Remarks by Donna E. Shalala
American Enterprise Institute
February 6, 1998
I want to thank Doug Besharov and the
American Enterprise Institute for this invitation. Im
pleased to join all of you to talk about social policy.
As the President noted in his State of the
Union address, "a society rooted in responsibility must
first promote the value of work, not welfare."
Thats exactly what our Administration has been trying
to do for over five years supporting work and working
families. Weve been doing it through solid economic and
By early indications such as the
reduction in caseloads welfare reform has had some
important successes. Those successes create this challenge:
to make sure the caseload reduction is accompanied by job
stability and improvements in the quality of life for our
poorest families. Its clear that our six-decade-old
approach to welfare is almost over. What began in the 1930s
with the best of intentions ultimately inspired neither hope
The early welfare waivers combined
with the new welfare law have been in place for enough
years to start evaluating their strengths and weaknesses, and
to ask tough questions about where we need to go from here.
But we also have a moral obligation to keep making
improvements in welfare reform, and in our social policies.
I taught policy in the academy long before
I was a policy maker. And like any academic, I know how
important it is to put policy in context to focus on
where we are, before making judgments about where we need to
The most important context for welfare
reform is the tectonic shift in the American political and
economic landscape over the last five years.
Today, we understand that government is
neither the enemy nor the answer. We are living in an era of
a smaller federal government, where states are not just along
for the ride, but are often in the drivers seat. In
fact, we have the smallest federal government since President
Kennedy was in office. We have achieved a bipartisan
consensus that the budget must be balanced. And just this
week, the President submitted the first balanced budget in 30
years. Our fiscal house is getting in order.
I just returned from the World Economic
Forum in Davos. Our economy is the envy of the world. With
good reason. Our economy is actually defying conventional
economic theory that says low unemployment will bring growing
inflation. In 1998, everything that should be up is up: GDP,
home ownership, wages and job creation. And everything that
should be down is down: unemployment, inflation, interest
rates and the poverty rate.
The fact is, we probably couldnt ask
for a better political and economic landscape in which to
build on the initial progress weve made in moving
people from welfare to work. According to a recent Urban
Institute study, the demand for workers is growing by about 2
million a year.
Thats more than enough to accommodate
the number of new workers TANF is expected to add to the
workforce each year between now and 2002. Thats why the
Urban Institute correctly concludes that todays job
growth "has benefited everyone, including the poorest,
the least educated and the least skilled."
Many of these new job opportunities are for
entry-level positions which are exactly the kind of
openings that new workers need to get started. And many
apparently are getting started.
Just two weeks ago we announced that the
number of welfare recipients dropped below 10 million for the
first time in more than 25 years. And the number has fallen
by 4.3 million since President Clinton took office.
In fact, since 1994, the number of
recipients has dropped by one-third with 2 million
leaving the rolls just since August 1996, a goal of the
President that we reached two years ahead of schedule.
Today, fewer than 4 percent of Americans
are on welfare. What we dont know is precisely what is
happening to all of these former welfare recipients. We know
that some have married or moved in with family or friends.
Others have left the rolls and are holding on to jobs that
they were already going to what is sometimes called
the "smoke out effect." But whats important
is that many are looking for work and finding it.
Obviously, not everyone on welfare has the
ability to join the workforce immediately in even an
entry-level job. That is why the TANF participation
requirements balance a strong emphasis on work with
activities that help participants prepare for work for
example, getting their GED. That is why work requirements
start slowly, with only 30 percent of welfare recipients
required to work just 20 hours a week this year. That is why
TANF allows states to exempt 20 percent of their caseload
from time limits. And that is why federal grants for job
creation, transportation, job training for recipients, and
tax credits for employers who hire welfare recipients
all of which are part of our welfare agenda are so
As you know, in last years budget we
created a $3 billion dollar grant program to help move people
from welfare to work. Our new programs and policies have
focused on helping welfare recipients find that first
employment opportunity, and making sure that the move from
welfare to work is permanent. There are two important ways
that our new initiatives have provided that particular help.
The first is by building strong local
partnerships where government, business, community
organizations, transportation providers, the media and
religious leaders collaborate to help families move from
welfare to work. The second is by making sure that work
always pays. As a nation we have every right to demand
responsibility. Thats been the Presidents message
on welfare since day one.
But we must also make sure that work is a
better deal than welfare. To make sure work pays: we raised
the minimum wage and expanded the Earned Income Tax Credit.
Raising the minimum wage to $5.15 per hour
lifted an estimated 300,000 people out of poverty
100,000 of whom are children. The President wants to raise
the minimum wage again. The EITC has been an even more
powerful tool lifting approximately 4 million people
out of poverty, and with the minimum wage increases, putting
as much as $6000 a year into the hands of a single-parent
household with two children. With EITC, working even 20 hours
a week can pay better than welfare.
We put tough new child support measures
into the new welfare law that are expected to increase
collections by $24 billion over the next ten years. But
were not waiting for those measures to kick in. In
1997, we collected a record $13 billion in support payments,
and increase of more than 60 percent since 1992. And last
year we created a $500 dollar per child tax credit for
Making work pay means giving parents the
confidence that leaving welfare for work will not mean losing
their childrens health insurance. Our goal is to ensure
that every child in America has good health insurance.
Thats why last year, we created the Childrens
Health Insurance Program or CHIP. With an
unprecedented $24 billion dollar commitment, CHIP represents
our first down payment to make that goal a reality.
This is the largest expansion in health
care since we made the promise of Medicare and Medicaid over
30 years ago.
Our childrens health insurance
program like Medicaid is a true state-federal
partnership. Were giving states three broad options:
They can expand their existing Medicaid program to make more
children eligible. They can design a private insurance plan.
Or they can come up with a plan that will do a combination of
both. The point is to help children of working families who
are too poor to afford private insurance while
eliminating a historic disincentive for parents on welfare to
go to work.
We have a new plan that is part of next
years budget to help states defray the cost of finding
and enrolling children in Medicaid. Under the plan, Medicaid
would pay 90 percent of state costs for most outreach
Several weeks ago, we announced another
piece of our agenda: a more than $20 billion dollar expansion
over five years of child care once again to help
working parents, especially single parents, make it. This is
the largest single investment in child care in our
nations history and it will allow double the
number of children receiving child care subsidies to more
than 2-million by 2003. Most working parents ask themselves
these three questions about child care: Can I get it? Can I
afford it? Can I trust it? But lets face it, for
families trying to make the transition from welfare to work,
those questions especially, can I afford it?
can be deal breakers.
Thats why were proposing to
increase the child care block grant by $7.5 billion over five
years. There is no question that states need the money. They
have already obligated over 99 percent of their child care
funds under the new welfare law. Were also proposing to
use tax credits to ease the financial burden on 3-million
working families who are paying for child care. This credit
worth $5.2 billion dollars over five years
would eliminate the income tax liability for almost all
families with incomes below 200 percent of poverty.
Businesses, too, would be offered a tax credit up to
$150,000 dollars a year as an incentive to build, operate or
pay for child care facilities or services.
To help parents get child care, the
Presidents proposal includes $800 million dollars over
five years to fund school-community partnerships that will
set up or expand programs for after-school
care. Finally, were helping parents trust their child
care by providing more than $3 billion dollars over five
years to improve the quality of care
and to help states enforce their own health
and safety standards.
The extraordinary drama of changing the
economic and social conditions of millions of poor families
that we began universally and formally in 1996 is not a play
in which the federal government is standing alone at
center-stage. This is a partnership in which the leading role
now belongs to the states and their communities.
Of course in the years leading up to August
1996, many people already thought of the states as
laboratories for change. And thats why prior to passage
of TANF, we granted waivers to 43 states allowing them to
experiment with new ways of offering opportunity and
demanding responsibility. These experiments were the
foundation that states are now building on to help families
Today, states have the flexibility to
design their welfare programs and use to federal and state
funds to help families achieve self-sufficiency. But that
state flexibility has to be balanced with state
To make sure it is, we issued proposed TANF
regulations in November. The comment period for these
regulations is set to expire February 18th. So you still have
a little time to send us your views by letter or e-mail. Let
me just summarize the proposed regulations this way: The
intention of Congress to have states meet work participation
targets is unmistakable. And we have the authority to
penalize states that fail to meet their requirements under
the law. We take that authority seriously, and we intend to
grant exceptions only for compelling reasons.
Its still too early to make a final
assessment of how well the states are performing in their new
role under TANF. But weve been tracking the progress of
the states, and the results certainly demonstrate that
were on the right track. Heres what we know.
First, as I already mentioned, caseloads
are down dramatically a decline that has picked up
speed since August 1996.
Second, there has been NO race to the
bottom in state welfare spending. Although total state
spending has declined since 1994, states on average
are spending somewhat more per recipient than they did
in 1994. Perhaps even more important, at least 20 states
report that in FY 97, they exceeded their Maintenance of
Effort requirements many by a wide margin. Four states
are actually spending more on welfare today than they did
before welfare reform even though their caseloads have
Third, a majority of states are increasing
their earnings disregards. That means theyre raising
the amount of earnings that are not counted when determining
a recipients benefits. This will not only help pull
families out of poverty, it will send the message to low wage
earners that going to work is a better deal than staying
Fourth, states are beginning to turn their
welfare offices into employment offices which is
exactly what we want. Almost all states, for example, are
using a "Work First" model requiring
recipients to move quickly into available jobs, but also
offering referrals to employers and community organizations
to make the transition to work easier. And virtually every
state is requiring recipients to sign social contracts or
other personal responsibility agreements in which the
recipients commit themselves to taking specific steps toward
Fifth, states are working hard to enforce
the mandatory work requirements in TANF. Sanctions were
actually rising even before TANF. Still, most of the 33
states that were authorized by waivers to impose full-family
sanctions rarely did so. Now, when sanctions are imposed,
its usually because recipients fail to show up for
their initial appointments not because they refuse to
comply with work requirements. There is actually some good
news in this because it means that many recipients
threatened with work requirements are pursuing good
In South Carolina and Iowa, for example,
about 40 percent of people on welfare who left because of
sanctions actually saw their incomes increase. This is
consistent with preliminary state data showing that 50 to 60
percent of the people leaving welfare under TANF are working
a short time later. Given the very large number of recipients
leaving welfare, this certainly suggests many more are
becoming wage earners. However, evidence also suggests that
even when recipients move to work and improve their incomes,
they are still likely to have total incomes below the poverty
This is clearly not the end of welfare
reform, it is only the beginning. Thats why the
President has spoken forcefully about the need for the
business community to hire people coming off welfare
and has backed up his words with deeds by offering tax
incentives to businesses that hire welfare recipients.
Thats why we corrected many of the unfair provisions in
the original welfare law that were directed toward legal
immigrants provisions that had nothing to do with
welfare reform. And thats why I come to each of you
today with a challenge to make this historic law work
I would even go so far as to ask you
emulate another group of exceptional minds.
About 1800 years ago some Talmudic rabbis
were sitting around studying a passage from Deuteronomy that
explains what should be done with a stubborn and rebellious
son. Deuteronomys answer: "All the men of the city
shall stone him to death." The rabbis decided two things
about this passage. First it was a commandment from God. And
second, they would not obey it.
So, just like Congress, they started
carving out exceptions. First daughters. Then teenagers. Then
sons who didnt live in Jerusalem. This kept up until
one rabbi finally declared: There has never been a stubborn
and rebellious son in the House of Israel and there never
will be! This confuses one of the younger rabbis who asks,
"If there are no stubborn and rebellious sons, why was
the law written?" It was written, was told, "so
that you may study it and learn wisdom."
That is what we must do government,
universities and private social science research
organizations study welfare reform and learn wisdom,
so that we continue to solve the problems we know about
and anticipate the problems yet to come. We need your
help to stay not just ahead of the curve but on the
So, Im going to offer you six broad
questions that I think need careful consideration and
considerable sensitivity and energy.
Number one: If we believe in and value
work, our goal must be to help recipients move into jobs and
stay there. What is the best way to help recipients
especially those with multiple disadvantages into
jobs? What are the costs and benefits of investing in more
intensive interventions with hard to serve families? What are
the best supports that will keep all former recipients
employed? Reduce turnover and recidivism? And make sure that
their first job or second job leads to long term success?
Number two: We want to promote work
and were willing to impose sanctions on adults who
dont work. On the other hand, we dont want to
punish children. So we need to research what is happening to
the children of recipients who have left the welfare system
either voluntarily or because of sanctions or time limits.
Are childrens home environment, health, cognitive
development and educational achievement being affected? How?
And over the long term, are they less likely to end up on
welfare themselves? Because one extremely important outcome
measure for an impact evaluation is the well-being of
Number three: We must have a better
understanding of the difference between falling caseloads and
the number of people who are leaving welfare for work.
We know that some recipients leave welfare
because they change their living circumstances for
example, by getting married or moving in with family or
friends. Some already have been working, or leave welfare for
new jobs. But we should find out why existing work levels are
not higher and whether additional changes in support
services, training, and incentives might raise those levels.
Answers to these questions will be crucial as we think about
what might happen to low-skilled workers in the next economic
downturn. On a related matter: TANF takes into account that
some people will probably never be able to work. That means
we need to research how programs for this part of the welfare
population can be designed in a way that will avoid
attracting recipients who can work but choose not to.
Number four: As recipients start to reach
time limits, what should we do to beef up our work safety
net? How do we go about doing it? And what additional
incentives can we provide to make work pay within the
context of a balanced budget?
Number five: Since states are laboratories
for change and innovation, what systems can be put in place
to help states share information and technology with each
other? Give you timely data for additional research? And gain
quick access and make good use of your analyses
Number six: What is welfare reform doing to
the broader measures of positive social change? For example,
we already know that adolescent pregnancy rates are down for
five years straight. As welfare reform continues, will these
positive trends continue or even improve? What about
divorce rates, state marriage rates, illegitimacy rates,
paternity establishments and adolescent violence? What is the
impact of sanctions, time limits and smaller caseloads on
domestic violence, and what kind of preventive action can we
take now to make sure that abuse doesnt increase? And
what are the most effective ways of getting businesses to
hire welfare recipients? Can strong messages be crafted that
will encourage the private sector to really join in this
fight? If so, what are they?
The fact is, to continue the progress
weve made under welfare reform, we need to know more
about what works. And no one is in a better position to find
out what works and to give policy makers guidance
about what doesnt work than you are.
When the President signed welfare reform
into law, he made a very strong point that everyone who was
opposed to the old system now has an obligation to help make
the new system work. Government cannot effectively steer this
enormous transition in social welfare policy without a
willingness to link arms with advocates, researchers,
businesses and front-line workers who bring caring and vigor
to this effort. And we certainly shouldnt have to.
We need your help. You are the experts. You
are on the ground listening, watching and documenting how
well welfare reform is working in your communities.
You can make sure we continue to make
improvements, so that this historic social policy works to
improve the quality of life for our families and children.
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