Investing in Families: Opportunities for Using Maryland's Welfare Surplus Investing in Families: Opportunities for Using Maryland's Welfare Surplus

News about welfare reform continues to emerge in Maryland. Several points are becoming apparent. First, caseload declines have been dramatic. Between January 1995 and October 1999 caseloads fell by 65 percent. Second, less than half of those who have left experience continued employment; even for those who are working, most have earnings below the poverty level. Finally, there is an unprecedented amount of funding available for welfare and related programs. Federal and required state spending on welfare are fixed, and are based on funding levels provided when caseloads were at their peak.

These facts suggest that there is both a need and an opportunity to bolster Maryland's welfare program.

The declining caseload leaves fewer cases to work with, though today's recipients may have greater needs and greater barriers to work than those who have left the
roles.

The continued poverty of those who remain on the rolls and those who have left suggests the need to enact policies to bolster economic well-being.

The availability of federal and state funds provides a unique opportunity to meet the needs of Maryland's lowest income families with children.

This report explains the financial circumstances that result in the unprecedented amount of state and federal funds available for welfare and related programs. The report also introduces several opportunities to invest a portion of Maryland's "welfare surplus" in policies to improve the well-being of very low-income families with children.

Fixed Federal Funding and Required State Spending

One of the most significant changes in the 1996 federal welfare law is how state welfare programs are paid for. Instead of matching state spending, which tends to rise and fall as caseloads change, the federal law provides states with a fixed amount of money. Maryland receives $229.1 million for each fiscal year from 1997 through 2002.

The federal grant to Maryland is derived from federal spending for welfare and related programs in 1994. Since that time, caseloads have fallen dramatically. Caseloads in 1994 were three times as high as they were in October 1999. Because federal spending has not changed while caseloads have fallen, relative to caseload size Maryland receives an unprecedented level of federal funding.

Maryland, like many states that have experienced caseload declines, has not spent all of the available federal funds. However, unspent federal grant funds can be carried over and spent in a future year. As of March 30, 1999, Maryland had not spent $182 million of federal funds; $155.9 million of those unspent funds had not been obligated (meaning they had not been designated to be spent). Maryland's unobligated balance of federal funds was equal to nearly 30 percent of all federal welfare funds that had been made available during the two and a half years since the block grant was created.

By September 30, 1999, Maryland had reduced its balance of unspent federal funds to $99.3 million. The reduction was achieved largely by transferring $92 million of federal funds to the Child Care and Development Block Grant.

The federal welfare law also required states to maintain their own financial contributions for welfare and related programs. The law requires Maryland to spend at least $177 million per year, which is equal to 75 percent of state spending of $236 million in 1994. In recent years, state spending has fallen below the minimum level required. To avoid penalties, state budget officials have scoured the budget and found other expenditures that can be counted as "welfare spending."

The reduced caseload, combined with the continued flow of the annual federal block grant and required state spending that are based on historically high caseloads, creates a windfall of available funds. These funds provide the opportunity to improve the well-being of Maryland's poorest families.

This report present six practical proposals for using available federal and state welfare funds. In most cases, the proposals can be financed entirely with federal welfare funds, requiring little or no state general funds.

Six Policy Options for Investing in Maryland's Poorest Families

Policy options in the report are presented in three categories, and are listed and described below:

Proposals that Reverse Previously Implemented Cuts

1. Pass-Through All Child Support Collections to the Family
2. Provide a Full Month of Benefits to When Families Enroll in the Cash Assistance Program

Proposals that Increase Cash Benefits

3. Increase Cash Assistance to Eligible Families
4. Provide Occasional Supplements to the Basic Benefit

Proposals that Support Work

5. Increase Earnings Disregards to Allow Families to Combine Work and Welfare
6. Provide Subsidies That Allow for Automobile Ownership

1. Pass-Through All Child Support Collections to the Family

Currently, none of the child support that the state collects on behalf of families receiving cash assistance is received by the family. The state collects the child support, but instead of passing it on to the family, it is kept and shared with the federal government.

Prior to 1997, the state passed on to the family the first $50 of child supported collected, and kept the rest. This $50 "pass-through" was repealed as a cost-saving measure.

Passing through the first $100 of child support collected to the family would cost less than $4 million per year, all of which could be financed from available federal funds without any increase in state general funds. Because the state collects modest amounts of child support, passing through all child support received would have modest additional cost. Passing through all child support would also provide for smoother administration.

2. Provide a Full Month of Benefits to When Families Enroll in the Cash Assistance Program

Currently, the effective date of eligibility for cash assistance is delayed until 14 days after the date of application; in effect, families who enroll in the cash assistance program receive approximately half of the first month of benefits. For a family of three, the maximum benefit in the first month each time they enroll or re-enroll in the program is $222 in 2000.

This policy of providing a reduced benefit in the first month was implemented in 1997 as a cost saving measure. Reversing this policy and making eligibility effective from the date of application would cost approximately $5 per year, all of which could be financed from available federal funds.

3. Increase Cash Assistance to Eligible Families

The maximum cash assistance benefit for a family of three is $417 per month in 2000. The maximum benefit is approximately one-third of the federal poverty level. Benefit levels in Maryland are well-below those in other high income states, and do not provide enough income to meet basic needs. For example, the maximum benefit level is well-below the U.S. Department of Housing and Urban Development's "fair market rent" level in every jurisdiction in the state. Even if families spent half of their cash income on rent, it is unlikely that they would find safe and decent housing for $208 per month.

A moderate increase in benefits could be enacted with negligible impact on state general funds. Even if state general funds were required, spending on a benefit increase would help the state meet federal spending requirements.

4. Provide Occasional Supplements to the Basic Benefit

Income inadequacy is an ongoing issue for families that receive cash assistance. However, the crisis of benefit inadequacy is exacerbated by seasonal spending needs over and above the usual daily and monthly expenses. Two months during the year stand out: August, when children need back to school supplies and clothing; and, December when children need winter clothing and most families prepare for holidays.

To help mitigate increased hardship during these months, the state could augment the basic benefit twice a year with a supplemental benefit. For example, the state could provide an additional $125 per child in August and December for families receiving cash assistance. Doing so would cost approximately $14 million per year, and could be financed from federal funds, requiring no increase in state general fund spending.

5. Increase Earnings Disregards to Allow Families to Combine Work and Welfare

Every state eventually ends eligibility for cash assistance as family earnings get higher. However, Maryland's limitations on welfare recipients who work are more stringent than the vast majority of states. If a family of three applying for assistance earns more than $520 per month-an amount equal to 45 percent of the federal poverty level-then they are too-well off to qualify for aid. Similarly, a parent with two kids who is already receiving assistance can begin to earn no more than $660 per month and still get cash assistance. This earnings threshold is lower than the thresholds in 40 states.

Allowing recipients to earn up to the poverty level before losing eligibility for all cash assistance would cost approximately $3.3 million per year. Allowing applicants and recipients to earn up to the poverty level before losing eligibility would cost approximately $11.8 million in increased cash payments.

6. Provide Subsidies That Allow for Automobile Ownership

Inadequate transportation often is listed as the leading barrier to getting and keeping a job for many low-income families. The problem is particularly critical in rural counties and inner cities where families may be separated from suburban jobs.

Whereas 90 percent of travel in the U.S. is via a privately-owned car, the majority of poor and near-poor families do not own cars. The lack of car ownership and mobility hinders economic opportunity. On the other hand, ownership costs often exceed the financial capabilities of low-income families.

Increasingly, states are using welfare funds to subsidize car ownership, through grants or assistance with maintenance and insurance. For example, each of the 10 most populous states permit the use of welfare funds for car operating expenses. Michigan provides up to $1,200 for down payment assistance, and $900 for maintenance and repairs for families receiving cash assistance. Maryland, too, could use federal and/or state welfare funds to assist with car purchases, loan programs, and insurance payments.

Note: Each of the above policy options are explained in depth in the full report, which can be downloaded for viewing using Acrobat Reader.

Additional Resources

General

Reinvesting Welfare Savings: Aiding Needy Families and Strengthening State Welfare Reforms, Center on Budget and Policy Priorities, March 1998.

Mark Greenberg, Beyond Welfare: New Opportunities to Use TANF to Help Low-Income Working Families, Center on Law and Social Policy, July 1999.

Steve Savner and Mark Greenberg, The New Framework: Alternative State Funding Choices Under TANF, Center on Law and Social Policy, March 1997.

U.S. Department of Health and Human Services, Helping Families Achieve Self-Sufficiency: A Guide on Funding Services for Children and Families through the TANF Program.

Child Support

Wendell E. Primus and Charita L. Castro, A State Strategy for Increasing Child Support Payments from Low-Income Fathers and Improving the Well-Being of Their Children Through Economic Incentives, Center on Budget and Policy Priorities, April 1999.

Paula Roberts, Final Regulations Regarding Child Support Assignment and Cooperation and Distribution of Support Collection, Center for Law and Social Policy, April 1999.

Earnings Disregards

Steve Bartolomei-Hill, Does Work Pay? The Gains from Work in Maryland's Temporary Cash Assistance Program, Maryland Budget & Tax Policy Institute, February 1999.

Federal Temporary Assistance for Needy Families Final Regulations

Mark Greenberg and Steve Savner, The Final TANF Regulations: A Preliminary Analysis, Center on Law and Social Policy, May 1999.

Liz Schott, Ed Lazere, Heidi Goldberg, and Eileen Sweeney, Highlights of the Final TANF Regulations, Center on Budget and Policy Priorities, April 1999.

U.S. Department of Health and Human Services, Summary, Final Rule, Temporary Assistance for Needy Families (TANF) Program.

Financing

Ed Lazere and Lana Kim, Welfare Balances in the States: Unspent TANF Funds in the Middle of Federal Fiscal Year 1999, Center on Budget and Policy Priorities, July 1999.