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.”