A Bad Bill that Needs to Be Fixed

William T. Dickens
William T. Dickens University Distinguished Professor of Economics & Social Policy - Northeastern University

August 2, 1996

A nasty witch’s brew of past campaign promises and election year politics has led Congress to pass—and the president to promise to sign—a very bad welfare bill. The president has acknowledged some of the bill’s problems and vowed to correct them, but it would take a major piece of legislation to fix all the problems with this unfair, mean-spirited and dishonest bill.

Unfair? Mean-spirited? Certainly in how the bill yanks the safety net out from under legal immigrants who are not yet citizens. A man who has been living, working and paying taxes in this country for years can now find himself unable to pay medical bills if a disability prevents him from working. Overnight, a widowed housewife can be left with no food or housing for herself and her children. No doubt some have taken unfair advantage of current programs, but these problems could be fixed by much less drastic measures that would only cut off aid to those immigrants whose sponsors can afford to support them.

Cutbacks to the food stamp program are less severe than those in past legislation the president vetoed, but they are still serious. Single adults will be limited to three months of food stamps. Many people who are willing to work but cannot find jobs will be cut off. The bill has no provisions for helping them find work. Even with unemployment rates near a twenty-five year low, over two million people have been unemployed for more than 3 months, and over a million have been unemployed for more than 6 months—the time limit on the receipt of unemployment insurance.

These numbers could easily double in a serious recession. For many job seekers who have exhausted their unemployment benefits, food stamps are all that keep them from homelessness and destitution. The president has promised to fix other problems with the food stamp provisions of this bill. Hopefully, he will fight to restore food stamps for the unemployed as well.

In addition to being mean-spirited and unfair the bill is startlingly dishonest about the savings it is likely to achieve and the extent to which people will be put to work. States have little control over their expenditures on welfare. Between 1984 and 1989, the case loads in the District of Columbia, Delaware, New Jersey and New Hampshire declined by more than 20 percent. But during the same period in Wyoming, Texas and Nevada, they increased by over 50 percent! Some states are doing a better job managing their welfare systems, but for the most part these large differences between states reflect differences in demographics and the performance of their economies which are unpredictable and thus beyond the control of state governments.

Today the federal government pays most of the increased costs when case loads expand and reaps most of the benefits when case loads decline. Under the new system, states that are the benefactors of favorable demographics and economics will receive huge windfalls while unlucky states will face serious budget crises. Predictably, the unlucky states will come to Washington with hat-in-hand. “Turn us away,” they will say, “and we will be forced to put thousands of women and children out on the streets.” How likely is it that Congress and the president will turn them away? Would we want them to? Since the government will not take back the money going to the lucky states, the block grants will end up costing much more than currently planned. If the president wants to fix welfare at a lower cost, block grant formulas should be changed to take account of states’ needs.

Even if block grants are adjusted to states’ needs, they still create another serious problem that must be fixed. In the past, states got federal money by committing money of their own. Now states can withdraw money from welfare programs without losing a penny of federal funds—up to 25% of their current spending. Further, this new bill allows them to spend as much as 30 percent of their federal welfare dollars on other programs. For many states, that is an amount as big as their state share of welfare costs. If they reallocate amounts equal to their current contributions to other uses, they could receive their federal funds without putting up a penny of their own money.

It is not a question of whether governors and state legislators are less generous than federal legislators. Given the political and budget pressures that they face, these incentives guarantee that less money will be spent on welfare in the future—this at a time when we should be spending more preparing welfare recipients for work, finding them jobs, and providing them with child care if we really want to put them to work. The money will not be there to do this, but that will not stop states from meeting the work requirements of the bill. Anyone coerced or kicked off the welfare roles—whether they are working or not—counts towards satisfying the bill’s work requirement!

The big loopholes in this bill which allow states to take federal money while spending none of their own explain the bi-partisan support for this bill among governors. These loopholes must be plugged and the states provided with adequate resources if we want welfare reform which provides real work opportunities for welfare recipients. The president has a lot of work to do if he wants to fix all the problems with this bill. This Congress will not be any help, but if the American people wake up to how poor a job this bill does in fulfilling their desires for a fair work-based welfare system, perhaps a new Congress will.