The Uncertain Future of Welfare Reform in the Cities

Debate over the welfare reform bill signed by President Clinton last August centered on whether curtailing the federal role in welfare and augmenting the authority of states would help or hurt America’s poorest families. Much less discussed was the role cities and urban counties would play once the new law took effect.

The omission was striking because the beneficiaries of the social programs encompassed by the welfare reform law are disproportionately concentrated in big cities. Furthermore, many cities and urban counties operate on budgets so tight that they could not begin to offset cuts in benefits on the federal and state level. During the long debate over welfare reform, urban leaders expressed grave concerns, but their doubts were overshadowed by the assurances of governors that, given the freedom, states could manage social programs better than Washington. Many questions, however, remain about the implications of welfare for the nation’s cities. Central among them is whether cities and urban counties will be able to shoulder the new burdens associated with welfare reform or whether they will seek to avoid those burdens to protect their own bottom line. The real danger is that the law will create a new class of “invisible poor,” handed off by each level of government to the next, shifted among programs until they fall out of the social welfare system altogether, uncounted in official statistics, but all too visible on our city streets.

Why Devolution Matters to Cities

The welfare reform bill replaces the individual entitlement to Aid to Families with Dependent Children with a capped block grant. It decreases federal spending on welfare and associated social programs–some $54 billion over five years–and relieves states from requirements to cover particular categories of people. It also places time limits on benefits and requires benefit recipients to find jobs. All these changes would have a dramatic impact on cities, which house a disproportionate number of welfare recipients, and urban counties, which, in most states, administer welfare.

The counties that contain the 10 largest cities in the United States accounted for 22 percent of the entire national AFDC case load in 1993 (but only 14 percent of the population). The pattern of urban concentration is most pronounced in states with a single large city. New York City accounts for 67 percent of its state’s AFDC recipients (and 40 percent of its population). In Illinois 63 percent of AFDC recipients (but only 44 percent of the population) live in Cook County, where Chicago is located. Abolishing the federal entitlement to AFDC clearly leaves the fate of this heavily urban issue in the hands of state governments.

The time limits on AFDC would also hit big cities hard because long-term recipients are disproportionately concentrated there. In New York City, 52 percent of AFDC recipients are on welfare longer than 48 months, compared with 26 percent nationally. In Cook County, 38 percent of recipients are on welfare for more than 48 months. State reforms that cut welfare benefits are also particularly hard on urban residents because of the higher cost of living in cities.

The centerpiece of welfare reform–the requirement that recipients find jobs–also poses problems for urban areas. Unemployment rates in cities are typically higher than those in surrounding suburban counties. For example, in 1991 Chicago had an unemployment rate of 8.4 percent while rates in the suburban counties of Lake and DuPage were 4.6 percent and 4.8 percent, respectively. And cities have fewer entry-level jobs of the kind welfare recipients might hope to get. A recent study estimates that there would be six workers for every entry-level job in Chicago if all people now unemployed and on AFDC were to look for jobs. Of course many urban residents work in the suburbs, and welfare recipients too can be expected to look for jobs there. But they do not have the personal networks to link them to these opportunities, and the government programs that effectively do so are few and far between. Moreover, the transportation problems in many metropolitan areas are daunting: patterns of economic development in some metro areas, such as Chicago, show the most robust development in outlying suburban areas far removed from the poorest concentrations of city residents. And it is precisely these suburban areas that have fought to keep affordable housing out of their neighborhoods, limiting the housing possibilities for low-income workers.

In addition, the welfare reform law achieves much of its budget savings by denying or severely limiting aid to legal immigrants, who settle disproportionately in cities and urban counties. Legal immigrants no longer eligible for food stamps or Supplemental Security Income may impose formidable costs for urban counties and cities. For example, the California Budget Project estimates that 115,219 legal immigrants in Los Angeles County are now ineligible for SSI; 65,420 can no longer receive food stamps. Those in need may apply for general assistance, but the costs will be borne entirely by the counties.

Finally, big cities contain areas of concentrated poverty where cuts in welfare will have ripple effects likely to harm entire neighborhoods. As cuts endanger the ability of welfare recipients to pay rent and to patronize local businesses, whole neighborhoods face new instability. Abandoned housing and empty stores not only invite crime, but also pose a direct threat to the progress that neighborhood groups have made in recreating the social fabric of many poor neighborhoods once left for dead.

What Will States Do?

Devolving responsibility for welfare to the states will vastly increase their role in determining how–and whether–urban social needs are addressed. In the short run, states will have some room to maneuver financially because the new federal block grant formula is based on the larger AFDC case loads of the early 1990s. But by 1998–or sooner, if there is a recession–states will have hard choices to make about welfare reform. Can we anticipate what they will do? Three features of state politics are particularly important in shaping how states will respond to their new responsibilities.

The first is the new regional politics that has accompanied the decline in urban population over the past 30 years. Since the redistricting of state legislatures after the 1990 census, in particular, urban power in state politics has dwindled. New Republican strength in suburban and nonmetropolitan areas has blunted the efforts of cities to shift the mounting costs of social programs to the states. Many states have already reduced or eliminated general assistance, the state program of aid to able-bodied adults without children. For example, in 1992 Democrats in the Illinois legislature adapted to the ascent of Republican power by embracing fiscal austerity and distancing the party from programs for the urban poor. The deep cuts made in the state general assistance program were particularly hard on Chicago, home to 80 percent of general assistance recipients. And in 1995 Republicans in the New York State Assembly seized on general assistance and AFDC as “wedge” issues to divide Democrats along regional lines. These regional and partisan dynamics in state legislatures, so unfavorable to cities, can be expected to fire up in the coming months as many states continue to redesign their welfare systems in the wake of the new law.

The second feature of state politics that will affect the response of states to cities and urban counties in implementing welfare reform is the rise of vigorous interest group politics in the states. The proliferation of interest groups in state politics reduces the influence of cities simply by creating more competition in policymaking arenas. As states have taken on more responsibility for social and economic development, interest group activity has exploded. Organized interests may also directly harm city and county finances by pressing for state measures that impose costs on them. And when resources contract, groups representing the poor do not have much clout. For example, in 1995 when a budget crisis in Los Angeles threatened to close county hospitals and medical facilities, a last-minute rescue by the federal government carried, as a condition of aid, the demand that the county reform its health system. But because of the network tying health care providers and organized labor to local politicians, the county’s first step was to reduce general assistance grants to save money, rather than to overhaul the health care delivery system.

The third characteristic of state politics that will affect welfare reform in the cities is the pressures on governors to divert scarce resources into economic development. In the 1980s, writers like David Osborne touted the creativity of new approaches to state economic development that sought to make social and economic goals complementary. Among the hallmarks of the new programs were substantial job training, state funding for economic incubators, and research and development. Yet this approach proved harder to sustain in the tighter fiscal climate of the early 1990s, and many of its chief proponents were voted out of office. New governors have stressed tax cuts, subsidies, and reduced social spending as a way to attract new business to the state or even to hold on to existing businesses. Interest group pressures and federal regulations may slow this “race to the bottom” but as long as states engage in unbridled competition for business, the pressures to limit state spending on social welfare will be strong. Urban counties and cities will be left to pick up the slack or many poor families and children will be left unprotected.

The New Invisible Poor?

The biggest problem that welfare reform poses for big cities and urban counties is burden-shifting. But whether local governments are able to meet that burden or even want to accept it is another matter.

In the social policy framework enacted during the New Deal, the national government took responsibility for the population deemed most deserving, the elderly. Washington and the states shared responsibility for other categories of recipients: the temporarily unemployed, poor families, the disabled and the elderly poor. States were left with full responsibility for the group least likely to appear deserving of public assistance: the able-bodied working-age person without children. Over time the federal government assumed full responsibility for the disabled and the elderly poor by extending Social Security coverage. It also provided more assistance to all categories of the poor with a range of programs including Medicaid, food stamps, and child and family services. The new welfare reform law imperils cities and the urban poor not only because it limits federal aid, but because it recategorizes poor populations in ways that leave cities with a much greater burden. Work tests and stricter tests for disability are popular reforms that could nonetheless greatly increase the numbers of people branded as undeserving of assistance from either state or federal governments.

One danger is that when welfare recipients reach their time limits, they will simply rotate among programs, moving, for example, from social services to homeless and child welfare services, placing a greater burden on public coffers and posing enormous costs to the families themselves. But if cities and urban counties are left as the caretakers of last resort, they may use any new flexibility to deter prospective applicants from seeking assistance. Because mayors and county executives are ultimately responsible for the fiscal health of their governments, they may rely on deterrence strategies to shore up the bottom line at the time when the pressures on local governments are increasing. Most cities cannot raise tax rates for fear of provoking a further exodus of tax-paying residents and businesses. In New York City, one of the few local governments that must pay half the state’s share of AFDC, the fiscal pressures are especially acute. When Democrats controlled the Governor’s Mansion, New York Mayor Rudolph Giuliani sought to solve his fiscal problems by pressing the state to take over the city’s share of Medicaid and AFDC. But after George Pataki’s election as governor in 1994, the mayor reversed course, often arguing for deeper cuts in social spending than the governor. The mayor is now planning to present a legal challenge to the provisions limiting assistance to legal immigrants in the new welfare reform legislation. Urban counties, handicapped by their limited ability to raise taxes and confronted with new expenditures handed them by the states, may also seek to limit their exposure to the mounting costs of caring for the poor.

Will private charity pick up the slack? It seems unlikely. In recent years, local charities such as the United Way have seen an increase in the percentage of funds that are earmarked. Increasingly, these charitable donations are directed to suburban nonprofits, away from the city groups that often serve the neediest populations.

Once out of the social welfare system, former recipients become difficult to track. Yet keeping accurate count of the needy is essential if we are to understand how welfare reform is working. Like the underemployed and the discouraged workers who do not show up in our unemployment statistics, this new class of poor may become officially invisible, but their presence will be felt and seen in the nationþs cities.

Does Reform Offer New Opportunities?

The risks of welfare reform are clear and present. Do the policy changes provide any opportunities to improve the life prospects of poor families in big cities? Under the right circumstances, welfare reform could lead to administrative and political changes that produce better services for the poor. But whether reform will work for, not against, urban families is ultimately a political question: will America face up to the problems that confront low-wage workers and their families in our society?

For decades, cities and counties have complained about the administrative difficulties of managing the different streams of federal and state funding. Limited resources have already impelled many cities to overhaul the way they administer social programs, promoting more collaboration and common problem-solving among city agencies. Welfare reform may well induce more collaboration and increase the effective deployment of resources. But one of the great barriers facing the urban poor is how to gain access to jobs and resources in the suburbs. States need to be much more aggressive in promoting regional solutions to the labor market problems that confront welfare recipients. The success of city job placement activities may well depend on developing cooperative ties for placement and training with adjoining counties.

If states are not simply in the business of pushing costs downward, cities and counties must have a seat at the table when policy changes are made. When the 104th Congress first made its proposals to substitute block grants for entitlements, lobbyists representing local governments were largely cut out of discussions. A survey by the National League of Cities in May 1995 found that only 22 percent of cities reported that their congressional delegation had consulted them about the consequences of welfare reform for the city. Only 14 percent reported that the state government had consulted with them. Over the intervening months, states have begun to consult more with local officials about coming changes. But county and city officials have not yet been included as full partners in deliberations about policy changes that states are contemplating. Cities and counties will have to lobby their state legislatures and governors more effectively if their interests are to be considered.

Ultimately, however, true welfare reform will cost money, a fact that the federal government and most states do not want to admit. In many big cities, some proportion of welfare recipients will not find jobs within the two-year limit. Current proposals to subsidize low-wage work may induce some businesses to hire former welfare recipients, but from what we know about how such subsidies have worked in the past, they are not likely to increase the supply of low-wage work. They may simply induce “churning” in low-wage labor markets. Placing welfare recipients in community service will provoke run-ins with municipal employee unions. These unions are often vilified for their protective stance toward city jobs, but it remains true that unionized public service jobs have provided a measure of security for low-income workers and allowed them to be stabilizing forces in many cities. While unions may be pressed to compromise on workfare, as they have in New York, undermining unions is not the answer to welfare reform. If we are serious about reform, we must begin to implement job training and job creation strategies. But even for welfare recipients who find jobs, the public task is not over. The current emphasis on “self-sufficiency” obscures the central fact that most families with low-wage jobs will continue to need income support and other social benefits, such as health care, that low-wage jobs typically do not provide. This is the task of the federal government, not cities or urban counties.

A National Responsibility

One of the central problems in building political support for policies that assist poor families is that such families are often viewed as undeserving because family heads do not have jobs. The transformation of AFDC into a work-based program could help engender broader sympathies for poor families and create a more favorable political climate for instituting a range of supportive measures that would assist all poor families. The political success of the Earned Income Tax Credit suggests that when work effort is not in question, it is easier to build support for assisting poor families.

Transforming the nationþs system of support for poor families is a long-term project. Unfortunately, the new welfare law creates incentives for both Washington and the states simply to let cities and counties bear many of the costs of that transformation. This kind of devolution would be an abdication of national responsibility. The fate of the poor, especially poor children, is a national, not a local, concern.