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HomeMy WebLinkAboutAgenda - 12-04-1995 - Early - Special Work Session Work Session on Welfare Reform December 4, 1995, 5:30 p.m. - 7:15 p.m. Government Services Center Purpose: To provide information about proposed policy changes in Public Assistance programs and the implications for families and children in Orange County. Agenda 1. Greetings/Introductions......................................................DSS Board 2. Profile of Recipient Population...........................................Staff 3. Overview of Major Changes...............................................Staff 4. Implications for Families and Children................................Orange County Partnership for Young Children 5. Opportunities for Service Delivery.......................................Staff 6. Next Steps/Comments.........................................................DSS Board NOTE: A light meal will be served at 5:30 p.m. Public Assistance Cases and Recipients in North Carolina and Orange County FY 1994-95 Public Assistance Cases in Orange County (6,257) AFDC Public Assistance Cases in Food Stamps 14% North Carolina 27% AFDC 116,420 Medicaid 519,900 S/CSA 19,500 * * S/CSA Food Stamps 258,300 Payments 2% Medicaid 57% Public Assistance Recipients in Orange County Public Assistance Recipients 5,000 ~ in North Carolina AFDC 307,7429 Medicaid 774,000 3,000 i 2 S/CSA 19,500 000 ' Food Stamps 618,000 1,000 { fi,S.. .. AFDC Medcaid Food * S/CSA Stamps *Assistance for Rest Home Care Aid To Families With Dependent Children In North Carolina and Orange County FY 1994-95 Average Household Size Average Monthly Recipients North Carolina 2.46 12000 Orange County 2.32 Average Payment loom Amount North Carolina $227.57 Orange County $223.36 8000 d a s Average Monthly Number Recipients soon North Carolina 307,742 z Orange County 1,990 m R 40M Average Monthly a' Number of Cases North Carolina 116,420 2000 ' Orange County 858 Average Duration of 0 ' Payments: 16 months Orange Durham Aiamance High School Graduates so% 3 70% ; High School Completion 60% " North Carolina 70% 50% Orange County 83.6 % 40% Orange County Public 30% Assistance Recipients 53 % 20% ,0% 0% N orlh Orango Public Carolina County Assistance Age Breakdown of AFDC Recipients FY 1994-95 Age of Adult Recipients 50-59 1% 30-39 38% AFDC Adults 20-29 Age Number 52% Under 20-29 333 30-39 244 40-49 56 50-59 6 60-64 1 4049 60-64 o% Age of AFDC Children 12-18 20% 12-18 245 AFDC Children Age Number 0-5 566 6-11 395 0-5 47°%° 6-11 33% Race Breakdown for Orange County FY 1994-95 Race of AFDC Recipients in Orange County Other 1 % W h ite 35 % B lack Hispanic 63 % 1 % Race of Orange County Population Black Other 16% 3% White 81% JOBS Participants in North Carolina and Orange County FY 1994-95 Percentage of JOBS Participants Orange County Active Participants 1% North Carolina 33,767 Orange County 267 Participants Entering Employment 93 North Carolina 99% Projected Work First Participants 1200 cn 1000 m 800 Z CL 600 a 400 0 200 0 FY FY FY 95 96 97 AFDC Recipient Profile I • Female • Age --43 • Children--ages l lyrs. and lyr. • AFDC began 1991 • Father absent from the home • Working part-time until December 1992 • Transportation 1983 vehicle • Enrolled in the JOBS Program February 1993 • Graduated from DTCC Associate Degree Nursing December 1994 * Employed full-time UNC-Hospital • Receiving Transitional Child Care and Medicaid • Child care assistance is $277.00 per month AFDC Recipient Profile II • Female • Age--37 • Children--ages 11 yrs., 7 yrs., 5 yrs. • Expecting another child at application • AFDC began in 1989 • Father of children incarcerated • Father released, returns to the home • Baby is born, dies shortly after birth • Mother depressed • Enrolled in the JOBS August 1993 • Substance abuse issues for father • Father connected with Mental Health, VR, and AA • Father attends ACC (HVAC) • Referral made to Child Protective Services • Mother concerned about safety • Father commits a crime returns to prison AFDC Recipient Profile III • Female • Age--23yrs. • Child--age 5 yrs. • AFDC began 1990 • Father absent from the home • Enrolled in JOBS program June 1991 • Completed high school June 1992 • Worked in JTPA summer programs • Attended DTCC--one quarter • Began working • Re-enrolled in JOBS November 1994 • Attended DTCC • Employed at LaPetite • Receiving Transitional Child Care and Medicaid • Child care assistance is $ 132.00 per month Iord l,arolina -43.4OC' Lion 01(founty aL,Jirectorl vial Servicee Guiding Principles and the Association's Positions on Welfare Reform The NC Association of County Directors of Social Services supports a welfare reform program that will help people move from welfare to work, strengthen families through work and promote personal responsibility,however we need to ensure that the program keeps children safe and fosters family stability. The following are the philosophical principles that we believe should be the basis for any welfare reform effort. • Children are our future. Investment in their safety and well-being is critical to the success of our families, our communities and the future of North Carolina. • Each citizen in need of assistance is recognized as having worth and dignity and deserves the opportunity to assume an active role toward becoming self-sufficient, self-supporting and responsible. • Receipt of assistance assumes a mutual responsibility of citizen and agency for the citizen to become self-supporting and self-sufficient. Education, training, child care and other supportive services must be provided to assure each citizen has an opportunity to become self-supporting. • Assistance programs should be time limited while the citizen is gaining the skills to become self-sufficient. • The receipt of assistance should not stigmatize the citizen, nor blame victims of economic and social adversity for problems they did not create. Honesty is presumed until otherwise proven. NCACDSS Guiding Principles and the Association's Positions on Welfare Reform 1 • Assistance program rules. i.e., AFDC, Food Stamps, Medicaid, should promote the greatest efficiency and most cost-effective methods of providing benefits to citizens in need. All programs should have uniform and consistent rules and regulations, among themselves, i.e. reserve limits, count income the same in all programs, etc. Priority should be given to simplification which would generate enormous savings to invest in families' efforts to become self-supporting and self-sufficient. • Program rules and regulations should be easily understood by the general public,policy makers, recipients and providers. Rules and regulations should be consistently applied among the programs.. Rules and regulations therefore, should be user-friendly,jargon-free, fair, equitable, simple and outcome oriented. • Program rules and regulations should recognize the importance of the family unit by encouraging families to stay together and parents to assume financial and parental responsibility of children. • Policies for assistance programs must reward responsible behaviors and achievements on the part of individuals and families. Policies should also reward employers in the community who hire welfare recipients through incentives and by simplifying the record keeping requirements for employers. Policies should encourage employers'provision of medical benefits and assistance with child care to prevent the "cliff effect" which forces people to fall back on to welfare programs after working, when their transitional Medicaid and child care benefits expire. NCACDSS Guiding Principles and the Association's Positions on Welfare Reform NORTH CAROLINA WELFARE REFORM - THE HOUSE PLAN (HB 5) • Requires that food stamps and housing assistance be counted as income for the purpose of determining eligibility for AFDC - which will result in almost anyone who receives housing assistance having to lose AFDC; • Provides no increase in AFDC for families for children born while the parent in receiving cash assistance and no AFDC for teen mothers unless they reside with their parent, guardian or in a residential care facility;. • Provides no AFDC nor food stamps for mothers who give birth out-of-wedlock and no AFDC for children born out-of- wedlock and that any savings shall be provided to counties to serve these clients; • Mandates that AFDC recipients ensure that their children attend school at least 80 percent of the time and receive immunizations or face sanctions; • Requires the income of a person living with a recipient family to be counted as a resource for determining eligibility; • Limits recipients to two years of AFDC and recipients may not reapply for three years after the limit is reached; • Mandates substance abuse treatment and testing for addicted clients as a condition of benefits; NC Budget& Tax Center 11/6/95 "Carrots" of HB 5 • Does provide one-time diversionary assistance grants up to the equivalent of a three-month AFDC grant; • Extends transitional child care and Medicaid benefits from 12 months to 24 months if the recipient is employed on or before the end of the 24-month limit; • Allows for the establishment of individual development accounts (IDAs) for recipients for certain purposes. Allows recipients to accumulate up to $10,000 without losing eligibility. Earned income for the first three months of work can be disregarded if deposited into the IDA. • Elimination of 100-hour work rule and employment history rule for AFDC-Unemployed Parent Program NC Budget & Tax Center 11/6/95 What is the Impact of HB 5? • Legislative fiscal estimates contend that the AFDC caseload will be reduced by 7000 households (from 120,000) and that the average monthly payment will decrease from $224 to $169, or almost a 25 percent decrease; • Total spending for AFDC will go down by over $500 million over the next five years, of which the State saves about $13 million; • The more likely scenario is that the 24 percent of AEM recipients who have housing assistance will lose most or all of their AFDC benefits (a family of three currently receiving $272 per month -- the maximum -- would receive $21 per month if they received housing assistance within two months of implementation of this proposal) NC Budget & Tax Center 11/6/95 Welfare Reform in North Carolina - Governor Hunt/Senate Bill (SB 35) • Focus on getting welfare recipients to work; • Requires recipients to sign a personal responsibility agreement. This agreement will require the recipient to ensure that her children receive immunizations, attend school regularly and until the completion of high school, live with their parent(s); to participate in a work setting, training or education for 30 hours each week within 3 months of receiving AFDC; _ • Implement Fraud Prevention initiatives targeted at Food Stamp households and SSI benefits. Also implement technology for electronics benefit transfer and client information networks; • Recipients under 16 or over 60 shall be exempt from the work requirements, as are sick or disabled individuals, those who have to care for sick or disabled individuals, those caring for children below kindergarten age and those who would have to travel more than two hours round trip to participate in work or training; • Willful violation of the contract would result in a $25 reduction in AFDC for three months, the second violation shall result in a $25 reduction for six months and the third violation shall result in termination of Medicaid and AFDC payments for the violator for a three-year period; • Teen mothers, family cap and 2-year cap on eligibility are similar to the House bill NC Budget & Tax Center 11/6/95 "Carrots" in Governor Hunt/Senate Bill • Provide one-time diversionary assistance grants up to the equivalent of a three-month AFDC grant; • Provide "the child care necessary to enable recipients to meet the 30-hour work/training requirement"; • Extends transitional child care and Medicaid benefits from 12 months to 18 months if the recipient is employed on or before the end of the 18-month limit (NOT IN THE GOVERNOR'S RECENT WAIVER REQUEST TO..THE FEDERAL GOVERNMENT); • Allows for the establishment of individual development accounts (IDAs) for recipients for certain purposes; • Elimination of 100-hour work rule and employment history rule for AFDC-Unemployed Parent Program • Increases asset limits for automobiles and other assets; • Disregard earned income for first three months and disregard the first $200 for months 4-12 (and 1/3 the remainder). NC Budget& Tax Center 11/6/95 What is the Impact of Senate Bill 35? • Legislative fiscal staff estimate that about 5400 households will lose AFDC because of failure to agree to sign the personal responsibility agreement; • Total savings are estimated at $61.5 million over a five-year period, with the State actually paying $2.2 million more than under current law; • Savings from the new restrictions total $136 million, while costs from the "carrots" total about $104.6 million in.the year 2000. NC Budget & Tax Center 11/6/95 MEDICAID - THE REAL MONEY PROBLEM • Both the House and Senate reconciliation bills would reduce growth in Federal Medicaid monies to North Carolina to under four percent within four years; • Since 1988, growth in Medicaid has averaged 23 percent each year - including the period between October 1, 1994 and October 1, 1995; • DHR has released losses in aid from current service levels of $2.5 billion between now and October 1, 2000 under the House bill and $1.11 billion under the Senate bill. These losses are based on an estimate that Medicaid will only grow by percent in North Carolina -- an estimate which seems very low; • A crisis in Medicaid could be imminent -- the House bill would only permit Medicaid growth of 15 percent for the period between October 1, 1994 and October 1, 1996 (NC Medicaid has grown by 23 percent in half of that time period); • Similarly, it may be that the Senate bill does not include approximately $275 million in payments for disproportionate share hospitals in the 1995 base. As such, North Carolina's Medicaid reimbursement would be limited to approximately 1 percent growth between FFY 1995 and FFY 1996; NC Budget&Tax Center 11/8/95 EARNED INCOME TAX CREDIT (EITC) • Program started in 1975 to encourage work and to offset payroll taxes for low-income people; • Historically has enjoyed bipartisan support, with expansions of the program under Presidents Reagan, Bush and Clinton; • In 1995, over 650,000 North Carolinians earning under $30,000 each year received $545 million in benefits from this credit; • The House Ways & Means Committee has acted to reduce the credit for families earning between $11,000 and $27,000 each year, for families receiving child support or Social Security and to eliminate the credit for childless low-income individuals; • Proposals are pending in the Senate to enact the provisions of the House bill and to stop the adjustment for inflation; • Would result in tax increases for the working poor (about 200,000 North Carolina families) NC Budget & Tax Center 11/6/95 WORK FIRST REFORmi,vG NORTH CAROLINA 'S WELFARE SYSTE:II Work First is Governor Jim Hunt's welfare reform effort. revamping the state's welfare system to require work and personal responsibility—moving people from welfare to work. The Governor's plan puts people to work,sets strict time limits on benefits and tough sanctions for those who refuse to participate. It eases re-entry to the job market through job training and temporary help with child care and health care costs. It streamlines and simplifies the welfare system,cutting red tape. 4i'nrk First is the centerpiece of Governor Hunt's welfare reform package which also includes cracking down on parents who refuse to support their children and working to prevent teenage pregnancv. Estimates show we could cut the welfare rolls by 20 percent just by collecting all child support payments owed to'children on welfare. Following are key components of Work First: WORD Work First requires people to get a job—paid or unpaid—within 12 weeks of receiving their first AFDC check.They must be working and/or be in short-term training for at least 30 hours per week. Work First gets people into the workforce early, then motivates them to move to self- sufficiency. It revamps the JOBS program, which put more emphasis on training and less on work. State and county agencies will work with local employers to identify jobs in every community. Chambers of commerce and business and professional organizations will be encouraged to develop programs, like the N.C. Restaurant Association has in place now,to help welfare recipients get jobs. In 1994-95 employers listed a record 356,767 job openings with local employment security offices—an increase of almost 15 percent over the prior year.North Carolina's economy is continuing to add about 3,000 new jobs each month. Job training under Work First is limited to two years.The second year, people must work in addition to their training. Work First also increases the family asset limits to 53,000 and the vehicle value limit to 55.000 for AFDC and food stamps.The increased limits encourage savings and assure dependable transportation to work. Lack of dependable transportation is one of the major barriers to work. PERSONAL RESPONSIBILITY Work First requires welfare recipients to take personal responsibility for their families and to make plans for `ctting off welfare. All AFDC applicants must sign'a bindin;_ contract that (over) details duir plan for getting off welfare and commits them to taking care of their family. If an applicant refuses to sign the contract, AFDC is denied for that family. ThmuL,h the contract, parents must commit to: > Getting regular health checkups for their children > Keeping their children properly immunized > Looking for and taking a job > Getting training or attending classes that will help them find and keep a job > Actively helping child support enforcement staff collect any child support owed to their children > Carrvina out their plan to move off welfare y AFDC benefits are limited to two years. Families can reapply for AFDC after three years. Families can continue to get Medicaid and fcod stamps at the end of the two-year period if they qualify. . AFDC benefits are capped. No cash benefits are provided for additional children born after the mother has been in Work First longer than 10 months (average cash benefits of$30). Teenage parents must continue in school to earn their high school diploma or GED and must live at home or under approved supervision. Adults who stop receiving AFDC because they do not cooperate in getting child support for their children are required to work in order to receive AFDC for their children. HELP FOR FA_�ILLIES In addition to job training and help in getting a job, Work First will help families in the following ways: y > Child care and health care. Financial help with child care and health care expenses will be available for families.Temporary help will be available for up to 13 months once parents earn enough income to move them off AFDC rolls. > Emeraenex grants. A one-time emergency grant of up to three months' cash benefits will be available to help see families through a temporary emergency that threatens their self-sufficiency.The goal is to [seep people off the welfare rolls from' the beginning.The grant must be repaid if the parent later has to enter Work First. > No marriage penalty. Families with both parents living together will no longer be penalized. They will be eligible for the same benefits as single parents. > 'Streamlined eligibility process. Families that receive AFDC are automatically eligible for food stamps.This saves time for parents and caseworkers. so that caseworkers can spend more time helping parents find jobs and less time on paperwork. SANCTIONS Tough sanctions apply for people wh('i do not meet their Work First responsibilities: First Violation Removed from AFDC for three months. Second Violation Removed from AFDC and Ntedicaid for three month;. Third Violation Removed from AFDC and Medicaid for six months. Fourth Violation Removed from AFDC and Medicaid and cannot reapply for three years. However, in all cases. children will continue to receive AFDC and Medicaid,and the family will continue to receive food stamps. Pregnant women may receive Medicaid benefits. PEOPLE AFFECTED BY WORK FIRST Everyone receiving AFDC benefits—about 320,000 adults and children or 120-000 families—will be a part of Work First. All AFDC recipients must sign personal responsibility contracts. The state is phasing in the work requirement of Work First, primarily because of the high cost of providing child care for parents with preschoolers. About 35,000 parents—nearly one third of all adults now on welfare—are included in the first phase of the work requirement.These are parents with school-age children.two-parent families and parents who already are working at least 30 hours a week.These families must abide by the two-year time limit for AFDC benefits and can get child care help if needed. As people move into the workforce and off the welfare rolls—freeing up dollars available for Work First—more people will be phased into the work requirement.Once fully implemented, all adults receiving AFDC benefits—except those over 65 years old or severely disabled— wi11 be required to work, and benefits will be limited to two years. Note: Some components of Work First require waivers from the federal government which ive are now seeking. 3 Work First Q&A Basic info Q. How many people will be affected by Work First?- A. Everyone on welfare —roughly 320,000 adults and children, or 120,000 families. There are no exceptions. * Every AFDC recipient will have to agree to the personal responsibility contract. Once we get the waiver, that becomes a binding contract. Now, it's an agreement. * Because of the high cost of child care, we have to phase in the work requirement. We're starting in Phase 1 with about 35,000 parents-- parents with school-age children,two-parent families and parents who already are working at least 30 hours a week That's nearly one-third of all adults now on the welfare rolls and almost 30 percent more people than we served in the JOBS program last year. Q. What will Work First mean to the average welfare recipient? Family? A. It's a change of attitude -- welfare is temporary;every able-bodied adult has an obligation to earn their keep and support their family.Welfare recipients' first obligation is to look for work If they can't find a job, we'll help them get the training or work experience they need to find one. But that help won't last forever. Every family will have a personal responsibility contract_That will require them to make sure their children get immunized on tune, attend school, and get proper health care. They'll actively have to help child support enforcement efforts. ***Estimates show we could reduce the welfare rolls by 20 percent just by collecting all child support payments owed to children on welfare! Children won't suffer under Work First. Even after the two-year time limit on AFDC is up, families can continue to get Medicaid and food stamps if they qualify. (Kids who are affected by family cap would lose about$30 in cash benefits,but not Medicaid or food stamps) Q. When will the transition to Work First be complete? A. Not overnight. Applying for federal waivers today; hope for an OK within 2 to 4 months.The rest should be OK'ed by the end of `95. (Need to have a 30-day public comment period as part of this) Jobs , Q. Where are the jobs? A.Thy jobs are there. North Carolina has one of the lowest unemployment rates in the nation, and last year employers listed a record 356.767 job openings with local employment security offices—an increase of almost 15 percent over the prior year. And our economy is continuing to add roughly 3,000 new jobs each month. Q. How will you get hard-to-place people quickly into jobs? A. By changing the whole premise of welfare. Looking for work is the number-one priority of Work First. By spending more time helping people get jobs and less time on paperwork,we can move people into jobs faster. Initially, we'll target parents with school-age children who already have job skills. For those who need training,we'll emphasize intensive, short-term, hands-on training. Page 1 Q. What about rural communities where there aren't any jobs? A. Employers tell me they can't Fill jobs. I want DHR,Commerce &Worlfforce Preparedness Commission to work with ESC etc- to identify those jobs. I want to see proof of a county with no jobs -- public or private — at all. If there's no private sector job,I'm sure there's a public-sector need. In some areas, transportation is a problem. That's why we're raising the asset limits on cars. People need dependable transportation to get to and from work—even if that work is in a neighboring county. Q. What about people who can't get jobs? What will they do under Work First? A. If someone can't work because of a physical or mental disability, they should be in a different program, like SSI(Supplemental Security Income).But even disabled citizens can earn benefits. We'll be working with public and private vocational rehab providers to help them. If people have a problem --like drug or alcohol addiction,or no job skills -- they'll have to get treatment or training. But once that's done, no more excuses. When Work First is fully implemented, every able-bodied adult should be in a job. In 12 weeks. And you can only stay on welfare for 2 years. Implementation Q. What have you done to put Work First in place? A. Waivers are part of our effort, but we're doing other things too. We've been working hard to prepare the way for Work First, using options under existing regulations. Some of the things we've done so far include: Requiring everyone actively participating in Work First to spend at least 30 hours a week in work— paid or unpaid—and/or short-term training. Introducing the personal responsibility agreement when someone applies for welfare. JJnder waivers this becomes mandatory.) Requiring local welfare offices to assign participants community work experience when paid private employment isn't available. Emphasizing the importance of immunizing children and keeping them in school. (Under waivers this becomes mandatory.) _ Educating recipients on the benefits of leaving welfare under current law. Limiting all training to two years. Requiring welfare recipients to help establish paternity of their children Q. What about people who were in the JOBS program;-maybe in a four-year degree program? What will happen to them? A.We're handling each one on a case-by-case basis. If someone is close to getting a degree, they'll be allowed to finish. If they have three years to go, then they'll have to look for a job like anyone else. Q. You say that you'll let people get job training if they can't find a job. How is that different from the JOBS programs that you said wasn't effective? A. It's fundamentally different. (1)Participation is mandatory.There's no opting out, or refusing to participate. (2) We'll have tougher sanctions, and they'll be enforced. Drop out of training, and you'll lose your welfare benefits. (3) It's temporary.The word that's used a lot is "transitional." So there's a two-year time limit_ (4)The training will be short-term, intensive, hands-on, and targeted to real jobs. And (5) finding a job is the main focus of Work First, not training. Page 2 Fbut ous about the two-year time limit when it will mean affecting kids? to make it clear that we won't allow children to go h ungry or without health care. ll be eligible for food stamps and Medicaid. lly enforce tough sanctions? A. Yes. That's the only way to make this work. Once everyone knows we mean business, the need to enforce tough sanctions will diminish. Q. Does it make sense to cut Medicaid as a sanction? Isn't that just shifting costs when sanctioned recipients end up at the local hospital with preventable problems and no way to pay? A. Yes, it does make sense, but remember,we're only cutting benefits for parents. Communities are going to have to shoulder some of the responsibility for making this work. If they don't,everyone will pay, and one of the ways we'll pay is through higher health care costs. Q. It looks like Work First is going to save staff time at the local level. How much savings do you anticipate and will you be cutting local DSS workers? A. We don't know that yet.. Under the current welfare rules,counties pay half the cost of administering local programs; the federal government pays the other half. We'll continue to work with local officials to streamline administration and lower costs. We do know, for example, that automatically qualifying AFDC families for food stamps (which has a higher eligibility ceiling) will save roughly 450,000 hours of work each year,which initially could free staff to help parents find jobs. Eventually those savings would be reflected in lower costs. Q. You say you're completely changing the welfare system. What does that mean for local DSS offices? What is the role of county DSS offices in Work First? A. It means their jobs will radically change and have already begun changing. The emphasis will shift from writing checks and verifying eligibility to helping ;c ple find iohs. We'll still be working to eliminate waste and fraud, but people will know that that's not nearly enough. Q. How will Work First affect the administrative bureaucracy of the welfare system? Will it be increased or cut? By how much? A. The waivers I'm requesting will lower the cost of administering welfare because they're designed to lower the caseload. We're doing all that we can at the state level to simplify the administration of these programs. And we'll work to help local welfare offices do the same. Q. At the same time we're having to put people into jobs, your job training program is seriously fragmented and your own welfare training program, JOBS, has been found to be ineffective. How are you going to find people jobs and get them ready for jobs, if you haven't revamped your job training programs? A.We're revamping our job training programs. We're starting"one-stop"career centers to streamline job training. And we have a new Employment&Training director— a national workforce training expert-- as of this week We're making changes everywhere. Cost Information Q. How much will Work First cost? A. Over time,Work First will save money. Initially, we expect to cut state costs by $2.2 million the first year. Five years from now, we estimate savings of$17 million a year. A downturn in the economy or a change in federal rules (i.e., block grants )could change that, but that's what we've projected. Page 3 Q. Will the waivers save money? If yes, how much? A. Yes. Under the current welfare rules, they'll produce the savings that I just mentioned—$2.2 million initially and $17 million after about 5 years. In the beginning, we'll put a lot of that savings back into Work First for training and child care. Block Grants Q. What impact will block grants have on Work First? A. We won't know that until we know Congress has acted. Whatever they do, we'll make the proper mid- course corrections. My staff is monitoring what's happening in Washington. The Local Government Partnership Council, which I created by executive order, has formed a Human Services Task Force chaired by Betty Lou Ward and Robin Britt,to look at those developments and advise me on them. Q. How much does North Carolina stand to lose in the current federal budget negotiations, and what will, you do about the shortfall? A. It's too early to say. This week the U.S. Senate is debating key provisions of its welfare reform bill. Any one of those provisions could have a significant impact on costs. We'll know more when, and if, House and Senate conferees complete their work Q. What's the worst case scenario for block grant cuts? A.The House bill would cut federal spending by about 15 percent and cap it for five years.The Senate bill is a little less than that. Under the old entitlement rules,that would automatically shift more of the burden to states.New rules under block grants would give states a lot more flexibility, but nobody knows yet how that will shake out.That's a major reason we need to move ahead now. We can't afford to watt. Q. Under block grants, will there be a requirement that counties continue to fund welfare to the extent that they are now? A.The Senate is considering several provisions that would require states to maintain funding at certain levels. The House bill, HR 4,has none. , Q. Will you require counties to continue that, funding? Wouldn't that, in effect, constitute an unfunded mandate? A.That's something that needs to be looked at very carefully.We're partners with local government on this, and I'm confident that counties will act responsibly.If we're as successful in quickly moving families off of welfare and getting parents into the work place as I think we'll be, that won't be an issue. Other Q. How have you involved legislators in your efforts?' A. Legislators —of both parties — have been part of this effort from Day 1. They served on my Workforce Preparedness Commission welfare reform task force. My staff monitored the legislative study commission on welfare reform&worked closely with legislators in the session on key legislation. They've been invited to serve on the Human Services Task Force. I think there's a lot of common ground. Q. What involvement has your "stakeholders" group had in putting together this waiver package? A.There hasn't been any direct involvement, although many of those serving on the Task Force have been part of some of the efforts I just described.The Task Force is charged with addressing the potential impact of block grants. Paae 4 Q. What exactly is your "stakeholder" process? What's its purpose? What results do you expect? A. LL Gov.Wicker who chairs the Local Government Policy Council appointed the Human Services Task Force at my request- The task force is working in an advisory role and has three goals: (1) to educate and inform people about the potential impact of block grants; (2) to try to reach consensus about key principles that could be used as a basis for developing a block grant plan; and (3) to recommend specific action steps.That's an ambitious agenda for any group,especially one with as much diversity as it has. If it achieves only the first of these three goals, it will have been worth the effort. This bi-partisan task force includes state and local government representatives, families,employers, nonprofits and others. There have been two statewide briefings, and the Task Force itself went through a three-day planning session in August.The Task Force met earlier this week to consider its recommendations. Pate 5 -.Y -a BTC REPORTS T November 1995 • b' • DOES WELFARE REALLY PAY MORE THAN WORK IN NORTH CAROLINA? EXECUTIVE SUMMARY • Despite reports to the contrary,work does pay more than welfare in North r: Carolina. Recent studies have been released claiming that government benefits "pay" more than working at low-wage jobs. Such studies contain many flaws " and tend to overstate benefits received by a typical poor family. • In North Carolina, the average family completely dependent on governmental `. assistance receives about $4.60 an hour in "benefits", even when including Medicaid as a cash benefit. A family with one full-time worker earning$5.25 an 1 : hour receives about$6.60 an hour in income and benefits, primarily due to the Federal Earned Income Tax Credit (EITC). • Both the Federal and State governments have constructed tax policies and programs to assist low-income workers, but workers earning low wages still often remain in poverty and face a choice of either low quality or high cost child and health care. Reducing benefits does not help those working for a living. Introduction Both houses of the US Congress, Governor Hunt and both houses of the North Carolina General Assembly have proposals to dramatically change public assistance programs, or 1 "welfare", in our State. . Policymakers are concerned that the current welfare system s" .�. P rovides questionable incentives for low-income people, especially incentives not to €, work and incentives to bear children out of wedlock, even if the parent does not have the '. means to support these children with his or her own resources. This issue of BTC Reports will compare the benefit levels of households which do not work at all and the income and benefit levels of households with workers. { Hasn't This Issue Been Studied Before? Other studies of this type have been conducted at the national level, with some gaps in knowledge about North Carolina. The following analysis will be specific to North Carolina families, including recent changes in North Carolina tax policy. One of the most publicized studies of this type is the Cato Institute's September 1995 report The Work vs. Welfare Trade-Off: An Analvsis of the Total Level of Welfare Benefits by State, hereinafter referred to as the Cato report.' The Cato report attempted to compare the benefit levels for seven major Federal programs for a family of three with no earnings from work with a pretax income equivalent for a family of three with one worker. Cato concluded that, in North Carolina, a family of three receiving benefits from these NORTH • BUDGET P • c , . r programs received as much as a family of three with the head of household earning $8.08 per hour, almost twice the minimum wage. Therefore the authors conclude that work t- does not pay more than welfare. The Cato report,however, suffers from several flaws: • Benefits are incorrectly calculated. The Cato report assumes that each household receives the maximum benefit from these programs. But the level of benefits for one program often depends on the level received in another program. For example, the amount of food stamps is adjusted for Aid to Families with Dependent Children (AFDC) payments. AFDC is the primary Federal cash assistance program. The North Carolina family would receive $540 lei in food stamps than Cato projects. • Medicaid benefits are treated as cash. The Cato report treats Medicaid benefits like cash assistance. The US General Accounting Office (GAO) recently stated that such treatment of Medicaid is controversial.2 The controversy arises because Medicaid is paid to providers of medical services, so recipients cannot use the benefits for anything but medical care. The Cato report also uses the amount spent per beneficiary, rather than the more comparable amount of a private insurance policy. A September 1994 report by Michael Walden, an economist at North Carolina State, uses a proxy for Medicaid over$600 lei than the Cato study.3 • . Not All Recipients Benefit from these Programs. While all families receiving AFDC are eligible for Medicaid and most AFDC recipients receive food stamps, less than one out of every four AFDC recipients receive a housing subsidy. The Cato report fails to make clear that the family they describe is not typical. • Working Poor Families Benefit from Some Programs. The Cato report acknowledges that the Federal Earned Income Tax Credit (EITC) helps low-income workers. But the analysis does not account for programs such as food stamps provide assistance to the working poor as well. So How Does a Working Poor Family Really Compare to an AFDC Recipient? Our analysis will compare two families consisting of a single adult supporting two children. One family (Family A) will have no earned income, while the other family (Family B) will have one worker earning $5.25 an hour and working full-time. A description of the methodology is included in the Appendix. Family A receives $272 each month, or $3264 each year in AFDC. Family A is eligible for $250 each month for food stamps, or $3000 each year. We assume Family A receives Medicaid with a value of $3312 each year (the Walden estimate), when compared to market value. Family B receives $10,920 in gross income from earnings. Family B is also eligible for $113 each month in food stamps, or $1356 each year. If we assume that the children are under the age of nine, then they would be covered by Medicaid as well. - r Family B does, however, have some costs that Family A does not. Family B would have to pay for health insurance for the adult (presuming the company does not provide a y. health plan) and Federal taxes on wages. These Federal taxes would equal 7.65 percent Jt of earned income, or $835. Family B also would have to pay sales taxes on its food purchases, while purchases made with food stamps are exempt from taxation under Federal law. Family B would pay $99 more in sales taxes on food than Family A. Family B, until new changes in State tax law take effect, will pay $31 in State income taxes as well. However, Family B also qualifies for the Federal earned income tax credit, which equalled $2528 in 1994. The EITC more than compensates for the Federal and State p3`. ' revenues lost to taxation. The table below shows that the family with a full-time worker receives more in income and benefits than the family without a worker. The working family has access to over $13,700 in income and benefits, while the typical nonworking family has access to less than $10,000. However, the working family will also incur other expenses related to work, such as transportation, work clothing and child care, that the nonworking family may not have to pay. Some working families will also have to pay for health care benefits, or choose to remain uninsured. Family A (no work) Family B (low-income worker) Government Benefits: AFDC $3264 $0 Food Stamps $3000 $1356 Medicaid $3312 $1590 �r Earned Income $0 $10,920 Taxes Fed Payroll Taxes $0 ($835) Fed EITC $0 $2528 State Income Tax $0 ($31) Sales Tax on Food $0 ($99) Costs Health Insurance $0 ($1722) TOTAL INCOME $9,576 $13,705 Average Per Hour $4.60 w/o Benefits $6.60 w/o benefits What Does This Mean? This analysis indicates that the Cato study has some significant flaws and that low- income workers in North Carolina are better off than AFDC recipients in terms of benefits versus income. It does not mean, however, that working for a living guarantees a living wage. The Census Bureau reported that over 4.2 million"families had at least one full-time worker for more than half the year and still lived below the poverty line.full-time Moreover, many studies have shown that the difference between the full-time working poor and AFDC families with no income is quite small. The GAO testified in January that working poor families were still earning below the poverty line and that working 5 poor families on average earned about $160 more per month than an AFDC family. Other researchers have pointed out that more work does not always end up in a greatly improved situation for the working poor versus nonworkers, mainly due to the patchwork of eligibility rules and cutoffs from human services programs. The Cato study concludes that "these goals [of reducing welfare dependency, discouraging illegitimacy and rewarding work] can be accomplished only by cutting benefit levels substantially"6 Cutting benefits, however, does not address the central realities of working for a living in North Carolina: low wages and lack of access to quality health and child care. NYIy ' What Actions Are Policymakers Taking to Make Work Pay? There are two major ways government can make work pay: provide tax relief for low- income earners; or provide programs to supplement low-income wages or offset costs of working, such as child care. Tax Policies The Federal government has been active in providing tax relief for low-income earners. The Earned Income Tax Credit (EITC) has been a principal policy tool for the Federal government to offset increases in payroll and excise taxes for low-income workers, with three major expansions in the EITC in the last decade. As shown in the example above, the EITC provides over $1.20 an hour in after-tax benefits to the low-income working family, which accounts for most of the difference between workers and those entirely dependent on welfare. However, this policy may soon change as both houses of Congress have passed measures to curtail the EITC for many working poor families. By any measure, North Carolina enacted one of the largest tax cuts in the nation in 1995. The changes in the individual income tax will eliminate income tax liability entirely for many low-income earners. For instance, the cutoff for income tax liability for a family of three will increase from $10,400 to $13,900 and for a family of four (with two adults) from $13,000 to $17,000. These measures help alleviate some of the tax burden for low- income families. However, there was no action taken to reduce the sales or property tax y?. r' burdens, which account for the majority of taxes paid by low-income earners. There was no action taken to enact a State version of the EITC, which could offset these taxes through the State income tax code. Seven states currently have versions of the EITC.' Child Care Both the State and Federal government have enacted income tax credits to compensate for the cost of child care and provide funds for child care for families formerly receiving welfare assistance. While the tax credits are not under discussion, the US House has acted to end the entitlement to child care programs and combine existing child care programs into a block grant at 1994 levels. The block grant will not provide additional funding as more families leave welfare to work. The US Senate has acted to set aside the 1994 level of child care funds and, in fact, provide for some growth in monies from this level over the next several years. However, the entitlement to those programs would also be eliminated. The State has not ignored the issue of child care. In both the North Carolina House and Senate welfare reform bills, there are provisions to extend transitional child care assistance for people leaving welfare beyond the current 12 month limit. However, such provisions may prove expensive if the Federal entitlement for these program ends. Although efforts have been made to make work pay, it remains difficult to work for a living in North Carolina. With one of the lowest average manufacturing wages in the nation and with the minimum wage at its second-lowest level (when adjusting for inflation) since 1955, the working poor face challenges in our state. The growing importance of low wage jobs, combined with a hodgepodge of eligibility requirements and regulations for programs, frustrate those who want to be self-reliant and those policymakers and organizations who want to help people be self-reliant. The State may do well to continue to explore options to make work pay and to better prepare its citizens for a global economy. Substantial reductions in benefits will not help North Carolina prosper in the long run. i a M1,• APPENDIX The calculation of benefits for the family without a worker is relatively straightforward. We assume that the family has no earnings or income and therefore receives the maximum amount of AFDC. Since AFDC is included as income in the calculation of food stamp benefits, a family receiving the maximum amount of AFDC will receive $45 less each month in food stamps than the maximum. We assume that the family does not qualify for any other deductions besides the food stamp standard deduction. Earned income is equal to $5.25 an hour multiplied by 40 hours each week multiplied by 52 weeks, or$10,920 each year. The Federal EITC is the maximum in 1994 for families with two children earning under $11,000 a year in wages and salaries, or$2528. Federal payroll taxes are equal to 7.65 percent of wages, or$835. State income taxes are equal to 6 percent of income after subtracting a standard deduction h of$4400 for a head of household and $6000 for three personal exemptions. The tax is therefore 6 percent of$520, or $31. In 1995 and 1996, this family will have no State income tax liability under changes enacted by the General Assembly. A local Blue Cross HMO charges about twice as much for a parent and child as for an individual worker alone. That ratio was applied to the Medicaid benefit of$3312 to compute the Medicaid benefit for the children and the health insurance cost for the adult. Food stamp benefits for the working family are computed on the basis of the earned income and food stamp standard deduction alone. No other income or deductions (for dependent care, etc) was included. The sales tax on food was 6 percent of the difference in$1644 in food stamp amounts t between the family without a worker and the family with a worker. a; Tanner, Michael, Stephen Moore,and David Hartman,The Work vs. Welfare Trade-Off: An Analysis of the Total Level of Welfare Benefits by State,Cato Institute: September 1995. 2 US Government Accounting Office,Low-Income Families: Comparison of Incomes of AFDC and Working Families,January 1995. ' Walden, Michael,The Impact of the Expanded Earned Income Tax Credit on Work Incentives for Welfare Recipients in North Carolina. September 1994. °The Cato report acknowledges that not all recipients receive all benefits. Pages 28 and 30 of their report describe a package of AFDC, Medicaid and food stamps as more typical. 5 Castillo, Monica D., US Department of Labor, Bureau of Labor Statistics, A Profile of the Working Poor, 1993.July 1995. G US General Accounting Office,op cit. Tanner and Moore,"Why Welfare Pays", Wall Street Journal, September 28, 1995,p. A20. " Iowa, Maryland, Minnesota,New York, Rhode Island, Vermont and Wisconsin have state EITCs.