Testimony before The Subcommittee on Housing and Transportation of the Committee on Banking, Housing and Urban Affairs

Introduction

Before I begin, let me first thank the committee for the opportunity to speak before you today. While I serve as Senior Research Fellow on Welfare and Family Issues at The Heritage Foundation, I must stress that the views I express are entirely my own, and should not be construed as representing the position of The Heritage Foundation.

The traditional War on Poverty was launched in the mid-1960's. War on Poverty programs (cash, food, and housing) focused on providing material support and largely ignored the behavioral causes behind poverty. The welfare reform of 1996 recognized that this old style welfare system had failed. The reform changed the nature of cash aid: in the future welfare would continue to provide material support but it would also seek to transform behavior in a positive way.

To understand the lessons of welfare reform for assisted housing programs, six points are critical:

Lessons from Welfare Reform

Nearly six years ago, President Bill Clinton signed legislation overhauling part of the nation's welfare system. The Personal Responsibility and Work Opportunity Reconciliation Act of 1996 (P.L. 104-193) replaced the failed social program known as Aid to Families with Dependent Children (AFDC) with a new program called Temporary Assistance to Needy Families (TANF). The reform legislation had three goals: 1) to reduce welfare dependence and increase employment; 2) to reduce child poverty; and 3) to reduce illegitimacy and strengthen marriage.

At the time of its enactment, advocacy groups passionately denounced the welfare reform legislation, predicting that it would result in substantial increases in poverty, hunger, and other social ills. Contrary to these alarming forecasts, welfare reform has been effective in meeting each of its goals.

Who gets Credit: Welfare Reform or the Economy?

Some would argue that the positive effects noted above are the product of the robust economy during the 1990s, rather than the results of welfare reform. However, the evidence supporting an economic interpretation of these changes is not strong.

Historically, periods of economic growth have not resulted in lower welfare caseloads. From 1950 to 1990, there were eight periods of economic expansion, yet none of these periods of growth led to a significant drop in AFDC caseload. Indeed, during two previous economic expansions (the late 1960s and the early 1970s), the welfare caseload grew substantially. Only during the expansion of the 1990s does the caseload drop appreciably. How was the period of expansion during the 1990s different from the eight prior expansions? Clearly, the answer is welfare reform.
Another way to disentangle the effects of welfare policies and economic factors on declining caseloads is to examine the differences in state performance. The rate of caseload decline varies enormously among the 50 states. If improving economic conditions were the main factor driving caseloads down, then the variation in state reduction rates should be linked to variation in state economic conditions. On the other hand, if welfare polices are the key factor behind falling dependence, then the differences in reduction rates should be linked to specific state welfare policies.

A Heritage Foundation paper, "The Determinants of Welfare Caseload Decline" examined the impact of economic factors and welfare policies on falling caseloads in the states. This analysis showed that differences in state welfare reform policies were highly successful in explaining the rapid rates of caseload decline. By contrast, the relative vigor of state economies, as measured by unemployment rates, changes in unemployment, or state job growth, had no statistically significant effect on caseload decline.

A recent paper by Dr. June O'Neill, former Director of the Congressional Budget Office, reaches similar conclusions. Dr. O'Neill examined changes in welfare caseload and employment from 1983 to 1999. Her analysis shows that in the period after the enactment of welfare reform, policy changes accounted for roughly three-quarters of the increase in employment and decrease in dependence. By contrast, economic conditions explained only about one-quarter of the changes in employment and dependence. Substantial employment increases, in turn, have led to large drops in child poverty.

The economic boom of the 1980's was long and sustained, but did not result in substantial or enduring declines in poverty among single mothers or black children. But since the mid-1990's there has been a sustained and unprecedented drop in the poverty rates for these two groups. Clearly, the difference has been welfare reform.

Overall, it is true that the health of the U.S. economy has been a positive background factor contributing to the changes in welfare dependence, employment, and poverty. It is very unlikely, for example, that dramatic drops in dependence and increases in employment would have occurred during a prolonged recession. However, it is also certain that good economic conditions alone would not have produced the striking changes that occurred in the late 1990s. It is only when welfare reform was coupled with a growing economy that these dramatic positive changes occurred.

Unfortunate Similarities Between Aid to Families with Dependent Children and Subsidized Housing

Prior to welfare reform, the old AFDC program provided aid predominantly to single mothers with children. AFDC provided one way hand-outs: recipients were not required engage in any significant activities in order to receive aid. It was widely recognized that this system promoted idleness, single parenthood, and poverty. Consequently the AFDC system was radically reformed and replaced with the new TANF program. Under TANF, recipients would be required to engage in constructive activities aimed toward self-sufficiency as a condition of receiving aid. These activities could include: supervised job search, training and community service work. As the new "constructive activity" requirement took effect, welfare caseloads plummeted, employment of single parent soared, and child poverty fell in an unprecedented manner.

In many respects, current government housing programs closely resemble the pre-reform Aid to Families with Dependent Children program. Nearly half households in subsidized housing are families with children. Some 87 percent of the subsidized households with children are single parent households. As with pre-reform AFDC system, aid is generally given as an unconditional, one-way handout; recipients are not required to engage constructive activities as a condition of receiving assistance.

Thus current housing programs replicate most of the elements that led to failure in the pre-reform AFDC system. Housing programs are permissive rather than expectant and demanding. Housing gives a "hand out" rather than a "hand up". In order to help recipients to help themselves the highly successful principles of the TANF reform should now be applied to subsidized housing.

Applying Work or Activity Requirements to Housing Programs

The key to the success of welfare reform has been the establishment of work or activity requirements for TANF recipients. As recipients have worked more, their incomes have risen and more have escaped poverty.

The lessons from TANF are applicable to public housing. While parents in subsidized housing do maintain higher levels of employment than parents in the pre-reform AFDC system, these employment levels are still far lower than they should be. The Census Bureau's Current Population Survey for 2000 indicates that 30 percent of householders with children receiving housing aid did not work at all during the course of the year. Over half worked less than 1,000 hours during the year. Overall, only a quarter of parents worked full-time through the year (2000 hours). An important element in reducing poverty and increasing family income must be to increase the amount of work performed in these families.

Applying the lessons from welfare reform, "work requirements" should be established in housing assistance programs. However, it is important to clarify here a common misunderstandings about work requirements in TANF. The TANF program does not directly demand that recipients obtain formal employment in the private sector or government, and TANF does not penalize those who fail to obtain employment. Instead, the TANF program encourages recipients to obtain employment; those recipients who claim they cannot find employment are required to undertake other constructive activities: supervised job search, training, or community service. Once a recipient obtains real employment the other required activities are proportionally reduced.

The impact of this system on employment is profound. Once recipients are required to be continuously active rather than idle, they have a strong incentive to obtain employment. The indirect result is a surge in actual employment and a drop in poverty.

This principle should now be incorporated into housing programs. As a general rule, able bodied, non-elderly recipients in public housing and project-based Section 8 housing should be required to work a substantial number of hours per week. Recipients who are unable or otherwise fail to maintain the required level of formal employment should be required to participate in job training, supervised job search, or community service work. Those who are employed for only a few hours each week should supplement their employment with participation in these other constructive activities. Participation in work activities under the Temporary Assistance to Needy Families (TANF) program should be countable toward the housing work requirements and the TANF and housing work programs should be closely coordinated.

Specific Work Promotion Policies in Subsidized Housing

However, housing programs are often more decentralized than TANF. Also, it is not desirable to evict housing tenants every time a shortfall in an activity requirement occurs. These differences mean that the rule of "requiring employment or constructive activities" will need to be applied somewhat more flexibly in housing than is TANF. With this caveat in mind, the following requirements should be established for able-bodied, non-elderly recipients in Section 8 and public housing.

Subsidized Housing and Marriage

A second important goal of welfare reform is to increase healthy, stable marriages.
Today nearly one third of all American children are born outside marriage, one child every 35 seconds. The collapse of marriage is the principal cause of child poverty and a host of other social ills. A child raised by a never-married mother is seven times more likely to live in poverty than a child raised by his biological parents in an intact marriage. And a child born and raised out-of-wedlock is 1700 percent more likely to become dependent on welfare than is a child raised by an intact married couple. Overall, nearly 80 percent of long term child poverty occurs among children from never-married or broken families.

Children of never-married mothers are 24 to 78 percent more likely to suffer from emotional and behavioral problems when compared to children from two parent families. Children in single parent homes are more likely to abuse drugs and more likely to end up in jail; they perform more poorly in reading, spelling and math, are more likely to repeat grades and eventually to dropout of school. Finally, children living with non-married mothers are up to 33 times more likely to suffer from serious physical child abuse than are children with a married mother and father.

The growth of single parent families has an enormous impact on government. Indeed, the modern welfare state, as it relates to children, has grown up largely as a support system for single parenthood. At present federal and state governments spend some $150 billion per year in means-tested aid for single parent families. In subsidized housing, some 87 percent of the aid to families with children goes to single parent families.

But the collapse of marriage is not inevitable. In nearly half of all out-of-wedlock births, the mother is actually cohabiting with the father at the time of birth. In another 30 percent of cases the mother is romantically involved with the father although they do not live together. These non-married fathers, on average, earn around $17,000 per year; very few have drug or alcohol problems or are abusers. In most cases, the couples look favorably on marriage as an institution. Yet, in general, these couples will not enter into marriage and will not sustain their relationships.

How Welfare and Housing Programs Discriminate Against Marriage

In many respects, the failure of millions of low income couples to enter and sustain marriages is a result of the barriers that the welfare system erects against marriage. Marriage has eroded and out-of-wedlock childbearing has soared, in part, because subsidized housing, Temporary Assistance to Needy Families (TANF), Food Stamps, Medicaid and other means-tested welfare programs discriminate against and penalize marriage.

Penalties against marriage are inherent in the structure of all means-tested aid programs. In these programs, benefits are incrementally reduced as a recipient's earnings increase; this is generally termed the benefit reduction or marginal tax rate on earnings. (For example with a benefit reduction rate of 50 percent, a beneficiary might be given $5,000 in aid if annual earnings are zero, $2,500 in aid if earnings are $5,000, and no aid if earnings are $10,000.)

While it is widely recognized that this type of means-tested program discourages work, it is less commonly understood that means-tested aid also discourages marriage and rewards single parenthood. Subsidized housing and other means-tested welfare programs penalize marriage because a single mother will suffer a substantial reduction or elimination of benefits whenever she marries an employed male. However, if the couple remains unmarried, the father's earnings will generally not be counted in determining the mother's welfare benefits and the value of those benefits will not be cut. As a result, low income couples can maximize their combined income by remaining unmarried, but will suffer a serious income loss from marrying.

In the case of subsidized housing, the typical single mother receives a subsidy worth about $5,000 per year; if she marries (or cohabits with) a male with earnings, the value of the rent subsidy will be reduced. The more the male earns the greater the loss of housing aid. If the mother marries a male with earnings around $18,000 per year (a typical sum for unmarried fathers), the housing subsidy will be completely eliminated. Thus, in general, low income couples can maximize their welfare income by remaining unmarried.

The anti-marriage incentives implicit in subsidized housing programs are intensified by the fact that most recipients receive aid from more than one means-tested program. Each individual means-tested program (such as TANF, Food Stamps, housing, or Medicaid) contains its own anti-marriage incentives; these incentives are additive and become very severe when multiple programs operate together.

For example: the typical single mother on Temporary Assistance to Needy Families receives a combined welfare package of various means-tested aid benefits worth about $14,000 per year. Suppose this typical single mother receives welfare benefits worth $14,000 per year while the father of her children has a low wage job paying $18,000 per year. If the mother and father remain unmarried, they will have a combined income of $32,000 ($14,000 from welfare and $18,000 from earnings.) However, if the couple marry and live together, the father's earnings will be counted against the mother's welfare eligibility. Overall, welfare benefits will be nearly eliminated and the couple's combined income will fall substantially.

The public is dismayed by the anti-marriage bias of welfare programs. A 1999 Roper poll found that 56 percent of national adults found that "welfare programs that encourage single-parent families and teenage pregnancy" were a "very serious" problem. Another 27 percent found this a "somewhat serious" problem. Only 4 percent concluded that the problem "not serious at all".

Public housing officials should recognize that the existing bias against marriage has extremely harmful long-term consequences for children and society. The penalties against marriage implicit in current housing programs should be substantially reduced. This could be accomplished by altering the treatment of husbands' earnings in determining rents and eligibility. Housing program rules for married couples with children could be altered so that the first $1,000 in a husband's earnings each month would be ignored or "disregarded" in determining the married couple's eligibility for subsidized housing, and the couple's monthly rent payment. Under this system, a single mother could marry without incurring an overwhelming cut in her housing subsidy.

Conclusion

It is widely recognized within both political parties that the 1996 welfare reform has been highly successful. But government housing programs have not been reformed. These programs continue to operate in the same manner as the pre-reform Aid to Families with Dependent Children program. In current housing programs, able-bodied individuals are given benefits, but are not required to work or to undertake activities aimed at self-sufficiency. This non-demanding and permissive system is harmful to recipients and to society.

Government housing programs should be restructured according to the current principles of welfare reform. First, able-bodied recipients should be required to be fully employed or to undertake activities leading to employment. Second, healthy marriage should be encouraged not penalized.

Footnotes:
1. Robert E. Rector and Sarah E. Youssef, "The Determinants of Welfare Caseload Decline," The Heritage Foundation, Center for Data Analysis Report, CDA99-04, May 11, 1999.
2. June e. O'Neill and M. Anne Hill, "Gaining Ground? Measuring the Impact of Welfare Reform on Welfare and Work," Manhattan Institute Civic Report, No. 17, July 2001.