How States Dodge Welfare Reform’s Spending Constraints

Thirty years ago last month, Congress replaced the open-ended Aid to Families with Dependent Children (AFDC) entitlement, the largest state-run, federally funded cash welfare program, with the Temporary Assistance for Needy Families (TANF) block grant.

This imposed stricter fiscal discipline on states running TANF, but Congress failed to extend similar restraints to other programs. Consequently, many states circumvented TANF’s budget constraints by shifting spending and enrollment to other, still open-ended entitlements.

Following the 1996 welfare reforms, states moved some recipients off TANF and onto the Supplemental Security Income (SSI) program. Today, state legislators are shifting costs onto federal taxpayers by exploiting eligibility loopholes in the Supplemental Nutrition Assistance Program (SNAP) and exploiting Medicaid’s waiver system to finance initiatives that are at best tangential to the delivery of health care services.

To reverse this trend, Congress should expand the 1996 TANF reforms to other welfare programs, block-grant Medicaid and SNAP to align policy choices with their associated costs, and limit federal taxpayer exposure.

AFDC’s matching-grant structure rewarded states for keeping families dependent on government assistance: federal taxpayers matched between $1 and $3.55 for every dollar states spent on AFDC benefits. A state that cut a dollar of benefits saved as little as 22 cents, and higher enrollment always brought in more federal money. The House Ways and Means Committee noted in 1996 that “despite the short welfare spells of some families, the average length of stay on [AFDC], counting repeat spells, for families enrolled at any given moment [was] 13 years.”

This article and all of us need to face one reality:

States cannot print money. States cannot borrow unlimited money. The Federal government can. That and that alone gives the Federal government the edge. Politicians will always go for the easiest route.

Especially SSI. That has to be one of the most abused and handed-out welfare programs out there. Got a hangnail?, no problem. Got a drug problem? We can pay for that, Get gonorrhea every month? Say no more, Uncle Sugar has this!

An ex-spouse of mine was a high-level official in a Midwestern state, overseeing state public health and insurance programs. She once said to me "The laws of economics have nothing to do with health care".(!)

I can still recall hearing her recount how states, by taxing nursing homes, were able to create a stream of revenue that engendered federal matching funds back to the states. She thought that the money was falling from the sky. In other words, federal money was free and of no consequence; you just gamed the system to gather and spend as much of it as possible. This is the mindset of state bureaucrats.

When Clinton said "This is the end of Welfare as we know it," he could well have said, "This is the end of Welfare as we know it, and this is being done for political communication purposes. Beneath the surface, it is being replaced by generous, refundable tax credits that refund, each year, a very large multiple of the taxes actually withheld from the taxpayer. Henceforth, the Internal Revenue Service will become the dispenser of federal welfare, disguised as tax credits."

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