States Pay Big Tabs To Reform Welfare

Reduced caseloads could save money later

Reform welfare, save money.

That has long been one of the principal assumptions behind Washington's push to overhaul the nation's welfare system - in addition to helping to free people from federal dependency.

But beyond the capital, in states where welfare reform is no longer a debate but a vigorous experiment, officials from Florida to California are spending more - perhaps millions more - than many voters expected.

State officials remain optimistic that freedom from federal control will eventually lead to smaller welfare expenditures. But they know that savings won't come from increased bureaucratic efficiency alone - and that the up-front money being spent makes welfare reform a substantial risk. "Caseload reductions are critical," says Jean Rogers, Wisconsin's chief social economist.

Critics, meanwhile, worry that too much focus on the balance sheet could undermine the effectiveness of the new programs or lead to costly problems elsewhere in the social safety net.

Saving money through welfare reform hinges on a complex equation of factors, they warn, only some of which can be controlled. "Getting people to work costs more than a check," says Judith Gueron, president of the New-York based Manpower Demonstration Research Corporation. "Welfare reform has been sold as a way to save money. That's the tragedy of the current debate. The idea that everything has to break even is dangerous."

Consider the cost equation of welfare reform in Florida. Using an approach shared by several states, Florida's experimental program requires recipients to sign contracts before getting assistance. In exchange for benefits, people in the program must adhere to certain work and education requirements. The purpose is to make welfare transitory. Rather than writing poor people monthly checks, the program attempts to give them the skills they need to survive in the workplace.

That's not a cheap proposition. To raise the probability of success, the state provides extended transitional child-care and Medicaid benefits, and allows recipients to earn more on the job. Under previous plans, benefits were scaled back for those recipients who found work in proportion to what they earned. The new program also requires intensive individual case management.

Don Winstead, Florida's director of welfare reform, estimates the reforms are costing about $3.5 million more per county per year. The program is up and running in only nine counties, however, but not in Dade County, anchored by Miami, the state's largest welfare market.

The same investment scenario can be found in almost every state. Pennsylvania, for example, is spending $85 million more each year on child care and job training and placement. Wisconsin will spend $158 million on child care alone during the first year of its new program, Wisconsin Works, if the Clinton administration grants the state a special waiver. At the same time, all states face the prospect of less federal welfare money if Congress passes, and Clinton signs, a new law.

The fiscal burden of these new reforms is apparent. Florida budgeted about $34 million last year for welfare, but Mr. Winstead doesn't expect the state legislature to earmark much more than that in the future. "When we started, the legislature was receptive to the concept that it was important that those [recipients] involved in the program need an intensive array of program support," he says. "But the reality of expanding is that we're not likely to get additional funding."

The combination of high start-up costs, fewer federal dollars, and the public's appetite for savings places a premium on cost recovery. State officials are optimistic that, given the freedom from federal control of welfare, they can do more with less. But flexibility alone won't balance the equation.

Work-based reforms work on the premise that costs will decrease over time as more recipients move into the work force. To this end, several states have imposed limits on the amount of time people can be enrolled. Wisconsin illustrates the kind of projections states make.

If granted a federal waiver to implement its full-scale program, under which every able-bodied recipient would be required to work, Wisconsin estimates that its welfare costs will rise from $997 million in 1997 to $1.3 billion in 1999, but will then fall to $987 million by 2002 and flatten thereafter. This assumes enough recipients will transfer into the work force to offset such costs as: creating thousand of public-sector jobs for those who can't find private ones, increased child care and medical services, and child-support enforcement. Such factors as a sharp rise in unemployment (Wisconsin's is a mere 3.7 percent now) could throw the equation seriously out of balance.

Critics worry that if Congress removes the entitlement status of welfare and provides less money, not all states will have the resources to invest sufficiently or over a sustained period of time. But Gov. Tommy Thompson of Wisconsin, who has overseen a 33 percent drop in the case load since 1986, is optimistic: "If you can get rid of the straitjacket from Washington, you can invest money that you have to comply with rules and regulations in Washington and put it in day care."

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