Federal Welfare Windfall Frees New York Money for Other Uses

April 23, 2000. Raymond Hernandez reporting for the New York Times quotes FPI’s Frank Mauro.

In the four years since the overhaul of the nation’s welfare laws, New York has taken at least $1 billion given to it by the federal government for new antipoverty programs and used it instead to indirectly finance huge tax cuts and other programs that appeal to middle-class voters, according to government and private estimates.

The budgetary switch has been employed by other states, prompting Congress to open an investigation to determine the scope of the practice nationwide. But New York, with the nation’s second-largest welfare population, appears to be among the most aggressive states in using its federal welfare dollars to help pay for other programs it would otherwise find difficult to afford.

To date, New York has taken in roughly $6.1 billion in federal welfare funds and earmarked about $5 billion of it — there is some disagreement as to the exact figure — to finance traditional programs for the poor, like public-assistance grants. But it has spent very little of the remaining money to create programs intended to help welfare recipients make the transition to permanent employment, as proponents of the new federal welfare law had intended.

Instead, the state used that money, as much as $1.3 billion by some estimates, for welfare programs that the state and local governments once financed themselves. That has freed up an unprecedented amount of state money that has been used to help pay for politically popular programs, from a host of new tax cuts to fiscal relief for cash-strapped local governments.

The situation represents a missed opportunity, say advocates for the poor, who have been urging the state to invest its welfare money in the kinds of innovative antipoverty programs envisioned by proponents of the welfare overhaul, including intensified casework, job placement and state-subsidized employment.

There is nothing illegal about supplanting state expenditures with federal welfare dollars, provided the states meet minimum spending levels outlined in the 1996 federal welfare law. In New York’s case, that totals about $1.7 billion a year, or 75 percent of its average welfare expenditure in 1994 and 1995. The state is spending that amount, and state officials insist that it is more than sufficient to meet the needs of the poor.

But the problem, as members of Congress have pointed out, is that states that use federal funds to free up their own welfare money run the risk of having federal lawmakers conclude that they do not need as much aid as they are now getting.

Advocates for the poor say their concern has also been heightened because the 1996 federal law that reshaped the nation’s welfare system limits recipients to no more than five years of benefits. That means that tens of thousands of recipients face the prospect of exhausting their eligibility for public-assistance benefits as early as next year.

The looming deadline comes as New York confronts a welfare population that is perhaps the most deeply mired in dependency the state has ever had. The state’s own figures show that nearly half its welfare recipients have been on the rolls for five years or more, raising serious questions about how the state intends to nudge them into self-sufficiency.

But there are other problems that may result from the way New York and other states have spent their federal welfare grants. The situation will almost certainly strengthen the hand of Republicans in Congress who want to cut the welfare block grant that states receive from Washington when that grant comes up for re-authorization in two years.

In Congress, members of both parties have sharply questioned the way states spend their welfare money, focusing on whether it has been used for the intended purpose of helping poor families. In fact, the General Accounting Office, the investigative arm of Congress, is looking into whether states are using the welfare money from Washington to replace money the states now spend on antipoverty programs.

Roberto Ramirez, the chairman of the New York State Assembly Committee on Social Services, expressed alarm over how New York was spending its money.

“What the state is doing here is subsidizing other areas of government at the expense of welfare recipients,” said Mr. Ramirez, a Democrat from New York City, where the bulk of the state’s welfare population resides. “My concern is that we are sending a message to Washington that we don’t need all this money to deal with our welfare population. We are being penny-wise and pound-foolish.”

The 1996 welfare overhaul ended the decades-old role that the federal government played in providing states with money to help every poor family on the welfare rolls. Instead, the new law gave states block grants that would remain fixed for five years, no matter how many welfare recipients the states had. In return, the states gained new flexibility to run welfare programs as they saw fit.

But in an unexpected twist, the states have wound up with far more federal welfare money than they would have under the old system. That is because the welfare rolls nationwide have dropped steeply while federal financing remains fixed.

In many instances, poverty experts say, states have used the extra money in their treasuries not only to provide traditional welfare grants but also to expand job training, child care and other services.

But at the same time, a number of states like New York have used the federal welfare windfall, as it is commonly known, to pay for existing programs that they once financed themselves. In effect, the budgetary switch frees state and local money, but does not result in any new services for the poor.

It is that practice that is a source of growing scrutiny among lawmakers in Washington, as well as advocates for the poor. In a recent letter to governors, Representative Nancy L. Johnson of Connecticut, the chairwoman of the House Ways and Means Committee’s Subcommittee on Human Services, warned against replacing existing state expenditures with federal welfare dollars, saying that it would lead Congress into “assuming we have provided states with too much money.”

In Connecticut, for example, officials have apparently used $48 million over two years to replace money the state once spent on social services, according to a report by the Center on Budget and Policy Priorities, a liberal-leaning research organization in Washington. In Minnesota, state leaders have apparently earmarked $100 million in federal welfare money to pay for programs that the state once paid for itself, the report found.

The report also noted similar practices in Texas, where $162 million in federal welfare dollars has evidently been used to free up state money, and in Michigan, where $120 million of the state’s federal welfare grant has been set aside to replace previous state spending on social services.

Here in New York, the administration of Gov. George E. Pataki, a Republican, acknowledges that using federal money to pay for programs that the state used to support has freed up $1 billion in state and local money — money that could be used for school aid, tax cuts or any other state budget priority. Officials at the State Senate and some independent analysts contend that the figure is closer to $1.3 billion.

Whatever the figure, the practice has alarmed Democratic lawmakers and advocates for the poor. Frank Mauro, the executive director of the Fiscal Policy Institute, a nonprofit liberal group in Albany, said it could lead Congress to cut welfare financing to the state when the welfare program comes up for review in two years. “That is a major concern,” he said. “The bottom line is this could end up hurting the state in terms of what its welfare grant will be.”

But state officials defend the practice, saying that the state continues to spend about $1.7 billion annually from its own coffers to provide benefits and services to welfare recipients. In all, they say, the state has spent $10.4 billion on the poor since the 1996 federal welfare overhaul, pumping money not only into traditional public-assistance grants but also into new programs intended to help recipients make a permanent transition into employment.

“There are only two groups of individuals who think that $10 billion is not a lot of money,” said John Madden, a spokesman for the state’s Office of Temporary and Disability Assistance. “One is federal bureaucrats, and the other is advocates for the failed welfare system.”


Inside the New State Budget: A Welfare Slush Fund

April 17, 2000. An update from City Limits Weekly (No. 224), New York’s urban affairs news magazine. Reported by Annia Ciezadlo.

Add a new one to the list of behavioral changes wrought by welfare reform: the TANF land grab. Since the old welfare program was replaced with the more flexible Temporary Assistance to Needy Families block grant in 1997, and since declining welfare rolls have left a hefty surplus of unspent funds, states have been using this cash much more creatively-including using the money to pay for programs traditionally funded by state government rather than putting it in welfare recipients’ pockets.

According to an analysis from the budget watchdog group Fiscal Policy Institute, New York State plans to use $591 million of its extra TANF cash next year to fund programs formerly paid for through state tax revenues or other sources. (The state’s total TANF surplus is about $1.6 billion.)

“It’s a money-laundering scheme,” said Michael Kink, legislative counsel for the housing and social services provider Housing Works. It’s a zero-sum game: Although the extra TANF cash does get slated for programs for poor and low-income New Yorkers, lawmakers spirit away the state money it supplants, choosing instead to give out generous tax breaks. Poor people don’t reap the benefits of this whopping surplus.

The money pays for everything from big tax breaks for the working class ($174 million) to a tiny dollop for studies of welfare reform (half a million). One project that welfare advocates welcome is a $3 million Transitional Opportunities program to help people in the process of leaving welfare.

TANF will also underwrite almost $18 million worth of pregnancy prevention programs, as well as a controversial $4 million school attendance program that docks welfare recipients with truant children. That program, called Learnfare, was originally supposed to sunset this summer.

Most controversial is a plan to use up to $109 million for “recruitment and retention” of human services workers: specifically, wage subsidies for health care aides, hospital workers, foster care and mental health workers.

The state’s Catholic Conference circulated a letter last week slamming the proposal as a misuse of TANF funds. “If needy families need money or need food, that’s what the TANF money should be used for,” said the Catholic Conference’s Rick Hinshaw.

Ultimately, advocates say that although many of the TANF-funded programs provide sorely needed help for poor people, there may simply be too many of them. “The bottom line for TANF is that lots of constituencies get their own little favorite programs,” said Karen Schimke of the State Communities Aid Association. “Then, the state agencies have to administer a whole slew of little bitty programs, and everybody wonders why it’s so difficult to get money out. It’s too sliced up.”

Catholic Conference opposes TANF ‘raid’

April 12, 2000. A story by Jamie D. Gilkey in the Troy Record.

In the midst of efforts to reach a final deal on the state budget, opposition grew Tuesday to a proposal that would use more than $100 million originally intended to aid poor families to supplement the wages of health care workers.

Among the new critics of the plan is the New York State Catholic Conference, which The Record has learned sent a letter to all state legislators opposing the state Senate backed proposal.

“The Bishops of New York state support genuine welfare reform that strengthens families, encourages productive work and protects vulnerable children — born and unborn,” said John Kerry, the executive director of the group.

“We believe that government must be careful not to use reform merely as a means of reducing aid,” Kerry said.

The open opposition of the Catholic Conference, which represents church leaders from throughout the state, is not the only front on which critics are challenging what they have labeled a “raid” on surplus funds in the state’s Temporary Assistance to Needy Families program.

As part of an increasingly intense lobbying campaign on the issue, the Fiscal Policy Institute distributed a letter from the chair of a congressional committee criticizing the use of welfare money for purposes other supporting low income families.

“In short, those remaining on the rolls need more services and more assistance to enter employment and succeed than those who have been placed thus far,” said Representative Nancy Johnson (R-Conn.), the chair of the House Ways and Means Subcommittee on Human Resources.

“States should be doing everything possible to be certain these more disadvantaged parents get the help they need to achieve independence,” Johnson said.

The Senate initially proposed the use of $165 million in funds from the more than $1.66 billion surplus that was expected to accumulate in the Temporary Assistance to Needy Families program by years end.

First reported in Monday’s edition of The Record, that proposal has been reduced to $109 million item, according to sources familiar with it. The money would go to those who work for non-profit health care agencies in the form of signing and longevity bonuses.

Many health care workers have not seen a raise in years and industry officials say that the average starting salary is currently just $16,300.

The budget conference committee that was established to address the state’s mental hygiene needs has already approved a 1.5 percent raise for mental health workers employed by non-profit agencies. That leaves those workers making a starting salary of just $16,544.50 and omits any raises for other health care staff.

Often identified as being more supportive of the state’s poor families, the Assembly has offered few comments on the Senate’s plan.

“The Assembly is advocating for COLA’s for health and human service workers,” said Paul Webster, a spokesman for the Assembly. “In addition, we recognize the need for the training and retaining of these workers.”

“TANF (money) is a possible avenue to achieve these goals,” Webster said.

The state Division of the Budget was also cautious about the proposal. “We’ll be looking at the specifics of TANF proposals to see that they fit within TANF guidelines and within the context of an overall balanced budget,” said DOB spokesman Joseph Conway.

Critics call plan ‘raid’

April 11, 2000. A story by Jamie D. Gilkey in the Troy Record. FPI’s Frank Mauro is quoted.

With state budget negotiations making rapid headway towards a final agreement, a proposal that initially would have diverted $165 million from a fund meant to help welfare recipients is running into resistance from a scattered group of health care and community activists, according to information obtained by The Record.

Sources  say that negotiators for the state Senate presented a scaled-down version of the plan during an initial round of budget meetings last week.

That smaller plan would use $109 million from the state’s surplus in the Temporary Assistance to Needy Families program to spur the recruitment of health care workers. The surplus is expected to reach more than $1.6 billion by year’s end and stems from the dramatic decline in welfare rolls during recent years.

However, the spending is still being labeled a “raid” on TANF money by critics calling for those funds to be used solely to benefit families on the state’s welfare rolls. The TANF program replaced more traditional welfare efforts in 1997 and remains the state’s primary program for serving the poor.

Pointing to the need for additional job training and child care slots, the critics have sought to “form a broad coalition based on moral principles, but have run into difficulties in making their case,” one source familiar with the effort told The Record.

Groups opposing the Senate’s plan, including New York City-based Housing Works, want TANF money to be used exclusively to help the “hard to serve poor,” including the mentally ill, people infected with AIDS/HIV, and low- income victims of domestic violence.

Explaining the Senate’s position as an effort “to encourage the transition from welfare to work,” Mark Hansen, a spokesman for Senate Majority Leader Joseph Bruno, R-Brunswick, said their proposal “fits within the guidelines governing the TANF program.

“The governor proposed used $50 million of that (the TANF surplus) to recruit health care workers,” said Hansen.

“The Senate has expanded on the governor’s proposal and increased that amount … to recruit entry level workers in the fields of home care, hospital workers, nursing homes, mental health and foster care,” Hansen said. “This money will also be available to assist in the retention of health care workers in those fields.”

Separate from the use of TANF dollars, Hansen confirmed that budget negotiators are discussing using other funds to provide a 2 percent raise in the base salaries of health care workers who staff local non-profit agencies — bringing starting salaries to those in the mental health field to $16,626. Currently, starting salaries average just $16,300 a year.

While not commenting specifically on the ongoing budget talks, a recent report by the Fiscal Policy Institute pointed out that the more than $1.6 billion surplus in TANF funds expected to be accumulated by the end of this fiscal year “provide(s) New York state with a once-in-a-lifetime opportunity to fight poverty and lift poor families towards independence and self-support.”

The Senate’s plan to use a chunk of that surplus for health care workers could lead to signing and longevity bonuses for agency staffers. It was formally included last week on the agenda of the Human Services and Labor Budget Conference Committee that is hashing-out the final details of a deal covering the social services portion of the state budget, The Record has learned.

When asked about the issue, one key advocate, Joseph Glazer, president of the Mental Health Association of New York State summarized the issue as one pitting long overdue staff raises against other crucial considerations.

“There is no question that direct care workers are underpaid across the board,” said Glazer. “The question is whether or not this is the proper solution or even a solution.”

Head of Congressional welfare reform panel tells all 50 Governors it’s essential that states use their TANF resources and use them wisely

Early in 1999, U.S. Representative Nancy L. Johnson (R-CT), chair of the House Ways and Means Subcommittee on Human Resources, which has jurisdiction over TANF, sent a letter to the governors of all 50 states urging them to spend more of their TANF funds or risk having Congress take some portion back. This warning was made more concrete by several congressional attempts later in 1999 to rescind some unspent TANF funds. Fortunately, from the perspective of the states and from the perspective of those who are interested in seeing the states use the resources and flexibility available to them under TANF in ways that are effective in both helping people move from welfare to true self-sufficiency and in assisting those with significant barriers to employment, none of these attempts were successful. This outcome was due in large part to the efforts of Congresswoman Johnson and others who continue to take a big-picture, long-term view of the challenges involved in making welfare reform work over time, in both good times and bad.

In March 2000, Representative Johnson sent another letter to the governors, noting that progress had been made in increasing the use of TANF funds but again suggesting that future TANF funding would be safeguarded only if states continue to make efforts to spend the funds they are now receiving, and to spend those funds wisely and in accordance with the true objectives of welfare reform.

These letters from Representative Johnson are extremely important since she is the key Congressperson on TANF issues. In this context, it is important to note that her March 2000 letter clearly warns states against using TANF to supplant state funds. The letter notes that supplantation is allowed under the law but that it goes against Congressional intent. The letter also makes clear that Congress will look unfavorably on states that have committed such abuses when the reauthorization of TANF comes before the Congress in 2001 and 2002.

Representative Johnson’s advice on this point, as contained in her March 2000 letter, is as follows:

In reviewing these and similar investments for your own state, I hope you will be careful to avoid supplanting TANF funds. By supplantation, I mean replacing state dollars with TANF dollars on activities that are legal uses of TANF funding. Supplantation, of course, is perfectly legal under the TANF statute. However, if the savings from supplanted federal funds are used for purposes other than those specified in the TANF legislation, Congress will react by assuming that we have provided states with too much money. As the reauthorization of the TANF legislation in 2002 approaches, it would be a shame if a few states followed the suggestions of their budget officials and replaced state dollars with TANF dollars in order to provide tax cuts, build roads or bridges, or in general use funds for non-TANF purposes. It has become increasingly clear that the media, child advocates, Congressional committees, and, at my request, the General Accounting Office, are watching to see if states supplant TANF funds. Thus, it is likely that jurisdictions that do so will become widely known and criticized. Equally important, these jurisdictions could provoke Congress to take actions that would hold serious consequences for every state.

One of the most interesting and useful insights in the CBPP report is that states that spend less of their TANF funds are likely to be hurt more by rescissions or by new funding formulas than those who spend more.

States that avoid spending their full TANF allocation for fear of future congressional cutbacks may be creating a self-fulfilling prophecy. All of the 1999 congressional proposals to rescind TANF funds would have distributed the cuts based on each state=s share of total unobligated balances for all states. Thus, states that had left substantial amounts of TANF unspent would have faced deep cuts, while states that had spent or transferred all of their TANF funds would not have had funding reduced. In other words, the more a state=s unspent TANF balance continues to grow because annual spending remains below the annual allocation, the greater the likelihood that the state=s TANF funds will be reduced in future congressional action.

For additional information on New York’s use of its TANF resources, see the following reports on the Fiscal Policy Institute’s website (www.fiscalpolicy.org): Improving New York State’s Utilization of Its TANF Block Grant and Related “Maintenance of Effort” Resources, and Programs and Services Funded by Family Assistance Resources. Both reports are based on testimony that the Fiscal Policy Institute and Housing Works presented at the Human Services budget hearing conducted by the Senate Finance and Assembly Ways and Means Committees on Februrary 9, 2000.


* Supplantation is the term being used in Congress to describe the practice of state’s using federal TANF funds to replace some or all of the state funds that had gone to one or more existing programs that are now eligible for TANF funding, thus generating “savings” that help the state to accommodate the impact on its budget of revenue reductions or expenditure increases in areas unrelated to TANF’s purpose of assisting needy families.

Housing Affordability in Westchester County

April 4, 2000. Affidavit filed by Trudi Renwick, FPI Senior Economist.

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