Creating a Countercyclical Welfare System

July 23, 2012 | The American Prospect |  Link to article

Welfare systems exist to reduce the worst excesses of poverty. When poverty increases during recessions, the welfare state is supposed to rush into countercyclical action, providing a firewall against a growth in destitution.

That's the theory, anyway. In practice, it's never been the case. In recent years in particular, the American welfare system has increasingly shed itself of this key obligation.

In 1996, Aid to Families with Dependent Children (AFDC)-the welfare system established in 1935 as part of the Social Security Act-was scrapped in favor of a more limited system, Temporary Assistance for Needy Families (TANF). But in the Great Recession that began in 2008, TANF has proved a total disaster. Unemployment doubled in many states, but in most of them, the number of TANF enrollees either increased only marginally or decreased.

It wasn't always that way. "AFDC used to be countercyclical," says economist James Ziliak of the University of Kentucky's Center for Poverty Research. The program expanded automatically when the number of eligible recipients swelled during recessions. TANF, by contrast, was designed so that it couldn't expand unless Congress specifically voted it more funds.

In fact, enrollee numbers have been decreasing since TANF was enacted. That's hardly a surprise; to a large extent, reducing rolls was the primary purpose of the reform. The severity of the means tests, work requirements, and other conditions some states impose, such as drug tests, has reduced the applicant and beneficiary pools. At the same time, the value of the TANF benefits for those who do manage to access them has declined.

"In 1994-95, for every 100 families with children in poverty, the AFDC program served 75 families," researchers from the Center on Budget and Policy Priorities concluded last September. "In 2008-09, only 28 families with children participated in TANF for every 100 families in poverty." In Arkansas, that number was a mere 9 percent by the end of 2009; in Mississippi, 12 percent; in Alabama, 15 percent.

Moreover, throughout most of the South, benefit levels declined to one-fifth to one-tenth of the poverty line. In Mississippi, that meant that a family of four was averaging less than $200 a month in benefits. The decline in benefits isn't, however, limited to the South. In all but two states, benefit levels today are below what they were in 1996 (and by 1996, most states had already been cutting the real value of their welfare benefits for a quarter-century), and in no state in the country does the maximum TANF benefit get a family above 50 percent of the federally defined poverty line.

The welfare state in America developed in fits and starts throughout the 20th century. While some states had experimented with unemployment insurance after World War I, national unemployment insurance, Social Security, disability insurance, and Aid to Families with Dependent Children were all legislated into being in 1935 as keystones of the New Deal. Food stamps emerged as a pilot program during John Kennedy's administration, which was dramatically expanded under Lyndon Johnson and Richard Nixon. Similarly, Medicaid and Medicare are creations of the Great Society years. Nutritional programs such as school breakfasts and lunches as well as the Women, Infants, and Children program took off in the 1960s and 1970s. Subsidized housing for the poor, either through vouchers or the building of public housing, emerged in a series of legislative bursts from 1937 onward.

Taken as a whole, the responsibility for America's welfare system has been juggled uneasily between the federal government and the states. This patchwork-quilt system has never been perfect, but in the post-2008 milieu, and especially in the budget-cutting environment prevailing after the 2010 midterms, it signally failed to reach its targeted population. Obama's administration has done a good job of protecting what remains of the safety net for those who lost jobs in the recession, people who might be termed the "temporary poor." It's been far less adept, though, at protecting both the long-term poor and the poorest of the poor from budget cuts.

From the 1930s through the mid-1990s, the central cash component of America's welfare system was the federal aid distributed through AFDC. In 1996, however, under pressure from Congress to slash welfare, President Bill Clinton pushed for reform. AFDC was replaced with a block grant to the states, and women's ability to access welfare was limited. Thereafter TANF would be the norm-aid would be tied to the search for work, it would be strictly time-limited, and how it was distributed would be largely left to the discretion of states. Not surprisingly, welfare enrollment plummeted.

Out of the gate, this was touted as a grand success: A booming economy meant that rolls could fall and, at the same time, the nation's poverty rate could also decline. But from the get-go, critics worried that in a prolonged downturn, the poor would be hit hardest, as states raided TANF funds to make up for budget shortfalls and as soaring need levels and increasingly scarce work opportunities pushed more families into poverty.

That's exactly what happened. And while AFDC would have increased funding in every state during the recession, TANF didn't provide much new funding and left it to the states to decide what to do with it. During the crisis that followed the 2008 collapse, there was a $2 billion federal contingency fund that states with unemployment at 2 percent or more above the national average could access. They didn't have to, though, and so many didn't. Congress added $5 billion to the fund as a part of the American Recovery and Reinvestment Act, but that has now gone, too. In June 2011, the Center on Budget and Policy Priorities reported that "no additional resources are available from the federal government for the first time since TANF's creation in 1996, despite today's hard economic times." To counter this, the center proposed that states receive additional TANF funds as soon as they reach an unemployment rate of 6.5 percent or more and that they have to spend those extra dollars on helping more people rather than simply replenishing their existing funds.

"Here we are, worst recession of our lives, and we didn't suspend the lifetime limit or exempt households who've met the lifetime limit," says Jessica Bartholow of the Western Center on Law and Poverty. Worse, many states decreased the number of months a woman could access welfare. California, for example, took it from 60 months to 48, and during budget negotiations in late 2011, Governor Jerry Brown tried (and failed) to reduce it still further, to 24 months. The governor's just-released "May Revise" has reintroduced the call for a 24-month time limit as a stopgap plug for the yawning budget deficit.

How could TANF be made more responsive to downturns? By bulking up federal aid to the states, by replacing the block-grant system with a nationally mandated eligibility system akin to Medicaid enrollment, and by automatically suspending lifetime limits during economic downturns that last beyond a certain number of months. How much would it cost to boost TANF rolls by 50 percent? Elizabeth Lower-Basch, senior policy analyst at the D.C.-based Center for Law and Social Policy, believes that it would be somewhere between $5 billion and $7 billion, less than 1 percent of the financial industry's bailout following the 2008 meltdown.

Absent TANF reform, the central countercyclical institution propping up the welfare system these days is the Supplemental Nutrition Assistance Program, or SNAP (colloquially known as food stamps), which is used by about 46 million Americans. These men, women, and children receive a monthly average of $133.85 per person and $284 per family in food assistance.

Because SNAP is available to anybody below a certain income threshold, it ends up being used in recessions by far more people than can access TANF or general cash-assistance programs. Food stamps are available to people with a gross income of 134 percent (and in some states 200 percent) of the poverty level, but to access them, net income, after housing and health-care costs have been deducted, cannot exceed 100 percent of the poverty line. Even then, the benefits available are meager. To access a high level of benefits, you have to be at about 50 percent of the poverty line. In other words, tens of millions of families qualify for some food assistance, but for many of these families the assistance is inadequate.

Raising the food-stamp aid thresholds and letting benefits kick in for the working poor as well as the very poor would instantly make the plan more countercyclical, better compensating for lost earnings as hours worked and hourly wages decline.

Additionally, there are glaring holes that need to be fixed in the system: During normal economic times, able-bodied adults can access food stamps only if they prove that they are actively looking for work. This provision can be suspended regionally when local unemployment rises a certain amount above the national average. In 2009, recognizing the severity of the need and the unavailability of jobs, the authors of the American Recovery and Reinvestment Act suspended this requirement for most recipients of SNAP nationwide. Yet two groups weren't exempted from the requirement. The first was students. A working-class student enrolling in college to better her skills, say, after being laid off would still have to work 80 hours a month to get food stamps. If she couldn't find work, she'd lose her benefits. If she dropped out of college, however, she'd qualify even without finding work. It's a catch-22 poverty trap.

The second group was made up of those on TANF, whose food stamps were tied to their welfare checks, which in turn were only available to those in a welfare-to-work program. In New York City, welfare recipients, even at the height of the recession, had to work for their welfare and food stamps, while others could access food stamps simply by proving their newfound poverty. It's a double whammy for the poorest of the population. In 2012, in California alone, according to Bartholow, of the Western Center on Law and Poverty, 72,000 adults were losing food stamps because they couldn't find jobs. While the Obama administration had waived most work requirements for food-stamp recipients during the recession, it never lifted this burden on the TANF enrollees at the bottom of the economy.

The other largely countercyclical system is Medicaid, which grants families with children access to health care once they reach a certain threshold level of poverty. But while Medicaid is a whole lot better than nothing, it is restricted by the fact that until and unless all the Affordable Care Act provisions kick in, most states won't extend Medicaid to childless adults. Furthermore, strict asset tests force those temporarily out of work or who are cash-poor to strip themselves of almost all assets (homes, car, retirement accounts, savings) to gain health care-even if this condemns them to long-term poverty. Finally, even for those who qualify, state after state is limiting the services covered by Medicaid-witness the hundreds of millions of dollars in additional Medi-Cal cuts recently proposed by Governor Brown in California-meaning more people still end up paying out of pocket, or doing without, when it comes to such services as eye care, dental work, and mental-health treatment.

Some of the reforms needed to fix the country's broken welfare-distribution mechanisms have to be implemented nationally; others, however, could be done at the substate level. Richard Parker at Harvard's Kennedy School argues that the federal government should make many of its programs available to localities as well as to states. Such programs, he says, ought to kick in automatically during either regional or national downturns, with money targeted to high-unemployment zones within states. These deprived regions could access additional funding even if their state as a whole didn't qualify-bypassing often-dysfunctional state agencies that operate in partisan political environments. It wouldn't be a cure-all, but it would be a start.

That welfare rolls and benefits were slashed during the Great Recession bodes ill for our sense of community and shared sacrifice. That we do better next time is not merely an aspiration but a national imperative.

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