August 13, 1996


by David A. Super, Sharon Parrott, Susan Steinmetz, and Cindy Mann

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.

II. Cash Assistance, Work and Child Care Provisions

The welfare bill converts the AFDC program, emergency assistance, and work programs into a single block grant with essentially fixed funding. Under the block grant, children no longer will have an assurance of receiving basic cash assistance if they are very poor, their family meets all of their state's eligibility requirements, and their parents are prepared to participate in a work program and to meet all work requirements. A state could run out of block grant funds for the year and place new applicants on waiting lists. Unless states commit state funds to assure that all eligible families receive aid, substantial numbers of poor children whose parents are unable to find a job could be denied assistance, especially during economic downturns.

Many children whose parents are poor and willing to meet work requirements may be denied assistance for other reasons as well. The bill bars states from using federal block grant funds to provide cash aid, work slots, or noncash aid such as vouchers to most families that have received any form of assistance under the block grant for a total of five years over their lifetime. If a family receives cash aid or any service funded under the block grant or works in a workfare slot, subsequently leaves the rolls for employment, and then is laid off years later, the family will generally be denied all forms of block grant assistance after the lay-off — even a new work slot or vouchers to help pay the rent or meet other basic needs — if the cash assistance and workfare slot it received years earlier totaled five years in duration.

States will be permitted to exempt 20 percent of their caseload from the time limit provision — that is, 20 percent of a state's caseload may consist of families receiving aid beyond the time limit. But about half of the AFDC population currently consists of recipients who have passed the five-year mark. CBO estimates indicate that by 2004, between 2.5 and 3.5 million children could be affected by the time limit, even after the 20 percent hardship exemption is taken into account.

Moreover, states will be allowed to make the time limit shorter than five years. Families complying with their state's work requirements can be cut off when they reach the time limit their state has established. Such cut-offs can be applied without regard to whether the parents in the family can find unsubsidized employment. According to HHS, if all states were to adopt a two-year time limit, 5.5 million children would be denied aid by 2006, even assuming that states exempted 20 percent of their caseloads from these state time limits.

Fiscal Pressures Resulting from Federal Block Grant Funding Levels

Among the most profound changes the legislation makes in the welfare area are its changes in the financing structure of cash assistance and work programs. Largely as a result of these changes in the programs' financing structures, the types of welfare policy choices that states make in the future may be quite different from those they have made or considered in the past.

Bill Would Permit States To Withdraw Up to $40 Billion From Income Support and Work Programs

The foregoing discussion addresses the inadequacy of the federal funding levels in the bill. These problems are likely to be exacerbated by a withdrawal of state funds. Like the vetoed welfare bill, the new legislation permits states to withdraw substantial state resources and divert federal block grant funds from income support and work programs without losing any basic federal block grant funds. States will be able to withdraw from these programs — or to divert to other uses — up to $40 billion between 1997 and 2002.

Under the prior law, the federal and state governments shared in the cost of providing AFDC benefits and financing welfare-to-work programs. States contributed between 20 percent and 50 percent of these costs, with wealthier states contributing a higher proportion of the cost than poorer states. This financing structure provided states with an important incentive not to reduce state resources for these programs; if a state withdrew $1 of state resources from AFDC or work programs, it lost between $1 and $4 of federal funds.

Under the block grant structure in the new bill, however, this matching structure is radically altered. To receive its full block grant allocation, a state will simply be required to contribute overall state funding for work, income support, and child care programs equal to 75 percent of what it spent on these programs in 1994. This 75 percent requirement is known as a "maintenance-of-effort" requirement. The maintenance-of effort requirement is raised to 80 percent for states failing to meet the work requirements in the bill. [3]

If every state were to spend only what is required to receive its full block grant allocation, state funding over the next six years would fall nearly $32 billion below the level that CBO projects states would have spent under the prior law. This would represent a 33 percent reduction in state resources devoted to these programs over six years, compared to what would have been expended under the prior law.

The new legislation also permits states to transfer up to 30 percent of their federal TANF block grant funds to the Child Care and Development Block Grant and the Social Services Block Grant. Transfers to Social Services Block Grant alone may not exceed 10 percent of a state's federal TANF block grant allocation. [4]

The provision of the new legislation allowing TANF block grant funds to be transferred to the Social Services Block Grant is particularly problematic. The services funded under the Social Services Block Grant include an array of politically popular services, many of which go to the elderly and to families well above the poverty line. This may make such a transfer of funds likely in a number of states. But a seepage of funds from the TANF block grant to the Social Services Block Grant would almost inevitably lead to fewer work slots being provided for very poor families, cuts in cash benefit levels for these families even though current benefit levels are already well below the poverty line in most states, still-shorter time limits, or some combination of such steps.

(The bill provides that funds transferred from the TANF block grant to the Social Services Block Grant may be used only for services to children whose family incomes fall below 200 percent of the poverty line, but this provision is cosmetic. States could simply shift a portion of their existing Social Services Block Grant funds from poor children to other populations at the same time they transferred funds from the TANF block grant to the Social Services Block Grant. The actual effect could be to transfer resources from the TANF block grant to serve elderly individuals without children or families with higher incomes without the state having violated the statute.)

Contingency Fund Remains Inadequate

As noted, the legislation includes $2 billion for a contingency fund to provide additional resources to states facing growth in the size of their low-income populations, an amount that could be exhausted quickly after just a few large states experience recessionary conditions. Once the fund is exhausted, states must bear themselves 100 percent of the additional costs of providing assistance to needy families during a downturn. Families in states that are unable or unwilling to bear these costs may be left without much of a safety net.

Work Initiatives Placed in Jeopardy

As recently as 1994, there was a general consensus that additional resources were needed if the welfare system was to be converted to a work-based system. The original Contract with America provided $10 billion over five years in funding for work programs.

Although the new legislation places states under stringent requirements to put an increasing proportion of recipients receiving aid under the TANF block grant in work activities, funding for work programs in the bill falls short of what is needed to meet the bill's work requirements. CBO projects that the cost of meeting the work requirements, excluding child care costs, will reach $5.6 billion in 2002. This is $4.1 billion more than the amount that states spent on their JOBS program in 1994, the principal year upon which state block grant funding levels are based. Furthermore, according to CBO, the legislation falls $12 billion short of what will be needed over the next six years to meet the work requirements, excluding child care costs.

Due to the combined effect of expanded work requirements and frozen federal funding, federal block grant funding levels are likely to prove insufficient in many states. In its estimates of the costs and savings associated with the legislation, CBO assumes these funding shortfalls will cause many states to fail to meet the bill's work requirements.

States can avoid some of the costs of meeting the work requirements by reducing their caseloads and serving fewer people. Under a provision in the bill known as the "caseload reduction credit," a state's work participation requirements are reduced if its caseload declines below the 1995 level.

For example, the legislation requires that at least 35 percent of a state's caseload be participating in work activities in 1999. But if a state's caseload falls by 15 percent between 1995 and 1998, then its work requirement for 1999 will be reduced by 15 percentage points — from 35 percent to 20 percent. Consider a state that has a caseload of 50,000 families in 1999. If the state must place 35 percent of its caseload into a work program, it must place 17,500 parents into work activities. If, however, the state's caseload of 50,000 families represents a 15 percent reduction since 1995, the state will only be required to place 20 percent of its caseload — or 10,000 parents — into work programs. In such a case, the number of parents required to participate in work activities would be reduced by 43 percent as a result of the caseload reduction credit.

This caseload reduction credit offers states a perverse incentive to reduce their caseloads by rendering groups of families ineligible for aid. Because no new resources are provided in the bill to pay for a substantial expansion of work programs, states may find it easier to cut their caseloads by altering eligibility rules (or creating barriers to receiving aid) than by mounting work programs that prove effective in moving families into unsubsidized employment. The legislation provides that states should not get credit for caseload reductions caused by changes in state eligibility rules, but the legislation places the burden of proving that caseload reductions have been caused by eligibility rule changes — rather than by effective state work programs — on the Secretary of Health and Human Services. In a number of cases, HHS may find it difficult to prove that eligibility changes have caused caseload declines.

It should be noted that even states that do not constrict their eligibility criteria may see the requirements to place substantial portions of their caseloads in work programs eased substantially during the next few years. AFDC caseloads have been falling recently; currently, all but two states have smaller AFDC caseloads than in fiscal year 1995. As a result, although the bill says states are supposed to place 25 percent of their caseloads in work programs in 1997, some 29 states actually will have to place fewer than 20 percent of their caseloads in work programs in the coming year.

Child Care

The legislation eliminates three current child care programs and replaces them with a single child care block grant. The programs that would be replaced are: the program which funds child care assistance for AFDC families that work or are participating in a work or training program; the "at-risk" child care program for working poor families that are at risk of slipping onto the AFDC rolls if they do not receive child care assistance; and the child care program that assists families making the transition from welfare to work.

The Child Care Funding Structure

There has been much confusion around the issue of child care funding under the welfare bill, with some claiming the bill increases child care funding relative to current law. Such claims are a bit misleading.

As noted, the bill would convert two currently open-ended funding streams — child care for AFDC recipients who work or participate in a work or training program and "transitional child care" for those who have just left welfare for work — into a block grant with capped funding. Under the open-ended programs, states have been permitted to draw down as much child care funding as they needed. Under the new child care block grant structure, states will be permitted only to draw down a capped level of funding. The bill thus limits the amount of child care funding states may draw down.

States would have spent less on child care under the old law than they are projected to spend under the new legislation. This is the basis used by those who argue the bill increases child care resources. The "increase," however, is due to the increased need for child care created by the bill's greatly expanded work requirements. If the bill's work requirements were put in place and complied with and the child care programs were allowed to remain open-ended matched programs, the amounts that states could spend on child care would be higher than the level of funding the bill provides.

In short, transforming open-ended entitlement programs to a block grant that caps the level of resources that states can draw upon for child care assistance does not represent a liberalization of child care funding.

The Effect of Waivers on Implementation Requirements

States that are currently operating their AFDC program under a federal waiver, as well as states that secure approval from the Secretary of Health and Human Services for a pending or new waiver request prior to the date of enactment of the welfare bill, can operate their welfare programs under the terms of these waivers until their waivers expire. [6]

The bill specifically provides that the requirements the bill places on the program a state operates with federal block grant funds shall not apply to the extent such amendments are inconsistent with a state's waiver. The bill does not elaborate on how to evaluate whether a waiver is inconsistent with a provision in the bill, nor does it specify who has the authority to make this judgement. It is unclear how this language will be interpreted and whether states that are currently operating their program under a federal waiver will have to meet the work requirements as well as other requirements outlined in the bill. Many states may try to argue that their waivers envision a work program different from the one mandated under the bill.

It does appear that states with waivers will not be required to change their systems to conform with all of the features of the bill to the extent that the state's waiver already addresses the issue. For example, if a state has already imposed a time limit on the receipt of aid and has adopted exemptions and extensions applicable to its time limit, it would appear that the 20 percent cap on exemptions to the sixty-month time limit would not have to apply to that state.

Basic Protections for Children

States will, as noted, have broad discretion to maintain, broaden or substantially curtail eligibility for basic income assistance for any category of poor families with children. States can choose to deny aid to families with teen parents, for example. States also will, once again, be permitted to deny aid to two-parent families. All current federal rules governing AFDC eligibility criteria, application procedures and the appeal process are repealed.

The legislation contains a provision directing states to include objective criteria for determining eligibility and treating families equitably in their "state plans," the documents that states must prepare describing the program they will fund under the block grant. States also must include a description in their state plan of how recipients adversely affected under the program can appeal such actions. But the legislation prohibits the U.S. Department of Health and Human Services from taking any action if a state either fails to set objective or equitable rules for its program. The legislation even bars HHS from acting if a state fails to follow its own rules for its new program.

Medicaid Rules Affecting AFDC Families

Children and parents who receive AFDC are automatically eligible for Medicaid under current law. Since the block grant eliminates any guarantee that these children and parents would be eligible for assistance under the TANF block grant, their Medicaid coverage also could have been placed at risk. Without specific provisions to prevent loss of Medicaid coverage, many children over age 13 and parents who lose assistance due to time limits or other welfare restrictions imposed under the block grant would have lost Medicaid coverage at the same time. [7]

This risk of loss of Medicaid coverage was averted, however, by changes made in the welfare legislation in its final weeks. The legislation was amended to require states to provide Medicaid coverage to all families that meet their state's July 1996 AFDC income and asset standards, as well as those AFDC rules that limited AFDC primarily to single-parent families (i.e., the "deprivation" rules). Under the new bill, eligibility for Medicaid thus is linked to a state's AFDC rules in these areas as of July 1996 and not to receipt of aid under the new TANF block grant. [8] This change assures that several million parents and older children continue to receive Medicaid regardless of the changes a state makes in its welfare programs. The bill also maintains transitional Medicaid assistance, which provides coverage when families find employment or secure child support. [9]

III. Food Assistance

Half of the bill's spending reductions come from the food stamp program. Including reductions in food stamp benefits for legal immigrants, the food stamp cuts total $27.7 billion over six years. [10] Although the final bill eliminated the option for states to convert the food stamp program to a block grant, it replaced that option with deeper cuts in the regular food stamp program. The food stamp cuts in the bill are $9 billion — or 47 percent — deeper than those contained in the Administration's welfare proposal.

When fully implemented, the bill would slice 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 (in 1996 dollars). A substantial portion of the food stamp benefit reductions come in the form of across-the-board benefit cuts that will affect all recipients, including families with children, the working poor, the elderly, and the disabled. Only about two percent of the food stamp savings in the bill come from provisions to reduce fraud and abuse, impose tougher penalties on recipients who violate program requirements, or reduce administrative costs.

Children and very poor families will among those significantly affected, since they are the program's primary beneficiaries. About two-thirds of the benefit reductions will be borne by families with children. In 1998, the first full year the cuts will be in effect, the nearly seven million families with children that receive food stamps will lose an average of $435 in food stamp benefits.

Working poor families also will be affected. The 2.3 million food stamp households with a worker will lose an average of $355 in 1998, rising to $465 a year by 2002.

Hardest hit are the poorest of the poor — those with incomes below half of the poverty line (below $6,250 for a family of three). They will absorb 50 percent of the food stamp cuts in the bill. In 1998, they will lose an average of $655 per year in food stamp benefits. By 2002, these households will lose an average of $790 per year. The elderly would be adversely affected as well. The 1.75 million low-income elderly households receiving food stamps would lose about 20 percent of their food stamp benefits.

Food Stamp Cut Affecting the Unemployed

Among the food stamp cuts in the bill is what is probably the single harshest provision written into a major safety net program in at least 30 years. The provision limits food stamps to most unemployed individuals between the ages of 18 and 50 who are not raising minor children to three months while unemployed out of each 36-month period and allows no hardship exemptions to this limit. After three months, these individuals can continue receiving food stamps only if they are working at least half-time or in a workfare or training slot. The bill provides no new money for workfare or training slots, however, which are quite scarce in the food stamp program.

CBO estimates that in an average month, one million jobless individuals who are willing to work and would take a work slot if one were available would be denied food stamps under this provision because they cannot find work and no workfare slot is available. This provision marks the first time in the history of the food stamp program that individuals will be terminated from the food stamp program because no work opportunity is made available to them, not because they have refused to work.

USDA data show that more than 40 percent of those who would be affected by this provision are women. Nearly one-third are over the age of 40, an age above which individuals with limited skills often have difficulty finding jobs quickly, especially when unemployment is high. Many of these individuals qualify for no other benefits because they are not raising minor children; food stamps is the only safety net they have. The inclusion of this provision in the bill is one major reason that the poorest of the poor (i.e., those below half of the poverty line) are the group hit hardest by the bill's food stamp cuts.

Under the bill, unemployed individuals who exhaust their three months of benefits and later find a low-wage job and remain poor will continue to be denied stamps until after they have worked one full month. Under some circumstances, an individual who has received food stamps for three months while jobless, subsequently finds employment, and then is laid off can receive a second three months of benefits while unemployed. Receipt of a total of six months of benefits while unemployed during the 36-month period is, however, the maximum allowed. CBO estimates that only about two percent of those affected will receive this second three-months of benefits.

This provision is far harsher than a provision in the welfare bill vetoed in January. The vetoed bill would have limited food stamps for unemployed individuals to four months out of each 12-month period. [11]

This provision can be suspended, upon request of a state, if the local unemployment rate surpasses 10 percent. That is a level of unemployment few areas of the country reach even during recessions. Of greater significance, states also may waive the provision, with USDA approval, for individuals who reside in an area that "does not have a sufficient number of jobs to provide employment for such individuals." It is not yet clear how this waiver authority will be applied.

This provision will cause hardship among individuals who have worked and paid their taxes but then lose a job due to a recession, a plant closing, or a company downsizing and cannot find a new job in three months. This provision is likely to hit particularly hard at unemployed workers in small towns or rural areas who lose their jobs when a plant closes, relocates, or downsizes, since there may be only a limited number of new employment opportunities in their area.

The Administration's welfare bill, the House bipartisan welfare bill (known as the Castle-Tanner bill), and the Senate Democratic welfare bill all would have limited food stamp assistance to this group of individuals to six months out of each year while unemployed but would have required that these individuals be offered workfare slots. People who refused to work would be terminated, but people would not be cut off without being given an opportunity to work. The final welfare legislation charts a very different course from that.

In other food stamp areas, the bill reflects a recommendation the governors made to remove a provision of the vetoed welfare bill that would have imposed a cap on federal food stamp expenditures and would have triggered additional across-the-board cuts in food stamp benefits if food stamp expenditures otherwise would have exceeded the cap. But the bill does not include the other principal food stamp recommendation the governors made. The bill vetoed in January would have repealed a provision enacted in 1993 — and scheduled to take effect shortly — under which some families with children that pay more than half of their incomes for housing were to receive a larger food stamp benefit in recognition of the limited funds they have left for purchasing food. The governors recommended retaining rather than repealing this provision, but the new bill largely ignores their recommendation. When announcing he would sign the welfare bill, President Clinton singled out this provision of the legislation as one that ought to be changed; Clinton said the food stamp provision enacted in 1993 that would benefit families with high housing costs ought to be retained rather than discarded.

States Permitted to Change Food Stamp Benefit Structure

Although, as noted, the final legislation does not allow states to convert the food stamp program to a block grant, it includes three other features that give states wide and unprecedented discretion to make changes in the food stamp benefit structure. The effect of these features is likely to be the emergence of substantial state-to-state differences in the program's structure.

First, the bill allows a state to make substantial changes in the rules used to determine the level of food stamp benefits provided to families that receive assistance under their state's TANF block grant. States will be allowed to use the same methods of defining income in their food stamp programs as they use in their TANF program. They also will be allowed to redesign the food stamp deduction structure for families receiving aid under the TANF block grant. States must continue to use the same food stamp maximum benefit level (i.e., the benefit level based on the thrifty food plan) and several other basic food stamp rules. USDA is required to approve a state's plan to make such changes, unless the changes are likely to increase federal costs. [12]

Second, the bill substantially expands food stamp waiver authority. Under the old law, USDA could waive administrative requirements that states found burdensome but generally could not grant a waiver that would result in a reduction in food stamp benefits for any group of households. The new waiver authority sweeps away that restriction and allows waivers of most, but not all, provisions of the Food Stamp Act. States will be able to use the waiver authority to make major changes in the food stamp benefit structure. The waiver authority covers all food stamp households, including those that do not receive aid under the TANF block grant.

The new provision distinguishes between statewide waivers and waivers that cover only a modest part of the state. No statewide waiver may cause more than five percent of a state's food stamp households to lose more than 20 percent of their benefits, excluding benefit losses resulting from noncompliance with a work or other behavioral requirement the state has established. Waivers that alter the benefit structure to such an extent that more than five percent of the households would lose more than 20 percent of their benefits can be mounted, but they may not cover more than 15 percent of the state's caseload. No waiver — whether statewide or limited to part of the state — may cause categories of households or individuals to be made ineligible for food stamps for reasons other than lack of compliance with a work or other behavioral requirement.

A number of states may use the new flexibility the legislation grants to make innovative changes in their food stamp programs. Nonetheless, the result is likely to be a food assistance safety net whose strength varies substantially from state to state and possibly from one group to another within a state.

Finally, the bill contains a range of new state options. States may terminate benefits for custodial parents who do not cooperate in collecting child support and for non-custodial parents who either do not cooperate with child support agencies or fail to make required child support payments. States will be allowed to impose more severe sanctions on those violating work requirements than the penalties federal law otherwise establishes. Also, a state can elect to require use of a "standard utility allowance" that it has established as a proxy for a household utility costs. Under the old law, households whose actual utility costs exceeded the standard utility allowance could have their actual bills used. (Utility costs are used in determining the amount of a household's food stamp shelter deduction.) Under the new legislation, states may decline to allow use of actual utility bills in such circumstances.

Child Nutrition Reductions

The welfare bill includes $2.9 billion in reductions in child nutrition programs. More than 85 percent of these reductions would come in the Child and Adult Care Food Program, which primarily supports meals provided to children in child care centers and family day care homes. The bulk of these reductions would result from reduced federal support for meals served in family day care homes that are not located in a low-income area or operated by a low-income provider.

The family day care home component of this program is the sole part of any major child nutrition program that is not means-tested. Approximately two-thirds of the expenditures for this component of the program go to support meals served to children with family incomes exceeding 185 percent of the poverty line.

To avoid requiring family day care homes to implement a means test, which could prove administratively burdensome, the bill divides family day care homes into two categories: 1) those either located in low-income areas (defined as areas where at least half of the children have incomes below 185 percent of the poverty line) or operated by low-income providers (providers with incomes below 185 percent of the poverty line); and 2) those neither located in low-income areas nor operated by low-income providers. Homes in the first category will continue to receive current levels of federal support for the meals they serve. For homes in the second category, the meal reimbursements they receive will be cut approximately in half.

This represents a sharp reduction in support for homes in the second category, although the meal reimbursements they receive still will be substantially higher than the reimbursements the federal government provides for meals served to middle-income children in schools and child care centers. Homes that are in the second category but that serve some low-income children will be allowed, but not required, to administer a means test and to continue receiving the current rates of reimbursement for meals they serve to children with incomes below 185 percent of the poverty line.

All major Democratic and Republican welfare bills contained a similar provision. Most bipartisan and Democratic bills reduced the meal reimbursement rates for family day care homes in the second category by modestly smaller amounts than the final bill does, however.

The welfare bill also shaves reimbursement rates for meals served in the Summer Food Service Program for Children, which provides lunches and some other meals to children in low-income areas during summer months. On the one hand, summer food operators will receive as much as 20 cents less per lunch under the new bill than they currently get. On the other hand, the Summer Food Program has historically provided quite high levels of meal reimbursement; when the cut takes effect, summer food operations still will receive 16 cents to 17 cents more per lunch than schools receive for lunches served under the school lunch program during the regular school year.

The legislation barely touches the school lunch program. Its only change in this area is that federal reimbursement rates for school meals served to middle-income children will be rounded down to the nearest whole cent instead of being rounded to the nearest quarter cent (e.g., a school might receive 17 cents rather than 17.5 cents in federal funding for such a meal). This effectively reduces federal support an average of one-half cent per lunch for children with average incomes of about $50,000 a year. It should have no noticeable effect on the school lunch program.

The final legislation drops a provision included in the vetoed bill that would have given seven states the option of converting the school lunch and breakfast programs to block grants on a demonstration basis. That provision likely would have had little appeal to states since it would have required any state opting to participate in the block grant demonstration to accept large and growing funding cuts while offering those states less than full flexibility. It is unclear any state would have volunteered. The governors themselves recommended dropping the provision for this block grant demonstration, and the provision was removed from the bill.

IV. Denying Assistance to Most Legal Immigrants

The new welfare bill cuts benefits for immigrants by more than $22 billion. All of these savings come from denying benefits to legal immigrants. As noted, illegal immigrants already are ineligible for most major entitlement programs.

Most poor legal immigrants will be denied aid provided under basic programs such as the Supplemental Security Income program for the elderly and disabled poor, Medicaid, and food stamps. Language in the conference report accompanying the bill also would deny to legal immigrants the assistance provided under many smaller programs such as meals-on-wheels to the homebound elderly and prenatal care for pregnant women.

Among the most severe provisions are those that will affect the ability of poor elderly and disabled legal immigrants to receive SSI. The legislation makes all legal elderly and disabled immigrants — except for refugees and asylees during their first five years in the country and a few other very small groups of legal immigrants — ineligible for SSI in most cases until they become U.S. citizens. [13] For many poor immigrants who are old or disabled and can neither work nor, given their age or physical or mental condition, learn all that is necessary to obtain citizenship, this is tantamount to a denial of benefits for the rest of their lives. Nearly half a million current elderly and disabled beneficiaries who are legal immigrants will be terminated from the SSI program in the months ahead.

The food stamp restrictions are identical to the SSI provisions. All legal immigrants, except refugees and asylees in their first five years here and a few other small groups of immigrants, are made ineligible for food stamps until they become citizens. The welfare bills that both the House and Senate passed in 1995 would have exempted very old legal immigrants and severely disabled legal immigrants from this ban on food stamp receipt, but the final bill contains no such exemptions. Such immigrants will have both their SSI and their food stamps terminated.

These harsh SSI and food stamp restrictions will affect substantial numbers of legal immigrants with no other sources of support. Most indigent elderly and disabled immigrants who are here legally but have no sponsor will be denied SSI and food stamps. So will poor elderly and disabled immigrants whose sponsor has died or become impoverished. And while the vetoed bill would have given poor legal immigrants currently receiving assistance one year to find other means of subsistence before cutting off their SSI and food stamp benefits, the final legislation cuts these individuals off more rapidly than that.

The new welfare bill also denies Medicaid coverage to many legal immigrants. Except for refugees, asylees, and a few others, immigrants entering the country after the date the bill is signed will be ineligible for Medicaid for five years, with states having the option to extend this Medicaid ban for a longer period. The Congressional Budget Office estimates that by 2002, approximately 260,000 elderly legal immigrants, 65,000 disabled people, 175,000 other adults, and 140,000 children who would be eligible for Medicaid under current law will be denied it under these provisions of the new legislation. Most of these individuals are likely to have no other health insurance. Among those who will be affected by these Medicaid restrictions are poor legal immigrants who become disabled after entering the country, are unable to continue working, and cannot afford what will be prohibitively expensive private insurance policies given their medical conditions.

Many legal immigrants already in the country also will lose Medicaid. Many poor elderly and disabled individuals receive Medicaid as a result of receiving SSI. When these immigrants are cut off SSI, many will lose Medicaid eligibility as a consequence.

In addition, the legislation gives states the option of denying Medicaid to legal immigrants already in the country (except recently arrived refugees and asylees and a few other narrow categories). On January 1, 1997, states may begin terminating coverage to these additional groups of legal immigrants currently receiving Medicaid.

The legislation's rules for legal immigrants under the TANF block grant are identical to its restrictions on their eligibility for Medicaid. Those entering the country after the bill is enacted are ineligible for aid under the TANF block grant for five years, with states having the option of making the period of ineligibility longer. States also have the option of making legal immigrants already in the country ineligible for aid under the TANF block grant and setting the period of ineligibility at whatever duration they choose.

The bill creates state options for the treatment of immigrants in other areas as well. For example, the bill gives states the option of making some categories of legal immigrant pregnant women and children — and all illegal immigrant pregnant women and children — ineligible for WIC. (Currently, this is one of the few programs for which poor illegal immigrants may qualify.) But states that elect this option will have to bear additional state costs.

An extensive body of research demonstrates that the provision of WIC benefits to pregnant women sharply reduces the incidence of low birthweight and, as a result, significantly reduces Medicaid costs after birth. [14] If immigrant women are denied WIC during pregnancy, Medicaid and other government programs are likely to end up paying substantial sums for Medicaid and related services needed by children who are born at a low birthweight due to denial of WIC assistance. These children will be entitled to Medicaid — they will be U.S. citizens since they will have been born on U.S. soil. As a result, states that elect to deny WIC to these immigrants are likely to lose federal WIC dollars while incurring higher state costs in their Medicaid programs.

Finally, the legislation gives state and local governments broad authority to deny assistance to legal immigrants under state and local programs. State and local governments also would be prohibited from using their own funds to provide many kinds of assistance to illegal immigrants and to some small categories of legal immigrants.

V. Supplemental Security Income for Disabled Children

The vetoed welfare bill would have made two major changes in the SSI program that would have affected disabled children. First, the bill would have denied SSI benefits completely to a large number of children who qualify as disabled under current guidelines. Second, it would have reduced benefits by 25 percent to most of those disabled children who remained on the program.

The new bill contains the first set of changes but drops the second — it substantially reduces the number of disabled children receiving benefits but does not reduce benefit levels for those remaining on the program.

The Congressional Budget Office estimates that by 2002, some 315,000 low-income children who would qualify under current law will be denied SSI. This represents 22 percent of the children who would qualify under the old law. The bill reduces the total benefits the program provides to disabled children by more than $7 billion over the next six years.

The bill achieves these results by restricting the types of disabilities that will enable a child to qualify for SSI. In some instances, the same disability that will qualifies an adult for SSI will not be sufficient to qualify a child for benefits. Among the children most likely to lose benefits are those suffering from multiple impairments, no one of which is severe enough to meet the more stringent disability criteria established by the bill, but the combined effect of which is substantial.

There is widespread agreement that the criteria for determining whether children are sufficiently disabled to qualify for SSI should be tightened. The legislation, however, goes well beyond the steps needed to address the problems that have been demonstrated. A National Academy of Social Insurance panel reported last year, in an exhaustive study it conducted of the children's SSI program, that while "eligibility criteria need to be strengthened, ... allegations of widespread inappropriate allowances are not substantiated and sharp cuts in the current rolls are not warranted." [15]

The Academy proposed three specific changes: eliminating "maladaptive behavior" as a separate element in assessment of children's disability, increased use of standardized tests to measure mental disorders, and restructuring individual functional assessments of children's disability under criteria that would better balance mental and physical impairments. The changes the bill makes go far beyond the Academy's measured proposals.

VI. Other Changes

The bill also makes changes in the Social Services Block Grant and the Earned Income Tax Credit. The bill reduces federal funding for the Social Services Block Grant by 15 percent, from $2.8 billion per year to $2.38 billion per year. The bill also includes a series of small changes in the Earned Income Tax Credit, largely recommended by the Clinton Administration. These changes are designed to reduce EITC errors and curtail EITC receipt by those whose income is appears low as a result of "paper" losses in income. The EITC changes in the welfare bill do not include any of the controversial EITC cuts from last year's reconciliation bill that would have caused hardship for needy low-income working households.

VII. Conclusion

The overriding effect of the legislation is likely to be a large increase in poverty, especially among children and legal immigrants. The effect of a block grant structure that only partially responds to increases in need, combined with reductions in federal resources, options for states to reduce benefits and services in various ways, and fiscal incentives for states to withdraw substantial amounts of state funding from income support and work programs, is likely to be that substantial numbers of poor families with children are left with inadequate assistance.

As noted, the Urban Institute projected the House version of the bill would push an additional 1.1 million children — and a total of 2.6 million people, including adults — into poverty. [16] Most children who would be pushed below the poverty line are in families that are already working; in most cases, their families would be pushed into poverty by the food stamp cuts or a loss of benefits because they are legal immigrants. The provisions of the House bill that were central to the Urban Institute's analysis were changed only slightly in the final legislation.

In addition to increasing the number of children who are poor, the bill will make many children who already are poor still poorer. The Urban Institute study estimated the House bill would increase the "poverty gap" — the measure of the amount of income needed to lift all poor families to the poverty line — by one-fifth for poor families with children. No piece of legislation in U.S. history has increased the severity of child poverty so sharply.

Other groups among the poor — including the working poor, the elderly and disabled, and legal immigrants — stand to lose as well. For some, the safety net will grow weaker. For others, especially poor legal immigrants and poor unemployed adults not raising minor children, much or all of the safety net is eliminated.

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 welfare bill — and its expected effects in increasing the extent and depth of child poverty — should be considered. This is one international competition in which the United States can not take pride in its performance.


1. This report does not discuss the changes made in the child support enforcement area.

2. To be precise, a state's TANF block grant allocation would be based on the highest of its FY 1994 spending, its FY 1995 spending, or the average of its spending for the three years from FY 1992 to FY 1994.

3. To draw down funds from the contingency fund, a state would have to maintain state funding at 100 percent of its 1994 expenditure level.

4. The $40 billion estimate of the amount that states could withdraw in state funds or divert to other uses is based only on states' ability to reduce state spending due to the maintenance-of-effort provision as well as the provision permitting states to transfer funds from the TANF block grant to the Social Services Block Grant. Resources transferred to the Social Services Block Grant can easily be used to supplant state social services spending. The resources that states would be permitted to transfer to the child care block grant are not considered in this analysis since these resources can not as easily be used to supplant state spending.

5. The bill includes substantial food stamp cuts that would cause some current recipients to become wholly ineligible for food stamps. The contingency fund trigger directs the Secretary of Agriculture to adjust states' 1994 (or 1995) food stamp caseloads to reflect the size the caseload would have been had these food stamp cuts been in effect at that time.

6. States that have applied for a waiver prior to enactment of the bill and whose waivers are approved after enactment of the bill but prior to the bill's implementation also may follow the terms of those waivers, except that these states must comply with the work requirements in the bill.

7. Children under 13 would not be affected because under federal Medicaid law, children born after September 30, 1983 whose family income is below the federal poverty line must be covered under Medicaid without regard to their eligibility for welfare.

8. States will be permitted, however, to terminate Medicaid for any adult whose cash aid under the TANF block grant is terminated due to a refusal to work. Children and pregnant women are exempt from this provision. It is unclear in this context precisely what "refusal to work" will mean; the Secretary of Health and Human Services may need to issue guidance clarifying this issue.

9. Eligibility for transitional Medicaid will be triggered whenever a family's income from earnings or child support places it above the income standards for Medicaid eligibility which will be based on the state's former AFDC income eligibility thresholds. For those families that are placed above the income standards due to increased child support income, eligibility for transitional Medicaid will be limited to four months; those families that surpass the income limits due to increased earnings will be eligible for up to 12 months of transitional Medicaid as under prior law.

Under the new law, eligibility for regular Medicaid coverage will not depend on receipt of block grant assistance but will instead be based on the income eligibility standards of states' former AFDC programs. Similarly, when a family becomes ineligible for Medicaid coverage under the new law due to increased earnings or child support income, it becomes eligible for transitional Medicaid, regardless of whether the family received assistance under the block grant.

10. This total includes $3.8 billion in cuts in food stamp benefits for legal immigrants and their families, $3.7 billion of which are in the immigrant title of the bill. This total also includes $345 million in reductions from freezing the food stamp standard deduction for fiscal year 1997. This standard deduction cut appears both in the welfare legislation and in the agricultural appropriations bill for fiscal year 1997. Because Congress gave final passage to the agricultural appropriations bill shortly before the welfare bill, CBO has attributed the $345 million in savings from this cut to the appropriations bill and has not included it in the CBO tables showing the savings in the welfare bill. Either way, however, food stamp households will feel the effect of this cut. The aggregate figures for the bill's spending reductions used in this analysis include the effect of freezing the standard deduction in fiscal year 1997. The $27.7 billion figure excludes the effect of a provision in the bill that increase food purchases for The Emergency Food Assistance Program (TEFAP) by $600 million over six years. If the TEFAP increase is included, the net reduction in food stamps and TEFAP is $27.1 billion. The net reduction, excluding the food stamp cuts in the immigrant title of the bill and the increased funding for TEFAP, is a little over $23 billion, a figure sometimes cited for the food stamp reductions in the bill.

11. Under the provision in the vetoed bill, people finding work at low wages would have requalified immediately, and those who requalified but then lost their jobs would have been able to receive a second four-months of benefits while out of work.

12. USDA may not disapprove a state's plan to make such changes to households in which all members receive assistance under the state's TANF block grant, unless the change is projected to increase federal costs. States must secure USDA approval for changes that affect "mixed households" (i.e., households in which some members receive aid under the block grant and some do not); USDA is not required to approve those changes.

13. Another small category of immigrants similar to refugees and asylees, persons granted "withholding of deportation," also are exempt during their first five years in the United States. In addition, the bill also exempts legal immigrants who are active duty members of the United States Armed Forces or honorably discharged U.S. veterans and their spouses and unmarried dependent children. Finally, the bill creates a narrow exemption for immigrants who have worked 40 quarters — 10 years — in this country. For any quarter after 1996 to count, an immigrant must not have received any federal means-tested benefits during that quarter.

14. The General Accounting Office estimated in 1992, based on an exhaustive review of the research literature, that each dollar expended on WIC services for pregnant women averts approximately $3.50 in subsequent costs, primarily because it lessens the need for costly intensive health care after birth by reducing the incidence of low-weight births.

15. National Academy of Social Insurance, Restructuring the SSI Disability Program for Children and Adolescents (May 1995), pp. 32-33.

16. As noted above, in the Urban Institute's analysis, the income measure used included the value of noncash benefits such as food stamps and the earned income tax credit.