Employment and Barriers to Independence
Poverty and Economic
Well Being
Opportunities for Investing in Maryland's
Low-Income Families
Thank you for the opportunity to address you today. My name is Steve Bartolomei-Hill, and I am director of the Maryland Budget and Tax Policy Institute. The Institute provides timely, credible, and accessible analysis of state budget and tax priorities. We pay particular attention to how budget and tax decisions affect low- and moderate-income people and other vulnerable populations, and the important community programs that serve them. The Institute is a project of the Maryland Association of Nonprofit Organizations.
I am going to talk today about a forthcoming paper from the Institute that looks at available funds for welfare and related programs and presents ideas for how those funds could be invested to improve the economic well-being of Maryland's low-income families with children.
News about the status of welfare reform continues to emerge in Maryland. Several points are becoming apparent:
- Caseload declines have been dramatic. Between January 1995 and May 1999 caseloads fell by 62 percent.
- As few as half of those who have left welfare experience continued employment. Even for those who are working, most have earnings below the poverty level.
- The state has a substantial surplus of unspent federal welfare funds, and has dramatically reduced state spending on welfare and related programs.
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. Finally, the availability of federal and state funds indicates that there is unprecedented opportunity to meet the needs of Maryland's lowest income families with children.
First, I will focus in the availability of funds. I will close by introducing some of the ideas for assisting low-income families that will appear in our paper.
How Federal and State Governments Share the Costs of Reform
The federal welfare reform law that passed in August 1996 is well-known for its five-year time-limit on the receipt of federal assistance. However, the most significant changes that resulted from the law were the heightened level of state flexibility in designing and implementing programs, and the new way that assistance for low-income families would be paid for.
Under prior federal law, the costs of state cash assistance programs for needy families with children were shared between the state and federal governments. Under a formula, the federal government provided a dollar for dollar match of all Maryland spending on welfare and related programs; if total spending increased by a million dollars, then federal spending would increase by half that amount, or by $500,000.
Similar matching programs existed for other aspects of state welfare programs. The amount of federal spending on job training or administrative costs depended on the level of state spending.
As you know, the 1996 federal welfare law changed the way that welfare programs were financed. Under the new law, the federal government provides each state with a fixed amount of funds, which the state can use for welfare and related programs. Maryland receives $229.1 million for each fiscal year from 1997 through 2002. While there is no longer a matching requirement, the state must continue to contribute at least 75 percent of "historical state spending" on welfare and related programs to avoid federal penalties. This minimum level of state spending was enacted to prevent states from dramatically cutting state spending and relying on only federal funds to finance welfare programs.
The federal law allows state to carryover unspent federal funds. As a result, any amount of the federal block grant that is not used by a state can be saved and spent in a future year.
How Much Money is Available for Maryland's Welfare Program?
Maryland, like many states, has not spent all of its federal TANF block grant funds. Maryland's surplus of unspent funds is substantial. According to federal data, as of March 31, 1999, Maryland had $129.9 million in unspent federal funds.(1) This surplus amounts to one quarter of the federal block grant funds made available to Maryland for the two and a half years since the program was created.
In addition to the surplus of federal funds, substantial state savings have been realized in recent years. Maryland's "historical state spending" on welfare and related programs-calculated as the amount of state spending in federal fiscal year 1994-is $236 million. As noted, federal law requires states to continue to spend at least 75 percent of historic levels. Thus, Maryland must spend $177 million dollar per year to avoid federal penalties.
Maryland has taken advantage of this provision allowing for reduced spending. In fact, the Maryland Department of Legislative Services projected that welfare spending would fall approximately $30 million below minimum spending targets, meaning that state spending on welfare and related programs would be more than $90 million per year below historic spending levels.
To avoid federal penalties, the state will likely take advantage of federal regulations that allow spending outside of the welfare system to count as state spending on welfare. For example, the Department of Human Resources plans to count the state's refundable earned income credit as welfare spending for the purpose of meeting the minimum spending requirements. Thus, while the state will continue to meet its minimum spending requirements, it is doing so by counting spending in other areas. As a result, despite the federal requirements, Maryland's reduction in welfare spending may continue to approach or exceed $90 million per year.
The continued flow of the annual federal block grant of $229.1 million, combined with the $129.9 million surplus of unspent federal funds and $177 million of required state spending, creates a unique opportunity to invest in the well-being of Maryland's poorest families, including those who are working or who are not within the current welfare system. Further, it allows the state to intensify efforts to assist recipients who may be harder to employ.
Options for Using Welfare Funds
A forthcoming report from the Institute will outline several practical ideas for using available welfare funds to assist low-income families with children. In some instances, options simply reverse cost-saving measures that the state selected when the impacts of welfare reform and fixed federal funding were uncertain. Now that caseloads have declined and the state has a surplus of state and federal funds, the state could consider changing some of the cost-saving policies.
The policy alternatives focus on approaches to enhance economic well-being and strengthen the safety net. Past objections to increasing benefits are muted by the new work-focused, time-limited approach to cash assistance. One function of lower benefits in the past was that inadequate benefits deterred people from entering the system. However, as the program has transitioned to a temporary support, work requirements and time limits provide an opportunity to improve benefit adequacy.
In every case, the policy options presented can be implemented at little or no cost to the state. The entire cost of program enhancements could be financed from available federal funds. In a few cases, modest state costs could be incurred. These would be limited to costs incurred in the Medicaid program related to adult eligibility. No children would become newly eligible for Medicaid, as they are already covered under the state's Child Health Insurance program.
Policy options in the report are categorized by proposals that support work, proposals that focus on child support, and proposals that increase cash benefits. The list is not intended to be exhaustive. Rather, it can stimulate thought about creative ideas to improve the economic well-being of very low income families.
Before I discuss any specific points, I'd like to make a couple of points about areas that are underrepresented in our list of options.
First, the federal law and regulations allow us to think differently about how assistance can be provided. Traditionally, we have thought about providing cash assistance and some support services to needy families with children. Once families begin to work or otherwise stop receiving assistance, they are out of the system. While some services may have been available for them-such as continued Medicaid eligibility, in general, the "welfare system" has not attended to their needs.
The new federal law and regulations make it clear that states can provide assistance to families outside of the traditional welfare/cash assistance system. As a result, policy makers can begin to think about meeting the needs of low-income working families in new ways.
Second, there is another category that is missing from the proposals in the paper. It is apparent from recent reports in the media that many people are not accessing services for which they may be currently eligible. Food stamp participation rates appear to be falling; families may not be receiving continued health coverage when they may be eligible; and, child support services may not be helping as many families as could be assisted. Efforts to assist low-income families should consider how existing services can be made more accessible.
In the interest of time, I will talk about two of the issues that will appear in our report.
Reinstate a Child Support Pass-Through
When the federal welfare law was enacted, there was concern that the federal block grant would be inadequate to meet Maryland's needs for cash assistance and related programs. As a result, cost-saving measures were enacted. One program change was to repeal what is called the child support pass-through.
Prior to the 1996 federal welfare law, states were required to pass on to the recipient family the first $50 per month of child support collected. The remaining child support collected was kept by the state and shared with the federal government to offset the costs of cash assistance.
Under the new federal welfare law, states can continue the $50 pass-through, increase or reduce the amount, or repeal it. However, early interpretations of the federal law suggested that the costs of any child support pass-through must be borne by the state. Maryland responded by repealing the $50 pass-through, thus reducing income for families that had child support collections.
However, the new federal regulations make it possible for states to enact a child support pass-through and disregard with little or no cost to the state. Restoring or expanding the pass-through would have several advantages for TCA recipient families.
- Increased incentives to pay child support. Presently, none of the child support collected on behalf of TCA families is actually received by the family. Non-custodial parents may be less likely to pay when their payments have no bearing on the financial well-being of their children.
- Increased financial well-being of children. Repeal of the $50 pass-through meant a reduction of up to $50 per month in the incomes of TCA recipient families which had child support collections. This reduction represented a substantial portion of the monthly income. Presently, the maximum amount of monthly assistance that can be received by a family of three is $399. Allowing $50 in child support to pass-through to these families would increase monthly cash income by 12.5 percent. Allowing $100 to pass-through would increase monthly cash income by 25 percent.
- Increased equity in the TCA program. Equity is one of the core principles used in establishing assistance programs. From this perspective, families with relatively higher incomes should be better off than families with lower incomes. In the case of child support, however, TCA families that receive child support are no better off than families that do not receive child support. This is because none of the child support collected on behalf of the family is actually passed on to the family. Rather, it is kept by the state and shared with the federal government.
There are design issues to consider if policymakers decide to restore a child support pass-through. Federal law still suggests that the costs of any pass-through and disregard must be borne by the state. However, federal regulations, combined with the federal TANF surplus, create a mechanism whereby states can reinstate a pass-through with limited state costs.
There are several ways to restore a child support pass-through. The state could either establish a fixed ceiling on the amount to be passed through (such as $100 per month) or a specified percentage (such as 50 percent of child support collections). Another option would be to pass-through child support income at the same rate as the state's earned income disregard, thus achieving consistency in the treatment of income regardless of source.
In July 1999 the state collected child support on behalf of approximately 3200 TCA cases. The cost of passing through and disregarding $100 per month of child support would be less than $4 million per year.
Provide Occasional Supplements to the Basic Benefit
Income inadequacy is an ongoing issue for families that receive cash assistance. Meeting day-to-day expenses is challenging when the maximum benefit for a family of three is $399-well-below the fair market rent level in every Maryland jurisdiction. However, the crisis of benefit inadequacy is further exacerbated by seasonal spending needs over and above daily expenses. Two months during the year stand out: August, when children need school supplies and back-to-school clothing; and December, when children need winter clothes and most families are preparing for holidays.
Under this option, the state could augment the basic benefit with a supplemental benefit. For example, the state could provide an additional $125 per child in August and December for families receiving cash assistance.
The state could provide this supplement without increasing the basic benefit, thus mitigating any concerns about increasing caseloads. As a result, providing an occasional child supplement would result in no additional state costs from Medicaid or related programs. For some families, the increased benefit would be partially offset by reductions in food stamp benefits in the months that the benefit is provided.
In May 1999 there were 62,500 child recipients. Assuming 62,500 child recipients per month, providing a twice annual $125 child supplement would cost $15.6 million. This proposal could be financed from the federal TANF surplus. Because there would be no impact on Medicaid eligibility, the child supplement could be implemented with no increase in state general fund expenditures.
Conclusion
The availability of both federal and state funds presents an opportunity to address the needs of low-income families. While there may be concerns that the state should be setting aside money for a time when caseloads may increase, it appears that there is ample funding to maintain a surplus and increase investments in low-income families. The recently published federal regulations make clear that states have unprecedented flexibility to help families both within and outside of the traditional welfare system. Hopefully our work can stimulate ideas to improve economic well-being among Maryland's most vulnerable families with children.