Welfare Special Report
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Welfare Reform 'Surplus' Is $4.7 Billion

By Judith Havemann
Washington Post Staff Writer
Tuesday, September 8, 1998; Page A2

Welfare reform has generated a $4.7 billion windfall for the states, handing governors an unexpected pile of cash that some have begun to divert to new priorities such as education and tax relief, while others have stored it for rainy days, according to a new federal study.

The money results from the swift, steep declines in the nation's public assistance rolls since the reforms took effect two years ago. Under the new system, states get a fixed amount of federal money no matter how many people they have on welfare, so those with the sharpest drops are awash in cash.

The fate of this "surplus" has been one of the mysteries of welfare reform, a question newly answered, to a degree, by Congress's accounting arm, the General Accounting Office, in a report to be released today.

The answer is varied.

Many states, half of the 10 surveyed intensively, used their additional funds to beef up their welfare programs. Others added new welfare services they did not have before welfare reform, and also augmented the state's general fund with money for other uses.

And some appeared to be saving the money, either purposefully, or because they do not yet know what to do with the bonanza. Twenty-four states have left $1.7 billion of the money due them untouched in the federal treasury, carried over from quarter to quarter, but still available for the states' future welfare needs.

The existence of this money, nearly $2 billion in untapped federal funds, has created concern among some state officials that Congress would snatch the money to finance other programs, the GAO said.

Rep. E. Clay Shaw Jr. (R-Fla.) author of the welfare law, has been adamant that Congress should keep its bargain and leave the money available for welfare. He has also urged the states to save for their own future needs.

"This report provides the first official confirmation that states are saving money in their welfare accounts," Shaw said. "States are wise . . . because they will need it when, as will inevitably happen, the economy stumbles and job creation declines."

The National Governors' Association also has tried to head off any attempts to reduce the flow of welfare dollars. The governors and the Congress had a deal, the association has said in letters and news releases on Capitol Hill. The governors agreed to take over welfare, help balance the federal budget, and accept a fixed amount of federal welfare spending over a five-year period. Any change "is a breach of that agreement," the association said.

Furthermore, states say, while there is more welfare money available relative to the number of people on the rolls, many are also spending more per recipient. They note that it takes more money to train people for work, find them jobs and help provide them transportation and day care. And many state officials say the cost of finding jobs could increase because they have already found jobs for their most employable clients, and are now facing a group that is harder to serve.

Oregon officials said the costs of placing a welfare recipient in a job increased from $1,840 in 1994 to $3,114 in 1997.

Even so, there is so much money sloshing through welfare accounts that millions can be diverted to general purposes while increasing spending on each remaining family.

The federal law prohibited states from reducing their state welfare spending by more than 25 percent. The average decrease has been 22 percent, the GAO found. But even this reduction has given states millions of dollars that can be reallocated.

Oregon reduced its share of total welfare program spending by $55.2 million, reallocating the funds to a major overhaul of the state's school financing system. Even so, the state was spending 27 percent more for each recipient than in the past.

New York cut its state-financed welfare expenditures by $344 million, freeing the funds for other state priorities, the GAO said.

California reduced its contribution by $367 million, Michigan by $42 million, and Colorado by $8.3 million.

Texas, with an overall federal welfare surplus of $362.6 million, boosted spending on employment services for poor families, but used about 40 percent of the overall figure to augment the general fund, in part, because Texas Gov. George W. Bush (R) sought $1 billion for property tax relief, according to the Texas-based Center for Public Policy Priorities.

The GAO studied 10 states intensively, and gathered information on the other 40 and the District of Columbia. The District had $417,000 unspent in April; Virginia had $12 million. Maryland was one of the states that drew down all its welfare funds and reinvested the savings from caseload reductions in helping recipients obtain jobs.

The GAO compared the total welfare funds available to states with the amounts they would have received under the nation's previous welfare program. The difference amounted to $4.7 billion.

The report highlighted another unintended consequence of the welfare overhaul. Designed as the largest transfer of authority to states in modern history, welfare reform costs the federal government more than the old system.

Washington has increased welfare spending by about 9 percent, and governors have decreased state spending by about 22 percent.

The combination leaves welfare reform, a monument to devolution, more heavily financed by the federal government than ever before.

© Copyright 1998 The Washington Post Company

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