WELFARE WATCHER'S
March 11, 2008

Welfare Watchers is an occasional publication by the Western Center on Law and Poverty on state budget and legislative activity relating to welfare, poverty and services for the poor. The purpose of this publication is to educate the legal services community, advocates for the poor and the general public about the impact of budget and legislative proposals on programs that serve extremely low-income households. All materials may be reproduced as long as WCLP is listed as a source for the materials.




Mid-Year Budget Cuts Approved
Across the Board Cuts or Just Cutting the
Same Families Over and Over?

The Legislature and the Governor took the first painful step toward reconciling the state budget deficit when they agreed to reduce 2007-08 expenditures by $1.3 billion and delaying payments to counties for two months and selling the remaining $3.3 billion of the Deficit Bonds from 2004. The mid year cuts reduced the state's proposed 2008-09 deficit to $7.4 billion according to the Assembly Budget Committee and provided cash flow relief in the case of another late budget.

Low income households that rely on cash benefits suffered $132 million in cuts. The social service reductions bill, AB 6 X (Budget Committee), contains a four month delay in the state Cost Of Living Adjustment (COLA) for SSI benefits ($91.1 million) for the blind, aged and disabled and a three month delay in the CalWORKs COLA ($41.5 million) for families with children. The delay in the SSI COLA was the most disappointing since the Legislature and the Governor had agreed in last year's budget to delay the state SSI COLA until June 2008 to provide five months of budget savings in 2007-08. Since each month of SSP COLA is worth about $23.3 million, the nine month delay will cost SSI recipients some $210 million.

Impacts on low income families were not limited to cash benefits. AB 5 X3 (Budget Committee) includes a ten percent cut to MediCal provider rates which will reduce the availability of doctors for many CalWORKs and SSI recipients. This cut will take effect July 1, 2008 and will result in state savings of $544 million for 2008-09. AB 5 X3 also includes a number of "cost containment" measures for Regional Centers that reduce 2008-09 funding by another $249 million. The other major area of the budget to be impacted was K-14 education which was reduced by $507 million in the 2007-08 budget.

In addition to these cuts, the budget makes other changes that result in cash flow flexibility in the months ahead. The most noteworthy of the changes is a delay in payments to counties for various social service programs. Counties will have to wait one or two months for funds normally due in July. This is not anticipated to result in any loss of benefits and services. Democrats also proposed to eliminate the sales tax loophole for luxury yachts, airplanes and vehicles and found support from some normally reliable Republican opponents of tax increases.

Prior to passage of the mid-year cuts, both the Assembly and Senate held a rapid set of hearings to explore the Administration's proposals. With almost no time for analysis, the committees heard presentations by the Administration and the views of interested parties. These hearings were heavily attended by opponents to the Governor's proposals. The Administration repeatedly stressed the "fairness" of the across the board approach taken in the budget. The Administration's approach has the merit of asking almost all areas of state government to give something. However, this approach has the duplicity of harming families that utilize multiple programs. What has become clear to many advocates and legislators is that across the board cuts are subjecting some families to repeated cuts, creating a cumulative impact of cuts far greater than ten percent.

While many of the mid-year cuts were painful, the Legislature avoided most of the controversial budget solutions proposed by the Governor. Virtually all major "policy" changes were delayed for the regular budget process that will begin in March. While the mid-year cuts reduced the 2008-09 budget to an estimated $7.4 billion deficit, the state's budget is now a two-year $16 billion hole according to the Legislative Analyst with the deficit expected to be larger when the May Revise is released.

The Governor Did It!
Are the Governor's Own Actions Causing the Budget Deficit?

The Governor has stated that the state budget deficit is a result of "overspending" by the Legislature. He complains about "auto-pilot" spending and restraints on his ability to make unilateral cuts to the budget. He denies that reducing the revenue from the Vehicle License Fees (VLF) was an error. The public has mostly accepted these assertions.

Increasingly, these claims must be evaluated for their accuracy. Even before the Schwarzenegger Administration assumed power in 2003, the state's budget deficits were caused by a mixture of increased spending for schools and health care and significant cuts in corporate, personal and vehicle taxes. However, since 2003 the Administration has lurched from budget to budget creating ever more debt and less flexibility for the state to solve budget crisis. According to the California Budget Project actions by the Governor have resulted in the following setbacks to the state budget:

• $6.1 billion increase in state spending due to the VLF reduction.

• $4.037 billion in General Obligation bond debt service due to infrastructure bond package.

• $1.509 billion in debt service costs for the deficit-financing bonds authorized by Proposition 57 of 2004.

• Prop 1A significantly limited the ability of the state to borrow from local government in bad budget years.

• $1.485 billion in transportation spending mandated by Proposition 42 and "locked in" by Proposition 1A of 2006.

• $1.485 billion in transportation spending mandated by Proposition 42 and "locked in" by Proposition 1A of 2006.

• $547 million in after-school spending mandated by Proposition 49 of 2002.

In total the Governor's actions have resulted in state costs of more than $13.5 billion annually and left the state with less flexibility to fashion solutions in bad budget years. Because the 2008-09 deficit is about $10 billion (the $14 billion deficit figure represents one and a half years), the state budget would be balanced but for the actions taken by the Governor.

Clearly, the doctrine of unintended consequences has been visited upon our state. A perfect example as shared by the California Budget Project is the VLF reduction. In 2004, the state replaced VLF payments to cities and counties from the General Fund with an equivalent amount of property taxes that had formerly gone to schools. The state increased its share of funding for K-14 education by an equivalent amount. Proposition 1A of 2004 constitutionally limits the state's ability to modify this transaction. Over time, local property tax revenues have grown more rapidly than the VLF and the VLF tax cut now costs the state $1.2 billion more than it would have if backfill payments had been continued. As a result, cities and counties receive $1.2 billion more per year and the state pays $1.2 billion more for schools.

There can be little doubt that the Governor was well intentioned as he acted over the years. Many of these proposals were embraced by legislative leaders as an alternative to cutting programs. But each of these major actions has boomeranged on the state and turned a difficult fiscal environment into a full blown crisis.

For more information on the Governor's Budget see the California Budget Project's "Chartbook" at http://www.cbp.org/pdfs/2008/080207_chartbookmasterbullets.pdf.




The Governor's 2008-9 CalWORKs Budget
Throwing Babies Out With the Bath Water?

Governor's Schwarzenegger's 2008-9 CalWORKs budget (http://www.ebudget.ca.gov/StateAgencyBudgets/4000/5180/department.html) contains many old proposals and some new ones in an effort to bridge an estimated $14 billion two-year budget deficit. The Governor's office has taken pains to explain that, but for it's across the board approach to budget cutting, health and human service programs would have suffered much deeper cuts. While this is undoubtedly true, it is also true that social service programs still suffered far deeper cuts than other areas with about the same amount of cuts as in previous years. Among this year's proposals are:

• The budget again proposes full family sanctions for both CalWORKs participants and for Safety Net families who have used up their 60 month time clock. The full family sanction would be imposed gradually over a year on families after they failed to respond to attempts to bring them into compliance.

• Imposes a 60 month limit on child only cases of ineligible parents (mostly citizen children of ineligible immigrants).

• Due to all three proposals, 85,000 families would lose all cash assistance and the state saves $476 million in 2008-09.

• Provides for a CalWORKs COLA that will increase the maximum benefit from $723 a month to $761 for a family of three.

• The budget fully funds CalWORKs county single allocation funds and makes no changes to child care eligibility including Stage 3.

• Proposes a $40 monthly Work Incentive Nutritional Supplement (WINS) to working families receiving Food Stamps who are not on the CalWORKs caseload, but who can count for work participation purposes.

• The budget eliminates the SSP COLA for the blind, aged and disabled scheduled for June 2008 and also suspends the 2009 SSP COLA. This results in budget savings of $323 million for the 07-08 and 08-09 budget.

• The budget slashes child welfare programs and IHSS budgets by more than $100 million each.

• Eliminates $40 million for CalWORKs Pay for Performance from 2007-08 but restores it in 08-09

• $14.9 million cut to Food Stamp administration costs and a 10% cut to the California Food Assistance Program benefits ($2.5 million).



Administration's Own Data Shows
Full Family Sanctions Won't Work

The most significant of these proposals is a return of the Administration's proposal from last year to eliminate all cash assistance for some CalWORKs families. While the proposal to impose full family sanctions on the families within the 60 month time clock is a kindler, gentler approach, there is still no empirical evidence that shows that eliminating all cash aid leads to higher levels of compliance with work requirements.

While the Administration argues that full family sanctions are needed to motivate adults to work more, the Administration's own data shows it will not work. According to DSS data for FY 2010 the impact of the two proposals is the following:

Full Family Sanction - By the Numbers

Families Kept on Aid Families Off Aid % Off

Full Family Sanction 11,473 16,737 59.4

"Modified" Safety Net 5,578 33,435 83.4

Total 17,051 50,172 78.2

It should not be surprising that the Administration's proposal will result in three out of four families failing to meet work participation requirements and have all cash aid eliminated. Research on sanctioned families and Safety Net families indicates they have substantially more barriers to employment than other welfare families. The Welfare Policy Research Project's 2006 report on timed out families in California found that barriers to employment are "pervasive" with 50.9 percent having one or more major barriers to employment. These barriers include routine problems such as a lack of child care or a lack of transportation but according to a study by Rebecca Blank entitled "Improving the Safety Net for Single Mothers Who Face Serious Barriers to Work" these families also are more likely to have:

• Lower work experience
• Less education and more learning disabilities
• Higher prevalence of physical and mental health problems
• Younger children
• An adult caring for a person with health issues
• Higher incidence of domestic violence.

Ramsey County, Minnesota did in-depth assessments of mothers about to be timed off assistance. According to a Mathematica Policy Research report on the Ramsey County program entitled "Welfare Reform in Minnesota: A Look at Families Nearing the Time Limit",

The assessments revealed that many recipients demonstrated low cognitive functioning, along with serious physical and mental health problems. The combination of these problems often made it difficult for recipients to complete even the most basic activities of daily living and challenging for parents to rear their children effectively.

It is becoming increasingly clear that many of the adults in these households are caught between two benefit systems. They are unable to satisfactorily comply with CalWORKs work requirements and yet are not eligible for programs for those with disabilities such as SSI or SSDI. The Administration's proposal is simply irresponsive to the reality of these family's lives. Cutting off all aid to a family will not eliminate learning deficiencies nor will it cure a serious mental health problem. These actions fail to acknowledge, let alone, address the acute needs of these families and provides only one method, sanctions, for resolving noncompliance. Mathematica recommended policy alternatives that might actually lead to higher compliance, including:
? Identify hard-to-employ recipients early on
? Develop and use program activities that accommodate recipients' limitations
? Consider alternative income support programs when work is not feasible
? Build more effective partnerships with programs for individuals with disabilities
? Create developmental work opportunities, such as transitional employment programs or highly structured work experience programs with extensive supervision.
The LAO Alternative CalWORKs Proposal

The Legislative Analyst Office (LAO) has proposed community service as an alternative for families in the Safety Net program. Families unable to meet work requirements or found not to be exempt, would see the entire family's cash assistance eliminated if they failed to comply with community service requirements. The proposal argues that community service would "sort out" those unable to participate from those unwilling to participate. To see the entire LAO report on CalWORKs click below and go to page 97: http://www.lao.ca.gov/analysis_2008/health_ss/healthss_anl08.pdf

The LAO proposal acknowledges that many families have significant barriers to employment and would require the county to do a home visit prior to cutting off all assistance. While this approach is an improvement to the Administration's approach, it still relies on a single strategy, cutting off all aid, to motivate families to work more. As noted above, working successfully with Safety Net adults requires assessing the barriers of the families and finding ways to help them succeed at the level they are capable. This may or may not result in federal compliance.

Community service is already an eligible CalWORKs work activity but is rarely offered by counties as an alternative to work. Creating and managing community service has proved challenging and expensive. Most community service jobs do little or nothing to improve participant employment opportunities and participants often leave aid rather than be forced to work in a meaningless job.

Are Full Family Sanctions the Only Way
To Meet Work Participation Rates?

By eliminating 50,000 families from the caseload, the state achieves a higher work participation rate for federal TANF purposes. California like virtually all other states is wrestling with how to meet the ramped up work participation rates imposed on states by the federal government in 2006. Last year DSS assumed that the state could meet work participation requirements due to changes in policy made in 2006 and reductions in the required 50 percent work rate due to caseload reduction credits. The federal government, however, denied the ability of states to claim some of these credits (see below for more details) and California is about 11 points short of work participation requirements.

Given this context, the Administration proposes to establish a new nutritional benefit, the Work Incentive Nutritional Supplement (WINS) that will add 39,000 cases to the CalWORKs caseload who are all working and will increase work participation by nine points. Under federal rules any increase in caseload reduces the caseload reduction credit and results in a higher work requirement for the state. To minimize this negative impact of WINS, the Administration proposed full family sanctions because it reduces caseload by 50,000 families and offsets the addition of 39,000 WINS cases.

The Administration, however, chose a caseload reduction method that is extremely harmful to the most vulnerable families while ignoring a cost-free approach that would offset the caseload increase from WINS with zero impacts on vulnerable families. Under federal TANF law, states can provide four months of non-assistance in a "pre-TANF" program before the family enters the CalWORKs program. Work participation is low among new applicants for assistance and many are in crisis when they come to the county for help. The four months in the pre-TANF program do not count for federal work participation purposes (thus raising our work rate) and the program can be paid for with federal TANF funds at no new state cost. Families would get the same benefits, services and welfare to work requirements as in CalWORKs. CalWORKs receives 12,000 new recipients each month and thus over four months as many as 48,000 families could be moved out of the federal calculation, more than enough to offset the increase of 39,000 WINS recipients.

Given the skepticism of cutting vulnerable families off of assistance and the potential availability of a cost free option with no impact on families, the Legislature chose not to support the Administration's proposals and has deferred all action until the regular budget process. During the legislative hearings, federal HHS issued the Final Rule that limited the ability of states to count state funds toward caseload reduction credit purposes. This change was not anticipated by the Administration and makes some assumptions in their proposal obsolete. Given all this, the Legislature directed DSS to resume work group meetings with advocates and counties to devise options for consideration by the Legislature.

Is CalWORKs Driving the Deficit
Or Keeping it From Being Worse?

Aside from the policy arguments in opposition to the Administration's proposal, advocates and counties have also argued that CalWORKs should not be subject to an across the board cut. It is important to remember that:

• The state is spending 20% less than it did 15 years ago on welfare. This is because California only has to spend 80 percent of its 1994 AFDC spending level to draw down the $3.7 billion federal block grant.

• Funding for welfare has remained constant and flat since 1997 at $6.3 billion overall with the state's contribution never going over the minimum level required to draw down the full block grant. CalWORKs spending is not causing the budget deficit.

• Not only is the funding for welfare flat, but over the past 10 years $12 billion in welfare funds has been diverted to other state uses. Welfare spending is not only not causing the budget crisis, it has and continues to, contribute to the solution.

As the following chart from CWDA illustrates, over the past four budgets, spending for all social service programs has barely increased compared to other state operations. Focusing on cutting human service programs like CalWORKs will do nothing to stop the growth of the deficit.


Source: County Welfare Director's Association, July 2007


DSS Proposes Eliminating In-Person Benefit Hearings

As part of the state's effort to close the budget gap, DSS proposes to make major changes in the State Hearings Division (SHD). The division is responsible for hearing appeals by claimants and recipients from eligibility decisions by county governments. Each year more than 75,000 claims are filed for hearing relating to programs such as CalWORKs, MediCal, IHSS, Food Stamps, Foster care, Adoption Assistance, Child Care and many more programs.

According the SHD the division must cut $2.7 million from its budget due to "deficits" in the budget. To rectify the problem SHD proposes to:

• Close five local hearings offices in Los Angeles, Fresno, Oakland, San Joaquin and San Francisco and replace them with offices provided by counties for free.

• Eliminate the statutory right of claimants and recipients to an in person hearing with an administrative law judge and to replace the in person hearings with telephone and video conferencing.

• Eliminate 13 Administrative Law Judge (ALJ) positions and 6 support staff positions.

• Issue "Summary Decisions" in place of constitutionally mandated legal opinions.

These proposals would have the effect of "cutting the spinal cord" of the public benefits system according to one legislative staffer. The ability to have an application for public benefits reviewed by an impartial arbiter is a fundamental legal right that is based in both the Constitution and statutory law. Without such hearings, applicants and recipients would have little legal recourse to obtain improperly denied public benefits. If denied benefit requests cannot be reviewed and reversed, the goal of government to reduce poverty cannot be achieved.

The Assembly Budget Sub-Committee on Health and Human Services heard the proposal at a hearing in January. WCLP, LAFLA, LSNC, PAI, CCWRO and other legal service advocates strenuously opposed the proposals. The chair of the sub-committee, Assemblymember Patty Berg, directed DSS to meet with advocates and ALJs to discuss the proposal. DSS held a meeting at the beginning of February in which advocates and the judges again criticized the proposals. DSS said that it would not close any offices until it had found suitable, ADA compliant, offices for hearings that are approved by both advocates and ALJs.

The Legal Aid Association of California sponsored a sign on letter for legal service groups and other interested parties to signal their opposition to the proposals. A copy of the LAAC letter can be found at WCLP's Welfare page www.wclp.org.


The TANF Final Rule
Federal HHS Moves Back the TANF Goal Line

In December 2007, the federal Department of Health and Human Services (HHS) issued the TANF Final Rule related to changes in the Deficit Reduction Act of 2005. The changes in the TANF Final Rule narrow state options even further than the Interim Rule and make it more attractive to states to eliminate eligibility for families rather than engage in serious attempts to increase self-sufficiency.

The Final Rule mostly reconfirms interpretations originally proposed in the Interim Final Rule. Those regulations defined work activities in a narrow fashion, added separate state programs to TANF work participation requirements, placed restrictions on educational activities and imposed new reporting and verification requirements on states.

The Final Rule made two changes from the Interim Rule that will have enormous implications for state TANF programs. First, the regulations adopted a methodology for counting maintenance of effort (MOE) dollars that limits how much caseload reduction credit a state can get from state spending that exceeds the MOE. This decision cut California's credit for excess spending from 14 percent to 7 percent. By adopting the less useful methodology, HHS sent a message to states that spending beyond the MOE would have only modest rewards.

The Final Rule also includes a provision not in the Interim Rule related to counting MOE for TANF purposes 3 and 4 (reducing out of wedlock births and promoting two parent families). The DRA included an amendment that attempted to harmonize the way federal TANF funds can be used with the way MOE funds can be used. Previously TANF funds could be spent on any family if it was for purposes 3 and 4 but state MOE funds could only be spent on families eligible for cash assistance. The DRA clarified that MOE funds for purposes 3 and 4 could also be spent on any families as with TANF. This change had been long sought by Congress, HHS and states and early versions of TANF Reauthorization contained the provision.

California, for example, assumed that between natural caseload decline and excess MOE spending that the state would receive a 20 percent credit toward the 50 percent work requirement. Since it is estimated that California will reach a 31 percent work rate by federal year 2009, the state would avoid federal penalties. The two decisions, however, instead leave California with a gap of 11 percent to meet by 2011 or the state may face federal penalties and a corrective action plan.

In the face of such gaps, states will be tempted to simply cut from the caseload those who are not meeting work requirements. In essence that is what the Schwarzenegger Administration has proposed by imposing full family sanctions. The problem, as the LAO noted, is that now that HHS has limited counting of MOE if the Administration's proposal were to become law the state would fail to meet the basic TANF MOE requirement. In effect, the Final Rule makes it impossible to cut as much as the Administration wants. In fact this need to spend to meet MOE or to create "countable" excess MOE may compel the Legislature to provide a Cost of Living Adjustment for CalWORKs for the first time in 5 budgets.

There were some positive changes in the Final Rule that will assist low income families obtain more education and training:

• Allows Vocational Education to count as a core activity even if seeking a BA.
• Allows 1 hour of unsupervised study time for each hour in class.
• Allows ESL and basic skills to be an ongoing part of vocational education activities.
• No monitoring good or satisfactory progress by schools.
• Monthly, not bi-weekly, reporting of participation in education activities.

For the upcoming federal fiscal year, 2009, the state will continue to be able to rely on the previous understanding of counting excess MOE and thus, will carry the same caseload reduction credit for the next 18 months. But beginning with the 2010 federal fiscal year states will be subject to the new rule and will lose caseload reduction credit. If HHS is still following the current regulation at the point that states submit their performance for review some states may challenge the legality of the regulation.

To see the entire Final Rule go to: http://a257.g.akamaitech.net/7/257/2422/01jan20081800/edocket.access.gpo.gov/2008/pdf/08-455.pdf

For an analysis of the Final Rule from the Center on Budget and Policy Priorities click on: http://www.cbpp.org/2-20-08tanf.htm


By: Michael Herald, Legislative Advocate mherald@wclp.org