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Get out your slide rules and compasses, boys and girls. We’re about to dissect the whats, the hows, and wherefores of the wonderful and wacky world of welfare reform! Please, try and contain yourselves.

Our story begins with this complaint from the Right: the White House has undone welfare reform!

According to headlines,

Obama Ends Welfare Reform As We Know It (Robert Rector and Katherine Bradley, National Review, 7/12)

Romney hits Obama move gutting welfare reform (Byron York, Washington Examiner, 7/13)

Obama administration ‘guts’ welfare reform with new HHS rule (Caroline May, The Daily Caller, 7/13)

‘Partisan Disgrace’: Obama Admin Quietly Rewrites Welfare Reform Law (Becket Adams, The Blaze, 7/13)

Obama to Clinton welfare reform: Drop dead (Jennifer Rubin, Washington Post, 7/15)

Obama Bids Farewell to Welfare Reform (Gerri Willis, Fox News, 7/17)

We also learned last week that

House and Senate Republicans introduced a bill Wednesday to prohibit the administration from implementing its latest policy … “eviscerating” planks from the 1996 bipartisan agreement on welfare reform.

Changing the law is one thing, but was it done extra-legally? According to Jennifer Rubin,

The list of laws [President Obama] won’t enforce or is unilaterally amending is getting long. …The latest and most inexplicable gambit is his decision to undo bipartisan welfare reform.

So what happened exactly? And whatever it was, was it illegal? And whether or not it’s legal, what does it mean and does it matter at all?

The implications are immense, but it was not illegal. In this article, I will first explain why the law allows President Obama’s unilateral move. I will then explain how the move undermines the much heralded welfare restrictions of 1996 and how it fits so well with White House welfare policies from the start of President Obama’s tenure.

 

THE LEGALITY OF THE PRESIDENT’S DIRECTIVE

The work requirements of Temporary Assistance for Needy Families (TANF)are at the heart of concerns coming from proponents of welfare reform. President Clinton’s 1996 signature law forced states to put at least 50% of their welfare recipients through “work activities,” and proponents believe this requirement was essential for the subsequent mass migration into the workforce of former welfare recipients during the late 1990s. These proponents are now up in arms because the recent White House memorandum (July 12) from the Department of Health and Human Services (HHS) offered states a waiver from their work requirements.

What was the stated legal justification? HHS claimed authority under §1115 of the Social Security code to waive the work requirements. But the work requirements are stated in §407, which §1115 conspicuously does not cover. However, HHS (brilliantly, in my opinion) located a loophole: it turns out §1115 does allow the waiver of §402, which itself implements the work requirements of §407.

So if HHS has authority to waive any requirements in §402, it has authority to waive the teeth out of the work requirements in §407. Here is the language giving the Secretary of HHS that very authority under §1115: “the Secretary may waive compliance with any of the requirements of section 2, 402, 454, 1002, 1402, 1602, or 1902, as the case may be, to the extent and for the period he finds necessary.”

The work requirements of §407 can therefore be legally waved. Here is how the HHS memo puts it:

Section 1115 authorizes waivers concerning section 402.  Accordingly, other provisions of the TANF statute are not waivable.  For example, the purposes of TANF are not waivable, because they are contained in section 401.  The prohibitions on assistance are not waivable, because they are contained in section 408.

While the TANF work participation requirements are contained in section 407, section 402(a)(1)(A)(iii) requires that the state plan “[e]nsure that parents and caretakers receiving assistance under the program engage in work activities in accordance with section 407.”  Thus, HHS has authority to waive compliance with this 402 requirement and authorize a state to test approaches and methods other than those set forth in section 407, including definitions of work activities and engagement, specified limitations, verification procedures, and the calculation of participation rates.

All signs indicate this move to be legal. Whether it is good policy is another question entirely.

CONSEQUENCES

In 2005, work requirements were tightened by Congress. According to Rubin, this was in response to the following findings:

the nonpartisan Government Accountability Office reported that several states listed as part of their definition of a ‘federal work activity’ under TANF the following:

  1. Bed rest
  2. Personal care activities
  3. Massage
  4. Exercise
  5. Journaling
  6. Motivational reading
  7. Smoking cessation
  8. Weight loss promotion
  9. Participating in parent teacher meetings
  10. Helping a friend or relative with household tasks and errands.

Working requirements must be present, they must be tough, and they must be enforced, so the argument goes.

But Rubin’s colleague Ezra Klein at the Washington Post protests that this recent change is nothing to be concerned about:

The stated intention is to allow states more room to try programs that promote employment for welfare recipients in the face of the recession. The actual language is rather strict and rules out a number of potential waiver applications. For example, the memo states, “The Secretary will not use her authority to allow use of TANF funds to provide assistance to individuals or families subject to the TANF prohibitions on assistance.” Translation: people who aren’t on TANF because they didn’t meet the work requirements aren’t going to get bailed out here.

This is simply disingenuous. True, the prohibitions on assistance he refers to are in §408, which are not subject to waiver. However, these prohibitions on assistance are not work requirements. If they were, then the work requirements of §407 would be superfluous. Indeed, the entire HHS memo would be an embarrassing waste of time. It is not helpful to pretend that a policy lifting work requirements will not effectively lift work requirements, without further exposition.

Klein also notes:

Proposed waivers also must include concrete methods of evaluating performance, and set standards that the new programs must meet for the waiver to continue.

To paraphrase Klein, one man’s concrete methods of evaluation is, of course, another man’s free-for-all. As noted above, the HHS memo requires things like “definitions of work activities and engagement, specified limitations, verification procedures, and the calculation of participation rates.” These requirements are further detailed at the bottom of the memo.

The implication that any of these requirements will subject the states to any substantial limit is a wild guess at best and is made with willful disregard of the mechanics of government at worst. This is especially true because the memo is just a letter — a ‘heads up’ to the states — without the force of law. In a nation governed by waivers, this kind of naïve, unquestioning analysis just won’t do.

Klein notes other potential positives of this welfare “tweak,” such as financial protection for some in need.

Assuming welfare to be a net benefit for its recipients, granted.

However, if our concern, for whatever reason, is the expanding of welfare payments at the expense of work requirements — the very concern that made welfare reform popular in the first place — the policy directive in this memo is anathema.

Make no mistake: we have just experienced an about-face of welfare reform.

WELFARE’S LATE GROWTH SPURT

If you thought this just couldn’t get any more riveting — if you thought only the first drop on a roller coaster at a Red Hot Chili Peppers concert could top this — oh, it’s going to get so much better! It’s time for some context before we cover what the Obama Administration has been doing with welfare reform since its very first days in office.

What do we mean by “welfare”? It is now a widely-known fact that net welfare entitlements have skyrocketed in recent years. An April CATO paper notes the explosion:

In 2011 the federal government spent roughly $668.2 billion on [all welfare programs]. That represents an increase of more than $193 billion since Barack Obama be­came president. This is roughly two and a half times greater than any increase over a similar time frame in U.S. history, and it means an increase in means-tested welfare spending of about 2.4 percent of GDP. If one includes state and local welfare spend­ing, government at all levels will spend more than $952 billion this year to fight poverty. To put this in perspective, the defense bud­get this year, including spending for the wars in Iraq and Afghanistan, totals $685 billion. (CATO, p.2)

The paper goes on to detail some of the loosening of eligibility requirements and reports projected costs of welfare over the coming decade:

According to Obama administration pro­jections … [b]y 2014 [combined federal and state welfare] spending is likely to equal $1 trillion per year and will total $10.3 trillion over the next 10 years. According to these projections, over the next 10 years, federal and state governments will spend $250,000 for every American currently living in pov­erty, or $1 million for every poor family of four. And that does not include spending under the Patient Protection and Affordable Care Act, which will dramatically increase the number of low-income Americans par­ticipating in Medicaid. (CATO, p.8)

The same paper details that combined federal and state welfare since LBJ’s 1964 promise to fight poverty totals nearly $15 trillion. This means the projections for the next 10 years ($10.3 trillion) equal more than 69% of the last 40 years of spending.

That’s total welfare. However, this article’s object is not total welfare, but only the single program that was reformed in 1996 and whose reform was just “gutted” by the HHS memo.

This program, the Temporary Assistance for Needy Families (TANF) is only one of 126 welfare programs. It is one of the top 10 most expensive of the programs, but it is still nowhere near as large as the top two, Medicaid and SNAP (food stamps). CATO provides us with a chart of total costs from 2011 among the most expensive programs:

And the number of recipients per program:

Obviously, TANF is by no means our greatest concern regarding unvarnished welfare spending.

To my mind, then, TANF is not itself a crisis, unless it expands astronomically. However, as the numbers in the CATO paper indicate, the entire welfare establishment of 126 programs is in crisis and any expansion in any program does contribute to the problem. Indeed, CATO details several recently-expanded programs, including TANF. This is why an eye on TANF is important, but always in conjunction with its sister programs.

WELFARE REFORM: A PREHISTORY

To understand the last three years of TANF, a short stroll through the glorious days of the 1990s will clear a few things up.

We begin with Barack Obama’s opinion of welfare reform. Here is Byron York:

when a real attempt to break through that culture of dysfunction — the landmark 1996 welfare-reform bill…— came up, Obama vowed to use all the resources at his disposal to undo it. “I made sure our new welfare system didn’t punish people by kicking them off the rolls,” he said in 1999. Two years earlier, he had declared: “We want to make sure that there is health care, child care, job training, and transportation vouchers — everything that is needed to ensure that those who need it will have support.”…

Obama’s professional colleagues, people like Jerry Kellman, believe his lasting accomplishment was to build an organization, the Developing Communities Project, that survived his departure. … It has become, much more than it was when Obama was there, a grant-getting institution; according to tax records, about three-quarters of its funding comes from government grants

To recap, TANF is the post-reform moniker of Aid to Families with Dependent Children (AFDC), which gained its unpopularity because too few strings were attached to its welfare benefits, and too many people were taking advantage of readily-available tax funds. This program was colloquially considered “welfare,” even though it is only one of many welfare programs.

And so, part of the 1996 Clinton welfare reform was the mandate that, in order for states to receive federal funding, at least half of their recipients had to be involved in some kind of “work activity” (i.e. workfare, job search, training), as defined in §407.

The states’ hands were tied to the work requirement. But if one state had 10,000 people on welfare and 5,000 dropped off the rolls because the work requirement drove them into a job, the state would still have 5,000 recipients left and would have to force half of them into work activities as well, until a de facto 100% work requirement materialized.

In order to avoid this impossible iterative regression, the 1996 reform included a “caseload reduction credit.” The 5,000 workers who left the welfare rolls would still be counted as workers toward the work requirement, and states would be rewarded for their successful efforts in moving recipients into jobs. Here is the mechanism for counting lost welfare beneficiaries:

The Secretary shall prescribe regulations for reducing the minimum participation rate otherwise required by this section for a fiscal year by the number of percentage points equal to the number of percentage points (if any) by which—

(i)     the average monthly number of families receiving assistance during the immediately preceding fiscal year * under the State program … is less than

(ii)    the average monthly number of families that received assistance under the State program referred to in clause (i) during fiscal year 1996**. [§407(b)(3)(A)]

 *amended by the 2009 Stimulus (see below)

**amended in 2005 to be “fiscal year 2005”

In short, the HHS Secretary will take the number of families on welfare in 1996, subtract the amount still on welfare in a subsequent year, and use that difference to credit the state for the number of families that have left welfare rolls.

That was the caseload reduction credit and it is generally considered to have successfully induced states to reduce their caseloads by pursuing work requirements.

RECENT EPISODES IN WELFARE “REFORM”

As mentioned above, TANF requirements were strengthened in 2005. However, the 2009 Stimulus was the first major turn-around for the program since its 1996 reform.

The Stimulus, or the American Recovery and Reinvestment Act of 2009, which was passed all the way at the start of President Obama’s term (February 17, 2009), reserved a $5 billion block grant to be used to pay 80% of the excess state TANF caseloads:

the amount of the grant to be made to a State … shall be an amount equal to 80 percent of the amount (if any) by which the total expenditures of the State for basic assistance (as defined by the Secretary) … exceeds the total expenditures of the State for such assistance [§2101(a)(1)(3)(A)(iii), p. 446]

The funding was thus tied to increased caseloads, rather than to some measure of need, like increased unemployment or level of poverty.

At the time, Robert Rector and Katherine Bradley at the Heritage Foundation made an important distinction:

Proponents of the stimulus plan might argue that these changes are necessary to help TANF weather the current recession. This is not true. Under existing TANF law, the federal government operates a TANF “contingency fund” with nearly $2 billion in funding that can be quickly funneled to states that have rising unemployment. It should be noted that the existing contingency fund ties increased financial support to states to the objective external factor of unemployment; it specifically avoids a policy of funding states for increased welfare caseloads, recognizing the perverse incentives this could entail.

If the authors of the stimulus bills merely wanted to provide states with more TANF funds in the current recession, they could have increased funding in the existing contingency fund. But they deliberately did not do this. Instead, they completely overturned the fiscal and policy foundations of welfare reform.

Either this was a major oversight by White House lawyers or they were indeed intent on undoing the structure of TANF for the express purpose of undoing the structure of TANF.

Additionally, the 80% payment is at the high end of what the federal government paid state governments for AFDC coverage, which in 1995 was anywhere from 50% to 74%. The 80% Stimulus provision was certainly a brazen step in several directions — and all before President Obama’s tenure began losing its first baby teeth.

On the other hand, there were some limitations on the Stimulus changes to TANF. The granting power for the “Emergency Fund” was subject to a 1.5-year limitation ending September 2010:

In no case may the Secretary make a grant from the Emergency Fund for a fiscal year after fiscal year 2010. [§2101(a)(1)(2)(C), p. 446]

(Fiscal years end on the October of their year so FY2010 lasts until late September 2010.)

The new granting power was also subject to the further limitation of the state’s finances: whatever is the size of its annual TANF program, the Stimulus fund cannot pay more than half of it over the course of two years:

The total amount payable to a single State … for fiscal years 2009 and 2010 combined shall not exceed 50 percent of the annual State family assistance grant. [§2101(a)(1)(5), p. 448]

I cannot find which year the “annual State family assistance grant” refers to and whether it refers to all of TANF or part of it, but we might as well stop nitpicking here and be charitable enough to allow that the temporary welfare expansion in the Stimulus was limited both by time (1.5 years) and money (50% of annual grants per state).

However, the fact remains that the Stimulus had, for the first time since 1996, incentivized the increase of caseloads, for caseloads’ sake. One thing held this shift back: the caseload reduction credit, which was so critical in incentivizing the states to lessen their caseloads back in 1996. The question here was, if caseloads expanded in response to the Stimulus’ 80% federal welfare bonus, wouldn’t the caseload reduction credit be unable to protect the states’ funding? Would not the work requirements then kick in and force funding away from the states?

The solution in the Stimulus legislation was to suspend the critical 1996 caseload requirement temporarily by throwing the following clause into §407(b)(3)(A)(i), which is asterisked above:

“(or if the immediately preceding fiscal year is fiscal year 2008, 2009, or 2010, then, at State option, during the emergency fund base year of the State with respect to the average monthly assistance caseload of the State (within the meaning of section 403(c)(9)), except that, if a State elects such option for fiscal year 2008, the emergency fund base year of the State with respect to such caseload shall be fiscal year 2007))” [§2101(b), p. 448-9]

What does this gobbledygook mean? Let’s take it one step at a time.

According to the original 1996 law, if it is currently 2009 or 2010 or 2011, the state may look to the “immediately preceding fiscal year” — 2008, 2009, 2010 — for their caseload data. Instead, this amendment allowed the state to forget about the “immediately preceding fiscal year,” and go back instead for their caseload data to 2007 or 2008, which is referred to as the “emergency fund base year,” as defined here:

The term “emergency fund base year” means … whichever of fiscal year 2007 or 2008 is the fiscal year in which the amount described by the category with respect to the State is the lesser. [§403(c)(9)(B)(i)]

But as it says in the previous excerpt from the Stimulus amendment, “if a State elects such option for fiscal year 2008, the emergency fund base year of the State with respect to such caseload shall be fiscal year 2007.”

The bottom line is that the Stimulus gave states the option to either stick with their current and real data points or use their 2007 (smaller) caseload data, in order to pretend that their caseloads have not increased, when, in fact, they had increased, due to the 80% Stimulus welfare bonus for increased caseloads. This was an option available during fiscal years 2009, 2010, and 2011.

Because fiscal years end on the September of their year, this program ended at the end of FY2011, or September 2011. Indeed, the caseload reporting exemption in §2101(b) was struck from the text by §2101(d)(2), which is explicitly effective October 1, 2011.

To summarize where we’ve been so far: the 80% Stimulus TANF bonus, defined by a $5 billion total block grant, was subject to a 1.5-year limit (Feb 2009 – Sept 2010) and another limit having to do with specific state welfare budgets. Meanwhile, the caseload reporting exemption we just explored lasted 2.5 years (Feb 2009 – Sept 2011).

According to HHS, all $5 billion of Stimulus bonus welfare funds were drawn down by the states within the two-year limit.

So what happened in FY2011 from October 1, 2010, to September 30, 2011? The caseload reporting exemption remained, but Stimulus funds had run out.

This is where it gets interesting. During FY2011 and our current FY2012, it appears the Obama Administration has not been able to extend the TANF bonus. According to CLASP, a policy group for low-income people,

The Temporary Assistance for Needy Families block grant program was scheduled for reauthorization in 2010. Congress, however, did not work on legislation to reauthorize the program and instead extended the TANF block grant multiple times. The most recent bill, the Middle Class Tax Relief and Job Creation Act (H.R. 3630), extends the block grant through the end of fiscal year 2012 (September 30, 2012). Previous extensions included: the Claims Resolution Act (P.L. 111-291), H.R. 2943, and a two-month extension through February 29, 2012.

[These extensions] did not include the TANF Emergency Fund, created by the American Recovery and Reinvestment Act.

CONCLUSIONS & SPECULATIONS

For a year and a half, then, the Obama Administration has not successfully extended TANF as they would like — without work requirements. The Stimulus was able to extend TANF by $5 billion over two years without work requirements, but between October 2010 and today, not only was the bonus not extended, but, with a Congress unable to pass an annual budget, it hasn’t even been easy extending even the old, boring TANF program.

This must be exceedingly frustrating for President Obama, who, as early as 1999, was waging an admirable war against welfare restrictions. He must be particularly nonplussed with the fact that between 1990 and 2008, “[e]x­penditures for every program except TANF increased in real terms.” (CATO, p.6) If one’s goal is the extension of welfare, then TANF is the single greatest welfare failure of the past two decades.

President Obama has obviously been far more successful in extending other welfare programs. His troubles with TANF are only ever more stark when compared with his success, for example, in increasing food stamps, or the Supplemental Nutrition Assistance Program (SNAP) over the course of the last three years: “enrollment [in SNAP] increased by 12 million people, while spending increased by $30 billion.” (CATO, p. 8) A record 45.8 million recipients now benefit from SNAP.

With such a juxtaposition, and in conjunction with the history thus recounted, is it really such a surprise that President Obama simply decided to unilaterally lift the TANF work requirements this month? A better question is why he waited all this time.

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