state-administered programs and activities. States are required to submit plans to DOL that focus largely on procedural rather than substantive issues, including assurances of coordination between welfare-to-work grants and TANF work activities. The target date for submission of state plans was December 12, 1997, but DOL is continuing to accept plans as they are completed by states.
- Funds received by states on a formula basis are subject to a matching requirement. States must spend $1 of their own funds for allowable activities under the new law in order to receive $2 through federal formula grants. State expenditures beyond the TANF maintenance-of-effort (MOE) requirements, and perhaps local expenditures for allowable activities, will be counted toward this match. Funds that are not claimed by states in fiscal year 1998 will be added to the formula funds available in fiscal year 1999 and reallocated across all states in that year.
- Competitive grants can be awarded by DOL to PICs, local governments (i.e., cities and counties), or nonprofit organizations that submit proposals in conjunction with either PICs or local governments. No matching funds are required under these competitive grants. DOL awarded a first round of competitive grants at the end of May. The deadline for applications for a second round of grant applications is July 14, 1998.
- The legislation authorizes a range of work-focused activities for which funds may be used, including:
- publicly-funded jobs and other wage subsidies;
- on-the-job training;
- job readiness, job placement, and post-employment services (which DOL may define to include education and training services provided to individuals after, but not before, they have been placed in jobs);
- job vouchers for similar services;
- unpaid community service or work experience programs; and
- job retention and supportive services (including transportation, child care, and substance abuse treatment if such services are not otherwise available).
- At least 70 percent of funds under both formula and competitive grants must be used to serve a highly disadvantaged group of TANF recipients or noncustodial parents of children in TANF households. These required beneficiaries must have either received assistance under TANF for at least 30 months or be within 12 months of a time limit on such assistance, and they also must face at least two of the three following barriers to employment:
- lacking a high school diploma or GED and has low reading or math skills;
- requiring substance abuse treatment for employment; and
- having a poor work history.
- The remaining 30 percent of funds can be used to assist other TANF recipients or noncustodial parents who have characteristics associated with long-term welfare receipt.
- $100 million will be reserved from the total funds available in fiscal year 1999 for performance bonuses to states that will be awarded by the Secretary of Labor in fiscal year 2000.
More Detailed Summaries of the Legislation
The Center for Law and Social Policy (CLASP) and the Center for Community Change (CCC) both have prepared more detailed summaries of the welfare-to-work portion of the balanced budget legislation. These summaries can be obtained directly from CLASP (202-328-5140) and CCC (202-342-0567) in Washington, D.C.
Additional labor market policy reports