Greetings to Members of the Committee:

Thank you for this opportunity to testify.

SUMMARY POINTS OF TESTIMONY

In the discussion below we will make three arguments as follows:

• The reauthorized bill should include strengthened work requirements. These requirements are essential to transforming the meaning of welfare away from a cash entitlement, and to maximizing the rate of movement into and up within the private labor force. The work requirement rates in current law are obsolete and have been overtaken by events. The President's proposal, as modified by Chairman Herger's Personal Responsibility, Work, and Family Promotion Act of 2002, sets us in the right direction.
• Many state programs are unable to engage individuals in constructive activities because adults under current law can ignore the requirement to participate and continue to receive most of their welfare benefits. This undermines the ability of these programs to reach out and bring in those most in need of the services. The solution is to assure that the ntire welfare check is made contingent upon acceptance of the obligation to participate in constructive activities (full check sanction), much the way a wage is contingent upon showing up to work.
• The budget for the reauthorized TANF program can be reduced by ten percent without adversely affecting any essential aspect of the program, including the provision of child care for working families, and would in many respects result in improvements in the effectiveness of the service delivery system.

WORK REQUIREMENTS NEED TO BE STRENGTHENED

The TANF program has been extraordinarily successful at reducing the caseload and moving individuals into employment, as we have seen above. State programs have achieved this by instituting good up-front job search programs in what is termed as a "Work First" approach. Experimental research over the past decade and a half, influential among the drafters of the current law, had revealed that education and training alone is less effective at helping individuals succeed in the private labor market than early entry into employment if feasible, where on-the-job learning can help individuals move up the employment ladder faster than holding them out of the labor market for classroom instruction. Most often actual work can be combined with education and training in a more effective combination than either one alone.

From this "Work First" orientation, our experience has shown further that for those unable to find immediate private employment, either full or part time, the next best alternative usually includes some work experience as a core part, although not the only part, of an overall schedule and effort resulting in employment. This is especially true for those without extensive prior work history.

There are two key components which together influence the effectiveness of welfare-to-work programs under TANF. One component is the number of hours of activity required of a participant, which is a measure of his or her effort. The second is the overall proportion of individuals engaged in such activities, which is a measure of the breadth and reach of the program. Both components, the intensity and the breadth of program participation, are important to the overall effectiveness of the program. The authors of the current TANF program clearly intended that both program intensity and program breadth be the focus, and they did so by setting meaningful levels of weekly work requirements (measured in hours), and participation rates (measured by the proportion of adults actually engaged in the activity).

Surprisingly, given the goals of TANF, the proportion of adults engaged in constructive activities leading to employment, is quite low, once those who are already employed while on welfare are excluded. Although over 40 percent of the adult caseload in the average state is involved in some required activity, nearly 70 percent of these are in unsubsidized employment; i.e., they are collecting welfare while working at a regular job. This is, of course, good as far as it goes. But for the remainder, i.e. those not working and still receiving benefits, current law has done little to encourage states to constructively engage this group. For example, excluding those who are working in a job at the same time they are receiving welfare benefits, of the rest only on in five adults are doing any constructive activity leading to work.

In order for the TANF program to make significant continued progress at helping adult recipients achieve financial independence, it will have to find ways to get states to engage a far larger proportion of the adult population than is being served under the current program. A major management commitment is necessary to mount a large and ongoing program for a high proportion of recipients, and although the policy makers who drafted the TANF program may have anticipated that most recipients would be involved in welfare to work activities, implementation by states has simply not produced this result.

The President's TANF reauthorization proposal, Working Toward Independence, (as modified by Chairman Herger's bill), moves us in the right direction toward the next level of reform by focusing state programs on increasing the level of effort made by individuals in the program, and by increasing the program's breadth and reach. It does this while retaining the state operational flexibility inherent in the TANF program.

The President's plan as modified by Chairman Herger (hereafter PRWFPA 2002), sets a 40 hour week as the standard for welfare-to-work activity, which is an increase from 30 hours per week under current law (or 20 for single parents of children under 6). The 40 hour week is comparable to the time commitment necessary in a full-time job. Unlike current law, however, which measures only participant time spent in work-like activities such as subsidized employment and work experience, the President's plan divides required activity into two parts - - work-like activity for 24 hours per week (i.e. three-day equivalent) and state-flexible activity for the other 16 hours. This is intended to give states the flexibility they need to blend other program components into the week to maximize its effectiveness, such as education, training, substance abuse treatment, and job search.

In addition to moving to a higher level of participant weekly commitment, the PRWFPA 2002 bill intends to increase the proportion of individuals actually engaged in welfare-to-work activities by increasing the state required participation rate to 70% from its current 50%, while making certain adjustments (the caseload reduction credits) to make it easier for states to achieve.

Are the state work requirements as outlined in the President's plan realistic and achievable for the majority of states? Absolutely!

States have already shown from the current legislation that they are capable of designing programs to meet federal performance targets when challenged to do so. The President's plan sets important targets, but leaves the bulk of the operational decision-making to state policy makers.

Both former Governor Thompson of Wisconsin and Mayor Giuliani of New York City have designed and operated large-scale welfare-to-work programs as originally envisioned by the authors of PWRORA, and as likely to be achieved in practice under the President's bill (with certain suggested modifications). Both Wisconsin and New York share the aspiration to run full-week programs with high levels of required participation. Some of the practical fundamentals of operating such programs are outlined below:

• Welfare-to-work programs should constitute genuine practice for private employment. The program should operate on a standard full-time workweek which conforms to the expectations of private employment. This allows participants to practice organizing their lives around a realistic work schedule of eight hour work days
  and five day work weeks;
• Real work should be made part of the weekly activity. The pride and satisfaction of successfully mastering work tasks often results in a big psychological lift and translates into confidence in the search for private employment;
• Work assignments must include close supervision and regular feedback. Those who lack work histories are often not familiar with workplace norms of professionalism and conduct, and frequently find it difficult to submit or supervisory authority or get along with co-workers. Good supervisors who agree to make part of their task the acculturation of participants play a large role in the success of their charges.
• There must be swift consequences for non-attendance without cause. The notion of such consequences can be a new and ultimately constructive experience for those used to being involved in a bureaucratic welfare system in which not much changes. Thus, the importance of reliability must be taught, and for this to occur benefits must be closely tied to attendance.

High levels of required and ongoing participation best allows for the goal of replacing cash assistance with work. Welfare-to-work activities which become part of an ongoing obligation as a condition of receipt of welfare, allow for an ever-present option for those rotating in and out of the labor market. It can operate much like an accordion, expanding and contracting to accommodate those out of the labor force, while keeping work habits and skills in good repair.

Required ongoing participant activity probably exerts its greatest net caseload impact at the time of enrollment. Where participation in welfare-to-work programs has been required of applicants who do not find private employment within a certain period of time, the number of actual slots used by participants is almost always far fewer than anticipated. Fewer slots are necessary because individuals who know they must engage in work in exchange for benefits frequently elect not to enroll in the program in the first place. Instead, they find immediate employment or increase their hours in existing part-time employment.

Universal work programs require work slots for individuals of all capabilities. Having a near-universal expectation of work helps change the culture of the system and channels the energy of recipients in a constructive direction away from attempting to qualify for exemptions.

Sanction policies play a large role in achieving high levels of participation. High non-participation rates are a feature of most mandatory programs. In Wisconsin, where the Wisconsin Works program pays cash benefits only to those who first participate in work activities, compliance by definition is high. However, in states like New York that do not use a version of full-check sanction for non-participation, a large proportion of families may accept a lower TANF payment rather than engage in work.

High turnover rates present management problems but lower the number of required work slots. The high turnover rate has at least two causes. One cause is that those who reliably participate in their work assignments, even for short periods, find they can obtain private employment. Fully half of all individuals who participated in New York's work experience program for any period during the first quarter of 2000 found employment the same calendar year. In addition, normal caseload dynamics in which recipients leave the rolls further increases turnover. The high work experience turnover rate means that far fewer actual slots are needed to run a universal program than would otherwise be required.

In conclusion, managing a large-scale welfare-to-work program is both practical and necessary to achieving true welfare reform. The President's plan, with modifications, sets us in the right direction.

THE CURRENT LAW DOES NOT PROVIDE ADEQUATE INCENTIVE FOR RECIPIENTS TO ENGAGE IN WELFARE-TO-WORK ACTIVITIES

Under the goals and objectives laid out in the President's and Chairman's bill which would result in near-universal engagement in constructive activities by adults on welfare, there will come a point beyond which states will be unable to make progress under provisions of current federal law. The reason for this is that there is currently no federal requirement that cash benefits be connected to an obligation to participate. Only a small portion of the overall cash benefit is affected by non-participation in about half the country. As a result, individuals who refuse offers to participate cannot be induced to enroll and remain outside the ability of states to help them move to self-sufficiency.

As an example from New York City, as of December 2001, there were literally no more individuals left that the welfare agency had not called into its welfare-to-work program. Yet tens of thousands of individuals were at home having refused to cooperate, and were therefore outside the ability of the program to help.

It is essential that a true work program include a connection between the receipt of benefits and positive participation. Those without a work history need to practice work-like habits such as routine and reliability. The connection between benefits and work effort is an essential part of the learning process. If we don't have it, states are running a voluntary program without the name. The solution is to adopt a version of a full check sanction for non-participation.

A TEN PERCENT REDUCTION IN THE BUDGET ALLOCATED TO THE TANF BLOCK GRANT CAN EASILY BE ACCOMMODATED WITHOUT CONSTRAINING THE PROGRAM'S EFFECTIVENESS

There is far more money available for welfare-to-work expenditures than ever before because about half of the prior expenditures on benefits are no longer required as a result of caseload reductions. This of course is a good development overall, and accommodates increased spending per remaining adult recipient, as well as permitting more funds to be dedicated to child care for working families, and other such supports.

However, we may be reaching a point where the plentiful availability of resources may begin to be counterproductive. The excess liquidity in the TANF system can result in programs being less efficient and effective than they otherwise might be if careful use of resources remains a budget necessity. For example, in New York City we now spend about ten times the amount per remaining recipient on welfare-to-work services (of all kinds, including child care and substance abuse treatment) as compared to prior to the passage of TANF, even though caseloads are about 60% lower (not ten times lower). This anomaly occurs because benefit payments represented the overwhelming proportion of total welfare spending in the pre-TANF era.

The significant increase in available funds has resulted in enormous pressure for states to find ways to spend or obligate funds. In a ten-state study published about six months ago, the General Accounting Office found that of ten states studied, five had used between fifteen and twenty five percent of their TANF funds to supplant state spending. Moreover, even with the pressure to expend funds, as recently as the first half of fiscal 2001 states as a group were spending at a rate equal to only 91% of their available block and supplemental TANF grants (states have now caught up and are spending at a rate slightly higher than that available through annual grants).

Another way to see the increase in available resources as a result of the caseload decline is to consider that from FY 1998 to FY2001, spending on cash assistance declined from 61% of total TANF expenditures to 38%. As a result, significant amounts of funds have been freed up for other uses. However, even counting all the 2001 spending on basic TANF related functions - - i.e. for cash assistance; for welfare and working family child care; for education, training and work experience; for state supplements to the EITC; for computers and administration; and for all other direct work supports - - there still remained 23% of the TANF block grant which was available and re-programmed for other uses, according to calculations made by the Center for Budget and Policy Priorities.

The result of excess liquidity in the TANF program means, for a state and local administrator, pressure to spend money in ways they might not otherwise deem wise. Some state and local administrators have had difficulty extracting the best value from employment and training vendors.

As of the end of the last fiscal year 7.4 billion dollars in federal funds remained as unobligated or unliquidated from the TANF block grant, or an accumulation rate of about 1.5 billion per year (unliquidated funds may have been committed, see footnote). A ten percent reduction would take out about 1.7 billion dollars per year in the amount of federal funds otherwise available, or an amount not much greater than the excess which has accumulated each year.

Nor is there a shortage of child care funding. For FY 2002 the total federal share of child care funds through the CCDF, TANF and SSBG equals a very generous $8.7 billion. To this add the state shares under TANF and CCDF for a combined total of $11.7 billion. This amount does not account for children being cared for while participating in Head Start (another $6.5 billion) .

But even these figures underestimate the amount of federal resources devoted to supporting children in care arrangements. The dependent care tax credit subsidizes child care in an amount in excess of $2.6 billion (1998) per year. Moreover the two largest tax programs which help support children, the Earned Income Tax Credit and the Child Tax Credit, dwarf all other programs combined. The refundable EITC, originally conceived as one way to help low-income working families better manage the expenses of working (including the expense of child care), contributes over $30 billion to families per year. Finally, the child tax credit contributes over $20 billion to families.

The two systems, the direct subsidy system and the tax system, work together, with welfare parents and entry level employed adults relying more on direct subsidies, and low and middle income working families utilizing the tax subsidies to a greater extent.

Thirty-two states have no waiting lists for CCDF child care. Of those remaining that do, these states tend to have state criteria which extends eligibility way up into the middle class (e.g. California with a maximum income limit of $35,100, New Jersey at $36,570 and No. Carolina at $34,224). For those well into the middle class, states may wish to assure parents are utilizing the tax subsidy system while reserving its direct subsidies for its lower income families.

Finally, experience shows that child care waiting lists, particularly in large cities, are not always accurate. Maintaining lists is often complicated and bureaucratic. When New York City carefully went through its extensive waiting list, it found far fewer families actually needing child care than was implied by the size of the list. Reasons for this included the following:

• Many families on the waiting list or receiving child care subsidies no longer needed them because the child was no longer living with the family.
• Some previously eligible for care for reasons of work or program participation were no longer engaged in the activity which provided their eligibility.
• Some families were receiving one kind of child care subsidy, but were looking for another kind of care, e.g. a particular center.
• Some families had placed their names several times on one or more lists.
• Child care vendors receiving fixed amounts to make available a certain numbers of slots had turnover vacancies unknown and not listed in the city inventory, thereby undercounting the amount of child care available and paid for.

In conclusion, the tremendous success of PWRORA at helping families achieve self-sufficiency has reduced the level of state and local funds necessary to provide benefit payments. The federal taxpayer should participate in at least some of this success in the form of reduced contributions to the TANF block grant.

Jason A. Turner is a Visiting Fellow for Domestic Policy at The Heritage Foundation.