The Welfare Balloon
Squeeze Hard on One Side and the Other Side Will Just Expand
By Douglas J. Besharov
This article originally appeared in The Washington Post, June 11, 1995.
IN THE bad old days, welfare had what was called the
"man-in-the-house" rule. Mothers and children were prohibited from receiving
benefits if any man was in the home. Now, a little noticed provision in the
Senate Republican welfare reform bill may encourage states to push the children
out as well. The bill, coming to a vote as early as this week, inadvertently
creates a financial incentive for states to take some children of welfare
mothers and place them with relatives (who would be required to exclude the
mother from their homes).
Don't blame this one on Newt Gingrich even though it looks like a
stripped-down version of his orphanage idea. Rather, it stems from the failure
of key senators to understand that a successful welfare block grant requires
that other federal entitlements, such as foster care, be modified in tandem.
President Clinton could have helped educate Congress about the need to take a
broader view of welfare reform, but he and his people have been largely absent
from the negotiating table.
Make a change in one welfare program and it will inevitably be
felt in a slew of other programs providing aid to the states. If reimbursement
rules are tightened for one program, states simply make claims under others.
"It's like a balloon," says Karen Spar, an analyst for the Congressional
Research Service. "When you squeeze spending in one place, you put pressure for
expansion in another."
For example, current law is now essentially cost-neutral on
whether a state places a child on welfare or in foster care. That's because
states receive the same reimbursement (an average of 55 percent of their
expenditures) on the basic welfare program, on Aid to Families with Dependent
Children (AFDC) and on the AFDC-eligible children who are placed in foster care.
Capping federal payments for AFDC but not foster care would end
this neutrality. In some cases, states will have a financial incentive to move
children living with their mothers into foster care. For example, in one-child
welfare households, placing the child with a relative would cut state costs by
as much as 30 percent. (The financial advantage only arises with relative
placements, which cost less than other placements, but these are already 40
percent of all placements in some states.)
Experts disagree about the size and impact of this foster care
incentive. For a given state, it depends on the future size of the state's AFDC
caseload, the relative costs of AFDC and foster care and the financial pressure
on the state to reduce welfare-related spending. But as the Congressional Budget
Office confirmed on Friday, the incentive exists -- and could result in children
being taken from their mothers.
Federal dollars wouldn't be the only incentive. Those one-child
welfare cases tend to be headed by unwed teen mothers, and there is already
strong pressure to place their children in structured settings or with older,
more mature relatives. Some states, like Wisconsin, have formally proposed using
the uncapped federal foster care program to fund residential care for both teen
mothers and their children.
Ironically, the Senate bill would also make it more expensive for
states to place or keep other children in foster care. Federal reimbursement for
foster care is now based on AFDC eligibility. Leave that rule unchanged, and
children whose mothers are denied benefits (either because of a time limit or
because they are dropped from the rolls for non-cooperation with a work
requirement) will also lose eligibility for federally reimbursed foster care.
That could cost states hundreds of millions of dollars.
More likely is that states will find ways to outsmart the federal
budget-cutters. (A whole industry of consultants has sprung up to teach states
how to claim every last federal dollar.) Rep. Clay Shaw (R-Fla.), a drafter of
the House bill, warns that leaving foster care uncapped "invites game playing by
states that could cost taxpayers billions of dollars." States will quickly learn
how to broaden eligibility under the AFDC block grant without actually making
payments to the added children and thus gain foster care reimbursement for more
children already in their care.
The House-passed welfare reform bill avoids these problems by
converting foster care into a block grant as well. Senate Finance Committee
Chairman Bob Packwood initially proposed a similar provision in his bill but
withdrew it in the face of intense lobbying from child welfare interest groups
who claimed a cap would endanger abused children -- and after the defection of
Sen. John Chafee (R-R.I.), whose vote he needed to report the full bill out of
committee. Because Packwood could not work out a compromise with his fellow
Republicans, his bill now leaves the foster care program untouched even as it
makes radical changes in welfare.
Most members of the Finance Committee were apparently unaware of
the perverse foster care incentive their bill creates. Now, a number of senators
have vowed to try to fix the bill with floor amendments. Always an awkward
process, this is sure to be more so in the partisan atmosphere that surrounds
But even if they manage to iron out the foster care wrinkle, both
the House and Senate bills fail to address dozens of other interactions among
various elements of "greater welfare" -- the interlocking constellation of
federal programs that includes food stamps, Medicaid, job training, child care
and housing assistance, as well as AFDC and foster care.
Consider food stamps, a $ 25 billion program that, as of now, will
not be block-granted. The structure of the food stamp program already tempts
states to cut AFDC benefits. Since food stamp allocations are based on a
recipient's income, a decline in welfare benefits automatically entitles a
recipient to more food stamps: A one dollar drop in welfare results in a food
stamp increase of from 30 cents to 45 cents. States know that the food stamp
program cushions the effect of cuts in AFDC, making them politically more
palatable -- and less inhumane. The ploy saves states money in another way: Food
stamp benefits are 100 percent federally funded, compared to AFDC's 55 percent.
In 1991, for example, California adopted cuts in its AFDC program
that would, over five years, reduce state spending by $ 10.8 billion. State
budget analysts calculated that this reduction would trigger a $ 4 billion rise
in food stamp payments -- a major, but hidden, boost in federal aid to
California -- so the net loss to the poor dropped to $ 6.8 billion. Still, the
poor lost even as the state saved.
Similarly, in 1991, District of Columbia officials acknowledged in
a D.C. Council report the role of the food stamp cushion in their decision to
cut AFDC benefits by 4.5 percent. Although federal law currently prohibits
states from cutting welfare in order to increase food stamps, a court upheld the
D.C. cuts because they were largely motivated by budgetary woes, not
If the welfare block grant is enacted without any safeguards,
states would be even more tempted to use the uncapped food stamp program to save
state dollars by cutting AFDC benefits. "You can't block-grant just the basic
welfare program without creating all sorts of unintended incentives,"
acknowledges one lobbyist actively opposing the welfare block grant. The easiest
fix, of course, is simply to block-grant all of the other related welfare
But capping other entitlements is not the only solution. As one
senior analyst in the administration explains, "There are many other ways to
mesh welfare programs that reduce the chances of state game-playing." That's
certainly what most social welfare advocates would prefer, and that's where the
president's self-imposed estrangement from the drafting process has been most
The basic shape of the welfare block grant bill has been known
since early January. With the support of most governors, its passage seems all
but certain. But while Clinton says he has many problems with the bill, he has
not proposed an alternative. Nor has he assigned his staff to work with
Republicans in Congress or, apparently, even with Democrats, who have a bill of
their own -- to develop a measure more to his liking.
His hesitancy is understandable. After all, the GOP bill is an
outright rejection of his own ill-starred proposal. Yet, he could render an
indispensable educational service. Only the president is in a position to look
across programs and committee jurisdictions, and only he has the entire
Department of Health and Human Services to identify all the programmatic
interactions resulting from a welfare block grant. What's more, by promising to
deliver Democratic votes, Clinton could have real leverage on a number of key
Perhaps Clinton's strategy is to wait until the Senate acts and
then throw down the gauntlet -- veto threat and all -- as he did with the budget
rescission bill. By then it will be too late. Scores of interlocking compromises
have already been made in the House and Senate bills that will tend to form the
basis of later ones; what is negotiated in June will be, for all intents and
purposes, off the table by July. At best, a last-minute veto threat will win the
president only minor concessions. Moreover, there is nothing to prevent the
Republicans from putting their final bill into the budget reconciliation
package, making it virtually veto-proof.
If Clinton wants to achieve more than cosmetic changes in what is
sure to be a revolution in welfare policy, this is his last window of
opportunity. And if he waits any longer, we may end up getting what many people
thought was impossible: an even worse and more expensive welfare system.
Douglas Besharov, a resident scholar at the American Enterprise
Institute, was the first director of the U.S. National Center on Child Abuse and
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